| In 2010, we launched a new brand “olleh” to promote our bundled products, which include broadband Internet access service, IP-TV service, Internet phone service and fixed-line telephone service. We aim to differentiate ourselves from our competitors by providing broadband Internet access service using high-speed fiber-to-the-home (or FTTH) connection and offering Internet phone service with value-added features such as video communication, short message service and phone banking. We also began offering real-time broadcasting service on our IP-TV service starting in November 2008. We believe that convergence of fixed-line and mobile communications technologies provides a competitive advantage to us because we have the technological know-how and experience to design and construct a unified delivery platform for a new generation of value-added services. We plan to make such platform more readily available to others so know-how and experience to design and construct a unified delivery platform for a new generation of value-added services. We plan to make such platform more readily available to others so that they may create additional contents and convenience solutions such as electronic commerce and digital transaction applications that can be utilized anywhere using various media and communications devices.
| • | | Customer Group. Through our Customer Group, we aim to improve our marketing and customer service efforts for all of our products and services by (i) planning and executing strategy for each product that we offer and our marketing efforts, (ii) contributing to expanding our market share by strengthening our marketing and customer service efforts, and (iii) maximizing customer satisfaction by providing high quality customer service. |
| • | | Global & Enterprise Group. Through our Global & Enterprise Group, we aim to provide our corporate, small- and medium-sized enterprise and government agency customers with one-stop solution services, including designing data communications and information technology infrastructure and overseeing their day-to-day operations with the objective of achieving operational efficiencies and cost savings, as well as establishing and executing business plans for our global operations by (i) establishing active marketing strategy for expanding into the global market and (ii) entering into alliances and joint ventures with international corporates and agencies. |
To that end, we provide solutions specifically tailored for individual clients, as well as Internet-based computing services, whereby shared resources, software and information are delivered from our data centers and servers. For example, we designed an urban transit infrastructure maintenance system for the Seoul Metropolitan Rapid Transit Corporation, in which workers are able to utilize their smartphones to report back their maintenance results to the headquarters remotely from the maintenance site. Leveraging our extensive customer base, we plan to further expand the range of innovative solutions for our enterprise customers. | • | | Future Convergence Strategy Group. Due to the saturation within the Korean telecommunication market and limitations on growth in the traditional telecommunications services market, through our Future Convergence Strategy Group, we aim to concentrate our existing business capabilities in discovering new growth opportunities and expand our telecommunication capabilities. |
The Telecommunications Industry in Korea The Korean telecommunications industry is one of the most developed in Asia. According to the Korea Communications Commission,MSIP, the number of mobile subscribers in Korea was 50.854.7 million and the number of broadband Internet access subscribers in Korea was 17.218.7 million as of December 31, 2010.2013. As of December 31, 2010,2013, the mobile penetration rate, which is calculated by dividing the number of mobile subscribers (including multiple counting of those who subscribe to more than one mobile service) by the population of Korea, was 103.9%106.9%, and the broadband Internet penetration rate, which is calculated by dividing the number of broadband Internet access service subscribers (including multiple counting of those who subscribe to more than one broadband Internet access service) by the number of households in Korea, was 100.4%102.9%. Mobile Telecommunications Service Market The Korean cellular market was formally established in 1984 when SK Telecom, formerly Korea Mobile Telecom, became the first mobile telephone operator in Korea. SK Telecom remained the only cellular operator in Korea until Shinsegi Telecom began service in 1994. In order to encourage further market growth and competition, the Ministry of Information and CommunicationGovernment awarded three PCS2G licenses in June 1996. KTF was awarded a license alongside LG U+ and Hansol M.com, and commercial PCS2G service was launched in October 1997. Since the introduction of three new operators in 1997, the Korean mobile market has undergone consolidation and significant growth. Following SK Telecom’s purchase of a controlling stake in Shinsegi, we acquired a 47.9% interest in Hansol M.com in 2000 and renamed the company KT M.com. KT M.com merged into KTF in May 2001 and Shinsegi merged into SK Telecom in January 2002. OnIn June 1, 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger. KT Corporation SK Telecom and LG U+ have invested in networks compatible with Evolution-Data Optimized (or EV-DO) handsets that allow subscribers to enjoy 2.5 generation high speed wireless data services. KT Corporation and SK Telecom also offer third-generation, high-capacity HSDPA-based IMT-2000 wireless Internet and video multimedia communications services that use significantly greater bandwidth capacity. In July 2011, SK Telecom and LG U+ began offering fourth-generation communications services based on LTE technology, which enables data transmission at a speed faster than W-CDMA or WiBro networks, and we began our 4G LTE services in January 2012. Additionally, in September 2013, we commenced providing wideband LTE services, which utilizes our adjoining 20 MHz of bandwidths in the 1.8 GHz spectrum to provide transmission speed of up to 150 Mbps, twice faster than those offered under standard LTE services. SK Telecom also began providing its wideband LTE services in September 2013 and LG U+ commenced providing its wideband LTE services in January 2014. As of March 1, 2014, our wideband LTE services covered five metropolitan cities in Korea, and we expect to expand our wideband LTE services to all of Korea by July 2014. As of December 31, 2013, the number of our LTE subscribers exceeded 7.8 million. Furthermore, in March 2014, we commercialized Wideband LTE-A services, which interconnects our 20 MHz of bandwidth in the 1.8 GHz spectrum used to offer wideband LTE services with the 10 MHz of bandwidth in the 900 MHz spectrum used to offer standard LTE services by utilizing inter-band carrier aggregation technology to support transmission speed of up to 225 Mbps. On April 2, 2014, LG U+ launched Korea’s first unlimited mobile service package, offering mobile subscribers with unlimited voice calls, text messaging, and LTE data at fees between₩80,000 to₩85,000 per month. Commencing on April 3, 2014, SK Telecom launched three different types of unlimited LTE data plans, which provide mobile subscribers with unlimited amounts of LTE data, voice calls, and text massaging. On April 7, 2014, we began offering mobile subscribers with unlimited LTE data, voice calls, and text messaging packages at fees of₩70,000 per month. We believe that the continuing intense competition among major telecommunications operators in Korea and the resulting pressure on our fees, including from offerings of unlimited usage plans, may have a material adverse impact on our results of operations. The table below gives the subscription and penetration information of the mobile telecommunications industry for the periods indicated: | | | As of December 31, | | | As of December 31, | | | | 2006 | | 2007 | | 2008 | | 2009 | | 2010 | | | 2009 | | 2010 | | 2011 | | 2012 | | 2013 | | Total Korean Population(1) | | | 48,378 | | | | 48,457 | | | | 48,607 | | | | 48,747 | | | | 48,875 | | | | 49,773 | | | | 50,516 | | | | 50,734 | | | | 50,948 | | | | 51,141 | | Mobile Subscribers(2) | | | 40,197 | | | | 43,498 | | | | 45,607 | | | | 47,944 | | | | 50,767 | | | | 47,944 | | | | 50,767 | | | | 52,507 | | | | 53,624 | | | | 54,681 | | Mobile Subscriber Growth Rate | | | 4.8 | % | | | 8.2 | % | | | 4.9 | % | | | 5.1 | % | | | 5.9 | % | | | 5.1 | % | | | 5.9 | % | | | 3.4 | % | | | 2.1 | % | | | 2.0 | % | Mobile Penetration(3) | | | 83.1 | % | | | 89.8 | % | | | 93.8 | % | | | 98.4 | % | | | 103.9 | % | | | 96.3 | % | | | 100.5 | % | | | 103.5 | % | | | 105.3 | % | | | 106.9 | % |
(1) | In thousands, based on population trend estimatesthe number of registered residents as published by the National Statistical OfficeMinistry of Security and Public Administration of Korea. |
(2) | In thousands, based on information announced by the Korea Communications Commission.KCC. |
(3) | Penetration is determined by dividing mobile subscribers by total Korean population. |
Broadband Internet Access Market With the advancement of broadband technology, the Korean broadband Internet access market has experienced significant growth. The principal technologies used in providing high speed Internet access services are xDSL, HFC and fiber optic LAN. xDSL refers to various types of digital subscriber lines, including ADSL and VDSL. xDSL offers an access solution over existing telephone lines using a specialized modem while HFC service involves the use of two-way cable networks. Fiber optic LAN is a technology that combines fiber optic cables and Unshielded Twisted Pair (or UTP) cables. Fiber optic cables are connected to residential and commercial buildings with UTP cable-based LAN capabilities. While xDSL and HFC are more widely used technologies because of their relative reliability, ease of provisioning and cost effectiveness, fiber optic LAN usage in Korea has been steadily increasing in recent years. Since the subscribers of two-way cable networks share a limited bandwidth, the downstream speed tends to slow down as the number of subscribers increases, thereby decreasing the quality of HFC-based service. While xDSL technology was commercially introduced after HFC technology, it has surpassed HFC to become the prevalent broadband access platform in Korea. VDSL, ADSL-based technology with enhanced downstream speed, became commercialized in 2002. Some of the service providers have upgraded their broadband network to provide fiber optic LAN-based service to their subscribers, which further enhances data transmission speed up to 100 Mbps as well as improves connection quality, and enables such service providers to offer video-on-demand services with real-time high definition broadcasting. In recent years, broadband Internet access service providers and mobile telecommunications service providers have focused their attention to provideon providing wireless Internet connection capabilities. They have introduced wireless LAN service with speedsspeed of up to 155300 Mbps, which is designed to integrate fixed-line and wireless services by offering high speed wireless Internet access to laptops, PDAs and smart phonessmartphones in hot-spot zones and at home. Some service providers have also developed wireless Internet networks to provide WiBro service, which enables two-way wireless broadband Internet access to portable computers, mobile phones and other portable devices at a speed averaging 3 Mbps. Our Services Mobile Service We provide mobile services based on CDMAW-CDMA technology and W-CDMALTE technology. Prior to the merger of KTF into KT Corporation, we provided such services through KTF, which was formerly a consolidated subsidiary. OnKTF obtained one of the three licenses to provide nationwide 2G service in June 1,1996 and began offering 2G service in October 1997. In June 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger, with the objective of maximizing management efficiencies of our fixed-line and mobile telecommunications operations as well as more effectively responding to the convergence trends in the telecommunications industry. KTF obtained one of the three licenses to provide nationwide PCS service in June 1996 and began offering PCS service in October 1997. PCS service is a digital wireless telephone and data transmission system based on CDMA wireless network standards that uses portable handsets with long battery life to communicate via low-power antennae. KTF also began offeringWe currently offer HSDPA-based IMT-2000 services, which are third-generation, high-capacity wireless Internet and video multimedia communications services based on W-CDMA wireless network standards that allow an operator to provide to its subscribers significantly more bandwidth capacity. We have been providing our 2G PCSstandards. In January 2012, we also began offering 4G LTE services based on CDMA wireless network standards through our 40 MHz bandwidth infollowing the 1.8 GHz spectrum, which allocation is scheduled to terminate at the end of June 2011. As part of our decision to apply for reallocation, we have applied to the Korea
Communications Commission to terminate our existing 2G PCS services, which we expect to be able to terminate in the second half of 2011. Accordingly, our existing 2G PCS subscribers must either convert to our W-CDMA services or switch to other telecommunications companies. As of December 31, 2010, there were 1,393 thousand subscriberstermination of our 2G PCS services. We are offering benefits suchcompleted the expansion of our 4G LTE service coverage nationwide in October 2012 and commenced providing wideband LTE services in September 2013, and commercialized Wideband LTE-A services in March 2014, as substantial discounts on W-CDMA-compatible handsets and monthly subscription fees to encourage our existing subscribers to switch to our W-CDMA services.discussed above.
Revenues related to mobile service accounted for 33.2%27.9% of our operating revenues in 2010.In2013. In addition, our goods sold, which are primarily from mobile handset sales, accounted for 20.6%16.9% of our operating revenues in 2010.2013. The following table shows selected information concerning the usage of our network during the periods indicated and the number of our subscribers as of the end of such periods: | | | As of or��for the Year Ended December 31, | | | As of or for the Year Ended December 31, | | | | 2008 | | | 2009 | | | 2010 | | | 2011 | | | 2012 | | | 2013 | | Outgoing Minutes (in millions) (1) | | | 28,960 | | | | 30,714 | | | | 34,570 | | | | 36,102 | | | | 34,520 | | | | 34,164 | | Average Monthly Outgoing Minutes per Subscriber(1) (2) | | | 168 | | | | 173 | | | | 184 | | | Average Monthly Revenue per Subscriber(1) (3) | | (Won) | 39,487 | | | (Won) | 36,241 | | | (Won) | 36,801 | | | Average Monthly Outgoing Minutes per Subscriber (1) | | | | 183 | | | | 174 | | | | 182 | | Average Monthly Revenue per Subscriber(2) | | | ₩ | 34,379 | | | ₩ | 33,519 | | | ₩ | 35,236 | | Number of Subscribers (in thousands) | | | 14,365 | | | | 15,016 | | | | 16,041 | | | | 16,563 | | | | 16,502 | | | | 16,454 | |
(1) | Prior to the merger of KTF into KT Corporation on June 1, 2009, we maintained an air-time reselling arrangement with KTF where we billed directly to our resale subscribers for their usage of KTF’s mobile networks and collected all fees and charges relating to such usage. Such amounts related to resale subscribers are not included in our calculation of outgoing minutes and average monthly outgoing minutes and revenue per subscriber in 2008. In 2009 and 2010, we have included such amounts related to resale subscribers in these calculations. |
(2) | The average monthly outgoing minutes per subscriber is computed by dividing the total minutes of usage for the period by the weighted average number of subscribers for the period and dividing the quotient by the number of months in the period. The weighted average number of subscribers is the sum of the total number of subscribers at the end of each month divided by the number of months in the period. |
(3)(2) | The average monthly revenue per subscriber is computed by dividing initial activation fees, total monthly fees, usage charges, interconnection fees and value-added service fees for the period by the weighted average number of subscribers and dividing the quotient by the number of months in the period. |
We compete with SK Telecom, a mobile service provider that has a longer operating history than us, and LG U+ that began its service at around the same time as KTF. As of December 31, 2010,2013, we had approximately 16.016.5 million subscribers, or a market share of 30.1%, which was second largest among the three mobile service providers. As of December 31, 2010, we had a market share of 31.6% of the mobile service market. We market our mobile services primarily through independent exclusive dealers located throughout Korea. As of December 31, 2010,2013, there were approximately 2,2002,300 shops managed by our independent exclusive dealers. In addition to assisting new subscribers to activate mobile service and purchase handsets, authorized dealers are connected to our database and are able to assist customers with account information. Although most of these dealers sell exclusively our products and services, sub-dealers hired by exclusive dealers may sell products and services offered by other mobile telecommunications service providers. Authorized dealers are entitled to a commission for each new subscriber registered, as well as ongoing commissions for the first five years based primarily on the subscriber’s monthly fee, usage charges and length of subscription. The handsets sold by us to the dealers cannot be returned to us unless they are defective. If a handset is defective, it may be exchanged for a new one within 14 days from the date of purchase. In response to the diversification of our customers’ demands and their increasing sophistication, we have also selectively engaged in opportunities to expand our internal sales channels in recent years. In 2007, we established a wholly-owned subsidiary, KT M&S Co., Ltd., that operates approximately 140194 customer plazas that engage in mobile service sales activities as well as provide a one-stop shop for a wide range of other services and products that we offer. We also operate a website to promote and advertise our products and services to the general public and in particular to younger customers who are more familiar with the Internet. We conduct the screening process for new subscribers with great caution. A potential subscriber must meet all minimum credit criteria before receiving mobile service. The procedure includes checking the history of non-payment and credit information from banks and credit agencies such as the National Information and Credit Evaluation Corporation. Applicants who do not meet the minimum criteria can only subscribe to the mobile service by using a pre-paid card. Telephone Services Fixed-line Telephone Services.We utilize our extensive nationwide telephone network to provide fixed-line telephone services, which consist of local, domestic long-distance, international long-distance services and land-to-mobile interconnection services. These fixed-line telephone services accounted for 20.1%12.4% of our operating revenues in 2010.2013. Our telephone network includes exchanges, long-distance transmission equipment and fiber optic and copper cables. The following table gives some basic measures of the development of our telephone system:system. In recent years, the proliferation of mobile phones, as well as the availability of increasingly lower wireless pricing plans, some of which include unlimited voice minutes, have led to significant decreases in our domestic long-distance call minutes and local call pulses. | | | As of or for the Year Ended December 31, | | | As of or for the Year Ended December 31, | | | | 2006 | | | 2007 | | | 2008 | | | 2009 | | | 2010 | | | 2009 | | | 2010 | | | 2011 | | | 2012 | | | 2013 | | Total Korean population (thousands)(1) | | | 48,378 | | | | 48,457 | | | | 48,607 | | | | 48,747 | | | | 48,875 | | | | 49,773 | | | | 50,516 | | | | 50,734 | | | | 50,948 | | | | 51,141 | | Lines installed (thousands)(2) | | | 26,838 | | | | 26,671 | | | | 26,008 | | | | 25,907 | | | | 25,524 | | | | 25,907 | | | | 25,524 | | | | 23,925 | | | | 25,242 | | | | 24,264 | | Lines in service (thousands)(2) | | | 20,331 | | | | 19,980 | | | | 18,883 | | | | 17,069 | | | | 16,620 | | | | 17,069 | | | | 16,620 | | | | 15,900 | | | | 15,121 | | | | 14,032 | | Lines in service per 100 inhabitants(3) | | | 42.0 | | | | 41.2 | | | | 38.8 | | | | 35.0 | | | | 34.0 | | | | 34.3 | | | | 32.9 | | | | 31.3 | | | | 29.7 | | | | 27.4 | | Fiber optic cable (kilometers) | | | 212,715 | | | | 267,421 | | | | 312,232 | | | | 405,528 | | | | 448,328 | | | | 405,528 | | | | 448,328 | | | | 527,188 | | | | 584,932 | | | | 636,347 | | Number of public telephones installed (thousands) | | | 218 | | | | 185 | | | | 161 | | | | 144 | | | | 123 | | | | 144 | | | | 123 | | | | 111 | | | | 101 | | | | 94 | | Domestic long-distance call minutes (millions)(4) (5) | | | 14,769 | | | | 13,375 | | | | 11,591 | | | | 9,526 | | | | 7,318 | | | | 9,526 | | | | 7,318 | | | | 6,574 | | | | 6,067 | | | | 4,842 | | Local call pulses (millions)(4) | | | 16,182 | | | | 14,676 | | | | 12,449 | | | | 8,406 | | | | 7,973 | | | | 8,406 | | | | 7,973 | | | | 6,697 | | | | 6,071 | | | | 4,895 | |
(1) | Based on population trend estimatesthe number of registered residents as published by the National Statistical OfficeMinistry of Security and Public Administration of Korea. |
(2) | Including lines used for public telephones but excluding lines dedicated to centralized extension system services for corporate subscribers. |
(3) | Determined based on lines in service and total Korean population. |
(4) | Excluding calls placed from public telephones. |
(5) | Estimated by KT Corporation. |
Our domestic long-distance cable network is entirely made up of fiber optic cable and can carry both voice and data transmissions. Compared to conventional materials such as coaxial cable, fiber optic cable provides significantly greater transmission capacity with less signal fading, thus requiring less frequent amplification. In recent years, we have also increased the proportionAll of our lines that are connected to exchanges capable of handling digital signal technology. A principal limitation of the older analog technology is that applications other than voice communications, such as the transmission of text and computer data, require either separate networks or conversion equipment. Digital systems permit a range of voice, text and data applications to be transmitted simultaneously on the same network. We completed connection of all installed lines to digital exchanges in June 2003. The following table shows the number of minutes of international long-distance calls recorded by us and specific service providers utilizing our international long-distance network in each specified category for each year in the five-year period ended December 31, 2010:2013: | | | Year Ended December 31, | | | Year Ended December 31, | | | | 2006 | | | 2007 | | | 2008 | | | 2009 | | | 2010 | | | 2009 | | | 2010 | | | 2011 | | | 2012 | | | 2013 | | | | (In millions of billed minutes) | | | (In millions of billed minutes) | | Incoming international long-distance calls | | | 519.4 | | | | 627.4 | | | | 603.7 | | | | 442.2 | | | | 523.5 | | | | 442.2 | | | | 523.5 | | | | 541.6 | | | | 520.3 | | | | 628.4 | | Outgoing international long-distance calls | | | 400.9 | | | | 431.4 | | | | 398.1 | | | | 325.9 | | | | 325.1 | | | | 325.9 | | | | 325.1 | | | | 332.1 | | | | 289.7 | | | | 244.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 920.3 | | | | 1,058.8 | | | | 1,001.8 | | | | 768.1 | | | | 848.7 | | | | 768.1 | | | | 848.6 | | | | 873.7 | | | | 810.0 | | | | 872.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Japan (23.2%), China (18.5%(15.3%), and the United States (17.0%) and Japan (16.8%(11.5%) accounted for the greatest percentage of our international long-distance call traffic measured in minutes in 2010.2013. In recent years, the volume of our incoming calls has exceeded the volume of our outgoing calls. The agreed settlement rate is applied to the call minutes to determine the applicable net settlement payment. Interconnection. Under the Telecommunications Business Act, we are required to permit other service providers to interconnect to our fixed-line network. Currently, the principal users of this interconnection capacity include SK Broadband and LG U+ (offering local, domestic long-distance and international long-distance services), Onse and SK Telink (offering international and domestic long-distance services), and SK Telecom and LG U+ (transmitting calls to and from their mobile networks). We expect that interconnection revenues and payments will remain important for our results of operations. In recent years, revenuesRevenues from a landline user for a call initiated by a landline user to a mobile service subscriber (land-to-mobile interconnection) have become a significant portion of our results of operations, accountingaccounted for 4.5%2.3% of our operating revenues in 2010.We2013. We recognize as land-to-mobile interconnection revenue the entire amount of the usage charge collected from the landline user and recognize as an expense the amount of interconnection charge paid to the mobile service provider. Internet phone services. The volume of calls made through Internet phone services has significantly increased since Internet phone service was first introduced in Korea in 1998. We provide Internet phone services that enable VoIP phone devices with broadband connection to make domestic and international calls. In order to differentiate our Internet phone services from our competitors’ services, we provide value-added services such as video communication, short message service, phone banking and a variety of traffic and local news information. As of December 31, 2010,2013, we had approximately 2.73.5 million subscribers. Internet Services Broadband Internet Access Service. Leveraging on our nationwide network of 448,328636,347 kilometers of fiber optic cable network, we have achieved a leading market position in the broadband Internet access market in Korea. We believe we have a competitive advantage over other broadband Internet access service providers because, unlike our competitors, we can utilize our existing networks nationwide to provide broadband Internet access service. Our broadband Internet access service accounted for 9.1%8.4% of our operating revenues in 2010.Our2013. Our principal Internet access services include: ADSL, VDSL, Ethernet and FTTH services under the “olleh Internet” brand name; wireless LAN service (or WiFi) under the “ollehWiFi” brand name, which is designed to integrate fixed-line and wireless services by offering high speed wireless Internet access to laptops, PDAs and smart phonessmartphones in hot-spot zones and olleh Internet service in fixed-line environments. OllehWiFi enables subscribers to access the Internet at a speed of up to 155150 Mbps. We sponsored approximately 42,000114,000 hot-spot zones nationwide for wireless connection as of December 31, 2010;2013; and olleh 4G WiBro Internet access service, which enables two-way wireless broadband Internet access to portable computers, mobile phones and other portable devices at a speed averaging 35 Mbps per user. We had 7.4approximately 8.1 million fixed-line olleh Internet subscribers and approximately 266 thousand142,000 ollehWiFi service subscribers as of December 31, 2010.We2013.We commercially launched our WiBro service in June 2006, and we had approximately 377 thousand846,000 subscribers as of December 31, 2010.2013. We also bundle our WiBro service with olleh Internet and ollehWiFi services at a discount in order to attract additional subscribers. Our olleh Internet service utilizes ADSL technology, which is a technology that converts existing copper twisted-pair telephone lines into access paths for multimedia and high-speed data communications. ADSL transforms the existing public telephone network from one limited to voice, text and low-resolution graphics to a system capable of bringing multimedia to subscriber premises without new cabling. The asymmetric design optimizes the bandwidth by maximizing the downstream speed for downloading information from the Internet. While ADSL technology was commercially introduced after HFC-based technology, it has surpassed HFC to become the prevalent access platform in Korea. VDSL, ADSL-based technology with enhanced downstream speed, became commercialized in July 2002. We are currently upgrading our broadband network to enable FTTH connection, which further enhances downstreamdata transmission speed of up to 100 Mbps and connection quality. FTTH is a telecommunication architecture in which a communication path is provided over optical fiber cables extending from the telecommunications operator’s switching equipment to the boundary of home or office. FTTH uses fiber optic cable, which is able to carry a high-bandwidth signal for longer distances without degradation. FTTH enables us to deliver enhanced products and services that require high bandwidth, such as IP-TV, service and delivery of other digital media content.content with higher stability. The high-speed downstream rates can reach up to 8 Mbps for ADSL and 100 Mbps for VDSL and FTTH. Downstream rates depend on a number of factors. For a constant wire gauge, the data rate decreases as the length of the copper wire increases. Generally, if the separation between the telephone office and the subscriber is greater than four kilometers, line attenuation is so severe that broadband speeds can no longer be achieved. Approximately 95% of the households subscribing to our basic local telephone service are located within a four kilometer radius of our telephone offices, making our olleh Internet service available to most of the Korean population. Fiber-optic cable used by FTTH, on the other hand, uses laser light to carry signals that travel long distances inside fiber optic cable without degradation. Other Internet-related Services.Our other Internet-related services focus primarily on providing infrastructure and solutions for business enterprises, as well as IP-TV and network portal services. Our other Internet-related services accounted for 2.9%4.1% of our operating revenues in 2010.2013. We operate seven Internet data centers located throughout Korea and provide a wide range of computing services to companies which need servers, storagesstorage and leased lines. Internet data centers are facilities used to house, protect and maintain network server computers that store and deliver Internet and other network content, such as web pages, applications and data. Our Internet data centers are designed to meet international standards, and are equipped with temperature control systems, regulated and reliable power supplies, fire detection and suppression equipment, security monitoring and wide-bandwidth connections to the Internet. Internet data centers allow corporations or Internet service providers to outsource their application and server hardware management. Our Internet data centers offer network outsourcing services, server operation services and system support services. Our network outsourcing services include co-location, which is the installation of our customers’ network equipment at our Internet data centers. Co-location is designed to increase customers’ Internet connection speed and reduce connection time and costs by directly connecting the customers’ server to the Internet backbone switch at our Internet data centers. Our server operation services include optimal server management service and technical support service we provide with respect to the leased servers that are linked directly to our Internet backbone switch. We also lease servers and network equipment for a fixed monthly fee. Our system support services include providing system resources for a wide range of Internet computing services, such as application transfer, network storage, video streaming and application download, as well as sending short text messages and messages containing multimedia objects, such as images, audio and video. We also offer a service called Bizmeka to develop and commercialize business-to-business solutions targeting small- and medium-sized business enterprises in Korea. Bizmeka is an applied application service provider which provides industry-specificindustry standard and specialized business solutions, including customer database managementintegrated business administration solutions and electronic data interchange.intranet collaboration solutions. We also offer high definition video-on-demand and real-time broadcasting IP-TV services under the brand name “olleh TV.” Our IP-TV service offers access to an array of digital media contents, including movies, sports, news, educational programs and TV replay, for a fixed monthly fee.fee or on a pay-per-view basis. Through a digital set-top box that we rent to our customers, our customers are able to browse the catalogcatalogue of digital media contents and view selected media streams on their television. A set-top box provides two-way communications on an IP network and decodes video streaming data. We expanded our IP-TV service to include real-time broadcasting onin November 17, 2008. We had 2.44.97 million olleh TV subscribers as of MarchDecember 31, 2011.2013. Data CommunicationCommunications Service Our data communicationcommunications service involves offering exclusive lines that allow point-to-point connection for voice and data traffic between two or more geographically separate points. As of December 31, 2008, 20092011, 2012 and 2010,2013, we leased 374,570286,302 lines, 366,191246,951 lines and 303,009235,147 lines to domestic and international businesses. The data communication service accounted for 6.1%5.0% of our operating revenues in 2010.2013. We provide dedicated and secure broadband Internet connection service to institutional customers under the “Kornet” brand name. We provide high-speed connection up to 4.210.0 Gbps connected to our internet backbone network with capacity of 6.6 Tbps, as well as rent to our customers and install necessary routers to ensure reliable Internet connection and enhanced security. We provide discount rates to qualified customers, including small- and medium-sized enterprises, businesses engaging in Internet access services and government agencies. Financial Services To further diversify our business and to create synergies through utilization of our mobile telecommunications network in financial services, we, through our subsidiary KT Capital Co., Ltd., acquired 1,622,520 additional shares of common stock of BC Card Co., Ltd. from Woori Bank for approximately₩252 billion in October 2011. As we were deemed to have control over BC Card Co., Ltd., it became our consolidated subsidiary starting in October 2011. We acquired an additional 1,349,920 common shares of BC Card Co., Ltd. in January 2012 for approximately₩287 billion, and owned a 69.54% interest in BC Card Co., Ltd. as of December 31, 2013. BC Card Co., Ltd. offers various credit card and related financial services. KT Capital had consolidated operating revenues of₩3,317 billion and net income of₩129 billion for the year ended December 31, 2013 and consolidated assets of₩5,462 billion and liabilities of₩4,759 billion as of December 31, 2013. In March 2014, the investment business division of KT Capital Co., Ltd., including 3,059,560 common shares of BC Card Co., Ltd. that KT Capital Co., Ltd. held, was spun off and merged into KT Corporation, to further strengthen the synergy between telecommunication and finance operations within the KT group and increase shareholder value. Financial Services accounted for 13.6% of our operating revenues in 2013. Automobile Rental Services We also operate KT Rental, a subsidiary that provides rental cars and equipment. In March 2010, MBK Partners, a private equity firm, and we jointly acquired Kumho Rent-A-Car Co., Ltd. from Korea Express Inc. for₩263 billion, with each taking a 50% stake. Kumho Rent-A-Car was subsequently merged with the car rental business unit of KT Rental in June 2010. KT Rental became a consolidated subsidiary starting in 2012, as the restriction on our controlling power over KT Rental pursuant to a shareholders’ agreement was resolved as a result of the acquisition of KT Rental’s common stock by Hana Daetoo Securities Co., Ltd. and other investors from the then-second largest shareholder in July 2012. KT Rental operated approximately 91,700 vehicles as of December 31, 2013 and has a market share of 24.7% of the domestic car rental market in 2013. See Note 37 to the Consolidated Financial Statements. Automobile rental services accounted for 2.5% of our operating revenues in 2013. Miscellaneous Businesses We also engage in various business activities that extend beyond telephone services and data communications services, including satellite services, information technology and network services, real estate development, satellite TV services, with the consolidation of KT Skylife Co. starting in January 2011, and media contents business with the establishment of KT Media Hub Co., Ltd. in December 2012. As of December 31, 2013, KT Media Hub Co., Ltd. had revenues of₩305 billion. Our miscellaneous businesses accounted for 9.2% of our operating revenues for 2013. We provide transponder leasing, broadcasting, video distribution and data communications services through our satellites. We currently operate threetwo satellites, Koreasat 3, Koreasat 5 and Koreasat 6. We6 (also known as olleh 1), and own interests in two additional satellites, Koreasat 7 (also known as ABS-1) and Koreasat 8 (also known as ABS-2). In August 2006, we launched Koreasat 35 to replace Koreasat 2 (also known as Mugunghwa 2, launched in September 1999. The1996 with a design life of Koreasat 3 is twelve years, and it will be used to back up the broadcasting services of Koreasat 6 until the end of its fuel life. We launched Koreasat 5 in August 2006, which replaced Koreasat 2.ten years). Koreasat 5, a combined civil and governmental communications satellite, is the first Korean satellite to provide commercial satellite services to neighboring countries, and the service coverage area includes Korea, Japan, Taiwan, the Philippines, the eastern part of China and the far-eastern part of Russia. The design life of Koreasat 5 is fifteen years.15 years, and it currently remains in operation.
We launched Koreasat 6 in December 2010, with a design life of 15 years, to replace Koreasat 3 (also known as olleh 1)Mugunghwa 3, launched in December 2010 to replace Koreasat 3. The1999 with a design life of Koreasat 6 is fifteen years.12 years). Koreasat 6 began its commercial operation in February 2011 and carries transponders that are mainly used for direct-to-home satellite broadcasting, video distributions and data communications services. Most of the direct-to-home satellite broadcasting transponders are utilized by KT Skylife Co. We also lease satellite capacity from other satellite operators to offer commercial satellite services to both domestic and international customers. In August 2010, we procured from Asia Broadcast Satellite (“ABS”), a Hong Kong-based satellite operator, four transponders on the ABS-1 satellite and an additional eight transponders on the ABS-2 satellite in order to provide global satellite services. ABS-1 began its operations in September 2010 and ABS-2 launched its operations in February 2014. We sold to ABS the Mugunghwa 2 satellite in May 2010 and the Mugunghwa 3 satellite in September 2011 for a combined price of approximatelyMiscellaneous Services₩5 billion, as the satellites had reached the end of their design lives. In December 2012, we spun-off our satellite service business by establishing KT Sat Co., Ltd., in an effort to enhance operational specialization and to foster management efficiency, enabling us to respond more promptly to the changing market environments and increasing competitiveness. In December 2013, the MSIP declared that the contract over our sale of Mugunghwa 3 was null and void, on the grounds that the satellite was sold without obtaining proper government approval, and ordered us to take corrective measures. We also engageare currently involved in various business activities that extend beyond telephone servicesarbitration proceedings against ABS at the International Court of Arbitration of the International Chamber of Commerce and data communications services, including information technologythe American Arbitration Association over the Mugunghwa 3 satellite ownership rights and network services, real estate development and car rental business. Our miscellaneous services accounted for 8.0% of our operating revenues for 2010.contract violation claims. We offer a broad array of integrated information technology and network services to our business customers. Our range of services include consulting, designing, building and maintaining systems and communication networks that satisfy the individual needs of our customers in the public and private sectors. We own land and real estate in various locations nationwide. Technological developments have enhanced the coverage area of individual telecommunications facilities, which enable us to better utilize our existing land and other real estate holdings. In recent years, we have engaged in the planning and development of commercial and office buildings and condominiums on our unused sites, as well as in the leasing of buildings we own. We established KT Estate Inc. in August 2010 to oversee the planning, development and operation of our real estate assets. We also operateassets, and established KT Rental,AMC, an asset management company, in September 2011 as a subsidiary of KT Estate Inc. to create additional synergies with our real estate assets. We made a contribution in-kind of₩1,254 billion to KT Estate Inc. in December 2012 to further strengthen KT Estate’s competitiveness and to better utilize our assets.
To respond to the trend of convergence in the telecommunications and broadcasting industries, and to seek additional synergies with our existing operations, we acquired 5,600,000 shares of redeemable convertible preferred stock with voting rights and convertible bonds that provides rental cars and equipment. In March 2010, MBK Partners, a private equity firm, and we jointly acquired Kumho Rent-A-Carwere convertible into 5,600,000 shares of common stock of KT Skylife Co., Ltd. from Korea Express Inc.Dutch Savings Holdings B.V. in January 2011 for approximately(Won)₩245 billion, with each taking246 billion. We exercised the conversion rights on the redeemable convertible preferred stock and the convertible bonds in March 2011, and owned a 50% stake. Kumho Rent-A-Car was subsequently merged with the car rental business unit of50.1% interest in KT Rental on June 1, 2010. KT Rental operated approximately 58,800 vehiclesSkylife Co., Ltd. as of December 31, 20102013. KT Skylife offers satellite TV services, which may also be packaged with our IP-TV services as further described below, and hashad consolidated operating revenues of₩630 billion and net income of₩73 billion for the year ended December 31, 2013 and consolidated assets of₩685 billion and liabilities of₩283 billion as of December 31, 2013. In December 2012, we also established KT Media Hub Co., Ltd., a subsidiary that specializes in the development of media contents, with a cash capital contribution of₩80 billion. We believe that the media contents business will be a future growth opportunity for us, and this subsidiary further enhances our specialization in the media contents business. It also allows us to better adapt to the rapidly changing market share of 22.8% ofenvironment in the domestic car rental market in 2010.field. Revenues and Rates The table below shows the percentage of our revenues derived from each category of services for each of the years from 2008 through 2010:2011 to 2013: | | | Year Ended December 31, | | | Year Ended December 31, | | | | 2008 | | 2009 | | 2010 | | | 2011 | | 2012 | | 2013 | | Mobile services | | | 32.8 | % | | | 33.8 | % | | | 33.2 | % | | | 30.7 | % | | | 26.7 | % | | | 27.9 | % | Fixed-line telephone services: | | | | | | | | | | | | | Local service | | | 14.1 | | | | 13.6 | | | | 12.0 | | | | 10.3 | | | | 8.2 | | | | 7.7 | | Non-refundable service initiation fees | | | 0.1 | | | | 0.1 | | | | 0.1 | | | | 0.2 | | | | 0.1 | | | | 0.1 | | Domestic long-distance service | | | 3.0 | | | | 2.4 | | | | 1.8 | | | | 1.4 | | | | 1.1 | | | | 0.9 | | International long-distance service | | | 2.3 | | | | 2.0 | | | | 1.7 | | | | 1.8 | | | | 1.6 | | | | 1.4 | | Land-to-mobile interconnection | | | 7.1 | | | | 5.8 | | | | 4.5 | | | | 3.5 | | | | 2.7 | | | | 2.3 | | | | | | | | | | | | | | | | | | | | | Sub-total | | | 26.6 | | | | 23.9 | | | | 20.1 | | | | 17.2 | | | | 13.7 | | | | 12.4 | | | | | | | | | | | | | | | | | | | | | Internet services: | | | | | | | | | | | | | Broadband Internet access service | | | 10.4 | | | | 9.9 | | | | 9.1 | | | | 8.4 | | | | 8.3 | | | | 8.4 | | Other Internet-related services(1) | | | 2.2 | | | | 2.6 | | | | 2.9 | | | | 3.9 | | | | 3.5 | | | | 4.1 | | | | | | | | | | | | | | | | | | | | | Sub-total | | | 12.6 | | | | 12.5 | | | | 12.0 | | | | 12.3 | | | | 11.8 | | | | 12.5 | | | | | | | | | | | | | | | | | | | | | Goods sold(2) | | | 15.7 | | | | 17.3 | | | | 20.6 | | | | 19.8 | | | | 18.6 | | | | 16.9 | | Data communications service(3) | | | 6.8 | | | | 6.7 | | | | 6.1 | | | | 5.7 | | | | 5.3 | | | | 5.0 | | Miscellaneous services(4) | | | 5.5 | | | | 5.8 | | | | 8.0 | | | Financial services | | | | 4.5 | | | | 13.5 | | | | 13.6 | | Automobile rental services (4) | | | | 0.0 | | | | 1.0 | | | | 2.5 | | Miscellaneous businesses (5) | | | | 9.4 | | | | 9.4 | | | | 9.2 | | | | | | | | | | | | | | | | | | | | | Operating revenues | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | | | | | | | | | | | | | | | | | |
(1) | Includes revenues from services provided by our Internet data centers, Bizmeka and olleh TV. |
(2) | Includes mobile handset sales. |
(3) | Includes revenues from Kornet Internet connection service and satellite services. |
(4) | KT Rental Co., Ltd. became our consolidated subsidiary starting in 2011. See Note 37 to the Consolidated Financial Statements. |
(4)(5) | Includes revenues from satellite services, information technology and network services and real estate development and car rental business. |
Mobile Services We derive revenues from mobile services principally from: initial subscriptionactivation fees;
usage charges for outgoing calls; usage charges for wireless data transmission; contents download fees; and value-added monthly service fees. We offer various rate plans, including those that offer a specified number of free airtime minutes per month in return for a higher monthly fee and those that are geared toward business customers. In September 2009, we reduced our initial subscriptionactivation fee for new subscribers by 20% from(Won)₩30,000 to(Won)₩24,000. ForIn August 2013, we, SK Telecom, and LG U+ reduced the activation fee for new subscribers by approximately 40%. Our activation fee was reduced from₩24,000 to₩14,400, SK Telecom’s activation fee was reduced from₩39,600 to₩23,760, and LG U+’s activation fee was reduced from₩30,000 to₩18,000. On January 1, 2014, the MSIP announced its plans to further reduce activation fees in the second half of 2014 so that such fees would be reduced to 50% of the current fee levels, and we expect our remaining activation fees to be abolished by 2015. In August 2011, we announced the adoption of various tariff reduction measures, including a reduction of the monthly fee by₩1,000 for every mobile subscriber (effective October 21, 2011), an exemption of usage charges for SMS of up to 50 messages per month (effective November 1, 2011) and the introduction of customized flat rate plans for smartphone users (effective October 24, 2011). We currently only offer our standard rate plan for our HSDPA-based service, we also charge monthly fees, voice calling usage charges and video calling usage charges.service. Under our standard rate plan for HSDPA-based service, we charge a monthly fee of(Won)₩12,000,11,000, voice calling usage charges of(Won)₩1.8 per second and video calling usage charges of(Won)₩3 per second. The following table summarizes charges for our representative HSDPA-based service plans:second, without any free voice or video call airtime minutes. | | | | | | | | | | | | | | | Free Voice Call Airtime Minutes | | | Free Video Call Airtime Minutes | | | Monthly Fee | | Standard Plan | | | 0 | | | | 0 | | | (Won) | 12,000 | | SHOW KING Sponsor Gold—Free 150 (1) | | | 150 | | | | 15 | | | | 28,500 | | SHOW KING Sponsor Gold—Free 250 (1) | | | 250 | | | | 0 | | | | 35,000 | | SHOW KING Sponsor Gold—Complete Freedom 150 (1) (2) | | | 150 | | | | 15 | | | | 37,000 | | SHOW KING Sponsor Gold—Free 350 (1) | | | 350 | | | | 0 | | | | 45,000 | | SHOW KING Sponsor Gold—Free 450 (1) | | | 450 | | | | 0 | | | | 55,000 | | SHOW KING Sponsor Gold—Free 650 (1) | | | 650 | | | | 0 | | | | 67,000 | | SHOW KING Sponsor Gold—Free 850 (1) | | | 850 | | | | 0 | | | | 75,000 | | SHOW KING Sponsor Gold—Free 2000 (1) | | | 2,000 | (3) | | | 0 | | | | 97,000 | |
(1) | Requires mandatory subscription period of 24 months. |
(2) | Includes free unlimited data usage service. |
(3) | Unlimited voice call airtime minutes for calls made to our subscribers. |
A subscriber may also subscribe to an individually designed calling rate plan by mixing free voice calling airtime minutes and free text messages at a set monthly fee. For our PCS service, we charge monthly fees and usage charges. Under our standard rate plan for PCS service, we charge a monthly fee of(Won)12,500 and usage charges of(Won)1.8 per second, and the subscriber is provided with five free minutes. The following table summarizes charges for our representative PCS service plans:
| | | | | | | | | | | | | | | Free Airtime Minutes | | | Free Text Messages | | | Monthly Fee | | Standard | | | 5 | | | | 0 | | | (Won) | 12,500 | | New Double Designated Numbers(1) | | | 0 | | | | 50 | | | | 15,500 | | Roll Over (Free 200 Minutes) (2) | | | 200 | | | | 0 | | | | 31,500 | | Roll Over (Free 550 Minutes) (2) | | | 550 | | | | 0 | | | | 61,000 | | Roll Over (Free 800 Minutes) (2) | | | 800 | | | | 0 | | | | 71,000 | |
(1) | Discounts of 40% when a subscriber makes calls to up to six pre-designated numbers. |
(2) | Unused free airtime may be transferred to the following month. |
We also provide plans specially designed for elderly and pre-teen subscribers as well as special discounts to our subscribers with physical disabilities. In September 2009, we alsoWe introduced new rate plans specifically for smart phone users.smartphone users starting in September 2009. In June 2013, we introduced the Everyone olleh rate plan, which permits users to make unlimited voice calls within our wireless network, and the Fixed-Line & Wireless Unlimited rate plan, which permits
users to make unlimited voice calls within both our fixed-line and wireless networks. The following table summarizes the charges forassociated with our representative smart phonesmartphone service plans: | | | | | | | | | | | | | | | Free Airtime Minutes | | | Free Data Transmission (1) | | | Monthly Fee | | SHOW Smart Sponsor Free 150(2) | | | 150 | | | | 0 megabytes | | | (Won) | 28,500 | | SHOW Smart Sponsor Free 250(2) | | | 250 | | | | 0 | | | | 35,000 | | SHOW Smart Sponsor Free 350(2) | | | 350 | | | | 0 | | | | 45,000 | | SHOW Smart Sponsor Free 450(2) | | | 450 | | | | 0 | | | | 55,000 | | SHOW Smart Sponsor Free 650(2) | | | 650 | | | | 0 | | | | 67,000 | | SHOW Smart Sponsor Free 850(2) | | | 850 | | | | 0 | | | | 75,000 | | SHOW KING Sponsor i—Slim(3) | | | 150 | | | | 100 | | | | 35,000 | | SHOW KING Sponsor i—Lite(3) | | | 200 | | | | 500 | | | | 45,000 | | SHOW KING Sponsor i—Talk(3) | | | 250 | | | | 100 | | | | 45,000 | | SHOW KING Sponsor i—Value(3) | | | 300 | | | | Unlimited | | | | 55,000 | | SHOW KING Sponsor i—Medium(3) | | | 400 | | | | Unlimited | | | | 65,000 | | SHOW KING Sponsor i—Special(3) | | | 600 | | | | Unlimited | | | | 79,000 | | SHOW KING Sponsor i—Premium(3) | | | 800 | | | | Unlimited | | | | 95,000 | |
| | | | | | | | | | | | | | | | | | | | | | | Free Airtime Minutes (1) | | | Free Data Transmission (2) | | | Monthly Fee | | | | Voice or video calls to anyone | | | | | | Voice or video calls to our mobile subscribers | | | (in megabytes) | | | | | i-teen(3) | | | | | | | 193 | | | | | | | | | | | ₩ | 34,000 | | i-Slim(3) | | | | | | | 150 | | | | | | | | 100 | | | | 34,000 | | i-Lite(3) | | | | | | | 200 | | | | | | | | 500 | | | | 44,000 | | i-Talk(3) | | | | | | | 250 | | | | | | | | 100 | | | | 44,000 | | i-Value(3) | | | | | | | 300 | | | | | | | | Unlimited | | | | 54,000 | | i-Medium(3) | | | | | | | 400 | | | | | | | | Unlimited | | | | 64,000 | | i-Special(3) | | | | | | | 600 | | | | | | | | Unlimited | | | | 78,000 | | i-Premium(3) | | | 800 | | | | | | | | Unlimited | | | | Unlimited | | | | 94,000 | | Everyone olleh 35(3G) | | | 130 | | | | | | | | Unlimited | | | | 750 | | | | 35,000 | | Everyone olleh 45(3G) | | | 185 | | | | | | | | Unlimited | | | | 1,536 | | | | 45,000 | | Everyone olleh 55(3G) | | | 250 | | | | | | | | Unlimited | | | | 2,560 | | | | 55,000 | | Fixed-Line & Wireless Unlimited 67(3G) (4) | | | Unlimited | (50) | | | | | | | Unlimited | | | | 5,120 | | | | 67,000 | | Fixed-Line & Wireless Unlimited 77(3G) (4) | | | Unlimited | (50) | | | | | | | Unlimited | | | | 9,216 | | | | 77,000 | | Fixed-Line & Wireless Unlimited 97(3G) (4) | | | Unlimited | (50) | | | | | | | Unlimited | | | | 17,408 | | | | 97,000 | | Fixed-Line & Wireless Unlimited 129(3G) (4) (5) | | | Unlimited | (50) | | | | | | | Unlimited | | | | 25,600 | | | | 129,000 | |
(1) | Starting in May 2012, each second of video call counts as 1.66 second of voice call. |
(2) | We do not charge for any data transmission in wireless LAN zones. Wezones and charge W0.025₩0.01 per 0.5 kilobyte for any additional data transmission exceeding the free monthly quota. |
(2) | Available only to smart phone users who do not use Apple iPhones. We provide discounts ofquota, up to 36.7% for mandatory subscription periods ranging from one to three years.a maximum of₩150,000. |
(3) | We provide discounts of up to 38.2% for mandatory subscription periods ranging from one to threetwo years. |
(4) | Includes free voice calls from KT to KT and other carriers, free fixed-line voice calls, and 50 minutes of free video calls. |
(5) | Provides an additional daily quota of 1GB after the free monthly quota of 25GB has been exhausted and also provides unlimited use of data at transmission speed of up to 2Mbps after the daily quota of 1GB has been exhausted. |
In connection with the rollout of our 4G LTE services in January 2012, we also introduced new rate plans specifically for LTE phone users. For a limited time between February and April 2013, we also offered LTE rate plans with unlimited data usage. The following table summarizes charges for our representative LTE service plans: | | | | | | | | | | | | | | | | | | | | | | | Free Airtime Minutes (1) | | | Free Data Transmission (2) | | | Monthly Fee | | | | Voice or video calls to anyone | | | | | | Voice or video calls to our mobile subscribers | | | (in megabytes) | | | | | LTE-340 | | | | | | | 160 | | | | | | | | 750 | | | ₩ | 34,000 | | LTE-420 | | | | | | | 200 | | | | | | | | 1,536 | | | | 42,000 | | LTE-520 | | | | | | | 250 | | | | | | | | 2,560 | | | | 52,000 | | LTE-620 | | | | | | | 350 | | | | | | | | 6,144 | | | | 62,000 | | LTE-720 | | | | | | | 450 | | | | | | | | 10,240 | | | | 72,000 | | LTE-G550 | | | 250 | | | | | | | | 3,000 | | | | 2,560 | | | | 55,000 | | LTE-G650 | | | 350 | | | | | | | | 3,000 | | | | 6,144 | | | | 65,000 | | LTE-G750 | | | 450 | | | | | | | | 3,000 | | | | 10,240 | | | | 75,000 | | LTE-850 | | | 650 | | | | | | | | 3,000 | | | | 14,336 | | | | 85,000 | | LTE-1000 | | | 1,050 | | | | | | | | 3,000 | | | | 20,480 | | | | 100,000 | | LTE-1250 | | | 1,250 | | | | | | | | Unlimited | | | | 25,600 | | | | 125,000 | | LTE -35 (3) | | | 130 | | | | | | | | Unlimited | | | | 750 | | | | 35,000 | | LTE-45 (3) | | | 185 | | | | | | | | Unlimited | | | | 1,536 | | | | 45,000 | | LTE-55 (3) | | | 250 | | | | | | | | Unlimited | | | | 2,560 | | | | 55,000 | | LTE-67 (3) | | | Unlimited | (200) | | | | | | | Unlimited | | | | 5,120 | | | | 67,000 | | LTE-77 (3) | | | Unlimited | (200) | | | | | | | Unlimited | | | | 9,216 | | | | 77,000 | | LTE-79 (3) (4) | | | Unlimited | (200) | | | | | | | Unlimited | | | | 10,240 | | | | 79,000 | |
| | | | | | | | | | | | | | | | | | | | | Free Airtime Minutes (1) | | | Free Data Transmission (2) | | | Monthly Fee | | | | Voice or video calls to anyone | | | | | Voice or video calls to our mobile subscribers | | | (in megabytes) | | | | | LTE-97 (3) | | | Unlimited | (200) | | | | | Unlimited | | | | 17,408 | | | ₩ | 97,000 | | LTE-129 (3) (4) | | | Unlimited | (200) | | | | | Unlimited | | | | 25,600 | | | | 129,000 | | Wideband Safe Unlimited 67 (5) | | | 100 | | | | | | | | | | 15,360 | | | | 67,000 | | Wideband Safe Unlimited 77 (5) | | | 300 | | | | | | | | | | 15,360 | | | | 77,000 | |
(1) | Starting in May 2012, each second of video call counts as 1.66 second of voice call. |
(2) | We do not charge for data transmission in wireless LAN zones. We charge₩0.01 per 0.5 kilobyte for any additional data transmission exceeding the free monthly quota, up to a maximum of₩150,000. |
(3) | Rates applicable to both wideband LTE and LTE-A. |
(4) | Provides an additional daily quota of 2GB after the free monthly quota of 10 GB (for LTE-79) or 25GB (for LTE-129) has been exhausted, and also provides unlimited use of data with speed of up to 3Mbps after the daily quota of 2GB has been exhausted. |
(5) | Provides unlimited use of data at transmission speed of up to 400Kbps after the monthly quota of 15GB has been exhausted, and also provides unlimited voice calls with one designated number within our network. |
We have entered into arrangements with various partners including a leading discount store, a leading online shopping mall, a cosmetics company, oil refinery companies,several leading banks, an operator of cinema complexes, a leading motorautomobile manufacturing company and Korea Railroad Corporation, and we offer subscribers of our mobile service monthly discount coupons, membership points or movie tickets from such partners as promotional gifts. In December 2010, we also introduced 3G data-only plans targeting tablet PC users, smart-phonesmartphone users and other special phone users, offering subscription plans for data transmission amounts ranging from 100MB1 GB to 4GB at monthly fees ranging from(Won)₩5,00025,000 to(Won)₩35,000.49,000. In June 2012, we introduced LTE data-only plans, in both basic and various discounted packages, which provides 1.5 GB to 6 GB of data at monthly fees ranging from₩25,000 to₩49,000. The following table summarizes charges for our representative data-only plans: olleh Lifetime Data-Only Pricing Plan | | | | | | | | | | | | | | | Monthly Data Quota (3G Network) | | | Monthly Fee | | | Discount (1) | | olleh Lifetime Data 1G(2) (3) | | | 1GB | | | ₩ | 22,500 | | | ₩ | 10,000 | | olleh Lifetime Data 2G(2) (3) | | | 2GB | | | | 27,500 | | | | 11,500 | | olleh Lifetime Data 4G(2) (3) | | | 2GB | | | | 42,500 | | | | 18,000 | |
(1) | Discounts are only plans are only available with a two year contract. Early termination will result in a cancellation fee. |
(2) | We charge₩0.025 per 0.5 kilobyte for any additional data transmission in excess of the monthly quota. |
(3) | We provide olleh WiFi services. |
Pricing Plan for LTE Pad users | | | | | | | | | | | | | | | Monthly Data Quota (3G and LTE Networks) | | | Monthly Fee | | | Discount | | LTE Lifetime Data Basic 1.5G(1) (2) (5) | | | 1.5GB | | | ₩ | 25,000 | | | ₩ | 7,000 | | LTE Lifetime Data Basic 3G(1) (2) (5) | | | 3GB | | | | 35,000 | | | | 12,500 | | LTE Lifetime Data Basic 6G(1) (2) (5) | | | 6GB | | | | 49,000 | | | | 19,000 | | LTE Lifetime Data Safe Blocking 1.5G(3) (4) (5) | | | 1.5GB | | | | 25,000 | | | | 7,000 | | LTE Lifetime Data Safe Blocking 3G(3) (4) (5) | | | 3GB | | | | 35,000 | | | | 12,500 | | LTE Lifetime Data Safe Blocking 6G(3) (4) (5) | | | 6GB | | | | 49,000 | | | | 19,000 | |
(1) | We provide free additional data in the form of Safe Zone data which amounts to 20% of the monthly data quota. |
(2) | We charge₩0.01 per 0.5 kilobyte for any additional data transmission in excess of the monthly data quota and Safe Zone data, regardless of network. |
(3) | Data is automatically blocked after the monthly data quota is exhausted. |
(4) | We provide additional data recharge in units of 500MB, 1GB and 2GB, at a fee of₩8,000,₩13,000 and₩18,000, respectively. Additional data recharge is available a maximum of 10 times per month. |
(5) | Unused data is not carried over to the next month (applies to both monthly quota and additional recharge data). Customers may not subscribe to our m-VoIP services and data add-on services, such as Data Plus, Data Sharing, Genie Pack and OTN Pack. |
Fixed-line Telephone Services Local Telephone Service.Our revenues from local telephone service consist primarily of: Serviceservice initiation fees for new lines;
Monthlymonthly basic charges; and
Monthlymonthly usage charges based on the number of call pulses.
The rates we charge for local calls are currently subject to approval by the MSIP after consultation with the Ministry of Strategy and Finance. The rates are identical for residential and commercial customers. All calls are currently measured by call pulses. Each pulse is determined by the duration of the call and the time of the day at which the call is made. For instance, duringOur current local usage rates, which have been in effect since May 2002, are₩39 per pulse for regular service hours,and₩70 per pulse for public telephones. For local calls, a call pulse is triggered at the beginning of each local telephone call and every three minutes thereafter. The rates we charge for local calls are currently subjectthereafter from 8:00 a.m. to approval by the Korea Communications Commission after consultation with the Ministry of Strategy9:00 p.m. on weekdays and Finance. The rates are identical for residentialevery 258 seconds thereafter on holidays and commercial customers. The following table summarizes our local usage rates as of each datefrom 9:00 p.m. to 8:00 a.m. on which rates were revised:weekdays.
| | | | | | | | | | | | | | | | | | | Dec 1, 1996 | | | Sept 1, 1997 | | | April 15, 2001 | | | May 1, 2002 | | Local Usage Charges (per pulse)(1) | | | | | | | | | | | | | | | | | Regular service | | (Won) | 41.6 | | | (Won) | 45 | | | (Won) | 39 | | | (Won) | 39 | | Public telephone | | | 40 | | | | 50 | | | | 50 | | | | 70 | |
(1) | Since January 1, 1990, usage charges for local service in those metropolitan areas subject to measured service have been based on the number of pulses, which are a function of the duration and number of calls, and per pulse rates. Before January 1, 1993, in areas not subject to measured service, a pulse was triggered once for each local telephone call, regardless of the length of the call. Commencing January 1, 1993, measured service applies to all lines in service. A pulse is triggered at the beginning of each local call and every three minutes thereafter from 8:00 a.m. to 9:00 p.m. on weekdays and every 258 seconds thereafter on holidays and from 9:00 p.m. to 8:00 a.m. on weekdays. |
We also charge a monthly basic charge ranging from(Won)₩3,000 to(Won)₩5,200, depending on location, and a non-refundable service initiation fee of(Won)₩60,000 to new subscribers. The non-refundable service initiation fee is waived for the new subscribers who subscribe to our local service through our online application process. Until April 2001, we charged refundable service initiation deposits, which were refunded upon termination of service. As of December 31, 2010,2013, we had(Won)₩616467 billion ofin refundable service initiation deposits outstanding and 2,7382,162 thousand subscribers who are enrolled under the mandatory deposit plan and are eligible to switch to the no deposit plan and receive their service initiation deposit back (less the non-refundable service initial fees). Domestic Long-distance Telephone Service.Our revenues from domestic long-distance service consist of charges for calls placed, charged for the duration, time of day and day of the week a call is placed, and the distance covered by the call. We are able to set our own rates for domestic long-distance service without approval from the Korea Communications Commission.MSIP. The following table summarizes ourOur current basic domestic long-distance rates, aswhich have been in effect since November 2001, are₩39 per three minutes for distances of up to 30 kilometers and₩14.5 per ten seconds (equivalent to₩261 per three minutes) for distances in excess of 30 kilometers. For domestic long-distance calls for distances of up to 30 kilometers, a pulse is triggered at the beginning of each datecall and every three minutes thereafter. For domestic long-distance calls for distances in excess of 30 kilometers, a pulse is triggered at the beginning of each call and every 10 seconds thereafter. Rates for domestic long-distance calls for distances up to 30 kilometers are currently discounted by an adjustment in the period between pulses, by approximately 11% (utilizing a pulse rate of 200 seconds) from 6:00 a.m. to midnight on which rates were revised. These charges do not reflect discounts applicableholidays and from 6:00 a.m. to 8:00 a.m. on weekdays, and by approximately 43% (utilizing a pulse rate of 258 seconds) from midnight to 6:00 a.m. every day. Rates for domestic long-distance calls made during off-peak hours or holidays.for distances in excess of 30 kilometers are currently discounted by
approximately 10% (utilizing a rate of₩13.1 per ten seconds) from 6:00 a.m. to midnight on holidays and from 6:00 a.m. to 8:00 a.m. on weekdays, and by approximately 30% (utilizing a rate of₩10.2 per ten seconds) from midnight to 6:00 a.m. every day. | | | | | | | | | | | | | | | | | | | | | | | Date of Rate Change(1) | | | | Dec. 1, 1996 | | | Sept. 1, 1997 | | | Dec. 1, 2000 | | | April 15, 2001 | | | Nov. 1, 2001 | | Domestic Long-Distance Charges (per three minutes)(1) (2) | | | | | | | | | | | | | | | | | | | | | Up to 30 km | | (Won) | 41.6 | | | (Won) | 45 | | | (Won) | 45 | | | (Won) | 39 | | | (Won) | 39 | | Up to 100 km | | | 182 | | | | 172 | | | | 192 | | | | 192 | | | | 261 | | 100 km or longer | | | 277 | | | | 245 | | | | 252 | | | | 252 | | | | 261 | |
(1) | Domestic long-distance calls of up to 30 kilometers are billed on the same basis as local calls. Before April 15, 2001, for domestic long-distance calls in excess of 30 kilometers, a pulse was triggered at the beginning of each call and every 47 seconds for calls up to 100 kilometers or every 33 seconds for calls in excess of 100 kilometers. Commencing April 15, 2001, a pulse was triggered at the beginning of each call and every 30 seconds thereafter. Commencing November 1, 2001, a pulse is triggered at the beginning of each call and every 10 seconds thereafter. |
(2) | Rates for domestic long-distance calls in excess of 30 kilometers are currently discounted (by an adjustment in the period between pulses) by 10% on holidays and from 6:00 a.m. to 8:00 a.m. on weekdays, and by 30% from midnight to 6:00 a.m. every day. |
In recent years, we have begun to offer optional flat rate plans, discount plans and bundled product plans in order to mitigate the impact from lower usage of local and domestic long-distance calls and stabilize our revenues from fixed-line telephone services. For a discussion of our bundled products, see “—Bundled Products.” Some of our flat rate and discount plans that we currently offer include the following: starting in June 2008, a subscriber who elects to pay a monthly flat rate of(Won)₩12,500 is able to make free local and domestic long-distance calls after 9 p.m. on weekdays or at any time on weekends. Each month, the subscriber also receives a free movie ticket and free 60 minutes of land-to-mobile calls. The subscriber is also eligible to receive a discount of up to 20%, subject to the length of the mandatory subscription period;
starting in October 2009, a subscriber who elects to subscribe to our fixed-line phone service for a three year mandatory subscription period is able to make local and domestic long-distance calls at a flat rate of(Won)₩39 per three minutes; and
starting in October 2009, a subscriber who elects to subscribe to our broadband Internet access service or HSDPA-based mobile service for a three year mandatory subscription period is able to make local, domestic long-distance and land-to-mobile calls of up to(Won)₩150,000 with a flat rate payment of(Won)₩50,000 or such calls up to(Won)₩50,000 with a flat rate payment of(Won)₩10,000. Standard rates apply to calls that exceed the capped amounts.
International Long-distance Service.Our revenues from international long-distance service consist of: amounts we bill to customers for outgoing calls made to foreign countries (including customers who make calls to Korea from foreign countries under our home country direct-dial service); amounts we bill to foreign telecommunications carriers and administrations for connection to the Korean telephone network in respect of incoming calls (including calls placed in Korea by customers of the foreign carriers for home country direct-dial service); and other revenues, including revenues from international calls placed from public telephones. We bill outgoing calls made by customers in Korea (and calls made to Korea from foreign countries under our home country direct-dial service) in accordance with our international long-distance rate schedule for the country called. These rates vary depending on the time of day at which a call is placed. We bill outgoing international calls on the basis of one-second increments. We are able to set our own rates for international long-distance service without approval from the Korea Communications Commission.MSIP. For incoming calls (including calls placed in Korea by customers of the foreign carriers for home country direct-dial service), we receive settlement payments from the relevant foreign carrier or administration at the applicable settlement rate specified under the agreement with the foreign entity.carrier. We have entered into numerous bilateral agreements with foreign carriers and administrations.carriers. We negotiate the settlement rates under these agreements with each foreign carrier, subject to Korea Communications Commissionthe MSIP’s approval. It is the practice among international carriers for the carrier in the country in which the call is billed to collect payments due in respect of the use of overseas networks. Although we record the gross amounts due to and from us in our financial statements, we make settlements with most carriers monthly or quarterly on a net basis. Interconnection.We provide other telecommunications service providers, including mobile operators and other fixed-line operators, interconnection to our fixed-line network. Land-to-mobile Interconnection. For a call initiated by a landline user to a mobile service subscriber, we collect from the landline user the land-to-mobile usage charge and remit to the mobile service provider a land-to-mobile interconnection charge. The Korea Communications CommissionMSIP periodically issues orders setting the interconnection charge calculation method applicable to interconnections with mobile service providers. The Korea Communications CommissionMSIP determines the land to mobile interconnection charge by calculating the long run incremental cost of mobile service providers, taking into consideration technology development and future expected costs. The following table shows the interconnection charges we paid per minute (exclusive of value-added taxes) to mobile operators for landline to mobile calls.calls: | | | Effective Starting | | | Effective Starting | | | | January 1, 2008 | | | January 1, 2009 | | | January 1, 2010 | | | January 1, 2011 | | | January 1, 2012 | | | January 1, 2013 | | SK Telecom | | (Won) | 33.4 | | | (Won) | 32.9 | | | (Won) | 31.4 | | | ₩ | 30.5 | | | ₩ | 27.1 | | | ₩ | 26.3 | | LG U+ | | | 39.1 | | | | 38.5 | | | | 33.6 | | | | 31.9 | | | | 28.2 | | | | 27.0 | |
The following table showsSince September 2004, the usage chargecharges per minute collected from a landline user for a call initiated by a landline user to a mobile service subscriber.
| | | | | | | Effective Starting September 1, 2004 | | Weekday
| | (Won) | 87.0 | | Weekend
| | | 82.0 | | Evening(1)
| | | 77.2 | |
(1) | Evening rates are applicable from 12:00 a.m. to 6:00 a.m. everyday. |
subscriber are₩87.0 during weekdays,₩82.0 during weekends and₩77.2 during evenings (defined as 12:00 a.m. to 6:00 a.m. every day). We recognize as land-to-mobile interconnection revenue the entire amount of the usage charge collected from the landline user and recognize as expense the amount of interconnection charge paid to the mobile service provider. Land-to-land and Mobile-to-land Interconnection. For a call initiated by a landline subscriber of our competitor to our fixed-line user, the landline service provider collects from its subscriber its normal rate and remits to us a land-to-land interconnection charge. In addition, for a call initiated by a mobile service subscriber to our landline user, the mobile service provider collects from its subscriber its normal rate and remits to us a mobile-to-land interconnection charge. The following table shows such interconnection charge per minute collected for a call depending on the type of call, as determined by the Korea Communications Commission.KCC: | | | Effective Starting | | | Effective Starting | | | | January 1, 2008 | | | January 1, 2009 | | | January 1, 2010 | | | January 1, 2011 | | | January 1, 2012 | | | January 1, 2013 | | Local access(1) | | (Won) | 18.3 | | | (Won) | 18.1 | | | (Won) | 17.1 | | | ₩ | 16.4 | | | ₩ | 15.5 | | | ₩ | 14.6 | | Single toll access(2) | | | 19.5 | | | | 19.3 | | | | 19.1 | | | | 18.6 | | | | 17.4 | | | | 16.7 | | Double toll access(3) | | | 20.6 | | | | 20.4 | | | | 22.5 | | | | 22.2 | | | | 20.3 | | | | 19.9 | |
Source: The Korea Communications Commission.
(1) | Interconnection between local switching center and local access line. |
(2) | Interconnection involving access to single long-distance switching center. |
(3) | Interconnection involving access to two long-distance switching centers. |
Mobile-to-mobile Interconnection. For a call initiated by a mobile subscriber of our competitor to our mobile subscriber, the mobile service provider collects from its subscriber its normal rate and remits to us a mobile-to-mobile interconnection charge. In addition, for a call initiated by our mobile subscriber to a mobile subscriber of our competitor, we collect from our subscriber our normal rate and remit to the mobile service provider a mobile-to-mobile interconnection charge. The following table shows the interconnection charges we paid per minute (exclusive of value-added taxes) to mobile operators, and the charges received per minute (exclusive of value-added taxes) from mobile operators for mobile to mobile calls: | | | | | | | | | | | | | | | Effective Starting | | | | January 1, 2011 | | | January 1, 2012 | | | January 1, 2013 | | SK Telecom | | ₩ | 30.5 | | | ₩ | 27.1 | | | ₩ | 26.3 | | LG U+ | | | 31.9 | | | | 28.2 | | | | 27.0 | | KT | | | 31.7 | | | | 28.0 | | | | 27.0 | |
We recognize as mobile-to-mobile interconnection revenue the entire amount of the usage charge collected from the mobile user and recognize as expense the amount of interconnection charge paid to the mobile service provider. Internet Services Broadband Internet Access Service.We offer broadband Internet access service that primarily uses existing telephone lines to provide both voice and data transmission. We charge monthly fixed fees to customers of broadband Internet service. In addition, we charge customers a one timeone-time installation fee per site of(Won)₩30,000 and modem rental fee of up to(Won)₩8,000 on a monthly basis. The rates we charge for broadband Internet access service are subject to approval by the Korea Communications Commission. The following table summarizes our charges for our representative broadband Internet service plans: | | | | | | | | | | | Maximum Speed | | | Monthly Fee | | olleh Internet Special(1) | | | 100 Mbps | | | (Won) | 28,800 | | olleh Internet Lite(1) | | | 50 | | | | 25,500 | | WiBro 1G(2) (6) | | | 3 | | | | 10,000 | | WiBro 30G(3) (6) | | | 3 | | | | 19,800 | | WiBro 50G(4) (6) | | | 3 | | | | 27,000 | | WiBro Unlimited(5) (6) | | | 3 | | | | 40,000 | |
| | | | | | | | | Maximum Service Speed | | Monthly Fee | | olleh Internet Special (1) (6) | | 100 Mbps | | ₩ | 36,000 | | olleh Internet Lite (1) (6) | | 50 Mbps | | | 30,000 | | WiBro 10G(2) (6) | | 40 Mbps (for downloading) / 12 Mbps (for uploading) | | | 10,000 | | WiBro 20G(3) (6) | | 40 Mbps (for downloading) / 12 Mbps (for uploading) | | | 20,000 | | WiBro 30G(4) (6) | | 40 Mbps (for downloading) / 12 Mbps (for uploading) | | | 30,000 | | WiBro 50G(5) (6) | | 40 Mbps (for downloading) / 12 Mbps (for uploading) | | | 40,000 | |
(1) | We waive the installation fee of(Won)₩30,000 for mandatory subscription periods of one to four years. |
(2) | We charge a monthly fee of(Won)₩10,000 for up to 1,00010,000 megabytes of data transmission and(Won)₩2510 per megabyte for any additional data transmission in excess of 1,00010,000 megabytes per month. |
(3) | We charge a monthly fee of(Won)₩19,80020,000 for up to 20,000 megabytes of data transmission and₩10 per megabyte for any additional data transmission in excess of 20,000 megabytes per month. |
(4) | We charge a monthly fee of₩30,000 for up to 30,000 megabytes of data transmission and(Won)₩10 per megabyte for any additional data transmission in excess of 30,000 megabytes per month. |
(4)(5) | We charge a monthly fee of(Won)₩27,00040,000 for up to 50,000 megabytes of data transmission and(Won)₩10 per megabyte for any additional data transmission in excess of 50,000 megabytes per month. |
(5) | We may limit the service for certain usages, such as CCTV or other large size file transfers, if the monthly data transmission exceeds 100,000 megabytes. |
(6) | PromotionalVarious discounts and promotional rates are available until June 30, 2011.depending on the time of subscription and the minimum subscription contract, which may reduce the actual monthly fee paid. |
olleh TV Services.We charge our subscribers an installation fee per site of(Won)₩24,000, which is waived with a three-year contract, a set-top box rental fee ranging from(Won)₩2,000 to(Won)₩7,0008,000 on a monthly basis and a monthly subscription fee. The rates we charge for olleh TV services are subject to approval by the Korea Communications Commission.MSIP. The following table summarizes charges for our representative olleh TV service plans: | | | | | | | | | | | Real-time Broadcasting Channels | | | Monthly Fee (1) | | olleh TV Video-on-Demand | | | 0 | | | (Won) | 10,000 | | olleh TV Choice(2) | | | 75-77 | | | | 10,000-16,000 | | olleh TV Education(3) | | | 48 | | | | 10,000-14,000 | | olleh TV Thrift(4) | | | 99 | | | | 12,000 | | olleh TV Standard(4) | | | 125 | | | | 16,000 | | olleh TV Deluxe(4) | | | 130 | | | | 23,000 | | olleh TV SkyLife Economy(5) | | | 99 | | | | 20,000 | | olleh TV SkyLife Standard(5) | | | 133 | | | | 25,000 | | olleh TV SkyLife Premium(5) | | | 171 | | | | 30,000 | |
| | | | | | | | | | | Real-time Broadcasting Channels | | | Monthly Fee (1) | | olleh TV Live Choice(2) | | | 91 | | | ₩ | 8,000 | | olleh TV Live Education(3) | | | 68 | | | | 8,000 | |
| | | | | | | | | | | Real-time Broadcasting Channels | | | Monthly Fee (1) | | olleh TV Live Thrift(4) | | | 170 | | | | 12,000 | | olleh TV Live Standard(4) | | | 201 | | | | 16,000 | | olleh TV Live Deluxe(4) | | | 205 | | | | 23,000 | | olleh TV SkyLife Economy(5) | | | 187 | | | | 22,000 | | olleh TV SkyLife Standard(5) | | | 194 | | | | 27,500 | | olleh TV SkyLife Premium(5) | | | 198 | | | | 33,000 | | olleh TV Mobile (6) | | | 70 | | | | 5,000 | | Olleh TV Live All-right(7) | | | 177 | | | | 14,000 | | Olleh TV Skylife All-right (7) | | | 177 | | | | 14,000 | |
(1) | We typically provide discounts of 5% to 20% for a mandatory subscription periods ranging from one to three years. For olleh TV SkyLife subscribers, we provide discounts of 20% for mandatory subscription period of three years. |
(2) | Assuming selection of one package. Subscribers must choose at least one channel package, each of which charges a monthly fee of(Won)₩2,000. The packages include entertainment, media, leisure and education and multi-room. |
(3) | Assuming selection of one package. Subscribers must choose at least one channelVideo-On-Demand package, each of which charges a monthly fee of(Won)₩2,000. The packages include elementary school, middle/high school and English education. |
(4) | We charge additional monthly fees for value-added services such as short messaging service, video conferencing and high-definition channels from KT Skylife Co., our subsidiary satellite broadcasting operator. |
(5) | For subscription to olleh TV SkyLife service, installation fee is waived for a mandatory subscription period of three years. |
(6) | Product for N-Screen (a service which allows purchased content to be displayed on multiple devices) launched in October 2011. The service is offered free of charge if bundled with our Internet, olleh TV and mobile services. |
(7) | olleh TV all-right products are basic IPTV packages with more than 55 TV broadcasting channels, 25 data broadcasting channels, 30 radio broadcasting channels, and more than 40,000 video-on-demand channels. |
Data Communication Service We charge customers of domestic leased-lines on a monthly fixed-cost basis based on the distance of the leased line, the capacity of the line measured in bits per second (“bps”), the type of line provided and whether the service site is local or long-distance. In addition, we charge customers a one-time installation fee per line ranging from(Won)₩56,000 to(Won)₩1,940,000 depending on the capacity of the line. Bundled Products We utilize our extensive customer relationships and market knowledge to expand our revenue base by cross-selling our telecommunications products and services. In order to attract additional subscribers to our new services, we bundle our services, such as our broadband Internet access service with WiBro, IP-TV, Internet phone, fixed-line telephone service, WiBro, and mobile services, at a discount. The following table summarizes our various basic bundled packages that we currently offer. The packages require subscribers to agree to a subscription period of three years.years: | | | | | | | | | | | | | | | | | Monthly Rates | | Mobile usage Charge Discounts | | | | Flat Rate (1)
| | | Mobile Monthly Fee | | Between Family Members (2) | | | Calls to Designated Numbers (3) | | Internet / Fixed-Line Phone / Mobile | | (Won) | 27,000 | | | Discounts of between 10% to 50%, subject to the number of subscribers who participate (up to 5 mobile numbers) | | | 50% | | | | 20% | | Internet / IP-TV / Mobile(4) | | | 31,000 | | | | | 50 | % | | | 20 | % | Internet / Fixed-Line Phone / IP-TV / Mobile(4) | | | 32,000 | | | | | 50% | | | | 50% | |
| | | | | | | | | Monthly Rates | | | Flat Rate | | | Mobile Monthly Fee | Internet / Internet Phone / Mobile | | ₩ | 24,000 | | | Discounts are between₩1,500 and₩10,000, depending on the mobile fee plan (up to 5 mobile numbers) (2) | Internet / Fixed-Line Phone / Mobile | | | 27,000 | | | Internet / IP-TV / Mobile(1) | | | 34,000 | | | Internet / Fixed-Line Phone / IP-TV / Mobile(1) | | | 35,000 | | |
(1) | Assuming selection of olleh Internet Lite service. If olleh Internet Special is selected, additional monthly charge of(Won)3,000. |
(2) | Applies to both voice call and video call airtime minutes. |
(3) | Applies to voice call airtime minutes only. Limited to one designated mobile number and one designated fixed-line number. |
(4) | Assuming selection of olleh TV SkyLife EconomyStandard Plan. If olleh TV Live Video-on-Demand, olleh TV Live Choice, or olleh TV Live Education is selected, deduction of(Won)₩2,0005,000 from the monthly flat rate. If olleh TV SkyLife StandardEconomy Plan is selected, deduction of₩3,000 from the monthly flat rate. If olleh TV SkyLife Premium Plan is selected, additional monthly charge of(Won)₩3,000.5,000. |
We have also entered into partnerships with a leading online shopping mall, an operator of cinema complexes, a satellite broadcasting service operator, a life insurance company, a car insurance company and a security company, and our subscribers may elect to receive monthly gift certificates, music downloads, online game money, movie tickets or other benefits from such partnership companies with value of up to(Won)50,000 per month in lieu of monthly rate discounts.
(2) | Bundled rate plans are available only for olleh LTE subscribers. |
We believe that subscribers who sign up for bundled products are less likely to cancel our services than subscribers who subscribe to individual services. Subscription fees paid for our bundled products are allocated to each service in proportion to their fair value and the allocated amount is recognized as revenue according to the revenue recognition policy for each service. Competition Competition in the telecommunications sector in Korea is intense. In recent years, business combinations in the telecommunications industry have significantly changed the competitive landscape of the Korean telecommunications industry. In particular, SK Telecom acquired a controlling stake in Hanarotelecom Incorporated in 2008, which was renamed SK Broadband. The acquisition enablesenabled SK Telecom to provide fixed-line telecommunications, broadband Internet access and IP-TV services together with its mobile telecommunications services. OnIn January 1, 2010, LG Dacom and LG Powercom merged into LG Telecom Co., Ltd., which subsequently changed its name to LG U+. The merger enablesenabled LG U+ provide a similar range of services as SK Telecom and us. Under the Framework Act of Telecommunications Basic Law and the Telecommunications Business Law,Act, telecommunications service providers in Korea are currently classified into network service providers, value-added service providers and specific service providers. See “—Regulation.” Network Service Providers All network service providers in Korea are permitted to set the rates for international or domestic long-distance services on their own without Korea Communications Commissionthe MSIP’s approval. Many of our competitors have set their rates lower than ours. Currently, we can compete freely with other providers on the basis of rates in all services except for rates we charge for local calls, and broadband Internet access service, which require advance approval from the Korea Communications Commission.MSIP. In all service areas, we compete by endeavoring to provide superior customer service and superior technical quality, taking advantage of our broad customer base and our ability to provide various telecommunication services. We and SK Telecom have been designated as market-dominating business entities in the respectivelocal telephone service and cellular service markets, respectively, under the Telecommunications Business Act. Under this Act, a market-dominating business entity may not engage in any act of abuse, such as unreasonably interfering with business activities of other business entities, hindering unfairly the entry of newcomers or substantially restricting competition to the detriment of the interests of consumers. The Korea Communications CommissionKCC has also issued guidelines on fair competition of the telecommunications companies. If any telecommunications service provider breaches the guidelines, the Korea Communications CommissionKCC may take necessary corrective measures against it after a hearing at which the service provider may defend its action. Mobile Service.Competition in the mobile telecommunications industry in Korea is intense among SK Telecom, LG U+ and us. Such competition has intensified in recent years due to the implementation of mobile number portability, which enabled mobile subscribers to switch their service provider while retaining the same mobile phone number, as well as payments of handset subsidies to purchasers of new handsets who agree to minimum subscription periods.periods and the recent rollout of fourth-generation mobile services based on LTE technology by SK Telecom, LG U+ and us. The following table shows the market shareshares in the mobile telecommunications market as of the dates indicated: | | | | | | | | | | | | | | | Market Share (%) | | | | KT Corporation | | | SK Telecom | | | LG U+ | | December 31, 2008 | | | 31.5 | | | | 50.5 | | | | 18.0 | | December 31, 2009 | | | 31.3 | | | | 50.6 | | | | 18.1 | | December 31, 2010 | | | 31.6 | | | | 50.6 | | | | 17.8 | |
| | | | | | | | | | | | | | | Market Share (%) | | | | KT Corporation | | | SK Telecom | | | LG U+ | | December 31, 2011 | | | 31.5 | | | | 50.6 | | | | 17.9 | | December 31, 2012 | | | 30.8 | | | | 50.3 | | | | 18.9 | | December 31, 2013 | | | 30.1 | | | | 50.0 | | | | 19.9 | |
Source: | Korea Communications Commission.The KCC. |
We offer various rate plans, including those that offer a specified number of free airtime minutes per month in return for a higher monthly fee and those that are geared toward business customers. Our competitors also offer similar plans at competitive rates. Local Telephone Service.We compete with SK Broadband and LG U+ in the local telephone service business. SK Broadband began providing local telephone service in 1999, followed by LG U+ in 2004. In addition, the services provided by mobile service providers have had a material adverse effect on KT Corporationus in terms of our revenues from fixed-line telephone services. We expect this trend to continue. The following table shows the market shareshares in the local telephone service market as of the dates indicated: | | | | | | | | | | | | | | | Market Share (%) | | | | KT Corporation | | | SK Broadband | | | LG U+ | | December 31, 2008 | | | 89.8 | | | | 8.7 | | | | 1.5 | | December 31, 2009 | | | 89.9 | | | | 8.4 | | | | 1.7 | | December 31, 2010 | | | 86.3 | | | | 11.7 | | | | 2.0 | |
| | | | | | | | | | | | | | | Market Share (%) | | | | KT Corporation | | | SK Broadband | | | LG U+ | | December 31, 2011 | | | 84.3 | | | | 13.3 | | | | 2.4 | | December 31, 2012 | | | 82.8 | | | | 14.5 | | | | 2.7 | | December 31, 2013 | | | 81.5 | | | | 15.6 | | | | 2.9 | |
Source: | Korea Communications Commission.The KCC. |
Although the local usage charge of our competitors and us is the same at(Won)₩39 per pulse (generally three minutes) and the basic monthly charge of our competitors and us is the same at(Won)5,200 depending on location,, our competitors’ non-refundable telephone service initiation charges are lower than ours. Our customers pay a non-refundable telephone service initiation charge of(Won)₩60,000 while customers of our competitors pay a non-refundable telephone service initiation charge of(Won)₩30,00030,000. Also, the basic monthly charge of our competitors is₩4,500 compared to our basic charge of₩5,200. Domestic Long-distance Telephone Service.We compete with SK Broadband, LG U+, Onse and SK Telink in the domestic long-distance market. LG U+ began offering domestic long-distance service in 1996, followed by Onse in 1999 and SK Broadband and SK Telink in 2004. The following table shows the market shares in the domestic long-distance market as of the dates indicated: | | | | | | | | | | | | | | | | | | | | | | | Market Share (%) | | | | KT Corporation | | | SK Broadband | | | LG U+ | | | Onse | | | SK Telink | | December 31, 2008 | | | 85.2 | | | | 3.7 | | | | 7.8 | | | | 1.7 | | | | 1.6 | | December 31, 2009 | | | 86.3 | | | | 6.8 | | | | 3.4 | | | | 1.6 | | | | 1.9 | | December 31, 2010 | | | 82.2 | | | | 11.1 | | | | 3.1 | | | | 1.2 | | | | 2.4 | |
| | | | | | | | | | | | | | | | | | | | | | | Market Share (%) | | | | KT Corporation | | | SK Broadband | | | LG U+ | | | Onse | | | SK Telink | | December 31, 2011 | | | 80.5 | | | | 12.5 | | | | 3.2 | | | | 1.1 | | | | 2.7 | | December 31, 2012 | | | 79.2 | | | | 14.0 | | | | 3.0 | | | | 1.1 | | | | 2.8 | | December 31, 2013 | | | 78.7 | | | | 14.5 | | | | 3.0 | | | | 1.0 | | | | 2.8 | |
Source: Korea Telecommunications Operators Association.
Source: | Korea Telecommunications Operators Association. |
Our competitors and we charge(Won)₩39 per three minutes for domestic long-distance calls up to 30 kilometers. For domestic long-distance calls greater than 30 kilometers, our competitors typically charge between 3% to 5% less than us. The following table is a comparison of our standard long-distance usage charges per 10 seconds with the standard rates of our competitors as of December 31, 2010:2013: | | | | | | | | | | | | | | | | | | | | | | | KT Corporation | | | SK Broadband | | | LG U+ | | | Onse | | | SK Telink | | 30 kilometers or longer | | (Won) | 14.5 | | | (Won) | 13.9 | | | (Won) | 14.1 | | | (Won) | 13.8 | | | (Won) | 13.8 | |
| | | | | | | | | | | | | | | | | | | | | | | KT Corporation | | | SK Broadband | | | LG U+ | | | Onse | | | SK Telink | | 30 kilometers or longer | | ₩ | 14.5 | | | ₩ | 13.9 | | | ₩ | 14.1 | | | ₩ | 13.8 | | | ₩ | 13.8 | |
Source: | Korea Communications Commission.The KCC. |
International Long-Distance Telephone Service.Four companies, SK Broadband, LG U+, Onse and SK Telink, directly compete with us in the international long-distance market. LG U+ began offering international long-distance service in 1991, followed by Onse in 1997 and SK Broadband in 2004. SK Telink, which only provides Internet phone service, entered the international long-distance market in 2003 and offers its services at rates lower than those offor network-based international long-distance telephone services. The entry of Internet phone service providers and other telecommunications service providers, such as voice resellers, that can offer telecommunications services at rates lower than ours has increased competition in the international long-distance market and adversely affected our revenues and profitability from international long-distance services. See “—Specific Service Providers.” Our competitors generally charge less than us for international long-distance calls. The following table is a comparison of our standard long-distance usage charges per one minute with the standard rates of our competitors as of December 31, 2010:2013: | | | KT Corporation | | | SK Broadband | | | LG U+ | | | Onse | | | SK Telink | | | KT Corporation | | | SK Broadband | | | LG U+ | | | Onse | | | SK Telink | | United States | | (Won) | 282 | | | (Won) | 276 | | | (Won) | 288 | | | (Won) | 276 | | | (Won) | 156 | | | ₩ | 282 | | | ₩ | 276 | | | ₩ | 288 | | | ₩ | 276 | | | ₩ | 156 | | Japan | | | 696 | | | | 672 | | | | 678 | | | | 672 | | | | 384 | | | | 696 | | | | 672 | | | | 678 | | | | 672 | | | | 384 | | China | | | 990 | | | | 984 | | | | 996 | | | | 984 | | | | 780 | | | | 990 | | | | 984 | | | | 996 | | | | 984 | | | | 780 | | Australia | | | 1,086 | | | | 1,044 | | | | 1,086 | | | | 1,044 | | | | 528 | | | | 1,086 | | | | 1,044 | | | | 1,086 | | | | 1,044 | | | | 528 | | Great Britain | | | 1,008 | | | | 966 | | | | 996 | | | | 966 | | | | 498 | | | | 1,008 | | | | 966 | | | | 996 | | | | 966 | | | | 498 | | Germany | | | 948 | | | | 912 | | | | 942 | | | | 912 | | | | 402 | | | | 948 | | | | 912 | | | | 942 | | | | 912 | | | | 402 | |
Broadband Internet Access Service.The Korean broadband Internet access market has experienced significant growth in the past decade. SK Broadband entered the broadband market in 1999 offering both HFC and ADSL services, and we entered the market with our ADSL services in 1999, followed by Dreamline, Onse and LG U+. In addition, the entry of cable television providers that offer HFC-based broadband Internet access services at rates lower than ours has increased competition in the broadband Internet access market. We expect industry consolidation among our competitors in the near future, and smaller competitors in the broadband market today may become larger competitors. The following table shows the market share in the broadband Internet access market as of the dates indicated: | | | | | | | | | | | | | | | | | | | Market Share (%) | | | | KT Corporation | | | SK Broadband | | | LG U+ | | | Others | | December 31, 2008 | | | 43.4 | | | | 22.9 | | | | 14.1 | | | | 19.6 | | December 31, 2009 | | | 42.5 | | | | 23.5 | | | | 15.4 | | | | 18.6 | | December 31, 2010 | | | 43.1 | | | | 23.1 | | | | 16.1 | | | | 17.7 | |
| | | | | | | | | | | | | | | | | | | Market Share (%) | | | | KT Corporation | | | SK Broadband | | | LG U+ | | | Others | | December 31, 2011 | | | 43.8 | | | | 23.5 | | | | 15.7 | | | | 17.0 | | December 31, 2012 | | | 44.0 | | | | 24.1 | | | | 15.0 | | | | 16.9 | | December 31, 2013 | | | 43.1 | | | | 24.4 | | | | 15.6 | | | | 16.9 | |
Source: | Korea Communications Commission.The KCC. |
Our competitors generally charge less than us for broadband Internet access service. The following table is a comparison of fees for our olleh Internet Lite service with three year mandatory subscription period with fees of our competitors for comparable services as of December 31, 2010:2013: | | | KT Corporation | | | SK Broadband | | | LG U+ | | | Cable Providers (1) | | | KT Corporation | | | SK Broadband | | | LG U+ | | | Cable Providers (1) | | Monthly subscription fee | | (Won) | 25,500 | | | (Won) | 25,200 | | | (Won) | 25,000 | | | (Won) | 20,000 | | | ₩ | 25,500 | | | ₩ | 25,000 | | | ₩ | 25,000 | | | ₩ | 20,000 | | Monthly modem rental fee | | | 3,000 | | | | 3,000 | | | | None | | | | 1,000 | | | | None | | | | None | | | | None | | | | 1,000 | | Additional installation fee upon moving | | | 10,000 | | | | 10,000 | | | | 20,000 | | | | 20,000 | | | | 10,000 | | | | 10,000 | | | | 20,000 | | | | 20,000 | |
(1) | These are typical fees charged by cable providers. |
Data Communication Service.We had a monopoly in domestic data communication service until 1994, when LG U+ was authorized to provide the leased-line service. The data communications service market has become more competitive with limited growth during the past decade, and we primarily compete with SK Broadband and LG U+. Value-Added Service Providers Value-added service providers may commence operations following filing of a report to the Korea Communications Commission.MSIP. The scope of business of a value-added service provider includes specific value-added telecommunications activities (other than services reserved for network service providers), such as data communications utilizing telecommunications facilities leased from network service providers. Specific Service Providers Specific service providers, such as Internet phone service providers and voice resellers, started operations in Korea in 1998. We began providing Internet phone service for international long-distance calls in May 1998. Our Internet phone service also competes with international long-distance services provided by voice resellers who have also seen sharp increases in demand for their services. Regulation With the establishment of the MSIP in March 2013, many of the regulatory responsibilities formerly handled by the KCC have been transferred to the MSIP. Under the Framework Act of Telecommunications Basic Law and the Telecommunications Business Law, telecommunications service providers are currently classified into three categories: network service providers, such as us, which typically provide telecommunications services with their own telecommunications networks and related facilities. Their services may include local, domestic long-distance and international long-distance telephone services, mobile communications service, paging service and trunked radio system service;
value-added service providers, which provide telecommunications services other than those services specified for network service providers, such as data communications using telecommunications facilities leased from network service providers; and
specific service providers are broadly defined by law as telecommunications service providers that provide network services usingAct, the telecommunications network facilities or services of network service providers.
Under the Telecommunications Basic Law and the Telecommunications Business Law, the Korea Communications CommissionMSIP now has comprehensive regulatory authority over the telecommunications industry and all network service providers.
The Korea Communications CommissionMSIP has assumed primary policy and regulatory responsibility for matters such as: (i) licensing of network service providers (the MSIP authorizes the licensing of Internet Protocol Television (“IPTV”) service providers and, with the consent of the KCC, authorizes the licensing of satellite broadcasting companies); (ii) regulation of mergers and acquisitions, as well as license suspension and termination of network service providers; (iii) providing oversight on foreign ownership ratios in network service providers; and (iv) reviewing telecommunication matters as they relate to the public interest and approving ancillary telecommunication business activities. Additionally, the MSIP is responsible for a broad range of other policy and regulatory matters, including the administration and supervision of regulatory reporting by telecommunications companies, examination and analysis of accounting and business management practices in the industry, establishing and administering policies governing telecommunications service fees, value-added service providers and specific service providers, as well as supervising reporting requirements of standard telecommunications service/user contracts. Under the revised supervisory framework, a network service provider must be licensed by the MSIP. Our license as a network service provider permits us to engage in a wide range of telecommunications services. The KCC’s overall policy role is to play a key role in regulatory activities aimed at protecting service users in the broadcast and telecommunications market and it continues to be responsible for investigations and sanctions regarding violations by telecommunications companies, as well as for mediating disputes between service providers and users. The KCC is established under the direct jurisdiction of the President and is comprised of five standing commissioners. Commissioners of the Korea Communications CommissionKCC are appointed by the President, and the appointment of the Chairperson must be approved at a confirmation hearing at the National Assembly. The Korea Communications Commission’s policy is to promote competition in the Korean telecommunications markets through measures designed to prevent the dominant service provider in any such market from exercising its market power in such a way as to prevent the emergence and development of viable competitors. A network service provider must be licensed by the Korea Communications Commission. Our license as a network service provider permits us to engage in a wide range of telecommunications services. Under the Use and Protection of Credit Information Act, telecommunications service providers are also required to disclose personal credit information of their customers only for the purpose of validating and maintaining telecommunications service agreements. Korean telecommunications service providers may use their customers’ credit information only to the extent allowed by the Use and Protection of Credit Information Act, which has gained greater importance in recent years due to the occurrence of personal information leakage incidents. The Korea Communications CommissionMSIP also has the authority to regulate the IP media market, including IP-TV services. We began offering IP-TV services with real-time high definition broadcasting onin November 17, 2008. Under the Internet Multimedia Broadcasting Business Act, anyone intending to engage in the IP media broadcasting business must obtain a license from the Korea Communications Commission.MSIP. The ownership of the shares of an IP media broadcasting company by a newspaper, a news agency or a foreigner is limited, and broadcasting of certain contents must obtain additional approval of the Korea Communications Commission.limited. Rates Under current regulations implementing the Telecommunications Business Act, a network service provider may set its rates at its discretion, although it must report to the Korea Communications CommissionMSIP the rates and the general terms and conditions for each type of network service provided by it. There is, however, one exception to this general rule: if a network service provider has the largest market share for a specified type of service and its revenue from that service for the previous year exceeds a specific revenue amount set by the Korea Communications Commission,MSIP, it must obtain prior approval from the Korea Communications CommissionMSIP for the rates and the general terms for that service. Each year the Korea Communications CommissionMSIP designates the service providers and the types of services for which the rates and the general terms must be approved by the Korea Communications Commission.MSIP. In 2010,2013, the Korea Communications CommissionMSIP designated us for local telephone service and SK Telecom for cellular service.mobile service, which currently remains in effect. The Korea Communications Commission,MSIP, in consultation with the Ministry of Strategy and Finance, is required to approve the rates proposed by a network service provider if (1) the proposed rates are appropriate, fair and reasonable and (2) the calculation method for the rates are appropriate and transparent. Other Activities A network service provider, such as us, must obtain the permission of the Korea Communications CommissionMSIP in order to: engage in certain businesses specified in the Presidential Decree under the Telecommunications Business Act, such as the telecommunications equipment manufacturing business and the telecommunications network construction business; change the conditions for its licenses; transfer, terminate, suspend or spin off all or a part of the business for which it is licensed; acquire all or a part of the business of another network service provider; or enter into a merger with another network service provider. A telephone service provider may provide some network services using the equipment it currently has byBy submitting a report to the Korea Communications Commission.MSIP, a network service provider may enter into arrangements for services to be furnished to its customers by a different telecommunications service provider and, in connection therewith, may provide its telecommunications services to, or authorize the use of all or a portion of its telecommunications facilities by, such other telecommunications service provider. The Korea Communications CommissionMSIP can revoke our licenses or order the suspension of any of our businesses if we do not comply with the regulations of the Korea Communications CommissionMSIP under the Telecommunications Business Law.Act.
The responsibilities of the Korea Communications Commission also include:
formulating the basic plan for the telecommunications industry; and
preparing periodic reports to the National Assembly of Korea regarding developments in the telecommunications industry.
In May 2010, the Korea Communications CommissionKCC issued a guideline that limits the marketing expenditure amounts of telecommunication service providers in Korea to 22%20% of their revenues, with the restrictions applicable to fixed-line and mobile segments to be calculated separately. However, as of October 2013, up to(Won)₩100 billion of the marketing expenditures may be applied to either segment at the discretion of the service provider. The calculation of marketing expenditure amounts under the guideline excludes advertising expenses and the calculation of revenue amounts excludes revenues from handset sales. To encourage compliance with the non-binding guideline, the Korea Communications Commission plans to release the marketing expenditure amounts of each service provider on a quarterly basis. The Korea Communications CommissionMSIP may periodically adjust the guideline to accommodate changes in market conditions. The responsibilities of the Ministry of Knowledge EconomyMSIP include: drafting and implementing plans for developing telecommunications technology; fostering and providing guidance to institutions and entities that conduct research relating to telecommunications; and recommending to network service providers that they invest in research and development or that they contribute to telecommunications research institutes in Korea. In addition, since January 2000, all network service providers (other than regional paging service providers) are obligated to contribute toward the supply of “universal” telecommunications services in Korea. Telecommunications service providers designated as “universal service providers” by the Korea Communications CommissionMSIP are required to provide universal telecommunications services such as local services, local public telephone services, discount services for persons with disabilities and for certain low-income persons, telecommunications services for remote islands and wireless communication services for ships. We have been designated as a universal service provider. The costs and losses recognized by universal service providers in connection with providing these universal telecommunications services will be shared on an annual basis by all network service providers (other than regional paging service providers), including us, on a pro rata basis based on their respective net annual revenue calculated pursuant to a formula set by the Korea Communications Commission.MSIP. Due to the amendment of the Telecommunications Business Law, effective April 9, 2001, a
A network service provider must permit other network service providers, as designated by the MSIP, to co-use wirelines connecting the switching equipment to end-users, upon the request of such other network service providers. In addition, a network service provider may permit other network service providers to co-use its wireless communication systems upon the request of any of such other network service providers. The compensation method for the co-use must be determined by the Korea Communications CommissionMSIP and be settled, by fair and proper methods. In addition, starting April 2002, we are required to lease to other companies our fixed-lines that connect subscribers to our network. This system, which is called local loop unbundling, is intended to prevent excessive investment in local loops. This system requires us to lease the portion of our copper lines that represent our excess capacity to other companies upon their request at rates that are determined by the Korea Communications CommissionMSIP based on our cost, and taking into consideration an appropriate rate of return, to enable them to provide voice and broadband services. Revenues from local loop unbundling, if any, are recognized as revenues from miscellaneous services.businesses. Foreign Investment The Telecommunications Business Act restricts the ownership and control of network service providers by foreign shareholders. Foreigners, foreign governments and “foreign invested companies” may not own more than 49.0% of the issued shares with voting rights of a network service provider, including us, and a foreign shareholder may not become our largest shareholder if such shareholder holds 5.0% or more of our shares. For purposes of the Telecommunications Business Act, the term “foreign invested company” means a company in which foreigners and foreign governments hold 15.0% or more shares with voting rights in the aggregate and a foreigner or a foreign government is the largest shareholder, provided, however, that such company will not be counted as a foreign shareholder for the purposes of the above-referenced 49.0% limit if (1) it holds less than 1.0% of our total issued and outstanding shares with voting rights.rights or (2) if the largest shareholder of such company is a government or foreign entity of a country that is a counterparty to a free trade agreement with Korea, as publicly announced by the MSIP, and the MSIP determines that the fact that such foreign government or entity holds a 15.0% or greater shareholding in such company does not present a risk of harm to the public interest. (However, the calculation of the above-referenced 49% ceiling will apply to: (x) any foreign entities that have entered into any major management-related agreement with a network service provider or the shareholder(s) thereof; and (y) foreign entities that have entered into any agreement pertaining to the settlement of fees relating to the handling of international electronic telecommunications services). As of December 31, 2010, 48.52%2013, 40.08% of our common shares were owned by foreign investors. In the event that a network service provider violates the shareholding restrictions, its foreign shareholders cannot exercise voting rights for their shares in excess of such limitation, and the Korea Communications CommissionMSIP may require corrective measures be taken to comply with the ownership restrictions. There is no restriction on foreign ownership for specific service providers and value-added service providers. Individual Shareholding Limit Under the Telecommunications Business Act, a foreign shareholder who holds 5.0% or more of our total shares is prohibited from becoming our largest shareholder. However, any foreign shareholder who held 5.0% or more of our total shares and was our largest shareholder on or prior to May 9, 2004 is exempt from the regulations, provided that such foreign shareholder may not acquire any more of our shares. In addition, under the Telecommunications Business Act, the Korea Communications CommissionMSIP may, if it deems it necessary to preserve substantial public interests, prohibit a foreign shareholder from being our largest shareholder. In addition, the Foreign Investment Promotion Act prohibits any foreign shareholder from being our largest shareholder, if such shareholder owns 5.0% or more of our shares with voting rights. In the event that any foreigner or foreign government acquires our shares in violation of the above provisions, the Telecommunications Business Act restricts such foreign shareholder from exercising his or her voting rights with respect to common shares exceeding such threshold. The Korea Communications CommissionMSIP may also order us or the foreign shareholder to take corrective measures in respect of the excess shares within a specified period of six months or less. Customers and Customer Billing We typically charge residential subscribers and business subscribers similar rates for services provided. On a case-by-case basis, we also provide discount rates for some of our high-volume business subscribers. We bill all of our customers on a monthly basis. Our customers may make payment at either payment points such as local post offices, banks or our service offices, through a direct-debit service that automatically deducts the monthly payment from a subscriber’s designated bank account, or through a direct-charge service that automatically charges the monthly payment to a subscriber’s designated credit card account. Approximately 70%70.2% of our subscribers as of December 31, 20102013 pay through the direct-debit service. Accounts of subscribers who fail to pay our invoice are transferred to a collection agency, which sends out a notice of payment. If such charges are not paid after notice, we cease to provide outgoing service to such subscribers after a period of time determined by the type of subscribed service. If charges are still not paid two to three months after outgoing service is cut off, we cease all services to such subscribers. After service is ceased, the overdue charges that are not collected by the collection agency are written off. Insurance We carry insurance against loss or damage to all significant buildings and automobiles. Except for our insurance coverage of our satellites and Internet data centers, we do not carry insurance covering losses to outside plants or to equipment because we believe the cost of such insurance is excessive and the risk of material loss or damage is insignificant. We do not have any provisions or reserves against such loss or damage. We do not carry any business interruption insurance. We provide co-location and a variety of value-added services including server-hosting services to a number of corporations whose business largely depends on critical data operated on our servers or on their servers located at our data centers. Any disruptions, interruptions, physical or electronic data loss, delays or slow downslowdowns in communication connections could expose us to potential liabilities for losses relating to the disrupted businesses of our customers relying on our services. Information Technology and Operational Systems Enhancement of our information technology and operational systems and efficient utilization of such systems are important in effectively promoting our core strategies. We are committed to continually investing in and enhancing our information technology systems, which provide support to many aspects of our businesses. In order to respond more effectively to a changing business environment, a new enterprise resource planning system (the “New ERP System”) was completed and implemented during the second half of 2012. The New ERP System has contributed to enhancing various aspects of our internal processes and control systems, and we are establishing various plans to effectively utilize the New ERP System and to stabilize our internal control processes in connection with the New ERP System. Item 4.C.Organizational Structure These matters are discussed under Item 4.B. where relevant. Item 4.D.Property, Plants and Equipment Our principal fixed asset is our integrated telecommunications networks. In addition, we own buildings and real estate throughout Korea. Our fixed-line equipment vendors and mobile equipment suppliers include well-known international and local suppliers such as Samsung Electronics, LG Electronics, Cisco Systems and Apple Inc. Mobile Networks Our mobile network architecture includes the following components: cell sites, which are physical locations equipped with base transceiver stations consisting of transmitters, receivers and other equipment used to communicate through radio channels with subscribers’ mobile telephone handsets within the range of a cell; base station controllers, which connect to and control, the base transceiver stations; mobile switching centers, which in turn control the base station controllers and the routing of telephone calls; and transmission lines, which connect the mobile switching centers, base station controllers, base transceiver stations and the public switched telephone network. The following table lists selected information regarding our mobile networks as of December 31, 2010:2013: | | | | | | | | | | | CDMA | | | W-CDMA | | Mobile switching centers | | | 35 | | | | 24 | | Base station controllers | | | 300 | | | | 419 | | Base transceiver stations | | | 7,614 | | | | 7,391 | | Indoor and outdoor repeaters | | | 53,826 | | | | 257,946 | |
| | | | | | | | | | | W-CDMA | | | LTE | | Mobile switching centers | | | 86 | | | | 33 | | Base station controllers | | | 692 | | | | — | | Base transceiver stations | | | 11,540 | | | | 21,436 | | Indoor and outdoor repeaters | | | 322,693 | | | | 226,090 | |
We have a license to use 40 MHz of bandwidth in the 1.82.1 GHz spectrum to provide PCS services based on CDMA wireless network standards and another 40 MHz of bandwidth in the 2.0 GHz spectrumthat we use to provide IMT-2000 services based on W-CDMA wireless network standards. Our current right to use 40 MHz of bandwidthSuch license expires in the 1.8 GHz spectrum is scheduled to expire at the end of June 2011. We have applied to the Korea Communications Commission to allocate back to us 20 MHz of bandwidth in the 1.8 GHz spectrum, for whichDecember 2016, and we expectare required to pay a usage fee if reallocatedapproximately₩1.3 trillion for use of such bandwidth during the license period of 15 years. In April 2010, the KCC announced its decision to us. In addition, the Korea Communications Commission allocatedallocate 20 MHz of bandwidth in the 900 MHz spectrum to us, which will becomebecame effective onin July 1, 2011. We expect2011, for which we are required to pay a portion of the actual sales generated from using the bandwidth in the 900 MHz spectrum during the license period of 10 years as a usage fee for the bandwidth, as well as a portion of expected sales asthat was determined by the Korea Communications CommissionKCC at the time of allocation. In June 2011, our right to use 40 MHz of bandwidth in the Korea Communications Commission announced its plan1.8 GHz spectrum expired, and the KCC allocated back to auctionus the right to use 20 MHz of such bandwidth in the 1.8 GHz spectrum upon expiration pursuant to our application, for which we are required to pay a portion of the actual sales generated from using the bandwidth in the 1.8 GHz spectrum during the license period of 10 years as a usage fee for the bandwidth, as well as a portion of expected sales that was determined by the KCC at the time of allocation. In August 2011, the KCC auctioned the right to use the remaining 20 MHz of bandwidth in the 1.8 GHz spectrum that we are scheduled to relinquish at the end of June 2011,relinquished, 10 MHz of additional bandwidth in the 800 MHz spectrum and 20 MHz of additional bandwidth in the 2.1 GHz spectrum. AccordingWe acquired the right to use the plan,10 MHz of bandwidth in the 800 MHz spectrum, for which we are required to pay a maximumtotal usage fee of₩261 billion during the license period of 10 years, SK Telecom acquired the right to use the 20 MHz of bandwidth may be soldin the 1.8 GHz spectrum and LG U+ acquired the right to a single service provider, and SK Telecom and we are prohibited from bidding foruse the 20 MHz of bandwidth in the 2.1 GHz spectrum. If we are allocatedWe began using the bandwidths20 MHz of bandwidth in the 800 MHz or the 1.8 GHz spectrums, we expect to pay usage fees for such bandwidths. We have also installed an intelligent network onspectrum, which became available upon termination of our mobile network infrastructure2G services, to provide a wide range of advanced call featuresour 4G LTE services starting in January 2012, and value-added services.commenced providing wideband LTE services in September 2013 and commercialized Wideband LTE-A services in March 2014. Exchanges Exchanges include local exchanges and “toll” exchanges that connect local exchanges to long-distance transmission facilities. We had 24.024.2 million lines connected to local exchanges and 16.01.6 million lines connected to toll exchanges as of December 31, 2010.2013. All of our exchanges are fully automatic. We completed replacement of all electromechanical analog exchanges with digital exchanges in June 2003 in order to provide higher speed and larger volume services. Starting in 2006, we also began conversion of our exchanges to be compatible to Internet protocol platform in preparation for building our next generation broadband convergence network by 2021. As of December 31, 2010,2013, approximately 85%97% of our lines connected to toll exchanges are compatible to Internet protocol platform. Internet Backbone Our Internet backbone network, called KORNET, has the capacity to handle an aggregate traffic of our broadband Internet access subscribers, Internet data centers and Internet exchange system at any given moment of up to 4.66.6 Tbps as of December 31, 2010.2013. We have set up contingent plans to prepare against various incidents that could affect reliable Internet access service. Starting in 2005, we have also begun deploying our Internet protocol premium network that enables us to more reliably support olleh TV, WiBro, Internet Phone, upgraded VoIP services and other Internet protocol services. As of December 31, 2010,2013, our Internet protocol premium network had 2,224,9861,032 lines installed to provide voice over Internet protocol services and a total capacity to handle up to 595 Gbps1.4 Tbps of IP-TV, voice and WiBro service traffic. Access Lines As of December 31, 2010,2013, we had 14.516.0 million access lines installed, which allow us to reach virtually all homes and businesses in Korea. As part of our broadband deployment strategy, we have upgraded many of our access lines by equipping them with broadband capability using xDSL and FTTH technology. As of December 31, 2010,2013, we had approximately 12.714.4 million broadband lines with speedsspeed of at least 50 Mbps that enable us to deliver broadband Internet access and multimedia content to our customers. Transmission Network Our domestic fiber optic cable network consisted of 484,701636,347 kilometers of fiber optic cables as of December 31, 20102013 of which 86,815116,117 kilometers of fiber optic cables are used to connect our backbone network and 397,886520,230 kilometers are used to connect the backbone network to our subscribers. Our backbone network utilizes dense wavelength division multiplexing64Tbp Long-haul Reconfigurable Optical Add Drop Multiplexer (“ROADM”) technology for connecting major cities as well as optical add-drop multiplexer technology for connecting neighboring cities. Dense wavelength division multiplexingROADM technology improves bandwidth efficiency by enabling transmission of data to be transmitted from multiple signals across one fiber strand in a cable byand carrying each signal on a separate wavelength. We enhanced our backbone network connecting six major cities in Korea by implementing an optical cross-connector (OXC) and access network by implementing multi-service provisioning platform (“MSPP”) architecture in 2008 and2008. We are in the process of building our next generation broadband convergence network through installation of network equipment utilizing optical reconfigurable add-drop multiplexer technology and multi-service provisioning platform.by installing carrier ethernet architecture in 2014. Our extensive domestic long-distance network is supplemented by our fully digital domestic microwave network, which consistsconsisted of 55 relay sites.sites as of December 31, 2013. International Network Our international network infrastructure consists of both submarine cables and satellite transmission systems, including two submarine cable-landing stations in Busan and Keoje and two satellite teleports in Kumsan and Boeun. Data services such as international private lease circuits, Internet protocol and very small aperture terminals are provided through submarine cables and satellite transmission. In order to guarantee high quality services to our end customers, our submarine cables and satellite transmission systems are linked to various points-of-presence in the United States, Asia and Europe. In addition, our international telecommunications networks are directly linked to approximately 315240 telecommunications service providers in various international destinations and are routed through our three international switching centers in Seoul, Daejeon and Busan. Our international Internet backbone with capacity of 250542 Gbps is connected to approximately 180 Internet service providers through our two Internet gateways in HeawhaHyehwa and Guro. In addition, we operate a video backbone with capacity of one Gbps to transmit video signals from Korea to the rest of the world. Satellites In order to provide broadcasting, video distribution and broadband data services in select areas, we operate two satellites, Koreasat 3, 5 and 6, launched in 1999, 2006 and 2011, respectively.2010, respectively, and own certain of the transponders in two additional satellites, ABS-1 launched in 2010 and ABS-2 launched in February 2014. Additionally, we are currently undergoing international arbitration proceedings with ABS over the Mugunghwa 3 satellite, which we sold to ABS in 2011. See “Item 4.B. Business Overview—Our Services—Satellite Services.Miscellaneous Businesses” and “Item 8.A. Consolidated Financial Statements and Other Financial Information—Legal Proceedings.” International Submarine Cable Networks International traffic is handled by telecommunications satellites and submarine cables. Because of the high cost of laying a submarine cable, the usual practice is for multiple carriers to jointly commission a new cable and share the costs and the capacity. We own interests in several international fiber optic submarine cable networks, including: a 1.4% interest in the 29,000-kilometer FLAG Europe-Asia network connecting Korea, Southeast Asia, the Middle East and Europe, activated since April 1997; a 1.8% interest in the 39,000-kilometer Southeast Asia-Middle East-Western Europe 3 Cable Network linking 34 countries, activated since December 1999; a 6.7% interest in the 30,444-kilometer China-U.S. Cable Network linking Korea, China, Japan, Taiwan and the United States, activated since January 2000; a 5.1% interest in the 19,000-kilometer Asia Pacific Cable Network 2 connecting Korea, China, Japan, Taiwan, Hong Kong, Philippines, Singapore and Malaysia, activated since December 2001; a 20.0% interest in the 500-kilometer Korea-Japan Cable Network linking Korea and Japan, activated since March 2002.;2002; and a 13.1% interest in the 16,500-kilometer Trans Pacific Express Cable Network linking Korea, China, Taiwan and the United States, activated since September 2008. We have also invested in 8eight other international fiber optic submarine cables around the world. Item 4A. Unresolved Staff Comments We do not have any unresolved comments from the Securities and Exchange Commission staff regarding our periodic reports under the Exchange Act of 1934. Item 5. Operating and Financial Review and Prospects Item 5.A.Operating Results The following discussion and analysis is based on our consolidated financial statements, which have been prepared in accordance with Korean GAAP. Korean GAAP varies in certain significant respects from accounting principles generally accepted inIFRS as issued by the United States of America. We have summarized these differences and their effect on our total equity as of December 31, 2009 and 2010 and the results of our operations for each of the years in the three-year period ended December 31, 2010, in Note 38 to the Consolidated Financial Statements.IASB. Overview We are an integrated provider of telecommunications services. Our principal services include mobile service, fixed-line telephone services, Internet services including broadband Internet access service and data communication service. The principal factors affecting our revenues from these services have been our rates for, and the usage volume of, these services, as well as the number of subscribers. For information on rates we charge for our services, see “Item 4. Information on the Company—Item 4.B. Business Overview—Revenues and Rates.” WeIn 2012, we determined our operating segments after the merger with KTF on June 1, 2009for financial reporting purposes as (i) the PersonalTelecommunication & Convergence Customer Group, which engages in mobileproviding various telecommunication services to individual/home customers and wireless data communications services,the convergence business, (ii) the Home Customer Group andGlobal & Enterprise Customer Group, which engageengages in fixed-line telephonetelecommunication services Internet services including broadband Internet access servicefor the global market and corporate customers, as well as data communication service, (iii) the Finance/Rental Business Group, which engages in providing various financial services such as credit card and (iii)lending, as well as automobile rental and leasing business and (iv) others, which include security services, satellite service, information technology and network services, satellite TV service and real estate development and car rental businesses. One of the major factors contributing to our historical performance was the growth of the Korean economy, and our future performance will depend at least in part on Korea’s general economic growth and prospects. For a description of recent developments that have had and may continue to have an adverse effect on our results of operations and financial condition, see “Item 3. Key Information—Item 3.D. Risk Factors—Korea is our most important market, and our current business and future growth could be materially and adversely affected if economic conditions in Korea deteriorate.” A number of other developments have had or are expected to have a material impact on our results of operations, financial condition and capital expenditures. These developments include: mergeracquisitions and disposals of KTF into KT Corporation on June 1, 2009;interests in subsidiaries and joint ventures;
employee reductions and changes in severance and retirement benefits;
IMT-2000 service license payments;usage fees for bandwidths;
changes in the rate structure for our services; researching and implementing technology upgrades and additional telecommunication services; and transition to International Financial Reporting Standards starting in 2011.services.
As a result of these factors, our financial results in the past may not be indicative of future results or trends in those results. MergerAcquisitions and Disposals of KTF into KT CorporationInterests in Subsidiaries and Joint Ventures
On June 1, 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger, with the objective of maximizing management efficienciesOne key aspect of our fixed-lineoverall business strategy calls for acquisitions of businesses and mobile telecommunications operationsentering into joint ventures that complement or diversify our current business, as well as more effectively respondingdisposal or termination of such businesses from time to time. The following summarizes our recent acquisitions and disposals:
in January 2011, we acquired 5,600,000 shares of redeemable convertible preferred stock with voting rights and convertible bonds that were convertible into 5,600,000 shares of common stock of KT Skylife Co., Ltd. from Dutch Savings Holdings B.V. in January 2011 for approximately₩246 billion, to respond to the trend of convergence trends in the telecommunications industry. The mergerand broadcasting industries, and to seek additional synergies with our existing operations. We exercised the conversion rights on the redeemable convertible preferred stock and the convertible bonds in March 2011, and owned a 50.1% interest in KT Skylife Co., Ltd. as of December 31, 2013; in June and October 2011, we sold a total of 5,309,189 common shares of New Telephone Company, Inc., representing all of our interests in New Telephone Company, Inc., for approximately₩380 billion. Located in Russia, New Telephone Company, Inc. had previously been our consolidated subsidiary providing fixed-line telephone services in Vladivostok, and our decision to dispose of our interest in that company was consummated pursuant to a “comprehensive stock transfer” under Article 360-15 of the Korean Commercial Code, whereby KTF common stockholders received 0.7192335 share of KT Corporation common stock for every one share of KTF common stock they owned. The success of the merger of KTF with KT Corporation will depend, in part onaffected by the changing landscape in the Russian telecommunications market, where telecommunications service providers were becoming more nationalized and increasing rapidly in size as a result;
in October 2011, we, through our abilitysubsidiary KT Capital Co., Ltd., acquired an additional 1,622,520 common shares of BC Card Co., Ltd. from Woori Bank for approximately₩252 billion, to realize the anticipated synergies, growth opportunitiesfurther diversify our business and to a lesser extent, cost savings from combining these two companies. The realizationcreate synergies through utilization of these anticipated benefits may be impeded, delayed or reducedour mobile telecommunications network in financial services, thereby increasing our ownership interest in BC Card Co., Ltd. to 38.86%, making it our consolidated subsidiary as a result of numerous factors, somedeemed control starting in October 2011. We acquired an additional 1,349,920 common shares of BC Card Co., Ltd. in January 2012 for approximately₩287 billion, and owned a 69.54% interest in BC Card Co., Ltd. as of December 31, 2013; and starting in July 2012, KT Rental Co., Ltd., our 58.0% owned subsidiary, became our consolidated subsidiary as a result of the acquisition of KT Rental’s common stock by Hana Daetoo Securities Co., Ltd. and other investors from the then-second largest shareholder in July 2012, and the restriction on our control over KT Rental pursuant to a shareholders’ agreement being resolved as a result. Our financial condition and results of operations may be affected as a result of such acquisitions, disposals or consolidation. Furthermore, pursuing acquisitions or joint venture transactions also requires significant capital, and as we pursue further growth opportunities for the future, we may need to raise additional capital by incurring loans or through the issuances of bonds or other securities in the international capital markets, which are outside our control. Somemay lead to increased levels of debt and debt servicing costs in the future. Bandwidth Usage Fees One of the principal limitations on a wireless network’s subscriber capacity is the amount of bandwidth spectrum allocated to the service provider. The growth of our challenges include difficultiesmobile telecommunications business and the increase in integrating the operationsusage of KTF with those of KT Corporation, including information systems, personnel, policies and procedures, and in reorganizing or reducing overlapping personnel, operations, marketing networks and administrative functions. Employee Reductions and Changes in Severance and Retirement Benefits
We sponsor a voluntary early retirement plan where we provide additional financial incentives for our employees whowireless data transmission services have been employed by us forsignificant
factors in the increased utilization of our bandwidth, since wireless data applications are generally more bandwidth-intensive than 20voice services. The current trend of increasing data transmission use and the increasing sophistication of multimedia content is likely to put additional strain on the bandwidth capacity of mobile service providers. We have acquired various licenses in recent years to retire early,secure additional bandwidth capacity to provide our broad range of services, for which we typically pay a portion of the actual sales generated from using the bandwidth during the license period as parta usage fee, as well as a portion of our efforts to improve operational efficiencies.expected sales as determined by the KCC at the time of allocation. In 2008, 1,141 employees retired under our voluntary early retirement plan. In 2009,August 2013, the Ministry of Science, ICT and Future Planning further auctioned 50 MHz of bandwidth in addition to our usual voluntary early retirement plan, we held a special voluntary early retirement program in December 2009 where we received applications for voluntary early retirement from employees whothe 1.8 GHz spectrum, which had been employedused by us for more than 15 yearsgovernmental entities such as the military, and provided them with additional financial incentives to retire early. The special voluntary early retirement program resulted80 MHz of bandwidth in the early retirement of 5,992 employees out of 25,340 eligible employees. In aggregate, 6,515 employees retired in 2009 under the voluntary early retirement plan and the special voluntary early retirement program. In 2010, 123 employees retired under our voluntary early retirement plan. We recorded severance indemnities relating to such voluntary early retirement plan and special voluntary early retirement program of(Won)97 billion in 2008,(Won)878 billion in 2009 and(Won)13 billion in 2010. IMT-2000 Service License Payments
2.6 GHz spectrum, which had been used for digital multimedia broadcasting services. We acquired the right to purchase oneuse 15 MHz of three licensesbandwidth in the 1.8 GHz spectrum, for which we are required to pay a total usage fee of approximately₩900 billion during a license period of eight years. SK Telecom acquired the right to use 35 MHz of bandwidth in the 1.8 GHz spectrum and LG U+ acquired the right to use 40 MHz of bandwidth in the 2.6 GHz spectrum. In September 2013, we commenced providing wideband LTE services, which utilizes our adjoining 20 MHz of bandwidth in the 1.8 GHz spectrum to provide IMT-2000transmission speed of up to 150 Mbps, twice faster than those offered under standard LTE services. SK Telecom also began providing its wideband LTE services on December 15, 2000, as a memberin September 2013 and LG U+ commenced providing its wideband LTE services in January 2014. As of a consortium of companies including KT Corporation and KTF. In March 2001, KT ICOM, a company created by the consortium, paid half of the(Won)1.3 trillion license fee payable to the1, 2014, our wideband LTE services covered five metropolitan cities in Korea, Communications Commission. KTF, which subsequently merged with KT ICOM, paid(Won)110 billion in 2008,(Won)130 billion in 2009 and(Won)150 billion in 2010, and we are obligatedexpect to payexpand our wideband LTE services to all of Korea by July 2014. As of December 31, 2013, the remaining(Won)170 billion in 2011. This payable accrues interest at the applicable three-year Government bond interest rate minus 0.75%. The accrued interest is paid on an annual basis to the Korea Communications Commission. We began offeringnumber of our HSDPA-based IMT-2000 services nationwideLTE subscribers exceeded 7.8 million. Furthermore, in March 2007.2014, we commercialized advanced wideband LTE (“Wideband LTE-A”) services, which interconnects our 20 MHz of bandwidth in the 1.8 GHz spectrum used to offer wideband LTE services with the 10 MHz of bandwidth in the 900 MHz spectrum used to offer standard LTE services by utilizing inter-band carrier aggregation technology to support transmission speed of up to 225 Mbps. Changes in the Rate Structure for Our Services Periodically, we changeadjust our rate structure for our services. In order to mitigate the impact from lower usage charges of local and domestic long-distance calls, we have increased our basic monthly charges and began offeringoffer various optional flat rate plans for our fixed-line subscribers. Such adjustments in the rate structure have increased the portion of fixed income and stabilized our cash flow. In addition, because the growing use of mobile telecommunications services has decreased the usage of our fixed-line telephone services, we believe we are able to maximize our revenues from fixed-line telephone services by adjusting the rate structure so as to increase our basic monthly charges. We also provide bundled packages of our various services at a discount in order to attract additional subscribers to our new services. We currently bundle our broadband Internet access service with WiBro, IP-TV, Internet phone, fixed-line telephone service, internet phone servicesWiBro, and mobile services, at a discount. The MSIP, in consultation with the Ministry of Strategy and Finance, currently approves rates charged by us for local telephone service. In addition, the MSIP currently does not regulate our domestic long-distance, international long-distance, broadband internet access and mobile service rates, but it periodically announces public policy guidelines or suggestions on tariffs for non-regulated services, which we have followed in the past. For a discussion of adjustments in our rate structure, see “Item 4. Information on the Company—Item 4.B. Business Overview—Revenues and Rates.” Handset Subsidies In March 2008, the Government removed a prohibition on the provision of handset subsidies and allowed mobile service providers to subsidize the purchase of new handsets by certain qualifying customers. In order to compete more effectively, we began providing such handset subsidies, which have increased, and may continue to increase, our marketing expenses. We provide handset subsidies to subscribers who agree to use our service for a predetermined service period and purchase handsets on an installment basis. Generally, handset subsidies may be provided to any subscriber that uses our service and purchases handsets either directly from us or through third parties. Since we do not recognize revenues from sales of handsets by third parties, the trends between our handset sales and our provision for handset subsidies are not necessarily correlated. The amount recognized as a provision for handset subsidies is our best estimate of the expenditure required to settle current obligations to relevant subscribers at the end of the reporting period, which is calculated as the sum of the present values of the monthly balances for handset subsidies over the relevant service periods, taking into account the customer retention rate for relevant subscribers. On May 13, 2010, the KCC announced a guideline recommending that telecommunication service providers limit their marketing expenses to 22.0% of their annual sales, and the limit was subsequently lowered to 20.0% of their annual sales for the years 2013, 2012 and 2011. Such marketing expenses include initial commissions, monthly commissions and retention commissions paid to our authorized dealers and subscribers, including handset subsidies, but do not include advertising expenses. This guideline remains effective. While the guideline is not binding, we, as well as our competitors, nonetheless try to adhere to such guideline when feasible, which may have a material adverse effect on our businesses and results of operations. Furthermore, failure to comply with rules, regulations and corrective orders may lead to suspension of our business or imposition of monetary penalties. For example, based on investigations conducted in December 2012 and January 2013, the KCC imposed a combined fine of approximately₩12 billion on SK Telecom, LG U+ and us in January 2013 (our fine being approximately₩2.9 billion), for providing subsidies that were higher than those allowed under current regulations to new mobile phone purchasers and subscribers, and also imposed temporary suspensions from recruiting new subscribers ranging from 20 days to 24 days. In March 2013, the KCC again imposed a combined fine of approximately₩5 billion on SK Telecom, LG U+ and us (our fine being approximately₩1.6 billion) for continuing to offer subsidies during the suspension period. In July 2013, the KCC imposed a combined fine of approximately₩67 billion on SK Telecom, LG U+ and us (our fine being approximately₩20 billion) and also imposed a seven day suspension on us from recruiting new subscribers, also in connection with providing excessive handset subsidies to new subscribers. In December 2013, the KCC again imposed a combined fine of approximately₩106 billion on SK Telecom, LG U+ and us (our fine being approximately₩30 billion), which is the largest fine ever imposed by the KCC on local mobile operators for providing excessive subsidies to new subscribers. On March 7, 2014, the MSIP imposed a temporary suspension on us for 45 days (from March 13, 2014 to April 26, 2014), SK Telecom for 45 days (from April 5, 2014 to May 19, 2014), and LG U+ for 45 days (from March 13, 2014 to April 4, 2014 and again from April 27, 2014 to May 18, 2014) from recruiting new subscribers as a result of continuing to offer excessive handset subsidies to new subscribers, despite the order from the KCC prohibiting such subsidies, which is the longest suspension period imposed on us by the Government for providing discriminatory subsidies to subscribers. We expect that the business suspension imposed on us, as well as the continuing restriction by the Government on subsidies we provide, will have an adverse effect on our operating revenues for the first quarter of 2014. Any further suspension of our business or imposition of monetary penalties by the Government could have a material adverse effect on our business. Researching and Implementing Technology Upgrades and Additional Telecommunication Services The telecommunications industry is characterized by continual advances and improvements in telecommunications technology, and we have been continually researching and implementing technology upgrades and additional telecommunication services to maintain our competitiveness. For example, in March 2005, we acquired a license to provide WiBro service for(Won)126 billion, and commercially launched the service in June 2006. We completed the upgrade of our 4G WiBro network and expanded our WiBro service coverage to 82 cities nationwide and major highways as of March 2011, which we believe will allow us to provide WiBro services at speeds that are approximately three times faster than our previous 3G network at a lower cost, and had approximately 377 thousand subscribers as of December 31, 2010. In addition, we are currently upgrading our broadband network to enable FTTH connection, which enhances downstreamprovides speed of up to 100 Mbps and better connection quality. FTTH is a telecommunication architecture in which a communication path is provided over optical fiber cables extending from the telecommunications operator’s switching equipment to the boundary of home or office. FTTH uses fiber optic cable, which is able to carry a high-bandwidth signal for longer distances without degradation. FTTH enables us to deliver enhanced products and services that require high bandwidth, such asIP-TV, service and delivery of other digital media content. We will continuecontent with stronger stability. In addition, we have been building more advanced mobile telecommunications networks based on LTE technology, which is generally referred to make capital expenditures, incur researchas 4G technology, and development expenses and implement technology upgrades and additional telecommunicationscommenced providing commercial 4G LTE services in orderthe Seoul metropolitan area on January 3, 2012. We completed the expansion of our 4G LTE service coverage nationwide in October 2012. Several wireless carriers in the United States, Europe and Asia commenced LTE services in recent years and LTE technology is currently widely accepted as the standard 4G technology. LTE technology enables data to effectively implement continual advancesbe transmitted faster than W-CDMA, up to 150 Mbps for downloading and improvementsup to 50 Mbps for uploading. We expect that the faster data transmission speed of the LTE network, combined with our existing 4G nationwide WiBro network, will allow us to offer significantly improved wireless data transmission services, providing our subscribers with faster wireless access to multimedia content. In January 2012, we also began offering 4G LTE services following the termination of our 2G services. We completed the expansion of our 4G LTE service coverage nationwide in telecommunications technology. October 2012 and commenced providing wideband LTE services in September 2013, and commercialized Wideband LTE-A services in March 2014, as discussed above.Transition to International Financial Reporting Standards Starting in 2011Critical Accounting Policies
In March 2007, the Financial Services Commission and the Korea Accounting Institute announced a road map for the adoption of Korean IFRS, pursuant to which all listed companies in Korea, including us, will be required to prepare their annualWe have prepared our consolidated financial statements beginning in 2011 that differ in certain respects from IFRS applied in other countries.
In preparation of such adoption, we began preparing our internal financial statements under both Korean GAAP and Korean IFRS starting in January 2010. Beginning in 2011, we have discontinued reporting under Korean GAAPaccordance with reconciliation to U.S. GAAP and instead have commenced reporting under Korean IFRS and we also plan to release annual financial statements prepared pursuant to IFRS as issued by the IASB. AlthoughThese accounting principles require our accounting department is currently analyzing the effects of adopting IFRS on our annual financial statements, it is not possible to estimate with any degree of certainty the exact impact on our annual financial statements from such adoption because the IFRS accounting policies to be adopted by us for such financial statements have not been finalized. Accordingly, there can be no assurance that the adoption of IFRS will not adversely affect our reporting results of operations or financial condition.
Critical Accounting Policies
The preparation of financial statements in conformity with Korean GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the years reported. We based our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates under different assumptions and conditions.
The fundamental objective of financial reporting is to provide useful information that allows a reader to comprehend our business activities. To aid in that understanding, our management has identified “critical accounting estimates.” These estimates have the potential to have a more significant impact on our financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events which are continuous in nature. These critical accounting estimates include: allowances for doubtful accounts; useful lives of property and equipment; impairment of long-lived assets, including goodwill; valuation and impairment of investment securities; deferred revenue relating to service installation fees and initial subscription fees; post-employment benefit liabilities; valuation of derivatives.employee reductions and changes in severance and retirement benefits.
Allowances for Doubtful Accounts Allowance for doubtful accounts is our best estimate of the amount of probable creditimpairment losses inincurred on our existing notes and accounts receivable. We determine the allowance for doubtful notes and accounts receivable based on an aging analysis of portfolio quality andbalances, historical write-off experience.experience, customer’s or counterparty’s credit ratings and changes in payment terms. Account balances are charged off against the allowance when all means of collection have been exhausted and the potential for recovery is considered remote. Our past experience shows that the possibility of collection is remote after three years of collection effort. Changes in the allowances for doubtful accounts for each of the yearsour trade and other receivables in the three-year period ended December 31, 20102013 are summarized as follows: | | | Year Ended December 31, | | | Year Ended December 31, | | | | 2008 | | 2009 | | 2010 | | | 2011 | | 2012 | | 2013 | | | | (In millions of Won) | | | (In millions of Won) | | Balance at beginning of year | | (Won) | 487,729 | | | (Won) | 488,739 | | | (Won) | 477,124 | | | ₩ | 647,139 | | | ₩ | 642,475 | | | ₩ | 644,058 | | Provision | | | 148,972 | | | | 104,977 | | | | 171,195 | | | | 133,442 | | | | 113,808 | | | | 160,166 | | Write-offs | | | (147,962 | ) | | | (116,592 | ) | | | (133,095 | ) | | Reversal or written-off | | | | (167,413 | ) | | | (127,189 | ) | | | (127,206 | ) | Changes in the scope of consolidation | | | | 26,970 | | | | 12,119 | | | | 2,687 | | Others | | | | 2,337 | | | | 2,845 | | | | (1,443 | ) | | | | | | | | | | | | | | | | | | | | Balance at end of year | | (Won) | 488,739 | | | (Won) | 477,124 | | | (Won) | 515,224 | | | ₩ | 642,475 | | | ₩ | 644,058 | | | ₩ | 678,262 | | | | | | | | | | | | | | | | | | | | |
Changes in the allowances for doubtful accounts for our loans receivables in the three-year period ended December 31, 2013 are summarized as follows: | | | | | | | | | | | | | | | Year Ended December 31, | | | | 2011 | | | 2012 | | | 2013 | | | | (In millions of Won) | | Balance at beginning of year | | ₩ | 35,583 | | | ₩ | 43,587 | | | ₩ | 65,196 | | Provision | | | 30,808 | | | | 32,914 | | | | 40,743 | | Reversal or written-off | | | (22,804 | ) | | | (12,210 | ) | | | (30,448 | ) | Others | | | — | | | | 905 | | | | (2,416 | ) | | | | | | | | | | | | | | Balance at end of year | | ₩ | 43,587 | | | ₩ | 65,196 | | | ₩ | 73,075 | | | | | | | | | | | | | | |
If economic or specific industry trends change, we would adjust our allowances for doubtful accounts by recording additional expense or benefit. Our study shows that a 5.0% decrease or increase in the historical write-off experience would increase or decrease the provision for doubtful accounts by approximately(Won)13 billion as of December 31, 2010. Useful Lives of Property and Equipment Property and equipment are depreciated based onusing the straight-line method over their useful lives as disclosed in Note 32.11 to the Consolidated Financial Statements. Generally, theAn asset’s residual value and useful lives are estimatedreviewed and adjusted at the time the asset is acquiredend of each financial reporting period, and are based on historical experience with similar assets as well as taking into account anticipated technological or other changes. In certain cases and as permitted under Korean GAAP, those useful lives used for accounting purposes are different from the estimated economic lives of the related asset. In addition, the estimated lives of certain other assets, including underground access to cable tunnels, and concrete and steel telephone poles are based on rates established by a ruling by the Korean National Tax Service (which is also applicable under Korean GAAP). If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of increased depreciation expense in future periods. A decrease of remaining estimated useful life by one year of our property and equipment would result in an increase of depreciation expense of approximately(Won)₩248286 billion in 2010.2013. Impairment of Long-Lived Assets, including Goodwill Long-lived assets generally consist of property and equipment and intangible assets.assets, including goodwill. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, we evaluate our long-lived assets for impairment each year as part of our annual forecasting process. An impairment loss would be consideredrecognized when estimated undiscounted future net cash flow expected to result from the use of the asset and its eventual disposition areasset’s recoverable amount is less than its carrying amount. The recoverable amount of a long-lived asset is the greater of an asset’s fair value less costs to sell and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). The recoverable amounts of cash-generating units are based on their value in use calculated by applying the annual discount rate of 9.4% to the estimated future cash flows based on financial budgets for the next five years. Annual growth rates ranging from 0.0% to 2.0% were applied for the cash flows expected to be incurred after five years. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Our intangible assets include the IMT-2000 frequency usage right, which has a contractual life of 13 years and is amortized from the date commercial service is initiated through the end of its contractual life, which is November 2016. We started to amortize this frequency usage right in December 2003, and we review the IMT-2000 frequency usage right for impairment on an annual basis. In connection with our review, we utilize the estimated long-term revenue and cash flow
forecasts developed as part of our planning process. The results of our review using the testing method described above did not indicate any need to impair the IMT-2000 frequency usage right in 2010. The use of different assumptions within our cash flow model could result in different amounts for the IMT-2000 frequency usage right.
Impairment of Goodwillrecovery value.
Goodwill represents the excess of purchase price paid over the fair value assigned to the identifiable net assets of acquired businesses. The determination of the fair values of goodwill is based on management’s judgment on the expected cash flows of the cash-generating units to which the goodwill is allocated, taking market demand, competition and other economic factors into consideration. The determination of impairments of goodwill involves the use of estimates that include, but are not limited to, the cause, timing and amount of the impairment. Impairment is based on a large number of factors, such as changes in current competitive conditions, expectations of growth in the telecommunications industry, a decline in our expected future cash flows, changes in the future availability of financing, technological obsolescence, discontinuance of services, current replacement costs and prices paid in comparable transactions. Valuation and Impairment of Financial Assets The determinationfair value of financial instruments, including derivative instruments, that are not traded in an active market is determined by using valuation techniques. Our management uses its judgment to select a variety of methods and makes assumptions that are mainly based on market conditions existing at the end of each reporting period. We record rights and obligations arising from derivative instruments as assets and liabilities, which are stated at fair value. Gains and losses that result from a change in the fair value of derivative instruments are recognized in current earnings. However, for derivative instruments that qualify for cash flow hedge accounting, the effective portion of the gain or loss on the derivative instruments are recorded as gain or loss on valuation of derivatives for cash flow hedge included in accumulated other comprehensive income or loss, as applicable. For financial assets, including assets carried at amortized cost and those classified as available-for-sale, we make an annual assessment at the end of each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. For financial assets carried at amortized cost and available-for-sale debt assets, such asset is considered impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of goodwill requiresone or more events (a “loss event”) that occurred after the initial recognition of the financial asset, which had an impact on the estimated future cash flows of the financial asset that can reliably be estimated. For equity investments classified as available-for-sale, a significant amount of management’s judgment. We evaluate the carrying value of goodwill annually or more frequently if events or changesprolonged decline in circumstances indicate that the carrying amount may exceed estimated fair value. Goodwill impairment testing is a two-step process. The first step involves determining the fair value of the reporting unit and comparingsecurity below its cost, in addition to circumstances described below, may be considered as evidence that to the book value. Ifasset is impaired.
For assets carried at amortized cost, the fair value exceedsamount of impairment is measured as the book value, then no further testing is required. If the fair value is less than the book value, then a second step is performed. In the second step, the fair values of all of the assets and liabilities of the reporting unit, including those that may not be currently recorded, are determined. The difference between the sum of all of those fair valuesasset’s carrying amount and the overall reporting unit’spresent value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the asset’s original effective interest rate, and the carrying amount of the asset is reduced and the amount of loss is recognized in the statement of income. Loss on such asset may also be measured based on observable market price if there is an active market for the asset. For assets classified as available-for-sale, the cumulative loss, measured as the difference between the acquisition cost and the current fair value and recognized as accumulated other comprehensive income, less any impairment loss on such financial asset previously recognized in profit or loss, is a new implied goodwill amount that is compared toremoved from equity and recognized in the recorded goodwill. If implied goodwill is less than the recorded goodwill, then impairment to the recorded goodwill is recorded. Impairmentstatement of Investment Securities
For investments in companies, whether or not publicly held, that are not controlled, but under our significant influence, we utilize the equity method of accounting. Under the equity method of accounting, our initial investment is recorded at cost and is subsequently increased to reflect our share of the investee income and reduced to reflect our share of the investee losses or dividends received. Any excess in our acquisition cost over our share of the investee’s identifiable net assets is generally recorded as investor-level goodwill or other intangibles and amortized by the straight-line method over the estimated useful life. The amortization of investor-level goodwill or other intangibles is recorded against the equity income (losses) of affiliates.income.
Significant management judgment is involved in the evaluation of declines in value of individual investments.evaluating whether a loss event has occurred. The estimates and assumptions used by management to evaluate declines in valuewhether a loss event has occurred can be impacted by many factors, such as the financial condition, earnings capacity and near-term prospects of the company in which we have invested, breach of contract such as default or delinquency in payments, disappearance of an active market for the financial asset and for publicly-traded securities,other adverse changes in the lengthpayment status of time andborrowers in the extent to which fair value has been less than cost.portfolio. The evaluation of these investments is also subject to the overall condition of the economy and its impact on the capital markets. Income Taxes We are required to estimate the amount of tax payable or refundable for the current year and the deferred income tax liabilities and assets for the future tax consequences of events that have been reflected in our financial statements or tax returns. This process requires management to make assessments regarding the timing and probability of the tax impact. Actual income taxes could vary from these estimates due to future changes in income tax law or unpredicted results from the final determination of each year’s liability by taxing authorities. We believe that the accounting estimate related to establishingassessing the realizability of deferred tax valuation allowancesassets is a “critical accounting estimate” because: (1) it requires management to make assessments about the timing of future events, including the probability of expected future taxable income and available tax planning opportunities, and (2) the impact that changes in actual performance versus these estimates could have on the realization of tax benefits as reported in our results of operations could be material. Management’s assumptions require significant judgment because actual performance has fluctuated in the past and may continue to do so. Valuation of DerivativesDeferred Revenue relating to Service Installation Fees and Initial Subscription Fees
We record rightscharge service installation fees and obligations arising from derivative instruments as assets and liabilities,initial subscription fees related to activation of many of our services, which are stated at fair value. Gainsdeferred and losses that result fromrecognized as revenue over the changeexpected terms of customer relationships. Our estimate of expected terms of customer relationship is based on the historical rate, which may differ in the fair valuefuture. If the management’s estimation is amended, it may cause significant differences in the timing of derivative instruments are recognizedrevenue recognition and amount recognized. Post-employment Benefit Liabilities Our accounting of post-employment benefits, which mainly consist of a defined benefit plan (we began offering a defined contribution plan in current earnings. However, for derivative instruments that qualify for cash flow hedge accounts, the effective portion of the gain or loss on the derivative instruments are recorded as gain (loss) on valuation of derivatives for cash flow hedge included in accumulated other comprehensive income (loss). Significant management judgment is involved in determining the fair value of derivative instruments. The estimatesDecember 2012), involves judgments about uncertain events including discount rates, life expectancy and assumptions used by our management to determine fair value can be impacted by many factors, such as the credit quality of each derivative counterparty, interest rate, market volatility or the overall condition of the economy and its impact on the capital markets.future pay inflation. Any changes in these assumptions could significantly affectwill impact the valuationcarrying amount of the defined benefit liability. The discount rates used to determine the present value of estimated future cash outflows expected to be required to settle the defined benefit liability, are determined at the end of each reporting period by reference to the yield at the reporting date on high-quality corporate bonds that have maturity dates approximating the terms of
our benefits obligations and timingthat are denominated in the same currency in which the benefits are expected to be paid. Other key assumptions for defined benefit liability are based in part on current market conditions. For defined contribution plans, we pay contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis, and we have no further payment obligations once the contributions have been paid. Provisions We recognize provisions at the end of recognitionthe reporting period when we have a present legal or constructive obligation, such as litigation or assets requirement obligations, as a result of valuationpast events and an outflow of resources required to settle the obligation is probable and can be reliably estimated. We measure provisions at the present value of the expenditures expected to be required to settle the obligation, which are estimated based on factors such as historical experience. We do not recognize provisions for future operating losses classifiedand recognize as otherinterest expense any increase in the provisions due to passage of time. See Notes 2.22, 3.7 and 17 to the Consolidated Financial Statements. Employee Reductions and Changes in Severance and Retirement Benefits In April 2014, we announced the commencement of a special voluntary early retirement program where we provide employees who had been employed by us for more than temporary.15 years with additional financial incentives to retire early or employment for two years at certain of our subsidiaries or affiliates. On April 23, 2014, our human resources committee determined that 8,304 employees will retire through this special early retirement program. We expect to record approximately₩1.2 trillion as severance indemnity in connection with this special early retirement program, all of which is expected to be recorded during 2014. Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS In addition to preparing financial statements in accordance with IFRS as issued by the IASB included in this annual report, we also prepare financial statements in accordance with K-IFRS, which we are required to file with the Financial Services Commission and the Korea Exchange under the Financial Investment Services and Capital Markets Act of Korea. During the three years ended December 31, 2013, we are required to adopt certain amendments and interpretations to K-IFRS, relating to presentation of operating profit. Additionally, under K-IFRS, revenue from the development and sale of real estate is recognized using the percentage of completion method. However, under IFRS as issued by the IASB, revenue from the development and sale of real estate is recognized when an individual unit of residential real estate is delivered to the buyer. Furthermore, due to a subsequent event in which early redemption rights were exercised for certain commercial paper guaranteed by KT ENS, our consolidated subsidiary, we recognized financial losses relating to the resulting estimation of guarantee liabilities in our consolidated statements of operations prepared in accordance with IFRS as issued by the IASB, which were not reflected in our financial statements prepared in accordance with K-IFRS, which were issued on March 13, 2014. As a result, the presentation of operating results in our consolidated statements of operations prepared in accordance with IFRS as issued by the IASB included in this annual report differs from the presentation of operating results in our consolidated statements of operations prepared in accordance with K-IFRS. The table below sets forth a reconciliation of our operating profit and net income or loss as presented in our consolidated statements of operations prepared in accordance with IFRS as issued by the IASB for each of the years ended December 31, 2011, 2012 and 2013 to our operating profit and net income or loss in our consolidated statements of operations prepared in accordance with K-IFRS, for each of the corresponding years, taking into account such differences: | | | | | | | | | | | | | | | For the Year Ended December 31, | | | | 2011 | | | 2012 | | | 2013 | | | | (In millions of Won) | | Operating profit under IFRS as issued by the IASB | | ₩ | 1,987,096 | | | ₩ | 1,680,099 | | | ₩ | 323,384 | | Effect of changes in operating income presentation | | | (230,585 | ) | | | (470,866 | ) | | | 493,589 | | Revenue recognition of development and sale of real estate | | | — | | | | — | | | | 22,370 | | | | | | | | | | | | | | | Operating profit under K-IFRS | | ₩ | 1,756,511 | | | ₩ | 1,209,233 | | | ₩ | 839,343 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | For the Year Ended December 31, | | | | 2011 | | | 2012 | | | 2013 | | | | (In millions of Won) | | Net income(loss) under IFRS as issued by the IASB | | ₩ | 1,290,763 | | | ₩ | 1,136,973 | | | ₩ | (87,745 | ) | Profit before income tax | | | | | | | | | | | | | Revenue recognition of development and sale of real estate | | | — | | | | — | | | | 22,370 | | Guarantee liabilities and loss (KT ENS) | | | — | | | | — | | | | 10,538 | | Income tax | | | — | | | | — | | | | (5,414 | ) | | | | | | | | | | | | | | Net income(loss) under K-IFRS | | ₩ | 1,290,763 | | | ₩ | 1,136,973 | | | ₩ | (60,251 | ) | | | | | | | | | | | | | |
Recent Accounting Pronouncements under IFRS For a summary of new standards, amendments and interpretations issued under IFRS as issued by the IASB but not effective for 2013, and which have not been adopted early by us, see Note 2 to the Consolidated Financial Statements. Operating Revenues and Operating Expenses Operating Revenues Our operating revenues primarily consist of: fees related to our mobile services, including initial subscription fees, monthly fees, usage charges for outgoing calls, usage charges for wireless data transmission, contents download fees and value-added monthly service fees; fees from our fixed-line telephone services, including: | Ø | | local service revenues, primarily consisting of (i) basic monthly charges and monthly usage charges (or fixed monthly charges for discount plans), (ii) revenues from value-added services, including local telephone directory assistance, call waiting and caller identification services, (iii) interconnection fees we charge to fixed-line and mobile service providers for their use of our local network in providing their services and (iv) revenues from local calls placed from public telephones; |
| Ø | | non-refundable installation fees; |
| Ø | | domestic long-distance service revenues, primarily consisting of (i) monthly usage charges (or fixed monthly charges for discount plans), (ii) interconnection fees we |
| charge to fixed-line and mobile service providers and voice resellers for their use of our domestic long-distance network in providing their services and (iii) revenues from domestic long-distance calls placed from public telephones; |
| Ø | | international long-distance service revenues, primarily consisting of (i) amounts we bill to our customers for outgoing calls made to foreign countries, (ii) amounts we bill to foreign telecommunications carriers for connection to the domestic telephone network |
| in respect of incoming calls at the applicable settlement rate, (iii) amounts we charge to fixed-line and mobile service providers and voice resellers as interconnection fees for using our international network in providing their services and (iv) other revenues, including revenues from international calls placed from public telephones and international leased lines; and |
| Ø | | land-to-mobile interconnection revenues; |
Internet service revenues which consist of: | Ø | | broadband Internet access service revenues, primarily consisting of installation fees and basic monthly charges; and |
| Ø | | other Internet-related service revenues related to our infrastructure and solution services for business enterprises, IP-TV and network portal services.services; |
revenues from goods sold that are generated primarily through sale of mobile handsets and specially designed phones for fixed-line and mobile convergence services; data communications service revenues, primarily consisting of installation fees and basic monthly charges for our leased line services and Kornet Internet connection service and revenues from our satellite services; financial service revenues, primarily consisting of fees from credit card services provided by BC Card Co., Ltd., which became our consolidated subsidiary starting in October 2011; automobile rental service revenues, primarily consisting of fees generated from automobile rentals and leases by KT Rental Co., Ltd., which became our consolidated subsidiary starting in July 2012; and miscellaneous revenues that are primarily derived from information technology and network services, satellite services, security services and real estate development and car rental businesses.development. Operating Expenses Our operating expenses primarily include: costpurchase of goods sold,inventories, primarily consisting of our sale of mobile handsets and specially designed phones for fixed-line mobile convergence services;
depreciationsalaries and amortizationwages, including post-employment benefits, termination benefits and share-based payments;
depreciation expenses incurred primarily in connection with our telecommunications network facilities; salaries and related costs, including severance indemnities that are a lump-sum amount paid to employees upon departure who have been employed by us for more than one year, share-based payments and employee welfare expenses;
sales commissions, primarily consisting of commissions to independent dealers related to procurement of mobile subscribers and mobile handset sales; commissions, primarily consisting of commission-based payments for third-party outsourcing services, including commissions to the call center staff; card service costs, primarily consisting of costs in connection with credit card services provided by BC Card Co., Ltd., including fees paid to member credit card companies in our network for marketing expenses and for costs associated with the present value and default risks of installment card charges which are borne by such member companies; service cost, primarily consisting of payments for third-party outsourcing services, including payments for software development and design, data analysis and processing, and installment and maintenance of IT and satellite equipment; and interconnection charges, which are interconnection payments to mobiletelecommunication service providers for calls from landline users and our mobile subscribers to our competitors’ mobile service subscribers; and promotion expenses that consist primarily of handset subsidies that we offer to purchasers of new handsets who agree to minimum subscription periods.subscribers.
Operating Results—20092012 Compared to 20102013 The following table presents selected income statement data and changes therein for 20092012 and 2010.2013: | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, | | | Changes | | | | 2009 vs. 2010 | | | | 2009 | | | 2010 | | | Amount | | | % | | | | (In billions of Won) | | Operating revenues | | (Won) | 19,644 | | | (Won) | 21,331 | | | (Won) | 1,687 | | | | 8.6 | % | Operating expenses | | | 18,673 | | | | 19,156 | | | | 483 | | | | 2.6 | | | | | | | | | | | | | | | | | | | Operating income | | | 971 | | | | 2,175 | | | | 1,204 | | | | 124.1 | | Non-operating expense, net | | | 251 | | | | 613 | | | | 362 | | | | 144.2 | | | | | | | | | | | | | | | | | | | Income from continuing operations before income tax expense | | | 719 | | | | 1,562 | | | | 843 | | | | 117.2 | | Income tax expense on continuing operations | | | 108 | | | | 372 | | | | 264 | | | | 244.4 | | Income (loss) from discontinued operations | | | (2 | ) | | | 3 | | | | 5 | | | | N.A. | | | | | | | | | | | | | | | | | | | Net income | | (Won) | 610 | | | (Won) | 1,193 | | | (Won) | 583 | | | | 95.6 | % | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | For the Year Ended December 31, | | | Changes | | | | 2012 vs. 2013 | | | | 2012 | | | 2013 | | | Amount | | | % | | | | (In billions of Won) | | Operating revenues | | ₩ | 24,644 | | | ₩ | 24,058 | | | ₩ | (586 | ) | | | (2.4 | )% | Revenue | | | 23,856 | | | | 23,729 | | | | (127 | ) | | | (0.5 | ) | Others | | | 787 | | | | 329 | | | | (458 | ) | | | (58.2 | ) | Operating expenses | | | 22,964 | | | | 23,734 | | | | 770 | | | | 3.4 | | | | | | | | | | | | | | | | | | | Operating profit | | | 1,680 | | | | 323 | | | | (1,357 | ) | | | (80.8 | ) | Finance income | | | 499 | | | | 279 | | | | (220 | ) | | | (44.1 | ) | Finance costs | | | (782 | ) | | | (648 | ) | | | 134 | | | | (17.1 | ) | Income from jointly controlled entities and associates | | | 18 | | | | 7 | | | | (11 | ) | | | (61.1 | ) | | | | | | | | | | | | | | | | | | Profit from continuing operations before income tax | | | 1,415 | | | | (38 | ) | | | (1,453 | ) | | | N.A. | | Income tax expense | | | 278 | | | | 50 | | | | (228 | ) | | | (82.0 | ) | Profit for the period from continuing operations | | | 1,137 | | | | (88 | ) | | | (1,225 | ) | | | N.A. | | Profit from discontinued operations | | | (32 | ) | | | — | | | | 32 | | | | N.A. | | | | | | | | | | | | | | | | | | | Profit for the period | | ₩ | 1,105 | | | ₩ | (88 | ) | | | (1,193 | ) | | | N.A. | | | | | | | | | | | | | | | | | | |
N.A. means not available. Operating Revenues The following table presents a breakdown of our operating revenues and changes therein for 20092012 and 2010.2013: | | | For the Year Ended December 31, | | | Changes | | | For the Year Ended December 31, | | | Changes | | | | 2009 vs. 2010 | | | | 2012 vs. 2013 | | | | 2009 | | | 2010 | | | Amount | | % | | | 2012 | | | 2013 | | | Amount | | % | | | | (In billions of Won) | | | (In billions of Won) | | Mobile services | | (Won) | 6,646 | | | (Won) | 7,083 | | | (Won) | 437 | | | | 6.6 | % | | ₩ | 6,578 | | | ₩ | 6,711 | | | ₩ | 133 | | | | 2.0 | % | Fixed-line telephone services: | | | | | | | | | | | | | | | | | Local service revenues | | | 2,674 | | | | 2,563 | | | | (111 | ) | | | (4.2 | ) | | | 2,019 | | | | 1,850 | | | | (169 | ) | | | (8.4 | ) | Non-refundable service installation fees | | | 17 | | | | 15 | | | | (2 | ) | | | (11.8 | ) | | | 32 | | | | 27 | | | | (5 | ) | | | (15.6 | ) | Domestic long-distance revenues | | | 475 | | | | 381 | | | | (94 | ) | | | (19.8 | ) | | | 268 | | | | 221 | | | | (47 | ) | | | (17.5 | ) | International long-distance revenues | | | 384 | | | | 362 | | | | (22 | ) | | | (5.7 | ) | | | 392 | | | | 342 | | | | (50 | ) | | | (12.8 | ) | Land-to-mobile interconnection revenues | | | 1,147 | | | | 949 | | | | (198 | ) | | | (17.3 | ) | | | 663 | | | | 544 | | | | (119 | ) | | | (17.9 | ) | | | | | | | | | | | | | | | | | | | | | | | | Sub-total | | | 4,697 | | | | 4,270 | | | | (427 | ) | | | (9.1 | ) | | | 3,374 | | | | 2,984 | | | | (390 | ) | | | (11.6 | ) | Internet services: | | | | | | | | | | Broadband internet access service | | | 1,942 | | | | 1,941 | | | | (1 | ) | | | (0.1 | ) | | Other Internet-related services | | | 507 | | | | 626 | | | | 119 | | | | 23.5 | | | | | | | | | | | | | | | | Sub-total | | | 2,449 | | | | 2,567 | | | | 118 | | | | 4.8 | | | Goods sold | | | 3,397 | | | | 4,395 | | | | 998 | | | | 29.4 | | | Data communication services | | | 1,314 | | | | 1,309 | | | | (5 | ) | | | (0.4 | ) | | Other | | | 1,141 | | | | 1,707 | | | | 566 | | | | 49.6 | | | | | | | | | | | | | | | | Total operating revenues | | (Won) | 19,644 | | | (Won) | 21,331 | | | (Won) | 1,687 | | | | 8.6 | % | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | For the Year Ended December 31, | | | Changes | | | | 2012 vs. 2013 | | | | 2012 | | | 2013 | | | Amount | | | % | | | | (In billions of Won) | | Internet services: | | | | | | | | | | | | | | | | | Broadband internet access service | | ₩ | 2,036 | | | ₩ | 2,011 | | | ₩ | (25 | ) | | | (1.2 | )% | Other Internet-related services | | | 874 | | | | 985 | | | | 111 | | | | 12.7 | | | | | | | | | | | | | | | | | | | Sub-total | | | 2,910 | | | | 2,996 | | | | 86 | | | | 3.0 | | Sale of goods | | | 4,590 | | | | 4,066 | | | | (524 | ) | | | (11.4 | ) | Data communication services | | | 1,309 | | | | 1,199 | | | | (110 | ) | | | (8.4 | ) | Financial services | | | 3,320 | | | | 3,274 | | | | (46 | ) | | | (1.4 | ) | Automobile rental service | | | 253 | | | | 606 | | | | 353 | | | | 139.5 | | Other | | | 2,310 | | | | 2,222 | | | | (88 | ) | | | (3.8 | ) | | | | | | | | | | | | | | | | | | Total operating revenues | | ₩ | 24,644 | | | ₩ | 24,058 | | | ₩ | (586 | ) | | | (2.4 | )% | | | | | | | | | | | | | | | | | |
N.A. means not available. Total operating revenues increaseddecreased by 8.6%2.4%, or(Won)₩1,687586 billion, from(Won)₩19,64424,644 billion in 20092012 to(Won)₩21,33124,058 billion in 20102013 primarily due to increasesdecreases in our mobile handset sales, other operatingsale of goods, fixed-line telephone service revenues and mobile servicedata communication services revenues, the impact of which was partially offset by decreasesincreases in our fixed-line telephoneautomobile rental service revenues and mobile service revenues. Mobile Services Our mobile service revenues increased by 6.6%2.0%, or(Won)₩437133 billion, from(Won)₩6,6466,578 billion in 20092012 to(Won)₩7,0836,711 billion in 20102013 primarily due to a 6.8%the launching of our wideband LTE services in September 2013, and the corresponding increase in our average revenue per user, as wideband LTE service products generally have higher rates due to the numbergreater amount of data included in such rates. Such increase in average revenue per user was partially offset by a 0.3% decrease in our mobile subscribers from 15.0 millionapproximately 16,502,000 as of December 31, 20092012 to 16.0 million as ofapproximately 16,454,000 in December 31, 2010.2013. Fixed-line Telephone Services Our fixed-line telephone service revenues decreased by 9.1%11.6%, or(Won)₩427390 billion, from(Won)₩4,6973,374 billion in 20092012 to(Won)₩4,2702,984 billion in 20102013 primarily due to decreases in local service revenues, land-to-mobile interconnection revenues, local service revenuesand international and domestic long-distance revenues. Specifically: Land-to-mobile interconnection revenues decreased by 17.3%, or(Won)198 billion, from(Won)1,147 billion in 2009 to(Won)949 billion in 2010 primarily due to an increase in the volume of calls between mobile subscribers, which in turn led to a reduction in the volume of calls between landline users to mobile subscribers.
Local service revenues decreased by 4.2%8.4%, or(Won)₩111169 billion, from(Won)₩2,6742,019 billion in 20092012 to(Won)₩2,5631,850 billion in 2010.2013. The number of local call pulses decreased by 5.2%19.4% from 20092012 to 20102013, and the number of lines in service decreased by 7.2% from 2012 to 2013, primarily due to the continuing substitution effect from increase in usage of mobile telephone services, and Internet phone services. However,services and other VoIP services such as Kakaotalk, Line and Skype. Land-to-mobile interconnection revenues decreased by 17.9%, or₩119 billion, from₩663 billion in 2012 to₩544 billion in 2013 primarily due to a decrease in the effectnumber of such decreases was partially offset by participation by some of ourcalls made from landline users to mobile subscribers in optional flat rate plans,2013 compared to 2012. We recognize as well as an increaseland-to-mobile interconnection revenue the entire amount of the usage charge collected from the landline user for a call initiated by a landline user to a mobile service subscriber. International long-distance revenues decreased by 12.8%, or₩50 billion, from₩392 billion in revenues from VoIP services.2012 to₩342 billion in 2013 primarily due to a decrease in the outgoing | international long-distance call minutes by 15.7% from 2012 to 2013, primarily due to the continuing substitution effect from increase in usage of Internet phone services and other VoIP services such as Kakaotalk, Line and Skype, as well as a 7.2% decrease in the number of lines in service from 2012 to 2013. |
Domestic long-distance revenues decreased by 19.8%17.5%, or(Won)₩9447 billion, from(Won)₩475268 billion in 20092012 to(Won)₩381221 billion in 20102013 primarily due to a decrease in the number of domestic long-distance call minutes by 23.2%20.2% from 20092012 to 20102013, primarily due to the continuing substitution effect from increase in usage of mobile telephone services, and Internet phone services. The effectservices and other VoIP services such as Kakaotalk, Line and Skype, as well as a 7.2% decrease in the number of such decreases was partially offset by participation by some of our subscriberslines in optional flat rate plans.service from 2012 to 2013. Internet Services Our Internet service revenues increased by 4.8%3.0%, or(Won)₩11886 billion, from(Won)₩2,4492,910 billion in 20092012 to(Won)₩2,5672,996 billion in 20102013 primarily due to an increase in the number of IP-TV subscribers from 1.24.0 million as of December 31, 20092012 to 2.15.0 million as of December 31, 2010. The revenues from broadband Internet access service remained stable at(Won)1,942 billion2013, the impact of which was offset in 2009part by an increase in our IP-TV subscribers who participate in bundled products that offer discounts when subscribing to our other services, and(Won)1,941 billion in 2010. Goods Sold
Revenues from goods sold increased by 29.4%, or(Won)998 billion, from(Won)3,397 billion in 2009 to(Won)4,395 billion in 2010 primarily due to an increase in the number of HSDPA-based IMT-2000 service compatible handsets and smart phonesour broadband subscribers from 8.0 million as of December 31, 2012 to 8.1 million as of December 31, 2013.
Sale of Goods Revenues from sale of goods decreased by 11.4%, or₩524 billion, from₩4,590 billion in 2012 to₩4,066 billion in 2013 primarily due to a decrease in the number of smartphones sold, including Apple iPhones that we launchedresulting from increased competition in November 2009.the mobile handset market, as well as business suspensions imposed on us by the KCC during 2013 in connection with excessive handset subsidies as discussed above. Data Communications Data communications service revenues decreased by 0.4%8.4%, or(Won)₩5110 billion, from(Won)1,314 billion in 2009 to(Won)₩1,309 billion in 20102012 to₩1,199 billion in 2013 primarily due to service fee discounts offered to government agencies and a decrease in revenues related to Kornet broadband Internet connection service to institutional customersfrom our leased lines, resulting from increased competition in the expirationtelecommunications market in Korea. Financial Services Financial service revenues decreased by 1.4%, or₩46 billion, from₩3,320 billion in 2012 to₩3,274 billion in 2013 primarily due to a decrease in commission revenues from our financial subsidiaries, in particular BC Card Co., Ltd., resulting from a decrease in the rate of certain leased-line contracts.commission BC Card. Co., Ltd. charges for purchases, which in turn resulted from increased competition in the financial services market during 2013. Automobile Rental Automobile rental revenues increased by 139.5%, or₩353 billion, from₩253 billion in 2012 to₩606 billion in 2013 primarily due to the recognition of full year income from KT Rental Co., Ltd. in 2013, which became our consolidated subsidiary and related revenues became a part of our consolidated revenue starting in July 2012, following the acquisition of KT Rental’s common stock by Hana Daetoo Securities Co., Ltd. and other investors from the second largest shareholder in July 2012, and the restriction on our control over KT Rental pursuant to a shareholders’ agreement being removed as a result. See Note 37 to the Consolidated Financial Statements. Others Other operating revenues increaseddecreased by 49.6%3.8%, or(Won)₩56688 billion, from(Won)₩1,1412,310 billion in 20092012 to(Won)₩1,7072,222 billion in 20102013 primarily due to an increasea 19.3%,₩57 billion, or decrease in sales ofoperating revenues from KT Telecop Co., Ltd., our real estate properties.subsidiary specializing in security services. Operating Expenses The following table presents a breakdown of our operating expenses and changes therein for 20092012 and 2010.2013: | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, | | | Changes | | | | | 2009 vs. 2010 | | | | 2009 | | | 2010 | | | Amount | | | % | | | | (In billions of Won) | | Salaries and wages | | (Won) | 2,193 | | | (Won) | 2,163 | | | (Won) | (30 | ) | | | (1.4 | ) | Provision for severance benefits | | | 1,128 | | | | 243 | | | | (885 | ) | | | (78.5 | ) | Employee welfare | | | 587 | | | | 374 | | | | (213 | ) | | | (36.2 | ) | Depreciation | | | 2,874 | | | | 2,820 | | | | (54 | ) | | | (1.9 | ) | Commissions | | | 1,262 | | | | 1,450 | | | | 188 | | | | 14.9 | | Interconnection charges | | | 1,227 | | | | 1,245 | | | | 18 | | | | 1.5 | | Cost of services | | | 582 | | | | 804 | | | | 222 | | | | 38.2 | | Cost of goods sold | | | 3,119 | | | | 4,087 | | | | 968 | | | | 31.1 | | Promotion expenses | | | 1,122 | | | | 1,228 | | | | 106 | | | | 9.4 | | Sales commissions | | | 1,805 | | | | 1,621 | | | | (184 | ) | | | (10.1 | ) | Others(1) | | | 2,774 | | | | 3,121 | | | | 347 | | | | 12.4 | | | | | | | | | | | | | | | | | | | Total operating expenses | | (Won) | 18,673 | | | (Won) | 19,156 | | | (Won) | 483 | | | | 2.6 | % | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | For the Year Ended December 31, | | | Changes | | | | | 2012 vs. 2013 | | | | 2012 | | | 2013 | | | Amount | | | % | | | | (In billions of Won) | | Salaries and wages | | ₩ | 3,097 | | | ₩ | 3,289 | | | ₩ | 192 | | | | 6.2 | % | Depreciation | | | 2,894 | | | | 3,108 | | | | 214 | | | | 7.4 | | Commissions | | | 1,426 | | | | 1,260 | | | | (166 | ) | | | (11.6 | ) | Interconnection charges | | | 901 | | | | 885 | | | | (16 | ) | | | (1.8 | ) | Purchase of inventories | | | 4,851 | | | | 3,566 | | | | (1,285 | ) | | | (26.5 | ) | Changes of inventories | | | (259 | ) | | | 321 | | | | 580 | | | | N.A. | | Sales commission | | | 2,230 | | | | 2,315 | | | | 85 | | | | 3.8 | | Service cost | | | 1,264 | | | | 1,834 | | | | 570 | | | | 45.1 | | Card service costs | | | 2,771 | | | | 2,703 | | | | (68 | ) | | | (2.5 | ) | Others (1) | | | 3,789 | | | | 4,453 | | | | 664 | | | | 17.5 | | | | | | | | | | | | | | | | | | | Total operating expenses | | ₩ | 22,964 | | | ₩ | 23,734 | | | ₩ | 770 | | | | 3.4 | % | | | | | | | | | | | | | | | | | |
N.A. means not available. (1) | Including transfer to other accounts.operating expenses (which include miscellaneous expenses, loss on disposal of property and equipment, impairment loss on property and equipment, loss on disposal of intangible assets, loss on disposal of investments in associates and joint ventures, impairment loss on investments in associates and joint ventures, donations and bad debt expenses), amortization of intangible assets, rent, insurance premium, utilities, international interconnection fee, installation fee, taxes and dues, research and development expenses and advertising expenses. |
Total operating expenses increased by 2.6%3.4%, or(Won)₩483770 billion, from(Won)₩18,67322,964 billion in 20092012 to(Won)₩ 19,15623,734 billion in 20102013 primarily due to increases in costother operating expenses, change of goods sold, cost of services, commissionsinventories, service costs, depreciation and promotion expenses,salaries and wages, the impact of which was partially offset by decreasesa decrease in provision for severance benefits related to special voluntary early retirement programs, employee welfare and sales commissions.purchase of inventories. Specifically: Cost of goods soldOther operating expenses increased by 31.1%17.5%, or(Won)₩968664 billion, from(Won)₩3,1193,789 billion in 20092012 to(Won)₩ 4,0874,453 billion in 20102013, primarily due to loss on disposal of approximately₩277 billion in 2013 in connection with the expenses incurred for our business support system project, as well as loss on disposal of approximately₩220 billion in 2013 on our obsolete tangible and intangible assets.
We recorded an increase in inventories of₩259 billion in 2012, compared to a decrease of₩321 billion in 2013, primarily due to temporary year-end accounting treatment of inventories for a shipment of smartphones which were in transit at the end of 2012, as well as an increase in impairment loss by₩66 billion on our merchandise inventories incurred in 2013 compared to 2012. Service cost increased by 45.1%, or₩570 billion, from₩1,264 billion in 2012 to₩1,834 billion in 2013 as a result of increases in expenses relating to our systems/network integration business and expenses relating to purchase of multimedia contents fromthird-party developers. Depreciation expenses increased by 7.4%, or₩214 billion, from₩2,894 billion in 2012 to₩3,108 billion in 2013 primarily due to an increase in depreciation expenses of₩271 billion from a full-year recognition of depreciation expenses of KT Rental’s operating assets, which became our consolidated subsidiary starting in July 2012 as described above. Salaries and wages increased by 6.2%, or₩192 billion, from₩3,097 billion in 2012 to₩3,289 billion in 2013 primarily due to an increase in the number of high-end HSDPA-compatible handsets and smart phones sold, including the Apple iPhone that we launchedour employees resulting from our newly consolidated subsidiaries in November 2009,2013, as well as various other smart phones that we launched in 2010. Cost of services, which primarily relate to purchases of content for IP-TV services, increased by 38.2%, or(Won)222 billion, from(Won)582 billion in 2009 to(Won)804 billion in 2010 primarily due to an increase in sales of pay-per-view programming to IP-TV subscribers.
Our commissions, which primarily relate to payments for third-party outsourcing services, including commissions to the call center staff, increased by 14.9%, or(Won)188 billion, from(Won) 1,262 billionsalaries and severance benefits in 2009 to(Won)1,450 billion in 2010 primarily due to outsourcing of our activation and installation activities to third-parties.
Our promotion expenses, which consist primarily of handset subsidies, increased by 9.4%, or(Won)106 billion, from(Won)1,122 billion in 2009 to(Won)1,228 billion in 2010 primarily due to an increase in the sales volume of HSDPA-compatible handsets and smart phones.2013.
These factors were partially offset by the following: Our provision for severance benefitsoperating expenses related to purchase of inventories decreased by 78.5%26.5%, or(Won)₩8851,285 billion, from(Won)₩1,1284,851 billion in 20092012 to(Won)₩2433,566 billion in 2010 primarily due to a decrease in provision for severance benefits relating to a special voluntary early retirement program. In December 2009, we held a special voluntary early retirement program in which 5,992 employees participated and received additional financial incentives to retire early, whereas we did not have any such special voluntary early retirement program in 2010. Employee welfare, which primarily relates to expenditures for employees such as education and healthcare subsidies, decreased by 36.2%, or(Won)213 billion, from(Won)587 billion in 2009 to(Won)374 billion in 2010 primarily due to a change in our compensation policy which reduced certain seasonal bonuses classified as employee welfare, and instead increased benefits classified as salaries.
Sales commissions, which primarily relate to procurement of mobile subscribers and mobile handset sales by our independent dealers, decreased by 10.1%, or(Won)184 billion, from(Won)1,805 billion in 2009 to(Won)1,621 billion in 20102013 primarily due to a decrease in the ratenumber of sales commissions we paid to our independent dealers.smartphones sold as discussed above.
Operating IncomeProfit Due to the factors described above, our operating income increasedprofit decreased by 124.1%80.8%, or(Won)₩1,2041,357 billion, from(Won)₩9711,680 billion in 20092012 to(Won)₩2,175323 billion in 2010.2013. Our operating margin, which is operating incomeprofit as a percentage of operating revenues, increaseddecreased from 4.9%6.8% in 20092012 to 10.2%1.3% in 2010.2013. Non-OperatingFinance Income (Expenses)(Costs)
The following table presents a breakdown of our non-operatingfinance income and expenses on a net basiscosts and changes therein for 20092012 and 2010.2013: | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, | | | Changes | | | | | 2009 vs. 2010 | | | | 2009 | | | 2010 | | | Amount | | | % | | | | (In billions of Won) | | Interest income | | (Won) | 197 | | | (Won) | 143 | | | (Won) | (54 | ) | | | (27.5 | )% | Interest expense | | | (505 | ) | | | (529 | ) | | | (24 | ) | | | 4.7 | | Net foreign currency transaction loss | | | (4 | ) | | | (3 | ) | | | 1 | | | | (27.9 | ) | Net foreign currency translation gain | | | 223 | | | | 34 | | | | (189 | ) | | | (84.8 | ) | Net gain (loss) on valuation of equity method investments | | | (14 | ) | | | 27 | | | | 41 | | | | N.A. | | Net loss on disposal of property and equipment | | | (119 | ) | | | (165 | ) | | | (46 | ) | | | 38.7 | | Net gain (loss) on settlement of derivatives | | | 1 | | | | (1 | ) | | | (2 | ) | | | N.A. | | Net loss on valuation of derivatives | | | (174 | ) | | | (8 | ) | | | 166 | | | | (95.5 | ) | Other bad debts expense | | | (47 | ) | | | (9 | ) | | | 38 | | | | (80.2 | ) | Donations | | | (39 | ) | | | (81 | ) | | | (42 | ) | | | 106.2 | | Net other non-operating revenues (losses) | | | 230 | | | | (21 | ) | | | (251 | ) | | | N.A. | | | | | | | | | | | | | | | | | | | Net non-operating expenses | | (Won) | (251 | ) | | (Won) | (613 | ) | | (Won) | (362 | ) | | | 144.2 | % | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | For the Year Ended December 31, | | | Changes | | | | 2012 vs. 2013 | | | | 2012 | | | 2013 | | | Amount | | | % | | | | (In billions of Won) | | Interest income | | ₩ | 203 | | | ₩ | 109 | | | ₩ | (94 | ) | | | (46.3 | )% | Interest expense | | | (472 | ) | | | (450 | ) | | | 22 | | | | (4.7 | ) | Net foreign currency transaction gain (loss) | | | 2 | | | | 6 | | | | 4 | | | | 200.0 | | Net foreign currency translation gain (loss) | | | 259 | | | | 100 | | | | (159 | ) | | | (61.4 | ) | Net loss on settlement of derivatives | | | (5 | ) | | | (3 | ) | | | 2 | | | | (40.0 | ) | Net gain (loss) on valuation of derivatives | | | (241 | ) | | | (105 | ) | | | 136 | | | | (56.4 | ) | Net other finance costs | | | (29 | ) | | | (25 | ) | | | 4 | | | | (13.8 | ) | | | | | | | | | | | | | | | | | | Net finance costs | | ₩ | (283 | ) | | ₩ | (368 | ) | | ₩ | (85 | ) | | | 30.0 | % | | | | | | | | | | | | | | | | | |
N.A. means not available. Our net non-operating expensesfinance costs increased by 144.2%30.0%, or(Won)₩36285 billion, from(Won)₩251283 billion in 20092012 to(Won)₩613368 billion in 20102013 primarily due to our recognition of net other non-operating revenues in 2009 compared to net other non-operating losses in 2010, a decreasedecreases in net foreign currency translation gain a decrease inand interest income, an increase in net loss on disposal of property and equipment and an increase in donations, the impact of which was partially offset by a decrease in net loss on valuation of derivatives. Specifically: We recorded net other non-operating revenues of(Won)230 billion in 2009 compared to net other non-operating losses of(Won)21 billion in 2010 primarily due to refunds of(Won)90 billion to our subscribers of fixed-line telephone services with optional flat rate plans who requested termination of such plans in 2010.
Our net foreign currency translation gain decreased by 84.8%61.4%, or(Won)₩189159 billion, from(Won)₩223259 billion in 20092012 to(Won)₩34100 billion in 20102013, as the Market Average Exchange Rate of the Won against the U.S. dollar appreciated from(Won)₩1,257.51,153.3 to US$1.00 as of December 31, 20082011 to(Won)₩ 1,167.61,071.1 to US$1.00 as of December 31, 2009 but the level of appreciation decreased during 2010 to(Won)1,138.9 to US$1.00 as of December 31, 2010. The impact of such decrease in net foreign currency translation gain was largely offset by2012, and further appreciated at a decrease in net loss on valuation of derivatives discussed below.lesser pace | to₩1,055.3 to US$1.00 as of December 31, 2013. The impact of such decrease in net foreign currency translation gain was partially offset by a decrease in net loss on valuation of derivatives discussed below. |
Our interest income decreased by 27.5%46.3%, or(Won)₩5494 billion, from(Won)₩197203 billion in 20092012 to(Won)₩143109 billion in 20102013 primarily due to a decrease in our average balance of interest-earning assets from 20092012 to 2010, including2013, resulting from a reduction in our holdings of cash and cash equivalents,accounts receivables from our handset sales in 2013 due to the reasons discussed above, as well as a general decrease in general interest rates in Korea during such periods.from 2012 to 2013. Our net loss on disposal of property and equipment increased by 38.7%, or(Won)46 billion, from(Won)119 billion in 2009 to(Won)165 billion in 2010 primarily due to an increase in equipment disposal, in particular machinery.
Our donations increased by 106.2%, or(Won)42 billion, from(Won)39 billion in 2009 to(Won)81 billion in 2010 primarily due to an increase in our donations to employee welfare funds.
These factors were partially offset by our netthe following: Net loss on valuation of derivatives which decreased by 95.5%56.4%, or(Won)₩166136 billion, from(Won)₩174241 billion in 20092012 to(Won)₩8105 billion in 20102013, primarily due to a decrease in losses from our combined interest rate currency swap contracts asdue to the lower rate of appreciation of the exchange raterates of the Won against the Japanese Yen and the U.S. dollar fluctuatedfrom December 31, 2012 to December 31, 2013. Income (Loss) from Jointly Controlled Entities and Associates Income from jointly controlled entities and associates decreased by 61.1%, or₩11 billion, from₩18 billion in 2012 to₩7 billion in 2013, primarily due to the loss of income recognized under this line item from KT Rental in 2013, as discussed above.it became our consolidated subsidiary in July 2012, and we recorded an income of₩9 billion from KT Rental in 2012, as any associated gains from KT Rental until July 2012 were recognized under this line item. Income Tax Expense on Continuing Operations Our income tax expense on continuing operations increaseddecreased by 244.4%82.0%, or(Won)₩264228 billion, from(Won)₩ 108278 billion in 20092012 to(Won)₩37250 billion in 20102013 primarily due to an increase in incomeour recognition of a loss from continuing operations before income tax of₩38 billion in 2013 compared to a profit from continuing operation of₩1,415 billion in 2012. We incurred a tax expense despite incurring a loss before income tax in 2013, as well as a decreasewe, in preparing our consolidated financial statements, aggregate the tax credit carryforwardsresults of ourselves and deductions.our subsidiaries, which had taxable income. See Note 2629 to the Consolidated Financial Statements. OurWe had an effective tax rate increased from 15.0%of 19.6% in 2009 to 23.8% in 2010, primarily due to a decrease in tax credit carryforwards and deductions in 2010.2012. We had net deferred income tax assets of(Won)₩545537 billion as of December 31, 2010.2013. Net IncomeProfit from Discontinued Operations
We recognized a loss from discontinued operations of₩32 billion in 2012, compared to none in 2013, primarily due to the loss recognized from our sale of our 93.8% interest in KT Tech, Inc. in August 2012, as well as our share of net loss of KT Tech, Inc. until the completion of sale, which we recorded under this category in 2012, whereas there were no discontinued operations in 2013 which required recognition of income or loss under this category. See Note 40 to the Consolidated Financial Statements. Profit for the Period Due to the factors described above, our net income increased by 95.6%, orwe recorded a profit for the period of(Won)₩583 billion, from(Won) 6101,105 billion in 20092012, compared to a loss of(Won)₩1,19388 billion in 2010.2013. Our net income margin, which is net incomeprofit for the period as a percentage of operating revenues, increased from 3.1%was 4.5% in 2009 to 5.6%2012, and our net loss margin, which is loss for the period as a percentage of operating revenues, was 0.4% in 2010.2013. Segment Results—PersonalTelecommunication & Convergence Customer Group Our operating revenues for this segment, prior to adjusting for inter-segment transactions, decreased by 6.2%, or₩994 billion, from₩15,932 billion in 2012 to₩14,938 billion in 2013, primarily due to a decrease in revenues from individual fixed-line telephone subscribers. Our operating income for this segment, prior to adjusting for inter-segment transactions, decreased by 92.9%, or₩681 billion, from₩733 billion in 2012 to₩52 billion in 2013, as the 6.2% decrease in the segment’s operating revenues outpaced a 2.1% decrease in operating expenses, primarily due to the reasons discussed above. Operating margin, which is operating income as a percentage of total operating revenues prior to adjusting for inter-company sales, decreased from 4.6% in 2012 to 0.3% in 2013. Depreciation and amortization, prior to adjusting for inter-segment transactions, increased slightly by 0.2%, or₩5 billion, from₩2,440 billion in 2012 to₩2,445 billion in 2013. Segment Results—Global & Enterprise Group Our operating revenues for this segment, prior to adjusting for inter-segment transactions, decreased by 0.5%, or₩14 billion, from₩2,931 billion in 2012 to₩2,917 billion in 2013, primarily due to the spin-offs of KT Sat Co., Ltd., KT Estate Inc. and KT Media Hub Co., Ltd. during 2013 and the corresponding decrease in operating revenues from such subsidiaries which were recognized under this segment. Our operating income for this segment, prior to adjusting for inter-segment transactions, decreased by 27.8%, or₩91 billion, from₩327 billion in 2012 to₩236 billion in 2013, as operating revenues decreased by 0.5% while operating expenses increased by 3.0%, primarily due to an increase in rental expenses recognized under this segment in connection with the sale and leaseback transactions of certain real estate properties which occurred during 2011 and 2012. Operating margin decreased from 11.2% in 2012 to 8.1% in 2013. Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 0.2%, or₩1 billion, from₩485 billion in 2012 to₩486 billion in 2013. Segment Results—Finance/Rental Business Group Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 9.0%, or₩336 billion, from₩3,717 billion in 2012 to₩4,053 billion in 2013, primarily due to the consolidation of full year revenues in 2013 from KT Rental Co., Ltd. which became our consolidated subsidiary starting in July 2012. Our operating income for this segment, prior to adjusting for inter-segment transactions, increased by 51.4%, or₩95 billion, from₩185 billion in 2012 to₩280 billion in 2013, as the 9.0% increase in the segment’s operating revenues outpaced a 6.8% increase in operating expenses, primarily due to the reasons discussed above. Operating margin increased from 5.0% in 2012 to 6.9% in 2013. Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 119.8%, or₩218 billion, from₩182 billion in 2012 to₩400 billion in 2013, primarily due to the effect of full-year consolidation of KT Rental Co., Ltd. and the related assets in 2013 as described above, as well as additional purchases of automobiles by KT Rental Co., Ltd. during 2013 which increased the depreciable asset base. Segment Results—Others Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 19.8%, or₩842 billion, from₩4,252 billion in 2012 to₩5,094 billion in 2013, primarily due to the spin-offs of KT Sat Co., Ltd., KT Estate Inc. and KT Media Hub Co., Ltd. during 2013 and the corresponding recognition of operating revenues from such subsidiaries under this segment. Our operating income for this segment, prior to adjusting for inter-segment transactions, increased by 245.8%, or₩204 billion, from₩83 billion in 2012 to₩287 billion in 2013, as the 19.8% increase in the segment’s operating revenues outpaced a 15.3% increase in operating expenses, primarily due to the reasons discussed above. The operating margin increased from 2.0% in 2012 to 5.6% in 2013. Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 58.5%, or₩86 billion, from₩147 billion in 2012 to₩233 billion in 2013, primarily due to the increase in depreciable assets under this segment due to the spin-off of subsidiaries as discussed above. Operating Results—2011 Compared to 2012 The following table presents selected income statement data and changes therein for 2011 and 2012: | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, | | | Changes | | | | | 2011 vs. 2012 | | | | 2011 | | | 2012 | | | Amount | | | % | | | | (In billions of Won) | | Operating revenues | | ₩ | 22,088 | | | ₩ | 24,644 | | | ₩ | 2,556 | | | | 11.6 | % | Revenue | | | 21,311 | | | | 23,856 | | | | 2,545 | | | | 11.9 | | Others | | | 777 | | | | 787 | | | | 10 | | | | 1.3 | | Operating expenses | | | 20,101 | | | | 22,964 | | | | 2,863 | | | | 14.2 | | | | | | | | | | | | | | | | | | | Operating profit | | | 1,987 | | | | 1,680 | | | | (307 | ) | | | (15.5 | ) | Finance income | | | 270 | | | | 499 | | | | 229 | | | | 84.8 | | Finance costs | | | (642 | ) | | | (782 | ) | | | (140 | ) | | | 21.8 | | Income (loss) from jointly controlled entities and associates | | | (6 | ) | | | 18 | | | | 24 | | | | N.A. | | | | | | | | | | | | | | | | | | | Profit from continuing operations before income tax | | | 1,609 | | | | 1,415 | | | | (194 | ) | | | (12.1 | ) | Income tax expense | | | 318 | | | | 278 | | | | (40 | ) | | | (12.6 | ) | Profits for the year from continuing operations | | | 1,291 | | | | 1,137 | | | | (154 | ) | | | (11.9 | ) | Profit (loss) from discontinued operations | | | 165 | | | | (32 | ) | | | (197 | ) | | | N.A. | | | | | | | | | | | | | | | | | | | Profit for the period | | ₩ | 1,455 | | | ₩ | 1,105 | | | ₩ | (350 | ) | | | (24.1 | )% | | | | | | | | | | | | | | | | | |
N.A. means not available. Operating Revenues The following table presents a breakdown of our operating revenues and changes therein for 2011 and 2012: | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, | | | Changes | | | | | 2011 vs. 2012 | | | | 2011 | | | 2012 | | | Amount | | | % | | | | (In billions of Won) | | Mobile services | | ₩ | 6,813 | | | ₩ | 6,578 | | | ₩ | (235 | ) | | | (3.4 | )% | Fixed-line telephone services: | | | | | | | | | | | | | | | | | Local service revenues | | | 2,286 | | | | 2,019 | | | | (267 | ) | | | (11.7 | ) | Non-refundable service installation fees | | | 38 | | | | 32 | | | | (6 | ) | | | (15.8 | ) | Domestic long-distance revenues | | | 308 | | | | 268 | | | | (40 | ) | | | (13.0 | ) | International long-distance revenues | | | 398 | | | | 392 | | | | (6 | ) | | | (1.5 | ) | Land-to-mobile interconnection revenues | | | 782 | | | | 663 | | | | (119 | ) | | | (15.2 | ) | | | | | | | | | | | | | | | | | | Sub-total | | | 3,812 | | | | 3,374 | | | | (438 | ) | | | (11.5 | ) | Internet services: | | | | | | | | | | | | | | | | | Broadband internet access service | | | 1,868 | | | | 2,036 | | | | 168 | | | | 9.0 | | Other Internet-related services | | | 867 | | | | 874 | | | | 7 | | | | 0.8 | | | | | | | | | | | | | | | | | | | Sub-total | | | 2,735 | | | | 2,910 | | | | 175 | | | | 6.4 | | Sale of goods | | | 4,369 | | | | 4,590 | | | | 221 | | | | 5.0 | | Data communication services | | | 1,271 | | | | 1,309 | | | | 38 | | | | 3.0 | | Financial services | | | 996 | | | | 3,320 | | | | 2,324 | | | | 233.3 | | Automobile rental service | | | — | | | | 253 | | | | 253 | | | | N.A. | | Other | | | 2,090 | | | | 2,310 | | | | 220 | | | | 10.5 | | | | | | | | | | | | | | | | | | | Total operating revenues | | ₩ | 22,088 | | | ₩ | 24,644 | | | ₩ | 2,556 | | | | 11.6 | % | | | | | | | | | | | | | | | | | |
N.A. means not available. Total operating revenues increased by 11.6%, or₩2,556 billion, from₩22,088 billion in 2011 to₩24,644 billion in 2012 primarily due to increases in our financial service revenues, other revenues and automobile rental service revenues, the impact of which was partially offset by decreases in our fixed-line telephone service revenues and mobile service revenues. Mobile Services Our mobile service revenues decreased by 3.4%, or₩235 billion, from₩6,813 billion in 2011 to₩6,578 billion in 2012 primarily due to various rate reduction measures we adopted in August 2011 upon discussion with the KCC, in particular for those applicable to 3G smartphones, the impact of which was further enhanced by a decrease in our mobile subscribers from 16.6 million as of December 31, 2011 to 16.5 million as of December 31, 2012. For a discussion of reduction in rates for our mobile services, see “Item 4.B.—Business Overview—Revenues and Rates—Mobile Services.” Fixed-line Telephone Services Our fixed-line telephone service revenues decreased by 11.5%, or(Won)₩1,074438 billion, from(Won)₩9,3143,812 billion in 20092011 to(Won)₩10,3883,374 billion in 2010,2012 primarily due to decreases in local service revenues, land-to-mobile interconnection revenues and domestic long-distance revenues. Specifically: Local service revenues decreased by 11.7%, or₩267 billion, from₩2,286 billion in 2011 to₩2,019 billion in 2012. The number of local call pulses decreased by 9.3% from 2011 to 2012, and the number of lines in service decreased by 4.9% from 2011 to 2012, primarily due to the substitution effect from increase in usage of mobile telephone services and Internet phone services. Land-to-mobile interconnection revenues decreased by 15.2%, or₩119 billion, from₩782 billion in 2011 to₩663 billion in 2012 primarily due to a decrease in the number of calls made from landline users to mobile subscribers in 2012 compared to 2011. We recognize as land-to-mobile interconnection revenue the entire amount of the usage charge collected from the landline user for a call initiated by a landline user to a mobile service subscriber. Domestic long-distance revenues decreased by 13.0%, or₩40 billion, from₩308 billion in 2011 to₩268 billion in 2012 primarily due to a decrease in the number of domestic long-distance call minutes by 7.7% from 2011 to 2012, primarily due to the substitution effect from increase in usage of mobile telephone services and Internet phone services, as well as a 4.9% decrease in the number of lines in service from 2011 to 2012. Internet Services Our Internet service revenues increased by 6.4%, or₩175 billion, from₩2,735 billion in 2011 to₩2,910 billion in 2012 primarily due to an increase in the number of our broadband subscribers from 7.8 million as of December 31, 2011 to 8.0 million as of December 31, 2012, and an increase in the number of IP-TV subscribers from 3.1 million as of December 31, 2011 to 4.0 million as of December 31, 2012, the impact of which was offset in part by an increase in our IP-TV subscribers who participate in bundled products that offer discounts when subscribing to our other services. Sale of Goods Revenues from sale of goods increased by 5.0%, or₩221 billion, from₩4,369 billion in 2011 to₩4,590 billion in 2012 primarily due to an increase in the number of smartphones sold, in particular LTE smartphones, that had relatively higher prices. Data Communications Data communications service revenues increased by 3.0%, or₩38 billion, from₩1,271 billion in 2011 to₩1,309 billion in 2012 primarily due to an increase in revenues from our network equipment installment, lease and maintenance services, primarily those relating to our IP-based integrated control solutions and equipment. Financial Services Financial service revenues increased by 233.3%, or₩2,324 billion, from₩996 billion in 2011 to₩3,320 billion in 2012 primarily due to the recognition of full year income from BC Card Co., Ltd. in 2012, which became our consolidated subsidiary and related revenues became a part of our consolidated revenue starting in October 2011. Automobile Rental We did not record any automobile rental service revenues in 2011, while we recorded revenues of₩253 billion in 2012, due to the consolidation of KT Rental Co., Ltd. starting in July 2012 as a result of acquisition of KT Rental’s common stock by Hana Daetoo Securities Co., Ltd. and other investors from the second largest shareholder in July 2012, and the restriction on our control over KT Rental pursuant to a shareholders’ agreement being removed as a result. See Note 37 to the Consolidated Financial Statements. Others Other operating revenues increased by 10.5%, or₩220 billion, from₩2,090 billion in 2011 to₩2,310 billion in 2012 primarily due to a₩112 billion increase in revenues (after intercompany elimination) from H&C Network, which provides call center services to BC Card Co., Ltd. and other financial service providers, as a result of the recognition of full year income from H&C Network in 2012, which became our consolidated subsidiary and related revenues became a part of our consolidated revenue starting in October 2011, a₩85 billion increase in revenues from KT Skylife as a result of an increase in subscribers in 2012 compared to 2011, and the increases in related installment fees and home shopping network sales, and a₩56 billion increase in revenues from KT Networks Corporation (which changed its name to KT ENS Corporation in 2013) as a result of an increase in our network construction projects as well as sales in our ecologically safe or “green” information technology equipment. Such increases were offset in part by a₩47 billion decrease in gains from sale and leaseback of land and buildings to our equity-method investee or special purpose companies specializing in real estate investments, from₩298 billion in 2011 to₩251 billion in 2012. See Note 26 to the Consolidated Financial Statements. Operating Expenses The following table presents a breakdown of our operating expenses and changes therein for 2011 and 2012: | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, | | | Changes | | | | 2011 vs. 2012 | | | | 2011 | | | 2012 | | | Amount | | | % | | | | (In billions of Won) | | Salaries and wages | | ₩ | 2,854 | | | ₩ | 3,097 | | | ₩ | 243 | | | | 8.5 | | Depreciation | | | 2,645 | | | | 2,894 | | | | 249 | | | | 9.4 | | Commissions | | | 1,448 | | | | 1,426 | | | | (22 | ) | | | (1.5 | ) | Interconnection charges | | | 1,116 | | | | 901 | | | | (215 | ) | | | (19.3 | ) | Purchase of inventories | | | 4,519 | | | | 4,851 | | | | 332 | | | | 7.3 | | Changes of inventories | | | 36 | | | | (259 | ) | | | (295 | ) | | | N.A. | | Sales commission | | | 1,865 | | | | 2,230 | | | | 365 | | | | 19.6 | | Service cost | | | 1,331 | | | | 1,264 | | | | (67 | ) | | | (5.0 | ) | Card service costs | | | 708 | | | | 2,771 | | | | 2,063 | | | | 291.4 | | Others(1) | | | 3,579 | | | | 3,789 | | | | 210 | | | | 5.9 | | | | | | | | | | | | | | | | | | | Total operating expenses | | ₩ | 20,101 | | | ₩ | 22,964 | | | ₩ | 2,863 | | | | 14.2 | % | | | | | | | | | | | | | | | | | |
N.A. means not available. (1) | Including other operating expenses (which include miscellaneous expenses, loss on disposal of property and equipment, impairment loss on property and equipment, loss on disposal of intangible assets, loss on disposal of investments in associates and joint ventures, impairment loss on investments in associates and joint ventures, donations and bad debt expenses), amortization of intangible assets, rent, insurance premium, utilities, international interconnection fee, installation fee, taxes and dues, research and development expenses and advertising expenses. |
Total operating expenses increased by 14.2%, or₩2,863 billion, from₩20,101 billion in 2011 to₩22,964 billion in 2012 primarily due to increases in card service costs, purchase of handsets, sales commission and depreciation, the impact of which was partially offset by decreases in change of inventories and interconnection charges. Specifically: Card service costs increased by 291.4%, or₩2,063 billion, from₩708 billion in 2011 to₩2,771 billion in 2012 primarily due to the consolidation of the full year expenses of BC Card Co., Ltd. in 2012 compared to only three months of expenses in 2011 as described above. Our operating expenses related to purchase of inventories increased by 7.3%, or₩332 billion, from₩4,519 billion in 2011 to₩4,851 billion in 2012 primarily due to an increase in | the number of smart phones sold. However, the rate of increase in our expenses relating to purchase of handsets was higher than the rate of increase in our revenues relating to sale of goods, due to the decrease in our margins as a result of increased competition. |
Sales commissions, which primarily relate to commissions to our third-party vendors for sales of mobile handsets and mobile and fixed-line service products, increased by 19.6%, or₩365 billion, from₩1,865 billion in 2011 to₩2,230 billion in 2012 primarily due to increases in sales of our LTE mobile service products and LTE smartphones by such third-party vendors, as a result of increases in our total mobile subscribers and subscribers switching to LTE services in 2012. Depreciation expenses increased by 9.4%, or₩249 billion, from₩2,645 billion in 2011 to₩2,894 billion in 2012 primarily due to an increase in depreciation expenses of₩175 billion from depreciation expenses of KT Rental’s operating assets, which became our consolidated subsidiary starting in July 2012 as explained above, as well as an increase in HSDPA-compatible handsetsdepreciation expenses of₩84 billion from an increase in capital expenditures made by KT Corporation, primarily for LTE-related structures. These factors were partially offset by the following: We recorded operating expenses relating to changes of inventories, which represent a decrease in our inventories, of₩36 billion in 2011, compared to an increase in inventories of₩259 billion in 2012, primarily due to temporary year-end accounting treatment of inventories for a shipment of smartphones which were in transit at the end of the year. Interconnection charges decreased by 19.3%, or₩215 billion, from₩1,116 billion in 2011 to₩901 billion in 2012 primarily due to decreases in land-to-mobile and smartmobile-to-mobile interconnection rates charged by other telecommunications operators or are set by the KCC, as applicable, as well as a decrease in the number of calls made from fixed-line phones sold.to mobile phones. Operating Profit Due to the factors described above, our operating profit decreased by 15.5%, or₩307 billion, from₩1,987 billion in 2011 to₩1,680 billion in 2012. Our operating margin, which is operating profit as a percentage of operating revenues, decreased from 9.0% in 2011 to 6.8% in 2012. Finance Income (Costs) The following table presents a breakdown of our finance income and costs and changes therein for 2011 and 2012: | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, | | | Changes | | | | | 2011 vs. 2012 | | | 2011 | | | 2012 | | | Amount | | | % | | | | (In billions of Won) | | Interest income | | ₩ | 152 | | | ₩ | 203 | | | ₩ | 51 | | | | 33.6 | % | Interest expense | | | (481 | ) | | | (472 | ) | | | 9 | | | | (1.9 | ) | Net foreign currency transaction gain (loss) | | | 10 | | | | 2 | | | | (8 | ) | | | (80.0 | ) | Net foreign currency translation gain (loss) | | | (80 | ) | | | 259 | | | | 339 | | | | N.A. | | Net loss on settlement of derivatives | | | (27 | ) | | | (5 | ) | | | 22 | | | | (81.5 | ) | Net gain (loss) on valuation of derivatives | | | 55 | | | | (241 | ) | | | (296 | ) | | | N.A. | | Net other finance costs | | | (1 | ) | | | (29 | ) | | | (28 | ) | | | 2,800.0 | % | | | | | | | | | | | | | | | | | | Net finance costs | | ₩ | (372 | ) | | ₩ | (283 | ) | | ₩ | 89 | | | | (23.9 | )% | | | | | | | | | | | | | | | | | |
N.A. means not available. Our net finance costs decreased by 23.9%, or₩89 billion, from₩372 billion in 2011 to₩283 billion in 2012 primarily due to our recognition of net foreign currency translation loss in 2011 compared to a net gain in 2012 and an increase in interest income, the impact of which was partially offset by our recognition of net gain on valuation of derivatives in 2011, compared to a net loss in 2012. Specifically: We recorded net foreign currency translation loss of₩80 billion in 2011 compared to net foreign currency translation gain of₩259 billion in 2012 as the Market Average Exchange Rate of the Won against the U.S. dollar depreciated from₩1,138.9 to US$1.00 as of December 31, 2010 to₩1,153.3 to US$1.00 as of December 31, 2011 but it appreciated to₩1,071.1 to US$1.00 as of December 31, 2012. The impact of such net foreign currency translation gain was partially offset by a net loss on valuation of derivatives discussed below. Our interest income increased by 33.6%, or₩51 billion, from₩152 billion in 2011 to₩203 billion in 2012 primarily due to an increase in our average balance of interest-earning assets from 2011 to 2012, including our holdings of cash and cash equivalents. These factors were partially offset by the following: We recorded net gain on valuation of derivatives of₩55 billion in 2011 compared to net loss on valuation of derivatives of₩241 billion in 2012, primarily due to an increase in losses from our currency swap contracts due to the appreciation of the exchange rates of the Won against the Japanese Yen and the U.S. dollar from December 31, 2011 to December 31, 2012, whereas we recorded gains in our currency swap contracts in 2011 due to the depreciation of the Won against the U.S. dollar and the Japanese Yen during 2011. Income (Loss) from Jointly Controlled Entities and Associates We recorded a loss from jointly controlled entities and associates of₩6 billion in 2011 compared to a gain from jointly controlled entities and associates of₩18 billion in 2012 primarily due to a gain of₩9 billion recorded in connection with our share of KT Rental’s net income until July 2012 (KT Rental became our consolidated subsidiary starting in July 2012 as described above, and any associated gains until July 2012 are recognized under this category), whereas the loss in 2011 primarily resulted from a one-time unrealized loss of₩30 billion recorded in connection with the sale and leaseback of certain of our properties to K-REALTY CR-REIT I, our equity-method investee specializing in real estate investments established in December 2011. Income Tax Expense Our income tax expense decreased by 12.6%, or₩40 billion, from₩318 billion in 2011 to₩278 billion in 2012 primarily due to a decrease in our profit from continuing operations before income tax by 12.1%, or₩194 billion, from₩1,609 billion in 2011 to₩1,415 billion in 2012. See Note 29 to the Consolidated Financial Statements. As a result of the foregoing, our effective tax rate decreased from 19.8% in 2011 to 19.6% in 2012. We had net deferred income tax assets of₩473 billion as of December 31, 2012. Profit from Discontinued Operations We recognized profit from discontinued operations of₩165 billion in 2011, compared to loss from discontinued operations of₩32 billion in 2012, primarily due to profits recognized from our sale of our 79.96% controlling interest in New Telephone Company to Vimpel-Communications in June and October 2011, as well as our share of net income of New Telephone Company until the completion of sale, and the loss recognized from our sale of our 93.8% interest in KT Tech, Inc. in August 2012, as well as our share of net loss of KT Tech, Inc. until the completion of sale, which we recorded under this category. See Note 40 to the Consolidated Financial Statements. Profit for the Period Due to the factors described above, our profit for the period decreased by 24.1%, or₩350 billion, from₩1,455 billion in 2011 to₩1,105 billion in 2012. Our net income margin, which is profit for the period as a percentage of operating revenues, decreased from 6.6% in 2011 to 4.5% in 2012. Segment Results—Telecommunication & Convergence Customer Group Our operating revenues for this segment, prior to adjusting for inter-segment transactions, decreased by 1.4%, or₩224 billion, from₩16,156 billion in 2011 to₩15,932 billion in 2012, primarily due to a decrease in revenues from individual fixed-line telephone subscribers as well as decrease in revenues from our mobile services resulting from a reduction in our mobile service charges. Our operating income for this segment, prior to adjusting for inter-segment transactions, decreased by 35.7%, or₩407 billion, from₩1,140 billion in 2011 to₩733 billion in 2012, as the segment recorded a 1.4% decrease in operating revenues while recording a 1.2% increase in operating expenses, primarily due to the reasons discussed above. Operating margin, which is operating income as a percentage of total operating revenues prior to adjusting for inter-company sales, decreased from 7.1% in 2011 to 4.6% in 2012. Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 42.1%4.7%, or(Won)₩ 438110 billion, from(Won)₩1,0402,330 billion in 20092011 to(Won)₩1,4782,440 billion in 2010,2012, primarily due to an increase in capital expenditures made for structures relating to our LTE network. Segment Results—Global & Enterprise Group Our operating revenues for this segment, prior to adjusting for inter-segment transactions, decreased by 7.5%, or₩236 billion, from₩3,167 billion in 2011 to₩2,931 billion in 2012, primarily due to a decrease in revenues from sales of tangible assets (such as real estate and copper from our decommissioned telephone cables that are recognized in this segment) in 2012 compared to 2011, primarily due to adverse real estate and metal market conditions in 2012. Our operating income for this segment, prior to adjusting for inter-segment transactions, decreased by 37.8%, or₩199 billion, from₩526 billion in 2011 to₩327 billion in 2012, as the 11.5%7.5% decrease in the segment’s operating revenues outpaced a 1.4% decrease in operating expenses, primarily due to the reasons discussed above. Operating margin decreased from 16.6% in 2011 to 11.2% in 2012. Depreciation and amortization, prior to adjusting for inter-segment transactions, decreased by 4.0%, or₩20 billion, from₩505 billion in 2011 to₩485 billion in 2012, primarily due to the spin-off of our satellite business by establishing KT Sat Co., Ltd. in December 2012, and the resulting reduction in related depreciable assets. Segment Results—Finance/Rental Business Group Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 267.7%, or₩2,706 billion, from₩1,011 billion in 2011 to₩3,717 billion in 2012, primarily due to the consolidation of full year revenues in 2012 from BC Card Co., Ltd. which became our consolidated subsidiary starting in October 2011 and revenues from KT Rental Co., Ltd. which became our consolidated subsidiary starting in July 2012, as described above. Our operating income for this segment, prior to adjusting for inter-segment transactions, increased by 400.0%, or₩148 billion, from₩37 billion in 2011 to₩185 billion in 2012, as the 267.7% increase in the segment’s operating revenues outpaced a 7.7%the 262.6% increase in operating expenses, primarily due to the reasons discussed above. Operating margin, which is operating income as a percentage of total operating revenues prior to adjusting for inter-company sales, increased from 11.2%3.7% in 20092011 to 14.2%5.0% in 2010.2012. Depreciation and amortization, prior to adjusting for inter-segment transactions, decreasedincreased by 8.4%970.6%, or(Won)₩85165 billion, from(Won)₩1,01417 billion in 20092011 to(Won)₩929182 billion in 2010. Property and equipment and intangible assets, prior to adjusting for inter-segment transactions, decreased by 1.2%, or(Won)56 billion, from(Won)4,757 billion in 2009 to(Won)4,701 billion in 2010. Segment Results—Home Customer Group and Enterprise Customer Group
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, decreased by 2.6%, or(Won)263 billion, from(Won)10,109 billion in 2009 to(Won)9,846 billion in 2010, primarily due to a decrease in fixed-line telephone service revenues, the impact of which was partially offset by an increase in revenues from Internet-related services.
We recorded operating loss, prior to adjusting for inter-segment transactions, of(Won)44 billion in 2009 compared to operating income of(Won)575 billion in 2010, as the 8.7% decrease in the segment’s operating expenses outpaced a 2.6% decrease in operating revenues,2012, primarily due to the reasons discussedeffect of consolidation of KT Rental Co., Ltd. and the related assets starting in July 2012 as described above. Operating margins were (0.4)% in 2009 and 5.8% in 2010.
Depreciation and amortization, prior to adjusting for inter-segment transactions, decreased by 3.4%, or(Won)69 billion, from(Won)2,055 billion in 2009 to(Won)1,986 billion in 2010. Property and equipment and intangible assets, prior to adjusting for inter-segment transactions, decreased by 2.5%, or(Won)268 billion, from(Won)10,653 billion in 2009 to(Won)10,385 billion in 2010.
Segment Results—Others Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 38.1%5.3%, or(Won)₩922213 billion, from(Won)₩2,4244,039 billion in 20092011 to(Won)₩3,3464,252 billion in 2010,2012, primarily due to an increaseincreases in sales of our real estate properties.revenues from H&C Network Co., Ltd. and KT Skylife Co., Ltd. as discussed above. We recordedOur operating loss,income for this segment, prior to adjusting for inter-segment transactions, ofdecreased by 21.0%, or(Won)₩522 billion, from₩105 billion in 2009 compared2011 to operating income of(Won)₩14983 billion in 2010,2012, as the 38.1% increase in the segment’s operating revenues outpaced a 31.6%5.3% increase in operating expenses.revenues was outpaced by a 6.0% increase in operating expenses, primarily due to the reasons discussed above. Operating margins were (0.2)%margin decreased from 2.6% in 2009 and 4.5%2011 to 2.0% in 2010.2012.
Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 28.4%20.5%, or(Won)₩5725 billion, from(Won)₩200122 billion in 20092011 to(Won)₩257147 billion in 2010. Property and equipment and intangible assets, prior to adjusting for inter-segment transactions, increased by 113.8%, or(Won)705 billion, from(Won)619 billion in 2009 to(Won)1,324 billion in 2010. Operating Results—2008 Compared to 2009
The following table presents selected income statement data and changes therein for 2008 and 2009.
| | | | | | | | | | | | | | | | | | | For the Year Ended December 31, | | | Changes | | | | | 2008 vs. 2009 | | | | 2008 | | | 2009 | | | Amount | | | % | | | | (In billions of Won) | | Operating revenues | | (Won) | 19,587 | | | (Won) | 19,644 | | | (Won) | 57 | | | | 0.3 | % | Operating expenses | | | 18,144 | | | | 18,673 | | | | 529 | | | | 2.9 | | | | | | | | | | | | | | | | | | | Operating income | | | 1,443 | | | | 971 | | | | (472 | ) | | | (32.7 | ) | Net non-operating income (expense) | | | (733 | ) | | | (251 | ) | | | 482 | | | | (65.8 | ) | | | | | | | | | | | | | | | | | | Income from continuing operations before income tax expense | | | 710 | | | | 719 | | | | 9 | | | | 1.3 | | Income tax expense on continuing operations | | | 168 | | | | 108 | | | | (60 | ) | | | (35.7 | ) | Income (loss) from discontinued operations | | | (29 | ) | | | (2 | ) | | | 27 | | | | 93.1 | | | | | | | | | | | | | | | | | | | Net income | | (Won) | 513 | | | (Won) | 610 | | | (Won) | 97 | | | | 18.9 | % | | | | | | | | | | | | | | | | | |
Operating Revenues
The following table presents a breakdown of our operating revenues and changes therein for 2008 and 2009.
| | | | | | | | | | | | | | | | | | | For the Year Ended December 31, | | | Changes | | | | | 2008 vs. 2009 | | | | 2008 | | | 2009 | | | Amount | | | % | | | | (In billions of Won) | | Mobile services | | (Won) | 6,424 | | | (Won) | 6,646 | | | (Won) | 222 | | | | 3.5 | % | Fixed-line telephone services: | | | | | | | | | | | | | | | | | Local service revenues | | | 2,752 | | | | 2,674 | | | | (78 | ) | | | (2.8 | ) | Non-refundable service installation fee | | | 28 | | | | 17 | | | | (11 | ) | | | (39.3 | ) | Domestic long-distance revenues | | | 587 | | | | 475 | | | | (112 | ) | | | (19.1 | ) | International long-distance revenues | | | 442 | | | | 384 | | | | (58 | ) | | | (13.1 | ) | Land-to-mobile interconnection revenues | | | 1,391 | | | | 1,147 | | | | (244 | ) | | | (17.5 | ) | | | | | | | | | | | | | | | | | | Sub-total | | | 5,200 | | | | 4,697 | | | | (503 | ) | | | (9.7 | ) | Internet services: | | | | | | | | | | | | | | | | | Broadband internet access service | | | 2,041 | | | | 1,942 | | | | (99 | ) | | | (4.9 | ) | Other Internet-related services | | | 440 | | | | 507 | | | | 67 | | | | 15.2 | | | | | | | | | | | | | | | | | | | Sub-total | | | 2,481 | | | | 2,449 | | | | (32 | ) | | | (1.3 | ) | Goods sold | | | 3,066 | | | | 3,397 | | | | 331 | | | | 10.8 | | Data communication services | | | 1,336 | | | | 1,314 | | | | (22 | ) | | | (1.6 | ) | Other | | | 1,080 | | | | 1,141 | | | | 61 | | | | 5.6 | | | | | | | | | | | | | | | | | | | Total operating revenues | | (Won) | 19,587 | | | (Won) | 19,644 | | | (Won) | 57 | | | | 0.3 | % | | | | | | | | | | | | | | | | | |
Total operating revenues increased by 0.3%, or(Won)57 billion, from(Won)19,587 billion in 2008 to(Won)19,644 billion in 2009 primarily due to increases in our mobile handset sales, mobile service revenues and other operating revenues, the impact of which was partially offset by decreases in our fixed-line telephone service revenues, Internet service revenues and data communication service revenues.
Mobile Services
Mobile service revenues increased by 3.5%, or(Won)222 billion, from(Won)6,424 billion in 2008 to(Won)6,646 billion in 2009 primarily due to a 4.5% increase in the number of mobile subscribers from 14.4 million as of December 31, 2008 to 15.0 million as of December 31, 2009.
Fixed-line Telephone Services
Our fixed-line telephone service revenues decreased by 9.7%, or(Won)503 billion, from(Won)5,200 billion in 2008 to(Won)4,697 billion in 2009 primarily due to decreases in land-to-mobile interconnection revenues, domestic long-distance revenues and local service revenues.Specifically:
Land-to-mobile interconnection revenues decreased by 17.5%, or(Won)244 billion, from(Won)1,391 billion in 2008 to(Won)1,147 billion in 20092012, primarily due to an increase in the volume2012 of calls between mobile subscribers, which in turn reduced the volumedepreciable assets owned by KT Skylife such as home satellite equipment, as a result of calls between landline users to mobile subscribers.
Domestic long-distance revenues decreased by 19.1%, or(Won)112 billion, from(Won)587 billion in 2008 to(Won)475 billion in 2009 primarily due to a decrease in the number of domestic long-distance call minutes in 2009 compared to 2008 primarily due to the substitution effect from increase in usage of mobile telephone services and Internet phone services. The effect of such decreases was partially offset by participation by some of our subscribers in optional flat rate plans.
Local service revenues decreased by 2.8%, or(Won)78 billion, from(Won)2,752 billion in 2008 to(Won)2,674 billion in 2009. The number of local call pulses in 2009 compared to 2008 decreased by 32.5% primarily due to the substitution effect from increase in usage of mobile telephone services and the Internet phone services. However, the effect of such decreases was substantially offset by participation by some of our subscribers in optional flat rate plans, as well as an increase in revenues from value-added services.
Internet Services
Our Internet service revenues decreased by 1.3%, or(Won)32 billion, from(Won)2,481 billion in 2008 to(Won)2,449 billion in 2009 primarily due to a decrease in broadband Internet access service revenues, the impact of which was partially offset by an increase in other Internet-related service revenues. Specifically:
Broadband Internet access service revenues decreased by 4.9%, or(Won)99 billion, from(Won)2,041 billion in 2008 to(Won)1,942 billion in 2009, primarily due to discounts offered to long-term subscribers and bundled products in 2009. The effect of such decreases was offset in part by an increase in the number of fixed-line olleh Internet subscribers from 6.7 million subscribers as of December 31, 2008 to 7.0 million subscribers as of December 31, 2009.
Other Internet-related service revenues increased by 15.2%, or(Won)67 billion, from(Won)440 billion in 2008 to(Won)507 billion in 2009 primarily due to increases in revenues from our IP-TV services.
Goods Sold
Revenues from goods sold increased by 10.8%, or(Won)331 billion, from(Won)3,066 billion in 2008 to(Won)3,397 billion in 2009 primarily due to an increase in the number of HSDPA-based IMT-2000 service compatible handsets and smart phones sold, including the Apple iPhone that we launched in November 2009.
Data Communications
Data communications service revenues decreased by 1.6%, or(Won)22 billion, from(Won)1,336 billion in 2008 to(Won)1,314 billion in 2009 primarily due to service fee discounts offered to government agencies and a decrease in revenues related to Kornet broadband Internet connection service to institutional customers resulting from the expiration of certain leased-line contracts.
Others
Other operating revenues increased by 5.6%, or(Won)61 billion, from(Won)1,080 billion in 2008 to(Won)1,141 billion in 2009 primarily due to an increase in revenues from real estate development activities.subscribers.
Operating Expenses
The following table presents a breakdown of our operating expenses and changes therein for 2008 and 2009.
| | | | | | | | | | | | | | | | | | | For the Year Ended December 31, | | | Changes | | | | | 2008 vs. 2009 | | | | 2008 | | | 2009 | | | Amount | | | % | | | | (In billions of Won) | | Salaries and wages | | (Won) | 2,268 | | | (Won) | 2,193 | | | (Won) | (75 | ) | | | (3.3 | )% | Severance indemnities | | | 361 | | | | 1,128 | | | | 767 | | | | 212.5 | | Depreciation | | | 3,214 | | | | 2,874 | | | | (340 | ) | | | (10.6 | ) | Commissions | | | 1,354 | | | | 1,262 | | | | (92 | ) | | | (6.8 | ) | Interconnection charges | | | 1,234 | | | | 1,227 | | | | (7 | ) | | | (0.6 | ) | Cost of goods sold | | | 2,365 | | | | 3,119 | | | | 754 | | | | 31.9 | | Promotion expenses | | | 1,080 | | | | 1,122 | | | | 42 | | | | 3.9 | | Sales commissions | | | 2,130 | | | | 1,805 | | | | (325 | ) | | | (15.3 | ) | Others(1) | | | 4,138 | | | | 3,943 | | | | (195 | ) | | | (4.7 | ) | | | | | | | | | | | | | | | | | | Total operating expenses | | (Won) | 18,144 | | | (Won) | 18,673 | | | (Won) | 529 | | | | 2.9 | % | | | | | | | | | | | | | | | | | |
(1) | Including transfer to other accounts. |
Total operating expenses increased by 2.9%, or(Won)529 billion, from(Won)18,144 billion in 2008 to(Won)18,673 billion in 2009 primarily due to increases in severance indemnities related to special voluntary early retirement programs and cost of goods sold, the impact of which was partially offset by decreases in depreciation, sales commissions and commissions. Specifically:
Our severance indemnities increased significantly by 212.5%, or(Won)767 billion, from(Won)361 billion in 2008 to(Won)1,128 billion in 2009 primarily due to an increase in severance indemnities relating to a special voluntary early retirement program. In December 2009, we held a special voluntary early retirement program where we received applications for voluntary early retirement from employees who had been employed by us for more than 15 years and provided them with additional financial incentives to retire early.
Cost of goods sold increased by 31.9%, or(Won)754 billion, from(Won)2,365 billion in 2008 to(Won)3,119 billion in 2009 primarily due to an increase in the sales of Internet phone handsets as well as an increase in the number of high-end HSDPA-compatible handsets and smart phones sold, including the Apple iPhone that we launched in November 2009.
These factors were partially offset by the following:
Depreciation decreased by 10.6%, or(Won)340 billion, from(Won)3,214 billion in 2008 to(Won)2,874 billion in 2009 reflecting a general decrease in our capital expenditures through 2009.
Sales commissions, which primarily relate to procurement of mobile subscribers and mobile handset sales by our independent dealers, decreased by 15.3%, or(Won)325 billion, from(Won)2,130 billion in 2008 to(Won)1,805 billion in 2009 primarily due to a decrease in the number of new mobile subscribers.
Operating Income
Due to the factors described above, our operating income decreased by 32.7%, or(Won)472 billion, from(Won)1,443 billion in 2008 to(Won)971 billion in 2009. Our operating margin, which is operating income as a percentage of operating revenues, decreased from 7.4% in 2008 to 4.9% in 2009.
Non-Operating Income (Expenses)
The following table presents a breakdown of our non-operating income and expenses on a net basis and changes therein for 2008 and 2009.
| | | | | | | | | | | | | | | | | | | | | | Changes | | | | For the Year Ended December 31, | | | 2008 vs. 2009 | | | | 2008 | | | 2009 | | | Amount | | | % | | | | (In billions of Won) | | Interest income | | (Won) | 151 | | | (Won) | 197 | | | (Won) | 46 | | | | 30.5 | % | Interest expense | | | (480 | ) | | | (505 | ) | | | (25 | ) | | | 5.2 | | Net foreign currency transaction gain (loss) | | | 3 | | | | (4 | ) | | | (7 | ) | | | N.A. | | Net foreign currency translation gain (loss) | | | (762 | ) | | | 223 | | | | 985 | | | | N.A. | | Net gain on disposal of equity method investment securities | | | — | | | | 62 | | | | 62 | | | | N.M. | | Net loss on disposal of property and equipment | | | (90 | ) | | | (119 | ) | | | (29 | ) | | | 32.6 | | Reversal of impairment loss on property and equipment | | | 6 | | | | 103 | | | | 97 | | | | 1,616.7 | | Net gain on settlement of derivatives | | | 8 | | | | 1 | | | | (7 | ) | | | (87.5 | ) | Net gain (loss) on valuation of derivatives | | | 640 | | | | (174 | ) | | | (814 | ) | | | N.A. | | Net other gains (losses) | | | (208 | ) | | | (35 | ) | | | 173 | | | | (83.2 | ) | | | | | | | | | | | | | | | | | | Net non-operating income (expenses) | | (Won) | (733 | ) | | (Won) | (251 | ) | | (Won) | 482 | | | | (65.8 | )% | | | | | | | | | | | | | | | | | |
N.A. | means not applicable. |
N.M. | means not meaningful. |
Our net non-operating expenses decreased by 65.8%, or(Won)482 billion, from(Won)733 billion in 2008 to(Won)251 billion in 2009 primarily due to net foreign currency translation loss in 2008 compared to net foreign currency translation gain in 2009, an increase in reversal of impairment loss on property and equipment and net loss on disposal of equity method investment securities in 2008 compared to net gain on disposal of equity method investment securities in 2009, the impact of which was partially offset by net gain on valuation of derivatives in 2008 compared to net loss on valuation of derivatives in 2009. Specifically:
We recorded net foreign currency translation loss of(Won)762 billion in 2008 compared to net foreign currency translation gain of(Won)223 billion in 2009 as the Market Average Exchange Rate of the Won against the U.S. dollar depreciated from(Won) 938.2 to US$1.00 as of December 31, 2007 to(Won)1,257.5 to US$1.00 as of December 31, 2008 but appreciated to(Won)1,167.6 to US$1.00 as of December 31, 2009. The impact of such foreign currency translation gain/loss was largely offset by loss/gain from valuation of derivatives discussed below.
Our reversal of impairment loss on property and equipment increased sixteen-fold, or(Won)97 billion, from(Won)6 billion in 2008 to(Won)103 billion in 2009 primarily due to an increase in compensation that we received from third parties for relocation of our property and equipment that resulted in impairment loss.
We did not record any net gain on disposal of equity method investment securities in 2008 compared to net gain on disposal of equity method investment securities of(Won)62 billion in
| 2009. We recorded such gain in 2009 primarily due to the sale of our interest in U-Mobile. We sold all of our interest in U-Mobile with a book value of(Won)65 billion for US$100 million to a third party in September 2009.
|
These factors were partially offset by the following:
We recorded net gain on valuation of derivatives of(Won)640 billion in 2008 compared to net loss on valuation of derivatives of(Won)174 billion in 2009 primarily due to gains and losses from our combined interest rate currency swap contracts as the exchange rate of the Won against the U.S. dollar fluctuated as discussed above.
Income Taxes Expense on Continuing Operations
Our income tax expense on continuing operations decreased by 35.7%, or(Won)60 billion, from(Won)168 billion in 2008 to(Won)108 billion in 2009 primarily due to decreases from changes in deferred income tax assets unrecognized related to equity method investment securities as well as tax rate changes, the impact of which was partially offset by a decrease in tax credits. See Note 26 to the Consolidated Financial Statements. Our effective tax rate decreased from 23.7% in 2008 to 15.1% in 2009, primarily due to higher tax credit carryforwards in 2009 compared to 2008. We had net deferred income tax assets of(Won)551 billion as of December 31, 2009.
Net Income
Due to the factors described above, our net income increased by 18.9%, or(Won)97 billion, from(Won)513 billion in 2008 to(Won)610 billion in 2009. Our net income margin, which is net income as a percentage of operating revenues, increased from 2.6% in 2008 to 3.1% in 2009.
Segment Results—Personal Customer Group
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 11.6%, or(Won)968 billion, from(Won)8,346 billion in 2008 to(Won)9,314 billion in 2009, primarily due to an increase in the number of mobile subscribers as well as an increase in HSDPA-compatible handsets and smart phones sold.
Our operating income, prior to adjusting for inter-segment transactions, increased by 129.1%, or(Won)586 billion, from(Won)454 billion in 2008 to(Won)1,040 billion in 2009, as the 11.6% increase in the segment’s operating revenues outpaced a 4.8% increase in operating expenses, primarily due to the reasons discussed above. Operating margin increased from 5.4% in 2008 to 11.2% in 2009.
Depreciation and amortization, prior to adjusting for inter-segment transactions, decreased by 9.3%, or(Won)104 billion, from(Won)1,118 billion in 2008 to(Won)1,014 billion in 2009. Property and equipment and intangible assets, prior to adjusting for inter-segment transactions, decreased by 3.7%, or(Won)181 billion, from(Won)4,938 billion in 2008 to(Won)4,757 billion in 2009.
Segment Results—Home Customer Group and Enterprise Customer Group
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, decreased by 14.2%, or(Won)1,676 billion, from(Won)11,785 billion in 2008 to(Won)10,109 billion in 2009, primarily due to a decrease in fixed-line telephone service revenues, the impact of which was partially offset by an increase in revenues from Internet-related services.
We recorded operating income, prior to adjusting for inter-segment transactions, of(Won)1,113 billion in 2008 compared to operating loss of(Won)44 billion in 2009, as the 14.2% decrease in the segment’s operating revenues outpaced a 4.9% decrease in operating expenses, primarily due to the reasons discussed above. Operating margins were 9.4% in 2008 and (0.4)% in 2009.
Depreciation and amortization, prior to adjusting for inter-segment transactions, decreased by 6.8%, or(Won)150 billion, from(Won)2,205 billion in 2008 to(Won)2,055 billion in 2009. Property and equipment and intangible assets, prior to adjusting for inter-segment transactions, decreased by 1.6%, or(Won)173 billion, from(Won)10,826 billion in 2008 to(Won)10,653 billion in 2009.
Segment Results—Others
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 3.0%, or(Won)70 billion, from(Won)2,354 billion in 2008 to(Won)2,424 billion in 2009, primarily due to an increase in revenues from our media intellectual property rights.
We recorded operating income, prior to adjusting for inter-segment transactions, of(Won)29 billion in 2008 compared to operating loss of(Won)5 billion in 2009, as the 4.4% increase in the segment’s operating expenses outpaced a 3.0% increase in operating revenues, primarily due to the reasons discussed above. Operating margins were 1.2% in 2008 and (0.2)% in 2009.
Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 26.6%, or(Won)42 billion, from(Won)158 billion in 2008 to(Won)200 billion in 2009. Property and equipment and intangible assets, prior to adjusting for inter-segment transactions, decreased by 6.2%, or(Won)41 billion, from(Won)660 billion in 2008 to(Won)619 billion in 2009.
Item 5.B.Liquidity and Capital Resources The following table sets forth the summary of our cash flows determined in accordance with Korean GAAP for the periods indicated.indicated: | | | For the Years Ended December 31, | | | For the Years Ended December 31, | | | | 2008 | | 2009 | | 2010 | | | 2011 | | 2012 | | 2013 | | | | (In billions of Won) | | | (In billions of Won) | | Net cash provided by operating activities | | (Won) | 2,920 | | | (Won) | 3,399 | | | (Won) | 3,245 | | | ₩ | 2,164 | | | ₩ | 5,725 | | | ₩ | 4,111 | | Net cash used in investing activities | | | (3,532 | ) | | | (2,872 | ) | | | (3,436 | ) | | | (2,666 | ) | | | (3,851 | ) | | | (3,783 | ) | Net cash provided by (used in) financing activities | | | 1,051 | | | | (930 | ) | | | (129 | ) | | | 772 | | | | (1,278 | ) | | | (312 | ) | Cash and cash equivalents at beginning of period | | | 1,385 | | | | 1,891 | | | | 1,538 | | | | 1,179 | | | | 1,462 | | | | 2,058 | | Cash and cash equivalents at end of period | | | 1,891 | | | | 1,538 | | | | 1,193 | | | | 1,462 | | | | 2,058 | | | | 2,071 | | Net increase (decrease) in cash and cash equivalents | | | 506 | | | | (353 | ) | | | (345 | ) | | | 284 | | | | 595 | | | | 13 | |
Capital Requirements Historically, our capital requirements consisted principally of purchases of property and equipment and other assets and repayments of borrowings. In our investing activities, we used cash of(Won)₩3,3623,236 billion in 2008,2011,(Won)₩2,7743,760 billion in 20092012 and(Won)₩3,2393,088 billion in 20102013 for the acquisition of property and equipment and investment property, primarily construction-in-progress. In our financing activities, we used cash of(Won)₩2,1476,058 billion in 2008,2011,(Won)₩1,4464,591 billion in 20092012 and(Won)₩1,8955,956 billion in 20102013 for repayment of current portion of bondsborrowings and long-term borrowings.bonds. In recent years, we have also required capital for acquisitions of treasury shares for retirement and payments of retirement and severance benefits related to our early retirement programs. For the acquisition of treasury shares for retirement, we spent(Won)74 billion in 2008,(Won)528 billion in 2009 and(Won)0.3 billion in 2010. Subsequent to such repurchases, we retired most of the treasury shares that we repurchased. We also recorded payments of severance benefits of(Won)₩221235 billion in 2008,2011,(Won)₩1,345111 billion in 20092012 and(Won)₩1,249371 billion in 2010. In 2009 and 2010, our payments were particularly high due to a special voluntary early retirement program held in December 2009 in which we received applications for voluntary early retirement from employees who had been employed by us for more2013. than 15 years and provided them with additional financial incentives to retire early. The special voluntary early retirement program resulted in the early retirement of 5,992 employees out of 25,340 eligible employees.
From time to time, we may also require capital for investments involving acquisitions, including shares of our affiliates, and strategic relationships. On June 1, 2009, KTF merged into KT Corporation pursuant to a “comprehensiveFor example, we acquired redeemable convertible preferred stock transfer” under Article 360-15 of the Korean Commercial Code, whereby KTF common stockholders received 0.7192335 sharewith voting rights and convertible bonds of KT CorporationSkylife for₩246 billion in January 2011, which increased our interest in the company from 32.1% to 53.1% subsequent to exercise of conversion rights. In October 2011, we, through our subsidiary KT Capital Co., Ltd., acquired an additional 1,622,520 common stock for every one share of KTF common stock they owned. We delivered 45,629,480 treasury shares and 700,108 shares of our newly issuedBC Card Co., Ltd. from Woori Bank for approximately₩252 billion. We acquired an additional 1,349,920 common shares to KTF shareholdersof BC Card Co., Ltd. in connection with the merger.January 2012 for approximately₩287 billion, and owned a 69.54% interest in BC Card Co., Ltd. as of December 31, 2013. Any such additional investments or acquisitions may require significant capital. Our cash dividends paid to shareholders and non-controlling interests amounted to(Won)₩409595 billion in 2008,2011,(Won)₩229498 billion in 20092012 and(Won)₩494511 billion in 2010.2013. We anticipate that capital expenditures, and, to a lesser extent, repayment of outstanding contractual obligations and commitments will represent the most significant use of funds for the next several years. We may also require capital for purchase of additional treasury shares and shares of our affiliates as well as investments involving acquisitions and strategic relationships. We compete in the telecommunications sector in Korea, which is rapidly evolving. In recent years, business combinations in the telecommunications industry have significantly changed the competitive landscape of the Korean telecommunications industry. We may need to incur additional capital expenditures to keep up with unexpected developments in rapidly evolving telecommunications technology. There can be no assurance that we will be able to secure funds on satisfactory terms from financial institutions or other sources that are sufficient for our unanticipated needs. Payments of contractual obligations and commitments will also require considerable resources. In our ordinary course of business, we routinely enter into commercial commitments for various aspects of our operations, including repair and maintenance. We have also provided guarantees to our affiliates. See 18Note 20 to the Consolidated Financial Statements for a disclosure of the guarantees provided. The following table sets forth selected information regarding our contractual obligations to make future payments as of December 31, 2010:2013: | | | Payments Due by Period | | | Payments Due by Period | | Contractual Obligations(1) | | Total | | | Less than 1 Year | | | 1-3 Years | | | 4-5 Years | | | After 5 Years | | | Total | | | Less than 1 Year | | | 1-3 Years | | | 4-5 Years | | | After 5 Years | | | | (In billions of Won) | | | (In billions of Won) | | Long-term debt obligations (including current portion of long-term debt) | | (Won) | 9,686 | | | (Won) | 2,437 | | | (Won) | 3,825 | | | (Won) | 2,432 | | | (Won) | 1,082 | | | ₩ | 10,873 | | | ₩ | 2,382 | | | ₩ | 4,097 | | | ₩ | 2,673 | | | ₩ | 1,721 | | Capital lease obligations | | | 22 | | | | 6 | | | | 16 | | | | — | | | | — | | | Capital lease obligations (including any interests) | | | | 75 | | | | 22 | | | | 53 | | | | — | | | | — | | Operating lease obligations | | | 8 | | | | 5 | | | | 3 | | | | — | | | | — | | | | 633 | | | | 78 | | | | 152 | | | | 156 | | | | 247 | | Severance payment obligations(2) | | | 469 | | | | 3 | | | | 9 | | | | 62 | | | | 395 | | | | 4,655 | | | | 112 | | | | 298 | | | | 398 | | | | 3,847 | | Long-term accounts payable—others | | | 170 | | | | 170 | | | | — | | | | — | | | | — | | | | 1,177 | | | | 276 | | | | 372 | | | | 204 | | | | 325 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 10,355 | | | (Won) | 2,621 | | | (Won) | 3,853 | | | (Won) | 2,494 | | | (Won) | 1,477 | | | ₩ | 17,413 | | | ₩ | 2,870 | | | ₩ | 4,972 | | | ₩ | 3,431 | | | ₩ | 6,140 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Estimate of interest payment based on contractual interest rates effective as of December 31, 2010 | | (Won) | 1,406 | | | (Won) | 449 | | | (Won) | 573 | | | (Won) | 206 | | | (Won) | 179 | | | Estimate of interest payment based on contractual interest rates effective as of December 31, 2013 | | | ₩ | 1,624 | | | ₩ | 401 | | | ₩ | 538 | | | ₩ | 261 | | | ₩ | 424 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Contractual obligations represent contractual liabilities as of the consolidated balance sheet date excluding refundable deposits for telephone installation and accruals for customer call bonus points, which do not have definitive payment schedules. |
(2) | Does not include any severance payments due beyond 10 years, due to the uncertainties involved in the calculation of such payments. |
Capital Resources We have traditionally met our working capital and other capital requirements principally from cash provided by operations, while raising the remainder of our requirements primarily through debt financing. From time to time, we have also disposed of our treasury shares to meet our capital requirements. Our major sources of cash have been net cash provided by operating activities, including net income,profits for the period, expenses not involving cash payments such as depreciation and amortization, and proceeds from issuance of bonds and long-term borrowings. We expect that these sources will continue to be our principal sources of cash in the future. Net incomeProfit for the period was(Won)₩5131,455 billion in 2008,2011 and(Won)₩6101,105 billion in 20092012, and we recorded a loss for the period of(Won)₩1,19388 billion in 20102013 due to the reasons discussed in Item 5.A. Operating Results. Depreciation and amortization of intangible assets was(Won)₩3,7032,996 billion in 2008,2011,(Won)₩3,3613,314 billion in 20092012 and(Won)₩3,2853,621 billion in 20102013 primarily reflecting our capital investment activities during the recent years. Aggregate cashyears, including our purchase of bandwidths for our operations, investments in LTE-related structures and acquisition of real estate. Cash proceeds from issuance of bonds and long-term borrowings were(Won)₩3,7807,262 billion in 2008,2011,(Won)₩1,4994,259 billion in 20092012 and(Won)₩2,0356,200 billion in 2010. We also met the capital required for the June 2009 merger with KTF through delivery of 45,629,480 treasury shares and 700,108 shares of our newly issued common shares to KTF shareholders in consideration of the merger.2013. As of December 31, 2010,2013, we held 17,895,96417,308,160 treasury shares. In 2013, we spun off a portion of our trade receivables relating to handset sales to several special purpose companies, as part of our efforts to improve our cash and asset management. We also entered into asset management agreements with each of these special purpose companies, and will be receiving management fees from such companies. See Note 20 to the Consolidated Financial Statements. We believe that we have sufficient working capital available to us for our current requirements and that we have a variety of alternatives available to us to satisfy our financial requirements to the extent that they are not met by funds generated by operations, including the issuance of debt securities and bank borrowings denominated in Won and various foreign currencies. For example, we updated our Medium Term Note programsuccessfully issued US$350 million of 3.875% notes due 2017 in June 2005 fromJanuary 2012, three series of notes for an aggregate amount of Japanese Yen 30 billion in January 2013, three series of notes for an aggregate amount of₩410 billion in April 2013, US$1 billion to US$2300 million floating rate notes due 2018 in August 2013 and₩300 billion of which US$700 million remained unused as of December 31, 2010.commercial paper due 2019 in February 2014. See Note 41 to the Consolidated Financial Statements. However, our ability to rely on some of these alternatives could be affected by factors such as the liquidity of the Korean and the global financial markets, prevailing interest rates, our credit rating and the Government’s policies regarding Won currency and foreign currency borrowings. Other factors which could materially affect our liquidity in the future include unanticipated increase in capital expenditures and decrease in cash provided by operations resulting from a significant decrease in demand for our services. We may also need to raise additional capital sooner than we expect in order to fund unanticipated investments and acquisitions. Our total shareholders’ equity was(Won)₩11,08812,588 billion as of December 31, 2008,2011,(Won)₩10,66713,218 billion as of December 31, 20092012 and(Won)₩11,49612,837 billion as of December 31, 2010.2013. Liquidity We had a working capital (current assets minus current liabilities) surplus of(Won)₩1,8331,067 billion as of December 31, 2008,2011, deficit of(Won)₩1,031750 billion as of December 31, 20092012 and deficit of(Won)₩6431,252 billion as of December 31, 2010.The2013. The following table sets forth the summary of our significant current assets for the periods indicated.indicated: | | | | | | | | | | | | | | | As of December 31, | | | | 2008 | | | 2009 | | | 2010 | | | | (In billions of Won) | | Cash and cash equivalents, net | | (Won) | 1,891 | | | (Won) | 1,538 | | | (Won) | 1,193 | | Short-term investment assets | | | 417 | | | | 444 | | | | 166 | | Trade accounts receivable, net | | | 3,015 | | | | 3,622 | | | | 3,843 | | Inventories, net | | | 425 | | | | 699 | | | | 656 | |
| | | | | | | | | | | | | | | As of December 31, | | | | 2011 | | | 2012 | | | 2013 | | | | (In billions of Won) | | Cash and cash equivalents | | ₩ | 1,462 | | | ₩ | 2,058 | | | ₩ | 2,071 | | Short-term loans receivables, net | | | 698 | | | | 668 | | | | 839 | | Trade and other receivables, net | | | 6,191 | | | | 5,908 | | | | 5,240 | | Inventories, net | | | 676 | | | | 935 | | | | 674 | |
Our cash, cash equivalents and net short-term investment assetsloans receivable maturing within one year totaled(Won)₩2,3082,160 billion as of December 31, 2008,2011,(Won)₩1,9822,726 billion as of December 31, 20092012 and(Won)₩1,3592,910 billion as of December 31, 2010.2013. Under Korean GAAP,IFRS as issued by IASB, bank deposits held at call and all other highly liquid temporary cash instruments within maturities of three months are considered as cash equivalents. Short-term investment assetsloans receivables primarily consist of timeloans and trust depositsother non-derivative financial assets with fixed or determinable payments that are not quoted in an active market with maturities between four toof twelve months and short-term loans and current portion of securities such as beneficiary certificates and available-for-sale securities.or less. The following table sets forth the summary of our significant current liabilities for the periods indicated: | | | | | | | | | | | | | | | As of December 31, | | | | 2008 | | | 2009 | | | 2010 | | | | (In billions of Won) | | Trade accounts payable | | (Won) | 834 | | | (Won) | 1,485 | | | (Won) | 1,531 | | Short-term borrowings | | | 274 | | | | 368 | | | | 469 | | Current portion of bonds and long-term borrowings, net | | | 1,440 | | | | 1,690 | | | | 2,435 | | Other accounts payable | | | 1,476 | | | | 2,439 | | | | 1,620 | | Accrued expenses | | | 528 | | | | 483 | | | | 554 | |
| | | | | | | | | | | | | | | As of December 31, | | | | 2011 | | | 2012 | | | 2013 | | | | (In billions of Won) | | Trade and other payables | | ₩ | 5,902 | | | ₩ | 7,221 | | | ₩ | 7,414 | | Borrowings | | | 2,125 | | | | 3,197 | | | | 3,021 | |
As of December 31, 2010,2013, we entered into various commitments with financial institutions totaling(Won)₩2,7222,892 billion and US$10181 million. See Note 1820 to the Consolidated Financial Statements. As of December 31, 2010,2013,(Won)₩563155 billion and US$19 million were outstandingwas used under these facilities. We have not had, and do not believe that we will have, difficulty gaining access to short-term financing sufficient to meet our current requirements. Capital Expenditures We used cash of(Won)₩3,3623,236 billion in 2008,2011,(Won)₩2,7743,760 billion in 20092012 and(Won)₩3,2393,088 billion in 20102013 for the acquisition of property and equipment and investment property, primarily construction-in-progress. Our current capital expenditure plan, on a non-consolidated basis, calls for the expenditure of approximately(Won)₩3,2002,700 billion in 2011,2014, which may be adjusted depending on market conditions and our results of operations. The principal components of our capital investment plans are: approximately(Won)₩4761,014 billion in general expansion and modernization of our wireless network infrastructure;infrastructure (including approximately₩978 billion in capital investments for LTE service); approximately(Won)₩1,0261,209 billion in capital investments for IMT-2000 (W-CDMA) service; approximately(Won)100 billion in capital investments for WiBro service;
approximately(Won)186 billion in capital investments for IP-TV service;general expansion and modernization of our fixed-line network infrastructure; and
approximately(Won)₩127477 billion in capital investments for development ofour other services, over Internet protocol.including overhead costs. Inflation We do not consider that inflation in Korea has had a material impact on our results of operations in recent years. Inflation in Korea was 4.7%4.0% in 2008, 2.8%2011, 2.2% in 20092012 and 2.9%1.3% in 2010.2013. See “Item 3. Key Information—Item 3.D. Risk Factors—Korea is our most important market, and our current business and future growth could be materially and adversely affected if economic conditions in Korea deteriorate.” Recent Accounting Pronouncements in Korean GAAP
We did not adopt any significant Korean accounting standards issued or revised in 2010.
U.S. GAAP Reconciliation
In 2008, we recorded net income of(Won)573 billion under U.S. GAAP compared to net income of(Won)513 billion under Korean GAAP, primarily because of difference in the treatment of reversal of goodwill amortization and depreciation. In 2009, we recorded net income of(Won)840 billion under U.S. GAAP compared to net income of(Won)610 billion under Korean GAAP, primarily because of difference in the treatment of service installation fees, reversal of goodwill amortization and depreciation. In 2010, we recorded net income of(Won)1,196 billion under U.S. GAAP compared to net income of(Won)1,193 billion under Korean GAAP. Total equity under U.S. GAAP is lower than under Korean GAAP by(Won)478 billion as of December 31, 2008,(Won)211 billion as of December 31, 2009 and(Won)396 billion as of December 31, 2010.
For further discussion of the principal differences between Korean GAAP and U.S. GAAP as they relate to us, see Note 38 to the Consolidated Financial Statements.
Recent Accounting Pronouncements in U.S. GAAP
In September 2006, the Financial Accounting Standards Board (“FASB”) issued enhanced guidance for using fair value to measure assets and liabilities by establishing a common definition of fair value, providing a framework for measuring fair value under GAAP, and expanding the disclosure requirements about fair value measurements. In February 2008, the FASB deferred the adoption of such guidance for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a non-recurring basis. We adopted the fair value guidance for nonfinancial assets and nonfinancial liabilities on January 1, 2009 with no material impact to our consolidated financial statements. In April 2009, the FASB issued additional guidance on fair value, which provided: (a) additional application guidance for estimating fair value when the volume and activity for the asset or liability have greatly decreased and (b) indicators for identifying transactions that are not considered orderly. The additional guidance was effective for interim periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We adopted the provisions in 2009 with no material impact to our consolidated financial statements.
In December 2007, the FASB issued an amended accounting guidance on business combinations. The guidance revises the method of accounting for a number of aspects of business combinations including acquisition costs, contingencies (including contingent assets, contingent liabilities and contingent purchase price) and post-acquisition exit activities of acquired businesses. We adopted the guidance in 2009 with no material impact to our consolidated financial statements.
In December 2007, the FASB issued new accounting guidance on noncontrolling interests in consolidated financial statements. The new accounting guidance requires that a noncontrolling interest in the equity of a subsidiary be accounted for and reported as equity, provides revised guidance on the treatment of net income and losses attributable to the noncontrolling interest and changes in ownership interests in a subsidiary and requires additional disclosures that identify and distinguish between the interests of the controlling and noncontrolling owners. We retrospectively adopted the presentation and disclosure requirements of the new guidance. The adoption of the new guidance did not have a material effect on our consolidated financial statements.
In March 2008, the FASB issued enhanced guidance for disclosures about derivative instruments and hedging activities by expanding the disclosure requirements regarding: (1) how and
why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for; and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. In addition, this guidance requires qualitative disclosures about objectives and strategies for using derivatives described in the context of an entity’s risk exposures, quantitative disclosures about the location and fair value of derivative instruments and associated gains and losses, and disclosures about credit-risk-related contingent features in derivative instruments. We adopted the new guidance in 2009 with no material impact to our consolidated financial statements.
In April 2008, the FASB amended the factors that we should consider when developing renewal or extension assumptions used in the determination of useful lives of intangible assets. These assumptions should be consistent with the expected cash flow method used to measure the fair value of intangible assets. The amended guidance was applicable prospectively to intangible assets acquired after January 1, 2009 with no material impact to our consolidated financial statements.
In November 2008, the FASB ratified guidance approved by the Emerging Issues Task Force addressing how the business combination and noncontrolling interest guidance issued by the FASB might impact the accounting for equity method investments. The guidance was effective prospectively for new investments acquired in fiscal years beginning on or after December 15, 2008. We adopted the guidance in 2009 with no material impact on our consolidated financial statements.
In July 2009, the FASB issued the FASB Accounting Standard Codification (“Codification” or “ASC”), which became the single source of authoritative U.S. GAAP. Following the Codification, the FASB will not issue any new standard in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASU”), which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification. We adopted the Codification, as required, for annual periods ending after September 15, 2009. As a result, references to accounting literature contained in our financial disclosures have been updated to reflect the new ASC structure.
In June 2009, the FASB amended the consolidation rules related to Variable Interest Entities (“VIEs”). The new rules expand the primary beneficiary analysis to incorporate a qualitative review of which entity controls and directs the activities of the VIE. The amendments also modify the rules regarding the frequency of ongoing reassessments of whether a company is the primary beneficiary. Under the revised guidance, we are required to perform ongoing reassessments as opposed to only when certain triggering events occur, as was previously required. We adopted the new guidance in 2010 with no material impact on our consolidated financial statements.
In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements” (“ASU No. 2009-13”). The update addresses how revenues should be allocated among all products and services included in sales arrangements. It establishes a selling price hierarchy for determining the selling price of each product or service, with vendor-specific objective evidence at the highest level, third-party evidence of selling price at the intermediate level, and the best estimate of the selling price at the lowest level. It replaces “fair value” with “selling price” in revenue allocation guidance, eliminates the residual method as an acceptable allocation method and requires the use of the relative selling price method as the basis for allocation. It also significantly expands the disclosure requirements for such arrangements, including, potentially, certain qualitative disclosures. ASU No. 2009-13 will be effective prospectively for sales entered into or materially modified in fiscal years beginning on or after June 15, 2010. The FASB permits early adoption of ASU No. 2009-13, applied retrospectively, to the beginning of the year of adoption. We adopted ASU No. 2009-13 in 2010 with no material impact on our consolidated financial statements.
In October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue Arrangements That Include Software Elements” (“ASU No. 2009-14”). The update clarifies the guidance for allocating and measuring revenue, including how to identify software that is out of the scope. The update also amends accounting and reporting guidance for revenue arrangements involving both tangible products and software that is “more than incidental to the tangible product as a whole.” Such types of software and hardware will be outside of the scope of software revenue guidance, and the hardware components will also be outside of the scope of software revenue guidance and may result in more revenue recognized at the time of the hardware sale. Additional disclosures will discuss allocation of revenue to products and services in sales arrangements and the significant judgments applied in the revenue allocation method, including impacts on the timing and amount of revenue recognition. ASU 2009-14 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. ASU No. 2009-14 has the same effective date, including early adoption provisions, as ASU No. 2009-13. We must adopt ASU No. 2009-14 and ASU No. 2009-13 at the same time. We adopted ASU No. 2009-14 in 2010 with no material impact on our consolidated financial statements.
In December 2009, the FASB issued ASU No. 2009-16, “Transfers and Servicing” (“ASU No. 2009-16”). This update removes the concept of a qualifying special-purpose entity (“QSPE”) and creates more stringent conditions for reporting a transfer of a portion of financial asset as sale. To determine if a transfer is to be accounted for as sale, the transferor must assess whether it and all of the entities included in its consolidated financial statements have surrendered control of the assets. This update became effective on January 1, 2010, with adoption applied prospectively for transfers that occur on and after the effective date. The elimination of the QSPE concept required an entity to retrospectively assess all current off-balance sheet QSPE structures for consolidation under ASC Topic 810, “Consolidation,” and record a cumulative-effect adjustment to retained earnings for any consolidation change. Retrospective application of ASU No. 2009-16, particularly the QSPE removal, was assessed as part of the analysis required from ASU No. 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.”
In December 2009, the FASB issued ASU No. 2009-17. This update addressed the primary beneficiary assessment criteria for determining whether an entity is required to consolidate a VIE. This update requires an entity to determine whether it is the primary beneficiary by performing a qualitative assessment, rather than using the quantitative-based model required under the previous accounting guidance. The qualitative assessment consists of determining whether the entity has both the power to direct the activities that most significantly impact the VIE’s economic performance and has the right to receive benefits or obligation to absorb losses that could potentially be significant to the VIE. This update became effective on January 1, 2010. We adopted ASU No. 2009-16 and No. 2009-17 in 2010 with no material impact on our consolidated financial statements.
In January 2010, the FASB amended the disclosure guidance related to fair value measurements. The amended disclosure guidance requires new fair value measurement disclosures and clarifies existing fair value measurement disclosure requirements. The amended disclosure guidance related to disclosures about purchases, sales, issuances and settlements of Level 3 instruments became effective for fiscal years beginning after December 15, 2010. The remaining amended disclosure guidance will be effective for annual reporting periods beginning after December 15, 2009. We adopted this guidance in 2010 with no material impact on our financial statements.
In January 2010, the FASB issued authoritative guidance for improving disclosures about fair value measurements, which requires new and amended disclosure requirements for classes of assets and liabilities, inputs and valuation techniques and transfers between levels of fair value measurements and accounting for distributions to shareholders with components of stock and cash,
which clarifies the accounting for distributions to shareholders that offer them the ability to elect to receive their entire distribution in cash or shares of equivalent value. This guidance became effective in January 2010. We adopted this guidance in 2010 with no material impact on our consolidated financial statements.
In February 2010, the FASB issued ASU 2010-09 to amend ASC 855, Subsequent Events to address certain implementation issues. The amendments remove the requirement for an SEC filer to disclose a date in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. Additionally, the FASB has clarified that if the financial statements have been revised, then an entity that is not an SEC filer should disclose both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued. The amendment is effective for interim or annual periods ending after June 15, 2010. We adopted this guidance in 2010 with no material impact on our consolidated financial statements.
In July 2010, the FASB issued ASU 2010-20 to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. This amendment is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. We adopted ASU 2010-20 in 2010 and disclosed the additional information related to credit risk in our consolidated financial statements.
Item 5.C.Research and Development, Patents and Licenses, Etc. In order to maintain our leadership in the converging telecommunications business environment and develop additional platforms, services and applications, we operate: a technology strategynew business development and incubation center; a technology development center;
a centralan infrastructure R&D laboratory;
a networkservice R&D laboratory; and an economics and management researcha convergence R&D laboratory.
As of December 31, 2010, these research centers employed a total of 512 researchers and employees. As of April 30, 2011, our researchers and employees at our research centers had 82 doctoral degrees and 249 master’s degrees. As of December 31, 2010,2013, KT Corporation had 5,9455,183 registered patents domestically and 456808 registered patents internationally. UnderThe MSIP has the Information and Communications Industry Promotion Act,authority to recommend to network service providers and specific service providers are obligated to contribute 0.75% and 0.5% of their total annual revenues, respectively, to the Institute of Information Technology Advancement, which uses the fund to promotethat they provide funds for national research and development in information technology. We make contributions as aof telecommunications technology and related projects. The required annual contribution is 0.5% (0.75% for market dominant service providers like us) of revenues attributable to key communications services (excluding revenues from telecommunications service using an allotted frequency if the consideration for such allotted frequency has been paid) from wireless subscribers for the previous year, and is applicable only to those network service providerproviders who have at least₩30 billion in total sales for the previous year and specific service providerhave recorded no net loss in the current period. Under the policy, the maximum amount of the annual contribution to be made cannot exceed 70.0% of the Korean government (Information and Telecommunication Improvement Fund),net profit for the Korea Electronic Telecommunication Research Institute and other research and development institutes.corresponding period of each company. Including such contributions, total expenditures (which include capitalized expenses) on research and development were(Won)₩283304 billion in 2008,2011,(Won)₩263476 billion in 20092012 and(Won)₩295309 billion in 2010.2013.
In recent years, we have focused our research and development efforts in the following areas: open IP-TV service platform;simplifying complex core networks and reducing costs;
smart home solutions;combining in-building management solutions for fixed-line and wireless networks;
location-based servicescombining operation management systems for fixed-line and social network services;wireless networks;
cloud service platform;finding solutions for ultra-definition television set top box and additional solutions for smart IPTV;
aggregating heterogeneous wireless access for double network technologiesthroughput; a broadband internet solution that is 10 times faster using legacy copper and fiber lines; a smart-grid platform for backbone and access network;global energy control operation centers from South Korea to Finland; a telecommunication cloud solution which combines network resource virtualization with cloud computing resource; and future network structurecreating a new convergence business model based on Information Communication Technology (ICT) and solutions.incubating new businesses.
Item 5.D. Trend Information These matters are discussed under Item 5.A. above where relevant. Item 5.E.Off-balance Sheet Arrangements These matters are discussed under Item 5.B. above where relevant. Item 5.F.Tabular Disclosure of Contractual Obligations These matters are discussed under Item 5.B. above where relevant. Item 5.G.Safe Harbor See “Item 3. Key Information—Item 3.D. Risk Factors—Forward-looking statements may prove to be inaccurate.” Item 6. Directors, Senior Management and Employees Item 6.A.Directors and Senior Management Directors Our board of directors has the ultimate responsibility for the administration of our affairs. Our articles of incorporation provide for a board of directors consisting of: up to three non-independent directors, including the Chief Executive Officer; and up to eight outside directors. All of our directors are elected at the general shareholders’ meeting. If the total assets of a company listed on the KRX KOSPI Market as of the end of the preceding year exceeds(Won)₩2,000 billion, which is the case with us, the Commercial Code of Korea requires such company to have more than three outside directors with more than half of its total directors being outside directors. The term of office for all directorsa director is up to three years, but the term is extended to the close of the annual shareholders’ meeting convened with respect to the last full fiscal year of the term.a director’s term of office. If the term of office for thea director is not completed and ends before the close of the annual general meeting of shareholders convened with respect to the last full fiscal year withinof such director’s term of office and a new director is appointed in his or her place, the term of office for such newreplacement director will becoincide with the uncompleted remaining term of office of his or her predecessor. Under the Commercial Code of Korea, we must establish a committee to nominate candidates for outside directors within the board of directors, and outside directors must make up not lessmore than half of the total members of the outside director candidate nominating committee. According to our articles of incorporation, such committee must consist of one non-independent director and all of our outside directors.directors, other than for election of an outside director resulting from the expiration of the term of the office, in which case such outside director whose term is expiring may not be a member of the committee. Our Outside Director Candidate Nominating Committee nominates outside director candidates for appointment at the general shareholders’ meeting. Upon the request of any director (to the extent that the board of directors does not separately authorize only a particular director to make such request), a meeting of the board of directors will be assembled. The chairperson of the board of directors is elected from among the outside directors by a resolution of the board of directors. The term of office of the chairperson is for one year. Our current directors are as follows: | | | | | | | | | | | | | | | Name | | Position | | Director Since | | | Date of Birth | | | Expiration of Term of Office | | Non-Independent Directors(1) | | | | | | | | | | | | | | | | | | | | Suk-Chae LeeChang-Gyu Hwang
| | Chief Executive Officer | | January 2014 (2) | | January 23, 1953 | | | January 2009 | | | | September 11, 1945 | | | | 20122017 | | Sang-Hoon LeeHoon Han
| | Senior Executive Vice President | | | March 2009 | | | | January 24, 1955 | | | | 2012 | | Hyun-Myung Pyo
| | President | 2014 | | March 2009 | | | | October 21,23, 1958 | | | 2015 | 2012 | Heon Moon Lim | | Senior Executive Vice President | | March 2014 | | November 15, 1960 | | | 2015 | | | | | | | Outside Directors(1) | | | | | | | | | | | | | | | | | | | | E. Han KimDo Kyun Song
| | Chairperson of the Board of Directors, Chair Professor, University of MichiganAdvisor, Bae, Kim & Lee LLC | | March 2013 | | September 20, 1943 | | | March 2009 | | | | May 27, 1946 | | | | 20122016 | | Choon-Ho Lee
| | Chairperson of the Board of Directors of Korea Educational Broadcasting System
| | | March 2009 | | | | July 22, 1945 | | | | 2012 | | Jeung-Soo HuhKeuk Je Sung
| | Professor, Kyungpook NationalGraduate School of Pan Pacific International Studies, Kyunghee University | | March 2012 | March 2009 | June 4, 1943 | | | | June 10, 1960 | | | | 20122015 | | Jong-Hwan SongSang Kyun Cha
| | Professor, Myongji University | | | March 2010 | | | | September 5, 1944 | | | | 2013 | | Hae-Bang Chung
| | Professor, SchoolDepartment of Law, Konkuk University
| | | March 2010 | | | | September 1, 1950 | | | | 2013 | | Chan-Jin Lee
| | Chief Executive Officer, DreamWiz Inc.
| | | March 2010 | | | | October 25, 1965 | | | | 2013 | | Hyun Nak Lee
| | Consultant, Kyonggi Ilbo
| | | March 2011 | | | | November 4, 1941 | | | | 2014 | | Byong Won Bahk
| | Visiting Professor, School of Business,Electrical and Computer Engineering, Seoul National University
| | March 2012 | March 2011 | February 19, 1958 | | | 2016 | September 24, 1952 | Jong-Goo Kim | | Of Counsel, New Dimension Law Group | | March 2014 | | July 7, 1941 | | | 2017 | | Chu-Hwan Yim | | Honorary President, Korean Institute of Communications and Information Sciences | | March 2014 | | February 9, 1949 | | | 2016 | | Pil Hwa Yoo | | Professor, Graduate School of Business, Sungkyunkwan University | | March 2014 | | January 13, 1954 | | | 2015 | | Suk-Gwon Chang | | Professor, Department of Business Administration, Hanyang University | | March 2014 | | February 21, 1956 | | | 2015 | | Dae-Keun Park | | Professor, Department of Economics and Finance, Hanyang University | | March 2014 | | March 15 1958 | | | 2017 | |
(1) | All of our standingnon-independent and outside directors beneficially own less than one percent of the issued shares of KT Corporation in the aggregate. |
(2) | On November 12, 2013, Mr. Suk-Chae Lee resigned from his position as the President and Chief Executive Officer of KT Corporation. Mr. Chang-Gyu Hwang’s appointment as the new Chief Executive Officer was approved at an extraordinary general meeting of shareholders held on January 27, 2014. |
Chang-Gyu Hwang is a non-independent director and has served as our chief executive officer since January 2009.2014. Prior to joining us, he served as a Distinguished Chair Professor at Sungkyunkwan University, president and National Chief Technology Officer of the Office of Strategic Research and Development Planning at the former Ministry of Knowledge and Economy, president and chief technology officer of the Corporate Technology Office at Samsung Electronics Co., Ltd. and as president and chief executive officer of the Semiconductor Business at Samsung Electronics Co., Ltd. Mr. Hwang holds a bachelor’s degree and a master’s degree in electric engineering from Seoul National University and a Ph.D. in electronic and computer engineering from the University of Massachusetts, Amherst. Hoon Han is a non-independent director and has served as the senior executive vice president of the Corporate Planning Group since February 2014. He has previously served as the chairperson of the board of directors of Spatial Information Industry Promotion Institute, chief executive officer of KT Networks and as executive director of KT’s Home Consumer Strategy department. Mr. Han holds a bachelor’s degree in industrial engineering from Seoul National University, a master’s degree in industrial engineering from Korea Advanced Institute of Science and Technology, and a Ph.D. in engineering economic systems from Stanford University. Heon Moon Lim is a non-independent director and has served as senior executive vice president of KT’s Customer Business Group since February 2014. He has previously served as a professor of economics and management at Chungnam University, executive director for KT’s Telecom & Convergence department, and as executive director of KT’s Home Consumer department. Mr. Lim holds a bachelor’s degree in business administration from Yonsei University and a Ph.D. in business administration from Seoul National University. Do Kyun Songhas served as our outside director since March 2013. He is currently an advisor to the law firm of Bae, Kim & Lee LLC,LLC. He was formerly a standing member of the KCC and the chief economic advisorexecutive officer of Seoul Broadcasting System Co., Ltd. Mr. Song holds a bachelor’s degree in Spanish literature from Hanguk University of Foreign Studies. Keuk Je Sunghas served as our outside director since March 2012. He is currently a professor at Kyunghee University Graduate School of Pan-Pacific International Studies. He was formerly Korea’s chief negotiator to the PresidentWorld Trade Organization’s General Agreement on Trade in Services. Mr. Sung holds a Ph.D. in managerial economics and decision sciences from Kellogg Graduate School of Business at Northwestern University. Sang Kyun Chahas served as our outside director since March 2012. He is currently a Professor of Electrical and Computer Engineering at Seoul National University. Previously, he founded Transact In Memory, Inc. in the United States, which was acquired by SAP AG in 2005, and was subsequently transformed into SAP Labs Korea, Inc. He continues to serve as a director of SAP Labs Korea, Inc. Mr. Cha holds a Ph.D. in database systems from Stanford University. Jong-Goo Kimhas served as our outside director since March 2014. He is currently of counsel to the New Dimension Law Group. Previously, he served as the minister of the Ministry of Justice and as the head of the Seoul Supreme Prosecutors’ Office. Mr. Kim holds both a bachelor’s and a master’s degree in law from Seoul National University and a Ph.D. in law from Dongguk University. Chu-Hwan Yim has served as our outside director since March 2014. He is currently an honorary president of the Korean Institute of Communications and Information Sciences and is currently serving as an outside director for Korea Electric Power Corporation. Mr. Yim was formerly the president of Korea MinisterDigital Cable Laboratories, president of InformationElectronics and Telecommunications Research Institute, and Vice Ministersecretary general of the Telecommunications Technology Association. Mr. Yim holds both a bachelor’s and a master’s degree in industrial education from Seoul National University and a Ph.D. in telecommunication systems from Technical University of Braunshweig. Pil Hwa Yoo has served as our outside director since March 2014 and is a current member of our audit committee. He is also the dean and professor of marketing at the Graduate School of Business at Sungkyunkwan University and serves as an outside director for Kyobo Life Insurance Co. Ltd. Mr. Yoo was formerly the vice president of Korean Academic Society of Business Administration and an editor of Korea Management Review. Mr. Yoo holds a bachelor’s degree in business administration from Seoul National University, a master’s degree in business from Northwestern University and a Ph.D. from Harvard University. Suk-Gwon Changhas served as our outside director since March 2014. He is currently a professor of business administration at Hanyang University and the president of the Korea Operations Research and Management Science Society. Mr. Chang was formerly the dean of Hanyang Cyber University Graduate School and the president of the Korea Association for Telecommunication Policy and Korea Media Management Association. Mr. Chang holds a bachelor’s degree in industrial engineering from Seoul National University, a master’s degree in industrial engineering from Korea Advanced Institute of Science and Technology, and a Ph.D. in management science from Korea Advanced Institute of Science and Technology. Dae-Keun Park has served as our outside director since March 2014. He is currently a professor of economics and finance at Hanyang University, chair of the Financial Development Review Committee at the Financial Services Commission and director of Hanyang Economic Research Institute. Mr. Park was formerly vice president of the Korea Finance and Economy.Money Association and a member of the Steering Committee at the Korea Finance Corporation. Mr. LeePark holds a bachelor’s degree in economics from Seoul National University, an M.A. degree in political economy from Boston University and a Ph.D. degree in economics from Boston University. Sang-Hoon Lee is a non-independent director and has served as the president of the Enterprise Customer Group since March 2009. He has previously served as senior executive vice president of the Business Development Group and executive vice president of the Business Marketing Unit. Mr. Lee holds a bachelor’s degree in engineering from Seoul National University and both his master’s degree and Ph.D degree in electric engineering from University of Pennsylvania.
Hyun-Myung Pyo is a non-independent director and has served as the president of the Personal Customer Group since December 2009. He has previously served as senior executive vice president of the Corporate Center and senior vice president of the WiBro Business Unit and head of the Marketing Group of KTF. Mr. Pyo holds a bachelor’s degree in electronic engineering from Korea University and both his graduate and Ph.D degrees in electronic engineering from Korea University.
E. Han Kim has served as our outside director since March 2009. He is currently a chair professor of business administration at University of Michigan and has served as outside director of POSCO and Hana Bank. Mr. Kim holds a bachelor’s degree from Rochester University, a master’s degree in business administrationmanagement science from Cornell UniversityKorea Advanced Institute of Science and Technology and a Ph.D. degree in finance from State University of New York-Buffalo.
Choon-Ho Lee has served as our outside director since March 2009. She is currently the chairperson of the board of directors of Korea Educational Broadcasting System. Ms. Lee has served as a director of the board of Seoul Foundation for Arts and Culture. She holds a bachelor’s degree in politics and foreign affairs from Ewha Womans University and has received both her graduate and Ph.D. degrees in education from Inha University.
Jeung-Soo Huh has served as our outside director since March 2009. He is currently a professor of material science and metallurgical engineering at Kyungpook National University and was formerly a visiting professor at Manchester University. Mr. Huh holds a bachelor’s degree in physical metallurgy from Seoul National University, a graduate degree in material engineering from Seoul National University and a Ph.D. degree in material engineering from Massachusetts Institute of Technology.
Jong-Hwan Song was elected as our outside director in March 2010. He is currently a professor of North Korean studies at Myongji University. Mr. Song holds a bachelor’s degree and a graduate degree in international relations from Seoul National University and a Ph.D. degree in political science from Hanyang University.
Hae-Bang Chung was elected as our outside director in March 2010. He is currently a professor at Konkuk University School of Law. Mr. Chung holds a bachelor’s degree and a graduate degree in law from Seoul National University and a graduate degree in economics from Vanderbilt University.
Chan-Jin Lee was elected as our outside director in March 2010. He is currently the chief executive officer of DreamWiz Inc. and was formerly the chief executive officer of Hancom Inc. Mr. Lee holds a bachelor’s degree in mechanical engineering from Seoul National University.
Hyun-Nak Leehas served as our outside director since March 2011. He is currently a consultant at Kyonggi Ilbo and was formerly a chief executive officer of Kyonggi Ilbo and an executive director and chief editor of Donga Ilbo. Mr. Lee holds a master’s degree in economics from Seoul National University.
Byong-Won Bahk has served as our outside director since March 2011. He is currently a visiting professor at Seoul National University School of Business. He was formerly a vice minister of the Ministry of Finance and Economy, a chief executive officer and chairperson of board of directors at Woori Finance Holdings Co., Ltd. and a chairperson of board of directors at Woori Bank. Mr. Bahk holds a master’s degree in economics from WashingtonHarvard University.
For the purposes of the Korean Commercial Code, our Chief Executive Officer is deemed to be the “representative director” who is authorized to perform all judicial and extra-judicial acts relating to our business. Our shareholders elect the Chief Executive Officer in accordance with the provisions of the Commercial Code and our articles of incorporation. A candidate for Chief Executive Officer is nominated by a committee formed for that purpose. The Chief Executive Officer Candidate Nominating Committee consists of: all of our outside directors; and one non-independent director who is not a candidate. Under our articles of incorporation, the Chief Executive Officer Candidate Nominating Committee must submit a draft management contract between the company and the candidate covering the management objectives of the company to the shareholders’ meeting at the time of nomination of the candidate to the meeting. When the draft management contract has been approved at the shareholders’ meeting, the company enters into such management contract with the Chief Executive Officer. In such case, the chairperson of the Chief Executive Officer Candidate Nominating Committee, on behalf of the company, signs the management contract. The board of directors may conduct performance review discussions to determine if the new Chief Executive Officer performed his or her duties under the management contract, or hire a professional evaluation agency for such purpose. If the board of directors determines, based on the results of the performance review, that the new Chief Executive Officer has failed to achieve the management goals, it may propose to dismiss the Chief Executive Officer at a shareholders’ meeting. Senior Management Our executive officers consist of President, Senior Executive Vice President, Executive Vice Presidents and Senior Vice Presidents. The executive officers other than the non-independent directors are appointed by the Chief Executive Officer and may serve up to three years. The current executive officers are as follows: | | | | | | | | | | | Name(1) | | Title and Responsibilities | | Current Position Held Since | | Years with the Company | | | Date of Birth | Ho-Ick Suk
| | Vice Chairperson, Corporate Relations Group | | June 2009 | | 2 | | November 27, 1952 | Seong-Bok Jeong
| | President, Legal & Ethics Office | | January 2009 | | 2 | | December 7, 1954 | Yu-Yeol Seo
| | President, Home Customer Group | | January 2010 | | 33 | | September 9, 1956 | Doo-Whan Choi
| | President, Corporate Technology Group | | December 2006 | | 4 | | January 10, 1954 | Sam-Soo Pyo
| | President, Senior Advisor | | December 2010 | | 2 | | December 12, 1953 | Il-Young KimKyu-Taek Nam
| | Senior Executive Vice President, Corporate CenterMarketing Group | | January 20102014 | | 2 | 28 | | September 8, 1956 | February 6, 1961 | Sung-Man KimKyu-Shik Shin
| | Senior Executive Vice President, Global & Enterprise Group | | January 2014 | | | 3 | | | June 7, 1957 | Seong-Mook Oh | | Senior Executive Vice President, Network Group | | January 20092014 | | | 28 | | October 3, 1956 | August 20, 1960 | Jung-Hee Song
| | Senior Executive Vice President, System Integration Group | | January 2011 | | 0 | | February 18, 1958 | Han-SukKi Chul Kim
| | Senior Executive Vice President, Global Business UnitIT Group | | January 20102014 | | 21 | 9 | | | January 12, 19561, 1955 | Hong-Jin KimIn-Sung Jun
| | Senior Executive Vice President, STO Support Unit | | September 2010 | | 1 | | April 25, 1953 | In-Sung Jeon
| | Senior Executive Vice President, Group Shared ServiceCorporate Relations Group | | January 20102014 | | 31 | 32 | | | October 9, 1958 | Gyoo-Taek NamJeong-Tae Park
| | Senior Executive Vice President, Legal & Ethics Office | | January 2014 | | | 30 | | | December 10, 1959 | Hae-Jung Park | | Executive Vice President, Corporate CenterIntegrated Marketing Communication Business Unit | | January 2014 | | | 7 | | | May 23, 1963 | Jong-Jin Chae | | Executive Vice President, Enterprise Network Business Unit | | January 2014 | | | 26 | | | June 25, 1961 | Cha-Hyun Yoon | | Executive Vice President, Network Design Unit | | January 2014 | | | 29 | | | December 2, 1961 | Dong-Myun Lee | | Executive Vice President, Institute of Convergence Technology | | January 2014 | | | 23 | | | October 15, 1962 | Yoon-Young Park | | Executive Vice President, Future Business Development Group, Institute of Convergence Technology | | January 2014 | | | 22 | | | April 18, 1962 | Kyoung-Lim Yun | | Executive Vice President, Future Convergence Strategy Office | | February 2014 | | | 4 | | | June 14, 1963 | Mun-Whan Lee | | Executive Vice President, Strategy & Planning Office | | January 2014 | | | 25 | | | October 1, 1963 | Bum-Joon Kim | | Executive Vice President, Synergy Management Office | | October 2010January 2014 | | | 9 | | | March 25, 1965 | In-Hoe Kim | | Executive Vice President, Financial Management Office, Corporate Planning Group | | January 2014 | | | 0 | | | June 25, 1964 | Kwang-Suk Shin | | Executive Vice President, Value Management Department, Financial Management Office, Corporate Planning Group | | January 2014 | | | 25 | | February 6, 1961 | January 5, 1960 | Sang-Jik LeeDong-Hoon Han
| | Executive Vice President, Management Support Group | | January 2014 | | | 33 | | | September 12, 1959 | Sang-Bong Nam | | Executive Vice President, Legal Affairs Center, Legal & Ethics Office | | January 2014 | | | 1 | | | October 19, 1963 | Tae-Yol Yoo | | Executive Vice President, Economics & Management Research Institute | | January 2014 | | | 30 | | | April 4, 1960 | Hyeon-Mo Ku | | Executive Vice President, CEO Office | | January 2014 | | | 27 | | | January 13, 1964 | Dae-San Lee | | Executive Vice President, Group Department, CEO Office | | January 2014 | | | 27 | | | January 10, 1961 | Yun-Su Kim | | Senior Vice President, Customer Strategy Business Unit | | January 2014 | | | 22 | | | November 2, 1963 | Jae-Hyeon Kim | | Senior Vice President, Sales Operating Business Unit | | January 2014 | | | 17 | | | September 26, 1962 | Young-Sik Park | | Senior Vice President, Small & Medium Business Unit | | January 2014 | | | 36 | | | April 9, 1957 | Jin-Chul Kim | | Senior Vice President, Customer Satisfaction Unit | | January 2014 | | | 25 | | | May 25, 1962 | Myung-Beom Pyun | | Senior Vice President, Northern Seoul Sales Headquarter | | January 2014 | | | 17 | | | June 200919, 1960 | Dae-Gi Gong | | 2Senior Vice President, Gwanghwamun Sales Branch, Northern Seoul Sales Headquarter | | September 6, 1965January 2014 | | | 27 | | | March 13, 1960 | Hyon-Seog Lee | | Senior Vice President, Southern Seoul Sales Headquarter | | January 2014 | | | 22 | | | March 10, 1962 |
| | | | | | | | | | | Name(1) | | Title and Responsibilities | | Current Position Held Since | | Years with the Company | | | Date of Birth | Kyu-Shik ShinHee-Youp Chang
| | ExecutiveSenior Vice President, Gangnam Sales Branch, Southern Seoul Sales Headquarter | | January 2014 | | | 28 | | | October 1, 1959 | Seong-Yll Cheon | | Senior Vice President, Sinsa Sales Branch, Southern Seoul Sales Headquarter | | January 2014 | | | 27 | | | April 15, 1960 | Hong-Jae Lee | | Senior Vice President, Western Seoul Sales Headquarter | | January 2014 | | | 29 | | | August 29, 1962 | Gang-Geun Lee | | Senior Vice President, Busan Sales Headquarter | | January 2014 | | | 25 | | | June 22, 1961 | Dong-Kwang Kim | | Senior Vice President, Daegu Sales Headquarter | | January 2014 | | | 19 | | | March 23, 1962 | Hyeong-Chul Park | | Senior Vice President, Jeonnam Sales Headquarter | | January 2014 | | | 28 | | | February 2, 1962 | Youn-Mo Jeon | | Senior Vice President, Jeonbuk Sales Headquarter | | January 2014 | | | 17 | | | September 6, 1960 | Dae-Su Park | | Senior Vice President, Chungnam Sales Headquarter | | January 2014 | | | 25 | | | October 28, 1963 | Jun-Su Jeong | | Senior Vice President, Chungbuk Sales Headquarter | | January 2014 | | | 22 | | | November 2, 1962 | Seung-Gyum Kim | | Senior Vice President, Gangwon Sales Headquarter | | January 2014 | | | 28 | | | June 21, 1961 | Sung-Kyu Yang | | Senior Vice President, Jeju Sales Headquarter | | January 2014 | | | 26 | | | March 14, 1962 | Kook-Hyun Kang | | Senior Vice President, Marketing Strategy Business Unit | | January 2014 | | | 25 | | | September 8, 1963 | Jong-Jin Park | | Senior Vice President, Marketing Strategy Department, Marketing Strategy Business Unit | | January 2014 | | | 22 | | | August 14, 1963 | Hyoung-Wook Kim | | Senior Vice President, Device Business Unit | | January 2014 | | | 17 | | | April 24, 1963 | Bong-Goon Kwak | | Senior Vice President, Data Service Business Unit | | January 2014 | | | 29 | | | March 2, 1960 | Hye-Jeong Yun | | Senior Vice President, Service Development Department, Data Service Business Unit | | January 2014 | | | 23 | | | June 12, 1966 | Hee Kyoung Song | | Senior Vice President, Enterprise IT Business Unit | | January 2014 | | | 1 | | | July 24, 1964 | Ki-Jong Moon | | Senior Vice President, Enterprise Business Performing Unit | | January 2014 | | | 37 | | | September 30, 1957 | Yang-Hwan Ryoo | | Senior Vice President, Enterprise Business Consulting Unit | | January 2014 | | | 36 | | | October 12, 1958 | Jae-Gyo Kim | | Senior Vice President, Public Customer Business Unit | | January 20112014 | | 0 | 35 | | June 7, 1957 | September 23, 1958 | Sang-Hong LeeYoon-Sik Jeong
| | ExecutiveSenior Vice President, Technology Strategy OfficeEnterprise Customer Business Unit | | January 20102014 | | | 5 | | | September 30, 1964 | Tae-Sung Lim | | Senior Vice President, Global Business Unit | | January 2014 | | | 23 | | | March 4, 1963 | Pan-Sik Shin | | Senior Vice President, Global Professional Group, Global Business Unit | | January 2014 | | | 27 | | August 13, 1955 | February 25, 1959 | Kyung-Soo LeeJae-Yoon Park
| | ExecutiveSenior Vice President, Fixed and Mobile Network Strategy Business Unit | | December 2010January 2014 | | 19 | 28 | | February 5, | December 18, 1960 | Tae-Il Park
| | Executive Vice President, Network Technical Support Unit | | January 2010 | | 33 | | February 24, 1956 | Hyun-Mi Yang
| | Executive Vice President, Combined Customer Strategy Unit | | December 2010 | | 2 | | December 4, 1963 | Young-Hee Song
| | Executive Vice President, Contents and Media Business Unit | | December 2010 | | 2 | | February 10, 1961 | Young-HeeCheol-Gyu Lee
| | Executive Vice President, Group Consulting Support Office | | December 2010 | | 30 | | August 7, 1957 | Eun-Hye Kim
| | Executive Vice President, GMC Strategy Office | | December 2010 | | 0 | | January 6, 1971 | Yeon-Hak Kim
| | Executive Vice President, Value Management Office | | June 2009 | | 24 | | May 17, 1962 | Hong-Seok Seo
| | Executive Vice President, External Support Office | | January 2011 | | 0 | | November 20, 1960 | Yong-Taek Cho
| | Executive Vice President, Corporate Relations Support Office | | July 2009 | | 2 | | September 7, 1954 | Gil-Joo Lee
| | Executive Vice President, Public Relations Office | | November 2006 | | 35 | | September 20, 1955 | Sang-Hyo Kim
| | Executive Vice President, Human Resource Office | | May 2010 | | 1 | | April 1, 1956 | Tae-Yol Yoo
| | Executive Vice President, Economics & Management Research Laboratory | | January 2009 | | 27 | | April 4, 1960 | Jeong-Tae Park
| | Executive Vice President, Purchasing Strategy Office | | January 2009 | | 27 | | December 10, 1959 | Jung Hwa
| | Senior Vice President, Corporate Center Group Strategy DepartmentNetwork Operation & Maintenance Unit | | December 2010January 2014 | | 22 | 28 | | | August 10, 196424, 1960 | Se-HyunChang-Seok Seo
| | Senior Vice President, Network Technology Unit | | January 2014 | | | 20 | | | July 5, 1967 | Mi-Na Oh | | Senior Vice President, Corporate Center New Business StrategyCore Network Technology Department, Network Technology Unit | | January 20112014 | | 0 | | July 2, 1963 | Dong-Hyun Han
| | Senior Vice President, Corporate Center Strategic Investment Department | | January 2009 | | 3 | | June 26, 1967 | Tae-Ki Min
| | Senior Vice President, Synergy Management Office Marketing Alignment Department | | December 2010 | | 23 | | August 7, 1962 | Sun-Cheol Gweon
| | Senior Vice President, Synergy Management Office Investment Management Department | | December 2010 | | 20 | | March 1, 1962 | April 11, 1969 | Eun-Soo Park
| | Senior Vice President, Ethical Management Department | | January 2010 | | 21 | | January 10, 1962 | Hyun-Mo Gu
| | Senior Vice President, Personal Customer Strategy Unit | | December 2010 | | 24 | | January 13, 1964 | Kuk-Hyun Kang
| | Senior Vice President, Personal Marketing Strategy Department | | January 2010 | | 22 | | September 8, 1963 | Hyung-WookYoung-Hyun Kim
| | Senior Vice President, Mobile Handset Planning DepartmentGangbuk Network Operation & Maintenance Headquarter | | January 20112014 | | 14 | 36 | | April 24, 1963 | December 19, 1958 | Seok-Gyoon NaYoung-Sik Kim
| | Senior Vice President, Personal Customer Business UnitGangnam Network Operation & Maintenance Headquarter | | June 2009January 2014 | | 26 | 24 | | October 26, 1958 | March 15, 1961 | Hyun-Suk LeeHo-Won Moon
| | Senior Vice President, Marketing Planning DepartmentBusan Network Operation & Maintenance Headquarter | | January 20112014 | | 19 | 28 | | March 10, 1962 | Myung-Bum Pyun
| | Senior Vice President, Seoul Mobile Marketing Center | | June 2009 | | 14 | | June 19, 1960 | Chang-Young Yoon
| | Senior Vice President, Strategic Distribution Marketing Center | | December 2010 | | 25 | | February 24, 1957 | Won-Sik Han
| | Senior Vice President, Mobile Data Business Unit | | January 2010 | | 26 | | October 26, 1960 | Seong-Mook Oh
| | Senior Vice President, Mobile Network Unit | | December 2010 | | 25 | | August 20, 19607, 1959 |
| | | | | | | | | | | Name(1) | | Title and Responsibilities | | Current Position Held Since | | Years with the Company | | | Date of Birth | Tae-Il KwonJong-Ok Park
| | Senior Vice President, Metropolitan Mobile Network O&M Center | | December 2010 | | 26 | | June 19, 1960 | Tae-Hyo Ahn
| | Senior Vice President, Personal Fast IncubationIT Strategy & Planning Business Unit | | December 2010January 2014 | | 26 | 23 | | | January 24, 1962 | Bong-Goon KwakJune-Keun Kim
| | Senior Vice President, Mobile IncubationManagement Infrastructure Department, IT Strategy & Planning Business Unit | | January 20102014 | | 26 | 4 | | March 2, 1960 | November 12, 1966 | Hun-Mun LimSang-Yong Lee
| | Senior Vice President, Home CustomerData & Information Security Department, IT Strategy & Planning Business Unit | | December 2010January 2014 | | 24 | 3 | | | December 23, 1967 | Yi-Shik Kim | | Senior Vice President, Big Data Analysis Department, IT Strategy & Planning Business Unit | | January 2014 | | | 1 | | | October 16, 1968 | Dong-Sik Yun | | Senior Vice President, Service Platform Business Unit | | January 2014 | | | 26 | | | June 9, 1963 | Ji-Yun Kim | | Senior Vice President, Cloud Platform Business Unit | | January 2014 | | | 2 | | | January 27, 1968 | Young-Myoung Kim | | Senior Vice President, Research Support Department, Institute of Convergence Technology | | January 2014 | | | 25 | | | November 15,13, 1961 | Hong-Beom Jeon | | Senior Vice President, Infra Laboratory | | January 2014 | | | 23 | | | October 3, 1962 | Sook-Kyung Sung | | Senior Vice President, Intellectual Property Rights Department, Infra Laboratory | | January 2014 | | | 14 | | | November 18, 1964 | Seong-Choon Lee | | Senior Vice President, Service Laboratory | | January 2014 | | | 29 | | | March 28, 1960 | Hye-JungJi-Hie Kim
| | Senior Vice President, Big Data Development Practical Job Training, Future Business Development Group, Institute of Convergence Technology | | January 2014 | | | 1 | | | August 6, 1965 | Jae-Ho Song | | Senior Vice President, Future Convergence Strategy Office | | January 2014 | | | 21 | | | March 26, 1966 | Seong-Hoon Kim | | Senior Vice President, Future Convergence Strategy Office | | January 2014 | | | 1 | | | September 29, 1964 | Dong-Seope Park | | Senior Vice President, Home Integrative Marketing Communication UnitCorporate Planning Department, Strategy & Planning Office | | December 2010January 2014 | | | 29 | | | November 5, 1961 | Pill-Jai Lee | | Senior Vice President, Strategic Investment Department, Strategy & Planning Office | | February 2014 | | | 26 | | | October 3, 1961 | Jeff Kahng | | Senior Vice President, Valuation Department, Synergy Management Office | | January 2014 | | | 1 | | | August 13, 1966 | Weon-Kyung Kim | | Senior Vice President, Human Resources Office | | January 2014 | | | 23 | | | June 15, 1963 | Doo-Seong Cheon | | Senior Vice President, HR Development Center, Human Resources Office | | January 2014 | | | 4 | | | May 23, 19631, 1968 | Yong-HwaJae-Eui Choi
| | Senior Vice President, Educational Dispatch, Human Resources Office | | February 2014 | | | 27 | | | April 17, 1961 | Hoon Cho | | Senior Vice President, Educational Dispatch, Human Resources Office | | February 2014 | | | 21 | | | December 4, 1966 | Eung-Ho Lee | | Senior Vice President, Educational Dispatch, Human Resources Office | | February 2014 | | | 23 | | | December 7, 1962 | Min-Woo Seo | | Senior Vice President, Educational Dispatch, Human Resources Office | | January 2014 | | | 28 | | | February 7, 1960 | Hyun-Yok Sheen | | Senior Vice President, Management Support Office | | January 2014 | | | 21 | | | August 25, 1968 | Won-Sic Hahn | | Senior Vice President, Procurement Cooperation Office | | January 2014 | | | 29 | | | October 26, 1960 | Han-Sup Lee | | Senior Vice President, Network Technology Investigation Department, Procurement Cooperation Office | | January 2014 | | | 18 | | | March 6, 1966 | Young-Pil Park | | Senior Vice President, Home Channel Business UnitCorporate Relations Support Department, Corporate Relations Group | | January 20102014 | | 28 | 8 | | March 2, 1958 | February 9, 1968 | Moon-Chul JungYoung-Ho Oh
| | Senior Vice President, Site Reformation CenterPublic Relations Office | | January 2010March 2014 | | 25 | 16 | | August 5, 1957 | September 16, 1962 | Young-Lyoul LeeMin-Woo Seo
| | Senior Vice President, Olleh TV Unit | | December 2010 | | 4 | | September 17, 1962 | Yoon-Mo Jun
| | Senior Vice President, Southern Seoul Marketing Center | | December 2010 | | 14 | | September 6, 1960 | Jin-Hoon Kim
| | Senior Vice President, Northern Seoul Marketing Center | | December 2010 | | 24 | | May 5, 1960 | Jun-Soo Jung
| | Senior Vice President, Southern Gyeonggi Marketing Center | | December 2010 | | 19 | | November 2, 1962 | Jong-Hack Kang
| | Senior Vice President, Busan Marketing Center | | June 2009 | | 25 | | April 5, 1959 | Jung-Won Park
| | Senior Vice President, Gyeongnam Marketing CenterPublic Relations Office | | January 20102014 | | 25 | | July 26, 1959 | Doo-Soo Jung
| | Senior Vice President, Incheon Marketing Center | | January 2010 | | 33 | | August 22, 1959 | Ouk-Young Yoo
| | Senior Vice President, Daegu Marketing Center | | December 2010 | | 35 | | December 20, 1956 | Ki-Hun Yoo
| | Senior Vice President, Northern Gyeonggi Marketing Center | | January 2010 | | 28 | | January 1, 1957 | Moon-Hwan Lee
| | Senior Vice President, Corporate Customer Strategy Department | | January 2009 | | 22 | | October 1, 1963 | Yoon-Sik Jung
| | Senior Vice President, Enterprise Customer Business Unit 1 | | December 2010 | | 2 | | September 30, 1964 | Kyung-Seok Park
| | Senior Vice President, Enterprise Customer Business Unit 2 | | December 2010 | | 25 | | February 10, 1958 | Young-Sik Park
| | Senior Vice President, Small & Medium Business Unit | | December 2010 | | 33 | | April 9, 1957 | Dong-Hoon Han
| | Senior Vice President, Service Delivery Business Unit | | December 2010 | | 30 | | April 9, 1959 | Ki-Soong Jang
| | Senior Vice President, Corporate Fast Incubation Unit | | December 2010 | | 26 | | October 17, 1958 | Jong-Jin Chae
| | Senior Vice President, Corporate Product Business Unit | | December 2010 | | 26 | | June 25, 1961 | Ju-Ouk Uhm
| | Senior Vice President, Northern Seoul Corporate Business Center | | January 2010 | | 26 | | March 17,7, 1960 | Seung-Dong Gye
| | Senior Vice President, Southern Seoul Corporate Business Center | | December 2010 | | 34 | | June 6, 1958 | Hyung-Chul Park
| | Senior Vice President, Southern Gyeonggi Corporate Business Center | | December 2010 | | 25 | | February 2, 1962 | Jin-Sik Park
| | Senior Vice President, Daejeon Corporate Business Center | | December 2010 | | 25 | | August 5, 1959 | Sung-Hwan Gong
| | Senior Vice President, Jeonnam Corporate Business Center | | December 2010 | | 25 | | December 21, 1960 | Pan-Sik Shin
| | Senior Vice President, Jeonbuk Corporate Business Center | | July 2009 | | 24 | | February 25, 1959 | Gang-Geun Lee
| | Senior Vice President, Gangwon Corporate Business Center | | January 2010 | | 22 | | June 22, 1961 |
| | | | | | | | | | | Name(1) | | Title and Responsibilities | | Current Position Held Since | | Years with the Company | | | Date of Birth | Dong-Myun Lee
| | Senior Vice President, Technology Strategy Center | | December 2010 | | 20 | | October 15, 1962 | Yoon-YoungByung-Sam Park
| | Senior Vice President, Technology DevelopmentLegal Affairs Department, Legal Affairs Center, Legal & Ethics Office | | January 20102014 | | 19 | | April 18, 1962 | Han-Wook Jung
| | Senior Vice President, Central R&D Laboratory | | January 2010 | | 25 | | January 22, 1961 | Sung-Chun Lee
| | Senior Vice President, Fixed and Mobile Network R&D Center | | December 2010 | | 26 | | May 28, 1960 | Hong-Bum Jun
| | Senior Vice President, Smart Green Development Department | | January 2010 | | 20 | | October 3, 1962 | Cha-Hyun Yoon
| | Senior Vice President, Network Establishment Business Unit | | December 2010 | | 26 | | December 2, 1961 | Yung-Sig Yoon
| | Senior Vice President, Network O&M Business Unit | | December 2010 | | 27 | | November 20, 1956 | Chan-Kyung Park
| | Senior Vice President, Gangbuk Network O&M Center | | January 2010 | | 5 | | January 1, 1959 | Dae-San Lee
| | Senior Vice President, Gangnam Network O&M Center | | December 2010 | | 24 | | January 10, 1961 | Tae-Geun Kim
| | Senior Vice President, Central Network O&M Center | | December 2010 | | 28 | | March 16, 1059 | Jong-Ok Lee
| | Senior Vice President, Honam Network O&M Center | | December 2010 | | 28 | | June 3, 1960 | Jong-Seog Koh
| | Senior Vice President, Daegu Network O&M Center | | December 2010 | | 22 | | August 7, 1959 | Young-Hyun Kim
| | Senior Vice President, Busan Network O&M Center | | January 2010 | | 33 | | December 19, 1958 | Sang-Cheon Shim
| | Senior Vice President, Customer Service Business Unit | | December 2010 | | 25 | | May 19, 1960 | Jung-Sik Suh
| | Senior Vice President, Cloud Computing Service Business Unit | | April 2010 | | 4 | | August 18, 1969 | Dong-Shik Yoon
| | Senior Vice President, Cloud Computing Service Infrastructure Department | | April 2010 | | 23 | | June 9, 1963 | Kyung-Kon Koh
| | Senior Vice President, Internet Service Business Unit | | December 2010 | | 2 | | April 28, 1963 | Hyun-Kyu Lee
| | Senior Vice President, Combined Platform & Software Business Unit | | January 2011 | | 0 | | May 13, 1962 | Jae Lee
| | Senior Vice President, BIT Business Center | | December 2010 | | 1 | | March 2, 1970 | October 13, 1966 | Hyung-Joon Kim
| | Senior Vice President, Global Planning Department | | December 2010 | | 17 | | November 2, 1963 | Sang-Wook Kim
| | Senior Vice President, Global GTM2 Department | | December 2010 | | 1 | | February 14, 1965 | Young-Mo Kwon
| | Senior Vice President, Satellite Business Department | | December 2010 | | 22 | | April 1, 1958 | Joon-Shik Park
| | Senior Vice President, STO Support Department | | November 2011 | | 1 | | February 16, 1967 | Gwang-Suk Shin
| | Senior Vice President, Value Management Department 1 | | December 2010 | | 22 | | January 5, 1960 | Sung-Jin Lee
| | Senior Vice President, Financial Accounting Department | | January 2009 | | 15 | | December 2, 1958 | Hwa-Joon Cho
| | Senior Vice President, Finance Department | | January 2010 | | 17 | | February 24, 1957 | Bum-Joon Kim
| | Senior Vice President, Investor Relations Department | | September 2005 | | 6 | | March 25, 1965 | Jae-Geun Choi
| | Senior Vice President, Business Public Relations Department | | January 2010 | | 2 | | November 30, 1961 | Hee-SooHee-Su Kim
| | Senior Vice President, Economics & Management Research LaboratoryInstitute | | March 2011January 2014 | | 0 | 3 | | | October 15, 1962 | Sa-Il Kwon
| | Senior Vice President, Business Support Office | | March 2010 | | 34 | | January 30, 1957 | Seong-Hoon Shim
| | Senior Vice President, Secretarial Office | | January 2010 | | 23 | | February 25, 1964 |
| | | | | | | | | Name(1)
| | Title and Responsibilities
| | Current
Position Held
Since | | Years
with the
Company | | Date of Birth | Geun-Mook Cho
| | Senior Vice President, Educational Dispatch | | December 2010 | | 28 | | November 7, 1958 | Dae-Soo Park
| | Senior Vice President, Educational Dispatch | | December 2010 | | 22 | | October 28, 1963 | Choong-SeopKyung-Joon Lee
| | Senior Vice President, Educational DispatchProject Planning Department, Economics & Management Research Institute | | December 2010January 2014 | | 11 | 23 | | | June 3, 19582, 1963 | Sun-Jong HeoHwa Jung
| | Senior Vice President, R&DPEG, Project Planning Department, Economics & Management Research Institute | | November 2010January 2014 | | 5 | 25 | | March | August 10, 1964 | Sang-Wook Seo | | Senior Vice President, PEG, Project Planning Department, Economics & Management Research Institute | | January 2014 | | | 2 | | | January 26, 1972 | Hyo-Sill Kim | | Senior Vice President, PEG, Project Planning Department, Economics & Management Research Institute | | January 2014 | | | 21 | | | April 17, 1963 | Jae-Yon Cha | | Senior Vice President, Finance Department, CEO Office | | January 2014 | | | 23 1959 | | | September 25, 1965 |
(1) | All of our executive officers beneficially own less than one percent of the issued shares of KT Corporation in the aggregate. |
Item 6.B. Compensation Compensation of Directors and Executive Officers In 2010,2013, the total amount of salaries, bonuses (including long-term performance-based incentives for directors) and allowances paid and accrued to all directors and executive officers of KT Corporation for services in all capacities was approximately(Won)₩42 billion.6.2 billion, which were paid on a cash basis. Until February 2010, we had no incentive based compensation program for outside directors. Instead, compensation was paid to outside directors in fixed amounts as an allowance for any expenses they incurred in executing their duties. The aggregate amount accrued by usboard of directors introduced a new compensation program for outside directors in March 2010, which consists of cash and stock grants and requires a one year lock-up period, at a ratio of 3 to provide retirement benefits to such persons1. The total cash basis remuneration for outside directors for 2013 was recorded at(Won)₩6 billion639 million. The compensation of our directors and executive officers who received total annual compensation exceeding₩500 million in 2010. Starting in 2009, we no longer pay long-term performance-based incentives to our outside directors.2013 were as follows: | | | | | | | Name | | Position | | Total Compensation in 2013 | | Composition of Total Compensation | | | | | (In millions of Won) | Lee, Seok Chae | | Former Representative Director | | ₩2,979 | | ₩476 million (salary);₩1,339 million (bonus);₩11 million (benefits);₩1153 million (severance) | Pyo, Hyeon Myeong | | President | | 890 | | ₩406 million (salary);₩446 million (bonus);₩38 million (benefits) | Kim, II Yeong | | President | | 768 | | ₩302 million (salary);₩363 million (bonus);₩103 million (benefits) | Lee, Sang Hun | | President | | 966 | | ₩75 million (salary);₩512 million (bonus);₩15 million (benefits);₩364 million (severance) |
The chairperson of the Chief Executive Officer Candidate Nominating Committee enters into an employment agreement on our behalf with our Chief Executive Officer. The employment agreement sets certain management targets to be achieved by the Chief Executive Officer, including a target for the amount of “EBITDA” to be achieved in each year. EBITDA is defined as earnings before interest, tax, depreciation and amortization. Failure to achieve certain thresholds below the targets will allow the board of directors to take actions with respect to the Chief Executive Officer’s employment, including proposing to the shareholders’ meeting an early termination of his employment. In addition, the head of each of our functional departments, the president of each of our subsidiaries and the heads of each regional head office have entered into employment agreements with the Chief Executive Officer that provide for similar management targets to be achieved by each of our departments, subsidiaries and regional head offices. Item 6.C. Board Practices As of December 31, 2010,2013, none of our non-independent or outside directors maintained directors’ service contracts with us or with any of our subsidiaries providing for benefits upon termination of employment. Corporate Governance Committee The Corporate Governance Committee is comprised of four outside directors and one standingnon-independent director, Choon-Ho Lee, E. Han Kim, Jeung-Soo Huh, Hae-Bang ChungSuk-Gwon Chang, Do Kyun Song, Sang Kyun Cha, Dae-Keun Park and Hyun-Myung Pyo.Hoon Han. The chairperson is Choon-Ho Lee.Suk-Gwon Chang. The committee is responsible for the review of matters with respect to our Corporate Governance Guidelines and our performance under such guidelines to monitor effectiveness of our corporate governance. Outside Director Candidate Nominating Committee The Outside Director Candidate Nominating Committee consists of one non-independent director and all of our outside directors, other than for election of an outside director resulting from the expiration of the term of the office, in which case such outside director whose term is expiring may not be a member of the committee. The committee’s duties include reviewing the qualifications of potential candidates and proposing nominees to serve as outside directors on our board of directors.directors to the shareholders at the general meeting of shareholders. The committee members’ terms expire immediately after the adjournment of the shareholders’ meeting where the outside directors are elected. Evaluation and Compensation Committee The Evaluation and Compensation Committee is currently comprised of four outside directors, Jeung-Soo Huh, Choon-Ho Lee, Jong-HwanChu-Hwan Yim, Do Kyun Song, Pil Hwa Yoo and Chan-Jin Lee.Suk-Gwon Chang. The chairperson is Jeung-Soo Huh.Chu-Hwan Yim. The committee’s duties include prior review of the Chief Executive Officer’s management goals, terms and conditions proposed for inclusion in the employmentmanagement contract of the Chief Executive Officer, including, but not limited to, determining whether the Chief Executive Officer has achieved the management goals, and the determination of compensation of the Chief Executive Officer and thenon-independent directors. The committee members are elected by the board after the closing of the annual meeting, and the term of the committee members is for one year. Executive Committee The Executive Committee is currently comprised of all of the non-independent directors. The chairperson is Suk-Chae Lee.Chang-Gyu Hwang. The committee’s duties include the establishment and management of branch offices, the acquisition and disposal of real estate having market value between(Won)₩15 billion to(Won)₩30 billion, making investments and providing guarantees upbetween₩15 billion to(Won)₩30 billion, the disposal and sale of stocks of our subsidiaries, which stocks have a market value of between(Won)₩15 billion and(Won)₩30 billion, provided that no change of control with respect to such subsidiary occurs as a result of such disposal or sale, the authorization of charitable contributions between(Won)₩100 million to(Won)₩1 billion and the issuance of certain debt securities. Related-Party Transactions Committee The Related-Party Transactions Committee is currently comprised of four outside directors, Jong-Hwan Song, Chan-Jin Lee, Hyun-Nak LeeKeuk Je Sung, Jong-Goo Kim, Chu-Hwan Yim and Byong Won Bahk.Dae-Keun Park. The chairperson is Jong-Hwan Song.Keuk Je Sung. This committee reviews transactions between KT Corporation and its subsidiaries and ensures compliance with applicable antitrust laws. The committee members are elected by the board after the annual meeting, and the term of the committee members is for one year. Audit Committee Under the Commercial Code of Korea and our articles of incorporation, we are required to establish an audit committee comprised of three or more outside directors comprised of at least two-thirds of the audit committee members. Audit Committee members must also meet the applicable independence criteria set forth under the rules and regulations of the Sarbanes-Oxley Act of 2002. The committee is currently comprised of E. HanJong-Goo Kim, Hae-Bang Chung, Hyun-Nak LeeKeuk Je Sung, Sang Kyun Cha and Byong Won Bahk.Pil Hwa Yoo. The chairperson is Hae-Bang Chung.Jong-Goo Kim and the financial expert is Pil Hwa Yoo. Members of the committee are elected by our shareholders at the shareholders’ meeting. Our internal and external auditors report directly to the committee. The duties of the committee include: appointing independent auditors; approving the appointment and recommending the dismissal of the internal auditor; evaluating performance of independent auditors; approving services to be provided by the independent auditors; reviewing annual financial statements; reviewing audit results and reports; reviewing and evaluating our system of internal controls and policies; and examining improprieties or suspected improprieties. In addition, in connection with the shareholders’ meeting, the committee examines the agenda for, and financial statement and other reports to be submitted by the board of directors, at each shareholders’ meeting. Item 6.D. Employees On a non-consolidated basis, we had 31,15532,451 employees as of December 31, 2010,2013, compared to 30,84132,186 employees as of December 31, 20092012 and 35,06331,981 employees as of December 31, 2008. Prior to the merger with KT Corporation, KTF had 2,560 employees as of December 31, 2008.2011. The Voluntary Early Retirement Plans
We regularly sponsor a voluntary early retirement planplans where we provide additional financial incentives for our employees to retire early, as part of our efforts to improve operational efficiencies. In 2008, 1,1412011, 2012 and 2013, 314, 183 and 269 employees, respectively, retired under KT Corporation’s voluntary early retirement plan.this program. In 2009,April 2014, we had a voluntary early retirement plan where we received applications from employees who had been employed by us for more than 20 years. In addition, we heldannounced the commencement of a special voluntary early retirement program in the fourth quarter of 2009 where we received applications for voluntary early retirement from employees who hadhave been employed by us for more than 15 years and provided themyears. This special early retirement program provides our employees with additional financial incentives to retire early. In aggregate, 6,515early as part of our efforts to improve operational efficiencies. Our employees retired in 2009 underwill be offered the voluntaryoption of either receiving additional severance payment or employment for two years at certain of our subsidiaries or affiliates as part of the special retirement scheme. On April 23, 2014, our human resources committee determined that 8,304 employees will retire through this special early retirement plan and theprogram. We expect to record approximately₩1.2 trillion as severance indemnity in connection with this special voluntary early retirement program. In 2010, 123 employees retired under KT Corporation’s voluntary early retirement plan. We did not have a special voluntary early retirement program, in 2010.all of which is expected to be recorded during 2014.
Labor Relations We consider our current relations with our work force to be good. However, in the past, we have experienced opposition from our labor union for our strategy of restructuring to improve our efficiency and profitability by disposing of non-core businesses and reducing our employee base. As of December 31, 2010,2013, about 78.6%78.0% of allthe employees of KT Corporation were members of the KT Trade Union. On behalf of its members, the Union negotiates with us a collective bargaining agreement every two years, and our current collective bargaining agreement expires on May 23, 2013.2015. The current collective bargaining agreement provides that even in the event of a strike, the minimum number of employees necessary to operate the telecommunications business must continue to work. The Union also negotiates with us an annual agreement on wages on behalf of its members. Under the Act of the Promotion of Worker’s Participation and Cooperation, our Employee-Employer Cooperation Committees, which are composed of representatives of management and labor for each business unit and regional office, meet quarterly to discuss employee grievances, working conditions and potential employee-initiated improvements in service or management. Recent amendments to the Trade Union and Labor Relations Adjustment Act (“Labor Act”), which will becomebecame effective on July 1, 2011, allow multiple labor unions to be formed within one company. Therefore, additional labor unions may be formed by our employees. Pursuant to such amendments, our employees formed a new labor union called “KT New Union” in August 2011. The amended Labor Act also requires such multiple unions to consolidate themselves into a single channel when negotiating with the company on behalf of their members and to enter into a single collective bargaining agreement with the company. As a result of the recent consolidation of labor unions, KT Trade Union was selected as the bargaining representative of the labor unions. Its term as the bargaining representative will last for two years from January 1, 2014, and will expire on December 31, 2015. Employee Stock Ownership and Benefits We have an employee stock ownership association, which may purchase on behalf of its members up to 20.0% of any of our shares offered publicly in Korea. The employee stock ownership association owned 1.56%1.05% of our issued shares as of December 31, 2010.2013. In accordance with the National Pension Act of Korea, we contribute an amount equal to 4.5% of an employee’s standard monthly wages, and each employee contributes 4.5% of his or her standard monthly wages, into his or her personal pension account. Our employees, including executive officers as well as non-executive employees, are subject to a pension insurance system, under which we make monthly contributions to the pension accounts of the employees, and upon retirement, such employees are paid the pension amount due from their pension accounts. Prior to JanuaryApril 2011, our executive and non-executive employees were subject to a lump-sum severance payment system, under which they were entitled to receive a lump-sum severance payment upon termination of their employment, based on their length of service and salary level at the time of termination. Starting in JanuaryApril 2011, in accordance with the Korean Employee Retirement Income Security Act, we replaced such lump-sum severance payment system with our current pension insurance system in the form of a defined benefit plan, and also introduced a defined contribution plan in December 2012, with a total combined unfunded portion of approximately(Won)₩350586 billion as of December 31, 2010. Our employees have the option of choosing either the defined benefit plan or the defined contribution plan.2013. Lump-sum severance amounts previously accrued prior to our adoption of the current pension insurance system continue to remain payable. We also provide a wide range of fringe benefits to our employees, including housing, housing loans, company-provided hospitals and schools, a company-sponsored pension program, an employee welfare fund, industrial disaster insurance, cultural and athletic facilities, physical education grants, meal allowances, medical examinations and training and resort centers. See “Item 5. Operating and Financial Review and Prospects—Item. 5.A. Operating Results—Salaries and Related Costs.” Employee Training The objective of our training program is to develop information and technology specialists who are able to create value for our customers. In order to develop skills of our employees, we require 60 hours of training per year from most of our employees, using individually-tailored curriculums based on individual assessments. We also operate Cyber Academy to provide online classes to our employees, as well as offer various foreign language classes to our employees. In addition, we provide tuition and living expense reimbursements to our high potential individuals who pursue graduate programs in Korea and abroad, as well as provide financial assistance to those who pursue work-related professional licenses or participate in after-work study programs. Item 6.E. Share Ownership Common Stock The persons who are currently our directors held, as a group, 35,0335,599 common shares as of March 31, 2011,2014, the most recent date for which this information is available. The table below shows the ownership of our common shares by directors: | | | | | Shareholders | | Number of Common Shares Owned | | Suk-Chae LeeChang-Gyu Hwang
| | | 21,204— | | Sang-Hoon LeeHoon Han
| | | 10,3161,500 | | Hyun-Myung PyoHeon Moon Lim
| | | 3,513907 | | E. HanPil Hwa Yoo
| | | — | | Suk-Gwon Chang | | | — | | Keuk Je Sung | | | 396 | | Sang Kyun Cha | | | 2,796 | | Do Kyun Song | | | — | | Jong-Goo Kim | | | — | | Choon-Ho LeeDae-Keun Park
| | | — | | Jeung-Soo Huh
| | | — | | Jong-Hwan Song
| | | — | | Hae-Bang Chung
| | | — | | Chan-Jin Lee
| | | — | | Hyun Nak Lee
| | | — | | Byong Won BahkChu-Hwan Yim
| | | — | |
Stock Options We have not granted any stock options to our current directors and executive officers. Item 7. Major Shareholders and Related Party Transactions Item 7.A. Major Shareholders The following table sets forth certain information relating to the shareholders of our common stock as of December 31, 2010:2013: | | | | | | | | | Shareholders | | Number of Shares | | | Percent of Total Shares Issued | | National Pension Corporation | | | 21,557,950 | | | | 8.26 | % | NTTDoCoMo, Inc. | | | 14,257,813 | | | | 5.46 | % | Employee stock ownership association | | | 4,069,147 | | | | 1.56 | % | Directors as a group | | | 28,073 | | | | 0.01 | % | Public | | | 203,302,861 | | | | 77.86 | % | KT Corporation (held in the form of treasury stock)(1) | | | 17,895,964 | | | | 6.85 | % | | | | | | | | | | Total issued shares | | | 261,111,808 | | | | 100.00 | % | | | | | | | | | |
(1) | Includes shares of treasury stock owned by our treasury stock fund. |
| | | | | | | | | Shareholders | | Number of Shares | | | Percent of Total Shares Issued | | National Pension Corporation | | | 23,298,800 | | | | 8.92 | % | NTTDoCoMo, Inc. | | | 14,257,813 | | | | 5.46 | % | Employee stock ownership association | | | 2,748,359 | | | | 1.05 | % | Directors as a group | | | 16,721 | | | | 0.01 | % | Public | | | 203,481,955 | | | | 77.93 | % | KT Corporation (held in the form of treasury stock) | | | 17,308,160 | | | | 6.63 | % | | | | | | | | | | Total issued shares | | | 261,111,808 | | | | 100.00 | % | | | | | | | | | |
Item 7.B.Related Party Transactions We have issued guarantees of(Won)10 billion as of December 31, 2008,(Won)10 billion as of December 31, 2009 and(Won)38 billion as of December 31, 2010 in favor of our consolidated subsidiaries. We have also engaged in various transactions with our subsidiaries and affiliated companies. See Notes 18 and 32Note 34 to the Consolidated Financial Statements. In November 2010, we also entered into a contract with Dreamwiz Corp., whose chief executive officer is Mr. Chan Jin Lee who serves as We have not issued any guarantees in favor of our outside director, to obtain social network-related support services for our websitewww.olleh.com. The term of the service contract is for a period of five years from November 2010 to November 2015 for an estimated aggregate service fee of(Won)370 million.consolidated subsidiaries.
Item 7.C. Interests of Experts and Counsel Not applicable. Item 8. Financial Information Item 8.A. Consolidated Statements and Other Financial Information See “Item 18—Financial Statements” and pages F-1 through F-96.F-95. Legal Proceedings In November 2009, 56 of our former customers began a claim against us for an aggregate(Won)₩130 million in damages, alleging that we improperly subscribed them to our optional flat rate plans for fixed-line services without properly obtaining their consent or giving notification. The Seoul Central District Court ruled in our favor of us on all claims in May 2011, and the plaintiffs filed an appeal in June 2011. The Seoul High Court overruled the plaintiffs’ appeal in December 2011, and the plaintiffs subsequently filed an appeal to the Supreme Court of Korea. In March 2012, the Supreme Court of Korea denied the plaintiffs’ appeal. In connection with this complaint, the Korea Communications CommissionKCC investigated our past practices regarding our subscription of customers to optional flat rate plans, and issued an administrative decision in April 2011 which imposed several corrective orders including amendments to our standard terms of use and issuance of an administrative fine of approximately(Won)₩10 billion. We paid such fines to the Korea Communications CommissionKCC and implemented its corrective orders. As part of our decision to apply for reallocation of the 20 MHz bandwidth in the 1.8 GHz spectrum, we applied to the KCC to terminate our 2G services, and on November 23, 2011, the KCC approved our plan. However, on November 30, 2011, approximately 900 of our 2G service subscribers filed a class-action suit against the KCC for its approval of our plan, claiming that we used improper means to reduce our 2G subscribers to comply with regulatory requirements before terminating the 2G PSC services and that the KCC did not consider such factor in approving our plan. On December 6, 2011, the Seoul Administrative Court issued a preliminary injunction, which temporarily suspended our termination of the 2G services until the case went to trial. We immediately appealed the decision and the Seoul High Court overruled the preliminary injunction on December 26, 2011 and reinstated the KCC’s approval. Accordingly, we terminated our 2G services in the Seoul metropolitan area and began the termination process for the rest of Korea on January 3, 2012. On January 12, 2012, the 2G subscribers filed an appeal of the Seoul High Court’s decision with the Supreme Court of Korea, and on February 1, 2012, the Supreme Court of Korea denied such appeal. On January 17, 2012, trial for the original class-action suit filed by the 2G subscribers began in the Seoul Administrative Court. On May 8, 2012, the Seoul Administrative court ruled in our favor on all claims and the plaintiffs subsequently filed an appeal with the Seoul High Court. On September 15, 2012, the Seoul High Court denied the plaintiffs’ appeal, and the plaintiffs appealed the decision to the Supreme Court of Korea. On February 15, 2013, the Supreme Court of Korea denied the plaintiffs’ appeal. On May 24, 2013, three other appeals by plaintiffs involving the termination of our 2G services were denied by the Supreme Court of Korea. Currently, there are no other pending disputes with respect to these claims. In July 2012, the Fair Trade Commission issued to us an administrative fine of approximately₩5 billion as well as certain corrective orders, after investigating certain pricing and subsidy practices of mobile service carriers and handset manufacturers. Samsung Electronics Co., Ltd., LG Electronics Co., Ltd., Pantech Curitel Co., Ltd., SK Telecom and LG U+ were also issued administrative fines as a result of the investigation. We filed for a stay of execution of the Fair Trade Commission’s decision, and on January 18, 2013, the Supreme Court of Korea granted a stay of execution with respect to the corrective order, and denied the stay of execution with respect to the administrative fine. We paid the entire fine in September 2012. In September 2012, we filed a lawsuit with the Seoul High Court against the Fair Trade Commission to appeal the administrative fine and the corrective order, and on February 6, 2014, the Seoul High Court ruled against us on our appeal. On February 18, 2014, we filed another appeal with respect to the administrative fine with the Supreme Court of Korea and plan to file for a stay of execution with respect to the corrective order. The outcome of this case will not result in any fine in addition to the fine we already paid in September 2012. Based on investigations conducted in December 2012 and January 2013, the KCC imposed a combined fine of approximately₩12 billion on SK Telecom, LG U+ and us in January 2013 (our fine being approximately₩2.9 billion), for providing subsidies that were higher than those allowed under current regulations to new mobile phone purchasers and subscribers, and also imposed temporary suspensions from recruiting new subscribers ranging from 20 days to 24 days. In March 2013, the KCC again imposed a combined fine of approximately₩5 billion on SK Telecom, LG U+ and us (our fine being approximately₩1.6 billion) for continuing to offer subsidies during the suspension period. In July 2013, the KCC imposed a combined fine of approximately₩67 billion on SK Telecom, LG U+ and us (our fine being approximately₩20 billion) and also imposed a seven day suspension on us from recruiting new subscribers, also in connection with providing excessive handset subsidies to new subscribers. In December 2013, the KCC again imposed a combined fine of approximately₩106 billion on SK Telecom, LG U+ and us (our fine being approximately₩30 billion), which is the largest fine ever imposed by the KCC on local mobile operators for providing excessive subsidies to new subscribers. On March 7, 2014, the MSIP imposed a temporary suspension on us for 45 days (from March 13, 2014 to April 26, 2014), SK Telecom for 45 days (from April 5, 2014 to May 19, 2014), and LG U+ for 45 days (from March 13, 2014 to April 4, 2014 and again from April 27, 2014 to May 18, 2014) from recruiting new subscribers as a result of continuing to offer excessive handset subsidies to new subscribers, despite the order from the KCC prohibiting such subsidies. Additionally, the MSIP announced that it plans to bring criminal charges with fines of up to₩150 million and imprisonment of less than three years against any carrier and responsible personnel that fails to adhere to the suspension or continues to offer illegal subsidies after the suspension is completed. In July 2012, the police arrested two individuals in connection with the alleged theft of personal account information relating to approximately 8.7 million of our mobile phone subscribers. The individuals in question stole personal information through a series of hackings starting from February 2012 into our New Service and Technology Evolution Program (“N-STEP”), our mobile customer information system. Since the incident, approximately 30,000 mobile phone subscribers filed lawsuits against us in connection with the N-STEP hackings, alleging that we failed to protect their personal information, and are seeking a total of approximately₩15 billion in damages. The trials are currently ongoing at various district courts. Furthermore, in March 2014, the police arrested three individuals in connection with their alleged theft of personal information relating to approximately 9.8 million of our subscribers. The individuals in question stole the personal information of our subscribers through a series of hackings into our main homepage starting from February 2014. On March 19, 2014, approximately 100 individuals collectively filed a lawsuit against us in Seoul Central District Court, seeking damages of approximately₩200,000 per person. According to news reports, several other subscribers and third party organizations have filed lawsuits against us in connection with the incident, which we are not yet able to confirm as we have not yet received any official notice from the courts regarding these additional lawsuits. As part of an ongoing public-private task force investigation into the recent hacking incidents, the MSIP announced in March 2014 that it confirmed that hackers accessed our websites more than 12 million times using automated hacking programs in the three months prior to the announcement. On March 17, 2014, the KCC announced and the MSIP further announced that we may be fined up to₩100 million in light of the most recent hacking incident. In December 2013, the MSIP declared that the contract over our sale of Mugunghwa 3 was null and void, on the grounds that the satellite was sold without obtaining proper government approval, and ordered us to take corrective measures. We are currently involved in arbitration proceedings against ABS at the International Court of Arbitration of the International Chamber of Commerce and the American Arbitration Association over the Mugunghwa 3 satellite ownership rights and contract violation claims. We are a defendant in various other court proceedings involving claims for civil damages arising in the ordinary course of our business. While we are unable to predict the ultimate disposition of these claims, in the opinion of our management, the ultimate disposition of these claims will not have a material adverse effect on our business, financial condition and results of operations. Dividends The table below sets out the annual dividends declared on the outstanding common stock to shareholders of record on December 31 of the years indicated and the interim dividends declared on the outstanding common stock to shareholders of record on June 30 of the years indicated.indicated: | Year | | Annual Dividend per Common Stock | | | Interim Dividend per Common Stock | | | Average Total Dividend per Common Stock | | | Annual Dividend per Common Stock | | | Interim Dividend per Common Stock | | | Average Total Dividend per Common Stock | | | | (In Won) | | | (In Won) | | | (In Won) | | | (In Won) | | | (In Won) | | | (In Won) | | 2006 | | | 2,000 | | | | — | | | | 2,000 | | | 2007 | | | 2,000 | | | | — | | | | 2,000 | | | 2008 | | | 1,120 | | | | — | | | | 1,120 | | | 2009 | | | 2,000 | | | | — | | | | 2,000 | | | | 2,000 | | | | — | | | | 2,000 | | 2010 | | | 2,410 | | | | — | | | | 2,410 | | | | 2,410 | | | | — | | | | 2,410 | | 2011 | | | | 2,000 | | | | — | | | | 2,000 | | 2012 | | | | 2,000 | | | | — | | | | 2,000 | | 2013 | | | | 800 | | | | — | | | | 800 | |
If sufficient profits are available, the Board of Directors may propose annual dividends on the outstanding common stock, which our shareholders must approve by a resolution at the ordinary general meeting of shareholders. This meeting is generally held in March of the following year and if our shareholders at such ordinary general meeting of shareholders approve the annual dividend, we must pay such dividend within one month following the date of such resolution. Typically, we pay such dividends shortly after the meeting. The declaration of annual dividends is subject to the vote of our shareholders, and consequently, there can be no assurance as to the amount of dividends per common stock or that any such dividends will be declared. Interim dividends paid in cash can be declared by a resolution of the board of directors. See “Item 10. Additional Information—Item 10.B. Memorandum and Articles of Association—Dividends” and “Item 12. Description of Securities Other than Equity Securities—Description of American Depositary Shares—Dividends and Distributions.” The Commercial Code provides that shares of a company of the same class must receive equal treatment. However, major shareholders may consent to receive dividend distributions at a lesser rate than minor shareholders.Previously,shareholders. Previously, the Government consented to receiving a smaller dividend compared to other shareholders. The Government no longer holds any interest in us. Any cash dividends relating to the shares held in the form of ADSs will be paid to the depositary bank in Won. The deposit agreement provides that, except in certain circumstances, cash dividends received by the depositary bank will be converted by the depositary bank into Dollars and distributed to the holders of the ADRs, less withholding tax, other governmental charges and the depositary bank’s fees and expenses. See “Item 12. Description of Securities Other than Equity Securities—Description of the American Depositary Shares—Dividends and Distributions.” Item 8.B. Significant Changes Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report. Item 9. The Offer and Listing Item 9.A. Offer and Listing Details Market Price Information Common Stock Our shares were listed on the KRX KOSPI Market on December 23, 1998. The price of the shares on the KRX KOSPI Market as of the close of trading on JuneApril 28, 20112014 was(Won)₩39,30032,600 per share. The table below shows the high and low closing prices and the average daily volume of trading activity on the KRX KOSPI Market for the shares.shares since January 2009: | | | Price | | | Average Daily Trading Volume | | | Price | | | Average Daily Trading Volume | | | | High | | | Low | | | | High | | | Low | | | | | (In Won) | | | (Number of shares) | | | (In Won) | | | (Number of shares) | | 2006 | | | 49,350 | | | | 37,600 | | | | 539,707 | | | 2007 | | | 56,100 | | | | 40,150 | | | | 917,274 | | | 2008 | | | 52,200 | | | | 29,500 | | | | 1,019,430 | | | 2009 | | | 42,000 | | | | 33,100 | | | | 1,371,110 | | | | 42,000 | | | | 33,100 | | | | 1,371,110 | | 2010 | | | | 50,600 | | | | 39,150 | | | | 1,343,486 | | 2011 | | | | 45,500 | | | | 34,200 | | | | 1,063,506 | | 2012 | | | | 39,750 | | | | 27,700 | | | | 1,067,315 | | First quarter | | | 42,000 | | | | 35,800 | | | | 1,275,616 | | | | 35,450 | | | | 31,450 | | | | 1,031,595 | | Second quarter | | | 39,000 | | | | 33,100 | | | | 1,710,969 | | | | 31,600 | | | | 27,700 | | | | 1,056,858 | | Third quarter | | | 41,050 | | | | 36,650 | | | | 1,474,130 | | | | 36,350 | | | | 30,650 | | | | 1,181,895 | | Fourth quarter | | | 40,600 | | | | 39,100 | | | | 1,015,789 | | | | 39,750 | | | | 34,500 | | | | 993,862 | | 2010 | | | 50,600 | | | | 39,150 | | | | 1,343,486 | | | First quarter | | | 50,600 | | | | 39,150 | | | | 1,838,430 | | | Second quarter | | | 49,350 | | | | 44,650 | | | | 1,353,466 | | | Third quarter | | | 45,700 | | | | 41,100 | | | | 1,148,613 | | | Fourth quarter | | | 49,200 | | | | 43,500 | | | | 1,033,436 | | | 2011 (through June 28) | | | 45,500 | | | | 36,350 | | | | 989,721 | | | First quarter | | | 45,500 | | | | 37,850 | | | | 1,131,917 | | | January | | | 45,500 | | | | 41,800 | | | | 1,450,595 | | | February | | | 42,050 | | | | 39,100 | | | | 1,082,810 | | | March | | | 39,900 | | | | 37,850 | | | | 865,669 | | | Second quarter (through June 28) | | | 40,500 | | | | 36,350 | | | | 847,525 | | | April | | | 40,500 | | | | 37,500 | | | | 883,324 | | | May | | | 39,850 | | | | 37,450 | | | | 943,658 | | | June (through June 28) | | | 39,300 | | | | 36,350 | | | | 706,764 | | |
| | | | | | | | | | | | | | | Price | | | Average Daily Trading Volume | | | | High | | | Low | | | | | (In Won) | | | (Number of shares) | | 2013 | | | 40,850 | | | | 29,850 | | | | 1,149,143 | | First quarter | | | 38,750 | | | | 34,600 | | | | 1,037,037 | | Second quarter | | | 40,850 | | | | 34,000 | | | | 1,112,465 | | Third quarter | | | 37,300 | | | | 33,900 | | | | 1,018,216 | | Fourth quarter | | | 36,900 | | | | 29,850 | | | | 1,427,046 | | 2014 (through April 28) | | | 32,650 | | | | 28,300 | | | | 1,230,056 | | First quarter | | | 31,900 | | | | 28,300 | | | | 981,580 | | January | | | 31,900 | | | | 29,850 | | | | 1,007,246 | | February | | | 31,900 | | | | 29,100 | | | | 1,121,649 | | March | | | 29,900 | | | | 28,300 | | | | 823,737 | | Second quarter (through April 28) | | | 32,650 | | | | 28,700 | | | | 1,987,907 | | April (through April 28) | | | 32,650 | | | | 28,700 | | | | 1,987,907 | |
ADSs The outstanding ADSs, each of which represents one-half of one share of our common stock, have been traded on the New York Stock Exchange and the London Stock Exchange since May 25, 1999. The price of the ADSs on the New York Stock Exchange as of the close of trading on June 28, 2011April 25, 2014 was $18.86$15.36 per ADS. The table below shows the high and low trading prices and the average daily volume of trading activity on the New York Stock Exchange for our ADSs since January 2006.2009: | | | Price | | | Average Daily Trading Volume | | | Price | | | Average Daily Trading Volume | | | | High | | | Low | | | | High | | | Low | | | | | (In US$) | | | (Number of ADSs) | | | (In US$) | | | (Number of ADSs) | | 2006 | | | 26.66 | | | | 20.11 | | | | 562,859 | | | 2007 | | | 29.22 | | | | 21.51 | | | | 592,205 | | | 2008 | | | 27.10 | | | | 10.10 | | | | 819,733 | | | 2009 | | | 17.64 | | | | 11.42 | | | | 639,566 | | | | 17.64 | | | | 11.42 | | | | 639,566 | | 2010 | | | | 22.62 | | | | 17.12 | | | | 784,905 | | 2011 | | | | 20.86 | | | | 14.49 | | | | 1,124,692 | | 2012 | | | | 18.23 | | | | 11.65 | | | | 1,004,064 | | First quarter | | | 15.74 | | | | 11.42 | | | | 973,548 | | | | 15.49 | | | | 13.69 | | | | 1,436,411 | | Second quarter | | | 15.09 | | | | 13.14 | | | | 704,511 | | | | 13.90 | | | | 11.65 | | | | 938,943 | | Third quarter | | | 17.38 | | | | 14.18 | | | | 390,295 | | | | 16.24 | | | | 13.38 | | | | 887,720 | | Fourth quarter | | | 17.64 | | | | 16.05 | | | | 489,908 | | | | 18.23 | | | | 15.38 | | | | 756,111 | | 2010 | | | 22.62 | | | | 17.12 | | | | 784,905 | | | 2013 | | | | 18.16 | | | | 14.33 | | | | 528,291 | | First quarter | | | 21.43 | | | | 17.12 | | | | 718,461 | | | | 18.07 | | | | 15.65 | | | | 766,282 | | Second quarter | | | 22.62 | | | | 18.61 | | | | 744,727 | | | | 18.16 | | | | 14.92 | | | | 518,995 | | Third quarter | | | 20.46 | | | | 17.79 | | | | 868,906 | | | | 17.25 | | | | 15.00 | | | | 368,603 | | Fourth quarter | | | 22.07 | | | | 20.29 | | | | 803,784 | | | | 17.24 | | | | 14.33 | | | | 474,159 | | 2010 (through June 28) | | | 20.86 | | | | 17.75 | | | | 1,291,515 | | | 2014 (through April 25) | | | | 15.73 | | | | 13.24 | | | | 527,105 | | First quarter | | | 20.72 | | | | 18.34 | | | | 1,380,642 | | | | 14.75 | | | | 13.24 | | | | 515,373 | | January | | | 20.72 | | | | 19.66 | | | | 1,554,945 | | | | 14.75 | | | | 13.41 | | | | 711,009 | | February | | | 20.30 | | | | 19.59 | | | | 1,555,063 | | | | 14.19 | | | | 13.56 | | | | 443,384 | | March | | | 19.77 | | | | 18.34 | | | | 1,084,987 | | | | 13.89 | | | | 13.24 | | | | 384,870 | | Second quarter (through June 28) | | | 20.86 | | | | 17.75 | | | | 1,200,926 | | | April | | | 20.32 | | | | 19.31 | | | | 837,350 | | | May | | | 20.86 | | | | 18.22 | | | | 1,539,710 | | | June (through June 28) | | | 18.86 | | | | 17.75 | | | | 1,210,370 | | | Second quarter (through April 25) | | | | 15.73 | | | | 13.45 | | | | 566,862 | | April (through April 25) | | | | 15.73 | | | | 13.45 | | | | 566,862 | |
Source:New York Stock Exchange. Source: | New York Stock Exchange. |
Item 9.B. Plan of Distribution Not applicable. Item 9.C.Markets The KRX KOSPI Market On January 27, 2005, the Korea Exchange was established pursuant to the Korea Securities and Futures Exchange Act through the consolidation of the Korea Stock Exchange, the Korea Futures Exchange, the KOSDAQ Stock Market, Inc. (the “KOSDAQ”) and the KOSDAQ Committee within the Korea Securities Dealers Association, which was in charge of the management of the KOSDAQ. There are threefour different markets operated by the Korea Exchange: the KRX KOSPI Market, the KRX KOSDAQ Market, the KRX KONEX Market and the KRX Derivatives Market. The Korea Exchange has twothree trading floors located in Seoul, one for the KRX KOSPI Market, and one for the KRX KOSDAQ Market, one for the KRX KONEX Market, and one trading floor in Busan for the KRX Derivatives Market. The Korea Exchange is a limited liability company, the shares of which are held by (i) securities companies and futures companies that were formerly members of the Korea Stock Exchange or the Korea Futures Exchange, (ii) the Small & Medium Business Corporation, (iii) the Korea Securities Finance Corporation and (iv) the Korea Securities DealersFinancial Investment Association. Currently, the Korea Exchange is the only stock exchange in Korea and is operated by membership, having as its members most of the Korean securities companies and some Korean branches of foreign securities companies. The KRX KOSPI Market has the power in some circumstances to suspend trading in the shares of a given company or to de-list a security. The KRX KOSPI Market also restricts share price movements. All listed companies are required to file accounting reports annually and quarterly and to release immediately all information that may affect trading in a security. The Government has in the past exerted, and continues to exert, substantial influence over many aspects of the private sector business community which can have the intention or effect of depressing or boosting the market. In the past, the Government has informally both encouraged and restricted the declaration and payment of dividends, induced mergers to reduce what it considers excess capacity in a particular industry and induced private companies to offer publicly their securities. The KRX KOSPI Market publishes the Korea Composite Stock Price Index every twoten seconds, which is an index of all equity securities listed on the KRX KOSPI Market. The Korea Composite Stock Price Index is calculated using the aggregate value method, in which the market capitalizations of all listed companies are aggregated, subject to certain adjustments, and this aggregate is expressed as a percentage of the aggregate market capitalization of all listed companies as of the base date, January 4, 1980.
Movements in Korea Composite Stock Price Index are set out in the following table together with the associated dividend yields and price earnings ratios.ratios: | Year | | Opening | | | High | | | Low | | | Closing | | | Period Average | | | | | | | | | | | | | | | | | Period Average | | Year | | Opening | | | High | | | Low | | | Closing | | | Dividend Yield (1) (2) (Percent) | | | Price Earnings Ratio (2) (3) | | | Opening | | | High | | | Low | | | Closing | | | Dividend Yield (1) (2) (Percent) | | | Price Earnings Ratio (2) (3) | | | | 5.3 | | | | 5.2 | | | | 139.53 | | | | 163.37 | | | | 131.40 | | | | 163.37 | | | | 5.3 | | | | 5.2 | | 1986 | | | 161.40 | | | | 279.67 | | | | 153.85 | | | | 272.61 | | | | 4.3 | | | | 7.6 | | | | 161.40 | | | | 279.67 | | | | 153.85 | | | | 272.61 | | | | 4.3 | | | | 7.6 | | 1987 | | | 264.82 | | | | 525.11 | | | | 264.82 | | | | 525.11 | | | | 2.6 | | | | 10.9 | | | | 264.82 | | | | 525.11 | | | | 264.82 | | | | 525.11 | | | | 2.6 | | | | 10.9 | | 1988 | | | 532.04 | | | | 922.56 | | | | 527.89 | | | | 907.20 | | | | 2.4 | | | | 11.2 | | | | 532.04 | | | | 922.56 | | | | 527.89 | | | | 907.20 | | | | 2.4 | | | | 11.2 | | 1989 | | | 919.61 | | | | 1,007.77 | | | | 844.75 | | | | 909.72 | | | | 2.0 | | | | 13.9 | | | | 919.61 | | | | 1,007.77 | | | | 844.75 | | | | 909.72 | | | | 2.0 | | | | 13.9 | | 1990 | | | 908.59 | | | | 928.82 | | | | 566.27 | | | | 696.11 | | | | 2.2 | | | | 12.8 | | | | 908.59 | | | | 928.82 | | | | 566.27 | | | | 696.11 | | | | 2.2 | | | | 12.8 | | 1991 | | | 679.75 | | | | 763.10 | | | | 586.51 | | | | 610.92 | | | | 2.6 | | | | 11.2 | | | | 679.75 | | | | 763.10 | | | | 586.51 | | | | 610.92 | | | | 2.6 | | | | 11.2 | | 1992 | | | 624.23 | | | | 691.48 | | | | 459.07 | | | | 678.44 | | | | 2.2 | | | | 10.9 | | | | 624.23 | | | | 691.48 | | | | 459.07 | | | | 678.44 | | | | 2.2 | | | | 10.9 | | 1993 | | | 697.41 | | | | 874.10 | | | | 605.93 | | | | 866.18 | | | | 1.6 | | | | 12.7 | | | | 697.41 | | | | 874.10 | | | | 605.93 | | | | 866.18 | | | | 1.6 | | | | 12.7 | | 1994 | | | 879.32 | | | | 1,138.75 | | | | 855.37 | | | | 1,027.37 | | | | 1.2 | | | | 16.2 | | | | 879.32 | | | | 1,138.75 | | | | 855.37 | | | | 1,027.37 | | | | 1.2 | | | | 16.2 | | 1995 | | | 1,027.45 | | | | 1,016.77 | | | | 847.09 | | | | 882.94 | | | | 1.2 | | | | 16.4 | | | | 1,027.45 | | | | 1,016.77 | | | | 847.09 | | | | 882.94 | | | | 1.2 | | | | 16.4 | | 1996 | | | 882.29 | | | | 986.84 | | | | 651.22 | | | | 651.22 | | | | 1.3 | | | | 17.8 | | | | 882.29 | | | | 986.84 | | | | 651.22 | | | | 651.22 | | | | 1.3 | | | | 17.8 | | 1997 | | | 647.67 | | | | 792.29 | | | | 350.68 | | | | 376.31 | | | | 1.5 | | | | 17.0 | | | | 647.67 | | | | 792.29 | | | | 350.68 | | | | 376.31 | | | | 1.5 | | | | 17.0 | | 1998 | | | 374.41 | | | | 579.86 | | | | 280.00 | | | | 562.46 | | | | 1.9 | | | | 10.8 | | | | 374.41 | | | | 579.86 | | | | 280.00 | | | | 562.46 | | | | 1.9 | | | | 10.8 | | 1999 | | | 565.10 | | | | 1,028.07 | | | | 498.42 | | | | 1,028.07 | | | | 1.1 | | | | 13.5 | | | | 565.10 | | | | 1,028.07 | | | | 498.42 | | | | 1,028.07 | | | | 1.1 | | | | 13.5 | | 2000 | | | 1,028.33 | | | | 1,059.04 | | | | 500.60 | | | | 504.62 | | | | 2.1 | | | | 12.9 | | | | 1,028.33 | | | | 1,059.04 | | | | 500.60 | | | | 504.62 | | | | 2.1 | | | | 12.9 | | 2001 | | | 503.31 | | | | 704.50 | | | | 468.76 | | | | 693.70 | | | | 1.7 | | | | 16.4 | | | 2002 | | | 698.00 | | | | 937.61 | | | | 584.04 | | | | 627.55 | | | | 1.6 | | | | 15.2 | | | 2003 | | | 633.03 | | | | 822.16 | | | | 515.24 | | | | 810.71 | | | | 2.0 | | | | 11.8 | | | 2004 | | | 821.26 | | | | 936.06 | | | | 719.59 | | | | 895.92 | | | | 2.0 | | | | 13.8 | | | 2005 | | | 896.00 | | | | 1,379.37 | | | | 870.84 | | | | 1,379.37 | | | | 1.8 | | | | 10.6 | | | 2006 | | | 1,383.32 | | | | 1,464.70 | | | | 1,203.86 | | | | 1,434.46 | | | | 1.6 | | | | 11.1 | | | 2007 | | | 1,438.89 | | | | 2,064.85 | | | | 1,355.79 | | | | 1,897.13 | | | | 1.4 | | | | 15.8 | | | 2008 | | | 1,891.45 | | | | 1,888.88 | | | | 938.75 | | | | 1,124.47 | | | | 2.6 | | | | 8.9 | | | 2009 | | | 1,132.87 | | | | 1,718.88 | | | | 1,018.81 | | | | 1,682.77 | | | | 1.6 | | | | 22.9 | | | 2010 | | | 1,696.14 | | | | 2,051.00 | | | | 1,552.79 | | | | 2,051.00 | | | | 1.1 | | | | 17.8 | | | 2011 (through June 28) | | | 2,070.08 | | | | 2,228.96 | | | | 1,923.92 | | | | 2,062.91 | | | | 1.2 | | | | 16.1 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Period Average | | Year | | Opening | | | High | | | Low | | | Closing | | | Dividend Yield (1) (2) (Percent) | | | Price Earnings Ratio (2) (3) | | 2001 | | | 503.31 | | | | 704.50 | | | | 468.76 | | | | 693.70 | | | | 1.7 | | | | 16.4 | | 2002 | | | 698.00 | | | | 937.61 | | | | 584.04 | | | | 627.55 | | | | 1.6 | | | | 15.2 | | 2003 | | | 633.03 | | | | 822.16 | | | | 515.24 | | | | 810.71 | | | | 2.0 | | | | 11.8 | | 2004 | | | 821.26 | | | | 936.06 | | | | 719.59 | | | | 895.92 | | | | 2.0 | | | | 13.8 | | 2005 | | | 896.00 | | | | 1,379.37 | | | | 870.84 | | | | 1,379.37 | | | | 1.8 | | | | 10.6 | | 2006 | | | 1,383.32 | | | | 1,464.70 | | | | 1,203.86 | | | | 1,434.46 | | | | 1.6 | | | | 11.1 | | 2007 | | | 1,438.89 | | | | 2,064.85 | | | | 1,355.79 | | | | 1,897.13 | | | | 1.4 | | | | 15.8 | | 2008 | | | 1,891.45 | | | | 1,888.88 | | | | 938.75 | | | | 1,124.47 | | | | 2.6 | | | | 8.9 | | 2009 | | | 1,132.87 | | | | 1,718.88 | | | | 1,018.81 | | | | 1,682.77 | | | | 1.6 | | | | 22.9 | | 2010 | | | 1,696.14 | | | | 2,051.00 | | | | 1,552.79 | | | | 2,051.00 | | | | 1.1 | | | | 17.8 | | 2011 | | | 2,078.08 | | | | 2,228.96 | | | | 1,652.71 | | | | 1,825.74 | | | | 1.5 | | | | 10.5 | | 2012 | | | 1,826.37 | | | | 2,049.28 | | | | 1,769.31 | | | | 1,997.05 | | | | 1.3 | | | | 12.3 | | 2013 | | | 2,031.10 | | | | 2,059.58 | | | | 1,780.63 | | | | 2,011.34 | | | | 1.2 | | | | 13.5 | | 2014 (through April 25) | | | 1,967.19 | | | | 2,008.61 | | | | 1,886.85 | | | | 1,971.66 | | | | 1.2 | | | | 14.7 | |
Source: | The KRX KOSPI Market |
(1) | Dividend yields are based on daily figures. Dividend yields after January 3, 1984 include cash dividends only. |
(2) | Starting in April 2000, dividend yield and price earnings ratio are calculated based on KOSPI 200, an index of 200 equity securities listed on the KRX KOSPI Market. Starting in April 2000, KOSPI 200 excludes classified companies, companies which did not submit annual reports to the KRX KOSPI Market, and companies which received qualified opinion from external auditors. |
(3) | The price earnings ratio is based on figures for companies that record a profit in the preceding year. |
Shares are quoted “ex-dividend” on the first trading day of the relevant company’s accounting period; since the calendar year is the accounting period for the majority of listed companies, this may account for the drop in the Korea Composite Stock Price Index between its closing level at the end of one calendar year and its opening level at the beginning of the following calendar year. With certain exceptions, principally to take account of a share being quoted “ex-dividend” and “ex-rights,” permitted upward and downward movements in share prices of any category of shares on any day are limited under the rules of the KRX KOSPI Market to 15% of the previous day’s closing price of the shares, rounded down as set out below: | | | | | Previous Days’ Closing Price | | Rounded Down To | | Less than(Won)₩5,000 | | (Won)₩ | 5 | | (Won)₩5,000 to less than(Won)₩10,000
| | (Won)₩ | 10 | | (Won)₩10,000 to less than(Won)₩50,000
| | (Won)₩ | 50 | | (Won)₩50,000 to less than(Won)₩100,000
| | (Won)₩ | 100 | | (Won)₩100,000 to less than(Won)₩500,000
| | (Won)₩ | 500 | | (Won)₩500,000 or more
| | (Won)₩ | 1,000 | |
As a consequence, if a particular closing price is the same as the price set by the fluctuation limit, the closing price may not reflect the price at which persons would have been prepared, or would be prepared to continue, if so permitted, to buy and sell shares. Orders are executed on an auction system with priority rules to deal with competing bids and offers. Due to a deregulation of restrictions on brokerage commission rates, the brokerage commission rate on equity securities transactions may be determined by the parties, subject to commission schedules being filed with the KRX KOSPI Market by the securities companies. In addition, a securities transaction tax will generally be imposed on the transfer of shares or certain securities representing rights to subscribe for shares at the rate of 0.15% if such transfer is made through the KRX KOSPI Market. A special agricultural and fishery tax of 0.15% of the sales prices will also be imposed on transfer of these shares and securities on the KRX KOSPI Market. See “Item 10. Additional Information—Item 10.A. Taxation—Korean Taxation.” The number of companies listed on the KRX KOSPI Market, the corresponding total market capitalization at the end of the periods indicated and the average daily trading volume for those periods are set forth in the following table: | | | | | | | | | | | | | | | | | | | | | | | | | | | Market Capitalization on the Last Day of Each Period | | | Average Daily Trading Volume, Value | | Year | | Number of Listed Companies | | | (Billions of Won) | | | (Millions of Dollars)(1) | | | Thousands of Shares | | | (Millions of Won) | | | (Thousands of Dollars) (1) | | 1985 | | | 342 | | | | 6,570 | | | | 7,381 | | | | 18,925 | | | | 12,315 | | | | 13,834 | | 1986 | | | 355 | | | | 11,994 | | | | 13,924 | | | | 31,755 | | | | 32,870 | | | | 38,159 | | 1987 | | | 389 | | | | 26,172 | | | | 33,033 | | | | 20,353 | | | | 70,185 | | | | 88,583 | | 1988 | | | 502 | | | | 64,544 | | | | 94,348 | | | | 10,367 | | | | 198,364 | | | | 289,963 | | 1989 | | | 626 | | | | 95,477 | | | | 140,490 | | | | 11,757 | | | | 280,967 | | | | 414,430 | | 1990 | | | 669 | | | | 79,020 | | | | 110,301 | | | | 10,866 | | | | 183,692 | | | | 256,411 | | 1991 | | | 686 | | | | 73,118 | | | | 96,107 | | | | 14,022 | | | | 214,263 | | | | 281,629 | | 1992 | | | 688 | | | | 84,712 | | | | 107,448 | | | | 24,028 | | | | 308,246 | | | | 390,977 | | 1993 | | | 693 | | | | 112,665 | | | | 139,420 | | | | 35,130 | | | | 574,048 | | | | 710,367 | |
| | | Market Capitalization on the Last Day of Each Period | | | Average Daily Trading Volume, Value | | | Market Capitalization on the Last Day of Each Period | | | Average Daily Trading Volume, Value | | Year | | Number of Listed Companies | | | (Billions of Won) | | | (Millions of Dollars)(1) | | | Thousands of Shares | | | (Millions of Won) | | | (Thousands of Dollars) (1) | | | Number of Listed Companies | | | (Billions of Won) | | | (Millions of Dollars) (1) | | | Thousands of Shares | | | (Millions of Won) | | | (Thousands of Dollars) (1) | | 1985 | | | | 342 | | | | 6,570 | | | | 7,381 | | | | 18,925 | | | | 12,315 | | | | 13,834 | | 1986 | | | | 355 | | | | 11,994 | | | | 13,924 | | | | 31,755 | | | | 32,870 | | | | 38,159 | | 1987 | | | | 389 | | | | 26,172 | | | | 33,033 | | | | 20,353 | | | | 70,185 | | | | 88,583 | | 1988 | | | | 502 | | | | 64,544 | | | | 94,348 | | | | 10,367 | | | | 198,364 | | | | 289,963 | | 1989 | | | | 626 | | | | 95,477 | | | | 140,490 | | | | 11,757 | | | | 280,967 | | | | 414,430 | | 1990 | | | | 669 | | | | 79,020 | | | | 110,301 | | | | 10,866 | | | | 183,692 | | | | 256,411 | | 1991 | | | | 686 | | | | 73,118 | | | | 96,107 | | | | 14,022 | | | | 214,263 | | | | 281,629 | | 1992 | | | | 688 | | | | 84,712 | | | | 107,448 | | | | 24,028 | | | | 308,246 | | | | 390,977 | | 1993 | | | | 693 | | | | 112,665 | | | | 139,420 | | | | 35,130 | | | | 574,048 | | | | 710,367 | | 1994 | | | 699 | | | | 151,217 | | | | 191,730 | | | | 36,862 | | | | 776,257 | | | | 984,223 | | | | 699 | | | | 151,217 | | | | 191,730 | | | | 36,862 | | | | 776,257 | | | | 984,223 | | 1995 | | | 721 | | | | 141,151 | | | | 182,201 | | | | 26,130 | | | | 487,762 | | | | 629,613 | | | | 721 | | | | 141,151 | | | | 182,201 | | | | 26,130 | | | | 487,762 | | | | 629,613 | | 1996 | | | 760 | | | | 117,370 | | | | 139,031 | | | | 26,571 | | | | 486,834 | | | | 575,680 | | | | 760 | | | | 117,370 | | | | 139,031 | | | | 26,571 | | | | 486,834 | | | | 575,680 | | 1997 | | | 776 | | | | 70,989 | | | | 50,162 | | | | 41,525 | | | | 555,759 | | | | 392,707 | | | | 776 | | | | 70,989 | | | | 50,162 | | | | 41,525 | | | | 555,759 | | | | 392,707 | | 1998 | | | 748 | | | | 137,799 | | | | 114,091 | | | | 97,716 | | | | 660,429 | | | | 546,803 | | | | 748 | | | | 137,799 | | | | 114,091 | | | | 97,716 | | | | 660,429 | | | | 546,803 | | 1999 | | | 725 | | | | 349,504 | | | | 305,137 | | | | 278,551 | | | | 3,481,620 | | | | 3,039,655 | | | | 725 | | | | 349,504 | | | | 305,137 | | | | 278,551 | | | | 3,481,620 | | | | 3,039,655 | | 2000 | | | 704 | | | | 188,042 | | | | 149,275 | | | | 306,163 | | | | 2,602,211 | | | | 2,065,739 | | | | 704 | | | | 188,042 | | | | 149,275 | | | | 306,163 | | | | 2,602,211 | | | | 2,065,739 | | 2001 | | | 689 | | | | 253,843 | | | | 191,421 | | | | 473,241 | | | | 1,997,420 | | | | 1,506,237 | | | | 689 | | | | 253,843 | | | | 191,421 | | | | 473,241 | | | | 1,997,420 | | | | 1,506,237 | | 2002 | | | 683 | | | | 258,681 | | | | 215,496 | | | | 857,245 | | | | 3,041,598 | | | | 2,533,815 | | | | 683 | | | | 258,681 | | | | 215,496 | | | | 857,245 | | | | 3,041,598 | | | | 2,533,815 | | 2003 | | | 684 | | | | 355,363 | | | | 296,679 | | | | 542,010 | | | | 2,216,636 | | | | 1,850,589 | | | | 684 | | | | 355,363 | | | | 296,679 | | | | 542,010 | | | | 2,216,636 | | | | 1,850,589 | | 2004 | | | 683 | | | | 412,588 | | | | 395,275 | | | | 372,895 | | | | 2,232,109 | | | | 2,138,445 | | | | 683 | | | | 412,588 | | | | 395,275 | | | | 372,895 | | | | 2,232,109 | | | | 2,138,445 | | 2005 | | | 702 | | | | 655,075 | | | | 646,668 | | | | 467,629 | | | | 3,157,662 | | | | 3,117,139 | | | | 702 | | | | 655,075 | | | | 646,668 | | | | 467,629 | | | | 3,157,662 | | | | 3,117,139 | | 2006 | | | 731 | | | | 704,588 | | | | 757,948 | | | | 279,096 | | | | 3,435,180 | | | | 3,695,332 | | | | 731 | | | | 704,588 | | | | 757,948 | | | | 279,096 | | | | 3,435,180 | | | | 3,695,332 | | 2007 | | | 746 | | | | 951,887 | | | | 1,014,589 | | | | 363,732 | | | | 5,539,588 | | | | 5,904,485 | | | | 746 | | | | 951,887 | | | | 1,014,589 | | | | 363,732 | | | | 5,539,588 | | | | 5,904,485 | | 2008 | | | 765 | | | | 576,888 | | | | 458,757 | | | | 355,205 | | | | 5,189,644 | | | | 4,126,953 | | | | 765 | | | | 576,888 | | | | 458,757 | | | | 355,205 | | | | 5,189,644 | | | | 4,126,953 | | 2009 | | | 770 | | | | 887,316 | | | | 759,949 | | | | 483,902 | | | | 5,783,552 | | | | 4,953,367 | | | | 770 | | | | 887,316 | | | | 759,949 | | | | 483,902 | | | | 5,783,552 | | | | 4,953,367 | | 2010 | | | 777 | | | | 1,141,885 | | | | 1,002,621 | | | | 380,859 | | | | 5,619,768 | | | | 4,934,382 | | | | 777 | | | | 1,141,885 | | | | 1,002,621 | | | | 380,859 | | | | 5,619,768 | | | | 4,934,382 | | 2011 (through June 28) | | | 782 | | | | 1,158,897 | | | | 1,066,437 | | | | 325,590 | | | | 7,344,163 | | | | 6,758,225 | | | 2011 | | | | 791 | | | | 1,041,999 | | | | 903,493 | | | | 353,760 | | | | 6,863,146 | | | | 5,950,877 | | 2012 | | | | 784 | | | | 1,154,294 | | | | 1,077,672 | | | | 486,480 | | | | 4,823,643 | | | | 4,503,448 | | 2013 | | | | 777 | | | | 1,185,974 | | | | 1,123,826 | | | | 328,325 | | | | 3,993,422 | | | | 3,784,158 | | 2014 (through April 25) | | | | 770 | | | | 1,174,879 | | | | 1,131,541 | | | | 233,289 | | | | 3,721,007 | | | | 3,583,749 | |
Source: | The KRX KOSPI Market |
(1) | Converted at the Concentration Base Rate of The Bank of Korea or the Market Average Exchange Rate as announced by Seoul Money Brokerage Services Limited, as the case may be, at the end of the periods indicated. |
The Korean securities markets are principally regulated by the Financial Services Commission of Korea and the Financial Investment Services and Capital Markets Act. The Securities and Exchange Act which regulated the securities markets in the past was replaced with the Financial Investment Services and Capital Markets Act on February 4, 2009. The new law, as did the Securities and Exchange Act, imposes restrictions on insider trading and price manipulation, requires specified information to be made available by listed companies to investors and establishes rules regarding margin trading, proxy solicitation, takeover bids, acquisition of treasury shares and reporting requirements for shareholders holding substantial interests. Further Opening of the Korean Securities Market A stock index futures market was opened on May 3, 1996 and a stock index option market was opened on July 7, 1997, in each case at the KRX KOSPI Market. Remittance and repatriation of funds in connection with investment in stock index futures and options are subject to regulations similar to those that govern remittance and repatriation in the context of foreign investment in Korean stocks. Starting from May 1, 1996, foreignForeign investors wereare permitted to invest in warrants representing the right to subscribe for shares of a company listed on the KRX KOSPI Market or registered on the KRX KOSDAQ Market, subject to certain investment limitations. A foreign investor may not acquire such warrants with respect to shares of a class of a company for which the ceiling on aggregate investment by foreigners has been reached or exceeded.
As of December 30, 1997, foreignForeign investors wereare permitted to invest in all types of corporate bonds, bonds issued by national or local governments and bonds issued in accordance with certain special laws without being subject to any aggregate or individual investment ceiling. The Financial Services Commission sets forth procedural requirements for such investments. The Government announced on February 8, 1998 its plans for the liberalization of the money market with respect to investment in money market instruments by foreigners in 1998. According to the plan, foreigners have been permitted to invest in money market instruments issued by corporations, including commercial
paper, starting February 16, 1998 with no restrictions as to the amount. Starting May 25, 1998, foreigners have beenForeigners are permitted to invest in certificates of deposit and repurchase agreements.
Currently, foreigners are permitted to invest in securities including shares of all Korean companies which are not listed on the KRX KOSPI Market nor registered on the KRX KOSDAQ Market and in bonds which are not listed. Protection of Customer’s Interest in Case of Insolvency of Securities Companies Under Korean law, the relationship between a customer and a securities company in connection with a securities sell or buy order is deemed to be consignment and the securities acquired by a consignment agent (i.e., the securities company) through such sell or buy order are regarded as belonging to the customer in so far as the customer and the consignment agent’s creditors are concerned. Therefore, in the event of a bankruptcy or reorganization procedure involving a securities company, the customer of the securities company is entitled to the proceeds of the securities sold by the securities company. When a customer places a sell order with a securities company which is not a member of the KRX KOSPI Market and this securities company places a sell order with another securities company which is a member of the KRX KOSPI Market, the customer is still entitled to the proceeds of the securities sold received by the non-member company from the member company regardless of the bankruptcy or reorganization of the non-member company. Under the Financial Investment Services and Capital Markets Act, the KRX KOSPI Market is obliged to indemnify any loss or damage incurred by a counterparty as a result of a breach by its members. If a securities company which is a member of the KRX KOSPI Market breaches its obligation in connection with a buy order, the KRX KOSPI Market is obliged to pay the purchase price on behalf of the breaching member. Therefore, the customer can acquire the securities that have been ordered to be purchased by the breaching member. When a customer places a buy order with a non-member company and the non-member company places a buy order with a member company, the customer has the legal right to the securities received by the non-member company from the member company because the purchased securities are regarded as belonging to the customer in so far as the customer and the non-member company’s creditors are concerned. As the cash deposited with a securities company is regarded as belonging to the securities company, which is liable to return the same at the request of its customer, the customer cannot take back deposited cash from the securities company if a bankruptcy or reorganization procedure is instituted against the securities company and, therefore, can suffer from loss or damage as a result. However, the Depositor Protection Act provides that Korea Deposit Insurance Corporation will, upon the request of the investors, pay investors up to(Won)₩50 million in case of the securities company’s bankruptcy, liquidation, cancellation of securities business license or other insolvency events. Pursuant to the Financial Investment Services and Capital Markets Act, securities companies are required to deposit the cash received from its customers to the extent the amount not covered by the insurance with the Korea Securities Finance Corporation, a special entity established pursuant to the Securities and Exchange ActAct. Set-off or attachment of cash deposits by securities companies is prohibited. The premiums related to this insurance are paid by securities companies. Item 9.D. Selling Shareholders Not applicable. Item 9.E. Dilution Not applicable. Item 9.F. Expenses of the Issuer Not applicable. Item 10. Additional Information Item 10.A.Share Capital Currently, our authorized share capital is 1,000,000,000 shares, which consists of shares of common stock, par value(Won)₩5,000 per share (“Common Shares”) and shares of non-voting preferred stock, par value(Won)₩5,000 per share (“Non-Voting Shares”). Common Shares and Non-Voting Shares together are referred to as “Shares.” Under our articles of incorporation, we are authorized to issue Non-Voting Shares up to one-fourth of our total issued capital stock. As of December 31, 2010,2013, 261,111,808 Common Shares were issued, of which 17,895,96417,308,160 shares were held by the treasury stock fund or us as treasury shares. We have never issued any Non-Voting Shares. All of the issued Common Shares are fully-paid and non-assessable and are in registered form. We issue share certificates in denominations of 1, 5, 10, 50, 100, 500, 1,000 and 10,000 shares. Item 10.B. Memorandum and Articles of Association This section provides information relating to our capital stock, including brief summaries of material provisions of our articles of incorporation, the Financial Investment Services and Capital Markets Act, the Commercial Code and related laws of Korea, all as currently in effect. The following summaries are subject to, and are qualified in their entirety by reference to, our articles of incorporation and the applicable provisions of the Financial Investment Services and Capital Markets Act and the Commercial Code. We have filed a copy of our articles of incorporation as an exhibit to registration statements under the Securities Act or the Securities Exchange Act previously filed by us. Dividends We distribute dividends to our shareholders in proportion to the number of shares owned by each shareholder. No dividends are distributed with respect to shares held by us or our treasury stock fund. The Common Shares represented by the ADSs have the same dividend rights as other outstanding Common Shares. Holders of Non-Voting Shares are entitled to receive dividends in priority to the holders of Common Shares in an amount of not less than 9% of the par value of the Non-Voting Shares as determined by the board of directors at the time of their issuance, provided that if the dividends on the Common Shares exceed those on the Non-Voting Shares, the Non-Voting Shares will also participate in the distribution of such excess dividend amount in the same proportion as the Common Shares. If the amount available for dividends is less than the aggregate amount of such minimum dividend, the holders of Non-Voting Shares will be entitled to receive such accumulated unpaid dividend in priority to the holders of Common Shares from the dividends payable in respect of the next fiscal year. We declare dividends annually at the annual general meeting of shareholders which is held within three months after the end of the fiscal year. We pay the annual dividend shortly after the annual general meeting to the shareholders of record as of the end of the preceding fiscal year. We may distribute the annual dividend in cash or in Shares. However, a dividend of Shares must be distributed at par value. If the market price of the Shares is less than their par value, dividends in Shares may not exceed one-half of the annual dividend. We may pay interim dividends in cash once a year to shareholders or registered pledgees who are registered in the registry of shareholders as of June 30 of each fiscal year by a resolution of the board of directors. We have no obligation to pay any annual dividend unclaimed for five years from the payment date. Under the Commercial Code, we may pay our dividend only out of the excess of our net assets, on a non-consolidated basis, over the sum of (1) our stated capital and (2) the total amount of our capital surplus reserve and legalearned surplus reserve (the “Legal Reserve”) accumulated up to the end of the relevant dividend period. In addition, we may not pay any dividend unless we have set aside as legalearned surplus reserve an amount equal to at least 10% of the cash portion of the dividend or unless we have accumulated a legalan earned surplus reserve of not less than one-half of our stated capital. We may not use legal reservethe Legal Reserve to pay cash dividends but may transfer amounts from legal reservethe Legal Reserve to capital stock or use legal reservethe Legal Reserve to reduce an accumulated deficit. Distribution of Free Shares In addition to paying dividends in Shares out of our retained or current earnings, we may also distribute to our shareholders an amount transferred from our capital surplus or legal reservethe Legal Reserve to our stated capital in the form of free shares. We must distribute such free shares to all our shareholders in proportion to their existing shareholdings. Preemptive Rights and Issuance of Additional Shares We may issue authorized but unissued shares at times and, unless otherwise provided in the Commercial Code, on terms our board of directors may determine. Subject to the limitation described in “Limitation on Shareholdings” below, all our shareholders are generally entitled to subscribe for any newly issued Shares in proportion to their existing shareholdings. We must offer new Shares on uniform terms to all shareholders who have preemptive rights and are listed on our shareholders’ register as of the relevant record date. Under the Commercial Code, we may vary, without shareholders’ approval, the terms of these preemptive rights for different classes of shares. We must give notice to all persons who are entitled to exercise preemptive rights regarding new Shares and their transferability at least two weeks before the relevant record date. Our board of directors may determine how to distribute Shares for which preemptive rights have not been exercised or where fractions of Shares occur. Under the Commercial Code, it is required that the new Shares, convertible bonds or bonds with warrants be issued to persons other than the existing shareholders solely for the purpose of achieving managerial objectives. Under our articles of incorporation, we may issue new Shares pursuant to a board resolution to persons other than existing shareholders, who in these circumstances will not have preemptive rights, if the new Shares are: publicly offered pursuant to Articles 4 and 119 of the Financial Investment Services and Capital Markets Act; issued to members of our employee stock ownership association; represented by depositary receipts; issued upon exercise of stock options granted to our officers and employees; issued through an offering to public investors pursuant to Article 165-6 of the Financial Investment Services and Capital Markets Act, the amount of which is no more than 10% of the issued Shares; issued in order to satisfy specific needs such as strategic alliance, inducement of foreign funds or new technology, improvement of financial structure or other capital raising requirement; or issued to domestic or foreign financial institutions when necessary for raising funds in emergency cases. In addition, we may issue convertible bonds or bonds with warrants, each up to an aggregate principal amount of(Won)₩2,000 billion, to persons other than existing shareholders in the situations described above. Members of our employee stock ownership association, whether or not they are our shareholders, generally have a preemptive right to subscribe for up to 20.0% of the Shares publicly offered pursuant to the Financial Investment Services and Capital Markets Act. This right is exercisable only to the extent that the total number of Shares so acquired and held by members of our employee stock ownership association does not then exceed 20.0% of the total number of Shares then issued (including in such total both: (i) all issued and outstanding Shares at the time the preemptive rights are exercised; and (ii) all Shares to be newly issued in the applicable share issuance transaction in connection with which such preemptive rights are exercised). As of December 31, 2010, 1.56%2013, 1.05% of the issued Shares were held by members of our employee stock ownership association. Limitation on Shareholdings The Telecommunications Business Act permits maximum aggregate foreign shareholding in us to be 49.0% of our total issued and outstanding Shares with voting rights (including equivalent securities with voting rights, e.g., depositary certificates and certain other equity interests). For the purposes of the foregoing, a shareholder is a “foreign shareholder” if such shareholder is: (1) a foreign person; (2) a foreign government; or (3) a company whose largest shareholder is a foreign person (including any “specially related persons” as determined under the Financial Investment Services and Capital Markets Act) or a foreign government, in circumstances where (i) such foreign person or foreign government holds, in aggregate, 15.0% or more of such company’s total voting shares, and (ii) such company holds at least 1.0% of our total issued and outstanding Shares with voting rights. For the avoidance of doubt, allboth of conditions (i) toand (ii) in the foregoing item (3) must exist for such a company to be counted as a “foreign shareholder” for the purposes of calculating whether the 49.0% foreign shareholding threshold is reached under the Telecommunications Business Act. In addition, the Telecommunications Business Act prohibits a foreign shareholder from being our largest shareholder if such shareholder owns 5.0% or more of our Shares with voting rights. For the purposes of this restriction, any two or more foreign persons or foreign governments who enter into an agreement to act in concert in the exercise of their voting rights will be counted together and prohibited from becoming our largest shareholder in the event that they collectively hold 5.0% or more of our Shares. The Foreign Investment Promotion Act also prohibits any foreign shareholder from being our largest shareholder, if such shareholder owns 5.0% or more of our Shares with voting rights. For the purposes of this restriction under the Foreign Investment Promotion Act, a “foreign shareholder” is defined in the same manner as described above with respect to the foreign shareholding restriction under the Telecommunications Business Act, provided, however, that no exception is made under the Foreign Investment Promotion Act regulations for companies that own less than 1.0% of our Shares (see item (3)(ii) above in this paragraph). A foreigner who has acquired the Shares in excess of such ceiling described above may not exercise its voting rights for shares in excess of such limitation, and the Korea Communications CommissionMSIP may require corrective measures to comply with the ownership restrictions. General Meeting of Shareholders We hold the annual general meeting of shareholders within three months after the end of each fiscal year. Subject to a board resolution or court approval, we may hold an extraordinary general meeting of shareholders: at the request of shareholders of an aggregate of 3.0% or more of our issued Common Shares; at the request of shareholders holding an aggregate of 1.5% or more of our issued Shares for at least six months; or at the request of our audit committee. Holders of Non-Voting Shares may request a general meeting of shareholders only after the Non-Voting Shares become entitled to vote or are enfranchised, as described under “—Voting Rights” below.
We must give shareholders written notice setting out the date, place and agenda of the meeting at least two weeks before the date of the general meeting of shareholders. However, for holders of less than 1.0% of the total number of issued and outstanding Common Shares, we may give notice by placing at least two public notices in at least two daily newspapers at least two weeks in advance of the meeting. Currently, we use Seoul Shinmun, Maeil Business Newspaper and The Korea Economic Daily published in Seoul for this purpose. Shareholders not on the shareholders’ register as of the record date are not entitled to receive notice of the general meeting of shareholders or attend or vote at the meeting. Holders of Non-Voting Shares unless enfranchised, are not entitled to receive notice of general meetings of shareholders, but may attend such meetings. Our general meetings of shareholders are held at our head office, in Sungnam, or if necessary, may be held anywhere near our head office or in Seoul. Voting Rights Holders of our Common Shares are entitled to one vote for each Common Share, except that voting rights of Common Shares held by us, or by a corporate shareholder that is more than 10.0% owned by us either directly or indirectly, may not be exercised. The Commercial Code permits cumulative voting, under which voting method each shareholder has multiple voting rights corresponding to the number of directors to be appointed in the voting and may exercise all voting rights cumulatively to elect one director. Our articles of incorporation permit cumulative voting at our shareholders’ meeting. Under the Commercial Code of Korea, any shareholder holding shares equivalent to not less than 1/100 of the total number of shares issued may apply to us for selecting and appointing such directors by cumulative voting. Our shareholders may adopt resolutions at a general meeting by an affirmative majority vote of the voting shares present or represented at the meeting, where the affirmative votes also represent at least one-fourth of our total voting shares then outstanding. However, under the Commercial Code and our articles of incorporation, the following matters, among others, require approval by the holders of at least two-thirds of the voting shares present or represented at a meeting, where the affirmative votes also represent at least one-third of our total voting shares then outstanding: amending our articles of incorporation; reduction of our capital stock; effecting any dissolution, merger or consolidation of us; transferring the whole or any significant part of our business; effecting our acquisition of all of the business of any other company or our acquisition of a part of the business of any other company which will significantly affect our business; or issuing any new Shares at a price lower than their par value. In general, holders of Non-Voting Shares are not entitled to vote on any resolution or receive notice of any general meeting of shareholders. However, in the case of amendments to our articles of incorporation, any merger or consolidation of us, or in some other cases that affect the rights or interests of the Non-Voting Shares, approval of the holders of Non-Voting Shares is required. We may obtain such approval by a resolution of holders of at least two-thirds of the Non-Voting Shares present or represented at a class meeting of the holders of Non-Voting Shares, where the affirmative votes also represent at least one-third of our total outstanding Non-Voting Shares. In addition, if we are unable to pay dividends on Non-Voting Shares as provided in our articles of incorporation, the holders of Non-Voting Shares will become enfranchised and will be entitled to exercise voting rights until those dividends are paid. The holders of enfranchised Non-Voting Shares have the same rights as holders of Common Shares to request, receive notice of, attend and vote at a general meeting of shareholders. Shareholders may exercise their voting rights by proxy. The proxy must present a document evidencing an appropriate power of attorney prior to the start of the general meeting of shareholders. Additionally, shareholders may exercise their voting rightsin absentiaby submission of signed write-in voting forms. To make it possible for our shareholders to proceed with voting on a write-in basis, we are required to attach the appropriate write-in voting form and related informational material to the notices distributed to shareholders for convening the relevant general meeting of shareholders. Any of our shareholders who desires to vote on such write-in basis must submit their completed and signed write-in voting forms to us no later than one day prior to the date that the relevant general meeting of shareholders is convened. Holders of ADRs exercise their voting rights through the ADR depositary, an agent of which is the record holder of the underlying Common Shares. Subject to the provisions of the deposit agreement, ADR holders are entitled to instruct the ADR depositary how to vote the Common Shares underlying their ADSs. See “Item 12. Description of Securities Other than Equity Securities—Description of American Depositary Shares—Voting Rights.” Appraisal Rights of Dissenting Shareholders In some limited circumstances, including the transfer of the whole or any significant part of our business and our merger or consolidation with another company, dissenting shareholders have the right to require us to purchase their Shares. To exercise this right, shareholders must submit to us a written notice of their intention to dissent before the general meeting of shareholders. Within 20 days after the relevant resolution is passed at a meeting, the dissenting shareholders must request us in writing to purchase their Shares. We are obligated to purchase the Shares of dissenting shareholders within one month after the expiration of the 20-day period. The purchase price for the Shares is required to be determined through negotiation between the dissenting shareholders and us. If we cannot agree on a price through negotiation, the purchase price will be the average of (1) the weighted average of the daily Share prices on the KRX KOSPI Market for the two-month period before the date of the adoption of the relevant board resolution, (2) the weighted average of the daily Share price on the KRX KOSPI Market for the one month period before the date of the adoption of the relevant board resolution and (3) the weighted average of the daily Share price on the KRX KOSPI Market for the one week period before the date of the adoption of the relevant board resolution. However, if we or any of the dissenting shareholders do not accept the purchase price calculated using the above method, the rejecting party may request the court to determine the purchase price. Holders of ADSs will not be able to exercise dissenter’sappraisal rights unless they have withdrawn the underlying common stock and become our direct shareholders. Register of Shareholders and Record Dates Our transfer agent, Kookmin Bank, maintains the register of our shareholders at its office in Seoul, Korea. It registers transfers of Shares on the register of shareholders on presentation of the Share certificates. The record date for annual dividends is December 31. For the purpose of determining the shareholders entitled to annual dividends, the register of shareholders may be closed for the period from the day after the record date to January 31 of the following year. Further, for the purpose of determining the shareholders entitled to some other rights pertaining to the Shares, we may, on at least two weeks’ public notice, set a record date and/or close the register of shareholders for not more than three months. The trading of Shares and the delivery of share certificates may continue while the register of shareholders is closed. Annual Reports At least one week before the annual general meeting of shareholders, we must make our annual report and audited non-consolidatedconsolidated financial statements available for inspection at our principal office and at all of our branch offices. In addition, copies of annual reports, the audited non-consolidatedconsolidated financial statements and any resolutions adopted at the general meeting of shareholders will be available to our shareholders. Under the Financial Investment Services and Capital Markets Act, we must file with the Financial Services Commission and the KRX KOSPI Market (1) an annual report within 90 days after the end of our fiscal year and (2) interim reports with respect to the three month period, six month period and nine month period from the beginning of each fiscal year within 45 calendar days following the end of each period. Copies of these reports are or will be available for public inspection at the Financial Services Commission and the KRX KOSPI Market. Transfer of Shares Under the Commercial Code, the transfer of Shares is effected by delivery of share certificates. However, to assert shareholders’ rights against us, the transferee must have his name and address registered on our register of shareholders. For this purpose, a shareholder is required to file his name, address and seal with our transfer agent. A non-Korean shareholder may file a specimen signature in place of a seal, unless he is a citizen of a country with a sealing system similar to that of Korea. In addition, a non-resident shareholder must appoint an agent authorized to receive notices on his behalf in Korea and file a mailing address in Korea. The above requirements do not apply to the holders of ADSs. Under current Korean regulations, Korean securities companies and banks, including licensed branches of non-Korean securities companies and banks, investment management companies, futures trading companies, internationally recognized foreign custodians and the Korea Securities Depository may act as agents and provide related services for foreign shareholders. Certain foreign exchange controls and securities regulations apply to the transfer of Shares by non-residents or non-Koreans. See “Item 10. Additional Information—Item 10.D. Exchange Controls.” Our transfer agent is Kookmin Bank, located at 24-3, Yoido-dong, Youngdungpo-ku,24, Gukjegeumyung-ro, Yeongdeungpo-gu, Seoul, Korea. Acquisition of Shares by Us WeUnder the Commercial Code, we may not acquire our own Shares exceptby (i) purchasing on the KRX KOSPI Market, or (ii) purchasing from shareholders on a pro rata basis in limited circumstances, such as a reduction in capital. In addition, pursuant toaccordance with the number of shares held by each shareholder. The aggregate purchase price for the Shares may not exceed the total amount available for distribution of dividends at the end of the preceding fiscal year. Moreover, we must acquire our own Shares from dissenting shareholders who exercise their appraisal rights.
Under the Financial Investment Services and Capital Markets Act, we may acquire Shares only by (i) purchasing on the KRX KOSPI Market, (ii) purchasing from shareholders on a tender offer,pro rata basis in accordance with the number of shares held by each shareholder, or (iii) receiving Shares returned to us upon the cancellation or termination of a trust agreement with a trustee who acquired the Shares by either of the methods indicated above. The aggregate purchase price for the Shares may not exceed the total amount available for distribution of dividends at the end of the preceding fiscal year, subject to certain procedural requirements, provided that, in case of acquisition of our own Shares by us for the purpose of cancellation, the aggregate purchase price may not exceed the total amount available for distribution of dividends at the end of the preceding fiscal year minus certain reserves.year. In general, corporate entities in which we own a 50.0% or more equity interest may not acquire our Shares. As of December 31, 2010,2013, there were 17,895,96417,221,575 treasury shares including shares held by our treasury stock fund. Liquidation Rights In the event of our liquidation, after payment of all debts, liquidation expenses and taxes, our remaining assets will be distributed among shareholders in proportion to their shareholdings. Holders of Non-Voting Shares have no preference in liquidation. Item 10.C. Material Contracts The Merger Agreement between KT Corporation and KTF
On January 20, 2009, KTF and KT CorporationWe have not entered into a merger agreement, pursuant to which KTF merged into KT Corporation on Juneany material contracts since January 1, 2009. KTF common stockholder received 0.7192335 share2010, other than in the ordinary course of KT Corporation common stock for every one share of KTF common stock that they owned. KT Corporation waived issuance of any merger consideration in respect of all of the outstanding shares of KTF common stock held by KT Corporation immediately priorour business. For information regarding our agreements and transactions with
certain related parties, see “Item 7.B. Related Party Transactions” and Note 34 to the merger. PursuantConsolidated Financial Statements. For a description of certain agreements entered into during the past two years related to the merger agreement, all of the assets, liabilities, rightsour capital commitments and obligations, (including contractual rightssee “Item 5.B. Liquidity and obligations) of KTF were comprehensively succeeded by KT Corporation. The employees of KTF became employees of KT Corporation as a result of the merger, and the obligations to pay severance payments to those employees were succeeded by KT Corporation.
Under Korean law, holders of shares of KT Corporation or KTF common stock who opposed the merger were entitled to exercise their appraisal rights to purchase their shares, which were set at(Won)38,535 for each share of KT Corporation common stock properly submitted to KT Corporation for appraisal and(Won)29,284 for each share of KTF common stock properly submitted to KTF for appraisal.
KT Corporation delivered 700,108 shares of its newly issued common stock (par value(Won)5,000) and 45,629,480 shares of its treasury shares (par value(Won)5,000) to KTF stockholders listed on the stockholder registry of KTF as of the date of the merger. See “Item 5. Operating and Financial Review and Prospects—Item 5.A. Operating Result—Overview—Merger of KTF into KT Corporation.Capital Resources.”
Item 10.D. Exchange Controls General The Foreign Exchange Transaction Act and the Presidential Decree and regulations under that Act and Decree (collectively the “Foreign Exchange Transaction Laws”) regulate investment in Korean securities by non-residents and issuance of securities outside Korea by Korean companies. Under the Foreign Exchange Transaction Laws, non-residents may invest in Korean securities only in compliance with the provisions of, and to the extent specifically allowed by, these laws or otherwise permitted by the Ministry of Strategy and Finance. The Financial Services Commission has also adopted, pursuant to its authority under the Korean Financial Investment Services and Capital Markets Act, regulations that control investment by foreigners in Korean securities and regulate the issuance of securities outside Korea by Korean companies. Under the Foreign Exchange Transaction Laws, if the Government deems that certain emergency circumstances, including, but not limited to, the outbreak of natural calamities, wars or grave and sudden changes in domestic or foreign economies, are likely to occur, the Ministry of Strategy and Finance may temporarily suspend the transactions where Foreign Exchange Transaction Laws are applicable, or impose an obligation to deposit or sell capital to certain Korean governmental agencies or financial institutions. In addition, if the Government deems that it is confronted or is likely to be confronted with serious difficulty in movement of capital between Korea and abroad which will bring serious obstacles in carrying out its currency policies, exchange rate policies and other macroeconomic policies, the Ministry of Strategy and Finance may take measures to require any person who performs transactions to deposit such capital to certain Korean governmental agencies or financial institutions. Government Review of Issuance of ADSs In order for us to issue shares represented by ADSs, we are required to file a prior report of the issuance with the Ministry of Strategy and Finance if our securities and borrowings denominated in foreign currencies issued during the one-year period preceding such filing date exceed US$30 million in aggregate. No further Korean governmental approval is necessary for the initial offering and issuance of the ADSs. Under current Korean laws and regulations, the depositary bank is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (1) the aggregate number of shares deposited by us or with the consent of us for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to these ADSs) and (2) the number of shares on deposit with the depositary bank at the time of such proposed deposit. We can give no assurance that we would grant our consent, if our consent is required. Therefore, a holder of ADRs who surrenders ADRs and withdraws shares may not be permitted subsequently to deposit those shares and obtain ADRs. Reporting Requirements for Holders of Substantial Interests Any person whose direct or beneficial ownership of shares, whether in the form of shares or ADSs, certificates representing the rights to subscribe for Shares and equity-related debt securities including convertible bonds and bonds with warrants (collectively, the “Equity Securities”) together with the Equity Securities beneficially owned by certain related persons or by any person acting in concert with the person accounts for 5.0% or more of the total issued Equity Securities is required to report the status of the holdings to the Financial Services Commission and the KRX KOSPI Market within five business days after reaching the 5.0% ownership interest. In addition, any change in the ownership interest subsequent to the report which equals or exceeds 1.0% of the total issued Equity Securities is required to be reported to the Financial Services Commission and the KRX KOSPI Market within five business days from the date of the change. The required information to be included in the 5.0% report may be different if the acquisition of such shareholding interest is for the purpose of exercising influence over the management, as opposed to an acquisition for investment purposes. Any person reporting the holding of 5.0% or more of the total issued Equity Securities and any person reporting the change in the ownership interest which equals or exceeds 1.0% of the total issued Equity Securities pursuant to the requirements described above must also deliver a copy of such reports to us. Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment and may result in a loss of voting rights with respect to the unreported ownership of Equity Securities exceeding 5.0%. Furthermore, the Financial Services Commission may issue an order to dispose of non-reported Equity Securities. Restrictions Applicable to ADSs No Korean governmental approval is necessary for the sale and purchase of ADSs in the secondary market outside Korea or for the withdrawal of shares underlying ADSs and the delivery inside Korea of shares in connection with the withdrawal, provided that a foreigner who intends to acquire the shares must obtain an investment registration certificate from the Financial Supervisory Service as described below. In general, the acquisition of the shares by a foreigner must be reported by the foreigner or his standing proxy in Korea immediately to the Governor of the Financial Supervisory Service; provided, however, that in cases where a foreigner acquires shares through the exercise of rights as a holder of ADSs (or other depositary certificates), the foreigner must cause such report to the Governor of the Financial Supervisory Service to be filed by the Korea Securities Depository. Persons who have acquired shares as a result of the withdrawal of shares underlying the ADSs may exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares without any further governmental approval. Restrictions Applicable to Shares As a result of amendments to the Foreign Exchange Transaction Laws and Financial Services Commission regulations adopted in connection with the stock market opening from January 1992, which we refer to collectively as the Investment Rules, foreigners may invest, with limited exceptions and subject to procedural requirements, in all shares of Korean companies, whether listed on the KRX KOSPI Market or the KRX KOSDAQ Market, unless prohibited by specific laws. Foreign investors may trade shares listed on the KRX KOSPI Market or the KRX KOSDAQ Market only through the KRX KOSPI Market or the KRX KOSDAQ Market, except in limited circumstances, including: odd-lot trading of shares; acquisition of shares (“Converted Shares”) by exercise of warrant, conversion right under convertible bonds or withdrawal right under depositary receipts issued outside of Korea by a Korean company; acquisition of shares as a result of inheritance, donation, bequest or exercise of shareholders’ rights, including preemptive rights or rights to participate in free distributions and receive dividends; over-the-counter transactions between foreigners of a class of shares for which the ceiling on aggregate acquisition by foreigners, as explained below, has been reached or exceeded; shares acquired by foreign direct investment as defined in the Foreign Investment Promotion Law;Act; disposal of shares pursuant to the exercise of appraisal rights of dissenting shareholders; disposal of shares in connection with a tender offer; acquisition of shares by a foreign depositary in connection with the issuance of depositary receipts; acquisition and disposal of shares through overseas stock exchange market if such shares are simultaneously listed on the KRX KOSPI Market or the KRX KOSDAQ Market and such overseas stock exchange; acquisition and disposal of shares through alternative trading systems (ATS); arm’s length transactions between foreigners, if all of such foreigners belong to an investment group managed by the same person. For over-the-counter transactions of shares between foreigners outside the KRX KOSPI Market or the KRX KOSDAQ Market for shares with respect to which the limit on aggregate foreign ownership has been reached or exceeded, an investment broker licensed in Korea must act as an intermediary. Odd-lot trading of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market must involve a licensed investment trader in Korea as the other party. Foreign investors are prohibited from engaging in margin transactions through borrowing shares from a securities company with respect to shares which are subject to a foreign ownership limit. The Investment Rules require a foreign investor who wishes to invest in shares on the KRX KOSPI Market or the KRX KOSDAQ Market (including Converted Shares) to register its identity with the Financial Supervisory Service prior to making any such investment; however, the registration requirement does not apply to foreign investors who acquire Converted Shares with the intention of selling such Converted Shares within three months from the date of acquisition of the Converted Shares or who acquire the shares in an over-the-counter transaction or dispose of shares where such acquisition or disposal is deemed to be a foreign direct investment pursuant toas defined in the FinancialForeign Investment Services and Capital MarketsPromotion Act. Upon registration, the Financial Supervisory Service will issue to the foreign investor an investment registration certificate that must be presented each time the foreign investor opens a brokerage account with a financial investment business entity. Foreigners eligible to obtain an investment registration certificate include foreign nationals who are individuals residing abroad for more than six months, foreign governments, foreign municipal authorities, foreign public institutions, corporations incorporated under foreign laws, international organizations, funds and associations as defined under the Financial Investment Services and Capital Markets Act. All Korean offices of a foreign corporation as a group are treated as a separate entity from the offices of the corporation outside Korea. However, a foreign corporation or depositary bank issuing depositary receipts may obtain one or more investment registration certificates in its name in certain circumstances as described in the relevant regulations. Upon a foreign investor’s purchase of shares through the KRX KOSPI Market or the KRX KOSDAQ Market, no separate report by the investor is required because the investment registration certificate system is designed to control and oversee foreign investment through a computer system. However, a foreign investor’s acquisition or sale of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market (as discussed above) must be reported by the foreign investor or his standing proxy to the Governor of the Financial Supervisory Service at the time of each such acquisition or sale; provided, however, that in cases where a foreigner acquires shares through the exercise of rights as a holder of ADSs (or other depositary certificates), the foreigner must cause such report to the Governor of the Financial Supervisory Service to be filed by the Korea Securities Depository; and further provided that a foreign investor must ensure that any acquisition or sale by it of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market in the case of trades in connection with a tender offer, odd-lot trading of shares or trades of a class of shares for which the aggregate foreign ownership limit has been reached or exceeded, is reported to the Governor of the Financial Supervisory Service by the investment trader, the investment broker, the Korea Securities Depository or the financial securities company engaged to facilitate such transaction. A foreign investor mustmay appoint one or more standing proxies from among the Korea Securities Depository, foreign exchange banks, including domestic branches of foreign banks, investment traders, investment brokers, the Korea Securities Depository, financial securities companies and internationally recognized custodians that satisfies all relevant requirements under the Financial Investment Services and Capital Markets Act and will act as a standing proxy to exercise shareholders’ rights or perform any matters related to the foregoing activities if the foreign investor does not perform these activities himself. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the Governor of the Financial Supervisory Service in cases deemed inevitable by reason of conflict between laws of Korea and the home country of the foreign investor.Act. Certificates evidencing shares of Korean companies must be kept in custody with an eligible custodian in Korea. Only the Korea Securities Depository, foreign exchange banks including domestic branches of foreign banks, investment traders, investment brokers, collective investment business entities and internationally recognized custodians satisfying the relevant requirements under the Financial Investment Services and Capital Markets Act are eligible to act as a custodian of shares for a non-resident or foreign investor. A foreign investor must ensure that his custodian deposits its shares with the Korea Securities Depository. However, a foreign investor may be exempted from complying with this deposit requirement with the approval of the Governor of the Financial Supervisory Service in circumstances where compliance with that requirement is made impracticable, including cases where compliance would contravene the laws of the home country of such foreign investor. Under the Investment Rules, with certain exceptions, foreign investors may acquire shares of a Korean company without being subject to any foreign investment ceiling. As one such exception, designated public corporations are subject to a 40.0% ceiling on the acquisition of shares by foreigners in the aggregate and a ceiling on the acquisition of shares by a single foreign investor pursuant to the articles of incorporation of such corporation. Currently, Korea Electric Power Corporation is the only designated public corporation which has set such a ceiling. Furthermore, an investment by a foreign investor of not less than 10.0% of the issued shares with voting rights of a Korean company is defined as a direct foreign investment under the Foreign Investment Promotion Act, which is, in general, subject to the report to, and acceptance, by the Ministry of Knowledge Economy. The acquisition of shares of a Korean company by a foreign investor may also be subject to certain foreign shareholding restrictions in the event that the restrictions are prescribed in each specific law which regulates the business of the Korean company. A foreigner who has acquired shares of our common stock in excess of this ceiling may not exercise his voting rights with respect to the shares of our common stock exceeding the limit. Under the Foreign Exchange Transaction Laws, a foreign investor who intends to acquire shares must designate a foreign exchange bank at which he must open a foreign currency account and a Won account exclusively for stock investments. No approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may be transferred from the foreign currency account at the time required to place a deposit for, or settle the purchase price of, a stock purchase transaction to a Won account opened at an investment broker or an investment trader. Funds in the foreign currency account may be remitted abroad without any governmental approval. Dividends on Shares are paid in Won. No governmental approval is required for foreign investors to receive dividends on, or the Won proceeds of the sale of, any shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any shares held by a non-resident of Korea must be deposited either in a Won account with the investor’s investment broker or investment trader or his Won Account. Funds in the investor’s Won Account may be transferred to his foreign currency account or withdrawn for local living expenses up to certain limitations. Funds in the Won Account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive rights. Investment brokers and investment traders are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea. Through these accounts, these investment brokers and investment traders may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Won funds, either as a counterparty to or on behalf of foreign investors, without the investors having to open their own accounts with foreign exchange banks. Item 10.E.Taxation The following summary is based upon tax laws of the United States and the Republic of Korea as in effect on the date of this annual report on Form 20-F, and is subject to any change in United States or Korean law that may come into effect after such date. Investors in the shares of common stock or ADSs are advised to consult their own tax advisers as to the United States, Korean or other tax consequences of the purchase, ownership and disposition of such securities, including the effect of any national, state or local tax laws. Korean Taxation The following summary of Korean tax considerations applies to you as long as you are not: a corporation organized under Korean law; or engaged in a trade or business in Korea through a permanent establishment or a fixed base. Shares or ADSs Dividends on Shares of Common Stock or ADSs Unless an applicable tax treaty provides otherwise, we will deduct Korean withholding tax from dividends paid to you either in cash or shares at a rate of 22.0% (including local income tax). If you are a resident of a country that has entered into a tax treaty with Korea, you may qualify for a reduced rate of Korean withholding tax under such a treaty. For example, if you are a qualified resident of the United States for purposes of the US-Korea Tax Treaty (the “Treaty”) and you are the beneficial owner of a dividend, a reduced withholding tax rate of 16.5% (including local income tax) generally will apply. You will not be entitled to claim treaty benefits if you are not the beneficial owner of a dividend. In order to obtain the benefits of a reduced withholding tax rate under a tax treaty, you must submit to us, prior to the dividend payment date, such evidence of tax residence as may be required by the Korean tax authorities. In the case of ADSs, evidence of tax residence may be submitted to us through the depositary. Excess taxes withheld may be recoverable if you subsequently produce satisfactory evidence that you were entitled to have tax withheld at a lower rate. If we distribute to you free shares representing a transfer of certain capital reserves or asset revaluation reserves into paid-in capital, that distribution may be a deemed dividend subject to Korean tax. Capital Gains Capital gain from a sale of shares of common stock will generally be exempt from Korean taxation if you have owned, together with certain related parties, less than 25.0% of our total issued shares during the year of sale and the five calendar years before the year of sale, and the sale is made through the KRX KOSPI Market, and you have no permanent establishment in Korea. Capital gain earned by a non-Korean holder from a sale of ADSs outside of Korea are exempt from Korean taxation by virtue of the Special Tax Treatment Control Law of Korea (the “STTCL”), provided that the issuance of the ADSs is deemed to be an overseas issuance under the STTCL. If you are subject to taxKorean taxation on capital gain from a sale of ADSs, or shares of common stock that you acquired as a result of a withdrawal, your gain will be calculated based on your cost of acquiring the ADSs representing the shares of common stock, although there are no specific Korean tax provisions or rulings on this issue. In the absence of the application of a tax treaty that exempts tax on capital gain, the amount of Korean tax imposed on such capital gains will be the lesser of 11.0% (including local income tax) of the gross realization proceeds or, subject to the production of satisfactory evidence of the acquisition cost and the transaction costs of the ADSs, 22.0% (including local income tax) of the net capital gain. If you are subject to Korean taxation on capital gains from a sale of ADSs, shares of common stock that you acquire as a result of a withdrawal, and you sell your shares of common stock or ADSs, the purchaser or, in the case of a sale of shares of common stock on the KRX KOSPI Market or through a licensed securities company in Korea, the licensed securities company, is required to withhold Korean tax from the sales price in an amount equal to 11% (including local income tax) of the gross realization proceeds and to make payment thereof to the Korean tax authorities, unless you establish your entitlement to an exemption of taxation under an applicable tax treaty or produce satisfactory evidence of your acquisition cost and the transaction costs for the shares of common stock or ADSs. In order to obtain the benefit of an exemption of tax pursuant to a tax treaty, you must submit to the purchaser or the securities company (or through the depositary), as the case may be, prior to the first payment, an exemption application, together with a certificate of your tax residence issued by a competent authority of your residence country. This requirement will not apply to exemptions under Korean tax law. Excess taxes withheld may be recoverable if you subsequently produce satisfactory evidence that you were entitled to have taxes withheld at a lower rate. Most tax treaties that Korea has entered into provide exemptions for capital gains tax for capital gains from sale and purchase of shares of common stock. However, Korea’s tax treaties with Japan, Austria, Spain and a few other countries do not provide an exemption from such capital gains tax. For example, Article 13 of Korea’s tax treaty with Japan provides that if a taxpayer holding 25% or more (including those shares held by any related party of the taxpayer) of total issued shares of a company in a taxable year sells 5% or more (including those sold by any related party of the taxpayer) of total issued shares of the same company in the same taxable year, the country where the company is a resident may impose tax on such taxpayer. Inheritance Tax and Gift Tax Korean inheritance tax is imposed upon (a) all assets (wherever located) of the deceased if at the time of his death he was domiciled in Korea and (b) all property located in Korea which passes on death (irrespective of the domicile of the deceased). Gift tax is imposed in similar circumstances to the above. Taxes are currently imposed at the rate of 10% to 50% if the value of the relevant property is above a certain limit and vary according to the identity of the parties involved. Under Korean Inheritance and Gift Tax Law, shares issued by a Korean corporation are deemed located in Korea irrespective of where they are physically located or by whom they are owned. It remains unclear whether, for Korean inheritance and gift tax purposes, a non-resident holder of ADSs will be treated as the owner of the shares underlying the ADSs. If such non-resident is treated as the owner of the shares, the heir or donee of such non-resident (or in certain circumstances, the non-resident as the donor) will be subject to Korean inheritance or gift tax at the same rate as described above. Securities Transaction Tax If you transfer shares of common stock on the KRX KOSPI Market, you will be subject to the securities transaction tax at a rate of 0.15% and an agriculture and fishery special tax at a rate of 0.15%, calculated based on the sales price of the shares. If you transfer shares of common stock and your transfer is not made on the KRX KOSPI Market you will generally be subject to the securities transaction tax at a rate of 0.5% and will generally not be subject to the agriculture and fishery special tax. With respect to transfers of ADSs, a tax ruling recently issued in 2004 by the Korean tax authority appears to hold that depositary receipts (such as the ADSs) constitute share certificates subject to the securities transaction tax. In May 2007, the Seoul Administrative Court held that depositary receipts do not constitute share certificates subject to the securities transaction tax. In 2008, the caseSeoul Administrative Court’s holding was upheld by the Seoul High Court and was further upheld by the Supreme Court. However, asSubsequent to this series of rulings, however, the Supreme Court dismissed the tax authorities’ appeal without ruling on the substantive law issue, it is not clear if the Supreme Court’s decision for this case will serve as the Supreme Court’s precedent on this issue. Even ifSecurities Transaction Tax Law was amended to expressly provide that depositary receipts (such as the ADSs) constituteconstituted a form of share certificates subject to the securities transaction tax undertax. However, the Securities Transaction Tax Law, sale price of ADSs from a transfer of depositary receipts listed on the New York Stock Exchange, the Nasdaq National Market or other qualified foreign exchanges are exempt from the securities transaction tax. United States Federal Income Taxation This summary describes the material U.S. federal income tax consequences to you, if you are a U.S. holder (as defined below), of owning our shares of common stock or ADSs. This summary applies to you only if you hold shares of common stock or ADSs as capital assets for tax purposes. This summary does not apply to you if you are a member of a class of holders subject to special rules, such as: a dealer in securities or currencies; a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings; a tax-exempt organization; a person that holds shares of common stock or ADSs that are a hedge or that are hedged against interest rate or currency risks; a person that holds shares of common stock or ADSs as part of a straddle or conversion transaction for tax purposes; a person whose functional currency for tax purposes is not the U.S. dollar; or a person that owns or is deemed to own 10% or more of any class of our stock. Further, this summary does not address the alternative minimum tax, the Medicare tax on net investment income or other aspects of U.S. federal income or state and local taxation that may be relevant to a holder in light of such holder’s particular circumstances. This summary is based on laws, treaties and regulatory interpretations in effect on the date hereof, all of which are subject to change, possibly on a retroactive basis. Please consult your own tax advisers concerning the U.S. federal, state, local and other national tax consequences of purchasing, owning and disposing of shares of common stock or ADSs in your particular circumstances. For purposes of this summary, you are a “U.S. holder” if you are a beneficial owner of shares of common stock or ADSs and are: a citizen or resident of the United States; an entity treated as a U.S. domestic corporation; or otherwise subject to U.S. federal income tax on a net income basis with respect to income from the shares of common stock or ADSs. If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds shares of common stock or ADSs, the U.S. federal income tax treatment of a partner will depend upon the status of the partnership and the activities of the partner. A partner of a partnership holding shares of common stock or ADSs should consult its own tax adviser regarding the U.S. federal income tax consequences to the partner of the acquisition, ownership and disposition by the partnership of shares of common stock or ADSs. Shares of Common Stock and ADSs In general, if you hold ADSs, you will be treated as the holder of the shares of common stock represented by those ADSs for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an ADS for the shares of common stock represented by that ADS. Dividends The gross amount of cash dividends that you receive (prior to deduction of Korean taxes) generally will be subject to U.S. federal income taxation as foreign source dividend income. Dividends paid in Won will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of your (or, in the case of ADSs, the depositary’s) receipt of the dividend, regardless of whether the payment is in fact converted into U.S. dollars. If such a dividend is converted into U.S. dollars on the date of receipt, you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. U.S. holders should consult their own tax advisers regarding the treatment of any foreign currency gain or loss on any Won received by U.S. holders that are converted into U.S. dollars on a date subsequent to receipt. Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual prior to January 1, 2013 with respect to the ADSs and common stock will be subject to taxation at a maximum rate of 15%the reduced rates applicable to capital gains if the dividends are “qualified dividends.” Dividends paid on the ADSs and common stock will be treated as qualified dividends if (i) we are eligible for the benefits of a comprehensive income tax treaty with the United States that the Internal Revenue Service has approved for the purposes of the qualified dividend rules and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (“PFIC”). The income tax treaty between Korea and the United States (the “Treaty”) has been approved for the purposes of the qualified dividend rules, and we believe we are eligible for benefits under the Treaty. Based on our audited financial statements and relevant market and shareholder data, we do not anticipate being classified as a PFIC. You should consult your own tax advisers regarding the availability of the reduced dividend tax rate in light of your own particular circumstances. Distributions of additional shares in respect of shares of common stock or ADSs that are made as part of a pro-rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax. Sales and Other Dispositions For U.S. federal income tax purposes, gain or loss that you realize on the sale or other disposition of shares of common stock or ADSs will be capital gain or loss, and will be long-term capital gain or loss if the shares of common stock or ADSs were held for more than one year. Foreign Tax Credit Considerations You should consult your own tax advisers to determine whether you are subject to any special rules that limit your ability to make effective use of foreign tax credits, including the possible adverse impact of failing to take advantage of benefits under the income tax treaty between the United States and Korea. If no such rules apply, you generally may claim a credit, up to any applicable reduced rates provided under the Treaty, against your U.S. federal income tax liability for Korean taxes withheld from dividends on shares of common stock or ADSs, so long as you have owned the shares of common stock or ADSs (and not entered into certain kinds of hedging transactions) for at least a 16-day period that includes the ex-dividend date. Instead of claiming a credit, you may generally elect to deduct such Korean taxes in computing your taxable income provided that you do not elect to claim a foreign tax credit for any foreign income taxes paid or accrued for the relevant tax year. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain hedged positions in securities and may not be allowed in respect of arrangements in which your expected economic profit is insubstantial. You may not be able to use the foreign tax credit associated with any Korean withholding tax imposed on a distribution of additional shares that is not subject to U.S. tax unless you can use the credit against United States tax due on other foreign-source income. Any Korean securities transaction tax or agriculture and fishery special tax that you pay will not be creditable for foreign tax credit purposes. The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions involve the application of complex rules that depend on a U.S. holder’s particular circumstances. You should consult your own tax advisers regarding the creditability or deductibility of such taxes. U.S. Information Reporting and Backup Withholding Rules Payments in respect of the shares of common stock or ADSs that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (1) is a corporation or other exempt recipient or (2) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of its non-U.S. status in connection with payments received within the United States or through aU.S.-related financial intermediary. Item 10.F. Dividends and Paying Agents See “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividends” for information concerning our dividend policies and our payment of dividends. See “Item 10. Additional Information—Item 10.B. Memorandum and Articles of Association—Dividends” for a discussion of the process by which dividends are paid on our common shares. See “Item 12. Description of Securities Other than Equity Securities—Description of American Depositary Shares—Dividends and Distributions” for a discussion of the process by which dividends are paid on our ADSs. The paying agent for payment of our dividends on ADSs in the United States is Citibank, N.A. Item 10.G. Statements by Experts Not applicable. Item 10.H. Documents on Display We are subject to the information requirements of the U.S. Securities Exchange Act of 1934, as amended, and, in accordance therewith, are required to file reports, including annual reports on Form 20-F, and other information with the U.S. Securities and Exchange Commission. These materials, including this annual report and the exhibits thereto, may be inspected and copied at the Commission’s public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms. We are required to make filings with the Commission by electronic means, which will be available to the public over the Internet at the Commission’s web site at http://www.sec.gov. Item 10.I. Subsidiary Information Not applicable. Item 11. Quantitative and Qualitative Disclosures About Market Risk We are exposed to foreign exchange rate and interest rate risks primarily associated with underlying liabilities, and to equity price risk as a result of our investment in equity-linkedequity securities. FollowingOur long-term financial policies are annually reported to our Board of Directors, and our Finance Office conducts financial risk management and assessment. Upon identification and evaluation of these positions, our risk exposures, we, selectivelyhaving considered various circumstances, enter into derivative financial instruments to try to manage the related risk exposures.some of such risks. These contracts are entered into with major financial institutions, thereby minimizing the risk of credit loss. The activities of our finance division are subject to policies approved by our foreign exchange and interest rate risk management committee. These policies address the use of derivative financial instruments, including the approval of counterparties, setting of limits and investment of excess liquidity. Our general policy is to hold or issue derivative financial instruments onlylargely for hedging purposes. For our trading financial instruments, we recognized a valuation gain of₩13 billion and a valuation loss of₩0 billion in 2011, a valuation gain of₩0 billion and a valuation loss of₩0 billion in 2012 and a valuation gain of₩4 billion and a valuation loss of₩10 billion in 2013. For our hedging derivative contracts, we recognized a valuation gain of₩53 billion, a valuation loss of₩9 billion and accumulated other comprehensive income of₩83 billion in 2011, a valuation gain of₩0 billion, a valuation loss of₩241 billion and accumulated other comprehensive expense of₩171 billion in 2012 and a valuation gain of₩0 billion, a valuation loss of₩97 billion and accumulated other comprehensive expense of₩95 billion in 2013. For further details ofregarding the assets, liabilities, gains and liabilitieslosses recorded relating to our derivative contracts outstanding as of December 31, 20092011, 2012 and 2010,2013, see Note 138 to the Consolidated Financial Statements. We recognized a valuation gain of(Won)18 billion and a valuation loss of(Won)191 billion in 2009 and a valuation gain of(Won)40 billion and a valuation loss of(Won)48 billion in 2010. Exchange Rate Risk Substantially all of our cash flow is denominated in Won. We are exposed to foreign exchange risk related to foreign currency denominated liabilities and anticipated foreign exchange payments. Anticipated foreign exchange payments, mostly in Dollars, relate primarily to payments of foreign currency denominated debt, net settlements paid to foreign telecommunication carriers and payments for equipment purchased from foreign suppliers. In 2009 and 2010 we We have entered into various currency-related derivativeseveral currency swap contracts, with various financial institutions, including the following:combined interest currency swap contracts and currency forward contracts to hedge our foreign currency risks.
The following table shows our assets and liabilities denominated in foreign currency as of December 31, 2011, 2012 and 2013: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, | | | | 2011 | | | 2012 | | | 2013 | | (in thousands of foreign currencies) | | Financial assets | | | Financial liabilities | | | Financial assets | | | Financial liabilities | | | Financial assets | | | Financial liabilities | | U.S. Dollar | | | 235,435 | | | | 2,323,677 | | | | 217,488 | | | | 2,377,137 | | | | 254,917 | | | | 2,225,700 | | Special Drawing Right | | | 1,160 | | | | 744 | | | | 494 | | | | 1,130 | | | | 1,105 | | | | 1,211 | | Japanese Yen | | | 1,080,822 | | | | 35,451,398 | | | | 657,947 | | | | 35,102,877 | | | | 190,520 | | | | 30,054,316 | | British Pound | | | 7 | | | | 131 | | | | 1 | | | | 9 | | | | — | | | | 134 | | Euro | | | 1,239 | | | | 3,357 | | | | 5,395 | | | | 2,614 | | | | 1,342 | | | | 4,943 | | Algerian Dinar | | | 18,714 | | | | — | | | | 3,770 | | | | — | | | | 2,798 | | | | — | | Chinese Yuan | | | 14,495 | | | | 700 | | | | 10,236 | | | | 197 | | | | — | | | | — | | Uzbekistani Som | | | 13,534,203 | | | | 44,788,561 | | | | 7,920,825 | | | | 38,727,985 | | | | 1,805,565 | | | | — | | Rwandan Franc | | | — | | | | — | | | | — | | | | — | | | | 11,962 | | | | — | | Indonesian Rupiah | | | 411,687 | | | | 10,000 | | | | 347,447 | | | | — | | | | — | | | | — | |
As of December 31, 2011, 2012 and 2013, a 10% increase in the exchange rate between the Won and all foreign currencies, with all other variables held constant, would have decreased our income before income tax by₩57 billion,₩65 billion and₩46 billion, respectively, and total equity by₩50 billion,₩52 billion and₩48 billion, respectively, with a 10% decrease in the exchange rate having the opposite effect. The foregoing sensitivity analysis assumes that all variables other than foreign exchange rates are held constant, and as such, does not reflect any correlation between foreign exchange rates and other variables, nor our decision to decrease the risk. See Note 35 to the Consolidated Financial Statements. Transaction Type
| | Financial Institution
| | Description
| Interest rate swap contracts
| | Merrill Lynch and others | | Exchange fixed interest rate payments for variable interest rate payments for a specified period | | | | Currency swap contracts
| | Merrill Lynch and others | | Exchange foreign currency cash flow for local currency cash flow for a specified period | | | | Combined interest rate currency swap contracts
| | Merrill Lynch and others | | Exchange foreign currency-denominated variable interest rate payments for local currency-denominated fixed interest rate payments | | | | Currency forward contracts
| | Kookmin Bank and others | | Exchange a specified currency at an agreed exchange rate at a specified date |
Interest Rate Risk We are also subject to market risk exposure arising from changing interest rates. A reduction of interest rates increases the fair value of our debt portfolio, which is primarily of a fixed interest nature. We use, to a limited extent, interest rate swap contracts and combined interest rate and currency swap contracts to reduce interest rate volatility on some of our debt and manage our interest expense by achieving a balanced mixture of floating and fixed rate debt. We entered into several interest rate swap contracts with Merrill Lynch and others in which we exchange fixed interest rate payments with variable interest rate payments for a specified period, as well as entered into the combined interest rate and currency swap contracts described above.to hedge our interest rate risk. The following table summarizes the principal amounts, fair values, principal cash flows by maturity date and weighted average interest rates of our short-term and long-term liabilities as of December 31, 20102013 which are sensitive to exchange rates and/or interest rates. The information is presented in Won, which is our reporting currency.currency: | | | Maturities | | | | | 2011 | | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | Thereafter | | | December 31, 2010 | | | | | | | | | | | | | | | | | | Total | | Fair Value | | | | | | | | | | | | | December 31, 2013 | | | | (In Won millions except rates) | | | 2014 | | 2015 | | 2016 | | 2017 | | Thereafter | | Total | | Fair Value | | Local currency: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed rate | | | 1,644,615 | | | | 1,500,373 | | | | 1,550,160 | | | | 890,653 | | | | 510,532 | | | | 535,429 | | | | 6,631,762 | | | | 6,583,632 | | | | 2,171,414 | | | | 1,269,235 | | | | 1,900,179 | | | | 707,493 | | | | 2,826,023 | | | | 8,874,344 | | | | 8,913,379 | | Average weighted rate (1) | | | 5.99 | % | | | 5.24 | % | | | 5.53 | % | | | 5.23 | % | | | 5.32 | % | | | 5.51 | % | | | 5.52 | % | | | — | | | | 4.47 | % | | | 4.33 | % | | | 4.06 | % | | | 4.00 | % | | | 3.91 | % | | | 4.15 | % | | | — | % | Variable rate | | | 101,656 | | | | 60,457 | | | | 6,848 | | | | 4,508 | | | | 1,540 | | | | — | | | | 175,009 | | | | 170,498 | | | | 101,640 | | | | 41,280 | | | | 20,000 | | | | — | | | | — | | | | 162,920 | | | | 164,686 | | Average weighted rate (1) | | | 4.80 | % | | | 4.38 | % | | | 4.29 | % | | | 4.29 | % | | | 0.00 | % | | | — | | | | 4.61 | % | | | — | | | | 3.66 | % | | | 3.08 | % | | | 3.09 | % | | | 0.00 | % | | | 0.00 | % | | | 3.44 | % | | | — | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Sub-total | | | 1,746,271 | | | | 1,560,830 | | | | 1,557,008 | | | | 895,161 | | | | 512,072 | | | | 535,429 | | | | 6,806,771 | | | | 6,754,130 | | | | 2,273,054 | | | | 1,310,515 | | | | 1,920,179 | | | | 707,493 | | | | 2,826,023 | | | | 9,037,264 | | | | 9,078,065 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed rate | | | — | | | | 227,780 | | | | — | | | | 683,340 | | | | 455,560 | | | | 341,670 | | | | 1,708,350 | | | | 1,723,872 | | | | 635,495 | | | | 472,353 | | | | 393,908 | | | | 369,355 | | | | 173,847 | | | | 2,044,958 | | | | 2,018,733 | | Average weighted rate (1) | | | — | | | | 5.13 | % | | | — | | | | 5.88 | % | | | 5.48 | % | | | 6.09 | % | | | 5.55 | % | | | — | | | | 5.86 | % | | | 4.42 | % | | | 3.48 | % | | | 3.88 | % | | | 4.28 | % | | | 4.58 | % | | | — | % | Variable rate | | | 690,863 | | | | 134,150 | | | | 345,313 | | | | — | | | | — | | | | — | | | | 1,170,326 | | | | 1,102,093 | | | | 107,852 | | | | — | | | | — | | | | — | | | | 316,590 | | | | 424,442 | | | | 402,847 | | Average weighted rate (1) | | | 1.68 | % | | | 1.63 | % | | | 1.63 | % | | | — | | | | — | | | | — | | | | 1.66 | % | | | — | | | | 1.32 | % | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 1.40 | % | | | 1.38 | % | | | 0.00 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Subtotal | | | 690,863 | | | | 361,930 | | | | 345,313 | | | | 683,340 | | | | 455,560 | | | | 341,670 | | | | 2,878,676 | | | | 2,825,965 | | | | 743,347 | | | | 472,353 | | | | 393,908 | | | | 369,355 | | | | 490,437 | | | | 2,469,400 | | | | 2,421,580 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 2,437,134 | | | | 1,922,760 | | | | 1,902,321 | | | | 1,578,501 | | | | 967,632 | | | | 877,099 | | | | 9,685,447 | | | | 9,580,095 | | | | 3,016,401 | | | | 1,782,868 | | | | 2,314,087 | | | | 1,076,848 | | | | 3,316,460 | | | | 11,506,664 | | | | 11,499,645 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Weighted average rates of the portfolio at the period end. |
As of December 31, 2011 and 2012 a 100 basis point increase in the market interest rates, with all other variables held constant, would have decreased our profit before income tax by₩2 billion and₩562 million, respectively and increased our profit before income tax by₩10 billion, as of December 31, 2013. As of December 31, 2011 and 2012, a 100 basis point increase in the market interest rates, with all other variables held constant would have decreased total equity by₩581 million and₩368 million, respectively and increased our total equity by₩13 billion, as of December 31, 2013. As of December 31, 2011, 2012 and 2013, a 100 basis point decrease in the market interest rates, with all other variables held constant, would have decreased our profit before income tax by₩13 billion,₩5 billion and₩17 billion, respectively, and total equity by₩14 billion,₩5 billion and₩19 billion, respectively. The foregoing sensitivity analysis assumes that all variables other than market interest rates are held constant, and as such, does not reflect any correlation between market interest rates and other variables, nor our decision to decrease the risk, but reflects the effects of derivative contracts in place at the time of conducting the analysis. Equity Price Risk We are also subject to market risk exposure arising from changes in the equity securities market, which affect the fair value of our equity portfolio. As of December 31, 2011, 2012 and 2013, a 10% increase in the equity indices where our marketable equity securities are listed, with all other variables held constant, would have increased our total equity by₩10 billion,₩5 billion and₩6 billion, respectively, with a 10% decrease in the equity index having the opposite effect. The foregoing sensitivity analysis assumes that all variables other than changes in the equity index are held constant, and that our marketable equity instruments had moved according to the historical correlation to the index, and as such, does not reflect any correlation between the equity index and other variables. Item 12. Description of Securities Other than Equity Securities Item 12.A. Debt Securities Not applicable. Item 12.B. Warrants and Rights Not applicable. Item 12.C. Other Securities Not applicable. Item 12.D. American Depositary Shares Fees and Charges Under the terms of the deposit agreement, holders of our ADSs are required to pay the following service fees to the depositary: | | | Services | | Fees | Issuance of ADSs upon deposit of shares | | Up to $0.05 per ADS issued | | | Delivery of deposited shares against surrender of ADSs | | Up to $0.05 per ADS surrendered | | | Distribution delivery of ADSs pursuant to sale or exercise of rights | | Up to $0.02 per ADS held | | | Distributions of dividends | | None | | | Distribution of securities other than ADSs | | Up to $0.02 per ADS held | | | Other corporate action involving distributions to shareholders | | Up to $0.02 per ADS held |
Holders of our ADSs are also responsible for paying certain fees and expenses incurred by the depositary and certain taxes and governmental charges such as: | • | | fees for the transfer and registration of shares charged by the registrar and transfer agent for the shares in Korea (i.e., upon deposit and withdrawal of shares); |
expenses incurred for converting foreign currency into U.S. dollars; expenses for cable, telex and fax transmissions and for delivery of securities; | • | | taxes and duties upon the transfer of securities (i.e., when shares are deposited or withdrawn from deposit); and |
fees and expenses incurred in connection with the delivery or servicing of shares on deposit. Depositary fees payable upon the issuance and surrender of ADSs are typically paid to the depositary by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary for surrender. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS record date. The depositary fees payable for cash distributions are generally deducted from the cash being distributed. In the case of distributions other than cash (i.e., stock dividend, rights), the depositary charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via the Depository Trust Company, or DTC), the depositary generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary. In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse to provide the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to such holder of ADSs. The fees and charges that holders of our ADSs may be required to pay may vary over time and may be changed by us and by the depositary. Holders of our ADSs will receive prior notice of such changes. Fees and Payments from the Depositary to Us In 2010,2013, we received the following payments, after deduction of applicable U.S. taxes, from the depositary: | | | | | | | Reimbursement of NYSE listing fees: | | $ | 142,645.00 | | | | Reimbursement of SEC filing fees: | | $ | 9,865.00 | | | | Reimbursement of settlement infrastructure fees (including maintenance fees): | | $ | 161,258.73 | | | | Reimbursement of proxy process expenses (printing, postage and distribution): | | $ | 66,045.72 | | | | Reimbursement of legal fees: | | $ | 369,631.00 | | | | Contributions toward our investor relations efforts (including non-deal roadshows, investor conferences and investor relations agency fees): | | $ | 441,720.07 | |
| | | | | Reimbursement of NYSE listing fees | | $ | 131,492.00 | | | | Reimbursement of SEC filing fees | | $ | 49,303.74 | | | | Reimbursement of settlement infrastructure fees (including maintenance fees) | | $ | 118,320.88 | | | | Reimbursement of proxy process expenses (printing, postage and distribution) | | $ | 47,025.36 | | | | Reimbursement of legal fees (reimbursement received in April 2014 in respect of 2013) | | $ | 610,673.92 | | | | Contributions toward our investor relations efforts (including non-deal roadshows, investor conferences and investor relations agency fees) | | $ | 210,566.24 | |
PART II Item 13. Defaults, Dividend Arrearages and Delinquencies Not applicable. Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds Not applicable. Item 15. Controls and Procedures Disclosure Controls and Procedures Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2010.2013. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.December 31, 2013. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms,forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that itinformation required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed by, and under the supervision of, our principal executive, principal operating and principal financial officers, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Originally issued in 1992, the “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “1992 Framework”) was amended in May 2013 (as amended, the “2013 Framework”), with application of the 1992 Framework available until December 15, 2014, after which only the 2013 Framework will be available. Our management has completed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 20102013 based on criteria in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).1992 Framework. Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2010.2013. We expect to conduct our assessment of the effectiveness of our internal control over financial reporting based on the 2013 Framework for the year ended December 31, 2014. Samil PricewaterhouseCoopers, an independent registered public accounting firm, which also audited our consolidated financial statements as of, and for the year ended December 31, 2010,2013, as stated in their report which is included herein, has issued an attestation report on the effectiveness of our internal control over financial reporting. Attestation Report of the Registered Public Accounting Firm The attestation report of our independent registered public accounting firm on the effectiveness of our internal control over financial reporting is furnished in Item 18 of this Form 20-F. Changes in Internal Control Over Financial Reporting There has been no changeWe completed the implementation of the New ERP System in July 2012, and changed, established or reevaluated any related parts in our internal control over financial reporting duringaccordingly. We also conducted evaluations prior to and after the year covered by this annual reportimplementation of the New ERP System, and confirmed that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.reporting remains effective.
Item 16. [Reserved] Item 16A. Audit Committee Financial Expert At our annual shareholders’ meetings inIn March 2011,2014, our shareholders elected Hyun-Nak LeeKeuk Je Sung, Jong-Goo Kim and Byong-Won BahkPil Hwa Yoo as members of the Audit Committee.Committee at our annual shareholders’ meeting. Our Audit Committee is comprised of E. HanSang Kyun Cha, Keuk Je Sung, Jong-Goo Kim Hae-Bang Chung, Hyun-Nak Lee and Byong Won Bahk.Pil Hwa Yoo. The board of directors has determined that E. Han KimPil Hwa Yoo is the audit committee financial expert.
Item 16B. Code of Ethics We have adopted a code of ethics, as defined in Item 16B. of Form 20-F under the Securities Exchange Act of 1934, as amended. Our code of ethics applies to our Chief Executive Officer, Chief Financial Officer and persons performing similar functions, as well as to our directors, other officers and employees. Our code of ethics is available on our web site at www.kt.com. If we amend the provisions of our code of ethics that apply to our Chief Executive Officer, Chief Financial Officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our web site.website. Item 16C. Principal Accountant Fees and Services Audit and Non-Audit Fees The following table sets forth the fees billed to us by Samil PricewaterhouseCoopers, our independent auditorsregistered public accounting firm, during the fiscal year ended December 31, 20092012 and 2010:2013: | | | Year Ended December 31, | | | Year Ended December 31, | | | | 2009 | | | 2010 | | | 2012 | | | 2013 | | | | (In millions) | | | (In millions) | | Audit fees(1) | | (Won) | 3,952 | | | (Won) | 3,503 | | | ₩ | 2,830 | | | ₩ | 2,840 | | Audit-related fees | | | 62 | | | | 70 | | | | 0 | | | | 0 | | Tax fees(2) | | | 66 | | | | 96 | | | | 188 | | | | 1,778 | | Other fees | | | 854 | | | | 95 | | | | 0 | | | | 0 | | | | | | | | | | | | | | | Total fees | | (Won) | 4,934 | | | (Won) | 3,764 | | | ₩ | 3,018 | | | ₩ | 4,621 | | | | | | | | | | | | | | |
Audit fees in the above table are the aggregate fees billed by our auditors in connection with the audit of our annual financial statements and the review of our interim financial statements.
(1) | Audit fees consist of fees for the annual audit and quarterly review services engagement and the comfort letters. |
(2) | Tax fees consist of fee for tax services which are mainly the preparation or non-recurring tax compliance review of original or amended tax returns. |
Audit Committee Pre-Approval Policies and Procedures Our audit committee has established pre-approval policies and procedures to pre-approve all audit services to be provided by Samil PricewaterhouseCoopers, our independent registered public accounting firm. Our audit committee’s policy regarding the pre-approval of non-audit services to be provided to us by our independent auditorsregistered public accounting firm is that all such services shall be pre-approved by our audit committee. Non-audit services that are prohibited to be provided to us by our independent auditorsregistered public accounting firm under the rules of the SEC and applicable law may not be pre-approved. In addition, prior to the granting of any pre-approval, our audit committee must be satisfied that the performance of the services in question will not compromise the independence of our independent registered public accounting firm and does not include delegation of the audit committee’s responsibilities to the management under the Securities Exchange Act of 1934, as amended. Our audit committee did not pre-approve any non-audit services under thede minimis exception of Rule 2-01 (c)(7)(i)(C) of Regulation S-X as promulgated by the SEC. Item 16D. Exemptions from the Listing Standards for Audit Committees Not applicable. Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table sets forth the repurchases of common shares by us or any affiliated purchasers during the fiscal year ended December 31, 2010:2013: | | | | | | | | | | | | | | | | | Period | | Total Number of Shares Purchased | | | Average Price Paid per Share (In Won) | | | Total Number of Shares Purchased as Part of Publicly Announced Plans | | | Maximum Number of Shares that May Yet be Purchased Under the Plans | | January 1 to January 31 | | | 0 | | | | 0 | | | | 0 | | | | 0 | | February 1 to February 29 | | | 0 | | | | 0 | | | | 0 | | | | 0 | | March 1 to March 31 | | | 0 | | | | 0 | | | | 0 | | | | 0 | | April 1 to April 30 | | | 0 | | | | 0 | | | | 0 | | | | 0 | | May 1 to May 31 | | | 0 | | | | 0 | | | | 0 | | | | 0 | | June 1 to June 30 | | | 0 | | | | 0 | | | | 0 | | | | 0 | | July 1 to July 31 | | | 0 | | | | 0 | | | | 0 | | | | 0 | | August 1 to August 31 | | | 0 | | | | 0 | | | | 0 | | | | 0 | | September 1 to September 30 | | | 0 | | | | 0 | | | | 0 | | | | 0 | | October 1 to October 31 | | | 0 | | | | 0 | | | | 0 | | | | 0 | | November 1 to November 30 | | | 0 | | | | 0 | | | | 0 | | | | 0 | | December 1 to December 31 | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | | | | | | | | | | | | | | | | Total | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Period | | Total Number of Shares Purchased | | | Average Price Paid per Share (In Won) | | | Total Number of Shares Purchased as Part of Publicly Announced Plans | | | Maximum Number of Shares that May Yet be Purchased Under the Plans | | January 1 to January 31 | | | — | | | | — | | | | — | | | | — | | February 1 to February 29 | | | — | | | | — | | | | — | | | | — | | March 1 to March 31 | | | — | | | | — | | | | — | | | | — | | April 1 to April 30 | | | — | | | | — | | | | — | | | | — | | May 1 to May 31 | | | — | | | | — | | | | — | | | | — | | June 1 to June 30 | | | — | | | | — | | | | — | | | | — | | July 1 to July 31 | | | — | | | | — | | | | — | | | | — | | August 1 to August 31 | | | — | | | | — | | | | — | | | | — | | September 1 to September 30 | | | — | | | | — | | | | — | | | | — | | October 1 to October 31 | | | — | | | | — | | | | — | | | | — | | November 1 to November 30 | | | — | | | | — | | | | — | | | | — | | December 1 to December 31 | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | Total | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | |
Neither we nor any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, purchased any of our equity securities during the period covered by this annual report. Item 16F. Change in Registrant’s Certifying Accountant Not Applicableapplicable. Item 16G. Corporate Governance The following is a summary of the significant differences between the New York Stock Exchange’s corporate governance standards and those that we follow under Korean law.law: | | | NYSE Corporate Governance Standards | | KT Corporation’s Corporate Governance Practice | Director Independence | | | | | Independent directors must comprise a majority of the board. | | The Commercial Code of Korea requires that our board of directors must comprise no less than a majority of outside directors. Our outside directors must meet the criteria for outside directorship set forth under the Commercial Code of Korea. The majority of our board of directors is independent (as defined in accordance with the New York Stock Exchange’s standards), and 8 out of 11 directors are outside directors. | | | Nomination/Nominating/Corporate Governance Committee
| | | | | Listed companies must have a nomination/nominating/corporate governance committee composed entirely of independent directors. | | We have not established a separate nomination/nominating/corporate governance committee.committee composed entirely of independent directors. However, we maintain an Outside Director Candidate Nominating Committee composed of all of our outside directors and one non-independent director. We also maintain a Corporate Governance Committee comprised of four outside directors and one non-independent director. The committee is responsible for the review of matters with respect to our Corporate Governance Guidelines and our performance under such guidelines to monitor effectiveness of our corporate governance. |
| | | NYSE Corporate Governance Standards
| | KT Corporation’s Corporate Governance Practice
| | | Compensation Committee | | | | | Listed companies must have a compensation committee composed entirely of independent directors. | | We maintain an Evaluation and Compensation Committee composed of four outside directors. | | | Executive Session | | | | | Listed companiesNon-management directors must hold meetings solely attended by non-management directors to more effectively check and balance management directors.meet in regularly scheduled executive sessions without management. | | Our outside directors hold meetings solely attended by outside directors in accordance with the charter of our board of directors. | | | Audit Committee | | | | | Listed companies must have an audit committee that is composed of more than three directors and satisfy the requirements of Rule 10A-3 under the Exchange Act. | | We maintain an Audit Committee comprised of four outside directors who meet the applicable independence criteria set forth under Rule 10A-3 under the Exchange Act. | | | Shareholder Approval of Equity Compensation Plan | | | | | Listed companies must allow their shareholders to exercise their voting rights with respect to any material revision to the company’s equity compensation plan. | | We currently have two equity compensation plans: one providing for the grant of stock options to officers and non-independent directors; and an employee stock ownership association program. All material matters related to the granting stock options are provided in our articles of incorporation, and any amendments to the articles of incorporation are subject to shareholders’ approval. Matters related to the employee stock ownership association program are not subject to shareholders’ approval under Korean law. |
| | | NYSE Corporate Governance Standards | | KT Corporation’s Corporate Governance Practice | Corporate Governance Guidelines | | | | | Listed companies must adopt and disclose corporate governance guidelines. | | We have adopted Corporate Governance Guidelines in March 2007 setting forth our practices with respect to corporate governance matters. Our Corporate Governance Guidelines are in compliance with Korean law but do not meet all requirements established by the New York Stock Exchange for U.S. companies listed on the exchange. A copy of our Corporate Governance Guidelines in Korean is available on our website at www.kt.com. | | | Code of Business Conduct and Ethics | | | | | Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for executive officers. | | We have adopted a Code of Ethics for all directors, officers and employees. A copy of our Code of Ethics in Korean is available on our website at www.kt.com |
Item 16H. Mine Safety Disclosure Not applicable. PART III Item 17. Financial Statements Not applicable. Item 18. Financial Statements AUDITED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS OF KT CORPORATION | | | | | | | Page | | Report of Independent Registered Public Accounting Firm | | | F-1F-2 | | ReportConsolidated Statements of Independent Registered Public Accounting FirmFinancial Position as of December 31, 2012 and 2013
| | | F-3 | | Consolidated Statements of Financial Position as ofOperations for the Years Ended December 31, 20092011, 2012 and 20102013 | | | F-4F-5 | | Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2008, 20092011, 2012 and 20102013 | | | F-7F-6 | | Consolidated Statements of Changes in Shareholders’Shareholder’s Equity for the Years Ended December 31, 2011, 2012 and 2013 | | | F-8F-7 | | Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 20092011, 2012 and 20102013 | | | F-12F-11 | | Notes to Consolidated Financial Statements | | | F-15F-12 | |
Item 19. Exhibits | | | | | | 1 | | | Articles of Incorporation of KT Corporation (English translation) | | | 2.1* | 2.1 | * | | Deposit Agreement dated as of May 25, 1999 entered into among KT Corporation, Citibank, N.A., as depositary, and all Holders and Beneficial Owners of American Depositary Shares evidenced by the American Depositary Receipts issued thereunder, including the form of American depositary receipt (incorporated herein by reference to Exhibit (a)(i) of the Registrant’s Registration Statement (Registration No. 333-13578) on Form F-6) | | | 2.2* | 2.2 | * | | Form of Amendment No. 1 Deposit Agreement dated as of May 25, 1999 entered into among KT Corporation, Citibank, N.A., as depositary, and all Holders and Beneficial Owners of American Depositary Shares evidenced by the American Depositary Receipts issued thereunder, including the form of American depositary receipt (incorporated herein by reference to Exhibit (a)(ii) of the Registrant’s Registration Statement (Registration No. 333-13578) on Form F-6) | | | 2.3* | 2.3 | * | | Letter from Citibank, N.A., as depositary, to the Registrant relating to the pre-release of the American depositary receipts (incorporated herein by reference to the Registrant’s Registration Statement (Registration No. 333-10330) on Form F-6) | | | 2.4* | 2.4 | * | | Letter from Citibank, N.A., as depositary, to the Registrant relating to the establishment of a direct registration system for ADSs and the issuance of uncertified ADSs as part of the direct registration system. (incorporated herein by reference to Exhibit 2.4 of the Registrant’s Annual Report on Form 20-F filed on June 30, 2008) | | | 4.1* | 8.1 | | The Merger Agreement dated January 20, 2009, entered into by and between KT Corporation and KT Freetel Co., Ltd. (incorporated herein by reference to Annex I of the Registrant’s Registration Statement (Registration No. 333-156817) on Form F-4) | | | 8.1 | | List of subsidiaries of KT Corporation |
| | | | 12.1 | | | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | 12.2 | | | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | 13.1 | | | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | | 15.1 | | The Framework Act on Telecommunications (English translation) | | | 15.2 | | Enforcement Decree of the Framework Act on Telecommunications (English translation) | | | 15.3 | | The Telecommunications Business Act (English translation) | | | 15.4 | | Enforcement Decree of the Telecommunications Business Act (English translation) |
* Filed previously. INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of KT Corporation In our opinion, the accompanying consolidated statementstatements of financial position and the related consolidated statements of operations, of comprehensive income, of changes in shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of KT Corporation and its subsidiaries at December 31, 20102013 and 2012 , and the results of their operations and their cash flows for each of the year thenthree years in the period ended December 31, 2013 in conformity with accounting principles generally accepted inInternational Financial Reporting Standards as issued by the Republic of Korea.International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010,2013, based on criteria established inInternal Control—Integrated Framework 1992 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Management’s Annual Report on Internal Control over Financial Reporting in Item 15 of Form 20-F. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audit.audits. We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our auditaudits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion. Accounting principles generally accepted in the Republic of Korea vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 38 to the consolidated financial statements.opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are Samil PricewaterhouseCoopers
LS Yongsan Tower, 191, Hangangno 2-ga, Yongsan-gu, Seoul 140-702, Korea (Yongsan P.O Box 266, 140-600) www.samil.com
Samil PricewaterhouseCoopers is the Korean network firm of PricewaterhouseCoopers International Limited (PwCIL). “PricewaterhouseCoopers” and “PwC” refer to the network of member firms of PwCIL. Each member firm is a separate legal entity and does not act as an agent of PwCIL or any other member firm.
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Samil PricewaterhouseCoopers Seoul Korea JuneApril 28, 20112014
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
KT Corporation
Sungnam, Korea
We have audited the accompanying consolidated Statements of Financial Position of KT Corporation and subsidiaries (the “Company”) as of December 31, 2009, and the related consolidated statements of income, cash flows and change in shareholders’ equity for the years ended December 31, 2009 and 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 provide a reasonable basis for our opinion.
In our opinion, such 2009 and 2008 consolidated financial statements present fairly, in all material respects, the financial position of KT Corporation and subsidiaries at December 31, 2009, and the results of their operations and their cash flows for the years ended December 31, 2009 and 2008, in conformity with accounting principles generally accepted in the Republic of Korea.
Accounting principles generally accepted in the Republic of Korea vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 38 to the consolidated financial statements.
As discussed in Note 27 to the consolidated financial statements, the accompanying 2009 and 2008 financial statements have been retrospectively adjusted for discontinued operations.
/s/ Deloitte Anjin LLC
Seoul, Korea
June 16, 2010
(June 28, 2011 as to the effects of discontinued operations discussed in Note 27)
KT Corporation and Subsidiaries Consolidated Statements of Financial Position December 31, 20102012 and 20092013 | | | | | | | | | | | | | | | (in millions of Korean won) | | | (in thousands of U.S dollars) | | | | 2010 | | | 2009 | | | 2010 | | Assets | | | | | | | | | | | | | Current Assets | | | | | | | | | | | | | Cash and cash equivalents, net (Notes 4, 19 and 31) | | (Won) | 1,193,348 | | | (Won) | 1,538,122 | | | $ | 1,047,808 | | Short-term investment assets (Notes 4, 7 and 19) | | | 166,200 | | | | 443,934 | | | | 145,930 | | Trade accounts receivable, net (Notes 19 and 32) | | | 3,843,287 | | | | 3,621,844 | | | | 3,374,561 | | Short-term loans receivable, net (Notes 6, 19 and 32) | | | 755,016 | | | | 484,926 | | | | 662,934 | | Current finance lease receivables, net (Notes 11, 17 and 32) | | | 240,414 | | | | 203,406 | | | | 211,093 | | Other receivables, net (Note 19) | | | 408,392 | | | | 281,609 | | | | 358,585 | | Accrued revenues | | | 18,393 | | | | 22,506 | | | | 16,150 | | Advance payments | | | 125,025 | | | | 91,737 | | | | 109,777 | | Prepaid expenses | | | 145,317 | | | | 119,065 | | | | 127,594 | | Income taxes receivable | | | 5,796 | | | | 27,037 | | | | 5,089 | | Current derivative instruments assets (Note 13) | | | 151,243 | | | | 288 | | | | 132,797 | | Current deferred income tax assets (Note 26) | | | 363,492 | | | | 437,525 | | | | 319,161 | | Inventories, net (Notes 5 and 11) | | | 655,831 | | | | 699,402 | | | | 575,846 | | Other current assets (Note 19) | | | 877 | | | | 448 | | | | 769 | | | | | | | | | | | | | | | Total current assets | | | 8,072,631 | | | | 7,971,849 | | | | 7,088,094 | | | | | | | | | | | | | | | Long-term financial instruments (Note 4) | | | 3,054 | | | | 3,037 | | | | 2,682 | | Available-for-sale securities (Note 7) | | | 199,515 | | | | 117,290 | | | | 175,182 | | Equity-method investments (Note 8) | | | 429,148 | | | | 287,989 | | | | 376,809 | | Held-to-maturity securities (Note 7) | | | 66 | | | | 65 | | | | 58 | | Long-term loans receivable to employees, net | | | 71,982 | | | | 62,758 | | | | 63,203 | | Other investment assets | | | 79,426 | | | | 90,231 | | | | 69,739 | | Property and equipment, net (Notes 9, 11, 12, 17 and 33) | | | 15,227,858 | | | | 14,774,560 | | | | 13,370,672 | | Intangible assets, net (Notes 10, 33 and 36) | | | 1,232,866 | | | | 1,279,500 | | | | 1,082,506 | | Long-term trade accounts and notes receivable, net (Note 32) | | | 800,365 | | | | 402,259 | | | | 702,753 | | Long-term loans receivable, net (Note 6) | | | 415,087 | | | | 414,981 | | | | 364,463 | | Non-current finance lease receivables, net (Notes 11, 17, and 32) | | | 453,848 | | | | 311,795 | | | | 398,497 | | Leasehold rights and deposits | | | 321,179 | | | | 353,992 | | | | 282,008 | | Long-term other receivables, net | | | 40 | | | | 11,596 | | | | 35 | | Non-current derivative instruments assets (Note 13) | | | 97,166 | | | | 295,058 | | | | 85,316 | | Non-current deferred income tax assets (Note 26) | | | 185,724 | | | | 113,266 | | | | 163,073 | | Exclusive memberships | | | 101,574 | | | | 103,522 | | | | 89,186 | | Other non-current assets | | | 21,930 | | | | 26,569 | | | | 19,255 | | | | | | | | | | | | | | | Total non-current assets | | | 19,640,828 | | | | 18,648,468 | | | | 17,245,437 | | | | | | | | | | | | | | | Total assets | | (Won) | 27,713,459 | | | (Won) | 26,620,317 | | | $ | 24,333,531 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | (in thousands of U.S dollars) | | (in millions of Korean won) | | Notes | | 2012 | | | 2013 | | | 2013 | | | | | | (Restated) | | | | | | (Unaudited) (Note 2) | | Assets | | | | | | | | | | | | | | | Current assets | | | | | | | | | | | | | | | Cash and cash equivalents | | 4, 5 | | ₩ | 2,057,613 | | | ₩ | 2,070,869 | | | $ | 1,962,350 | | Trade and other receivables, net | | 4, 6 | | | 5,907,508 | | | | 5,239,569 | | | | 4,965,004 | | Short-term loans, net | | 4, 7 | | | 668,113 | | | | 838,724 | | | | 794,773 | | Current finance lease receivables, net | | 4, 21 | | | 339,846 | | | | 294,208 | | | | 278,791 | | Other financial assets | | 4, 8 | | | 245,985 | | | | 480,062 | | | | 454,906 | | Current income tax assets | | | | | 862 | | | | 35,273 | | | | 33,425 | | Inventories, net | | 9 | | | 935,033 | | | | 673,618 | | | | 638,319 | | Other current assets | | 10 | | | 362,459 | | | | 339,596 | | | | 321,800 | | | | | | | | | | | | | | | | | Total current assets | | | | | 10,517,419 | | | | 9,971,919 | | | | 9,449,368 | | | | | | | | | | | | | | | | | Non-current assets | | | | | | | | | | | | | | | Trade and other receivables, net | | 4, 6 | | | 1,072,966 | | | | 813,471 | | | | 770,843 | | Long-term loans, net | | 4, 7 | | | 512,587 | | | | 509,873 | | | | 483,155 | | Non-current finance lease receivables, net | | 4, 21 | | | 521,809 | | | | 415,729 | | | | 393,944 | | Other financial assets | | 4, 8 | | | 672,475 | | | | 672,645 | | | | 637,397 | | Property and equipment, net | | 11, 21 | | | 15,806,366 | | | | 16,386,964 | | | | 15,528,252 | | Investment property, net | | 12 | | | 1,155,213 | | | | 1,105,495 | | | | 1,047,565 | | Intangible assets, net | | 13 | | | 3,213,638 | | | | 3,827,393 | | | | 3,626,829 | | Investments in jointly controlled entities and associates | | 14 | | | 379,495 | | | | 363,903 | | | | 344,834 | | Deferred income tax assets | | 29 | | | 610,762 | | | | 706,977 | | | | 669,930 | | Other non-current assets | | 10 | | | 95,178 | | | | 75,748 | | | | 71,779 | | | | | | | | | | | | | | | | | Total non-current assets | | | | | 24,040,489 | | | | 24,878,198 | | | | 23,574,528 | | | | | | | | | | | | | | | | | Total assets | | | | ₩ | 34,557,908 | | | ₩ | 34,850,117 | | | $ | 33,023,896 | | | | | | | | | | | | | | | | |
KT Corporation and Subsidiaries Consolidated Statements of Financial Position (Continued)(continued) December 31, 20102012 and 20092013 | | | | | | | | | | | | | | | (in millions of Korean won) | | | (in thousands of U.S dollars) | | | | 2010 | | | 2009 | | | 2010 | | Liabilities and Shareholders’ Equity | | | | | | | | | | | | | Current liabilities | | | | | | | | | | | | | Current portion of bond and long-term borrowings, net (Notes 14 and 19) | | (Won) | 2,434,985 | | | (Won) | 1,689,546 | | | $ | 2,138,015 | | Trade accounts payable (Notes 19 and 32) | | | 1,530,981 | | | | 1,484,943 | | | | 1,344,263 | | Short-term borrowings | | | 468,710 | | | | 367,505 | | | | 411,546 | | Other accounts payable (Notes 17, 19 and 32) | | | 1,620,470 | | | | 2,438,674 | | | | 1,422,838 | | Advances received | | | 153,599 | | | | 152,654 | | | | 134,866 | | Withholdings (Note 19) | | | 176,299 | | | | 98,099 | | | | 154,798 | | Accrued expenses (Notes 18 and 19) | | | 553,583 | | | | 483,366 | | | | 486,068 | | Income taxes payable | | | 287,843 | | | | 12,942 | | | | 252,738 | | Unearned revenue | | | 14,665 | | | | 9,251 | | | | 12,876 | | Deposits received (Notes 19 and 32) | | | 95,196 | | | | 158,799 | | | | 83,586 | | Current portion of accrued provisions (Note 16) | | | 89,181 | | | | 39,841 | | | | 78,305 | | Current derivative instruments liabilities (Note 13) | | | 228 | | | | 5,124 | | | | 200 | | Current deferred income tax liabilities (Note 26) | | | 1,817 | | | | 1 | | | | 1,595 | | Other current liabilities | | | 2,073 | | | | 478 | | | | 1,820 | | | | | | | | | | | | | | | Total current liabilities | | | 7,429,630 | | | | 6,941,223 | | | | 6,523,514 | | | | | | | | | | | | | | | Bonds payable, net (Notes 14 and 19) | | | 6,745,673 | | | | 7,337,399 | | | | 5,922,972 | | Long-term borrowings, net (Notes 14 and 19) | | | 473,014 | | | | 198,273 | | | | 415,325 | | Provisions for severance benefits, net (Note 15) | | | 360,028 | | | | 337,524 | | | | 316,119 | | Non-current accrued provisions (Note 16) | | | 114,453 | | | | 103,576 | | | | 100,494 | | Refundable deposits for telephone installation | | | 615,809 | | | | 696,396 | | | | 540,705 | | Long-term deposits received | | | 255,807 | | | | 101,924 | | | | 224,609 | | Non-current derivative instruments liabilities (Note 13) | | | 20,243 | | | | 6,155 | | | | 17,774 | | Long-term other accounts payable, net (Notes 17 and 32) | | | 171,596 | | | | 164,696 | | | | 150,668 | | Long-term trade accounts payable, net (Note 32) | | | 25,521 | | | | 14,603 | | | | 22,408 | | Non-current deferred income tax liabilities (Note 26) | | | 2,657 | | | | 1,065 | | | | 2,333 | | Other non-current liabilities | | | 3,356 | | | | 50,044 | | | | 2,948 | | | | | | | | | | | | | | | Total non-current liabilities | | | 8,788,157 | | | | 9,011,655 | | | | 7,716,355 | | | | | | | | | | | | | | | Total liabilities | | (Won) | 16,217,787 | | | (Won) | 15,952,878 | | | $ | 14,239,869 | | | | | | | | | | | | | | |
Commitments and Contingencies (Note 18)
KT Corporation and Subsidiaries
Consolidated Statements of Financial Position (Continued)
December 31, 2010 and 2009
| | | | | | | | | | | | | | | (in millions of Korean won) | | | (in thousands of U.S dollars) | | | | 2010 | | | 2009 | | | 2010 | | Capital stock | | | | | | | | | | | | | Common stock (Notes 20 and 36) | | (Won) | 1,564,499 | | | (Won) | 1,564,499 | | | $ | 1,373,693 | | | | | | | | | | | | | | | Total capital stock | | | 1,564,499 | | | | 1,564,499 | | | | 1,373,693 | | | | | | | | | | | | | | | Capital surplus | | | | | | | | | | | | | Paid-in capital in excess of par value | | | 1,440,258 | | | | 1,440,258 | | | | 1,264,604 | | Other capital surplus | | | 9,519 | | | | 8,311 | | | | 8,358 | | | | | | | | | | | | | | | Total capital surplus | | | 1,449,777 | | | | 1,448,569 | | | | 1,272,962 | | | | | | | | | | | | | | | Capital adjustments | | | | | | | | | | | | | Treasury stock (Note 21) | | | (955,083 | ) | | | (956,159 | ) | | | (838,601 | ) | Loss on disposal of treasury stock | | | (295 | ) | | | (890,650 | ) | | | (259 | ) | Stock options (Note 22) | | | 875 | | | | 1,500 | | | | 768 | | Other capital adjustments (Notes 22 and 36) | | | (308,031 | ) | | | (320,419 | ) | | | (270,464 | ) | | | | | | | | | | | | | | Total capital adjustment | | | (1,262,534 | ) | | | (2,165,728 | ) | | | (1,108,556 | ) | | | | | | | | | | | | | | Accumulated other comprehensive income and expense (Note 28) | | | | | | | | | | | | | Gain on translation of foreign operations | | | 12,989 | | | | 5,571 | | | | 11,405 | | Loss on translation of foreign operations | | | (39,199 | ) | | | (18,763 | ) | | | (34,418 | ) | Unrealized gain on valuation of available-for-sale securities | | | 7,927 | | | | 5,310 | | | | 6,960 | | Unrealized loss on valuation of available-for-sale securities | | | (801 | ) | | | (83 | ) | | | (703 | ) | Accumulated comprehensive income of equity-method investees (Note 8) | | | 785 | | | | 438 | | | | 689 | | Accumulated comprehensive expense of equity-method investees (Note 8) | | | (5,916 | ) | | | (13,736 | ) | | | (5,194 | ) | Gain on valuation of derivatives for cash flow hedge (Note 13) | | | 4,699 | | | | 11,468 | | | | 4,126 | | Loss on valuation of derivatives for cash flow hedge (Note 13) | | | (63,131 | ) | | | (34,747 | ) | | | (55,432 | ) | | | | | | | | | | | | | | Total accumulated other comprehensive income and expense | | | (82,647 | ) | | | (44,542 | ) | | | (72,567 | ) | | | | | | | | | | | | | | Retained earnings (Note 23) | | | | | | | | | | | | | Legal reserve | | | 780,499 | | | | 780,499 | | | | 685,310 | | Voluntary reserves | | | 4,651,362 | | | | 4,758,013 | | | | 4,084,083 | | Unappropriated retained earnings | | | 3,932,870 | | | | 4,035,257 | | | | 3,453,218 | | | | | | | | | | | | | | | Total retained earnings. | | | 9,364,731 | | | | 9,573,769 | | | | 8,222,611 | | | | | | | | | | | | | | | Minority interest in consolidated subsidiaries | | | 461,846 | | | | 290,872 | | | | 405,519 | | | | | | | | | | | | | | | Total shareholders’ equity | | | 11,495,672 | | | | 10,667,439 | | | | 10,093,662 | | | | | | | | | | | | | | | Total liabilities and shareholders’ equity | | (Won) | 27,713,459 | | | (Won) | 26,620,317 | | | $ | 24,333,531 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | (in thousands of U.S dollars) | | (in millions of Korean won) | | Notes | | 2012 | | | 2013 | | | 2013 | | | | | | (Restated) | | | | | | (Unaudited) (Note 2) | | Liabilities and Equity | | | | | | | | | | | | | | | Current liabilities | | | | | | | | | | | | | | | Trade and other payables | | 4, 15 | | ₩ | 7,221,302 | | | ₩ | 7,413,823 | | | $ | 7,025,323 | | Current finance lease liabilities, net | | 4, 21 | | | 14,033 | | | | 19,487 | | | | 18,466 | | Borrowings | | 4, 16 | | | 3,197,029 | | | | 3,020,706 | | | | 2,862,414 | | Other financial liabilities | | 4, 8, 20 | | | 71,983 | | | | 63,820 | | | | 60,476 | | Current income tax liabilities | | | | | 143,741 | | | | 99,848 | | | | 94,616 | | Provisions | | 17 | | | 205,591 | | | | 114,755 | | | | 108,742 | | Deferred revenue | | | | | 170,682 | | | | 143,601 | | | | 136,076 | | Other current liabilities | | 10 | | | 242,405 | | | | 348,076 | | | | 329,836 | | | | | | | | | | | | | | | | | Total current liabilities | | | | | 11,266,766 | | | | 11,224,116 | | | | 10,635,949 | | | | | | | | | | | | | | | | | Non-current liabilities | | | | | | | | | | | | | | | Trade and other payables | | 4, 15 | | | 701,360 | | | | 1,058,884 | | | | 1,003,396 | | Non-current finance lease liabilities, net | | 4, 21 | | | 27,613 | | | | 48,723 | | | | 46,170 | | Borrowings | | 4, 16 | | | 8,239,090 | | | | 8,463,187 | | | | 8,019,698 | | Other financial liabilities | | 4, 8, 20 | | | 69,813 | | | | 178,812 | | | | 169,442 | | Defined benefit liabilities, net | | 18 | | | 549,243 | | | | 586,083 | | | | 555,371 | | Provisions | | 17 | | | 149,940 | | | | 133,561 | | | | 126,562 | | Deferred revenue | | | | | 157,395 | | | | 147,837 | | | | 140,090 | | Deferred income tax liabilities | | 29 | | | 137,287 | | | | 169,498 | | | | 160,616 | | Other non-current liabilities | | 10 | | | 41,426 | | | | 2,000 | | | | 1,895 | | | | | | | | | | | | | | | | | Total non-current liabilities | | | | | 10,073,167 | | | | 10,788,585 | | | | 10,223,240 | | | | | | | | | | | | | | | | | Total liabilities | | | | | 21,339,933 | | | | 22,012,701 | | | | 20,859,189 | | | | | | | | | | | | | | | | | Equity attributable to owners of the Parent Company | | | | | | | | | | | | | | | Capital stock | | 22 | | | 1,564,499 | | | | 1,564,499 | | | | 1,482,516 | | Share premium | | | | | 1,440,258 | | | | 1,440,258 | | | | 1,364,785 | | Retained earnings | | 23 | | | 10,646,383 | | | | 10,019,389 | | | | 9,494,351 | | Accumulated other comprehensive income | | 24 | | | 1,325 | | | | 24,538 | | | | 23,252 | | Other components of equity | | 24, 25 | | | (1,343,286 | ) | | | (1,320,943 | ) | | | (1,251,723 | ) | | | | | | | | | | | | | | | | | | | | | 12,309,179 | | | | 11,727,741 | | | | 11,113,181 | | | | | | | | | | | | | | | | | Non-controlling interest | | | | | 908,796 | | | | 1,109,675 | | | | 1,051,526 | | | | | | | | | | | | | | | | | Total equity | | | | | 13,217,975 | | | | 12,837,416 | | | | 12,164,707 | | | | | | | | | | | | | | | | | Total liabilities and equity | | | | ₩ | 34,557,908 | | | ₩ | 34,850,117 | | | $ | 33,023,896 | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements. KT Corporation and Subsidiaries Consolidated Statements of IncomeOperations Years Endedended December 31, 2010, 20092011, 2012 and 20082013 | | | | | | | | | | | | | | | | | | | (in millions of Korean won, except per share amounts) | | | (in thousands of U.S dollars) | | | | 2010 | | | 2009 | | | 2008 | | | 2010 | | Operating revenues (Notes 24, 32 and 33) | | (Won) | 21,331,313 | | | (Won) | 19,643,812 | | | (Won) | 19,587,242 | | | $ | 18,729,751 | | Operating expenses (Notes 25 and 32) | | | 19,156,231 | | | | 18,673,265 | | | | 18,144,427 | | | | 16,819,941 | | | | | | | | | | | | | | | | | | | Operating income (Note 33) | | | 2,175,082 | | | | 970,547 | | | | 1,442,815 | | | | 1,909,810 | | | | | | | | | | | | | | | | | | | Non-operating income | | | | | | | | | | | | | | | | | Interest income | | | 143,165 | | | | 197,367 | | | | 151,291 | | | | 125,705 | | Foreign currency transaction gain | | | 23,051 | | | | 42,125 | | | | 66,508 | | | | 20,240 | | Foreign currency translation gain (Note 19) | | | 65,793 | | | | 240,925 | | | | 40,409 | | | | 57,769 | | Gain on valuation of equity-method investments (Note 8) | | | 37,597 | | | | 19,672 | | | | 16,061 | | | | 33,012 | | Gain on disposal of property and equipment | | | 13,653 | | | | 5,531 | | | | 4,368 | | | | 11,988 | | Reversal of accrued provisions | | | 17,215 | | | | 4,988 | | | | 4,069 | | | | 15,115 | | Gain on settlement of derivatives | | | 744 | | | | 2,249 | | | | 17,182 | | | | 653 | | Gain on valuation of derivatives (Note 13) | | | 39,920 | | | | 17,643 | | | | 650,679 | | | | 35,051 | | Other non-operating revenues | | | 181,679 | | | | 276,991 | | | | 99,786 | | | | 159,521 | | | | | | | | | | | | | | | | | | | | | | 522,817 | | | | 807,491 | | | | 1,050,353 | | | | 459,054 | | | | | | | | | | | | | | | | | | | Non-operating expenses | | | | | | | | | | | | | | | | | Interest expense | | | 529,364 | | | | 505,496 | | | | 480,315 | | | | 464,803 | | Other bad debts expense | | | 9,261 | | | | 46,872 | | | | 22,144 | | | | 8,132 | | Foreign currency transaction loss | | | 25,968 | | | | 46,171 | | | | 63,054 | | | | 22,801 | | Foreign currency translation loss (Note 19) | | | 31,871 | | | | 17,893 | | | | 802,298 | | | | 27,984 | | Loss on valuation of equity-method investments (Note 8) | | | 11,067 | | | | 33,300 | | | | 27,026 | | | | 9,717 | | Donations | | | 81,096 | | | | 39,320 | | | | 79,544 | | | | 71,206 | | Loss on disposal of property and equipment | | | 178,963 | | | | 124,689 | | | | 94,290 | | | | 157,137 | | Loss on impairment of property and equipment | | | 9,297 | | | | 1,236 | | | | 20,676 | | | | 8,163 | | Loss on disposal of intangible assets | | | 19,620 | | | | 4,247 | | | | 1,653 | | | | 17,227 | | Loss on settlement of derivatives | | | 2,156 | | | | 1,031 | | | | 9,666 | | | | 1,893 | | Loss on valuation of derivatives (Note 13) | | | 47,721 | | | | 191,268 | | | | 10,936 | | | | 41,901 | | Other non-operating expenses | | | 189,742 | | | | 47,240 | | | | 171,390 | | | | 166,601 | | | | | | | | | | | | | | | | | | | | | | 1,136,126 | | | | 1,058,763 | | | | 1,782,992 | | | | 997,565 | | | | | | | | | | | | | | | | | | | Income from continuing operations before income taxes | | | 1,561,773 | | | | 719,275 | | | | 710,176 | | | | 1,371,299 | | | | | | | Income tax expense on continuing operations (Note 26) | | | 371,843 | | | | 107,763 | | | | 167,859 | | | | 326,493 | | | | | | | | | | | | | | | | | | | Income from continuing operations | | | 1,189,930 | | | | 611,512 | | | | 542,317 | | | | 1,044,806 | | | | | | | | | | | | | | | | | | | Income (loss) from discontinued operations (Note 27) | | | 2,612 | | | | (1,817 | ) | | | (29,027 | ) | | | 2,293 | | | | | | | | | | | | | | | | | | | Net income | | (Won) | 1,192,542 | | | (Won) | 609,695 | | | (Won) | 513,290 | | | $ | 1,047,099 | | | | | | | | | | | | | | | | | | | Controlling interest net income | | (Won) | 1,168,005 | | | (Won) | 494,846 | | | (Won) | 449,810 | | | $ | 1,025,555 | | | | | | | | | | | | | | | | | | | Minority interest net income | | (Won) | 24,537 | | | (Won) | 114,849 | | | (Won) | 63,480 | | | $ | 21,544 | | | | | | | | | | | | | | | | | | | Earnings per share attributable to controlling interest (Note 29) | | | | | | | | | | | | | | | | | Basic income per share from continuing operations (in won) | | (Won) | 4,797 | | | (Won) | 2,225 | | | (Won) | 2,319 | | | $ | 4.212 | | Basic net income per share (in won) | | (Won) | 4,803 | | | (Won) | 2,254 | | | (Won) | 2,217 | | | $ | 4.217 | | Diluted income per share from continuing operations (in won) | | (Won) | 4,797 | | | (Won) | 2,199 | | | (Won) | 2,319 | | | $ | 4.212 | | Diluted net income per share (in won) | | (Won) | 4,802 | | | (Won) | 2,227 | | | (Won) | 2,217 | | | $ | 4.216 | |
| | | | | | | | | | | | | | | | | | | | | (in millions of Korean won, except per share amounts) | | | | | | | | | | | | | | (in thousands of U.S dollars) | | | Notes | | | 2011 | | | 2012 | | | 2013 | | | 2013 | | | | | | | (Restated) | | | (Restated) | | | | | | (Unaudited) (Note 2) | | Continuing Operations | | | | | | | | | | | | | | | | | | | | | Operating revenue | | | 4, 14, 26 | | | ₩ | 22,087,830 | | | ₩ | 24,643,772 | | | ₩ | 24,057,881 | | | $ | 22,797,196 | | | | | | | | | | | | | | | | | | | | | | | Revenue | | | | | | | 21,310,805 | | | | 23,856,375 | | | | 23,728,673 | | | | 22,485,239 | | Others | | | | | | | 777,025 | | | | 787,397 | | | | 329,208 | | | | 311,957 | | Operating expenses | | | 4, 14, 27 | | | | 20,100,734 | | | | 22,963,673 | | | | 23,734,497 | | | | 22,490,758 | | | | | | | | | | | | | | | | | | | | | | | Operating profit | | | | | | | 1,987,096 | | | | 1,680,099 | | | | 323,384 | | | | 306,438 | | Finance income | | | 28 | | | | 269,992 | | | | 498,657 | | | | 279,349 | | | | 264,711 | | Finance costs | | | 28 | | | | (642,355 | ) | | | (781,993 | ) | | | (647,500 | ) | | | (613,570 | ) | Income(loss) from jointly controlled entities and associates | | | 14 | | | | (5,511 | ) | | | 18,079 | | | | 6,601 | | | | 6,255 | | | | | | | | | | | | | | | | | | | | | | | Profit(loss) from continuing operationsbefore income tax | | | | | | | 1,609,222 | | | | 1,414,842 | | | | (38,166 | ) | | | (36,166 | ) | Income tax expense | | | 29 | | | | 318,459 | | | | 277,869 | | | | 49,579 | | | | 46,982 | | | | | | | | | | | | | | | | | | | | | | | Profit(loss) for the year from the continuing operations | | | | | | | 1,290,763 | | | | 1,136,973 | | | | (87,745 | ) | | | (83,148 | ) | | | | | | | | | | | | | | | | | | | | | | Discontinued Operations | | | | | | | | | | | | | | | | | | | | | Profit(loss) from discontinued operations | | | | | | | 164,594 | | | | (31,534 | ) | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | Profit(loss) for the year | | | | | | ₩ | 1,455,357 | | | ₩ | 1,105,439 | | | ₩ | (87,745 | ) | | $ | (83,148 | ) | | | | | | | | | | | | | | | | | | | | | | Profit(loss) for the year attributable to: | | | | | | | | | | | | | | | | | | | | | Equity holders of the Parent Company | | | | | | ₩ | 1,445,690 | | | ₩ | 1,046,127 | | | ₩ | (189,931 | ) | | $ | (179,978 | ) | Profit(loss) from continuing operations | | | | | | | 1,280,015 | | | | 1,075,694 | | | | (189,931 | ) | | | (179,978 | ) | Profit(loss) from discontinued operations | | | | | | | 165,675 | | | | (29,567 | ) | | | — | | | | — | | Non-controlling interest | | | | | | ₩ | 9,667 | | | ₩ | 59,312 | | | ₩ | 102,186 | | | $ | 96,830 | | Profit from continuing operations | | | | | | | 10,748 | | | | 61,279 | | | | 102,186 | | | | 96,830 | | Loss from discontinued operations | | | | | | | (1,081 | ) | | | (1,967 | ) | | | — | | | | — | | Earnings(loss) per share attributable to the equity holders of the Parent Company during the year (in won): | | | | | | | | | | | | | | | | | | | | | Basic earnings(loss) per share | | | 30 | | | ₩ | 5,943 | | | ₩ | 4,296 | | | ₩ | (779 | ) | | $ | (1 | ) | From continuing operations | | | | | | | 5,262 | | | | 4,417 | | | | (779 | ) | | | (1 | ) | From discontinued operations | | | | | | | 681 | | | | (121 | ) | | | — | | | | — | | Diluted earnings(loss) per share | | | 30 | | | ₩ | 5,942 | | | ₩ | 4,296 | | | ₩ | (782 | ) | | $ | (1 | ) | From continuing operations | | | | | | | 5,261 | | | | 4,417 | | | | (782 | ) | | | (1 | ) | From discontinued operations | | | | | | | 681 | | | | (121 | ) | | | — | | | | — | |
The accompanying notes are an integral part of these consolidated financial statements. KT Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
Years Ended December 31, 2010, 2009 and 2008
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Capital stock | | | Capital surplus | | | Capital adjustments | | | Accumulated other comprehensive income and expense | | | Retained earnings | | | Minority interests | | | Total | | | | (in millions of Korean won) | | Balances as of January 1, 2008 (as reported) | | (Won) | 1,560,998 | | | (Won) | 1,272,634 | | | (Won) | (3,815,786 | ) | | (Won) | 142 | | | (Won) | 9,843,775 | | | (Won) | 2,276,003 | | | (Won) | 11,137,766 | | Cumulative effect of changes in accounting policies | | | — | | | | 168,143 | | | | (168,143 | ) | | | — | | | | 1,711 | | | | 2,141 | | | | 3,852 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As restated | | | 1,560,998 | | | | 1,440,777 | | | | (3,983,929 | ) | | | 142 | | | | 9,845,486 | | | | 2,278,144 | | | | 11,141,618 | | Dividends | | | — | | | | — | | | | — | | | | — | | | | (407,374 | ) | | | (1,896 | ) | | | (409,270 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Retained earnings after appropriation | | | — | | | | — | | | | — | | | | — | | | | 9,438,112 | | | | 2,276,248 | | | | 10,732,348 | | Net income for the year | | | — | | | | — | | | | — | | | | — | | | | 449,810 | | | | 63,480 | | | | 513,290 | | Acquisition of treasury stock | | | — | | | | — | | | | (73,807 | ) | | | — | | | | — | | | | — | | | | (73,807 | ) | Disposal of treasury stock | | | — | | | | — | | | | 807 | | | | — | | | | — | | | | — | | | | 807 | | Retirement of treasury stock | | | — | | | | — | | | | 73,807 | | | | — | | | | (73,807 | ) | | | — | | | | — | | Loss on disposal of treasury stock | | | — | | | | (144 | ) | | | — | | | | — | | | | — | | | | — | | | | (144 | ) | Other share-based payments | | | — | | | | — | | | | 398 | | | | — | | | | — | | | | — | | | | 398 | | Other capital adjustments | | | — | | | | — | | | | 986 | | | | — | | | | — | | | | 221 | | | | 1,207 | | Acquisition of subsidiaries’ stock and changes in consolidated entities | | | — | | | | — | | | | (944 | ) | | | — | | | | — | | | | 14,754 | | | | 13,810 | | Changes in the interest in the subsidiaries | | | — | | | | — | | | | (12,054 | ) | | | — | | | | — | | | | (98,730 | ) | | | (110,784 | ) | Gain on translation of foreign operations | | | — | | | | — | | | | — | | | | 8,612 | | | | — | | | | 4,947 | | | | 13,559 | | Loss on translation of foreign operations | | | — | | | | — | | | | — | | | | 8,308 | | | | — | | | | 3,471 | | | | 11,779 | | Unrealized gain on valuation of available-for-sale securities | | | — | | | | — | | | | — | | | | (5,831 | ) | | | — | | | | (3,108 | ) | | | (8,939 | ) | Unrealized loss on valuation of available-for-sale securities | | | — | | | | — | | | | — | | | | (4,345 | ) | | | — | | | | (3,200 | ) | | | (7,545 | ) | Changes in equity-method investees with accumulated comprehensive income | | | — | | | | — | | | | — | | | | 7,603 | | | | — | | | | 2,351 | | | | 9,954 | | Changes in equity-method investees with accumulated comprehensive expense | | | — | | | | — | | | | — | | | | 988 | | | | — | | | | (27 | ) | | | 961 | | Gain on valuation of derivatives for cash flow hedge | | | — | | | | — | | | | — | | | | 9,112 | | | | — | | | | 262 | | | | 9,374 | | Loss on valuation of derivatives for cash flow hedge | | | — | | | | — | | | | — | | | | (13,710 | ) | | | — | | | | (4,660 | ) | | | (18,370 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balances as of December 31, 2008 | | (Won) | 1,560,998 | | | (Won) | 1,440,633 | | | (Won) | (3,994,736 | ) | | (Won) | 10,879 | | | (Won) | 9,814,115 | | | (Won) | 2,256,009 | | | (Won) | 11,087,898 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
KT Corporation and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity (Continued)Comprehensive Income Years Endedended December 31, 2010, 20092011, 2012 and 20082013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Capital stock | | | Capital surplus | | | Capital adjustments | | | Accumulated other comprehensive income and expense | | | Retained earnings | | | Minority interests | | | Total | | | | (in millions of Korean won) | | Balances as of January 1, 2009 | | (Won) | 1,560,998 | | | (Won) | 1,440,633 | | | (Won) | (3,994,736 | ) | | (Won) | 10,879 | | | (Won) | 9,814,115 | | | (Won) | 2,256,009 | | | (Won) | 11,087,898 | | Dividends | | | — | | | | — | | | | — | | | | — | | | | (226,280 | ) | | | (3,080 | ) | | | (229,360 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Retained earnings after appropriation | | | — | | | | — | | | | — | | | | — | | | | 9,587,835 | | | | 2,252,929 | | | | 10,858,538 | | Issuance of common stock | | | 3,501 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,501 | | Net income for the year | | | — | | | | — | | | | — | | | | — | | | | 494,846 | | | | 114,849 | | | | 609,695 | | Consideration for exchange rights | | | — | | | | 18,442 | | | | — | | | | — | | | | — | | | | — | | | | 18,442 | | Exercise of exchange rights of exchangeable bonds | | | — | | | | (18,442 | ) | | | 451,157 | | | | — | | | | — | | | | — | | | | 432,715 | | Acquisition of treasury stock | | | — | | | | — | | | | (528,144 | ) | | | — | | | | — | | | | — | | | | (528,144 | ) | Disposal of treasury stock | | | — | | | | — | | | | 2,436,797 | | | | — | | | | — | | | | — | | | | 2,436,797 | | Retirement of treasury stock | | | — | | | | — | | | | 508,912 | | | | — | | | | (508,912 | ) | | | — | | | | — | | Loss on disposal of treasury stock | | | — | | | | (375 | ) | | | (890,650 | ) | | | — | | | | — | | | | — | | | | (891,025 | ) | Stock options | | | — | | | | 8,311 | | | | (7,380 | ) | | | — | | | | — | | | | — | | | | 931 | | Other share-based payments | | | — | | | | — | | | | 700 | | | | — | | | | — | | | | — | | | | 700 | | Other capital adjustments | | | — | | | | — | | | | 1,059 | | | | — | | | | — | | | | (811 | ) | | | 248 | | Other capital adjustments by merger | | | — | | | | — | | | | (89,375 | ) | | | — | | | | — | | | | (1,553,491 | ) | | | (1,642,866 | ) | Acquisition of subsidiaries’ stock and changes in consolidated entities | | | — | | | | — | | | | (24,105 | ) | | | — | | | | — | | | | (268,373 | ) | | | (292,478 | ) | Changes in the interest in the subsidiaries | | | — | | | | — | | | | (29,963 | ) | | | — | | | | — | | | | (243,849 | ) | | | (273,812 | ) | Gain on translation of foreign operations | | | — | | | | — | | | | — | | | | (4,891 | ) | | | — | | | | (3,751 | ) | | | (8,642 | ) | Loss on translation of foreign operations | | | — | | | | — | | | | — | | | | (14,497 | ) | | | — | | | | (4,159 | ) | | | (18,656 | ) | Unrealized gain on valuation of available-for-sale securities | | | — | | | | — | | | | — | | | | 497 | | | | — | | | | (610 | ) | | | (113 | ) | Unrealized loss on valuation of available-for-sale securities | | | — | | | | — | | | | — | | | | 4,262 | | | | — | | | | 3,425 | | | | 7,687 | | Changes in equity-method investees with accumulated comprehensive income | | | — | | | | — | | | | — | | | | (9,931 | ) | | | — | | | | (273 | ) | | | (10,204 | ) | Changes in equity-method investees with accumulated comprehensive expense | | | — | | | | — | | | | — | | | | (10,155 | ) | | | — | | | | 17 | | | | (10,138 | ) | Gain on valuation of derivatives for cash flow hedge | | | — | | | | — | | | | — | | | | 331 | | | | — | | | | 155 | | | | 486 | | Loss on valuation of derivatives for cash flow hedge | | | — | | | | — | | | | — | | | | (21,037 | ) | | | — | | | | (5,186 | ) | | | (26,223 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balances as of December 31, 2009 | | (Won) | 1,564,499 | | | (Won) | 1,448,569 | | | (Won) | (2,165,728 | ) | | (Won) | (44,542 | ) | | (Won) | 9,573,769 | | | (Won) | 290,872 | | | (Won) | 10,667,439 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
KT Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity (Continued)
Years Ended December 31, 2010, 2009 and 2008
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Capital stock | | | Capital surplus | | | Capital adjustments | | | Accumulated other comprehensive income and expense | | | Retained earnings | | | Minority interests | | | Total | | | | (in millions of Korean won) | | Balances as of January 1, 2010 | | (Won) | 1,564,499 | | | (Won) | 1,448,569 | | | (Won) | (2,165,728 | ) | | (Won) | (44,542 | ) | | (Won) | 9,573,769 | | | (Won) | 290,872 | | | (Won) | 10,667,439 | | Dividends | | | — | | | | — | | | | — | | | | — | | | | (486,393 | ) | | | (7,708 | ) | | | (494,101 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Retained earnings after appropriations | | | — | | | | — | | | | — | | | | — | | | | 9,087,376 | | | | 283,164 | | | | 10,173,338 | | Net income for the year | | | — | | | | — | | | | — | | | | — | | | | 1,168,005 | | | | 24,537 | | | | 1,192,542 | | Appropriations of loss on disposal of treasury stock | | | — | | | | — | | | | 890,650 | | | | — | | | | (890,650 | ) | | | — | | | | — | | Acquisition of treasury stock | | | — | | | | — | | | | (349 | ) | | | — | | | | — | | | | — | | | | (349 | ) | Disposal of treasury stock | | | — | | | | — | | | | (295 | ) | | | — | | | | — | | | | — | | | | (295 | ) | Stock options | | | — | | | | 140 | | | | (183 | ) | | | — | | | | — | | | | — | | | | (43 | ) | Other share-based payments | | | — | | | | 1,068 | | | | 5,658 | | | | — | | | | — | | | | — | | | | 6,726 | | Acquisition of subsidiaries’ stock and changes in consolidated entities | | | — | | | | — | | | | 5,879 | | | | — | | | | — | | | | 158,750 | | | | 164,629 | | Changes in the interest in the subsidiaries | | | — | | | | — | | | | 809 | | | | — | | | | — | | | | (345 | ) | | | 464 | | Other capital adjustments | | | — | | | | — | | | | 1,025 | | | | — | | | | — | | | | (872 | ) | | | 153 | | Gain on translation of foreign operations | | | — | | | | — | | | | — | | | | 7,418 | | | | — | | | | (533 | ) | | | 6,885 | | Loss on translation of foreign operations | | | — | | | | — | | | | — | | | | (20,436 | ) | | | — | | | | (2,762 | ) | | | (23,198 | ) | Unrealized gain on valuation of available-for-sale securities | | | — | | | | — | | | | — | | | | 2,617 | | | | — | | | | 199 | | | | 2,816 | | Unrealized loss on valuation of available-for-sale securities | | | — | | | | — | | | | — | | | | (718 | ) | | | — | | | | (30 | ) | | | (748 | ) | Changes in equity-method investees with accumulated comprehensive income | | | — | | | | — | | | | — | | | | 347 | | | | — | | | | (262 | ) | | | 85 | | Changes in equity-method investees with accumulated comprehensive expense | | | — | | | | — | | | | — | | | | 7,820 | | | | — | | | | — | | | | 7,820 | | Gain on valuation of derivatives for cash flow hedge | | | — | | | | — | | | | — | | | | (6,769 | ) | | | — | | | | — | | | | (6,769 | ) | Loss on valuation of derivatives for cash flow hedge | | | — | | | | — | | | | — | | | | (28,384 | ) | | | — | | | | — | | | | (28,384 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balances as of December 31, 2010 | | (Won) | 1,564,499 | | | (Won) | 1,449,777 | | | (Won) | (1,262,534 | ) | | (Won) | (82,647 | ) | | (Won) | 9,364,731 | | | (Won) | 461,846 | | | (Won) | 11,495,672 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
KT Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity (Continued)
Years Ended December 31, 2010, 2009 and 2008
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Capital stock | | | Capital surplus | | | Capital adjustments | | | Accumulated other comprehensive income and expense | | | Retained earnings | | | Minority interests | | | Total | | | | (in thousands of U.S dollars) | | Balances as of January 1, 2010 | | $ | 1,373,693 | | | $ | 1,271,902 | | | $ | (1,901,596 | ) | | $ | (39,110 | ) | | $ | 8,406,154 | | | $ | 255,397 | | | $ | 9,366,440 | | Dividends | | | — | | | | — | | | | — | | | | — | | | | (427,073 | ) | | | (6,768 | ) | | | (433,841 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Retained earnings after appropriations | | | — | | | | — | | | | — | | | | — | | | | 7,979,081 | | | | 248,629 | | | | 8,932,599 | | Net income for the year | | | — | | | | — | | | | — | | | | — | | | | 1,025,555 | | | | 21,544 | | | | 1,047,099 | | Appropriations of loss on disposal of treasury stock | | | — | | | | — | | | | 782,027 | | | | — | | | | (782,027 | ) | | | — | | | | — | | Acquisition of treasury stock | | | — | | | | — | | | | (306 | ) | | | — | | | | — | | | | — | | | | (306 | ) | Disposal of treasury stock | | | — | | | | — | | | | (259 | ) | | | — | | | | — | | | | — | | | | (259 | ) | Stock options | | | — | | | | 123 | | | | (161 | ) | | | — | | | | — | | | | — | | | | (38 | ) | Other share-based payments | | | — | | | | 938 | | | | 4,968 | | | | — | | | | — | | | | — | | | | 5,906 | | Acquisition of subsidiaries’ stock and changes in consolidated entities | | | — | | | | — | | | | 5,162 | | | | — | | | | — | | | | 139,389 | | | | 144,551 | | Changes in the interest in the subsidiaries | | | — | | | | — | | | | 710 | | | | — | | | | — | | | | (303 | ) | | | 407 | | Other capital adjustments | | | — | | | | — | | | | 900 | | | | — | | | | — | | | | (766 | ) | | | 134 | | Gain on translation of foreign operations | | | — | | | | — | | | | — | | | | 6,513 | | | | — | | | | (468 | ) | | | 6,045 | | Loss on translation of foreign operations | | | — | | | | — | | | | — | | | | (17,944 | ) | | | — | | | | (2,425 | ) | | | (20,369 | ) | Unrealized gain on valuation of available-for-sale securities | | | — | | | | — | | | | — | | | | 2,298 | | | | — | | | | 175 | | | | 2,473 | | Unrealized loss on valuation of available-for-sale securities | | | — | | | | — | | | | — | | | | (630 | ) | | | — | | | | (26 | ) | | | (656 | ) | Changes in equity-method investees with accumulated comprehensive income | | | — | | | | — | | | | — | | | | 305 | | | | — | | | | (230 | ) | | | 75 | | Changes in equity-method investees with accumulated comprehensive expense | | | — | | | | — | | | | — | | | | 6,866 | | | | — | | | | — | | | | 6,866 | | Gain on valuation of derivatives for cash flow hedge | | | — | | | | — | | | | — | | | | (5,943 | ) | | | — | | | | — | | | | (5,943 | ) | Loss on valuation of derivatives for cash flow hedge | | | — | | | | — | | | | — | | | | (24,922 | ) | | | — | | | | — | | | | (24,922 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balances as of December 31, 2010 | | $ | 1,373,693 | | | $ | 1,272,963 | | | $ | (1,108,555 | ) | | $ | (72,567 | ) | | $ | 8,222,609 | | | $ | 405,519 | | | $ | 10,093,662 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (In thousands of U.S dollars) | | (in millions of Korean won) | | Notes | | | 2011 | | | 2012 | | | 2013 | | | 2013 | | | | | | | (Restated) | | | (Restated) | | | | | | (Unaudited) (Note 2) | | Profit(loss) for the year | | | | | | ₩ | 1,455,357 | | | ₩ | 1,105,439 | | | ₩ | (87,745 | ) | | $ | (83,148 | ) | Other comprehensive income | | | | | | | | | | | | | | | | | | | | | Items not reclassifiable subsequently to profit or loss: | | | | | | | | | | | | | | | | | | | | | Remeasurements of the net defined benefit liability | | | 18 | | | | (104,327 | ) | | | (130,492 | ) | | | 56,583 | | | | 53,617 | | Shares of remeasurement loss from jointly controlled entities and associates | | | | | | | (1,911 | ) | | | (1,131 | ) | | | (455 | ) | | | (431 | ) | Items reclassifiable subsequently to profit or loss: | | | | | | | | | | | | | | | | | | | | | Changes in value of available-for-sale financial assets | | | 4, 8 | | | | 60,834 | | | | 23,952 | | | | 49,778 | | | | 47,170 | | Other comprehensive income from available-for salefinancial assets reclassified to income | | | | | | | (1,376 | ) | | | (4,865 | ) | | | 6,554 | | | | 6,211 | | Net gains(losses) on cashflow hedges | | | 4, 8 | | | | 63,204 | | | | (129,290 | ) | | | (72,303 | ) | | | (68,514 | ) | Other comprehensive income from cashflow hedges reclassified to income | | | | | | | (35,033 | ) | | | 154,867 | | | | 67,607 | | | | 64,064 | | Shares of other comprehensive income from jointly controlled entities and associates | | | | | | | (5,735 | ) | | | (8,730 | ) | | | 2,896 | | | | 2,744 | | Currency translation differences | | | | | | | 28,545 | | | | (6,645 | ) | | | (2,053 | ) | | | (1,945 | ) | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income after income tax for the year | | | | | | | 4,201 | | | | (102,334 | ) | | | 108,607 | | | | 102,916 | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income for the year | | | | | | ₩ | 1,459,558 | | | ₩ | 1,003,105 | | | ₩ | 20,862 | | | $ | 19,768 | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income for the year attributable to: | | | | | | | | | | | | | | | | | | | | | Equity holders of the Parent Company | | | | | | | 1,396,415 | | | | 937,542 | | | | (109,539 | ) | | | (103,800 | ) | Non-controlling interest | | | | | | | 63,143 | | | | 65,563 | | | | 130,401 | | | | 123,568 | |
The accompanying notes are an integral part of these consolidated financial statements. KT Corporation and Subsidiaries Consolidated Statements of Cash FlowsChanges in Shareholder’s Equity Years Endedended December 31, 2010, 20092011, 2012 and 20082013 | | | | | | | | | | | | | | | | | | | (in millions of Korean won) | | | (in thousands of U.S dollars) | | | | 2010 | | | 2009 | | | 2008 | | | 2010 | | Cash flows from operating activities | | | | | | | | | | | | | | | | | Net income | | (Won) | 1,192,542 | | | (Won) | 609,695 | | | (Won) | 513,290 | | | $ | 1,047,100 | | | | | | | | | | | | | | | | | | | Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | | | | | | | | | | | Share-based payments | | | 6,969 | | | | 1,049 | | | | 1,922 | | | | 6,119 | | Provision for severance benefits | | | 248,053 | | | | 1,128,370 | | | | 362,342 | | | | 217,801 | | Depreciation | | | 2,895,499 | | | | 2,935,448 | | | | 3,264,291 | | | | 2,542,365 | | Amortization of intangible assets | | | 389,960 | | | | 426,018 | | | | 438,544 | | | | 342,401 | | Provision for doubtful accounts | | | 164,799 | | | | 104,977 | | | | 150,583 | | | | 144,700 | | Interest expense | | | 34,722 | | | | 25,994 | | | | 45,581 | | | | 30,487 | | Interest income | | | (46,891 | ) | | | (22,126 | ) | | | (20,964 | ) | | | (41,172 | ) | Other bad debts expense | | | 9,261 | | | | 46,872 | | | | 22,355 | | | | 8,132 | | Loss (Gain) on foreign currency translation, net | | | (33,346 | ) | | | (224,104 | ) | | | 760,867 | | | | (29,279 | ) | Loss (Gain) on valuation of equity-method investments, net | | | (27,037 | ) | | | 13,628 | | | | 10,965 | | | | (23,740 | ) | Gain on disposal of equity-method investments, net | | | (1,318 | ) | | | (62,076 | ) | | | 136 | | | | (1,157 | ) | Loss on impairment of available-for-sale securities | | | 2,792 | | | | 10,102 | | | | 3,826 | | | | 2,451 | | Gain on disposal of available-for-sale securities | | | (257 | ) | | | (9,496 | ) | | | (3,996 | ) | | | (226 | ) | Loss on disposal of property and equipment, net | | | 165,310 | | | | 119,158 | | | | 88,917 | | | | 145,149 | | Loss on impairment of property and equipment | | | 9,297 | | | | 1,236 | | | | 20,676 | | | | 8,163 | | Loss on disposal of intangible assets | | | 19,620 | | | | 4,247 | | | | 1,653 | | | | 17,227 | | Loss on impairment of intangible assets | | | 3,443 | | | | 7,742 | | | | 17,435 | | | | 3,023 | | Loss on valuation of derivatives, net | | | 7,801 | | | | 173,625 | | | | (639,744 | ) | | | 6,850 | | Others | | | 132,529 | | | | (8,635 | ) | | | 21,893 | | | | 116,366 | | | | | | | | | | | | | | | | | | | | | | 3,981,206 | | | | 4,672,029 | | | | 4,547,282 | | | | 3,495,660 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Attributable to equity holders of the Parent Company | | | | | | | | (in millions of Korean won) | | Notes | | Capital stock | | | Share premium | | | Retained earnings | | | Accumulated Other Comprehensive income (loss) | | | Other Components of equity | | | Total | | | Non-controlling interest | | | Total equity | | Balance at January 1, 2011 | | | | ₩ | 1,564,499 | | | ₩ | 1,440,258 | | | ₩ | 9,466,168 | | | ₩ | (79,370 | ) | | ₩ | (1,258,293 | ) | | ₩ | 11,133,262 | | | ₩ | 220,793 | | | ₩ | 11,354,055 | | Effect of the retrospective application of IFRS 10 | | 2.2 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 45,842 | | | | 45,842 | | Adjusted balances | | | | | 1,564,499 | | | | 1,440,258 | | | | 9,466,168 | | | | (79,370 | ) | | | (1,258,293 | ) | | | 11,133,262 | | | | 266,635 | | | | 11,399,897 | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the year | | | | | — | | | | — | | | | 1,445,690 | | | | — | | | | — | | | | 1,445,690 | | | | 9,667 | | | | 1,455,357 | | Changes in value of available-for-sale financial assets | | 4 | | | — | | | | — | | | | — | | | | 5,090 | | | | — | | | | 5,090 | | | | 54,368 | | | | 59,458 | | Remeasurements of the net defined benefit liability | | 18 | | | — | | | | — | | | | (103,869 | ) | | | — | | | | — | | | | (103,869 | ) | | | (458 | ) | | | (104,327 | ) | Valuation gains(losses) on cashflow hedge | | 4 | | | — | | | | — | | | | — | | | | 28,171 | | | | — | | | | 28,171 | | | | — | | | | 28,171 | | Shares of other comprehensive income of jointly controlled entities and associates | | | | | — | | | | — | | | | — | | | | (5,277 | ) | | | — | | | | (5,277 | ) | | | (458 | ) | | | (5,735 | ) | Shares of gain on remeasurements of jointly controlled entities and associates | | | | | — | | | | — | | | | (1,911 | ) | | | — | | | | — | | | | (1,911 | ) | | | — | | | | (1,911 | ) | Currency translation differences | | | | | — | | | | — | | | | — | | | | 28,521 | | | | — | | | | 28,521 | | | | 24 | | | | 28,545 | | Transactions with equity holders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends | | | | | — | | | | — | | | | (586,150 | ) | | | — | | | | — | | | | (586,150 | ) | | | (9,235 | ) | | | (595,385 | ) | Appropriations of loss on disposal of treasury stock | | | | | — | | | | — | | | | (295 | ) | | | — | | | | 295 | | | | — | | | | — | | | | — | | Changes in consolidation scope | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 503,588 | | | | 503,588 | | Change in ownership interest in subsidiaries | | | | | — | | | | — | | | | — | | | | — | | | | (253,445 | ) | | | (253,445 | ) | | | 36,457 | | | | (216,988 | ) | Others | | | | | — | | | | — | | | | — | | | | — | | | | 14,154 | | | | 14,154 | | | | 22,936 | | | | 37,090 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2011 | | | | ₩ | 1,564,499 | | | ₩ | 1,440,258 | | | ₩ | 10,219,633 | | | ₩ | (22,865 | ) | | ₩ | (1,497,289 | ) | | ₩ | 11,704,236 | | | ₩ | 883,524 | | | ₩ | 12,587,760 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
KT Corporation and Subsidiaries Consolidated Statements of Cash FlowsChanges in Shareholder’s Equity (Continued) Years Endedended December 31, 2010, 20092011, 2012 and 20082013 | | | | | | | | | | | | | | | | | | | (in millions of Korean won) | | | (in thousands of U.S dollars) | | | | 2010 | | | 2009 | | | 2008 | | | 2010 | | Changes in operating assets and liabilities | | | | | | | | | | | | | | | | | Decrease (increase) in trade accounts and notes receivable | | (Won) | 69,456 | | | (Won) | (465,422 | ) | | (Won) | (367,263 | ) | | $ | 60,985 | | Short-term loans granted | | | (278,531 | ) | | | (180,572 | ) | | | (71,188 | ) | | | (244,561 | ) | Decrease in current finance lease receivables | | | 13,955 | | | | 5,834 | | | | 78,103 | | | | 12,253 | | Decrease(increase) in other accounts receivable | | | (90,253 | ) | | | (120,762 | ) | | | 20,460 | | | | (79,246 | ) | Decrease(increase) in accrued revenue | | | 5,722 | | | | (1,201 | ) | | | (7,676 | ) | | | 5,024 | | Increase in advance payments | | | (51,579 | ) | | | (27,294 | ) | | | (6,919 | ) | | | (45,288 | ) | Increase in prepaid expenses | | | (4,677 | ) | | | (19,928 | ) | | | (44,282 | ) | | | (4,107 | ) | Decrease(increase) in income taxes receivable | | | 25,984 | | | | (25,538 | ) | | | (107 | ) | | | 22,815 | | Decrease(increase) in guarantee deposits | | | (532 | ) | | | 1,049 | | | | 8,026 | | | | (467 | ) | Decrease(increase) in derivative instruments assets | | | 19,148 | | | | (30,838 | ) | | | 554 | | | | 16,813 | | Decrease(increase) in other current assets | | | (354 | ) | | | 275 | | | | (173 | ) | | | (311 | ) | Decrease(increase) in inventories | | | 36,850 | | | | (274,851 | ) | | | (131,305 | ) | | | 32,356 | | Dividend received | | | 11,306 | | | | 1,332 | | | | 1,047 | | | | 9,927 | | Increase in long-term trade accounts and notes receivable | | | (781,407 | ) | | | (387,630 | ) | | | (253,257 | ) | | | (686,107 | ) | Long-term loans granted | | | — | | | | (147,602 | ) | | | (113,229 | ) | | | 0 | | Increase in non-current finance lease receivables | | | (169,991 | ) | | | (16,555 | ) | | | (299,257 | ) | | | (149,259 | ) | Decrease(increase) in leasehold rights and deposits | | | 37,133 | | | | (2,484 | ) | | | (3,804 | ) | | | 32,604 | | Decrease(increase) in deferred income tax assets and liabilities | | | 11,691 | | | | (68,054 | ) | | | (126,811 | ) | | | 10,265 | | Decrease(increase) in long-term other accounts receivable | | | 9,748 | | | | (890 | ) | | | (8,146 | ) | | | 8,559 | | Decrease(increase) in other non-current assets | | | 44,099 | | | | (8,827 | ) | | | (19,536 | ) | | | 38,721 | | Increase in trade accounts payable | | | 21,213 | | | | 645,925 | | | | (262,733 | ) | | | 18,626 | | Increase(decrease) in other accounts payable | | | (286,700 | ) | | | 869,594 | | | | (160,717 | ) | | | (251,734 | ) | Increase(decrease) in advances received | | | (11,572 | ) | | | 52,277 | | | | 31,905 | | | | (10,161 | ) | Increase(decrease) in withholdings | | | 76,042 | | | | (129,398 | ) | | | 26,901 | | | | 66,768 | | Increase(decrease) in accrued expenses | | | 75,844 | | | | (42,864 | ) | | | 44,402 | | | | 66,594 | | Increase(decrease) in income taxes payable | | | 275,554 | | | | (107,361 | ) | | | (152,286 | ) | | | 241,947 | | Increase in unearned revenue | | | 5,220 | | | | 81 | | | | 1,363 | | | | 4,583 | | Increase(decrease) in other current liabilities | | | 716 | | | | 376 | | | | (6,782 | ) | | | 629 | | Increase in deposits received | | | 18,932 | | | | 39,232 | | | | 77,868 | | | | 16,623 | | Increase(decrease) in derivative instruments liabilities | | | (11,490 | ) | | | 35,423 | | | | (388 | ) | | | (10,089 | ) | Payment of severance benefits | | | (1,249,246 | ) | | | (1,345,331 | ) | | | (220,800 | ) | | | (1,096,888 | ) | Decrease(increase) in deposits for severance benefits | | | 278,332 | | | | 48,917 | | | | (148,848 | ) | | | 244,387 | | Increase(decrease) in contribution to National Pension Fund | | | (193 | ) | | | 135 | | | | 122 | | | | (169 | ) | Increase(decrease) in accrued provisions | | | (49,051 | ) | | | (11,257 | ) | | | 18,500 | | | | (43,069 | ) | Decrease in refundable deposits for telephone installation | | | (80,585 | ) | | | (85,129 | ) | | | (59,437 | ) | | | (70,757 | ) | Increase in long-term accounts payable | | | 2,902 | | | | 17,494 | | | | 30,794 | | | | 2,548 | | Increase(decrease) in long-term other payables | | | 105,594 | | | | (99,864 | ) | | | (24,833 | ) | | | 92,716 | | Increase(decrease) in other non-current liabilities | | | (8,496 | ) | | | (1,151 | ) | | | 8,949 | | | | (7,460 | ) | | | | | | | | | | | | | | | | | | | | | (1,929,216 | ) | | | (1,882,859 | ) | | | (2,140,783 | ) | | | (1,693,930 | ) | | | | | | | | | | | | | | | | | | Net cash provided by operating activities | | | 3,244,532 | | | | 3,398,865 | | | | 2,919,789 | | | | 2,848,830 | | | | | | | | | | | | | | | | | | |
KT Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 2010, 2009 and 2008
| | | | | | | | | | | | | | | | | | | (in millions of Korean won) | | | (in thousands of U.S dollars) | | | | 2010 | | | 2009 | | | 2008 | | | 2010 | | Cash flows from investing activities | | | | | | | | | | | | | | | | | Decrease in short-term investment assets | | | 668,313 | | | | 657,223 | | | | 544,946 | | | | 586,806 | | Disposal of available-for-sale securities | | | 12,338 | | | | 12,609 | | | | 614,822 | | | | 10,833 | | Disposal in equity-method investments | | | 25,021 | | | | 111,901 | | | | 1,580 | | | | 21,969 | | Decrease in long-term financial instruments | | | 10,481 | | | | 13 | | | | 2,819 | | | | 9,203 | | Collection of held-to-maturity securities | | | 16 | | | | 14,093 | | | | 65 | | | | 14 | | Collection of long-term loans | | | 3 | | | | 89,603 | | | | 10,001 | | | | 3 | | Disposal of property and equipment | | | 27,159 | | | | 69,947 | | | | 56,365 | | | | 23,847 | | Increase in customers’ contribution to construction costs | | | 5,522 | | | | 16,440 | | | | 74,228 | | | | 4,849 | | Disposal of intangible assets | | | 4,253 | | | | 1,326 | | | | 17,013 | | | | 3,734 | | Disposal of other investment assets | | | 1,378 | | | | 189 | | | | 5,630 | | | | 1,210 | | Increase in short-term investment assets | | | (320,100 | ) | | | (685,809 | ) | | | (343,115 | ) | | | (281,061 | ) | Acquisition of available-for-sale securities | | | (88,981 | ) | | | (52,962 | ) | | | (714,831 | ) | | | (78,129 | ) | Acquisition of held-to-maturity securities | | | — | | | | (5 | ) | | | (13,988 | ) | | | — | | Acquisition of equity-method investments | | | (135,539 | ) | | | (38,191 | ) | | | (123,371 | ) | | | (119,009 | ) | Increase in long-term financial instruments | | | (9 | ) | | | (3,006 | ) | | | (11 | ) | | | (8 | ) | Long-term loans granted | | | (50,234 | ) | | | (71,810 | ) | | | (50,421 | ) | | | (44,107 | ) | Acquisition of property and equipment | | | (3,239,396 | ) | | | (2,774,426 | ) | | | (3,362,469 | ) | | | (2,844,320 | ) | Acquisition of intangible assets | | | (352,033 | ) | | | (215,115 | ) | | | (189,772 | ) | | | (309,099 | ) | Acquisition of other investment assets | | | (4,182 | ) | | | (3,782 | ) | | | (6,245 | ) | | | (3,672 | ) | Acquisition of subsidiaries’ assets and liabilities | | | — | | | | — | | | | 55,655 | | | | — | | | | | | | | | | | | | | | | | | | Net cash used in investing activities | | | (3,435,990 | ) | | | (2,871,762 | ) | | | (3,532,409 | ) | | | (3,016,937 | ) | | | | | | | | | | | | | | | | | | Cash flows from financing activities | | | | | | | | | | | | | | | | | Increase in short-term borrowings, net | | | 211,012 | | | | 99,395 | | | | 42,538 | | | | 185,277 | | Issuance of bonds | | | 1,606,224 | | | | 1,421,091 | | | | 2,405,577 | | | | 1,410,329 | | Increase in long-term borrowings | | | 429,082 | | | | 77,539 | | | | 1,374,480 | | | | 376,751 | | Inflows from capital transactions of consolidated entities | | | 61,281 | | | | 4,124 | | | | 7,951 | | | | 53,807 | | Decrease in capital lease liabilities | | | (37,648 | ) | | | (48,723 | ) | | | (29,764 | ) | | | (33,056 | ) | Payment of current portion of bond and long-term borrowings | | | (1,894,942 | ) | | | (1,445,857 | ) | | | (2,147,487 | ) | | | (1,663,835 | ) | Payment of dividends | | | (502,185 | ) | | | (229,360 | ) | | | (409,270 | ) | | | (440,939 | ) | Acquisition of treasury stock | | | (300 | ) | | | (528,143 | ) | | | (73,807 | ) | | | (263 | ) | Outflows from capital transactions of consolidated entities | | | (1,504 | ) | | | (280,512 | ) | | | (118,868 | ) | | | (1,321 | ) | | | | | | | | | | | | | | | | | | Net cash used in financing activities | | | (128,980 | ) | | | (930,446 | ) | | | 1,051,350 | | | | (113,250 | ) | | | | | | | | | | | | | | | | | | Effect of changes in consolidated entities | | | (21,879 | ) | | | 59,714 | | | | 48,482 | | | | (19,211 | ) | | | | | | | | | | | | | | | | | | Effect of exchange rate on cash | | | (2,457 | ) | | | (9,167 | ) | | | 18,721 | | | | (2,157 | ) | | | | | | | | | | | | | | | | | | Net increase(decrease) in cash and cash equivalents | | | (344,774 | ) | | | (352,796 | ) | | | 505,933 | | | | (302,725 | ) | | | | | | Cash and cash equivalents (Note 31) | | | | | | | | | | | | | | | | | Beginning of the year | | | 1,538,122 | | | | 1,890,918 | | | | 1,384,985 | | | | 1,350,533 | | | | | | | | | | | | | | | | | | | End of the year | | (Won) | 1,193,348 | | | (Won) | 1,538,122 | | | (Won) | 1,890,918 | | | $ | 1,047,808 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Attributable to equity holders of the Parent Company | | | | | | | | (in millions of Korean won) | | Notes | | Capital stock | | | Share premium | | | Retained earnings | | | Accumulated Other Comprehensive income (loss) | | | Other Components of equity | | | Total | | | Non-controlling interest | | | Total equity | | Balance at January 1, 2012 | | | | | 1,564,499 | | | | 1,440,258 | | | | 10,219,633 | | | | (22,865 | ) | | | (1,497,289 | ) | | | 11,704,236 | | | | 883,524 | | | | 12,587,760 | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the year | | | | | — | | | | — | | | | 1,046,127 | | | | — | | | | — | | | | 1,046,127 | | | | 59,312 | | | | 1,105,439 | | Changes in value of available-for-sale financial assets | | 4 | | | — | | | | — | | | | — | | | | 12,019 | | | | — | | | | 12,019 | | | | 7,068 | | | | 19,087 | | Remeasurements of the net defined benefit liability | | 18 | | | — | | | | — | | | | (131,644 | ) | | | — | | | | — | | | | (131,644 | ) | | | 1,152 | | | | (130,492 | ) | Valuation gains(losses) on cashflow hedge | | 4 | | | — | | | | — | | | | — | | | | 25,628 | | | | — | | | | 25,628 | | | | (51 | ) | | | 25,577 | | Shares of other comprehensive income of jointly controlled entities and associates | | | | | — | | | | — | | | | — | | | | (8,440 | ) | | | — | | | | (8,440 | ) | | | (290 | ) | | | (8,730 | ) | Shares of gain on remeasurements of jointly controlled entities and associates | | | | | — | | | | — | | | | (1,131 | ) | | | — | | | | — | | | | (1,131 | ) | | | — | | | | (1,131 | ) | Currency translation differences | | | | | — | | | | — | | | | — | | | | (5,017 | ) | | | — | | | | (5,017 | ) | | | (1,628 | ) | | | (6,645 | ) | Transactions with equity holders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends | | | | | — | | | | — | | | | (486,602 | ) | | | — | | | | — | | | | (486,602 | ) | | | (11,455 | ) | | | (498,057 | ) | Disposal of treasury stock | | | | | — | | | | — | | | | — | | | | — | | | | 13,353 | | | | 13,353 | | | | — | | | | 13,353 | | Changes in consolidation scope | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 133,767 | | | | 133,767 | | Change in ownership interest in subsidiaries | | | | | — | | | | — | | | | — | | | | — | | | | 141,303 | | | | 141,303 | | | | (163,404 | ) | | | (22,101 | ) | Others | | | | | — | | | | — | | | | — | | | | — | | | | (653 | ) | | | (653 | ) | | | 801 | | | | 148 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2012 | | | | ₩ | 1,564,499 | | | ₩ | 1,440,258 | | | ₩ | 10,646,383 | | | ₩ | 1,325 | | | ₩ | (1,343,286 | ) | | ₩ | 12,309,179 | | | ₩ | 908,796 | | | ₩ | 13,217,975 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements. KT Corporation and Subsidiaries Consolidated Statements of Changes in Shareholder’s Equity (Continued) Years ended December 31, 2011, 2012 and 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Attributable to equity holders of the Parent Company | | | | | | | | (in millions of Korean won) | | Notes | | Capital stock | | | Share premium | | | Retained earnings | | | Accumulated Other Comprehensive income (loss) | | | Other Components of equity | | | Total | | | Non-controlling interest | | | Total equity | | Balance at January 1, 2013 | | | | ₩ | 1,564,499 | | | ₩ | 1,440,258 | | | ₩ | 10,646,383 | | | ₩ | 1,325 | | | ₩ | (1,343,286 | ) | | ₩ | 12,309,179 | | | ₩ | 908,796 | | | ₩ | 13,217,975 | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the year | | | | | — | | | | — | | | | (189,931 | ) | | | — | | | | — | | | | (189,931 | ) | | | 102,186 | | | | (87,745 | ) | Changes in value of available-for-sale financial assets | | 4 | | | — | | | | — | | | | — | | | | 32,098 | | | | — | | | | 32,098 | | | | 24,234 | | | | 56,332 | | Remeasurements of the net defined benefit liability | | 18 | | | — | | | | — | | | | 57,641 | | | | — | | | | — | | | | 57,641 | | | | (1,058 | ) | | | 56,583 | | Valuation gains(losses) on cashflow hedge | | 4 | | | — | | | | — | | | | — | | | | (4,711 | ) | | | — | | | | (4,711 | ) | | | 15 | | | | (4,696 | ) | Shares of other comprehensive income of jointly controlled entities and associates | | | | | — | | | | — | | | | — | | | | 2,570 | | | | — | | | | 2,570 | | | | 326 | | | | 2,896 | | Shares of gain on remeasurements of jointly controlled entities and associates | | | | | — | | | | — | | | | (463 | ) | | | — | | | | — | | | | (463 | ) | | | 7 | | | | (456 | ) | Currency translation differences | | | | | — | | | | — | | | | — | | | | (6,744 | ) | | | — | | | | (6,744 | ) | | | 4,691 | | | | (2,053 | ) | Transactions with equity holders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends | | | | | — | | | | — | | | | (487,445 | ) | | | — | | | | — | | | | (487,445 | ) | | | (23,830 | ) | | | (511,275 | ) | Appropriations of loss on disposal of treasury stock | | | | | — | | | | — | | | | (6,796 | ) | | | — | | | | 6,796 | | | | — | | | | — | | | | — | | Changes in consolidation scope | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 9,452 | | | | 9,452 | | Change in ownership interest in subsidiaries | | | | | — | | | | — | | | | — | | | | — | | | | 14,150 | | | | 14,150 | | | | 85,971 | | | | 100,121 | | Others | | | | | — | | | | — | | | | — | | | | — | | | | 1,397 | | | | 1,397 | | | | (1,115 | ) | | | 282 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2013 | | | | ₩ | 1,564,499 | | | ₩ | 1,440,258 | | | ₩ | 10,019,389 | | | ₩ | 24,538 | | | ₩ | (1,320,943 | ) | | ₩ | 11,727,741 | | | ₩ | 1,109,675 | | | ₩ | 12,837,416 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements. KT Corporation and Subsidiaries Consolidated Statements of Changes in Shareholder’s Equity (Continued) Years ended December 31, 2011, 2012 and 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Attributable to equity holders of the Parent Company | | | | | | | | (in thousands of U.S dollars) (Unaudited), (Note 2) | | Notes | | Capital stock | | | Share premium | | | Retained earnings | | | Accumulated Other Comprehensive income (loss) | | | Other Components of equity | | | Total | | | Non-controlling interest | | | Total equity | | Balance at January 1, 2013 | | | | $ | 1,482,516 | | | $ | 1,364,785 | | | $ | 10,088,489 | | | $ | 1,256 | | | $ | (1,272,896 | ) | | $ | 11,664,150 | | | $ | 861,174 | | | $ | 12,525,324 | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the year | | | | | — | | | | — | | | | (179,978 | ) | | | — | | | | — | | | | (179,978 | ) | | | 96,830 | | | | (83,148 | ) | Changes in value of available-for-sale financial assets | | 4 | | | — | | | | — | | | | — | | | | 30,416 | | | | — | | | | 30,416 | | | | 22,965 | | | | 53,381 | | Remeasurements of the net defined benefit liability | | 18 | | | — | | | | — | | | | 54,620 | | | | — | | | | — | | | | 54,620 | | | | (1,003 | ) | | | 53,617 | | Valuation gains(losses) on cashflow hedge | | 4 | | | — | | | | — | | | | — | | | | (4,464 | ) | | | — | | | | (4,464 | ) | | | 14 | | | | (4,450 | ) | Shares of other comprehensive income of jointly controlled entities and associates | | | | | — | | | | — | | | | — | | | | 2,435 | | | | — | | | | 2,435 | | | | 309 | | | | 2,744 | | Shares of gain on remeasurements of jointly controlled entities and associates | | | | | — | | | | — | | | | (438 | ) | | | — | | | | — | | | | (438 | ) | | | 7 | | | | (431 | ) | Currency translation differences | | | | | — | | | | — | | | | — | | | | (6,391 | ) | | | — | | | | (6,391 | ) | | | 4,446 | | | | (1,945 | ) | Transactions with equity holders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends | | | | | — | | | | — | | | | (461,902 | ) | | | — | | | | — | | | | (461,902 | ) | | | (22,581 | ) | | | (484,483 | ) | Appropriations of loss on disposal of treasury stock | | | | | — | | | | — | | | | (6,440 | ) | | | — | | | | 6,440 | | | | — | | | | — | | | | — | | Changes in consolidation scope | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 8,957 | | | | 8,957 | | Change in ownership interest in subsidiaries | | | | | — | | | | — | | | | — | | | | — | | | | 13,409 | | | | 13,409 | | | | 81,466 | | | | 94,875 | | Others | | | | | — | | | | — | | | | — | | | | — | | | | 1,324 | | | | 1,324 | | | | (1,058 | ) | | | 266 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2013 | | | | $ | 1,482,516 | | | $ | 1,364,785 | | | $ | 9,494,351 | | | $ | 23,252 | | | $ | (1,251,723 | ) | | $ | 11,113,181 | | | $ | 1,051,526 | | | $ | 12,164,707 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements. KT Corporation and Subsidiaries Consolidated Statements of Cash Flows Years ended December 31, 2011, 2012 and 2013 | | | | | | | | | | | | | | | | | | | | | (in millions of Korean won) | | Notes | | | 2011 | | | 2012 | | | 2013 | | | (in thousands of U.S dollars) | | | | | | | 2013 | | | | | | | (Restated) | | | (Restated) | | | | | | (Unaudited) (Note 2) | | Cash flows from operating activities | | | | | | | | | | | | | | | | | | | | | Cash generated from operations | | | 32 | | | ₩ | 2,919,255 | | | ₩ | 6,439,692 | | | ₩ | 4,677,260 | | | $ | 4,432,161 | | Interest paid | | | | | | | (513,418 | ) | | | (561,378 | ) | | | (546,802 | ) | | | (518,148 | ) | Interest received | | | | | | | 157,442 | | | | 208,640 | | | | 194,065 | | | | 183,896 | | Dividends received | | | | | | | 15,224 | | | | 17,742 | | | | 24,641 | | | | 23,350 | | Income tax paid | | | | | | | (414,471 | ) | | | (379,211 | ) | | | (238,091 | ) | | | (225,615 | ) | | | | | | | | | | | | | | | | | | | | | | Net cash generated from operating activities | | | | | | | 2,164,032 | | | | 5,725,485 | | | | 4,111,073 | | | | 3,895,644 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from investing activities | | | | | | | | | | | | | | | | | | | | | Collection of loans | | | | | | | 66,732 | | | | 106,896 | | | | 70,451 | | | | 66,759 | | Origination of loans | | | | | | | (71,468 | ) | | | (130,425 | ) | | | (31,279 | ) | | | (29,640 | ) | Disposal of available-for-sale financial assets | | | | | | | 65,760 | | | | 113,068 | | | | 78,811 | | | | 74,681 | | Acquisition of available-for-sale financial assets | | | | | | | (188,752 | ) | | | (86,622 | ) | | | (127,052 | ) | | | (120,394 | ) | Disposal of investments in jointly controlled entities and associates | | | | | | | 102,563 | | | | 21,818 | | | | 22,455 | | | | 21,278 | | Acquisition of investments in jointly controlled entities and associates | | | | | | | (65,055 | ) | | | (59,464 | ) | | | (16,338 | ) | | | (15,482 | ) | Disposal of current and non-current financial instruments | | | | | | | 262,965 | | | | 362,481 | | | | 319,465 | | | | 302,724 | | Acquisition of current and non-current financial instruments | | | | | | | (269,619 | ) | | | (511,914 | ) | | | (588,893 | ) | | | (558,034 | ) | Disposal of property, equipment and investment property | | | | | | | 594,257 | | | | 618,786 | | | | 100,469 | | | | 95,204 | | Acquisition of property and equipment and investment property | | | | | | | (3,235,956 | ) | | | (3,760,255 | ) | | | (3,088,185 | ) | | | (2,926,357 | ) | Disposal of intangible assets | | | | | | | 14,763 | | | | 7,061 | | | | 18,336 | | | | 17,375 | | Acquisition of intangible assets | | | | | | | (477,106 | ) | | | (526,878 | ) | | | (549,967 | ) | | | (521,148 | ) | Increase in cash due to exclusion from consolidation scope | | | | | | | 727,351 | | | | 25,857 | | | | 7,498 | | | | 7,105 | | Cash inflow (outflow) from changes in scope of consolidation | | | | | | | (192,075 | ) | | | (31,588 | ) | | | 1,646 | | | | 1,560 | | | | | | | | | | | | | | | | | | | | | | | Net cash used in investing activities | | | | | | | (2,665,640 | ) | | | (3,851,179 | ) | | | (3,782,583 | ) | | | (3,584,369 | ) | | | | | | | | | | | | | | | | | | | | | | Cash flows from financing activities | | | | | | | | | | | | | | | | | | | | | Proceeds from borrowings and bonds | | | | | | | 7,261,735 | | | | 4,258,995 | | | | 6,199,601 | | | | 5,874,729 | | Repayments of borrowings and bonds | | | | | | | (6,057,987 | ) | | | (4,590,608 | ) | | | (5,956,340 | ) | | | (5,644,215 | ) | Settlement of derivative assets and liabilities, net | | | | | | | 130,119 | | | | 39,001 | | | | (67,413 | ) | | | (63,880 | ) | Disposal of treasury stock | | | | | | | — | | | | 11,369 | | | | — | | | | — | | Cash inflow from consolidated capital transaction | | | | | | | 83,855 | | | | 7,232 | | | | 34,581 | | | | 32,769 | | Cash outflow from consolidated capital transaction | | | | | | | (2,213 | ) | | | (315,356 | ) | | | (4,107 | ) | | | (3,892 | ) | Dividends paid to shareholders | | | | | | | (595,385 | ) | | | (498,057 | ) | | | (511,275 | ) | | | (484,483 | ) | Decrease in finance leases liabilities | | | | | | | (47,701 | ) | | | (190,380 | ) | | | (6,841 | ) | | | (6,483 | ) | | | | | | | | | | | | | | | | | | | | | | Net cash provided by (used in) financing activities | | | | | | | 772,423 | | | | (1,277,804 | ) | | | (311,794 | ) | | | (295,455 | ) | | | | | | | | | | | | | | | | | | | | | | Effect of exchange rate change on cash and cash equivalents | | | | | | | 12,795 | | | | (1,038 | ) | | | (3,440 | ) | | | (3,260 | ) | | | | | | | | | | | | | | | | | | | | | | Net increase in cash and cash equivalents | | | | | | | 283,610 | | | | 595,464 | | | | 13,256 | | | | 12,560 | | Cash and cash equivalents | | | | | | | | | | | | | | | | | | | | | Beginning of the year | | | 5 | | | | 1,178,539 | | | | 1,462,149 | | | | 2,057,613 | | | | 1,949,790 | | | | | | | | | | | | | | | | | | | | | | | End of the year | | | 5 | | | ₩ | 1,462,149 | | | ₩ | 2,057,613 | | | ₩ | 2,070,869 | | | $ | 1,962,350 | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements. KT Corporation and Subsidiaries Notes to Consolidated Financial Statements December 31, 2010, 20092011, 2012 and 20082013 1. General informationInformation The consolidated financial statements include the accounts of KT Corporation, which is the controlling company as defined under IFRS 10,Consolidated Financial Statements, and its 68 controlled subsidiaries as described in Note 1.2 (collectively referred to as the “Group”). The Controlling Company KT Corporation (the “Controlling Company”“Company”) commenced operations on January 1, 1982, when it spun off from the Korea Communications Commission (formerly the Korean Ministry of Information and Communications) to provide telephone services and to engage in the development of advanced communications services under the Act of Telecommunications of Korea. The headquarters are located in Seongnam City, Gyeonggi Province, Republic of Korea, and the address of its registered head office is 90, Buljeong-ro, Bundang-gu, Seongnam City, Gyeonggi Province. On October 1, 1997, upon the announcement of the Government-Investment Enterprises Management Basic Act and the Privatization Law, the Controlling Company became a government-funded institution under the Commercial Code of Korea. On December 23, 1998, the Controlling Company’s shares were listed on the Korea Exchange. On May 29, 1999, the Controlling Company issued 24,282,195 additional shares and issued American Depository Shares (ADS), representing new shares and government-owned shares, at the New York Stock Exchange and the London Stock Exchange. On July 2, 2001, the additional ADS representing 55,502,161 government-sharesgovernment-owned shares were issued.issued at the New York Stock Exchange and London Stock Exchange. In 2002, the Controlling Company acquired 60,294,575the entire government-owned shares in accordance with the Korean government’s privatization plan. As of December 31, 2010,the end of the reporting period, the Korean government diddoes not own any shareshares in the Controlling Company. On June 1, 2009, the Controlling Company, as the surviving entity, merged with KT Freetel Co., Ltd. to have competitive advantages in the global trends of convergence between fixed and mobile communication.
The Controlling Company’s shares as of December 31, 2010 are owned as follows:
| | | | | | | | | | | Number of shares | | | Percentage of ownership(%) | | National Pension Service | | | 21,557,950 | | | | 8.26 | % | NTTDoCoMo, Inc. | | | 14,257,813 | | | | 5.46 | % | Employee Stock Ownership Association | | | 4,069,147 | | | | 1.56 | % | Others | | | 203,330,934 | | | | 77.87 | % | | | | | | | | | | | | | 243,215,844 | | | | 93.15 | % | Treasury stock | | | 17,895,964 | | | | 6.85 | % | | | | | | | | | | | | | 261,111,808 | | | | 100.00 | % | | | | | | | | | |
2. Consolidated Subsidiaries
The consolidated subsidiaries as of December 31, 2010, are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | Subsidiary | | Type of Business | | Total issued shares | | | Shares owned by | | | Percentage of ownership (%) | | | Financial year end | | | | | Parent | | | Subsidiaries | | | Total | | | | Domestic subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | | KT Powertel Co., Ltd. (“KTP”) | | Trunk radio system business | | | 17,329,432 | | | | 7,771,418 | | | | — | | | | 7,771,418 | | | | 44.85 | | | | 12.31 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Subsidiary | | Type of Business | | Total issued shares | | | Shares owned by | | | Percentage of ownership (%) | | | Financial year end | | | | | Parent | | | Subsidiaries | | | Total | | | | KT Networks Corporation (“KTN”) | | Group telephone management | | | 2,000,000 | | | | 2,000,000 | | | | — | | | | 2,000,000 | | | | 100.00 | | | | 12.31 | | KT Linkus Co., Ltd. (“KTL”) | | Public telephone maintenance | | | 3,135,554 | | | | 2,941,668 | | | | — | | | | 2,941,668 | | | | 93.82 | | | | 12.31 | | KT Submarine Co., Ltd. (“KTSC”) | | Submarine cable construction and maintenance | | | 4,380,000 | | | | 1,617,000 | | | | — | | | | 1,617,000 | | | | 36.92 | | | | 12.31 | | KT Capital Co., Ltd. (“KT Capital”) | | Financing service | | | 27,394,245 | | | | 20,200,000 | | | | 7,194,245 | | | | 27,394,245 | | | | 100.00 | | | | 12.31 | | KT Telecop Co., Ltd. (“KT Telecop”) | | Security service | | | 6,491,353 | | | | 5,765,911 | | | | 84,544 | | | | 5,850,455 | | | | 90.13 | | | | 12.31 | | KT Internal Venture Fund No.2 | | Investment fund | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | 94.34 | | | | 2.28 | | Sofnics, Inc. (“Sofnics”) | | Software development and sales | | | 225,000 | | | | 120,000 | | | | 15,000 | | | | 135,000 | | | | 60.00 | | | | 12.31 | | KT Edui Co., Ltd. (formerly, JungBoPremiumEdu Co., Ltd.) (“KT Edui”) | | Online education business | | | 768,000 | | | | 540,000 | | | | — | | | | 540,000 | | | | 70.31 | | | | 12.31 | | KT New Business Fund No. 1 | | Investment fund | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | 100.00 | | | | 12.31 | | KT DataSystems Co., Ltd. (“KTDS”) | | System integration and maintenance | | | 2,518,044 | | | | 2,400,000 | | | | — | | | | 2,400,000 | | | | 95.31 | | | | 12.31 | | Gyeonggi-KT Green Growth Fund | | Venture investment of Green Growth Business | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | 56.45 | | | | 12.31 | | KTC Media Contents Fund 1 | | New technology investment fund | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | 81.82 | | | | 4.30 | | KTC Media Contents Fund 2 | | New technology investment fund | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | 85.71 | | | | 12.31 | | KT Innotz Inc. (“KT Innotz”) | | Software development of mobile clouding computer and solution | | | 1,000,000 | | | | 600,000 | | | | — | | | | 600,000 | | | | 60.00 | | | | 12.31 | | Vanguard Private Equity Fund (*1) | | Corporate restructuring | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | 28.10 | | | | 12.31 | | KT-LIG ACE Private Equity Fund (*1) | | Investment fund | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | 9.01 | | | | 12.31 | | KTR Co., Ltd. (“KTR”) (*3) | | Rental service | | | 4,974,608 | | | | — | | | | 4,974,608 | | | | 4,974,608 | | | | 58.00 | | | | 12.31 | | KT Rental Co., Ltd. (“KT Rental”) (*4) | | Rental service | | | 11,410,700 | | | | 6,618,046 | | | | — | | | | 6,618,046 | | | | 58.00 | | | | 12.31 | | KT Estate Inc. (“KT Estate”) | | Residential Building Development and Supply | | | 1,600,000 | | | | 1,600,000 | | | | — | | | | 1,600,000 | | | | 100.00 | | | | 12.31 | | KT Strategic Investment Fund No.1 | | Investment fund | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | 100.00 | | | | 12.31 | | KT Hitel Co., Ltd. (“KTH”) | | Data communication | | | 34,500,000 | | | | 22,750,000 | | | | — | | | | 22,750,000 | | | | 65.94 | | | | 12.31 | | KT Commerce Inc. (“KTC”) | | B2C, B2B service | | | 1,400,000 | | | | 266,000 | | | | 1,134,000 | | | | 1,400,000 | | | | 100.00 | | | | 12.31 | | KT Tech, Inc. (“KT Tech”) | | PCS handset development | | | 5,489,382 | | | | 5,146,962 | | | | — | | | | 5,146,962 | | | | 93.76 | | | | 12.31 | | KT M Hows Co., Ltd. (“KTF M Hows”) | | Mobile marketing | | | 1,000,000 | | | | 510,000 | | | | — | | | | 510,000 | | | | 51.00 | | | | 12.31 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Subsidiary | | Type of Business | | Total issued shares | | | Shares owned by | | | Percentage of ownership (%) | | | Financial year end | | | | | Parent | | | Subsidiaries | | | Total | | | | KT M&S Co., Ltd. (“KT M&S”) | | PCS distribution | | | 30,000,000 | | | | 30,000,000 | | | | — | | | | 30,000,000 | | | | 100.00 | | | | 12.31 | | KT Music Corporation (“KT Music”) | | Online music production and distribution | | | 29,766,863 | | | | 14,494,258 | | | | — | | | | 14,494,258 | | | | 48.69 | | | | 12.31 | | Sidus FNH Corporation (“Sidus FNH”) | | Movie production | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | 51.00 | | | | 12.31 | | Sidus FNH Benex Cinema Investment Fund | | Movie investment fund | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | 43.33 | | | | 12.31 | | Nasmedia, Inc. (“Nasmedia”) | | Online advertisement | | | 3,535,029 | | | | 1,767,516 | | | | — | | | | 1,767,516 | | | | 50.00 | | | | 12.31 | | Overseas subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | | Korea Telecom Japan Co., Ltd. (“KTJ”, Japan) | | Foreign telecommunication business | | | 12,856 | | | | 12,856 | | | | — | | | | 12,856 | | | | 100.00 | | | | 12.31 | | Korea Telecom China Co., Ltd. (“KTCC”, China) | | Foreign telecommunication business | | | 1,244,600,000 | | | | 1,244,600,000 | | | | — | | | | 1,244,600,000 | | | | 100.00 | | | | 12.31 | | Super iMax (Uzbekistan) | | Wireless high speed internet business | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | 100.00 | | | | 12.31 | | East Telecom (Uzbekistan) | | Fixed line telecommunication business | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | 85.00 | | | | 12.31 | | New Telephone Company, Inc. (“NTC”, Rusia) | | Foreign telecommunication business | | | 6,639,492 | | | | 5,309,189 | | | | — | | | | 5,309,189 | | | | 79.96 | | | | 12.31 | | Helios-TV (Rusia) | | Cable TV business | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | 100.00 | | | | 12.31 | | Novaya Svyaz | | Internet business | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | (*2 | ) | | | 100.00 | | | | 12.31 | | KTSC Investment Management B.V. (“KTSC”, Netherlands) | | Management of investment in Super iMax and East Telecom | | | 137,690 | | | | 82,614 | | | | — | | | | 82,614 | | | | 60.00 | | | | 12.31 | | Korea Telecom America, Inc. (“KTAI”, America) | | Foreign telecommunication business | | | 6,000 | | | | 6,000 | | | | — | | | | 6,000 | | | | 100.00 | | | | 12.31 | | PT. KT Indonesia (“KTI”, Indonesia) | | Foreign telecommunication business | | | 200,000 | | | | 198,000 | | | | — | | | | 198,000 | | | | 99.00 | | | | 12.31 | |
1 | Even though the Controlling Company has less than 30% ownership in this subsidiary, this subsidiary was consolidated as the Controlling Company has significant control as a general partner in accordance with the Indirect Investment Asset Management Business Act. |
2 | There are no issued shares since these are not corporations. |
3 | KTR Co., Ltd. was spun off from KT Rental Co., Ltd. on June 1, 2010. |
4 | KT Rental Co., Ltd. merged with the Rent-A-Car division that was spun off from Kumho Rent-A-Car Global Co., Ltd. on June 1, 2010. |
The consolidated subsidiaries are determined in accordance with the Enforcement Decree of the Act on External Audit of Stock Companies and SKFAS No. 25,Consolidated Financial Statements.
Newly consolidated subsidiaries as of December 31, 2010, and subsidiaries consolidated as of December 31, 2009 but excluded as of December 31, 2010,2013, are as follows:
| | | | | | | | | | | Consolidated subsidiaries(in millions of Korean won)
| | RemarksType of Business
| KT-LIG ACE Private Equity Fund
| | New investment made in 2010Location | | | Percentage of ownership 1 (%) | | KTRSubsidiary
| | | | KT Powertel Co., Ltd. 2 | | Trunk radio system business | | | Domestic | | | | 44.8 | | KT ENS Corporation (formerly KT Networks Corporation) | | Wire/wireless network construction and network infrastructure management | | | Domestic | | | | 100.0 | | KT Linkus Co., Ltd. | | Newly incorporated through spin-offPublic telephone maintenance | | | Domestic | | | | 93.8 | | KT Submarine Co., Ltd. 2 | | Submarine cable construction and maintenance | | | Domestic | | | | 36.9 | | KT EstateTelecop Co., Ltd. | | Security service | | | Domestic | | | | 86.8 | | KT Hitel Co., Ltd. | | Data communication | | | Domestic | | | | 63.7 | | KT Commerce Inc. | | B2C, B2B service | | | Domestic | | | | 100.0 | | KT Capital Co., Ltd. | | Financing service | | | Domestic | | | | 100.0 | | KT New Business Fund No.1 | | Investment fund | | | Domestic | | | | 100.0 | | Gyeonggi-KT Green Growth Fund | | Venture investment of Green Growth Business | | | Domestic | | | | 56.5 | |
| | | | | | | (in millions of Korean won) | | Type of Business | | Location | | Percentage of ownership 1 (%) | Subsidiary | | | | KTC Media Contents Fund 2 | | New technology investment made in 2010fund | | Domestic | | 85.7 | KT Strategic Investment Fund No.1 | | New investment made in 2010Investment fund | | Domestic | | 100.0 | Novaya SvyazKT Strategic Investment Fund No.2
| | Total assets exceeded(Won)10,000 millionInvestment fund | | Domestic | | 100.0 | BC Card Co., Ltd. | | Credit card business | | Domestic | | 69.5 | VP Inc. | | Payment security service for credit card and etc. | | Domestic | | 50.9 | H&C Network | | Call center for financial sectors | | Domestic | | 100.0 | BC Card China Co., Ltd. | | Research and development of calculation system and software | | China | | 100.0 | INITECH Co., Ltd. | | Internet banking ASP and security solutions | | Domestic | | 57.0 | InitechSmartro Holdings Co., Ltd. | | Holding company of Initech co., Ltd., Smartro Co., Ltd | | Domestic | | 100.0 | Smartro Co., Ltd. | | VAN (Value Added Network) business | | Domestic | | 81.1 | Sidus FNH Corporation | | Movie production | | Domestic | | 72.4 | Sofnics, Inc. | | Software development and sales | | Domestic | | 80.6 | KTDS Co., Ltd. | | System integration and maintenance | | Domestic | | 95.3 | KT M Hows Co., Ltd. | | Mobile marketing | | Domestic | | 51.0 | KT M&S Co., Ltd. | | PCS distribution | | Domestic | | 100.0 | KT Music Corporation | | Online music production and distribution | | Domestic | | 57.8 | KT Skylife Co., Ltd. | | Satellite broadcasting business | | Domestic | | 50.1 | Korea HD Broadcasting Corp. | | TV contents provider | | Domestic | | 92.6 | KT Estate Inc. | | Residential building development and supply | | Domestic | | 100.0 | KT AMC Co., Ltd. | | Asset management and consulting services | | Domestic | | 100.0 | NEXR Co., Ltd. | | Cloud system implementation | | Domestic | | 99.8 | KTSB Data service Co., Ltd. | | Data center development and related service | | Domestic | | 51.0 | KT Cloudware Corporation | | Development of cloud computing operation | | Domestic | | 86.2 | CENTIOS Co., Ltd. | | U-City solution business | | Domestic | | 82.8 | Centios Philippines, Inc. | | Smart space business | | Philippines | | 100.0 | Enswers Inc. 3 | | Video-clip searching service | | Domestic | | 45.2 | Soompi USA, LLC | | Operation service for “soompi.com” | | U.S.A. | | 100.0 | KT OIC Co., Ltd. | | Development and distribution of education contents and software | | Domestic | | 79.2 | Ustream Inc. | | Live video-streaming service business | | Domestic | | 51.0 | Incheonucity Co., Ltd. | | U-City development and operation agent | | Domestic | | 51.4 | KT Innoedu Co., Ltd. 3 | | E-learning business | | Domestic | | 48.4 | KT Rental | | Computer rental and general rental business | | Domestic | | 58.0 | KT Auto Lease Corporation | | Car rental business | | Domestic | | 100.0 | Kumho Rent a car (Vietnam) Co. Ltd. | | Car rental business | | Vietnam | | 100.0 | KT Rental Auto Care Corporation | | Wholesale and retail for automobile component | | Domestic | | 100.0 | KT Sat Co., Ltd. | | Satellite communication business | | Domestic | | 100.0 | KT Media Hub Co. Ltd. | | Media contents development and distribution | | Domestic | | 100.0 | Best Partners Co., Ltd. | | Outsourcing service for HR, administration, and accounting service | | Domestic | | 100.0 | Nasmedia, Inc. 3 | | Online advertisement | | Domestic | | 45.4 | T-ON Telecom | | Trunk radio system business and data communication | | Domestic | | 100.0 | KT Sports | | Management of sports group | | Domestic | | 100.0 | KT Music Contents Fund No.1 | | Music contents investment business | | Domestic | | 80.0 | Consus Changwon Private Estate Investment Trust | | Investment in real estate | | Domestic | | 93.6 | KT-Michigan Global Contents Fund | | Content investment business | | Domestic | | 81.3 | Autopion Co. Ltd. | | Service for information and communication | | Domestic | | 100.0 | GreenPoint Co., Ltd. | | Car sharing business | | Domestic | | 52.3 | K-REALTY CR-REIT IV | | Investment in real estate | | Domestic | | 100.0 | K-REALTY REIT V | | Investment in real estate | | Domestic | | 100.0 | Olleh Rwanda Networks Ltd. | | Network installation and management | | Rwanda | | 51.0 | KT Belgium | | Foreign investment business | | Belgium | | 100.0 | KT ORS Belgium | | Foreign investment business | | Belgium | | 100.0 |
| | | | | | | Excluded subsidiary(in millions of Korean won)
| | RemarksType of Business
| | Location | | Percentage of ownership 1 (%) | Subsidiary | | | | Korea Telecom Japan Co., Ltd. | | Foreign telecommunication business | | Japan | | 100.0 | Korea Telecom China Co., Ltd. | | Foreign telecommunication business | | China | | 100.0 | KT Dutch B.V | | Super iMax and East Telecom management | | Netherlands | | 100.0 | Super iMax, LLC | | Wireless high speed internet business | | Uzbekistan | | 100.0 | East Telecom, LLC | | Fixed line telecommunication business | | Uzbekistan | | 91.0 | Korea Telecom America, Inc. | | Foreign telecommunication business | | U.S.A. | | 100.0 | PT. KT Indonesia | | Foreign telecommunication business | | Indonesia | | 99.0 |
1 | Sum of the ownership interests owned by the Company and subsidiaries |
2 | Even though the Company has less than 50% ownership in these subsidiaries, these entities are consolidated as the Company can exercise the majority voting rights in its decision-making process at all times considering historical voting pattern at the shareholders’ meetings. |
3 | Even though the Company has less than 50% ownership in these subsidiaries, these entities are consolidated as the Company holds the majority of voting right based on an agreement with other investors |
Changes in scope of consolidation in 2013 are as follows: | | | | | | | Changes | | Location | | Subsidiaries | | Reason | Doremi Media Co., LtdIncluded
| | DisposedDomestic | | T-ON Telecom. | | Acquisition of in 2010ownership interest | | | | | KT Rental Auto Care Corporation | | Newly established throughspin-off | | | | | KT Sports | | Newly incorporated | | | | | KT Music Contents Fund No.1 | | Newly incorporated | | | | | Consus Changwon Private Estate Investment Trust | | Newly incorporated | | | | | KT-Michigan Global Contents Fund | | Newly incorporated | | | | | Autopion Co., Ltd. | | Newly incorporated | | | | | GreenPoint Co., Ltd. | | Acquisition of ownership interest | | | | | K-REALTY CR-REIT IV | | Newly incorporated | | | | | K-REALTY REIT V | | Newly incorporated | | | Rwanda | | Olleh Rwanda Networks Ltd. | | Newly incorporated | | | Belgium | | KT Belgium | | Newly incorporated | | | | | KT ORS Belgium | | Newly incorporated | Excluded | | Domestic | | U payment Co., Ltd. | | Disposal of ownership interest | | | | | Kumho Rent-a-car Co., Ltd. | | Liquidation | | | | | Revlix | | Liquidation | | | | | KMP Holdings Co., Ltd. | | Merged | | | | | KT Tech Inc. | | Liquidation | | | | | KT Innotz Inc. | | Merged |
A summary of financial data of the major consolidated subsidiaries as of and for the yearyears ended December 31, 2010 is2011, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | | | (in millions of Korean won) | | Total assets | | | Total liabilities | | | Net assets | | | Sales | | | Net income (loss) | | KT Powertel Co., Ltd. | | (Won) | 165,838 | | | (Won) | 68,805 | | | (Won) | 97,033 | | | (Won) | 127,491 | | | (Won) | 13,592 | | KT Networks Corporation | | | 171,875 | | | | 120,503 | | | | 51,372 | | | | 342,449 | | | | 2,321 | | KT Telecop Co., Ltd | | | 130,410 | | | | 96,214 | | | | 34,196 | | | | 216,651 | | | | 4,874 | | KT Hitel Co., Ltd. | | | 223,225 | | | | 37,744 | | | | 185,481 | | | | 149,845 | | | | (2,739 | ) | KT Tech, Inc. | | | 129,052 | | | | 109,470 | | | | 19,582 | | | | 341,514 | | | | 1,725 | | KTR Co., Ltd. | | | 304,047 | | | | 269,345 | | | | 34,702 | | | | 28,869 | | | | 1,231 | | KT Rental Co., Ltd. | | | 933,557 | | | | 673,211 | | | | 260,346 | | | | 378,775 | | | | 13,797 | | KT Capital Co., Ltd. | | | 2,037,839 | | | | 1,837,892 | | | | 199,947 | | | | 176,389 | | | | 27,763 | | KTDS | | | 147,950 | | | | 118,184 | | | | 29,766 | | | | 355,542 | | | | 8,144 | | KT M&S Co., Ltd. | | | 265,446 | | | | 239,158 | | | | 26,288 | | | | 615,972 | | | | (19,959 | ) | New Telephone Company, Inc. | | | 220,209 | | | | 18,610 | | | | 201,599 | | | | 129,263 | | | | 33,001 | | Others | | | 691,247 | | | | 249,396 | | | | 441,851 | | | | 485,318 | | | | 3,342 | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 5,420,695 | | | (Won) | 3,838,532 | | | (Won) | 1,582,163 | | | (Won) | 3,348,078 | | | (Won) | 87,092 | | | | | | | | | | | | | | | | | | | | | | |
A summary of financial data of the major consolidated subsidiaries as of and for the year ended December 31, 2010, is presented prior to the elimination of intercompany transactions. The financial data of New Telephone Company, Inc. are based on the consolidated financial statements and the financial data of all others are based on non-consolidated financial statements. | | | | | | | | | | | | | | | | | | | 2011 | | (in millions of Korean won) | | Total assets | | | Total liabilities | | | Operating revenue | | | Net income (loss) | | KT Powertel Co., Ltd. | | ₩ | 167,075 | | | ₩ | 59,061 | | | ₩ | 126,354 | | | ₩ | 14,569 | | KT ENS Corporation (formerly KT Networks Corporation) | | | 212,867 | | | | 161,864 | | | | 374,518 | | | | 389 | | KT Linkus Co., Ltd. | | | 67,419 | | | | 64,081 | | | | 77,523 | | | | (6,667 | ) | KT Submarine Co., Ltd | | | 127,062 | | | | 48,004 | | | | 111,453 | | | | 6,700 | | KT Telecop Co., Ltd. | | | 156,479 | | | | 106,836 | | | | 259,468 | | | | 7,075 | | KT Hitel Co., Ltd. 1 | | | 249,730 | | | | 69,376 | | | | 463,032 | | | | (2,002 | ) | KT Tech, Inc. | | | 110,923 | | | | 139,873 | | | | 246,948 | | | | 641 | | KT Capital Co., Ltd. 1 | | | 4,454,475 | | | | 4,043,072 | | | | 1,010,503 | | | | 25,195 | |
| | | | | | | | | | | | | | | | | | | 2011 | | (in millions of Korean won) | | Total assets | | | Total liabilities | | | Operating revenue | | | Net income (loss) | | H&C Network 1,2 | | | 197,726 | | | | 81,351 | | | | 44,892 | | | | 1,124 | | Sidus FNH Corporation | | | 9,838 | | | | 5,824 | | | | 6,904 | | | | (2,975 | ) | Nasmedia, Inc. | | | 92,384 | | | | 53,744 | | | | 21,656 | | | | 6,004 | | Sofnics, Inc. | | | 970 | | | | 521 | | | | 626 | | | | (481 | ) | KTDS Co., Ltd. | | | 146,236 | | | | 106,006 | | | | 497,925 | | | | 10,298 | | KT M Hows Co., Ltd. | | | 15,148 | | | | 7,078 | | | | 34,933 | | | | 1,092 | | KT M&S Co., Ltd. | | | 249,280 | | | | 226,651 | | | | 917,176 | | | | (3,256 | ) | KT Music Corporation | | | 27,840 | | | | 7,691 | | | | 31,279 | | | | (2,385 | ) | KT Edui Co., Ltd. | | | 1,119 | | | | 1,589 | | | | 3,986 | | | | (2,366 | ) | KT Innotz Inc. | | | 5,520 | | | | 1,727 | | | | 3,795 | | | | (4,623 | ) | KT Skylife Co., Ltd. 1,2 | | | 550,443 | | | | 258,231 | | | | 480,468 | | | | 26,649 | | KT Estate Inc. 1 | | | 33,382 | | | | 3,175 | | | | 7,838 | | | | 1,337 | | NEXR Co., Ltd. 2 | | | 3,887 | | | | 1,726 | | | | 3,359 | | | | 756 | | KTSB Dataservice Co., Ltd. 2 | | | 58,755 | | | | 21,904 | | | | — | | | | (149 | ) | KT Cloudware Corporation 2 | | | 916 | | | | 81 | | | | — | | | | (165 | ) | CENTIOS Co., Ltd. 2 | | | 25,493 | | | | 357 | | | | — | | | | (377 | ) | Enswers Inc. 1,2 | | | 16,543 | | | | 18,185 | | | | 759 | | | | (331 | ) | KT OIC Co., Ltd. 2 | | | 5,201 | | | | 68 | | | | 30 | | | | (396 | ) | Korea Telecom Japan Co., Ltd. | | | 15,359 | | | | 9,813 | | | | 33,113 | | | | 731 | | Korea Telecom China Co., Ltd. | | | 2,804 | | | | 128 | | | | 3,419 | | | | 111 | | KT Dutch B.V. (formerly KTSC Investment Management B.V) 1 | | | 65,587 | | | | 18,458 | | | | 17,014 | | | | (5,026 | ) | Korea Telecom America, Inc. | | | 6,368 | | | | 2,069 | | | | 11,134 | | | | 149 | | PT. KT Indonesia | | | 52 | | | | 1 | | | | — | | | | (8 | ) | KT Powertel Co., Ltd. | | | 175,862 | | | | 55,613 | | | | 124,936 | | | | 12,527 | | KT ENS Corporation (formerly KT Networks Corporation) | | | 258,430 | | | | 201,076 | | | | 500,555 | | | | 4,644 | | KT Linkus Co., Ltd. | | | 68,260 | | | | 62,686 | | | | 81,564 | | | | 2,302 | | KT Submarine Co., Ltd. | | | 109,787 | | | | 25,037 | | | | 68,900 | | | | 7,953 | | KT Telecop Co., Ltd. | | | 180,870 | | | | 130,719 | | | | 296,180 | | | | 2,642 | | KT Hitel Co.,Ltd. 1 | | | 249,231 | | | | 79,511 | | | | 443,431 | | | | (8,902 | ) | KT Tech, Inc. | | | 13,190 | | | | 42,562 | | | | 175,861 | | | | 2,731 | | KT Capital Co., Ltd. 1 | | | 5,058,883 | | | | 4,519,485 | | | | 3,348,952 | | | | 98,353 | | H&C Network 1 | | | 244,031 | | | | 119,086 | | | | 199,143 | | | | 8,713 | | Sidus FNH Corporation | | | 9,534 | | | | 1,921 | | | | 2,066 | | | | 209 | | Nasmedia, Inc. | | | 90,675 | | | | 47,053 | | | | 23,463 | | | | 6,445 | | Sofnics, Inc. | | | 1,564 | | | | 207 | | | | 782 | | | | (279 | ) | KTDS Co., Ltd. | | | 171,546 | | | | 115,994 | | | | 570,703 | | | | 17,155 | | KT M Hows Co., Ltd. | | | 26,498 | | | | 16,511 | | | | 28,874 | | | | 1,933 | | KT M&S Co., Ltd. | | | 257,809 | | | | 224,430 | | | | 1,009,331 | | | | (78,241 | ) | KT Music Corporation 1 | | | 73,050 | | | | 33,086 | | | | 31,393 | | | | (2,124 | ) | KT Innotz Inc. | | | 3,012 | | | | 344 | | | | 2,609 | | | | (1,411 | ) | KT Skylife Co., Ltd. 1 | | | 641,564 | | | | 292,649 | | | | 574,829 | | | | 55,546 | | KT Estate Inc. 1 | | | 1,460,511 | | | | 145,885 | | | | 24,861 | | | | 3,124 | | NEXR Co., Ltd. | | | 2,305 | | | | 1,964 | | | | 2,651 | | | | (1,787 | ) | KTSB Dataservice | | | 32,733 | | | | 265 | | | | 439 | | | | (4,383 | ) | KT Cloudware Corporation | | | 21,345 | | | | 2,321 | | | | 3,878 | | | | (5,397 | ) | CENTIOS Co., Ltd 1 | | | 32,848 | | | | 9,259 | | | | 171 | | | | (3,163 | ) | Enswers Inc. 1 | | | 13,966 | | | | 18,330 | | | | 4,896 | | | | (3,010 | ) | KT OIC Co., Ltd. | | | 3,968 | | | | 406 | | | | 325 | | | | (1,569 | ) | Ustream Inc. | | | 3,171 | | | | 858 | | | | 321 | | | | (2,683 | ) | KT Innoedu Co., Ltd. 2 | | | 10,561 | | | | 5,218 | | | | 10,522 | | | | 308 | | KT Rental 1,2 | | | 1,694,021 | | | | 1,426,484 | | | | 368,228 | | | | 11,072 | | KT Media Hub Co., Ltd. 2 | | | 95,703 | | | | 13,679 | | | | 14,381 | | | | 2,237 | | KT Sat Co., Ltd. 2 | | | 417,886 | | | | 16,269 | | | | 10,310 | | | | 1,739 | | Best Partners Co., Ltd. 2 | | | 1,526 | | | | 79 | | | | 15 | | | | (57 | ) | Korea Telecom Japan Co., Ltd. | | | 8,284 | | | | 3,955 | | | | 14,458 | | | | (324 | ) | Korea Telecom China Co., Ltd. | | | 1,895 | | | | 38 | | | | 1,863 | | | | (675 | ) | KT Dutch B.V. (formerly KTSC Investment Management B.V) 1 | | | 47,277 | | | | 14,748 | | | | 12,086 | | | | (9,837 | ) |
| | | | | | | | | | | | | | | | | | | 2011 | | (in millions of Korean won) | | Total assets | | | Total liabilities | | | Operating revenue | | | Net income (loss) | | Korea Telecom America, Inc. | | | 5,850 | | | | 1,904 | | | | 13,392 | | | | (31 | ) | PT. KT Indonesia | | | 38 | | | | — | | | | — | | | | (6 | ) | KT Powertel Co., Ltd. | | | 167,131 | | | | 44,012 | | | | 112,905 | | | | 5,453 | | KT ENS Corporation (formerly KT Networks Corporation) | | | 291,636 | | | | 225,285 | | | | 587,438 | | | | 11,133 | | KT Linkus Co., Ltd. | | | 70,562 | | | | 62,993 | | | | 103,003 | | | | 1,920 | | KT Submarine Co., Ltd. | | | 115,781 | | | | 27,449 | | | | 83,006 | | | | 6,146 | | KT Telecop Co., Ltd. | | | 192,126 | | | | 138,357 | | | | 239,166 | | | | 3,840 | | KT Hitel Co.,Ltd. 1 | | | 293,665 | | | | 102,644 | | | | 582,925 | | | | 3,551 | | KT Capital Co., Ltd. 1 | | | 5,462,028 | | | | 4,759,100 | | | | 3,317,337 | | | | 129,354 | | H&C Network 1 | | | 257,390 | | | | 110,126 | | | | 225,402 | | | | 18,870 | | Sidus FNH Corporation | | | 9,481 | | | | 2,549 | | | | 5,729 | | | | (387 | ) | Nasmedia, Inc. | | | 97,140 | | | | 40,943 | | | | 24,769 | | | | 5,615 | | Sofnics, Inc. | | | 1,431 | | | | 267 | | | | 881 | | | | (178 | ) | KTDS Co., Ltd. | | | 189,983 | | | | 125,172 | | | | 574,792 | | | | 18,245 | | KT M Hows Co., Ltd. | | | 25,845 | | | | 14,341 | | | | 48,047 | | | | 1,739 | | KT M&S Co., Ltd. | | | 281,011 | | | | 223,089 | | | | 884,125 | | | | 22,614 | | KT Music Corporation 1 | | | 82,997 | | | | 48,289 | | | | 51,350 | | | | (5,088 | ) | KT Skylife Co., Ltd. 1 | | | 684,651 | | | | 283,068 | | | | 630,469 | | | | 72,724 | | KT Estate Inc. 1 | | | 1,434,685 | | | | 109,634 | | | | 253,367 | | | | 22,692 | | NEXR Co., Ltd. | | | 2,814 | | | | 4,451 | | | | 4,540 | | | | (1,965 | ) | KTSB Dataservice | | | 28,001 | | | | 321 | | | | 1,447 | | | | (4,802 | ) | KT Cloudware Corporation | | | 15,995 | | | | 1,128 | | | | 4,682 | | | | (2,913 | ) | Centios Co., Ltd 1 | | | 27,873 | | | | 9,793 | | | | 1,060 | | | | (5,097 | ) | Enswers Inc. 1 | | | 8,722 | | | | 20,148 | | | | 5,922 | | | | (4,990 | ) | KT OIC Co., Ltd. | | | 3,626 | | | | 512 | | | | 2,039 | | | | (448 | ) | Ustream Inc. | | | 2,677 | | | | 1,050 | | | | 2,831 | | | | (2,363 | ) | KT Innoedu Co., Ltd. | | | 12,618 | | | | 8,450 | | | | 21,578 | | | | (1,020 | ) | KT Rental 1 | | | 2,188,271 | | | | 1,896,259 | | | | 886,959 | | | | 32,400 | | KT Media Hub Co., Ltd. | | | 184,702 | | | | 81,578 | | | | 304,713 | | | | 21,146 | | KT Sat Co., Ltd. | | | 492,965 | | | | 35,237 | | | | 169,463 | | | | 56,859 | | Best Partners Co., Ltd. | | | 882 | | | | 116 | | | | 265 | | | | (681 | ) | T-ON Telecom 2 | | | 3,347 | | | | 2,298 | | | | 1,152 | | | | (2,358 | ) | KT Sports 2 | | | 15,672 | | | | 6,750 | | | | 21,794 | | | | (970 | ) | KT Music Contents Fund No.1 2 | | | 10,529 | | | | 185 | | | | 72 | | | | (157 | ) | KT-Michigan Global Contents Fund 2 | | | 6,227 | | | | — | | | | 26 | | | | (173 | ) | Autopion Co., Ltd. 2 | | | 5,314 | | | | 3,314 | | | | — | | | | — | | Korea Telecom Japan Co., Ltd. | | | 17,752 | | | | 14,204 | | | | 22,154 | | | | 30 | | Korea Telecom China Co., Ltd. | | | 1,178 | | | | 367 | | | | 1,338 | | | | (1,108 | ) | KT Dutch B.V. (formerly KTSC Investment Management B.V) 1 | | | 46,347 | | | | 14,684 | | | | 22,077 | | | | (4,131 | ) | Korea Telecom America, Inc. | | | 5,773 | | | | 1,825 | | | | 13,881 | | | | 32 | | PT. KT Indonesia | | | 30 | | | | — | | | | — | | | | 1 | | Olleh Rwanda Networks Ltd. 2 | | | 226,776 | | | | 217,132 | | | | — | | | | (943 | ) | KT Belguium 2 | | | 38,033 | | | | — | | | | — | | | | (11 | ) | KT ORS Belgium 2 | | | 95 | | | | — | | | | — | | | | — | |
1 | These companies are the intermediate parent companies of other subsidiaries and the above financial information is from their consolidated financial statements. |
2 | These entities were newly consolidated for the years ended December 31, 2011, 2012 and 2013. Only operating revenues and net income subsequent to the inclusion of consolidation scope are disclosed above. |
3. Summary of2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Controlling Company and its subsidiaries (collectively referred to as “the Company”)Group in the preparation of its financial statements. These policies have been consistently applied to all the yearsperiods presented, unless otherwise stated. 2.1 Basis of PresentationPreparation The Company maintains its accounting records in Korean won and prepares statutory financial statements in Korean language (Hangul) in conformity with the accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these consolidated financial statements are intended for useof the Group have been prepared in accordance with International Financial Reporting Standards(“IFRS”) as issued by those who are informed about Korean accounting principles and practices. the International Accounting Standards Board (“IASB”) The accompanyingpreparation of the consolidated financial statements have been condensed, restructuredrequires 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 translated into English from the Korean language financial statements. Principles of Consolidation
The fiscal year end of the consolidated subsidiaries is the same as that of the Controlling Company, except for KT Internal Venture Fund No.2 and KTC Media Contents Fund 1. If the fiscal year end of a consolidated subsidiary is different from that of the Controlling Company,estimates are significant to the consolidated financial statements are prepareddisclosed in Note 3.
2.2 Changes in Accounting Policy and Disclosures (1) New standards and amendments adopted by the Group The Group adopted the following amended and enacted standards for the annual period beginning on January 1, 2013: —Amendment to IAS 1, Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income The amendment requires entities to group items presented in other comprehensive income based on whether they are potentially reclassifiable to profit or loss subsequently. The Group applied the subsidiary’s reliableamendment retroactively and there is no impact of the application of this amendment on its total comprehensive income or loss. —Amendment to IAS 19, 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 comparative consolidated statements of operations and consolidated statements of comprehensive income are restated by reflecting adjustments resulting from the retrospective application. —IFRS 10, Consolidated Financial Statements IFRS 10,Consolidated Financial Statements, introduces a single control concept and provides additional guidance for evaluating control. As a result of the adoption of IFRS 10, the Group consolidated KT Submarine Co., Ltd. by virtue of de-facto control because the Group is able to exercise the majority voting rights in its decision-making process considering historical voting pattern at the shareholders’ meeting, although the Group has 36.9% of ownership (39.34% including treasury stocks). KT Submarine Co., Ltd. was classified as an associate in accordance with the previous standard and accounted for using the equity method. Accordingly, the comparative consolidated financial statements were retrospectively adjusted and restated as if the Group obtained control over the entity from the initial acquisition of its interest. Results of retrospective application of amendment to IAS 19 and IFRS 10 are as follows. | | | | | | | | | | | | | | | | | (in millions of Korean won, except per share amounts) | | 2012 | | Accounts | | As reported | | | IFRS 10 | | | IAS 19 | | | Restated | | Current assets | | | 10,482,845 | | | | 34,574 | | | | — | | | | 10,517,419 | | Non-current assets | | | 23,996,654 | | | | 43,835 | | | | — | | | | 24,040,489 | | Current liabilities | | | 11,247,314 | | | | 19,452 | | | | — | | | | 11,266,766 | | Non-current liabilities | | | 10,067,673 | | | | 5,494 | | | | — | | | | 10,073,167 | | Operating revenue | | | 24,577,709 | | | | 66,063 | | | | — | | | | 24,643,772 | | Operating expenses | | | 22,892,776 | | | | 56,360 | | | | 14,537 | | | | 22,963,673 | | Profit(loss) from continuing operations before income tax | | | 1,422,502 | | | | 6,877 | | | | (14,537 | ) | | | 1,414,842 | | Profit(loss) for the year from the continuing operations | | | 1,111,450 | | | | 5,017 | | | | (11,028 | ) | | | 1,105,439 | | Basic earnings per share (in won) | | | 4,341 | | | | — | | | | (45 | ) | | | 4,296 | | Cash flows from operating activities | | | 5,721,398 | | | | 4,087 | | | | — | | | | 5,725,485 | | Cash flows from investing activities | | | (3,844,381 | ) | | | (6,798 | ) | | | — | | | | (3,851,179 | ) | Cash flows from financing activities | | | (1,266,474 | ) | | | (11,330 | ) | | | — | | | | (1,277,804 | ) |
| | | | | | | | | | | | | | | | | (in millions of Korean won, except per share amounts) | | 2011 | | Accounts | | As reported | | | IFRS 10 | | | IAS 19 | | | Restated | | Current assets | | | 9,790,659 | | | | 55,998 | | | | — | | | | 9,846,657 | | Non-current assets | | | 22,294,750 | | | | 41,140 | | | | — | | | | 22,335,890 | | Current liabilities | | | 8,745,125 | | | | 34,481 | | | | — | | | | 8,779,606 | | Non-current liabilities | | | 10,802,475 | | | | 12,785 | | | | — | | | | 10,815,260 | | Operating revenue | | | 21,979,299 | | | | 108,531 | | | | — | | | | 22,087,830 | | Operating expenses | | | 20,002,551 | | | | 97,010 | | | | 1,173 | | | | 20,100,734 | | Profit(loss) from continuing operations before income tax | | | 1,603,371 | | | | 7,024 | | | | (1,173 | ) | | | 1,609,222 | | Profit(loss) for the year from the continuing operations | | | 1,452,019 | | | | 4,227 | | | | (889 | ) | | | 1,455,357 | | Basic earnings per share (in won) | | | 5,947 | | | | — | | | | (4 | ) | | | 5,943 | | Cash flows from operating activities | | | 2,150,309 | | | | 13,723 | | | | — | | | | 2,164,032 | | Cash flows from investing activities | | | (2,647,997 | ) | | | (17,643 | ) | | | — | | | | (2,665,640 | ) | Cash flows from financing activities | | | 768,472 | | | | 3951 | | | | — | | | | 772,423 | |
—IFRS 11, Joint Arrangements IFRS 11,Joint Arrangements, reflects the substance of joint arrangements and focuses on the rights and obligations of the fiscal year endparties to the joint arrangements rather than on the legal forms of the Controlling Company. Differencesarrangements. 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. —IFRS 12, Disclosures of Interests in Other Entities IFRS 12,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 (Notes 14, 38 and 39). —IFRS 13, Fair Value Measurement IFRS 13,Fair Value Measurement, provides a precise definition of fair value, and a single source of fair value measurement and disclosure requirements for use across IFRS. The Group has applied this standard prospectively according to the transitional provisions of IFRS 13 and there is no material impact of the application of this standard on the consolidated financial statements. (2) New standards, amendments and interpretations not yet adopted New standards, amendments and interpretations effective for annual periods beginning after January 1, 2013, and not early adopted by the Group are as follows: —Amendment to IFRS 10, Consolidated Financial Statements Amendment to IFRS 10,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 IAS 32, Financial Instruments: Presentation Amendment to IAS 32,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. —Amendment to IAS 39, Financial Instruments: Recognition and Measurement Amendment to IAS 39,Financial Instruments: Recognition and Measurement, allows the continuation of hedge accounting policyfor 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 IFRIC interpretations 2121, Levies IFRIC interpretations 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, which is not income tax, 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 IFRS 10,Consolidated Financial Statements. (1) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has control. The Group controls the corresponding investee when the Group is exposed to, 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 Group obtains control of the subsidiary and is deconsolidated when the subsidiary ceases when the Group 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, either at fair value or at the non-controlling interest’s proportionate share of the recognized amounts of acquiree’s identifiable net assets. All other non-controlling interests are measured at their acquisition-date fair values, unless another measurement basis is required by IFRSs. Acquisition-related costs are expensed as incurred. Goodwill is recognized as the excess of the aggregate of the consideration transferred, the amount of any non-controlling interest in the acquiree, and the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree over the identifiable net assets acquired. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss. Balances of receivables and payables, income and expenses and unrealized gains and losses on transactions between the Company and its consolidatedCompany’s subsidiaries are adjusted during consolidation. The investment accountseliminated. Accounting policies of the Controlling Company and corresponding capital accounts of the subsidiaries are eliminated as of the fiscal year end of the subsidiaries closest to date when the Controlling Company acquires control in the subsidiaries. All significant intercompany transactions and balances with consolidated subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Company.
(2) 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. (3) Disposal of subsidiaries If the Group loses control of a subsidiary, any investment continuously retained in the subsidiary is re-measured to its fair value at the date when control is lost and any resulting differences are recognized in profit or loss. (4) Associates Associates are all entities over which the Group has significant influence which is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. 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 during consolidation.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. (5) Jointly controlled entities A joint arrangement of which two or more parties have joint control is classified as either a joint operation or a joint venture. A joint operator has rights to the assets, and obligations for the liabilities, relating to the joint operation and recognizes the assets, liabilities, revenues and expenses relating to its interest in a joint operation. A joint venture has rights to the net assets relating to the joint venture and accounts for that investment using the equity method. 2.4 Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (Note 33). The chief operating decision-maker is responsible for making strategic decisions on resource allocation and performance assessment of the operating segments. 2.5 Foreign Currency Translation (1) 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 Company’s functional and presentation currency. (2) 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 when 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. (3) Translation into presentation currency Different functional currencies are translated into presentation currency using the following procedures. Assets and liabilities at the closing rate at the date of that statement of financial position Income and expenses at average rate for the period Equity at historical rate All resulting exchange differences are recognised in other comprehensive income 2.6 Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of less than three months. 2.7 Financial Assets (1) 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. At initial recognition, financial assets are measured at fair value plus, in the case of financial assets not carried at fair value through profit or loss, transaction costs. Transaction costs of financial assets carried at fair value through profit or loss are expensed in the statement of income. After the initial recognition, available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables, and held-to-maturity investments are subsequently carried at amortized cost using the effective interest rate method. Changes in fair value of financial assets at fair value through profit or loss are recognized in profit or loss and changes in fair value of available-for-sale financial assets are recognized in other comprehensive income. When the available-for-sale financial assets are sold or impaired, the fair value adjustments recorded in equity are reclassified into profit or loss. (2) 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. (3) Derecognition If the Group transfers a financial asset and the transfer does not result in derecognition because the Company has control overretained substantially of all risks and rewards of ownership of the transferred asset due to a subsidiary,recourse in the Company records differences betweenevent the debtor defaults, the Group continues to recognize the transferred asset in its entirety and recognizes a financial liability for the consideration received. The related financial liability is classified as ‘borrowings’ in the statement of financial position (Note 16). 2.8 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 ‘finance income (expenses)’ according to the nature of transactions. The Group applies cash flow hedge accounting for hedging price changes risks on forecast purchases of inventories. The effective portion of changes in fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income and the ineffective portion is recognized in ‘operating income (expenses)’. Amounts of changes in fair value of effective hedging instruments accumulated in other comprehensive income are included in the initial measurement of the cost of non-financial assets as hedging transactions and recognized as ‘cost of sales’ for the periods when the corresponding transactions affect profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that is reported in other comprehensive income is recognized as ‘operating income (expenses)’. The Group applies fair value hedge accounting for hedging fixed interest risks on borrowings. The effective portion of changes in fair value of derivatives that are designated and qualify as fair value hedges is recognized as ’finance cost’, and the ineffective portion is recognized as ‘operating income (expenses)’. However, changes in the fair value of the hedged items attributable to hedged risk are recognized as ‘finance cost’. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortized to profit or loss over the period to maturity. 2.9 Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted-average method, except for inventories in-transit which is determined using the specific identification method. 2.10 Non-current Assets (or Disposal Group) Held-for-sale Non-current assets (or disposal group) are classified as assets held-for-sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. The assets are measured at the lower amount between their carrying amount and the fair value less costs to sell. 2.11 Property and Equipment Property and equipment are 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. The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred if a reasonable estimate of fair value can be made. In periods subsequent to initial measurement, we recognize period-to-period changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate. 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: | | | | | Estimated Useful Lives | Buildings | | 5 – 40 years | Structures | | 5 – 40 years | Machinery and equipment | | 3 – 40 years | (Telecommunications equipment and others) | | | Others | | | Vehicles | | 4 – 6 years | Tools | | 4 – 6 years | Office equipment | | 4 – 6 years |
The depreciation method, residual values and useful lives of property and equipment are reviewed at the end of each reporting period and, if appropriate, accounted for as changes in accounting estimates. 2.12 Investment Property Property held to earn rentals or for capital appreciation or both is classified as investment accountsproperty. Investment property is measured initially at its cost. After recognition as an asset, investment property is carried at cost less accumulated depreciation and corresponding capital accountsimpairment losses. Investment property, except for land, is depreciated using the straight-line method over their useful lives from 10 to 40 years. 2.13 Intangible Assets (1) Goodwill Goodwill is measured as explained in Note 2.3 (1) and goodwill arising from acquisition of subsidiaries asand business are included in intangible assets. Goodwill is tested at least annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. The calculation of the 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 acquirer’s cash-generating units, or negative goodwill.groups of cash-generating units (“CGU”), 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. (2) Intangible assets except goodwill Separately acquired Intangible assets except for goodwill are shown at historical cost. These assets have definite useful lives and are carried at historical cost less accumulated amortization. Assets with definite useful lives are amortized using the straight-line method overaccording to the estimated useful lives which range from four to ten years. The negative goodwill relatingpresented below. However, facility usage rights (condominium membership and golf membership) and broadcast license 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 generate net cash inflows. The estimated useful life used for amortizing intangible assets is as follows: | | | | | Estimated Useful Lives | Development costs | | 5 – 6 years | Goodwill | | Unlimited useful life | Software | | 6 years | Industrial property rights | | 2 – 10 years | Frequency usage rights | | 5.75 – 15 years | Others 1 | | 3 – 50 years |
1 | Facility usage rights (condominium membership and golf membership) and broadcast license included in others are classified as intangible assets with indefinite useful life. |
(3) Research and development costs Expenditure on research is recognized as an expense as incurred. If the expense as incurred that is identifiable and when the probable future economic benefits are expected, the cost for the new merchandises and technology is recognized as intangible assets when all the following criteria are met: It is technically feasible to complete the intangible asset so that it will be available for use; Management intends to complete the intangible asset and use or sell it; There is the ability to use or sell the intangible asset; It can be demonstrated how the intangible asset will generate probable future economic benefits; Adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available; and The expenditure attributable to the intangible asset during its development can be reliably measured Other development expenditures that do not meet these criteria are recognized as expenses as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. Capitalized development costs, which are stated as intangible assets, are amortized using the straight-line method when the assets are available for use and are tested for impairment. 2.14 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. 2.15 Government Grants Government grants related to assets are recognized in profit or loss on a systematic and rational basis over the useful life of the asset by setting up the grant as deferred income, and government grants related to income are deferred and recognized in the future is reversedstatement of income as a gain whenpart of operating income for the period in which the related expenseexpenses for the purpose of the government grants are incurred. 2.16 Impairment of Non-Financial Assets Goodwill or intangible assets with indefinite useful lives are not subject to amortization and are tested at least 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. 2.17 Financial Liabilities (1) Classification and measurement Financial liabilities at fair value through profit or loss are financial instruments held for trading. Financial liabilities are classified in this category if incurred principally for the purpose of repurchasing them in the near term. Derivatives that are not designated as hedges or bifurcated from financial instruments containing embedded derivatives are also categorized as held-for-trading. The Group classifies non-derivative financial liabilities, except for financial liabilities at fair value through profit or loss, financial guarantee contracts and financial liabilities that arise when a transfer of financial assets does not qualify for derecognition, as financial liabilities carried at amortized cost and presented as ‘trade payables’, ‘borrowings’, and ‘other financial liabilities’ in the statement of financial position. 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. The Group’s financial liabilities at fair value through profit or loss are financial instruments held for trading and designated as financial liabilities at fair value through profit or loss. Financial liabilities held for trading are financial liabilities that are incurred principally for the purpose of repurchasing them in the near term and derivatives that are not designated as hedges or bifurcated from financial instruments containing embedded derivatives. Financial liabilities at fair value through profit or loss are structured financial liabilities containing embedded derivatives issued by the Group. As it was unable to measure the embedded derivatives separately from its host contract, the Group designated the entire hybrid contact as at fair value through profit or loss. The financial liability that the Group designated as at fair value through profit or loss is actually incurred, whereasa foreign convertible bond. (2) Derecognition Financial liabilities are removed from the negative goodwillstatement 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. 2.18 Financial Guarantee Contracts Financial guarantee contracts provided by the Group are initially measured at fair value on the date the guarantee was given. Subsequent to initial recognition, the Group’s liabilities under such guarantees are measured at the higher of the amounts below and recognized as ‘other financial liabilities’: | • | | the amount determined in accordance with IAS 37,Provisions, Contingent Liabilities and Contingent Assets; or |
| • | | the initial amount, less accumulated amortization recognized in accordance with IAS 18,Revenue. |
2.19 Compound Financial Instruments Compound financial instruments are convertible bonds that can be converted into equity instruments at the option of the holder. The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not relatinghave an equity conversion option. The equity component is recognized initially on the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the certainliability and equity components in proportion to their initial carrying amounts. 2.20 Employee Benefits (1) 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 employee benefit expenses 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 expensecash 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 remeasurement of the net defined benefit liability is amortizedrecognized 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. (2) Termination benefits Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes termination benefits at the earlier of the following dates: when the entity can no longer withdraw the offer of those benefits or when the entity recognizes costs for a restructuring. 2.21 Share-based payments Equity-settled share-based payments granted to employees are estimated at the grant date fair value of equity instruments and recognized as employee benefit expenses over the weighted average useful livesvesting period. The number of depreciable non-monetary assetsequity instruments expected to vest is remeasured with consideration to non-market vesting conditions at the end of an acquireethe reporting period, with any changes from the original measurement recognized in the profit for the year and equity. When the options are exercised, the Company issues new shares. The proceeds received, net of any directly attributable transaction costs, are recognized as share capital (nominal value) and share premium. 2.22 Provisions Provisions are measured at the present value of the expenditures expected to be required to settle the obligation and the amountsincrease in the provision due to passage of this negative goodwilltime is recognized as interest expense. 2.23 Leases (1) Lessee A lease is an agreement, whereby the lessor conveys to the lessee, in excessreturn 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 total non-monetary assets of an acquiree are recorded as a gain as ofleased property and the acquisition date. In addition, the differences between the additional investment in the subsidiaries and net assets of the subsidiaries attributable to subsequently acquired controlling interest and differences between the acquisition cost of the investments in the subsidiaries and changes in net assets of the subsidiaries due to certain equity transactions of the subsidiaries including capital increase with consideration are reflected in the capital surplus or capital adjustment. When the Company gains significant influence over the equity-method investees, the excess of the acquisition cost of an investment in an investee over the Company’s share of the fairpresent value of the identifiable net assets acquired is amortized using the straight-line method over its estimated useful life, not exceeding 20 years. When acquisition cost of investments in an investee is less than the Company’s interestminimum lease payments on the fair valueopening date of the identifiable net assets acquired,lease period.
(2) Lessor A lease is classified as a finance lease if it transfers substantially all the investment differences relatingrisks 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 expectedcarrying amount of the leased asset and recognized as an expense or loss in the future is reversed as a gain when the related expense or loss is actually incurred. The investment differences not relating to the certain future expense up to fair value of depreciable non-monetary assets of an investee is amortized over the weighted average useful lives of depreciable non-monetary assets of an investee and the remaining amounts of investment difference in excess of the fair value of the total non-monetary assets of an investee are recorded as a gain as of the acquisition date. Unrealized gains or losses included in inventories and other assets as a result of intercompany transactions are eliminated basedlease term on the average gross profit ratio ofsame basis as the corresponding company. Unrealized gains or losses, arising from sales by the Controlling Company to the consolidated subsidiaries,lease income.
2.24 Capital Stock Common stocks are fully eliminated and charged to the equity of the Controlling Company. Unrealized gains or losses, arising from sales by the consolidated subsidiaries to the Controlling Company, or sales between consolidated subsidiaries, are fully eliminated, and charged to the equity of the Controlling Company and the minority interests, based on the percentage of ownership. Unrealized gains or losses, arising from the transactions betweenclassified as equity. Where the Company andpurchases its own equity method investees are eliminated in proportionshare capital, the consideration paid, including any directly attributable incremental costs, is deducted from equity attributable to the Company’s ownership and reflectedequity holders until the stocks are cancelled or reissued. Where such shares are subsequently reissued, any consideration received is included in equity-method investments.equity attributable to the Company’s equity holders. Minority interest
The Company records the equity of the consolidated subsidiaries, which is not included in the equity of the Controlling Company, as minority interest in consolidated subsidiaries. In addition, even if the minority interest has a deficit balance, the total comprehensive income is attributed to the owners of the parent and to the minority interests.
Reclassifications of Prior Year Financial Statements
Certain reclassifications have been made in 2008 and 2009 consolidated financial statements to conform to 2010 consolidated financial statement presentation. Such reclassifications did not have an effect on the shareholders’ equity and net income of the Company as of and for the years ended December 31, 2008 and 2009.
2.25 Revenue Recognition Revenue is the gross inflow of economic benefits arising in the ordinary course of the Company’s activities and is measured asat the fair value of the consideration received or receivable for the sale of goods andor rendering of services inarising from the said ordinary coursenormal activities of the Company’s activities. RevenueGroup. It is shownstated as net of value-added tax, salesvalue added taxes, returns, rebates and discounts, and sales returns. after elimination of intra-company transactions. The CompanyGroup recognizes revenue when the amount of revenue can be reliably measured, andmeasured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the Group’s activities, as described below. The Group bases its estimate on historical results, taking into consideration the Company. type of customer, the type of transaction and the specifics of each arrangement. (1) Sales of Services When providing interconnection or telecommunications service to a customer based on service plans, the related revenue is recognized at the time service is provided. If the customer uses the telecommunications equipment according to the service plans, the related revenue is recognized on straight-line basis over the contract period. Revenue related to the other telecommunications services is recognized when the service is provided to the customer. For other services, when the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with such a transaction is recognized 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 recognized that are recoverable. Total consideration for combined services is allocated to each service in proportion to its fair value and the allocated amount is recognized as revenue according to revenue recognition policy for the service. (2) Sales of goods The Group sells a range of handsets and other telephone products. Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of goodsproducts are transferreddelivered to the buyer. Revenue from the rendering of services is recognized under the percentage-of-completion method, under which revenue is generally recognized based on the costs incurred to date as a percentage of the total estimated costs to be incurred.purchaser. The Company recognizes revenues from construction contracts using the percentage-of-completion method to determine the amounts to be recognized as revenues in a given period. The stage of completion is measured using the percentage of the total contract costs incurred up to the date of statement of financial position over the total estimated costs for each contract. When the outcome of a construction contract cannot be estimated reliably, the contract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable, and contract costs incurred for the period is recognized as an expense.(3) Interest income
Interest income is recognized using the effective interest method. method according to the time passed. When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount and continues unwinding the discount as interest income. Interest income on impaired loans and receivables is recognized using the original effective interest rate. (4) Commission fees Commission fees related to the credit card business is recognized when it is probable that future economic benefits will flow to the entity and these benefits can be reliably measured. Revenues from acquiree fee, agent fee, optional service fees, member service fees and credit card service charge are measured at the fair value of the consideration received and recognized on a accrual basis. (5) Royalty income Royalty income is recognized on an accrual basis in accordance with the substance of the relevant agreements. (6) Dividend income Dividend income is recognized when the rightsright to receive such dividends and amounts thereof are determined.payment is established. Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in banks, and financial instruments with maturity of three months or less at the time of purchase. These financial instruments are readily convertible into cash without significant transaction costs and bear low risks from changes in value due to interest rate fluctuations.
Allowance for Doubtful Accounts(7) Customer loyalty programme
The Company provides an allowanceGroup operates a customer loyalty program where customers accumulate points for doubtful accounts and notes receivable. Allowancespurchases made which entitle them to discounts on future purchases. The reward points are calculated based on the estimates made throughrecognized as a reasonable and objective method. Changes in the allowances for doubtful accounts for eachseparately identifiable component of the years in the three-year period ended December 31, 2010 are summarized as follows:
| | | | | | | | | | | | | | | Year Ended December 31, | | | | 2010 | | | 2009 | | | 2008 | | | | (In millions of Won) | | Balance at beginning of year | | (Won) | 477,124 | | | (Won) | 488,739 | | | (Won) | 487,729 | | Provision | | | 171,195 | | | | 104,977 | | | | 148,972 | | Write-offs | | | (133,095 | ) | | | (116,592 | ) | | | (147,962 | ) | | | | | | | | | | | | | | Balance at end of year | | (Won) | 515,224 | | | (Won) | 477,124 | | | (Won) | 488,739 | | | | | | | | | | | | | | |
Inventories
The quantities of inventories are determined using the perpetual method and periodic inventory count, while the costs of inventories are determined using the moving-weighted average method. Goods-in-transit and land use the specific identification method. Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expense. Replacement cost is used for the estimate of the net realizable value of raw materials. Market prices of merchandise and supplies are net realizable value and replacement cost, respectively. If, however, the circumstances which caused the valuation loss cease to exist, the valuation loss is reversed up to the original carrying amount before valuation. The said reversal is deducted from cost of sales.
Investments in Securities
Costs of debt securities and equity securities are determined using the specific identification method and the moving-weighted average method, respectively. Investments in equity securities or debt securities are classified into trading securities, available-for-sale securities and held-to-maturity securities, depending on the acquisition and holding purpose. Investments in equity securities of companies, over which the Company exercises a significant control or influence, are recorded using the equity method of accounting. Trading securities are classified as current assets while available-for-sale securities and held-to-maturity securities are classified as long-term investments, excluding those securities that mature or are certain to be disposed of within one year, which are then classified as current assets.
Held-to-maturity securities are measured at amortized cost while available-for-sale and trading securities are measured at fair value. However, non-marketable securities, classified as available-for-sale securities, are carried at cost when the fair values are not readily determinable.
Gains and losses related to trading securities are recognized in the income statement, while unrealized gains and losses of available-for-sale securities are recognized under other comprehensive income and expense. Realized gains and losses on available-for-sale securities are recognized in the income statement.
Equity-Method Investments
Company reflects any changes in the equity of its equity-method investments after the initial purchase date. Under the equity method, the Company records changes in its proportionate ownership in the book value of the investee in current operations, as capital adjustments or as adjustments to retained earnings, depending on the nature of the underlying change in the book value of the investee. All other changes in equity should be accounted for under other comprehensive income and expense.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, which includes acquisition cost, production cost and other costs required to prepare the asset for its intended use. It also includes the present value of the estimated cost of dismantling and removing the asset, and restoring the site after the termination of the asset’s useful life, provided it meets the criteria for recognition of provisions.
Property, plant and equipment are stated net of accumulated depreciation calculated by straight-line and declining-balance methods based on following estimated useful lives:
| | | | | Estimated Useful Lives | Building
| | 5 - 60 years | Structures
| | 5 - 40 years | Equipment
| | | Machinery
| | 3 - 15 years | Other
| | 6 - 15 years | Underground access to cable tunnels and concrete and steel telephone poles
| | 20 -40 years | Vehicles
| | 3 - 10 years | Others
| | | Tools
| | 3 - 8 years | Office equipment
| | 2 - 20 years |
Expenditures incurred after the acquisition or completion of assets are capitalized if they enhance the value of the related assets over their recently appraised value or extend the useful life of the related assets. Routine maintenance and repairs are charged to expense as incurred.
Intangible Assets
Intangible assets are stated at cost, which includes acquisition cost, production cost and other costs required to prepare the asset for its intended use. Intangible assets are stated net of accumulated amortization calculated by straight-line method based on following estimated useful lives:
| | | | | Estimated Useful Lives | Goodwill
| | 4 - 10 years | Industrial property rights
| | 5 - 10 years | Development Costs
| | 3 - 8 years | Software
| | 4 - 8 years | Frequency usage rights
| | 5.75 years or 13 years
from the date of service commencement | Other intangible assets
| | | Right to use the base stations
| | 30, 50 years | Copyrights
| | 50 years | Others
| | 10 - 20 years |
Development costs which are individually identifiable and directly related to a new technology or to new products which carry probable future benefits are capitalized as intangible assets. Amortization of development cost begins at the commencement of the commercial production of the related products or use of the related technology.
Goodwill represents the excess of the cost of an acquisition over thesale transaction. The fair value of the Controlling Company’s shareconsideration received or receivable in the net identifiable assetsrespect of the acquired subsidiary or associate atinitial sale is allocated between the date of acquisition.
Capitalization of Interest Expense
The Company capitalizesreward points and the interest it incurs on borrowings used to finance the cost of manufacturing, acquisition, and construction of inventory and property, plant, and equipment that require more than one year to complete from the initial date of manufacture, acquisition, and construction.
Government Grants
The Company recognizes government grants, which are to be repaid, as liabilities. The government grants and donations, which are intended to be used for the acquisition of certain assets, are deducted from the costother components of the acquired assets.sale. The government grants or donations, received to compensate for specific expenses, are offset against the related expenses. Other government grants or donations, for which the use or purpose is not specified, are recorded as gains from assets received, and are recognized in current operations. Prior to the acquisition of the assets specified, the grant or donation is recorded as deduction from the assets granted. When the related assets are acquired, the amounts are recognized as a deduction from the account under which the assets acquired are recorded and offset against the depreciation expense over the period of the asset’s useful live. After the disposal of the assets specified by the grant or donation, the remaining amounts are deducted or added to the asset’s disposal gain and loss.
Impairment of Assets
When the book value of an asset is significantly greater than its recoverable value due to obsolescence, physical damage or an abrupt decline in the marketfair value of the asset,reward points is measured by taking into account the said decline in value is deductedproportion of the reward points that are not expected to be redeemed by customers. Revenue from the book value to agree with recoverable amount andreward points is recognized as an asset impairment losswhen the points are redeemed.
2.26 Current and Deferred Income Tax The tax expense for the period. When the recoverable value subsequently exceeds the book value, the impairment amountperiod consists of current and deferred tax. Tax is recognized as gainon the profit for the period in the statement of income, except to the extent that the revised book value does not exceed the book value that would have been recorded without the impairment. Reversal of impairment of goodwill is not allowed. Derivatives
All derivative instruments are accounted for at their fair value accordingit relates to the rights and obligations associated with the derivative contracts. The resulting changesitems recognized in fair value of derivative instruments are recognized either under the income statement or shareholders’ equity, depending on whether the derivative instruments qualify as a cash flow hedge. Fair value hedge accounting is applied to a derivative instrument purchased with the purpose of hedging the exposure to changes in the fair value of an asset or a liability or a firm commitment that is attributable to a particular risk. The resulting changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized under the shareholders’ equity under accumulated other comprehensive income and expense.
Income Tax and Deferred Income Tax
Incomeor directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively. The tax expense includesis calculated on the current incomebasis of the tax underlaws enacted or substantively enacted at the relevant income tax law andend of the changes in deferred tax assets or liabilities. reporting period.
Deferred tax assets and liabilities representis recognized for temporary differences arising between financial reporting and the tax bases of assets and liabilities and their carrying amounts as expected tax consequences at the recovery or settlement of the carrying amounts of the assets and liabilities. However, deferred tax assets and liabilities are not recognized if they arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax assets are recognized for temporary differences which will decrease future taxable income or operating lossonly to the extent that it is probable that future taxable incomeprofit 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 differencesdifference can be utilized. Deferred tax effects applicableassets and liabilities are offset when there is a legally enforceable right to itemsoffset 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. 2.27 Deferred Loan Fees and Costs Loan origination fees in the shareholders’ equityrelation to loan origination process such as upfront fee, are directly reflected in the shareholders’ equity. Discounts on Debentures
Discounts on debentures aredeferred and amortized over the termlife of the debenturesloan as an adjustment to the yield of the loan using the effective interest rate method. AmortizationLoan origination costs, which relates to loan origination activities such as commissions to brokers, are deferred and amortized over the life of the discount is recordedloan as partan adjustment to the yield of the loan, using the effective interest expense.rate method, if the future economic benefit related costs incurred can be matched with each loan.
Accrued Severance Benefits
EmployeesIn addition, the deferred loan origination fees and directors with at least one year of servicecosts are entitled to receive a lump-sum payment upon termination of their employment withoffset and the Company based on their length of service and rate of pay atnet amounts are presented in the time of termination. Accrued severance benefits represent the amount which would be payable assuming all eligible employees and directors were to terminate their employment as of the date ofconsolidated statement of financial position.
2.28 Non-current Assets Held for Sale and Discontinued Operations 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 statement of income the post-tax profit or loss of discontinued operations and the post-tax gain or loss recognized on the measurement to fair value less costs to sell or on the disposal of the assets or group to be sold constituting the discontinued operation. The domestic subsidiaries have partially funded their accrued severance benefits through severance insurance deposits with an insurance company. Deposits made by the subsidiaries are recorded as deductions from accrued severance benefits. The excess portion of deposits over accrued severance benefits is recorded as other investments. In addition, the domestic subsidiaries deposit a certain portion of severance benefits to National Pension Service according to National Pension Law. The deposit amount is recorded as a deduction from accrued severance benefits.
Overseas subsidiaries accrue employees’ retirement benefits accordingnet cash flows attributable to the local regulations in which they operate.
Provisionsoperating, investing and Contingent Liabilities
When it is probable that an outflowfinancing activities of economic benefits will occur due to a present obligation resulting from a past event, and whose amount is reasonably estimable, a corresponding amount of provision is recognized in the financial statements. However, when such outflow is dependent upon a future event, is not certain to occur, or cannot be reliably estimated, a disclosure regarding the contingent liability is madediscontinued operations are presented in the notes to the financial statements.statements (Note 40).
Finance Leases2.29 Dividend
i) The Company as Lessee
The Company accounts for lease transactions as either operating lease or finance lease, depending on the terms of the lease agreement. A finance lease is a lease that transfers substantially all the risks and rewards incidentalDividend distribution to the ownership of an asset. The lower of the present value of minimum lease payments and the fair value of the lease assetCompany’s shareholders is recognized as the value of the finance lease asset and liability. Annual minimum lease payments, excluding residual value, are allocated to interest expense, or for the redemption of capital leasea liability using the effective interest method.
ii) The Company as Lessor
The Company accounts for lease transactions as finance lease for leases that transfer substantially all of the risks and benefits of ownership of the lease asset to the lessee. The Company recognizes the amount equivalent to the net investment in the lease asset as finance lease receivable. The Company recognizes interest income over lease term using systematic and reasonable method. Interest income is calculated for net finance lease receivable based on effective interest rate. The lease receipt is recorded separately as collection of finance lease receivable and interest income.
Operating Leases
i) The Company as Lessee
An operating lease is a lease that does not transfer substantially all the risks and rewards incidental to ownership of an asset. The annual minimum lease payments, less guaranteed residual value, are charged to expense on a regular basis over the lease term.
ii)The Company as Lessor
The Company accounts for operating leases as leases that do not transfer substantially all of the risks and benefits of ownership of the lease asset to the lessee. The lease assets are recognized as tangible or intangible assets depending on the nature of the lease assets. The annual minimum lease receipts, less guaranteed residual value, are recognized as revenue over the lease term.
Valuation of Assets and Liabilities at Present Value
Receivables and payables resulting from long-term installment payment transactions, long-term cash loans or other similar borrowings, are valued at their present values, discounted at an appropriate discount rate when the difference between the nominal value and present value is material. The present value discounts are amortized or recovered using the effective interest rate method and are recognized as interest income or expense over the term of the contract.
Translation of Assets and Liabilities Denominated in Foreign Currencies
Monetary assets and liabilities denominated in foreign currencies are translated into Korean won at the rates of exchange in effect at the date of statement of financial position, and the resulting translation gains and losses are recognized in current operations.
Currency Translation for Foreign Operations
Assets and liabilities of a foreign subsidiary or company subject to the equity method of accounting for investments are translated into Korean won at the rates of exchange in effect at the date of statement of financial position, while equity accounts are translated at historical rates, except for the change in retained earnings during the year (current period income or loss) which is the result of the income statement translation process, and income statement accounts at the average rate over the period. Net translation adjustments are allocated to the controlling interest and minority interest and the portions allocated to the controlling interest are accounted for as gain(loss) on translation of foreign operation included in the other comprehensive income. Net translation adjustment of equity-method investees are accounted for as comprehensive income(expensive) of equity-method investees in the other comprehensive income.
Share-based Payments
In the case of equity-settled share-based payment, the fair value of the goods or employee services received in exchange for the grant of the options is recognized as an expense and a capital adjustment. If the fair value of goods or employee services cannot be estimated reliably, the fair value is estimated based on the fair value of the equity granted.
For cash-settled share-based payment, the fair value of the obligation the Company will assume is determined by the fair value of the goods or employee services received in exchange for the grant of the options. Until the liability is settled, the Company is required to measure the fair value at date of statement of financial position and at settlement date. The change in fair value is recognized as an expense.
Share-based payment transactions with an option for the parties to choose between cash and equity settlement are accounted for based on the substance of the transaction.
Joint Venture
A joint venture is a contractual agreement to establish joint control over business, assets or entities. In case of jointly controlled entities that involve the establishment of a corporation, partnership or other entity in which each participant has an interest, the Company applies the equity method of accounting. As of December 31, 2010, the Company holds 50% of ownership on Kumho Rent-A-Car Global Co., Ltd., and applies the equity method of accounting.
Accounting Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported therein. Although these estimatesthe period in which the dividends are based on management’s best knowledgeapproved by the Company’s shareholders.
2.30 Approval of current events and actions thatIssuance of the Financial Statements The issuance of the December 31, 2013 financial statements of the Company may undertake inwas approved by the future, actual results may differ from those estimates.directors on April 11, 2014. U.S.2.31 US Dollar Convenience Translation
The December 31, 20102013 consolidated financial statements are expressed in Korean Won and have been translated into U.S. dollars at the rate of W1,138.9₩1,055.3 to US$1, the market average exchange rate announced by Seoul Money Brokerage Services, Ltd. and in effect on December 31, 2010,2013, solely for the convenience of the reader. These translations should not be construed as a representation that any or all of the amounts shown could be converted into U.S. dollars at this or any other rate. Changes3. Critical Accounting Estimates and Assumptions
The Group makes estimates and assumptions concerning the future. The estimates and assumptions are continuously evaluated with consideration to factors such as events reasonably predictable in Accounting Policiesthe 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. 3.1 Impairment of Goodwill Through December 31, 2008, Korea Accounting InstituteThe Group tests whether goodwill has suffered any impairment annually and also when there are indications that an asset may be impaired. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations (Note 13).
3.2 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. 3.3 Fair Value of Derivatives and Financial Supervisory 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 36). 3.4 Allowance for Doubtful Accounts The Group recognizes provisions for accounting of estimated loss in customers’ insolvency. When the allowance for doubtful accounts is estimated, it is based on the aging analysis of trade receivables balances, incurred loss experience, customers’ credit rates and changes of payment terms. If the customer’s financial position becomes worse, the actual loss amount will be increased more than the estimated. 3.5 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 18). 3.6 Deferred Revenue Service have issuedinstallation fees and revised various Korea accounting standardsinitial subscription fees related to activation of service are deferred and recognized as revenue over the expected terms of customer relationships. The estimate of expected terms of customer relationship is based on the historical rate. If management’s estimation is amended, it may cause significant differences in the timing of revenue recognition and amount recognized. 3.7 Provisions As described in Note 17, the Group records provisions for litigation and asset retirement obligations as of the end of the reporting period. The provisions are estimated based on the factors such as the historical experiences. 3.8 Useful lives of Property and Equipment and Investment Property Depreciation on property and equipment excluding land, condominium memberships, golf club memberships, and broadcasting concession is calculated using the straight-line method over their useful lives. The estimated useful lives are determined based on expected usage of the assets and the following is a summary of majorestimates can be materially affected by technical changes whichand other factors. The Group will increase depreciation if the useful lives are newly adopted byconsidered shorter than the Company. | | | Accounting Standards
| | Key Requirements
| SKAS No. 25 “Consolidated Financial Statements” | | If negative consolidated capital surplus is incurred, it is first charged to related consolidated capital surplus, and remaining amount is recorded as a consolidated capital adjustment. | | | Opinion on Application of Accounting Standards 06-2 “Accounting for Recognition of Deferred Tax Related to Investments on a Subsidiary” | | Temporary differences related to investments in subsidiary, equity method investee or joint venture are not classified by origin but are treated as a lump-sum difference in considering whether to recognize deferred tax assets or liabilities. However, temporary differences arising from certain transactions under SKAS No. 16, such as elimination of inter-company transactions through equity method, shall be separately treated in the same way as they are recognized in the consolidated financial statements. |
As a result of the adoption of the accounting standards, the Company’s net assets at the beginning of 2008 increased by(Won)3,852 million.previously estimated useful lives.
Reconciliation of the differences in accounting policies4. Financial Instruments by category
For the year ended December 31, 2010, the following adjustments were made on the subsidiaries’ financial statements to reconcile the differences in accounting policies between the Controlling Company and subsidiaries:
| | | | | | | | | | | | | | | | | (in millions of Korean won) | | Net assets before adjustment | | | Amount of adjustment | | | Net assets after adjustment | | | Remarks | | KT Linkus Co., Ltd. | | (Won) | 8,444 | | | (Won) | (375 | ) | | (Won) | 8,069 | | | | 1 | | KT Hitel Co., Ltd. | | | 185,481 | | | | (4,824 | ) | | | 180,657 | | | | | | KT New Business Fund No. 1 | | | 22,432 | | | | (165 | ) | | | 22,267 | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 216,357 | | | (Won) | (5,364 | ) | | (Won) | 210,993 | | | | | | | | | | | | | | | | | | | | | | |
1 | Adjustments are made to unify the amortization period of investment difference arising from one subsidiary’s investments in another subsidiary. |
4. Restricted Deposits
Restricted depositsFinancial instruments by category as of December 31, 20102012 and 2009,2013, are as follows:
| | | | | | | | | | | (in millions of Korean won) | | 2010 | | | 2009 | | | Description | Cash and cash equivalents | | (Won) | 9,495 | | | (Won) | 10,241 | | | Restricted for research and development | Short-term investment assets | | | 14,211 | | | | 12,817 | | | Restricted for investing in Media Contents, Pledge | Long-term investment assets | | | 3,054 | | | | 3,035 | | | Checking account deposits | | | | | | | | | | | | Total | | (Won) | 26,760 | | | (Won) | 26,093 | | | | | | | | | | | | | | |
5. Inventories
Inventories as of December 31, 2010 and 2009, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | (In millions of Korean won) | | 2012 | | Financial assets | | Loans and receivables | | | Assets at fair value through the profit and loss | | | Derivatives used for hedge | | | Available- for-sale | | | Held-to-Maturity | | | Total | | Cash and cash equivalents | | ₩ | 2,057,613 | | | ₩ | — | | | ₩ | — | | | ₩ | — | | | ₩ | — | | | ₩ | 2,057,613 | �� | Trade and other receivables | | | 6,980,474 | | | | — | | | | — | | | | — | | | | — | | | | 6,980,474 | | Loans receivable | | | 1,180,700 | | | | — | | | | — | | | | — | | | | — | | | | 1,180,700 | | Finance lease receivables | | | 861,655 | | | | — | | | | — | | | | — | | | | — | | | | 861,655 | | Other financial assets | | | 460,394 | | | | 6,407 | | | | 21,348 | | | | 429,875 | | | | 436 | | | | 918,460 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | ₩ | 11,540,836 | | | ₩ | 6,407 | | | ₩ | 21,348 | | | ₩ | 429,875 | | | ₩ | 436 | | | ₩ | 11,998,902 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 2010 | | | 2009 | | (in millions of Korean won) | | Acquisition cost | | | Valuation allowance | | | Book Value | | | Acquisition cost | | | Valuation allowance | | | Book Value | | Merchandise | | (Won) | 598,486 | | | (Won) | (39,715 | ) | | (Won) | 558,771 | | | (Won) | 625,253 | | | (Won) | (45,157 | ) | | (Won) | 580,096 | | Supplies | | | 38,361 | | | | (1,540 | ) | | | 36,821 | | | | 43,996 | | | | (4,716 | ) | | | 39,280 | | Others | | | 60,239 | | | | — | | | | 60,239 | | | | 80,026 | | | | — | | | | 80,026 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 697,086 | | | (Won) | (41,255 | ) | | (Won) | 655,831 | | | (Won) | 749,275 | | | (Won) | (49,873 | ) | | (Won) | 699,402 | | | | | | | | | | | | | | | | | | | | | | | | | | |
6. Loans Receivable
Loans granted by KT Capital and KTR as of December 31, 2010 and 2009, are summarized as follows:
Current
| | | | | | | | | | | | | | | | | | | | | (In millions of Korean won) | | 2012 | | Financial liabilities | | Liabilities at fair value through the profit and loss | | | Derivatives used for hedge | | | Financial liabilities at amortized cost | | | Other liabilities | | | Total | | Trade and other payables | | ₩ | — | | | ₩ | — | | | ₩ | 7,922,662 | | | ₩ | — | | | ₩ | 7,922,662 | | Finance lease liabilities | | | — | | | | — | | | | 41,646 | | | | — | | | | 41,646 | | Borrowings | | | — | | | | — | | | | 11,436,119 | | | | — | | | | 11,436,119 | | Other financial liabilities | | | 3,216 | | | | 112,603 | | | | 16,649 | | | | 9,328 | | | | 141,796 | | | | | | | | | | | | | | | | | | | | | | | Total | | ₩ | 3,216 | | | ₩ | 112,603 | | | ₩ | 19,417,076 | | | ₩ | 9,328 | | | ₩ | 19,542,223 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 2010 | | | 2009 | | (in millions of Korean won) | | Original amount | | | Allowance for doubtful accounts | | | Carrying value | | | Original amount | | | Allowance for doubtful accounts | | | Carrying Value | | Factoring | | (Won) | 35,737 | | | (Won) | (179 | ) | | (Won) | 35,558 | | | (Won) | 15,077 | | | (Won) | (76 | ) | | (Won) | 15,001 | | Loans | | | 680,684 | | | | (8,961 | ) | | | 671,723 | | | | 448,398 | | | | (9,168 | ) | | | 439,230 | | Deferred loan origination fee | | | (1,434 | ) | | | — | | | | (1,434 | ) | | | (753 | ) | | | — | | | | (753 | ) | Accounts receivable-loans | | | 13,383 | | | | (1,604 | ) | | | 11,779 | | | | 2,154 | | | | (94 | ) | | | 2,060 | | Loans for installment credit | | | 37,401 | | | | (586 | ) | | | 36,815 | | | | 28,412 | | | | (2,334 | ) | | | 26,078 | | Deferred incidental expense | | | 11 | | | | — | | | | 11 | | | | 5 | | | | — | | | | 5 | | Accounts receivable-loans for installment credit | | | 546 | | | | — | | | | 546 | | | | 950 | | | | (14 | ) | | | 936 | | Financial investment for new technology | | | 18 | | | | — | | | | 18 | | | | 200 | | | | (94 | ) | | | 106 | | Financial loans for new technology | | | — | | | | — | | | | — | | | | 2,500 | | | | (237 | ) | | | 2,263 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 766,346 | | | (Won) | (11,330 | ) | | (Won) | 755,016 | | | (Won) | 496,943 | | | (Won) | (12,017 | ) | | (Won) | 484,926 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | (In millions of Korean won) | | 2013 | | Financial assets | | Loans and receivables | | | Assets at fair value through the profit and loss | | | Derivatives used for hedge | | | Available- for-sale | | | Held-to-Maturity | | | Total | | Cash and cash equivalents | | ₩ | 2,070,869 | | | ₩ | — | | | ₩ | — | | | ₩ | — | | | ₩ | — | | | ₩ | 2,070,869 | | Trade and other receivables | | | 6,053,040 | | | | — | | | | — | | | | — | | | | — | | | | 6,053,040 | | Loans receivable | | | 1,348,597 | | | | — | | | | — | | | | — | | | | — | | | | 1,348,597 | | Finance lease receivables | | | 709,937 | | | | — | | | | — | | | | — | | | | — | | | | 709,937 | | Other financial assets | | | 582,693 | | | | 15,643 | | | | 3,496 | | | | 547,627 | | | | 3,248 | | | | 1,152,707 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | ₩ | 10,765,136 | | | ₩ | 15,643 | | | ₩ | 3,496 | | | ₩ | 547,627 | | | ₩ | 3,248 | | | ₩ | 11,335,150 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | (In millions of Korean won) | | 2013 | | Financial liabilities | | Liabilities at fair value through the profit and loss | | | Derivatives used for hedge | | | Financial liabilities at amortized cost | | | Other liabilities | | | Total | | Trade and other payables | | ₩ | — | | | ₩ | — | | | ₩ | 8,472,707 | | | ₩ | — | | | ₩ | 8,472,707 | | Finance lease liabilities | | | — | | | | — | | | | 68,210 | | | | — | | | | 68,210 | | Borrowings | | | — | | | | — | | | | 11,483,893 | | | | — | | | | 11,483,893 | | Other financial liabilities | | | 2,956 | | | | 150,612 | | | | 73,080 | | | | 15,984 | | | | 242,632 | | | | | | | | | | | | | | | | | | | | | | | Total | | ₩ | 2,956 | | | ₩ | 150,612 | | | ₩ | 20,097,890 | | | ₩ | 15,984 | | | ₩ | 20,267,442 | | | | | | | | | | | | | | | | | | | | | | |
Non-Current
| | | | | | | | | | | | | | | | | | | | | | | | | | | 2010 | | | 2009 | | (in millions of Korean won) | | Original amount | | | Allowance for doubtful accounts | | | Carrying value | | | Original amount | | | Allowance for doubtful accounts | | | Carrying value | | Factoring receivables | | (Won) | — | | | (Won) | — | | | (Won) | — | | | (Won) | 2,945 | | | (Won) | (15 | ) | | (Won) | 2,930 | | Loans | | | 352,816 | | | | (4,419 | ) | | | 348,397 | | | | 378,768 | | | | (7,242 | ) | | | 371,526 | | Deferred loan origination fee | | | (2,139 | ) | | | — | | | | (2,139 | ) | | | (3,593 | ) | | | — | | | | (3,593 | ) | Loans for installment credit | | | 56,852 | | | | (931 | ) | | | 55,921 | | | | 43,833 | | | | (2,994 | ) | | | 40,839 | | Deferred incidental expense | | | (89 | ) | | | — | | | | (89 | ) | | | 179 | | | | — | | | | 179 | | New technology financial investment assets | | | 3,966 | | | | (20 | ) | | | 3,946 | | | | 1,356 | | | | (911 | ) | | | 445 | | New technology financial loans | | | 9,315 | | | | (264 | ) | | | 9,051 | | | | 2,932 | | | | (277 | ) | | | 2,655 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 420,721 | | | (Won) | (5,634 | ) | | (Won) | 415,087 | | | (Won) | 426,420 | | | (Won) | (11,439 | ) | | (Won) | 414,981 | | | | | | | | | | | | | | | | | | | | | | | | | | |
7. Securities
Trading securities as of December 31, 2010 and 2009, are as follows:
| | | | | | | | | (in millions of Korean won) | | 2010 | | | 2009 | | Beneficiary certificates | | (Won) | 6,003 | | | (Won) | 21,470 | |
The above trading securities are in short-term investment assets in the consolidated statements ofIncome or expense (gain or loss) by financial position and carried at fair value determined based on the trading price as of year-end published by the financial institutes.
Available-for-sale securities as of December 31, 2010 and 2009, are as follows:
Current
| | | | | | | | | (in millions of Korean won) | | 2010 | | | 2009 | | Beneficiary certificates | | (Won) | — | | | (Won) | 6,508 | | Debt securities | | | 45 | | | | 3 | | | | | | | | | | | Total | | (Won) | 45 | | | (Won) | 6,511 | | | | | | | | | | |
The above current available-for-sale securities are included in the short-term investment assets in the consolidated statements of financial position and carried at fair value determined based on the trading price as of fiscal year-end published by the financial institutes.
Non-current
| | | | | | | | | (in millions of Korean won) | | 2010 | | | 2009 | | Marketable equity securities1 | | | | | | | | | Solitech Co., Ltd. | | (Won) | 2,684 | | | (Won) | 2,348 | | Digital Ocean Co., Ltd. (formerly GaeaSoft Corp.) | | | 214 | | | | 487 | | Krtnet Corp. | | | 2,536 | | | | 2,626 | | PT. Mobile-8 Telecom Tbk | | | 2,561 | | | | 2,504 | | Show Mirae Asset PEF 1 | | | 3,274 | | | | 2,168 | | KOREA CABLE T.V CHUNG-BUK SYSTEM CO., LTD. | | | 1,250 | | | | 221 | | Daewoo Securities Green Korea Special Purpose Acquisition Company | | | 2,818 | | | | — | | Tongyang Value Ocean Special Purpose Acquisition Company | | | 606 | | | | — | | Others | | | 4,178 | | | | 1,503 | | | | | | | | | | | Sub-total | | | 20,121 | | | | 11,857 | | | | | | | | | | |
| | | | | | | | | (in millions of Korean won) | | 2010 | | | 2009 | | Non-marketable equity securities1 | | | | | | | | | Korea Information Certificate Authority, Inc. | | | 1,000 | | | | 2,000 | | Vacom Wireless, Inc. | | | 641 | | | | 641 | | Neighbor Systems Co., Ltd. | | | 525 | | | | 525 | | Entaz Co., Ltd. | | | 1,000 | | | | 1,000 | | Smart Channel Co., Ltd.(formerly Mediapuff Plus)2 | | | 500 | | | | 500 | | SBS KT SPC | | | 25,000 | | | | 15,000 | | IBK-Auctus Green Growth PEF | | | 7,000 | | | | 100 | | MBC KT SPC | | | 11,000 | | | | 11,000 | | Korea Software Financial Cooperative | | | 1,220 | | | | 1,220 | | Daesung Private Equity Fund | | | 3,000 | | | | 3,000 | | Translink Capital Partners I, L.P.3 | | | 2,430 | | | | 5,222 | | Translink Management II Fund4 | | | 1,731 | | | | — | | Pacren Walden Ventures Parallel VI-KT, L.P.4 | | | 5,858 | | | | 3,652 | | Sovik Contents Investment Fund | | | 1,500 | | | | 1,500 | | Korea Telecommunications Operators Association | | | 689 | | | | 689 | | GE Premier 1st CR-REIT | | | 3,000 | | | | — | | Wooridle Film Investment Fund No. 15 | | | 563 | | | | — | | Luxpia Co., Ltd. | | | 1,000 | | | | 1,000 | | Leaders PEF | | | 16,003 | | | | 18,644 | | Minigate Co., Ltd | | | 2,400 | | | | — | | Mirae Asset PEF | | | 5,090 | | | | — | | BC Card Co., Ltd | | | 8,712 | | | | — | | SEMI Materials, Co., Ltd | | | 2,990 | | | | — | | SEJONG Metal Co,. Ltd. (redeemable convertible preferred stock) | | | 1,100 | | | | — | | Smith & Mobile Inc. | | | 1,500 | | | | — | | Alti semiconductor Co., Ltd | | | 3,000 | | | | — | | Alphaasset Sinabro Private Stock Investment Trusts 7th | | | 2,725 | | | | — | | Enswers Inc. | | | 2,001 | | | | 2,001 | | On Game Network Inc. | | | 5,368 | | | | 5,527 | | Woongjin passone | | | 3,121 | | | | — | | Wiz communications Co., Ltd | | | 1,852 | | | | 1,987 | | QCP Investment Purpose Company III Inc. | | | 2,000 | | | | 2,000 | | Petra PEF 2nd | | | 5,000 | | | | — | | Petra PEF 1st | | | 3,905 | | | | 4,000 | | Hyundai-Asan Private Stock Investment Trusts | | | 2,819 | | | | — | | CJ Venture Investment 12th Global Contents Investment Fund | | | 1,969 | | | | 2,003 | | Enterprise DB Corp. | | | 3,013 | | | | — | | KDBCJKL PEF 2nd | | | 4,200 | | | | — | | KoFC-IMM Pioneer Champ 2010-17th Investment Fund | | | 2,010 | | | | — | | Nexenta Systems, Inc. | | | 2,260 | | | | — | | SoftBank Commerce Korea | | | 959 | | | | 959 | | Shinhan Venture Capital Co., Ltd. | | | 900 | | | | 900 | | Others | | | 17,438 | | | | 15,002 | | | | | | | | | | | Sub-total | | | 169,992 | | | | 100,072 | | | | | | | | | | | Debt securities | | | | | | | | | Government and public bonds | | | 20 | | | | 64 | | Tongyang Value Ocean Special Purpose Acquisition Company Convertible bonds | | | 200 | | | | 200 | | KIC Co., Ltd. Convertible bonds | | | 813 | | | | — | | Foosung Co., Ltd. Convertible bonds | | | — | | | | 2,420 | | KB2B. Bonds with warrant | | | 2,443 | | | | 1,677 | | Saehacoms Co., Ltd. Bonds with warrant | | | 783 | | | | — | | Probe corp. Convertible bonds | | | 1,000 | | | | 1,000 | | Sejong Metal Co,. Ltd. Bonds with warrant | | | 981 | | | | — | | Others | | | 3,162 | | | | — | | | | | | | | | | | Sub-total | | | 9,402 | | | | 5,361 | | | | | | | | | | | Total | | (Won) | 199,515 | | | (Won) | 117,290 | | | | | | | | | | |
1 | The fair value of marketable equity securities is determined using quoted market prices as of year end. Non-marketable equity securities are recognized at acquisition cost if the fair value of the securities cannot be reliably measured due to lack
|
| of basis and experience. But if the reasonably estimated recoverable amounts of non-marketable securities are less than the carrying amounts and the amount of deficiency is material then, the securities are recognized at the recoverable amounts by deducting the deficiency from the carrying amounts directly.
|
2 | The securities are pledged as collateral for borrowings of investee. |
3 | During the year ended December 31, 2010, the Company recognized(Won)2,792 million of loss on impairment of investment securities as non-operating expense. |
4 | This is an investment fund which the Company participates as a limited partner. As the Company has no significant influence or control over this investee, the Company classifies this investment as an available-for-sale security. |
5 | The Company has no significant influence due to withdrawal from the fund. Accordingly, the Company reclassifies this investment as an available-for-sale security. |
Held-to-maturity securities as of December 31, 2010 and 2009, are as follows:
| | | | | | | | | (in millions of Korean won) | | 2010 | | | 2009 | | Current (*) | | (Won) | — | | | (Won) | 17 | | Non-Current | | | 66 | | | | 65 | | | | | | | | | | | Total | | (Won) | 66 | | | (Won) | 82 | | | | | | | | | | |
The current held-to-maturity securities are included in short-term investment assets in the consolidated statements of financial position.
Maturities of debt securities as of December 31, 2010, are as follows:
| | | | | | | | | (in millions of Korean won) | | Available-for-sale | | | Held-to-maturity | | Within 1 year | | (Won) | 45 | | | (Won) | — | | Over 1 year and within 5 years | | | 9,402 | | | | 66 | | | | | | | | | | | Total | | (Won) | 9,447 | | | (Won) | 66 | | | | | | | | | | |
For the years ended December 31, 2010 and 2009, changes in valuation gain or loss on short-term available-for-sale securities are as follows:
2010
| | | | | | | | | | | | | (in millions of Korean won) | | 2010.1.1 | | Valuation Amount | | | Included in Earnings | | | 2010.12.31 | | (Won) 7,800 | | (Won) | 2,201 | | | (Won) | 1,392 | | | (Won) | 11,393 | | Deferred income tax | | | | (2,342 | ) | | | | | | | | | | | | | | Total | | | (Won) | 9,051 | | | | | | | | | | | | | | |
2009
| | | | | | | | | | | | | (in millions of Korean won) | | 2009.1.1 | | Valuation Amount | | | Included in Earnings | | | 2009.12.31 | | (Won) (2,810) | | (Won) | 5,015 | | | (Won) | 5,595 | | | (Won) | 7,800 | | Deferred income tax | | | | (2,009 | ) | | | | | | | | | | | | | | Total | | | (Won) | 5,791 | | | | | | | | | | | | | | |
The amounts are not adjusted for the minority interests in consolidated subsidiaries.
Equity-method Investments
Equity-method investments as of December 31, 2010 and 2009, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | (In millions of Korean won) | | 2010 | | | 2009 | | Investee | | Percentage of Ownership | | | Acquisition Cost | | | Net asset value | | | Carrying value | | | Acquisition Cost | | | Net asset value | | | Carrying value | | Kumho Rent-A-Car Global Co., Ltd1, 9 | | | 50.00 | % | | (Won) | 2,032 | | | (Won) | 589 | | | (Won) | 943 | | | (Won) | — | | | (Won) | — | | | (Won) | — | | Korea Telecom Directory Co., Ltd. | | | 34.00 | % | | | 6,800 | | | | (2,559 | ) | | | — | | | | 6,800 | | | | (2,283 | ) | | | — | | KBSi Co., Ltd. | | | 32.38 | % | | | 4,760 | | | | 6,874 | | | | 6,874 | | | | 4,760 | | | | 5,259 | | | | 5,259 | | CU Industrial Development Co., Ltd.8 | | | 19.00 | % | | | 506 | | | | 9,198 | | | | 9,198 | | | | 506 | | | | 12,769 | | | | 12,769 | | KTCS Corporation7, 8 | | | 17.05 | % | | | 3,800 | | | | 19,613 | | | | 19,613 | | | | 3,800 | | | | 16,449 | | | | 16,449 | | KTIS Corporation7, 8 | | | 17.80 | % | | | 2,850 | | | | 19,432 | | | | 19,432 | | | | 2,850 | | | | 16,413 | | | | 16,413 | | Korea Digital Satellite Broadcasting Co., Ltd.11 | | | 32.28 | % | | | 195,976 | | | | 29,247 | | | | 29,247 | | | | 195,976 | | | | 12,945 | | | | 12,945 | | MOS Facilities Co., Ltd.8 | | | 15.93 | % | | | 5,000 | | | | 101 | | | | 101 | | | | 5,000 | | | | 114 | | | | 114 | | Kiwoom Investment Co., Ltd. | | | 20.17 | % | | | 9,000 | | | | 7,858 | | | | 7,858 | | | | 9,000 | | | | 7,175 | | | | 7,175 | | Korea Information & Technology Fund 10 | | | 33.33 | % | | | 100,000 | | | | 122,042 | | | | 122,042 | | | | 100,000 | | | | 115,636 | | | | 115,636 | | Exdell Corporation8 | | | 19.00 | % | | | 190 | | | | 273 | | | | 273 | | | | 190 | | | | 239 | | | | 239 | | Information Technology Solution Bukbu Corporation8 | | | 18.00 | % | | | 180 | | | | 368 | | | | 368 | | | | 180 | | | | 376 | | | | 376 | | Information Technology Solution Nambu Corporation8 | | | 18.00 | % | | | 180 | | | | 360 | | | | 360 | | | | 180 | | | | 381 | | | | 381 | | Information Technology Solution Seobu Corporation8 | | | 18.00 | % | | | 180 | | | | 434 | | | | 434 | | | | 180 | | | | 451 | | | | 451 | | Information Technology Solution Busan Corporation8 | | | 18.00 | % | | | 180 | | | | 322 | | | | 322 | | | | 180 | | | | 339 | | | | 339 | | Information Technology Solution Jungbu Corporation8 | | | 18.00 | % | | | 180 | | | | 470 | | | | 470 | | | | 180 | | | | 458 | | | | 458 | | Information Technology Solution Honam Corporation8 | | | 18.00 | % | | | 180 | | | | 434 | | | | 434 | | | | 180 | | | | 414 | | | | 414 | | Information Technology Solution Deagu Corporation8 | | | 18.00 | % | | | 180 | | | | 245 | | | | 245 | | | | 180 | | | | 269 | | | | 269 | | Everyshow | | | 20.69 | % | | | 1,500 | | | | 688 | | | | 688 | | | | 1,500 | | | | 1,045 | | | | 1,045 | | KT-Global New Media Fund | | | 50.00 | % | | | 14,000 | | | | 12,663 | | | | 12,663 | | | | 14,000 | | | | 12,932 | | | | 12,932 | | Company K Movie Asset Fund No. 1 | | | 60.00 | % | | | 9,000 | | | | 9,362 | | | | 9,362 | | | | 9,000 | | | | 8,806 | | | | 8,806 | | Boston Global Film & Contents Fund L.P. | | | 31.84 | % | | | 10,000 | | | | 10,146 | | | | 10,146 | | | | 10,000 | | | | 10,085 | | | | 10,085 | | OIC Co., Ltd. (formerly OIC Language Visual Limited) | | | 20.00 | % | | | 200 | | | | 41 | | | | 41 | | | | 200 | | | | 183 | | | | 183 | | Mongolian Telecommunications | | | 40.00 | % | | | 3,450 | | | | 12,312 | | | | 12,312 | | | | 3,450 | | | | 11,135 | | | | 11,135 | | Metropol Property LLC | | | 34.00 | % | | | 1,739 | | | | 628 | | | | 1,373 | | | | 1,739 | | | | 640 | | | | 1,684 | | WiBro Infra Co., Ltd.2 | | | 26.22 | % | | | 65,000 | | | | 65,502 | | | | 65,502 | | | | — | | | | — | | | | — | | Harex Info Tech Inc.8 | | | 14.77 | % | | | 3,375 | | | | 433 | | | | 433 | | | | 3,375 | | | | 62 | | | | 62 | | Boston Film Fund | | | 38.96 | % | | | 7,461 | | | | 1,383 | | | | 1,383 | | | | 8,000 | | | | 4,249 | | | | 4,249 | | KTF-CJ Music Contents Investment Fund | | | 50.00 | % | | | 5,000 | | | | 4,952 | | | | 4,952 | | | | 5,000 | | | | 4,955 | | | | 4,955 | | Shinhan-KT Mobilecard Co., Ltd. | | | 50.00 | % | | | 1,000 | | | | (1 | ) | | | — | | | | 1,000 | | | | 248 | | | | 248 | | KT-DoCoMo Mobile Investment Fund | | | 45.00 | % | | | 4,500 | | | | 4,858 | | | | 4,858 | | | | 4,500 | | | | 4,473 | | | | 4,473 | | MetroM Co., Ltd.8 | | | 19.88 | % | | | 80 | | | | 179 | | | | 179 | | | | 80 | | | | 147 | | | | 147 | | KDNET Co., Ltd.8 | | | 19.88 | % | | | 80 | | | | 142 | | | | 142 | | | | 80 | | | | 147 | | | | 147 | | GOODTECH Co., Ltd.8 | | | 19.88 | % | | | 80 | | | | 180 | | | | 180 | | | | 80 | | | | 153 | | | | 153 | | Touchtel Co., Ltd.8 | | | 19.90 | % | | | 100 | | | | 183 | | | | 183 | | | | 100 | | | | 180 | | | | 180 | | KNS Co.,Ltd (formerly Excelnet Co., Ltd.) | | | 20.62 | % | | | 249 | | | | 259 | | | | 259 | | | | 100 | | | | 120 | | | | 120 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | (In millions of Korean won) | | 2010 | | | 2009 | | Investee | | Percentage of Ownership | | | Acquisition Cost | | | Net asset value | | | Carrying value | | | Acquisition Cost | | | Net asset value | | | Carrying value | | KMTEC Co., Ltd.8 | | | 19.90 | % | | | 100 | | | | 185 | | | | 185 | | | | 100 | | | | 183 | | | | 183 | | MTT Co., Ltd.8 | | | 19.90 | % | | | 100 | | | | 221 | | | | 221 | | | | 100 | | | | 206 | | | | 206 | | Goodmorning F Co., Ltd.8 | | | 19.00 | % | | | 254 | | | | 891 | | | | 891 | | | | 254 | | | | 1,696 | | | | 1,696 | | BKLCD Co., Ltd. | | | 29.15 | % | | | 20,000 | | | | 18,111 | | | | 18,111 | | | | 20,000 | | | | 19,542 | | | | 19,542 | | TPS | | | 100.00 | % | | | 164 | | | | 1,100 | | | | 1,100 | | | | 164 | | | | 1,283 | | | | 1,283 | | ETN | | | 100.00 | % | | | 1 | | | | 1 | | | | 1 | | | | 1 | | | | 1 | | | | 1 | | Oscar ent. Co., Ltd. | | | 49.00 | % | | | 650 | | | | 423 | | | | 423 | | | | 650 | | | | 398 | | | | 398 | | KT-IMM Investment Fund2 | | | 45.45 | % | | | 5,000 | | | | 5,076 | | | | 5,076 | | | | — | | | | — | | | | — | | Ansan U-City BTL1, 8 | | | 15.00 | % | | | 98 | | | | 68 | | | | 68 | | | | — | | | | — | | | | — | | Miraeasset Good Company Investment Fund No.32 | | | 33.33 | % | | | 3,040 | | | | 3,008 | | | | 3,008 | | | | — | | | | — | | | | — | | 2010 KIF IMM IT Investement Fund 2 | | | 21.88 | % | | | 700 | | | | 659 | | | | 659 | | | | — | | | | — | | | | — | | Anyang KDC project2 | | | 21.05 | % | | | 2,600 | | | | 2,600 | | | | 2,600 | | | | — | | | | — | | | | — | | QCP New technology investment fund 20th2 | | | 37.74 | % | | | 2,000 | | | | 96 | | | | 96 | | | | — | | | | — | | | | — | | Nau IB 7th fund2 | | | 30.77 | % | | | 2,000 | | | | 302 | | | | 302 | | | | — | | | | — | | | | — | | Saehacoms Co., Ltd.1 | | | 20.00 | % | | | 500 | | | | 393 | | | | 393 | | | | — | | | | — | | | | — | | Crzyfish, Inc.1 | | | 25.05 | % | | | 500 | | | | 455 | | | | 455 | | | | — | | | | — | | | | — | | Haitai Confectionery & Foods Co., Ltd 1, 10 | | | 30.37 | % | | | 53,741 | | | | 35,713 | | | | 52,689 | | | | — | | | | — | | | | — | | Wooridle Film Investment Fund3 | | | — | | | | — | | | | — | | | | — | | | | 1,600 | | | | 1,478 | | | | 1,478 | | eNtoB Corp.4 | | | — | | | | — | | | | — | | | | — | | | | 6,050 | | | | 8,314 | | | | 8,730 | | WMC Co., Ltd.5 | | | — | | | | — | | | | — | | | | — | | | | 80 | | | | 98 | | | | 98 | | Sky Life Contents Fund4 | | | — | | | | — | | | | — | | | | — | | | | 4,500 | | | | 3,751 | | | | 3,751 | | Netcom4 | | | — | | | | — | | | | — | | | | — | | | | 90 | | | | — | | | | — | | PARANGOYANGI6 | | | — | | | | — | | | | — | | | | — | | | | 2,900 | | | | (542 | ) | | | — | | Music City Media Co., Ltd.6 | | | — | | | | — | | | | — | | | | — | | | | 1,040 | | | | (688 | ) | | | — | | D&G Star Co., Ltd.4 | | | — | | | | — | | | | — | | | | — | | | | 260 | | | | 27 | | | | 27 | | Paramount Music Co., Ltd.4 | | | — | | | | — | | | | — | | | | — | | | | 1,000 | | | | 305 | | | | 305 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | (Won) | 550,436 | | | (Won) | 408,513 | | | (Won) | 429,148 | | | (Won) | 431,135 | | | (Won) | 283,016 | | | (Won) | 287,989 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 | The Company newly acquired the shares of the investees in 2010. |
2 | These companies are newly established in 2010. |
3 | The investments in the investees were reclassified as an available-for-sale in 2010. |
4 | The Company sold all of its equity shares of these companies in 2010. |
5 | WMC Co., Ltd. merged with KNS Co., Ltd. in 2010. |
6 | These companies go bankrupt were liquidated in 2010. |
7 | The shares of the investees are listed on the Korea Exchange in 2010. |
8 | As of December 31, 2010, the Company’s ownership of the investees is less than 20%. Since the Company can exercise significant influence or control over the investees, the investments are classified as equity method investment. |
9 | This investment is the joint venture. As a result, the Company accounts for this investment using the equity method. |
10 | Although the Company’s respective ownership in these companies is more than 30%, the Company is not the largest stockholder of these companies. As a result, the Company accounts for these investments as equity-method investments. |
11 | As the Company is not the largest shareholder of these companies in the consideration of the potential voting rights, the Company accounts for these investments as equity-method investments. |
The details of changes in differences between the initial purchase price and the Company’s initial proportionate ownership in net book value of the investees ended December 31, 2010 and 2009, are as follows:
| | | | | | | | | | | | | | | | | | | 2010 | | (in millions of Korean won) | | 2010.1.1 | | | Addition | | | Amortization | | | 2010.12.31 | | Kumho Rent-A-Car | | (Won) | — | | | (Won) | 1,415 | | | (Won) | (1,062 | ) | | (Won) | 353 | | Metropol Property LLC | | | 1,044 | | | | — | | | | (298 | ) | | | 746 | | eNtoB Corp. | | | 416 | | | | (345 | ) | | | (71 | ) | | | — | | Haitai Confectionery & Foods Co., Ltd. | | | — | | | | 20,842 | | | | (3,908 | ) | | | 16,934 | | | | | | | | | | | | | | | | | | | Total | | (Won) | 1,460 | | | (Won) | 21,912 | | | (Won) | (5,339 | ) | | (Won) | 18,033 | | | | | | | | | | | | | | | | | | | | | | | 2009 | | (in millions of Korean won) | | 2009.1.1 | | | Addition | | | Amortization | | | 2009.12.31 | | eNtoB Corp. | | (Won) | 553 | | | (Won) | — | | | (Won) | (137 | ) | | (Won) | 416 | | Korea Digital Satellite Broadcasting Co., Ltd. | | | 10,928 | | | | — | | | | (10,928 | ) | | | — | | Harex Info Tech Inc. | | | 383 | | | | — | | | | (383 | ) | | | — | | U-Mobile | | | 49,561 | | | | (43,731 | ) | | | (5,830 | ) | | | — | | Metropol Property LLC | | | 1,342 | | | | — | | | | (298 | ) | | | 1,044 | | OliveNine Entertainment Co., Ltd. | | | 644 | | | | (644 | ) | | | — | | | | — | | The Contents Entertainment | | | 947 | | | | (947 | ) | | | — | | | | — | | Doremi Music Publishing Co., Ltd. | | | (15 | ) | | | 15 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | Total | | (Won) | 64,343 | | | (Won) | (45,307 | ) | | (Won) | (17,576 | ) | | (Won) | 1,460 | | | | | | | | | | | | | | | | | | |
There are no unrealized gains and losses arising from intercompany transactions to be eliminated as of December 31, 2010.
The changes in the book values of equity-method investmentsinstrument category for the years ended December 31, 20102011, 2012 and 20092013, are as follows:
| | | | | | | | | | | | | | | | | | | | | (In millions of Korean won) | | 2010 | | Investee | | 2010.1.1 | | | Acquisition (Disposal) | | | Valuation gain(loss) | | | Other increase (Decrease) | | | 2010.12.31 | | Kumho Rent-A-Car Global | | (Won) | — | | | (Won) | — | | | (Won) | (1,719 | ) | | (Won) | 2,662 | | | (Won) | 943 | | KBSi Co., Ltd. | | | 5,259 | | | | — | | | | 1,615 | | | | — | | | | 6,874 | | CU Industrial Development Co., Ltd. | | | 12,769 | | | | — | | | | (3,571 | ) | | | — | | | | 9,198 | | KTCS Corporation | | | 16,449 | | | | — | | | | 3,127 | | | | 37 | | | | 19,613 | | KTIS Corporation | | | 16,413 | | | | — | | | | 3,569 | | | | (550 | ) | | | 19,432 | | Korea Digital Satellite Broadcasting Co., Ltd. 1 | | | 12,945 | | | | — | | | | 16,142 | | | | 160 | | | | 29,247 | | MOS Facilities Co., Ltd. | | | 114 | | | | — | | | | (253 | ) | | | 240 | | | | 101 | | Kiwoom Investment Co., Ltd. | | | 7,175 | | | | — | | | | 462 | | | | 221 | | | | 7,858 | | Korea Information & Technology Fund | | | 115,636 | | | | — | | | | 6,915 | | | | (509 | ) | | | 122,042 | | Exdell Corporation | | | 239 | | | | — | | | | 34 | | | | — | | | | 273 | | Information Technology Solution Bukbu Corporation | | | 376 | | | | — | | | | (8 | ) | | | — | | | | 368 | | Information Technology Solution Nambu Corporation | | | 381 | | | | — | | | | (21 | ) | | | — | | | | 360 | | Information Technology Solution Seobu Corporation | | | 451 | | | | — | | | | (17 | ) | | | — | | | | 434 | | Information Technology Solution Busan Corporation | | | 339 | | | | — | | | | (17 | ) | | | — | | | | 322 | | Information Technology Solution Jungbu Corporation | | | 458 | | | | — | | | | 12 | | | | — | | | | 470 | | Information Technology Solution Honam Corporation | | | 414 | | | | — | | | | 20 | | | | — | | | | 434 | | Information Technology Solution Deagu Corporation | | | 269 | | | | — | | | | (24 | ) | | | — | | | | 245 | | Everyshow | | | 1,045 | | | | — | | | | (378 | ) | | | 21 | | | | 688 | | KT-Global New Media Fund | | | 12,932 | | | | — | | | | (269 | ) | | | — | | | | 12,663 | | Company K Movie Asset Fund No. 1 | | | 8,806 | | | | — | | | | 556 | | | | — | | | | 9,362 | | Boston Global Film & Contents Fund L.P. 1 | | | 10,085 | | | | — | | | | 61 | | | | — | | | | 10,146 | | OIC Co., Ltd. (formerly OIC Language Visual Limited) | | | 183 | | | | — | | | | (142 | ) | | | — | | | | 41 | | Mongolian Telecommunications | | | 11,135 | | | | — | | | | (28 | ) | | | 1,205 | | | | 12,312 | | Metropol Property LLC | | | 1,684 | | | | — | | | | (45 | ) | | | (266 | ) | | | 1,373 | | WiBro Infra Co., Ltd. | | | — | | | | 65,000 | | | | 505 | | | | (3 | ) | | | 65,502 | | Harex Info Tech Inc. | | | 62 | | | | — | | | | 28 | | | | 343 | | | | 433 | | Boston Film Fund | | | 4,249 | | | | (538 | ) | | | (2,338 | ) | | | 10 | | | | 1,383 | | KTF-CJ Music Contents Investment Fund | | | 4,955 | | | | — | | | | (3 | ) | | | — | | | | 4,952 | | Shinhan-KT Mobilecard Co., Ltd. | | | 248 | | | | — | | | | (248 | ) | | | — | | | | — | | KT-DoCoMo Mobile Investment Fund | | | 4,473 | | | | — | | | | 385 | | | | — | | | | 4,858 | | MetroM Co., Ltd. | | | 147 | | | | — | | | | 32 | | | | — | | | | 179 | | KDNET Co., Ltd. | | | 147 | | | | — | | | | (5 | ) | | | — | | | | 142 | | GOODTECH Co., Ltd. | | | 153 | | | | — | | | | 27 | | | | — | | | | 180 | | Touchtel Co., Ltd. | | | 180 | | | | — | | | | 3 | | | | — | | | | 183 | | KNS Co.,Ltd (formerly Excelnet Co., Ltd.) | | | 120 | | | | — | | | | (17 | ) | | | 156 | | | | 259 | | KMTEC Co., Ltd. | | | 183 | | | | — | | | | 2 | | | | — | | | | 185 | | MTT Co., Ltd. | | | 206 | | | | — | | | | 15 | | | | — | | | | 221 | | Goodmorning F Co., Ltd. | | | 1,696 | | | | (884 | ) | | | 77 | | | | 2 | | | | 891 | | BKLCD Co., Ltd. | | | 19,542 | | | | — | | | | (310 | ) | | | (1,121 | ) | | | 18,111 | | TPS | | | 1,283 | | | | — | | | | 3,512 | | | | (3,695 | ) | | | 1,100 | | ETN | | | 1 | | | | — | | | | — | | | | — | | | | 1 | | Oscar ent. Co., Ltd. | | | 398 | | | | — | | | | 25 | | | | — | | | | 423 | | KT-IMM Investment Fund | | | — | | | | 5,000 | | | | 76 | | | | — | | | | 5,076 | | Ansan U-City BTL 1 | | | — | | | | 98 | | | | (30 | ) | | | — | | | | 68 | | Miraeasset Good Company Investment Fund No.3 1 | | | — | | | | 3,040 | | | | (32 | ) | | | — | | | | 3,008 | | 2010 KIF IMM IT Investement Fund1 | | | — | | | | 700 | | | | (41 | ) | | | — | | | | 659 | | Anyang KDC project | | | — | | | | 2,600 | | | | — | | | | — | | | | 2,600 | | QCP New technology investment fund 20th | | | — | | | | 2,000 | | | | — | | | | (1,904 | ) | | | 96 | | Nau IB 7th fund 1 | | | — | | | | 2,000 | | | | 53 | | | | (1,751 | ) | | | 302 | | Saehacoms Co., Ltd. | | | — | | | | 500 | | | | (107 | ) | | | — | | | | 393 | | Crzyfish, Inc. | | | — | | | | 500 | | | | (45 | ) | | | — | | | | 455 | | Haitai Confectionery & Foods Co., Ltd | | | — | | | | 53,741 | | | | (1,052 | ) | | | — | | | | 52,689 | | Wooridle Film Investment Fund | | | 1,478 | | | | — | | | | (447 | ) | | | (1,031 | ) | | | — | | eNtoB Corp. 1 | | | 8,730 | | | | (7,937 | ) | | | 400 | | | | (1,193 | ) | | | — | | WMC Co., Ltd. | | | 98 | | | | — | | | | 19 | | | | (117 | ) | | | — | | Sky Life Contents Fund | | | 3,751 | | | | (3,812 | ) | | | 61 | | | | — | | | | — | | D&G Star Co., Ltd. | | | 27 | | | | (10 | ) | | | (2 | ) | | | (15 | ) | | | — | | Paramount Music Co., Ltd. | | | 305 | | | | — | | | | — | | | | (305 | ) | | | — | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 287,989 | | | (Won) | 121,998 | | | (Won) | 26,564 | | | (Won) | (7,403 | ) | | (Won) | 429,148 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | (In millions of Korean won) | | 2009 | | Investee | | 2009.1.1 | | | Acquisition (Disposal) | | | Valuation gain(loss) | | | Other Increase (Decrease) | | | 2009.12.31 | | Korea Telecom Directory Co., Ltd. | | (Won) | 8,358 | | | (Won) | — | | | (Won) | (8,358 | ) | | (Won) | — | | | (Won) | — | | KBSi Co., Ltd. | | | 4,679 | | | | — | | | | 580 | | | | — | | | | 5,259 | | CU Industrial Development Co., Ltd. | | | 8,369 | | | | — | | | | 4,350 | | | | 50 | | | | 12,769 | | KTCS Corporation | | | 13,666 | | | | 1,050 | | | | 1,771 | | | | (38 | ) | | | 16,449 | | KTIS Corporation | | | 12,812 | | | | — | | | | 2,233 | | | | 1,368 | | | | 16,413 | | Korea Digital Satellite Broadcasting Co., Ltd. | | | 32,928 | | | | — | | | | (4,018 | ) | | | (15,965 | ) | | | 12,945 | | MOS Facilities Co., Ltd. | | | 41 | | | | — | | | | (275 | ) | | | 348 | | | | 114 | | Kiwoom Investment Co., Ltd. | | | 6,953 | | | | — | | | | 54 | | | | 168 | | | | 7,175 | | Korea Information & Technology Fund | | | 110,909 | | | | — | | | | 3,984 | | | | 743 | | | | 115,636 | | Exdell Corporation | | | 218 | | | | — | | | | 21 | | | | — | | | | 239 | | Information Technology Solution Bukbu Corporation | | | 225 | | | | (13 | ) | | | 164 | | | | — | | | | 376 | | Information Technology Solution Nambu Corporation | | | 221 | | | | (13 | ) | | | 173 | | | | — | | | | 381 | | Information Technology Solution Seobu Corporation | | | 222 | | | | (13 | ) | | | 242 | | | | — | | | | 451 | | Information Technology Solution Busan Corporation | | | 246 | | | | (13 | ) | | | 106 | | | | — | | | | 339 | | Information Technology Solution Jungbu Corporation | | | 295 | | | | (15 | ) | | | 178 | | | | — | | | | 458 | | Information Technology Solution Honam Corporation | | | 248 | | | | (13 | ) | | | 179 | | | | — | | | | 414 | | Information Technology Solution Deagu Corporation | | | 218 | | | | (12 | ) | | | 63 | | | | — | | | | 269 | | Everyshow | | | 1,226 | | | | — | | | | (181 | ) | | | — | | | | 1,045 | | KT-Global New Media Fund | | | 5,817 | | | | 8,000 | | | | (885 | ) | | | — | | | | 12,932 | | Company K Movie Asset Fund No. 1 | | | 8,803 | | | | — | | | | 3 | | | | — | | | | 8,806 | | Boston Global Film & Contents Fund L.P.1 | | | — | | | | 10,001 | | | | 84 | | | | — | | | | 10,085 | | OIC Co., Ltd. (formerly OIC Language Visual Limited) | | | — | | | | 200 | | | | (17 | ) | | | — | | | | 183 | | Mongolian Telecommunications | | | 13,289 | | | | — | | | | 910 | | | | (3,064 | ) | | | 11,135 | | Metropol Property LLC | | | 1,776 | | | | — | | | | — | | | | (92 | ) | | | 1,684 | | Harex Info Tech Inc. | | | 631 | | | | — | | | | (569 | ) | | | — | | | | 62 | | Boston Film Fund | | | 4,281 | | | | — | | | | (32 | ) | | | — | | | | 4,249 | | KTF-CJ Music Contents Investment Fund | | | 5,038 | | | | — | | | | (83 | ) | | | — | | | | 4,955 | | Shinhan-KT Mobilecard Co., Ltd. | | | 708 | | | | — | | | | (460 | ) | | | — | | | | 248 | | KT-DoCoMo Mobile Investment Fund | | | 4,439 | | | | — | | | | 34 | | | | — | | | | 4,473 | | MetroM Co., Ltd. | | | — | | | | — | | | | 76 | | | | 71 | | | | 147 | | KDNET Co., Ltd. | | | — | | | | — | | | | 75 | | | | 72 | | | | 147 | | GOODTECH Co., Ltd. | | | — | | | | — | | | | 81 | | | | 72 | | | | 153 | | Touchtel Co., Ltd. | | | — | | | | — | | | | 91 | | | | 89 | | | | 180 | | KNS Co.,Ltd (formerly Excelnet Co., Ltd.) | | | — | | | | — | | | | 30 | | | | 90 | | | | 120 | | KMTEC Co., Ltd. | | | — | | | | — | | | | 93 | | | | 90 | | | | 183 | | MTT Co., Ltd. | | | — | | | | — | | | | 117 | | | | 89 | | | | 206 | | Goodmorning F Co., Ltd. | | | 1,460 | | | | — | | | | 235 | | | | 1 | | | | 1,696 | | BKLCD Co., Ltd. | | | — | | | | 20,000 | | | | (458 | ) | | | — | | | | 19,542 | | TPS | | | 205 | | | | — | | | | 2,429 | | | | (1,351 | ) | | | 1,283 | | ETN | | | 1 | | | | — | | | | — | | | | — | | | | 1 | | Oscar ent. Co., Ltd. | | | 384 | | | | — | | | | 14 | | | | — | | | | 398 | | Wooridle Film Investment Fund1 | | | 1,529 | | | | — | | | | (51 | ) | | | — | | | | 1,478 | | eNtoB Corp. | | | 8,740 | | | | — | | | | 281 | | | | (291 | ) | | | 8,730 | | WMC Co., Ltd. | | | — | | | | — | | | | 27 | | | | 71 | | | | 98 | | Sky Life Contents Fund | | | 3,737 | | | | — | | | | 14 | | | | — | | | | 3,751 | | Netcom | | | 80 | | | | — | | | | (1 | ) | | | (79 | ) | | | — | | D&G Star Co., Ltd. | | | 190 | | | | — | | | | (163 | ) | | | — | | | | 27 | | Paramount Music Co., Ltd. | | | 313 | | | | — | | | | (8 | ) | | | — | | | | 305 | | KTC Media Contents Investment Fund No.1 | | | 4,510 | | | | — | | | | — | | | | (4,510 | ) | | | — | | OLIVE9 | | | — | | | | (3 | ) | | | — | | | | 3 | | | | — | | U Mobile | | | 82,663 | | | | (65,424 | ) | | | (17,794 | ) | | | 555 | | | | — | | KSCALL | | | 327 | | | | (449 | ) | | | 281 | | | | (159 | ) | | | — | | KOSNC | | | 341 | | | | (541 | ) | | | 200 | | | | — | | | | — | | KCALL | | | 332 | | | | (515 | ) | | | 183 | | | | — | | | | — | | TMWORLD | | | 320 | | | | (474 | ) | | | 154 | | | | — | | | | — | | UMSNC | | | 293 | | | | (465 | ) | | | 172 | | | | — | | | | — | | The Contents Entertainment | | | 950 | | | | (950 | ) | | | — | | | | — | | | | — | | Olive Nine Creative Co., Ltd. | | | 150 | | | | (150 | ) | | | — | | | | — | | | | — | | Onestone Communication Co., Ltd. | | | 206 | | | | (206 | ) | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 353,347 | | | (Won) | (30,018 | ) | | (Won) | (13,671 | ) | | (Won) | (21,669 | ) | | (Won) | 287,989 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | (In millions of Korean won) | | 2011 | | | 2012 | | | 2013 | | Loans and receivables | | | | | | | | | | | | | Interest income 1 | | ₩ | 324,985 | | | ₩ | 387,254 | | | ₩ | 279,047 | | Foreign currency transaction gain(loss) | | | 6,108 | | | | (1,198 | ) | | | 23,509 | | Foreign currency translation gain(loss) | | | 4,762 | | | | (3,208 | ) | | | (5,245 | ) | Loss on disposal | | | (3,807 | ) | | | (15,809 | ) | | | (7,534 | ) | Loss on valuation | | | (149,667 | ) | | | (150,389 | ) | | | (189,665 | ) | Assets at fair value through the profit and loss | | | | | | | | | | | | | Dividend income | | | 13 | | | | — | | | | — | | Gain(loss) on disposal | | | (1,120 | ) | | | 10 | | | | 375 | | Gain(loss) on valuation | | | 12,951 | | | | (80 | ) | | | (5,427 | ) | Derivatives used for hedging | | | | | | | | | | | | | Transaction gain(loss) | | | (26,882 | ) | | | (4,023 | ) | | | 1,134 | | Gain(loss) on valuation | | | 42,755 | | | | (49,729 | ) | | | 127 | | Other comprehensive income(loss) 2 | | | 52,414 | | | | (9,407 | ) | | | (1,936 | ) | Reclassified to profit or loss from other comprehensive income 2,3 | | | (31,151 | ) | | | 24,764 | | | | 1,408 | | Available-for-sale | | | | | | | | | | | | | Interest income 1 | | | 389 | | | | 142 | | | | 345 | | Dividend income | | | 7,810 | | | | 6,370 | | | | 20,841 | | Gain on disposal | | | 6,724 | | | | 7,991 | | | | 2,339 | | Impairment loss | | | (4,727 | ) | | | (3,401 | ) | | | (5,053 | ) | Other comprehensive income(loss) 2 | | | 60,834 | | | | 23,952 | | | | 49,778 | | Reclassified to profit or loss from other comprehensive income 2 | | | (1,376 | ) | | | (4,865 | ) | | | 6,554 | | Liabilities at fair value through the profit and loss | | | | | | | | | | | | | Foreign currency transaction loss | | | — | | | | 199 | | | | 42 | | Gain(loss) on disposal | | | 40 | | | | (78 | ) | | | (676 | ) | Gain on valuation | | | (142 | ) | | | 331 | | | | 156 | | Derivatives used for hedging | | | | | | | | | | | | | Gain(loss) on disposal | | | — | | | | 2,352 | | | | (3,339 | ) | Gain(loss) on valuation | | | 1,041 | | | | (191,627 | ) | | | (97,289 | ) | Other comprehensive income(loss) 2 | | | 10,790 | | | | (119,883 | ) | | | (70,367 | ) | Reclassified to profit or loss from other comprehensive income 2,3 | | | (3,882 | ) | | | 130,103 | | | | 66,199 | | Financial liabilities at amortized cost | | | | | | | | | | | | | Interest expense 1,4 | | | (587,560 | ) | | | (589,727 | ) | | | (548,129 | ) | Foreign currency transaction gain(loss) | | | 4,063 | | | | 3,383 | | | | (330 | ) | Foreign currency translation gain(loss) | | | (85,198 | ) | | | 262,383 | | | | 104,820 | | Other liabilities | | | | | | | | | | | | | Financial guarantee gain or loss | | | (4,973 | ) | | | (11,216 | ) | | | 9,034 | | | | | | | | | | | | | | | Total | | ₩ | (364,806 | ) | | ₩ | (305,406 | ) | | ₩ | (369,282 | ) | | | | | | | | | | | | | |
1 | In accordance with SKAS No. 24Preparation and Presentation of Financial Statements II (Financial Industry), gain on valuation of equity-method investments amounting to(Won)136 million (2009:(Won)10 million) and loss on valuation of equity-method investments amounting to(Won)102 million (2009:(Won)16 million) recorded by KT Capital are classifiedCo., Ltd. and KT Rental, a subsidiary of the Group, recognizes interest income and expense as operating revenue and expense. Interest income recognized as operating revenue is₩170,598 million (2011:₩173,740 million, 2012:₩184,182 million) and interest expense recognized as operating expense respectively.is₩ |
Market value information of publicly listed investees as of December 31, 2010 and 2009, is as follows:
| | | | | | | | | | | | | | | | | | | 2010 | | (In millions of Korean won) | | Number of Shares Owned | | | Market Price per share | | | Market Value | | | Recorded Book Value | | KTCS Corporation | | | 8,132,130 | | | (Won) | 2,210.0 | | | (Won) | 17,972 | | | (Won) | 19,613 | | KTIS Corporation | | | 6,196,190 | | | | 3,510.0 | | | | 21,749 | | | | 19,432 | | Mongolian Telecommunications | | | 10,348,111 | | | | 3,413.1 | | | | 35,319 | | | | 12,312 | |
| | | | | | | | | | | | | | | | | | | 2009 | | (In millions of Korean won) | | Number of Shares Owned | | | Market Price per share | | | Market Value | | | Recorded Book Value | | Mongolian Telecommunications | | | 10,348,111 | | | (Won) | 1,877.8 | | | (Won) | 19,432 | | | (Won) | 11,135 | |
Financial information of investees as of December 31, 2010 and 2009, are as follows:
| | | | | | | | | | | | | | | | | (In millions of Korean won) | | 2010 | | Investee | | Assets | | | Liabilities | | | Sales | | | Net income(loss) | | Kumho Rent-A-Car Global | | (Won) | 6,045 | | | (Won) | 4,868 | | | (Won) | 222,039 | | | (Won) | 1,333 | | Korea Telecom Directory Co., Ltd. | | | 20,692 | | | | 28,896 | | | | 21,648 | | | | 283 | | KBSi Co., Ltd. | | | 31,246 | | | | 10,017 | | | | 57,947 | | | | 4,987 | | CU Industrial Development Co., Ltd. | | | 121,632 | | | | 73,412 | | | | 27,981 | | | | (18,986 | ) | KTCS Corporation | | | 168,243 | | | | 53,237 | | | | 353,950 | | | | 16,270 | | KTIS Corporation | | | 157,782 | | | | 48,641 | | | | 349,114 | | | | 18,041 | | Korea Digital Satellite Broadcasting Co., Ltd. | | | 533,246 | | | | 385,935 | | | | 431,356 | | | | 42,956 | | MOS Facilities Co., Ltd. | | | 6,097 | | | | 5,463 | | | | 22,252 | | | | (1,545 | ) | Kiwoom Investment Co., Ltd. | | | 39,173 | | | | 215 | | | | 5,135 | | | | 2,296 | | Korea Information & Technology Fund | | | 366,281 | | | | — | | | | 27,930 | | | | 20,747 | | Exdell Corporation | | | 2,957 | | | | 1,519 | | | | 10,990 | | | | 257 | | Information Technology Solution Bukbu Corporation | | | 5,591 | | | | 3,547 | | | | 29,091 | | | | 366 | | Information Technology Solution Nambu Corporation | | | 4,763 | | | | 2,763 | | | | 31,918 | | | | 246 | | Information Technology Solution Seobu Corporation | | | 5,488 | | | | 3,079 | | | | 35,026 | | | | 341 | | Information Technology Solution Busan Corporation | | | 7,210 | | | | 5,420 | | | | 25,295 | | | | 318 | | Information Technology Solution Jungbu Corporation | | | 5,753 | | | | 3,144 | | | | 36,006 | | | | 654 | | Information Technology Solution Honam Corporation | | | 5,158 | | | | 2,747 | | | | 27,779 | | | | 458 | | Information Technology Solution Deagu Corporation | | | 2,892 | | | | 1,528 | | | | 18,086 | | | | 225 | | Everyshow | | | 4,199 | | | | 874 | | | | 7,454 | | | | (1,789 | ) | KT-Global New Media Fund | | | 25,357 | | | | 32 | | | | — | | | | (539 | ) | Company K Movie Asset Fund No. 1 | | | 15,604 | | | | — | | | | 1,708 | | | | 927 | | Boston Global Film & Contents Fund L.P. | | | 32,053 | | | | 196 | | | | 993 | | | | 192 | | OIC Co., Ltd. (formerly OIC Language Visual Limited) | | | 243 | | | | 37 | | | | — | | | | (709 | ) | Mongolian Telecommunications | | | 41,075 | | | | 10,294 | | | | 19,636 | | | | 1,363 | | Metropol Property LLC | | | 2,120 | | | | 274 | | | | 1,093 | | | | 418 | | WiBro Infra Co., Ltd. | | | 358,261 | | | | 108,423 | | | | 374 | | | | 1,916 | | Harex Info Tech Inc. | | | 3,593 | | | | 660 | | | | 3,075 | | | | 354 | | Boston Film Fund | | | 3,549 | | | | — | | | | 612 | | | | 148 | | KTF-CJ Music Contents Investment Fund | | | 9,903 | | | | — | | | | 627 | | | | (6 | ) | Shinhan-KT Mobilecard Co., Ltd. | | | 54 | | | | 55 | | | | 102 | | | | (498 | ) | KT-DoCoMo Mobile Investment Fund | | | 10,945 | | | | 150 | | | | 945 | | | | 854 | | MetroM Co., Ltd. | | | 2,186 | | | | 1,284 | | | | 14,810 | | | | 192 | | KDNET Co., Ltd. | | | 1,390 | | | | 672 | | | | 11,348 | | | | 78 | |
| | | | | | | | | | | | | | | | | (In millions of Korean won) | | 2010 | | Investee | | Assets | | | Liabilities | | | Sales | | | Net income(loss) | | GOODTECH Co., Ltd. | | | 1,319 | | | | 410 | | | | 11,920 | | | | 170 | | Touchtel Co., Ltd. | | | 2,348 | | | | 1,426 | | | | 12,429 | | | | 53 | | KNS Co.,Ltd (formerly Excelnet Co., Ltd.) | | | 2,483 | | | | 1,225 | | | | 17,972 | | | | 136 | | KMTEC Co., Ltd. | | | 1,861 | | | | 931 | | | | 14,448 | | | | 51 | | MTT Co., Ltd. | | | 2,064 | | | | 955 | | | | 12,791 | | | | 114 | | Goodmorning F Co., Ltd. | | | 6,038 | | | | 1,351 | | | | 11,701 | | | | 202 | | Others | | | 939,868 | | | | 670,705 | | | | 749,304 | | | | 11,092 | | | | (In millions of Korean won) | | 2009 | | Investee | | Assets | | | Liabilities | | | Sales | | | Net income(loss) | | Korea Telecom Directory Co., Ltd. | | (Won) | 25,809 | | | (Won) | 32,525 | | | (Won) | 7,206 | | | (Won) | (31,297 | ) | KBSi Co., Ltd. | | | 21,242 | | | | 5,000 | | | | 33,133 | | | | 1,791 | | CU Industrial Development Co., Ltd. | | | 122,646 | | | | 55,439 | | | | 55,918 | | | | 22,898 | | KTCS Corporation | | | 129,011 | | | | 47,029 | | | | 245,156 | | | | 12,196 | | KTIS Corporation | | | 129,494 | | | | 48,715 | | | | 119,679 | | | | 13,200 | | Korea Digital Satellite Broadcasting Co., Ltd. | | | 448,079 | | | | 344,151 | | | | 397,457 | | | | 20,280 | | MOS Facilities Co., Ltd. | | | 11,529 | | | | 10,850 | | | | 22,258 | | | | (1,547 | ) | Kiwoom Investment Co., Ltd. | | | 35,672 | | | | 100 | | | | 4,750 | | | | 263 | | Korea Information & Technology Fund | | | 346,909 | | | | — | | | | 30,391 | | | | 11,956 | | Exdell Corporation | | | 2,111 | | | | 851 | | | | 10,781 | | | | 115 | | Information Technology Solution Bukbu Corporation | | | 5,036 | | | | 2,946 | | | | 22,452 | | | | 906 | | Information Technology Solution Nambu Corporation | | | 4,343 | | | | 2,227 | | | | 25,790 | | | | 954 | | Information Technology Solution Seobu Corporation | | | 4,961 | | | | 2,457 | | | | 25,866 | | | | 1,334 | | Information Technology Solution Busan Corporation | | | 3,508 | | | | 1,623 | | | | 50,624 | | | | 589 | | Information Technology Solution Jungbu Corporation | | | 5,072 | | | | 2,525 | | | | 34,375 | | | | 991 | | Information Technology Solution Honam Corporation | | | 4,655 | | | | 2,355 | | | | 19,172 | | | | 995 | | Information Technology Solution Deagu Corporation | | | 2,622 | | | | 1,124 | | | | 15,489 | | | | 350 | | Everyshow | | | 8,280 | | | | 3,367 | | | | 4,849 | | | | (851 | ) | KT-Global New Media Fund | | | 26,139 | | | | 275 | | | | — | | | | (1,771 | ) | Company K Movie Asset Fund No. 1 | | | 14,677 | | | | — | | | | 1,498 | | | | 6 | | Boston Global Film & Contents Fund L.P. | | | 31,861 | | | | 199 | | | | — | | | | 262 | | OIC Co., Ltd. (formerly OIC Language Visual Limited) | | | 920 | | | | 6 | | | | — | | | | (86 | ) | Mongolian Telecommunications | | | 33,715 | | | | 5,877 | | | | 24,361 | | | | 2,275 | | Metropol Property LLC | | | 2,422 | | | | 538 | | | | 1,515 | | | | 877 | | Harex Info Tech Inc. | | | 1,114 | | | | 823 | | | | 1,782 | | | | (868 | ) | Boston Film Fund | | | 11,116 | | | | 227 | | | | 119 | | | | (111 | ) | KTF-CJ Music Contents Investment Fund | | | 9,960 | | | | 50 | | | | 653 | | | | (84 | ) | Shinhan-KT Mobilecard Co., Ltd. | | | 596 | | | | 100 | | | | 80 | | | | (919 | ) | KT-DoCoMo Mobile Investment Fund | | | 10,048 | | | | 108 | | | | 65 | | | | 77 | | MetroM Co., Ltd. | | | 1,486 | | | | 748 | | | | 13,998 | | | | 210 | | KDNET Co., Ltd. | | | 1,460 | | | | 723 | | | | 11,061 | | | | 129 | | GOODTECH Co., Ltd. | | | 1,753 | | | | 985 | | | | 11,600 | | | | 214 | | Touchtel Co., Ltd. | | | 1,767 | | | | 862 | | | | 11,996 | | | | 80 | | KNS Co.,Ltd (formerly Excelnet Co., Ltd.) | | | 1,180 | | | | 577 | | | | 11,631 | | | | 201 | | KMTEC Co., Ltd. | | | 1,442 | | | | 523 | | | | 13,459 | | | | 108 | | MTT Co., Ltd. | | | 1,839 | | | | 805 | | | | 12,300 | | | | 196 | | Goodmorning F Co., Ltd. | | | 11,841 | | | | 2,917 | | | | 46,545 | | | | 1,235 | | Wooridle Film Investment Fund | | | 7,393 | | | | — | | | | 28 | | | | (200 | ) | eNtoB Corp. | | | 72,238 | | | | 44,716 | | | | 567,871 | | | | 1,213 | | WMC Co., Ltd. | | | 1,181 | | | | 690 | | | | 10,541 | | | | 227 | | Sky Life Contents Fund | | | 16,800 | | | | 129 | | | | 1,390 | | | | 62 | | Others | | | 159,019 | | | | 110,140 | | | | 323,679 | | | | 4,815 | |
The adjustments made on the financial statements of investees during the application of the equity method of accounting to reconcile their accounting policies with those of the Company as of December 31, 2010 and 2009, and for the years then ended are as follows:
| | | | | | | | | | | | | | | (In millions of Korean won) | | Net Asset before Adjustments | | | Adjustments | | | Net Asset after Adjustments | | | Notes | Korea Digital Satellite Broadcasting Co., Ltd. | | (Won) | 47,552 | | | (Won) | (18,305 | ) | | (Won) | 29,247 | | | Adjustment of equity due to redeemable preferred stock | MOS Facilities Co., Ltd. | | | 122,094 | | | | (52 | ) | | | 122,042 | | | Adjustment of dividends payable | QCP New technology investment fund 20 | | | 926 | | | | (830 | ) | | | 96 | | | Impairment of investments | | | | | | | | | | | | | | | | Total | | (Won) | 170,572 | | | (Won) | (19,187 | ) | | (Won) | 151,385 | | | | | | | | | | | | | | | | | | |
The changes in the share of losses not recognized, as the Company discontinued recognizing its share of further losses exceeding its interest in the equity-method investees, as of December 31, 2010 and 2009 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | (In millions of Korean won) | | 2010 | | | 2009 | | | | 2010.1.1 | | | Increase (Decrease) | | | 2010.12.31 | | | 2009.1.1 | | | Increase (Decrease) | | | 2009.12.31 | | Korea Telecom Directory Co., Ltd. | | (Won) | (2,283 | ) | | (Won) | (506 | ) | | (Won) | (2,789 | ) | | (Won) | — | | | (Won) | (2,283 | ) | | (Won) | (2,283 | ) | Shinhan-KT Mobilecard Co., Ltd. | | | — | | | | (1 | ) | | | (1 | ) | | | — | | | | — | | | | — | | Music City Media Co., Ltd. | | | (688 | ) | | | 688 | | | | — | | | | (688 | ) | | | — | | | | (688 | ) | PARANGOYANGI | | | (542 | ) | | | 542 | | | | — | | | | (303 | ) | | | (239 | ) | | | (542 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | (3,513 | ) | | (Won) | 723 | | | (Won) | (2,790 | ) | | (Won) | (991 | ) | | (Won) | (2,522 | ) | | (Won) | (3,513 | ) | | | | | | | | | | | | | | | | | | | | | | | | | |
8. Property and Equipment
The changes in property, plant and equipment for the years ended December 31, 2010 and 2009 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2010 | | (In millions of Korean won) | | Land | | | Buildings | | | Structures | | | Machinery and equipment | | | Vehicles | | | Rental asset | | | Others1 | | | Construction- in-progress | | | Total | | Balance at 2010.1.1 | | (Won) | 1,466,791 | | | (Won) | 3,306,258 | | | (Won) | 147,920 | | | (Won) | 8,766,736 | | | (Won) | 31,069 | | | (Won) | 104,442 | | | (Won) | 360,526 | | | (Won) | 590,818 | | | (Won) | 14,774,560 | | Acquisition | | | 10,156 | | | | 1,468 | | | | 835 | | | | 50,525 | | | | 1,205 | | | | 801,091 | | | | 89,850 | | | | 2,587,210 | | | | 3,542,340 | | Disposal | | | (531 | ) | | | (8,600 | ) | | | (9,816 | ) | | | (146,807 | ) | | | (66 | ) | | | (1,545 | ) | | | (25,008 | ) | | | (96 | ) | | | (192,469 | ) | Depreciation | | | — | | | | (158,461 | ) | | | (14,519 | ) | | | (2,370,126 | ) | | | (7,378 | ) | | | (140,157 | ) | | | (204,858 | ) | | | — | | | | (2,895,499 | ) | Impairment | | | — | | | | — | | | | — | | | | (519 | ) | | | — | | | | — | | | | (8,778 | ) | | | — | | | | (9,297 | ) | Others 1 | | | (12,592 | ) | | | 94,966 | | | | 6,165 | | | | 2,188,230 | | | | 107 | | | | (60,998 | ) | | | 198,217 | | | | (2,405,872 | ) | | | 8,223 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 2010.12.31 | | (Won) | 1,463,824 | | | (Won) | 3,235,631 | | | (Won) | 130,585 | | | (Won) | 8,488,039 | | | (Won) | 24,937 | | | (Won) | 702,833 | | | (Won) | 409,949 | | | (Won) | 772,060 | | | (Won) | 15,227,858 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Acquisition cost | | (Won) | 1,463,956 | | | (Won) | 5,039,486 | | | (Won) | 322,783 | | | (Won) | 39,985,058 | | | (Won) | 81,190 | | | (Won) | 915,620 | | | (Won) | 1,809,979 | | | (Won) | 814,770 | | | (Won) | 50,432,842 | | Accumulated depreciation | | | — | | | | (1,801,296 | ) | | | (191,102 | ) | | | (31,402,282 | ) | | | (56,253 | ) | | | (212,787 | ) | | | (1,385,156 | ) | | | — | | | | (35,048,876 | ) | Accumulated impairment loss | | | — | | | | — | | | | — | | | | (1,748 | ) | | | — | | | | — | | | | (12,634 | ) | | | — | | | | (14,382 | ) | Government grants | | | (132 | ) | | | (2,559 | ) | | | (1,096 | ) | | | (92,989 | ) | | | — | | | | — | | | | (2,240 | ) | | | (42,710 | ) | | | (141,726 | ) | | | | | 2009 | | (In millions of Korean won) | | Land | | | Buildings | | | Structures | | | Machinery and equipment | | | Vehicles | | | Rental asset | | | Others1 | | | Construction- in-progress | | | Total | | Balance at 2009.1.1 | | (Won) | 1,289,230 | | | (Won) | 3,415,917 | | | (Won) | 229,676 | | | (Won) | 9,374,073 | | | (Won) | 34,606 | | | (Won) | 90,288 | | | (Won) | 459,414 | | | (Won) | 295,427 | | | (Won) | 15,188,631 | | Acquisition | | | 48 | | | | 841 | | | | 2 | | | | 34,937 | | | | 727 | | | | 112,910 | | | | 32,081 | | | | 2,592,880 | | | | 2,774,426 | | Disposal | | | (12,021 | ) | | | (12,556 | ) | | | (1,780 | ) | | | (102,848 | ) | | | (143 | ) | | | (38,322 | ) | | | (21,087 | ) | | | (348 | ) | | | (189,105 | ) | Depreciation | | | — | | | | (150,103 | ) | | | (16,512 | ) | | | (2,511,196 | ) | | | (8,936 | ) | | | (40,195 | ) | | | (208,506 | ) | | | — | | | | (2,935,448 | ) | Impairment | | | — | | | | — | | | | — | | | | (229 | ) | | | — | | | | — | | | | (134 | ) | | | (873 | ) | | | (1,236 | ) | Others | | | 189,534 | | | | 52,159 | | | | (63,466 | ) | | | 1,971,999 | | | | 4,815 | | | | (20,239 | ) | | | 98,758 | | | | (2,296,268 | ) | | | (62,708 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 2009.12.31 | | (Won) | 1,466,791 | | | (Won) | 3,306,258 | | | (Won) | 147,920 | | | (Won) | 8,766,736 | | | (Won) | 31,069 | | | (Won) | 104,442 | | | (Won) | 360,526 | | | (Won) | 590,818 | | | (Won) | 14,774,560 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Acquisition cost | | (Won) | 1,466,923 | | | (Won) | 4,977,592 | | | (Won) | 338,854 | | | (Won) | 40,256,240 | | | (Won) | 86,461 | | | (Won) | 209,252 | | | (Won) | 1,832,087 | | | (Won) | 651,441 | | | (Won) | 49,818,850 | | Accumulated depreciation | | | — | | | | (1,668,667 | ) | | | (189,607 | ) | | | (31,376,363 | ) | | | (55,392 | ) | | | (104,810 | ) | | | (1,465,470 | ) | | | — | | | | (34,860,309 | ) | Accumulated impairment loss | | | — | | | | — | | | | — | | | | (1,761 | ) | | | — | | | | — | | | | (3,855 | ) | | | — | | | | (5,616 | ) | Government grants | | | (132 | ) | | | (2,667 | ) | | | (1,327 | ) | | | (111,380 | ) | | | — | | | | — | | | | (2,236 | ) | | | (60,623 | ) | | | (178,365 | ) |
1 | Others mainly consist of the transfers from construction-in-progress to machinery, increase in contribution for construction, increase due to changes in consolidated entities and reclassifications. |
As of December 31, 2010, with respect to rental and leasehold contracts, certain land and buildings are pledged for mortgages and leasehold rights, and the maximum pledged amount is(Won)70,704 million (2009:(Won)73,392 million).
As of December 31, 2010, the value of land based on the posted price issued by the Korean tax authority amounted to(Won)5,412,098 million (2009:(Won)5,549,125 million)
9. Intangible Assets
The changes in intangible assets for the years ended December 31, 2010 and 2009, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2010 | | (In millions of Korean won) | | Goodwill | | | Industrial rights | | | Development costs | | | Software | | | Frequency usage rights | | | Other intangible assets | | | Total | | Balance at 2010.1.1 | | (Won) | 85,315 | | | (Won) | 10,471 | | | (Won) | 227,594 | | | (Won) | 165,570 | | | (Won) | 696,488 | | | (Won) | 94,062 | | | (Won) | 1,279,500 | | Acquisition | | | 28,974 | | | | 523 | | | | 243,024 | | | | 62,739 | | | | 78 | | | | 23,114 | | | | 358,452 | | Disposal | | | — | | | | — | | | | (13,520 | ) | | | (4,983 | ) | | | — | | | | (2,567 | ) | | | (21,070 | ) | Amortization | | | (74,677 | ) | | | (1,836 | ) | | | (111,650 | ) | | | (51,958 | ) | | | (115,650 | ) | | | (34,189 | ) | | | (389,960 | ) | Impairment | | | — | | | | — | | | | — | | | | (1,811 | ) | | | — | | | | (1,632 | ) | | | (3,443 | ) | Others | | | — | | | | (54 | ) | | | 758 | | | | 839 | | | | — | | | | 7,844 | | | | 9,387 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 2010.12.31 | | (Won) | 39,612 | | | (Won) | 9,104 | | | (Won) | 346,206 | | | (Won) | 170,396 | | | (Won) | 580,916 | | | (Won) | 86,632 | | | (Won) | 1,232,866 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2009 | | (In millions of Korean won) | | Goodwill | | | Industrial rights | | | Development costs | | | Software | | | Frequency usage rights | | | Other intangible assets | | | Total | | Balance at 2009.1.1 | | (Won) | 228,394 | | | (Won) | 10,203 | | | (Won) | 193,793 | | | (Won) | 106,147 | | | (Won) | 812,137 | | | (Won) | 123,564 | | | (Won) | 1,474,238 | | Acquisition | | | — | | | | 1,785 | | | | 140,208 | | | | 60,401 | | | | — | | | | 12,721 | | | | 215,115 | | Amortization | | | (137,487 | ) | | | (1,865 | ) | | | (102,366 | ) | | | (45,594 | ) | | | (115,649 | ) | | | (23,057 | ) | | | (426,018 | ) | Impairment | | | (1,840 | ) | | | — | | | | (714 | ) | | | (1,261 | ) | | | — | | | | (3,927 | ) | | | (7,742 | ) | Others | | | (3,752 | ) | | | 348 | | | | (3,327 | ) | | | 45,877 | | | | — | | | | (15,239 | ) | | | 23,907 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 2009.12.31 | | (Won) | 85,315 | | | (Won) | 10,471 | | | (Won) | 227,594 | | | (Won) | 165,570 | | | (Won) | 696,488 | | | (Won) | 94,062 | | | (Won) | 1,279,500 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The research and development expense for the years ended December 31, 2010 and 2009, are as follows:
| | | | | | | | | | | | | (In millions of Korean won) | | 2010 | | | 2009 | | | 2008 | | Research expense | | (Won) | 268,681 | | | (Won) | 239,507 | | | (Won) | 235,508 | | Development expense | | | 26,388 | | | | 23,706 | | | | 47,639 | | | | | | | | | | | | | | | Total | | (Won) | 295,069 | | | (Won) | 263,213 | | | (Won) | 283,147 | | | | | | | | | | | | | | |
As a significant expenditure, which is expected to have future economic benefits but is not capitalized in the year incurred because they are not under the Company’s control, training expense amounted to(Won)31,832 million (2009:(Won)23,575 million).
10. Insurance
As of December 31, 2010, the summary of assets covered under the insurance programs with various insurance companies are as follows:
| | | | | | | | | | | | | | | Coverage | | (In millions of Korean won) | | Insurance type | | 2010 | | | 2009 | | Inventories | | Theft and fire | | (Won) | 145,100 | | | (Won) | 167,129 | | Buildings | | Fire and other | | | 1,326,221 | | | | 1,347,580 | | Machinery | | Property package and other | | | 551,937 | | | | 195,454 | | Vessel (vehicles) | | Vessel and other | | | 69,814 | | | | 63,225 | | Others 1 | | Fire and other | | | 452,492 | | | | 481,139 | | | | | | | | | | | | | Total | | | | (Won) | 2,545,564 | | | (Won) | 2,254,527 | | | | | | | | | | | | |
1 | Includes insurance for structures, finance lease receivables, other fixed assets and officers liability. |
11. Government Grants and Customers’ Contribution.
The changes in government grants and customers’ contribution to construction costs which are incurred in acquisition of assets for the years ended December 31, 2010 and 2009, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | 2010 | | (In millions of Korean won) | | 2010.1.1 | | | Increase | | | Decrease | | | Transfer | | | 2010.12.31 | | Land | | (Won) | 132 | | | (Won) | — | | | (Won) | — | | | (Won) | — | | | (Won) | 132 | | Buildings | | | 2,667 | | | | — | | | | (108 | ) | | | — | | | | 2,559 | | Structures | | | 1,327 | | | | — | | | | (231 | ) | | | — | | | | 1,096 | | Equipment | | | 111,380 | | | | 218 | | | | (39,718 | ) | | | 21,109 | | | | 92,989 | | Others | | | 2,236 | | | | 28 | | | | (1,324 | ) | | | 1,300 | | | | 2,240 | | Construction- in-progress | | | 60,623 | | | | 4,496 | | | | — | | | | (22,409 | ) | | | 42,710 | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 178,365 | | | (Won) | 4,742 | | | (Won) | (41,381 | ) | | (Won) | — | | | (Won) | 141,726 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 2009 | | (In millions of Korean won) | | 2009.1.1 | | | Increase | | | Decrease | | | Transfer | | | 2009.12.31 | | Land | | (Won) | 132 | | | (Won) | — | | | (Won) | — | | | (Won) | — | | | (Won) | 132 | | Buildings | | | 2,188 | | | | — | | | | (233 | ) | | | 712 | | | | 2,667 | | Structures | | | 1,507 | | | | — | | | | (185 | ) | | | 5 | | | | 1,327 | | Equipment | | | 119,311 | | | | — | | | | (50,238 | ) | | | 42,307 | | | | 111,380 | | Others | | | 1,786 | | | | — | | | | (1,311 | ) | | | 1,761 | | | | 2,236 | | Construction- in-progress | | | 107,675 | | | | 16,440 | | | | (18,707 | ) | | | (44,785 | ) | | | 60,623 | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 232,599 | | | (Won) | 16,440 | | | (Won) | (70,674 | ) | | (Won) | — | | | (Won) | 178,365 | | | | | | | | | | | | | | | | | | | | | | |
13. Derivatives
During the years ended December 31, 2010, 2009 and 2008, the Company entered into various derivatives contracts with financial institutions as below.
| | | | | Type of transaction
| | Financial institution
| | Description
| Interest rate swaps
| | Merrill Lynch and others
| | Exchange fixed interest rate for variable
interest rate for a specified period
| Currency swaps
| | Merrill Lynch and others
| | Exchange foreign currency cash flow for local currency
cash flow local currency cash flow for a specified period
| Combined interest rate currency swap
| | Merrill Lynch and others
| | Exchange foreign currency variable interest rate swaps
for local currency fixed interest rate
| Currency forward
| | Kookmin Bank and others
| | Exchange a specified currency at the agreed exchange
rate at a specified date
|
Details of the above derivative contracts as of December 31, 2010 are as follows:
Currency swap contracts
| | | | | | | | | | | | | | | | | | | | | | | | | | | Contract | | | Settlement | | | Contract amounts in millions | | | Contract interest rate per annum | | Counterparty | | Year | | | Year | | | Pay | | | Receive | | | Pay (%) | | | Receive%) | | Merrill Lynch | | | 2005 | | | | 2034 | | | KRW | 2,003 | | | US$ | 20 | | | | 6.24 | | | | 6.50 | | CITI | | | 2007 | | | | 2012 | | | KRW | 46,800 | | | JPY | 50 | | | | 4.79 | | | | 5.13 | | Merrill Lynch | | | 2007 | | | | 2012 | | | KRW | 46,800 | | | US$ | 50 | | | | 4.79 | | | | 5.13 | | Goldman Sachs | | | 2007 | | | | 2012 | | | KRW | 46,800 | | | US$ | 50 | | | | 4.79 | | | | 5.13 | | JPMorgan | | | 2008 | | | | 2012 | | | KRW | 62,972 | | | JPY | 50 | | | | 5.34 | | | | 5.13 | | JPMorgan | | | 2004 | | | | 2014 | | | KRW | 115,620 | | | US$ | 100 | | | | 5.50 | | | | 5.88 | | JPMorgan | | | 2004 | | | | 2014 | | | KRW | 231,240 | | | US$ | 200 | | | | 5.50 | | | | 5.875 x n/N | | Merrill Lynch | | | 2004 | | | | 2014 | | | KRW | 116,400 | | | US$ | 100 | | | | 4.99 | | | | 5.875 x n/N | | Merrill Lynch | | | 2004 | | | | 2014 | | | KRW | 53,325 | | | US$ | 50 | | | | 4.65 | | | | 5.875 x n/N | | Deutsche Bank | | | 2004 | | | | 2014 | | | KRW | 53,325 | | | US$ | 50 | | | | 4.65 | | | | 5.875 x n/N | | Merrill Lynch | | | 2005 | | | | 2014 | | | KRW | 50,170 | | | US$ | 50 | | | | 4.97 | | | | 5.875 x n/N | | Credit Suisse | | | 2005 | | | | 2014 | | | KRW | 50,175 | | | US$ | 50 | | | | 4.97 | | | | 5.875 x n/N | | Merrill Lynch | | | 2005 | | | | 2015 | | | KRW | 51,800 | | | US$ | 50 | | | | 4.57 | | | | 4.875 x n/N | | UBS AG | | | 2005 | | | | 2015 | | | KRW | 51,850 | | | US$ | 50 | | | | 4.57 | | | | 4.875 x n/N | | BTMU | | | 2008 | | | | 2011 | | | KRW | 106,740 | | | JPY | 12,500 | | | | 4.61 | | | | 3M JPY Libor+0.60 | | CA | | | 2008 | | | | 2011 | | | KRW | 50,750 | | | US$ | 50 | | | | 3.72 | | | | 3M USD Libor+1.50 | | HSBC | | | 2008 | | | | 2012 | | | KRW | 81,200 | | | US$ | 80 | | | | 4.08 | | | | 3M USD Libor+1.60 | | BNP | | | 2008 | | | | 2012 | | | KRW | 30,450 | | | US$ | 30 | | | | 4.08 | | | | 3M USD Libor+1.60 | | DBS | | | 2008 | | | | 2013 | | | KRW | 217,940 | | | US$ | 200 | | | | 5.57 | | | | 3M USD Libor+1.50 | | DBS | | | 2010 | | | | 2013 | | | KRW | 112,200 | | | US$ | 100 | | | | 4.07 | | | | 3M USD Libor+0.47 | | CA | | | 2008 | | | | 2011 | | | KRW | 66,150 | | | US$ | 70 | | | | 4.88 | | | | 3M USD Libor+1.50 | | ANZ | | | 2008 | | | | 2011 | | | KRW | 33,075 | | | US$ | 35 | | | | 4.76 | | | | 3M USD Libor+1.50 | | ABN | | | 2008 | | | | 2011 | | | KRW | 28,335 | | | US$ | 30 | | | | 4.97 | | | | 3M USD Libor+1.50 | | Hanabank | | | 2008 | | | | 2011 | | | KRW | 18,912 | | | US$ | 20 | | | | 4.52 | | | | 3M USD Libor+1.50 | | Nonghyop | | | 2008 | | | | 2011 | | | KRW | 18,900 | | | US$ | 20 | | | | 4.52 | | | | 3M USD Libor+1.50 | | BTMU | | | 2008 | | | | 2011 | | | KRW | 39,124 | | | US$ | 4,000 | | | | 5.03 | | | | 3M JPY Libor+1.60 | | Mizuho | | | 2008 | | | | 2011 | | | KRW | 28,643 | | | US$ | 3,000 | | | | 5.10 | | | | 3M JPY Libor+1.60 | | DBS | | | 2008 | | | | 2011 | | | KRW | 51,400 | | | US$ | 50 | | | | 5.84 | | | | 3M USD Libor+1.60 | | Wooriinvest | | | 2008 | | | | 2011 | | | KRW | 15,420 | | | US$ | 15 | | | | 5.82 | | | | 3M USD Libor+1.60 | | BNP | | | 2008 | | | | 2011 | | | KRW | 31,500 | | | US$ | 30 | | | | 5.88 | | | | 3M USD Libor+1.60 | | Wooribank | | | 2008 | | | | 2011 | | | KRW | 31,500 | | | US$ | 30 | | | | 5.77 | | | | 3M USD Libor+2.00 | | Korea Export Insurance Corporation | | | 2010 | | | | 2011 | | | USD | 4 | | | KRW | 4,411 | | | | — | | | | — | | Kookmin Bank | | | 2008 | | | | 2012 | | | USD | 13 | | | KRW | 14,593 | | | | — | | | | — | |
Interest rate swap contracts
| | | | | | | | | | | Counterparty
| | Contract
period | | | Notional amount
in millions | | Pay (%) | | Receive (%) | Merrill Lynch
| | | 2007-2015 | | | USD 100 | | KRW CD+4.44% | | KRW 8.36% | Merrill Lynch
| | | 2008-2011 | | | KRW 180,000 | | KRW 4.875% x m/N
+ KRW 4.875% x n/N
| | USD 4.875% x n/N | Kookmin Bank
| | | 2008-2011 | | | KRW 20,000 | | CD+1.45% | | 6.55% | Kookmin Bank
| | | 2008-2011 | | | KRW 10,000 | | CD+1.35% | | 6.71% | Daegu Bank
| | | 2008-2011 | | | USD 3 | | 8.43% | | USD
Libor(3M)+4.00
|
The assets and liabilities relating to outstanding contracts as of December 31, 2010 and 2009 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | 2010 | | (In millions of Korean won and thousands of foreign currencies) | | Contract amount | | | Assets (Current) | | | Assets (Non-current) | | | Liabilities (Current) | | | Liabilities (Non-current) | | Interest rate swap | | KRW | 210,000 | | | (Won) | 1,213 | | | (Won) | — | | | (Won) | 214 | | | (Won) | — | | | USD | 100,000 | | | | | | Currency swap | | USD | 223,771 | | | | 479 | | | | 34,193 | | | | — | | | | 6,560 | | Combined interest rate currency swap | | USD
JPY | 1,460,000
19,500,000 |
| | | 149,415 | | | | 62,973 | | | | — | | | | 13,277 | | Currency forward | | USD | 16,976 | | | | 136 | | | | — | | | | 14 | | | | 406 | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | (Won) | 151,243 | | | (Won) | 97,166 | | | (Won) | 228 | | | (Won) | 20,243 | | | | | | | | | | | | | | | | | | | | | | | | | | | 2009 | | (In millions of Korean won and thousands of foreign currencies) | | Contract amount | | | Assets (Current) | | | Assets (Non-current) | | | Liabilities (Current) | | | Liabilities (Non-current) | | Interest rate swap | | KRW | 256,000 | | | (Won) | — | | | (Won) | 23 | | | (Won) | 5,118 | | | (Won) | 656 | | | USD | 100,000 | | | | | | Currency swap | | USD | 220,000 | | | | — | | | | 47,547 | | | | — | | | | 3,782 | | Combined interest rate currency swap | | USD
JPY | 1,410,000
19,500,000 |
| | | — | | | | 247,488 | | | | — | | | | — | | Currency forward | | USD | 30,208 | | | | 288 | | | | — | | | | 6 | | | | 1,717 | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | (Won) | 288 | | | (Won) | 295,058 | | | (Won) | 5,124 | | | (Won) | 6,155 | | | | | | | | | | | | | | | | | | | | | | |
Details of the currency swap and combined interest rate currency swap contracts to which hedge accounting is applied as of December 31, 2010 and 2009, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Assets (Current) | | | Assets (Non-current) | | | Liabilities (Non-current) | | (In millions of Korean won and thousands of foreign currencies) | | Contract date | | | Maturity date | | | Contract amount | | | 2010.12.31 | | | 2009.12.31 | | | 2010.12.31 | | | 2009.12.31 | | | 2010.12.31 | | | 2009.12.31 | | Cash flow hedge | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Currency swap 1 | | | 2007.4.4 | | | | 2012.4.11 | | | USD | 150,000 | | | (Won) | — | | | (Won) | — | | | (Won) | 34,193 | | | (Won) | 42,839 | | | (Won) | — | | | (Won) | — | | | | | 2008.10.6 | | | | 2012.4.11 | | | USD | 50,000 | | | | — | | | | — | | | | — | | | | — | | | | 5,930 | | | | 3,782 | | | | | 2009.6.20 | | | | 2034.9.7 | | | USD | 20,000 | | | | — | | | | — | | | | — | | | | 4,708 | | | | 630 | | | | — | | Combined | | | 2008.1.4 | | | | 2011.1.11 | | | JPY | 12,500,000 | | | | 67,510 | | | | — | | | | — | | | | 48,908 | | | | — | | | | — | | interest rate | | | 2008.3.20 | | | | 2011.3.31 | | | USD | 50,000 | | | | 6,220 | | | | — | | | | — | | | | 7,751 | | | | — | | | | — | | currency swap 1 | | | 2008.3.20 | | | | 2012.3.31 | | | USD | 110,000 | | | | — | | | | — | | | | 12,366 | | | | 18,233 | | | | — | | | | — | | | | | 2008.9.2 | | | | 2013.9.11 | | | USD | 200,000 | | | | — | | | | — | | | | — | | | | 5,988 | | | | 9,527 | | | | — | | | | | 2010.4.9 | | | | 2013.4.9 | | | USD | 100,000 | | | | — | | | | — | | | | — | | | | — | | | | 3,750 | | | | — | | | | | 2009.6.20 | | | | 2014.6.24 | | | USD | 600,000 | | | | — | | | | — | | | | 38,443 | | | | 66,812 | | | | — | | | | — | | | | | 2009.6.20 | | | | 2015.7.15 | | | USD | 100,000 | | | | — | | | | — | | | | 12,164 | | | | 20,172 | | | | — | | | | — | | | | | 2008.2.25 | | | | 2011.2.25 | | | USD | 175,000 | | | | 33,735 | | | | — | | | | — | | | | 37,236 | | | | — | | | | — | | | | | 2008.4.28 | | | | 2011.4.28 | | | JPY | 7,000,000 | | | | 29,998 | | | | — | | | | — | | | | 20,098 | | | | — | | | | — | | | | | 2008.6.20 | | | | 2011.6.20 | | | USD | 95,000 | | | | 9,269 | | | | — | | | | — | | | | 10,522 | | | | — | | | | — | | | | | 2008.3.12 | 2 | | | 2010.12.13 | | | USD | — | | | | — | | | | — | | | | — | | | | 8,785 | | | | — | | | | — | | | | | 2008.7.2 | | | | 2011.4.4 | | | USD | 30,000 | | | | 2,683 | | | | — | | | | — | | | | 2,983 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Sub-total | | | | | | | | | | | | | | | 149,415 | | | | — | | | | 97,166 | | | | 295,035 | | | | 19,837 | | | | 3,782 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair value hedge | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swap 3 | | | 2009.9.1 | | | | 2011.12.1 | | | KRW | 180,000 | | | | 1,213 | | | | — | | | | — | | | | 23 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | | | (Won) | 150,628 | | | (Won) | — | | | (Won) | 97,166 | | | (Won) | 295,058 | | | (Won) | 19,837 | | | (Won) | 3,782 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 | In applying the cash flow hedge accounting, the Company hedges its exposures to cash flow fluctuation until September 7, 2034. Approximately(Won)6,37497,827 million of net derivative loss included in accumulated other comprehensive income at December 31, 2010, is expected to be recognized in current operations within 12 months from that date.(2011:₩ |
2 | The remaining principal of the derivative is repaid at maturity during the year ended December 31, 2010. |
3 | Above interest rate swap contract is to hedge the risk of variability in future fair value from the bond and, accordingly, the loss on valuation of the swap contract amounting to(Won)1,190106,951 million, is included in operations2012:₩116,810 million) for the year ended December 31, 2010. |
The valuation gains and losses on the derivatives contracts for years ended December 31, 2010, 2009 and 2008, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | 2010 | | (In millions of Korean won) | | For trading | | | For hedging | | Type of Transaction | | Valuation gain 1 | | | Valuation loss | | | Valuation gain | | | Valuation loss | | | Accumulated other comprehensive loss 2 | | Interest rate swap | | (Won) | 4,999 | | | (Won) | — | | | (Won) | 1,190 | | | (Won) | — | | | (Won) | — | | Currency swap | | | — | | | | — | | | | — | | | | 6,322 | | | | (11,942 | ) | Combined interest rate currency swap | | | — | | | | — | | | | 33,595 | | | | 41,385 | | | | (38,476 | ) | Currency forward | | | 1,447 | | | | 14 | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 6,446 | | | (Won) | 14 | | | (Won) | 34,785 | | | (Won) | 47,707 | | | (Won) | (50,418 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | 2009 | | (In millions of Korean won) | | For trading | | | For hedging | | Type of Transaction | | Valuation gain 1 | | | Valuation loss | | | Valuation gain | | | Valuation loss | | | Accumulated other comprehensive income 2 | | Interest rate swap | | (Won) | 6,883 | | | (Won) | — | | | (Won) | 23 | | | (Won) | — | | | (Won) | — | | Currency swap | | | — | | | | 9,574 | | | | 250 | | | | 17,005 | | | | (3,809 | ) | Combined interest rate currency swap | | | 6,178 | | | | 75,401 | | | | 4,605 | | | | 89,282 | | | | (23,095 | ) | Currency forward | | | 3,317 | | | | 6 | | | | — | | | | — | | | | — | | Put option | | | 223 | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 16,601 | | | (Won) | 84,981 | | | (Won) | 4,878 | | | (Won) | 106,287 | | | (Won) | (26,904 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | 2008 | | (In millions of Korean won) | | For trading | | | For hedging | | Type of Transaction | | Valuation gain | | | Valuation loss | | | Valuation gain | | | Valuation loss | | | Accumulated other comprehensive income 2 | | Interest rate swap | | (Won) | — | | | (Won) | 10,798 | | | (Won) | — | | | (Won) | — | | | (Won) | — | | Currency swap | | | 17,626 | | | | — | | | | 54,905 | | | | 97 | | | | 11,708 | | Combined interest rate currency swap | | | 297,925 | | | | — | | | | 267,655 | | | | — | | | | (22,146 | ) | Currency forward | | | — | | | | 6,088 | | | | — | | | | — | | | | — | | Put option | | | 12,569 | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 328,120 | | | (Won) | 16,886 | | | (Won) | 322,560 | | | (Won) | 97 | | | (Won) | (10,438 | ) | | | | | | | | | | | | | | | | | | | | | |
1 | In accordance with SKAS No. 24,Preparation and Presentation of Financial Statements II (Financial Industry), the gain on valuation of currency forwards amounting to(Won)1,311 million for the year ended December 31, 2010, and the gain on valuation of currency forwards amounting to(Won)3,029 million and the gain on valuation of interest rate swap amounting to(Won)807 million for the year ended December 31, 2009, recorded by KT Capital are classified as operating income.2013. |
2 | The amounts directly reflected in equity before adjustments of deferred income tax. |
3 | During the year, the certain derivatives of the Group were settled and the related gain or loss on valuation of cash flow hedge in other comprehensive income was reclassified to profit or loss for the year. |
4 | The amounts reflected as interest expense arising from derivatives. |
5. Cash and Cash Equivalents Cash and cash equivalents as of December 31, 2012 and 2013, are as follows: | | | | | | | | | (In millions of Korean won) | | 2012 | | | 2013 | | Cash on hand | | ₩ | 5,943 | | | ₩ | 5,712 | | Cash in banks | | | 860,956 | | | | 885,620 | | Money market trust | | | 768,259 | | | | 817,466 | | Other financial instruments | | | 422,455 | | | | 362,071 | | | | | | | | | | | Total | | ₩ | 2,057,613 | | | ₩ | 2,070,869 | | | | | | | | | | |
Cash and cash equivalents in the statement of financial position equal cash and cash equivalents in the statements of cash flows. Restricted cash and cash equivalents as of December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | (In millions of Korean won) | | Type | | 2012 | | | 2013 | | | Description | | Cash and cash equivalents | | Restricted deposit | | ₩ | 6,690 | | | ₩ | 1,998 | | | | Deposit restricted for governmental project | |
6. Trade and Other Receivables Trade and other receivables as of December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | 2012 | | (in millions of Korean won) | | Total amounts | | | Allowance for doubtful accounts | | | Present value discount | | | Carrying value | | Current assets | | | | | | | | | | | | | | | | | Trade receivables | | ₩ | 4,468,062 | | | ₩ | (464,126 | ) | | ₩ | (30,906 | ) | | ₩ | 3,973,030 | | Other receivables | | | 2,101,533 | | | | (166,204 | ) | | | (851 | ) | | | 1,934,478 | | | | | | | | | | | | | | | | | | | Total | | ₩ | 6,569,595 | | | ₩ | (630,330 | ) | | ₩ | (31,757 | ) | | ₩ | 5,907,508 | | | | | | | | | | | | | | | | | | | Non-current assets | | | | | | | | | | | | | | | | | Trade receivables | | ₩ | 688,303 | | | ₩ | (3,992 | ) | | ₩ | (52,252 | ) | | ₩ | 632,059 | | Other receivables | | | 494,494 | | | | (9,736 | ) | | | (43,851 | ) | | | 440,907 | | | | | | | | | | | | | | | | | | | Total | | ₩ | 1,182,797 | | | ₩ | (13,728 | ) | | ₩ | (96,103 | ) | | ₩ | 1,072,966 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | Total amounts | | | Allowance for doubtful accounts | | | Present value discount | | | Carrying value | | Current assets | | | | | | | | | | | | | | | | | Trade receivables | | ₩ | 3,791,089 | | | ₩ | (523,098 | ) | | ₩ | (28,248 | ) | | ₩ | 3,239,743 | | Other receivables | | | 2,143,203 | | | | (142,821 | ) | | | (556 | ) | | | 1,999,826 | | | | | | | | | | | | | | | | | | | Total | | ₩ | 5,934,292 | | | ₩ | (665,919 | ) | | ₩ | (28,804 | ) | | ₩ | 5,239,569 | | | | | | | | | | | | | | | | | | | Non-current assets | | | | | | | | | | | | | | | | | Trade receivables | | ₩ | 404,372 | | | ₩ | (2,568 | ) | | ₩ | (33,539 | ) | | ₩ | 368,265 | | Other receivables | | | 500,028 | | | | (9,775 | ) | | | (45,047 | ) | | | 445,206 | | | | | | | | | | | | | | | | | | | Total | | ₩ | 904,400 | | | ₩ | (12,343 | ) | | ₩ | (78,586 | ) | | ₩ | 813,471 | | | | | | | | | | | | | | | | | | |
The fair values of trade and other receivables with original maturities less than one year equal their carrying values because the discounting effect is immaterial. The fair value of trade and other receivables with original maturities longer than one year, which are mainly from sales of goods, is determined discounting the expected future cash flow at the weighted average borrowing rate. Details of changes in allowance for doubtful accounts for the years ended December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | 2012 | | | 2013 | | (in millions of Korean won) | | Trade receivables | | | Other receivables | | | Trade receivables | | | Other receivables | | Beginning balance | | ₩ | 473,311 | | | ₩ | 169,164 | | | ₩ | 468,118 | | | ₩ | 175,940 | | Provision | | | 99,037 | | | | 14,771 | | | | 151,240 | | | | 8,926 | | Reversal or written-off | | | (117,567 | ) | | | (9,622 | ) | | | (92,979 | ) | | | (34,227 | ) | Changes in the scope of consolidation | | | 10,487 | | | | 1,632 | | | | 338 | | | | 2,349 | | Others | | | 2,850 | | | | (5 | ) | | | (1,051 | ) | | | (392 | ) | | | | | | | | | | | | | | | | | | Ending balance | | ₩ | 468,118 | | | ₩ | 175,940 | | | ₩ | 525,666 | | | ₩ | 152,596 | | | | | | | | | | | | | | | | | | |
Provisions for doubtful trade and other receivables are recognized as operating expenses or finance costs. Details of aging analysis of trade receivables as of December 31, 2012 and 2013, are as follows: | | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Neither past due nor impaired | | ₩ | 3,874,113 | | | ₩ | 2,959,284 | | | | | | | | | | | Past due and impaired | | | | | | | | | Up to six months | | | 700,683 | | | | 725,681 | | Six months to twelve months | | | 131,928 | | | | 105,607 | | Over twelve months | | | 366,483 | | | | 343,102 | | | | | | | | | | | | | | 1,199,094 | | | | 1,174,390 | | Allowance for doubtful accounts | | | (468,118 | ) | | | (525,666 | ) | | | | | | | | | | Total | | ₩ | 4,605,089 | | | ₩ | 3,608,008 | | | | | | | | | | |
The detail of other receivables as of December 31, 2012 and 2013, are as follows: | | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Loans | | ₩ | 131,324 | | | ₩ | 89,134 | | Receivables 1 | | | 2,029,077 | | | | 2,096,086 | | Accrued income | | | 24,656 | | | | 22,603 | | Refundable deposits | | | 365,161 | | | | 389,199 | | Others | | | 1,107 | | | | 606 | | Allowance | | | (175,940 | ) | | | (152,596 | ) | | | | | | | | | | Total | | ₩ | 2,375,385 | | | ₩ | 2,445,032 | | | | | | | | | | | Current | | | 1,934,478 | | | | 1,999,826 | | Non-current | | | 440,907 | | | | 445,206 | |
1 | The settlement receivables of BC Card Co., Ltd. of₩1,553,823 million (2012:₩1,343,859 million) included. |
Details of aging analysis of other receivables as of December 31, 2012 and 2013, are as follows: | | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Neither past due nor impaired | | ₩ | 2,180,948 | | | ₩ | 2,312,757 | | | | | | | | | | | Past due and impaired | | | | | | | | | Up to six months | | | 193,559 | | | | 105,712 | | Six months to twelve months | | | 21,041 | | | | 16,641 | | Over twelve months | | | 155,777 | | | | 162,518 | | | | | | | | | | | | | | 370,377 | | | | 284,871 | | Allowance for doubtful accounts | | | (175,940 | ) | | | (152,596 | ) | | | | | | | | | | Total | | ₩ | 2,375,385 | | | ₩ | 2,445,032 | | | | | | | | | | |
The maximum exposure of trade and other receivables to credit risk is the carrying value of each class of receivables mentioned above as of December 31, 2013. As of December 31, 2013, the Company is provided with guarantees of₩667,817 million by Seoul Guarantee Insurance related to the collection of certain accounts receivable arising from the handset sales. 7. Loans Receivable Loans receivable are from the Group’s Finance/Rental Business Group, which provides credit card, loan and lease services. Loans receivable as of December 31, 2012 and 2013, are as follows: Current | | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | | 2013 | | (in millions of Korean won) | | Original amount | | | Allowance for doubtful accounts | | | Carrying Value | | | Original amount | | | Allowance for doubtful accounts | | | Carrying Value | | Factoring receivables | | ₩ | 71,293 | | | ₩ | — | | | ₩ | 71,293 | | | ₩ | 82,994 | | | ₩ | (1,245 | ) | | ₩ | 81,749 | | Loans | | | 581,351 | | | | (33,256 | ) | | | 548,095 | | | | 752,165 | | | | (32,722 | ) | | | 719,443 | | Loans for installment credit | | | 49,205 | | | | (1,235 | ) | | | 47,970 | | | | 38,799 | | | | (1,205 | ) | | | 37,594 | | Deferred loan origination costs | | | 755 | | | | — | | | | 755 | | | | (62 | ) | | | — | | | | (62 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | ₩ | 702,604 | | | ₩ | (34,491 | ) | | ₩ | 668,113 | | | ₩ | 873,896 | | | ₩ | (35,172 | ) | | ₩ | 838,724 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-Current | | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | | 2013 | | (in millions of Korean won) | | Original amount | | | Allowance for doubtful accounts | | | Carrying Value | | | Original amount | | | Allowance for doubtful accounts | | | Carrying Value | | Factoring receivables | | ₩ | 6,051 | | | ₩ | (1,599 | ) | | ₩ | 4,452 | | | ₩ | 1,073 | | | ₩ | (103 | ) | | ₩ | 970 | | Loans | | | 406,410 | | | | (15,161 | ) | | | 391,249 | | | | 426,218 | | | | (15,929 | ) | | | 410,289 | | Loans for installment credit | | | 66,517 | | | | (1,935 | ) | | | 64,582 | | | | 46,849 | | | | (5,007 | ) | | | 41,842 | | Deferred loan origination costs | | | 2,336 | | | | — | | | | 2,336 | | | | 3,432 | | | | — | | | | 3,432 | | New technology financial investment assets | | | 6,788 | | | | (2,433 | ) | | | 4,355 | | | | 6,629 | | | | (803 | ) | | | 5,826 | | New technology financial loans | | | 55,190 | | | | (9,577 | ) | | | 45,613 | | | | 63,575 | | | | (16,061 | ) | | | 47,514 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | ₩ | 543,292 | | | ₩ | (30,705 | ) | | ₩ | 512,587 | | | ₩ | 547,776 | | | ₩ | (37,903 | ) | | ₩ | 509,873 | | | | | | | | | | | | | | | | | | | | | | | | | | |
The fair values of trade and other receivables with maturities less than one year equal their carrying values because the discounting effect is immaterial. The fair value of loans receivables is determined discounting the future cash flow at the weighted average borrowing rate. Details of changes in allowance for doubtful accounts for the years ended December 31, 2012 and 2013, are as follows: | | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Beginning | | ₩ | 43,587 | | | ₩ | 65,196 | | Provision | | | 32,914 | | | | 40,743 | | Reversal or written-off | | | (12,210 | ) | | | (30,448 | ) | Others | | | 905 | | | | (2,416 | ) | | | | | | | | | | Ending | | ₩ | 65,196 | | | ₩ | 73,075 | | | | | | | | | | |
Provisions for doubtful loans receivable are recognized as operating expenses. Details of aging analysis of loans receivables as of December 31, 2012 and 2013, are as follows: | | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Neither past due nor impaired | | ₩ | 1,155,838 | | | ₩ | 1,322,206 | | | | | | | | | | | Past due and impaired | | | | | | | | | Up to six months | | | 75,942 | | | | 54,263 | | Six months to twelve months | | | 3,767 | | | | 27,312 | | Over twelve months | | | 10,349 | | | | 7,891 | | | | | | | | | | | | | | 90,058 | | | | 89,466 | | Allowance for doubtful accounts | | | (65,196 | ) | | | (73,075 | ) | | | | | | | | | | Total | | ₩ | 1,180,700 | | | ₩ | 1,348,597 | | | | | | | | | | |
The maximum exposure of loans receivables to credit risk is carrying value as of December 31, 2013. 8. Other Financial Assets and Liabilities Other financial assets and liabilities as of December 31, 2012 and 2013, are as follows: | | | | | | | | | (In millions of Korean won) | | 2012 | | | 2013 | | Other financial assets | | | | | | | | | Assets at fair value through the profit and loss | | ₩ | 6,407 | | | ₩ | 15,643 | | Derivatives used for hedge | | | 21,348 | | | | 3,496 | | Financial instruments 1 | | | 460,394 | | | | 582,693 | | Available-for-sale financial assets | | | 429,875 | | | | 547,627 | | Held-to-maturity investments | | | 436 | | | | 3,248 | | Less: Non-current | | | (672,475 | ) | | | (672,645 | ) | | | | | | | | | | Current | | ₩ | 245,985 | | | ₩ | 480,062 | | | | | | | | | | | Other financial liabilities | | | | | | | | | Liabilities at fair value through the profit and loss | | ₩ | 3,216 | | | ₩ | 2,956 | | Derivatives used for hedge | | | 112,603 | | | | 150,612 | | Financial guarantee liabilities 2 | | | 9,328 | | | | 15,984 | | Other financial liabilities | | | 16,649 | | | | 73,080 | | Less: Non-current | | | (69,813 | ) | | | (178,812 | ) | | | | | | | | | | Current | | ₩ | 71,983 | | | ₩ | 63,820 | | | | | | | | | | |
1 | Financial assets amounting to₩23,870 million (2012:₩20,834 million) and₩70 million (2012:₩77 million) are collaterals pledged against the investee’s debt and checking account deposit, which are subject to withdrawal restrictions. |
2 | As of December 31, 2013, the Company has funding obligation to Smart Channel Co., Ltd. The related financial guarantee liabilities of₩5,393 million are recognized (Note 20). |
Financial instruments at fair value through the profit and loss as of December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | 2012 | | | 2013 | | (in millions of Korean won) | | Assets | | | Liabilities | | | Assets | | | Liabilities | | Financial instruments held for trading | | | | | | | | | | | | | | | | | Interest rate swap | | ₩ | 1 | | | ₩ | 63 | | | ₩ | 1 | | | ₩ | — | | Currency swap | | | — | | | | — | | | | 7,238 | | | | — | | Currency forward | | | 119 | | | | — | | | | 499 | | | | 6 | | Other derivatives | | | 6,287 | | | | — | | | | 7,905 | | | | 148 | | Financial instruments at fair value through the profit and loss | | | — | | | | 3,153 | | | | — | | | | 2,802 | | | | | | | | | | | | | | | | | | | Total | | ₩ | 6,407 | | | ₩ | 3,216 | | | ₩ | 15,643 | | | ₩ | 2,956 | | | | | | | | | | | | | | | | | | |
The valuation gains and losses on financial instruments held for trading for the years ended December 31, 2011, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | 2011 | | | 2012 | | | 2013 | | (in millions of Korean won) | | Valuation gain | | | Valuation loss | | | Valuation gain | | | Valuation loss | | | Valuation gain | | | Valuation loss | | Interest rate swap | | ₩ | 3 | | | ₩ | 45 | | | ₩ | — | | | ₩ | 2 | | | ₩ | — | | | ₩ | — | | Currency swap | | | 10,229 | | | | — | | | | — | | | | — | | | | — | | | | 8,395 | | Currency forward | | | 294 | | | | 180 | | | | 118 | | | | — | | | | 499 | | | | 6 | | Other derivatives | | | 2,271 | | | | 36 | | | | — | | | | — | | | | 3,789 | | | | 1,467 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | ₩ | 12,797 | | | ₩ | 261 | | | ₩ | 118 | | | ₩ | 2 | | | ₩ | 4,288 | | | ₩ | 9,868 | | | | | | | | | | | | | | | | | | | | | | | | | | |
The valuation gains and losses on financial instruments at fair value through the profit and loss for the years ended December 31, 2011, 2012 and 2013, are as follows: | | | | | | | | | | | | | (In millions of Korean won) | | 2011 | | | 2012 | | | 2013 | | Foreign currency translation gain | | ₩ | — | | | ₩ | 199 | | | ₩ | 42 | | Gain on transactions | | | 112 | | | | 547 | | | | — | | Gain on valuations | | | 273 | | | | 135 | | | | 309 | | | | | | | | | | | | | | | Total | | ₩ | 385 | | | ₩ | 881 | | | ₩ | 351 | | | | | | | | | | | | | | |
The maximum exposure of debt securities of financial instruments at fair value through the profit and loss to credit risk is carrying value as of December 31, 2013. Derivatives used for hedge as of December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | 2012 | | | 2013 | | (in millions of Korean won) | | Assets | | | Liabilities | | | Assets | | | Liabilities | | Interest rate swap 1 | | ₩ | — | | | ₩ | 1,340 | | | ₩ | — | | | ₩ | 934 | | Currency swap 2 | | | 21,348 | | | | 111,263 | | | | 3,496 | | | | 149,678 | | | | | | | | | | | | | | | | | | | Total | | | 21,348 | | | | 112,603 | | | | 3,496 | | | | 150,612 | | Less: Non-current | | | (21,348 | ) | | | (50,032 | ) | | | (3,496 | ) | | | (105,679 | ) | | | | | | | | | | | | | | | | | | Current | | ₩ | — | | | ₩ | 62,571 | | | ₩ | — | | | ₩ | 44,933 | | | | | | | | | | | | | | | | | | |
1 | The interest rate swap contract is to hedge the risk of variability in future fair value of the bond (Note 16). |
2 | The currency swap contract is to hedge the risk of variability in cash flow from the bond (Note 16). In applying the cash flow hedge accounting, the Company hedges its exposures to cash flow fluctuations until September 7, 2034. |
The full value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and, as a current asset or liability, if the maturity of the hedged item is less than 12 months. The valuation gains and losses on the derivatives contracts for the years ended December 31, 2011, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions of Korean won) | | 2011 | | | 2012 | | | 2013 | | Type of Transaction | | Valuation gain | | | Valuation loss | | | Accumulated other comprehensive income 1 | | | Valuation gain | | | Valuation loss | | | Accumulated other comprehensive income 1 | | | Valuation gain | | | Valuation loss | | | Accumulated other comprehensive income 1 | | Interest rate swap | | ₩ | — | | | ₩ | — | | | ₩ | (135 | ) | | ₩ | — | | | ₩ | — | | | ₩ | (1,206 | ) | | ₩ | — | | | ₩ | — | | | ₩ | 405 | | Currency swap | | | 52,727 | | | | 8,931 | | | | 83,517 | | | | — | | | | 241,356 | | | | (169,361 | ) | | | 127 | | | | 97,289 | | | | (95,792 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | ₩ | 52,727 | | | ₩ | 8,931 | | | ₩ | 83,382 | | | ₩ | — | | | ₩ | 241,356 | | | ₩ | (170,567 | ) | | ₩ | 127 | | | ₩ | 97,289 | | | ₩ | (95,387 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 | The amounts before adjustments of deferred income tax directly reflected in equity and allocation to the non-controlling interest. |
The ineffective portion recognized in profit or loss on the cash flow hedge is valuation loss of₩1,241 million for the current period (2011: valuation profit of₩2,714 million, 2012: valuation loss of₩29,183 million). Details of available-for-sale financial assets as of December 31, 2012 and 2013, are as follows: | | | | | | | | | (In millions of Korean won) | | 2012 | | | 2013 | | Marketable equity securities | | ₩ | 49,156 | | | ₩ | 55,347 | | Non-marketable equity securities | | | 369,766 | | | | 466,302 | | Marketable debt securities | | | 4,935 | | | | 25,211 | | Non-marketable debt securities | | | 6,018 | | | | 767 | | Less: Non-current | | | (424,814 | ) | | | (544,968 | ) | | | | | | | | | | Current | | ₩ | 5,061 | | | ₩ | 2,659 | | | | | | | | | | |
Changes of available-for-sale financial assets for the years ended December 31, 2012 and 2013, are as follows: | | | | | | | | | (In millions of Korean won) | | 2012 | | | 2013 | | Beginning | | ₩ | 429,065 | | | ₩ | 429,875 | | Acquisition | | | 86,622 | | | | 127,052 | | Disposal | | | (111,194 | ) | | | (66,917 | ) | Valuation 1 | | | 31,599 | | | | 65,670 | | Impairment | | | (3,401 | ) | | | (5,053 | ) | Reclassification | | | (3,762 | ) | | | (3,000 | ) | Changes in scope of consolidation | | | 1,056 | | | | — | | Others | | | (110 | ) | | | — | | | | | | | | | | | Ending | | ₩ | 429,875 | | | ₩ | 547,627 | | | | | | | | | | |
1 | The amount before adjustment of deferred income tax directly reflected in equity and allocation to the non-controlling interest. |
The maximum exposure of debt securities of available-for-sale financial assets to credit risk is carrying value as of December 31, 2013. Available-for-sale financial assets are measured at fair value. However, non-marketable equity securities that do not have quoted market prices in an active market and the fair value of which cannot be reliably measured are recognized at cost and the impairment loss is recognized if any. 9. Inventories Inventories as of December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | | 2013 | | (in millions of Korean won) | | Acquisition cost | | | Valuation allowance | | | Book Value | | | Acquisition cost | | | Valuation allowance | | | Book Value | | Merchandise | | ₩ | 702,249 | | | ₩ | (33,988 | ) | | ₩ | 668,261 | | | ₩ | 719,164 | | | ₩ | (122,919 | ) | | ₩ | 596,245 | | Goods in transit | | | 193,720 | | | | — | | | | 193,720 | | | | 611 | | | | — | | | | 611 | | Others | | | 73,326 | | | | (274 | ) | | | 73,052 | | | | 77,051 | | | | (289 | ) | | | 76,762 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | ₩ | 969,295 | | | ₩ | (34,262 | ) | | ₩ | 935,033 | | | ₩ | 796,826 | | | ₩ | (123,208 | ) | | ₩ | 673,618 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of inventories and valuation loss on inventory write-downs recognized as expenses amount to₩3,797,973 million (2011:₩4,530,779 million, 2012:₩4,568,286 million) and₩88,946 million, respectively, during the year (2011:₩23,877 million, 2012:₩23,931 million). 10. Other Assets and Liabilities Other assets and liabilities as of December 31, 2012 and 2013, are as follows: | | | | | | | | | (In millions of Korean won) | | 2012 | | | 2013 | | Other assets | | | | | | | | | Advance payments | | ₩ | 128,838 | | | ₩ | 134,758 | | Prepaid expenses | | | 244,771 | | | | 258,387 | | Others | | | 84,028 | | | | 22,199 | | Less: Non-current | | | (95,178 | ) | | | (75,748 | ) | | | | | | | | | | Current | | ₩ | 362,459 | | | ₩ | 339,596 | | | | | | | | | | | Other liabilities | | | | | | | | | Advances received | | ₩ | 146,678 | | | ₩ | 191,767 | | Withholdings | | | 93,910 | | | | 129,484 | | Unearned revenue | | | 42,208 | | | | 27,313 | | Others | | | 1,035 | | | | 1,512 | | Less: Non-current | | | (41,426 | ) | | | (2,000 | ) | | | | | | | | | | Current | | ₩ | 242,405 | | | ₩ | 348,076 | | | | | | | | | | |
11. Property and Equipment The changes in property and equipment for the years ended December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | (in millions of Korean won) | | Land | | | Buildings and structures | | | Machinery and equipment | | | Others | | | Construction- in-progress | | | Total | | Acquisition cost | | ₩ | 1,207,203 | | | ₩ | 3,578,231 | | | ₩ | 33,484,020 | | | ₩ | 2,012,681 | | | ₩ | 758,345 | | | ₩ | 41,040,480 | | Accumulated depreciation (including accumulated impairment loss and others) | | | (132 | ) | | | (1,218,432 | ) | | | (24,259,715 | ) | | | (1,445,321 | ) | | | (26,886 | ) | | | (26,950,486 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 2012.1.1 | | ₩ | 1,207,071 | | | ₩ | 2,359,799 | | | ₩ | 9,224,305 | | | ₩ | 567,360 | | | ₩ | 731,459 | | | ₩ | 14,089,994 | | Acquisition | | | 9,554 | | | | 4,582 | | | | 151,698 | | | | 447,717 | | | | 3,253,263 | | | | 3,866,814 | | Disposal/Abandonment 1 | | | (17,200 | ) | | | (42,335 | ) | | | (65,727 | ) | | | (156,694 | ) | | | (12,065 | ) | | | (294,021 | ) | Depreciation | | | — | | | | (134,673 | ) | | | (2,389,952 | ) | | | (351,539 | ) | | | — | | | | (2,876,164 | ) | Transfer in (out) | | | 16,049 | | | | 82,700 | | | | 2,922,815 | | | | 121,294 | | | | (3,142,858 | ) | | | — | | Inclusion in scope of consolidation 2 | | | 13,097 | | | | 5,565 | | | | 81 | | | | 967,914 | | | | 1,524 | | | | 988,181 | | Exclusion from scope of consolidation | | | — | | | | — | | | | (63 | ) | | | (18 | ) | | | — | | | | (81 | ) | Others | | | 14,685 | | | | (89,708 | ) | | | 9,801 | | | | 75,164 | | | | 21,701 | | | | 31,643 | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 2012.12.31 | | ₩ | 1,243,256 | | | ₩ | 2,185,930 | | | ₩ | 9,852,958 | | | ₩ | 1,671,198 | | | ₩ | 853,024 | | | ₩ | 15,806,366 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | (in millions of Korean won) | | Land | | | Buildings and structures | | | Machinery and equipment | | | Others | | | Construction- in-progress | | | Total | | Acquisition cost | | ₩ | 1,243,388 | | | ₩ | 3,264,020 | | | ₩ | 32,184,133 | | | ₩ | 3,632,642 | | | ₩ | 867,842 | | | ₩ | 41,192,025 | | Accumulated depreciation (including accumulated impairment loss and others) | | | (132 | ) | | | (1,078,090 | ) | | | (22,331,175 | ) | | | (1,961,444 | ) | | | (14,818 | ) | | | (25,385,659 | ) |
1 | Land and buildings disposed of in connection with the sale and leaseback transactions with AJU-KTM private funding real-estate investment trust No. 1 and K-REALTY CR-REIT 2 were included (Note 29). |
2 | Operating lease of₩959,056 million with KT Rental is included in changes in scope of consolidation. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | Land | | | Buildings and structures | | | Machinery and equipment | | | Others | | | Construction- in-progress | | | Total | | Acquisition cost | | ₩ | 1,243,388 | | | ₩ | 3,264,020 | | | ₩ | 32,184,133 | | | ₩ | 3,632,642 | | | ₩ | 867,842 | | | ₩ | 41,192,025 | | Accumulated depreciation (including accumulated impairment loss and others) | | | (132 | ) | | | (1,078,090 | ) | | | (22,331,175 | ) | | | (1,961,444 | ) | | | (14,818 | ) | | | (25,385,659 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 2013.1.1 | | ₩ | 1,243,256 | | | ₩ | 2,185,930 | | | ₩ | 9,852,958 | | | ₩ | 1,671,198 | | | ₩ | 853,024 | | | ₩ | 15,806,366 | | Acquisition | | | 2,718 | | | | 14,178 | | | | 417,218 | | | | 1,051,278 | | | | 2,843,801 | | | | 4,329,193 | | Disposal/Abandonment | | | (3,297 | ) | | | (21,448 | ) | | | (173,102 | ) | | | (157,278 | ) | | | (283,677 | ) | | | (638,802 | ) | Depreciation | | | — | | | | (112,046 | ) | | | (2,428,859 | ) | | | (553,709 | ) | | | — | | | | (3,094,614 | ) | Transfer in (out) | | | 9,671 | | | | 12,544 | | | | 2,188,686 | | | | 104,024 | | | | (2,314,925 | ) | | | — | | Inclusion in scope of consolidation | | | 42 | | | | 39 | | | | 293 | | | | 9 | | | | — | | | | 383 | | Exclusion from scope of consolidation | | | — | | | | (379 | ) | | | (87 | ) | | | (348 | ) | | | — | | | | (814 | ) | Others | | | 1,090 | | | | (18,848 | ) | | | 36,618 | | | | (13,792 | ) | | | (19,816 | ) | | | (14,748 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 2013.12.31 | | ₩ | 1,253,480 | | | ₩ | 2,059,970 | | | ₩ | 9,893,725 | | | ₩ | 2,101,382 | | | ₩ | 1,078,407 | | | ₩ | 16,386,964 | | | | | | | | | | | | | | | | | | | | | | | | | | | Acquisition cost | | ₩ | 1,253,612 | | | ₩ | 3,270,339 | | | ₩ | 32,103,084 | | | ₩ | 4,232,627 | | | ₩ | 1,092,155 | | | ₩ | 41,951,817 | | Accumulated depreciation (including accumulated impairment loss and others) | | | (132 | ) | | | (1,210,369 | ) | | | (22,209,359 | ) | | | (2,131,245 | ) | | | (13,748 | ) | | | (25,564,853 | ) |
Details of property, plant and equipment provided as collateral as of December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | | | 2012 | (in millions of Korean won) | | Carrying amount | | | Secured amount | | | Related line item | | | Related amount | | | Secured party | Buildings | | ₩ | 11,836 | | | ₩ | 7,800 | | | | Borrowings | | | | 6,000 | | | Shinhan Bank | Machinery and equipment | | | 48,232 | | | | 12,439 | | | | Borrowings | | | | 10,411 | | | Korea Exchange Bank |
| | | | | | | | | | | | | | | | | | | | | 2013 | (in millions of Korean won) | | Carrying amount | | | Secured amount | | | Related line item | | | Related amount | | | Secured party | Buildings | | ₩ | 11,356 | | | ₩ | 7,800 | | | | Borrowings | | | | 6,000 | | | Shinhan bank | Machinery and equipment | | | 37,248 | | | | 2,786 | | | | Borrowings | | | | 2,322 | | | Korea Exchange bank |
The borrowing costs capitalized for qualifying assets amount to₩20,144 million (2011:₩14,675 million, 2012:₩12,126 million) in 2013. The interest rate applied to calculate the capitalized borrowing costs in 2013 is 3.95% to 4.44%. (2012: 4.46% to 4.89%). 12. Investment Property The changes in investment property for years ended December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | 2012 | | (in millions of Korean won) | | Land | | | Buildings | | | Total | | Acquisition cost | | ₩ | 325,158 | | | ₩ | 1,195,175 | | | ₩ | 1,520,333 | | Accumulated depreciation | | | — | | | | (361,228 | ) | | | (361,228 | ) | | | | | | | | | | | | | | Beginning | | ₩ | 325,158 | | | ₩ | 833,947 | | | ₩ | 1,159,105 | | Disposal 1 | | | (2,619 | ) | | | (70,024 | ) | | | (72,643 | ) | Depreciation | | | — | | | | (49,006 | ) | | | (49,006 | ) | Transfer | | | 12,908 | | | | 104,849 | | | | 117,757 | | | | | | | | | | | | | | | Ending | | ₩ | 335,447 | | | ₩ | 819,766 | | | ₩ | 1,155,213 | | | | | | | | | | | | | | | Acquisition cost | | ₩ | 335,447 | | | ₩ | 1,022,454 | | | ₩ | 1,357,901 | | Accumulated depreciation | | | — | | | | (202,688 | ) | | | (202,688 | ) |
1 | Land and buildings disposed of in connection with the sale and leaseback transactions with Aju-KTM private funding real estate investment trust No.1 and K-REALTY CR-REIT 2 were included. |
| | | | | | | | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | Land | | | Buildings | | | Construction- in-progress | | | Total | | Acquisition cost | | ₩ | 335,447 | | | ₩ | 1,022,454 | | | ₩ | — | | | ₩ | 1,357,901 | | Accumulated depreciation | | | — | | | | (202,688 | ) | | | — | | | | (202,688 | ) | | | | | | | | | | | | | | | | | | Beginning | | ₩ | 335,447 | | | ₩ | 819,766 | | | ₩ | — | | | ₩ | 1,155,213 | | Acquisition | | | 3,053 | | | | 11,352 | | | | 3,778 | | | | 18,183 | | Disposal | | | (420 | ) | | | (7,657 | ) | | | — | | | | (8,077 | ) | Depreciation | | | — | | | | (47,232 | ) | | | — | | | | (47,232 | ) | Transfer | | | (9,116 | ) | | | (3,476 | ) | | | — | | | | (12,592 | ) | | | | | | | | | | | | | | | | | | Ending | | ₩ | 328,964 | | | ₩ | 772,753 | | | ₩ | 3,778 | | | ₩ | 1,105,495 | | | | | | | | | | | | | | | | | | | Acquisition cost | | ₩ | 328,964 | | | ₩ | 1,015,079 | | | ₩ | 3,778 | | | ₩ | 1,347,821 | | Accumulated depreciation | | | — | | | | (242,326 | ) | | | — | | | | (242,326 | ) |
The fair value of investment property is₩2,051,183 million as of December 31, 2013 (2012:₩2,335,642 million). The fair value of investment property is estimated based on the expected cash flow. Rental income from investment property is₩197,673 million in 2013 (2011:₩150,752 million, 2012:₩203,328 million) and direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period are recognized as operating expenses. Details of investment property provided as collaterals as of December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | 2012 | | (in millions of Korean won) | | Carrying amount | | | Secured amount | | | Collateral for | | Amount of deposit received | | Buildings | | ₩ | 545,872 | | | ₩ | 59,098 | | | Deposits received | | ₩ | 37,741 | | | | | | 2013 | | (in millions of Korean won) | | Carrying amount | | | Secured amount | | | Collateral for | | Amount of deposit received | | Land | | ₩ | 23,258 | | | ₩ | 1,484 | | | Deposits | | ₩ | 31,727 | | Buildings | | | 360,489 | | | | 40,713 | | | received | | | | |
13. Intangible Assets The changes in intangible assets for the years ended December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | (in millions of Korean won) | | Goodwill | | | Development costs | | | Software | | | Frequency usage rights | | | Others | | | Total | | Acquisition cost | | ₩ | 457,144 | | | ₩ | 1,069,158 | | | ₩ | 555,808 | | | ₩ | 1,783,508 | | | ₩ | 886,785 | | | ₩ | 4,752,403 | | Accumulated amortization (including accumulated impairment loss and others) | | | (7,749 | ) | | | (642,530 | ) | | | (331,169 | ) | | | (887,811 | ) | | | (238,549 | ) | | | (2,107,808 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 2012.1.1 | | ₩ | 449,395 | | | ₩ | 426,628 | | | ₩ | 224,639 | | | ₩ | 895,697 | | | ₩ | 648,236 | | | ₩ | 2,644,595 | | Acquisition1 | | | — | | | | 322,350 | | | | 72,434 | | | | 267,161 | | | | 68,572 | | | | 730,517 | | Disposal /Abandonment | | | (1,705 | ) | | | (612 | ) | | | (1,142 | ) | | | — | | | | (4,413 | ) | | | (7,872 | ) | Amortization | | | — | | | | (127,237 | ) | | | (59,931 | ) | | | (118,500 | ) | | | (82,995 | ) | | | (388,663 | ) | Inclusion in scope of consolidation2 | | | 150,337 | | | | 9,341 | | | | 1,176 | | | | — | | | | 77,035 | | | | 237,889 | | Exclusion in scope of consolidation | | | — | | | | — | | | | (234 | ) | | | — | | | | — | | | | (234 | ) | Others | | | — | | | | (1,807 | ) | | | 3,084 | | | | — | | | | (3,871 | ) | | | (2,594 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 2012.12.31 | | ₩ | 598,027 | | | ₩ | 628,663 | | | ₩ | 240,026 | | | ₩ | 1,044,358 | | | ₩ | 702,564 | | | ₩ | 3,213,638 | | | | | | | | | | | | | | | | | | | | | | | | | | | Acquisition cost | | ₩ | 605,776 | | | ₩ | 1,393,089 | | | ₩ | 614,069 | | | ₩ | 1,924,869 | | | ₩ | 1,013,046 | | | ₩ | 5,550,849 | | Accumulated amortization (including accumulated impairment loss and others) | | | (7,749 | ) | | | (764,426 | ) | | | (374,043 | ) | | | (880,511 | ) | | | (310,482 | ) | | | (2,337,211 | ) |
1 | The Company acquired 800MHz frequency and 2.3GHz frequency amortized over the life of usage rights using the straight-line method. |
2 | As a result of additional acquisition of ownership interest in KT Rental, intangible assets such as the customer base measured at fair value in accordance with IFRS 3, “Business Combination”,are included (Note 37). These intangible assets were not recorded in the statements of financial position of KT Rental. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | Goodwill | | | Development costs | | | Software | | | Frequency usage rights | | | Others | | | Total | | Acquisition cost | | ₩ | 605,776 | | | ₩ | 1,393,089 | | | ₩ | 614,069 | | | ₩ | 1,924,869 | | | ₩ | 1,013,046 | | | ₩ | 5,550,849 | | Accumulated amortization (including accumulated impairment loss and others) | | | (7,749 | ) | | | (764,426 | ) | | | (374,043 | ) | | | (880,511 | ) | | | (310,482 | ) | | | (2,337,211 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 2013.1.1 | | ₩ | 598,027 | | | ₩ | 628,663 | | | ₩ | 240,026 | | | ₩ | 1,044,358 | | | ₩ | 702,564 | | | ₩ | 3,213,638 | | Acquisition 1 | | | 9,272 | | | | 137,420 | | | | 87,898 | | | | 844,462 | | | | 125,563 | | | | 1,204,615 | | Disposal / Abandonment | | | — | | | | (57,956 | ) | | | (5,645 | ) | | | — | | | | (7,617 | ) | | | (71,218 | ) | Amortization | | | — | | | | (155,280 | ) | | | (61,413 | ) | | | (161,226 | ) | | | (100,983 | ) | | | (478,902 | ) | Impairment | | | (12,954 | ) | | | (4,743 | ) | | | (1,019 | ) | | | — | | | | (17,490 | ) | | | (36,206 | ) | Inclusion in scope of consolidation 2 | | | — | | | | — | | | | 501 | | | | — | | | | — | | | | 501 | | Exclusion in scope of consolidation | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Others | | | (2,006 | ) | | | (30 | ) | | | 1,968 | | | | (388 | ) | | | (4,579 | ) | | | (5,035 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 2013.12.31 | | ₩ | 592,339 | | | ₩ | 548,074 | | | ₩ | 262,316 | | | ₩ | 1,727,206 | | | ₩ | 697,458 | | | ₩ | 3,827,393 | | | | | | | | | | | | | | | | | | | | | | | | | | | Acquisition cost | | ₩ | 610,715 | | | ₩ | 1,359,478 | | | ₩ | 681,176 | | | ₩ | 2,768,943 | | | ₩ | 1,100,540 | | | ₩ | 6,520,852 | | Accumulated amortization (including accumulated impairment loss and others) | | | (18,376 | ) | | | (811,404 | ) | | | (418,860 | ) | | | (1,041,737 | ) | | | (403,082 | ) | | | (2,693,459 | ) |
1 | The Company had acquired the 1.8GHz frequency amortized using the straight-line method. |
The carrying value of facility usage rights with indefinite useful life not subject to amortization is₩150,654 million (2012:₩160,299 million) as of December 31, 2013. Goodwill is allocated to the Group’s cash-generating unit. As of December 31, 2013, goodwill allocated to each cash-generation unit is as follows: | | | | | (in millions of Korean won) | | | | Telecom wireless business & Convergence/Customer1 | | ₩ | 65,057 | | Finance and Rental | | | | | KT Rental2 | | | 131,426 | | BC Card Co., Ltd.3 | | | 41,234 | | Others | | | | | KT Skylife Co., Ltd.4 | | | 306,303 | | KT Powertel Co., Ltd. and others | | | 48,319 | | | | | | | Total | | ₩ | 592,339 | | | | | | |
1 | The recoverable amounts of mobile business are calculated based on value-in use calculations. These calculations use pre-tax cash flow projections for the next four years based on financial budgets approved by management. Cash flow exceeds the financial budgets are estimated by the expected growth rate. This growth rate does not exceed the long-term average growth rate of the industry which the cash-generate unit belongs in. The Company estimated its revenue growth rate based on past performance and its expectation of future market changes. The Company determined pre-tax cash flow projections based on past performance and its estimation of market growth. Specific risks of the related operating segment are reflected in its discount rate. As a result of the impairment test, there is no impairment loss on goodwill allocated to the mobile business as of December 31, 2013. |
2 | The recoverable amounts of KT Rental are calculated based on value-in use calculations. These calculations use pre-tax cash flow projections for the next five years based on financial budgets approved by management. Cash flow exceeds the financial budgets are projected by expected growth rate. This growth rate does not exceed the long-term average growth rate of the industry which the cash-generating unit belongs in. The Company estimated its revenue growth rate based on past performance and its expectation of future market changes. The Company determined pre-tax cash flow projections based on past performance and its estimation of market growth. Specific risks of the related operating segment are reflected in its discount rate. As a result of the impairment test, there is no impairment loss on goodwill allocated to KT Rental as of December 31, 2013. |
3 | The recoverable amounts of BC Card Co., Ltd. are calculated based on value-in use calculations. These calculations use pre-tax cash flow projections for the next five years based on financial budgets approved by management. Cash flow exceeds the financial budgets are projected by expected growth rate. This growth rate does not exceed the long-term average growth rate of the industry which the cash-generating unit belongs in. The Company estimated its revenue growth rate based on past performance and its expectation of future market changes. The Company determined pre-tax cash flow projections based on past performance and its estimation of market growth. Specific risks of the related operating segment are reflected in its discount rate. As a result of the impairment test, there is no impairment loss on goodwill allocated to BC Card as of December 31, 2013. |
4 | The recoverable amounts of KT Skylife Co., Ltd. are determined based on fair value of KT Skylife less costs to sell. As a result of the impairment test based on the determined recoverable amounts, there is no impairment loss on goodwill allocated to KT Skylife as of December 31, 2013. |
As a result of the impairment test, the Group recognized the impairment losses of₩12,954 million on goodwill allocated to Enswers Inc. and others and recognized the losses as operating expenses in the consolidated statement of the income. The Group considers that the carrying value of other cash generating units does not exceed the recoverable amount of the CGUs. 14. Investments in Associates and Jointly Controlled Entities Details of associates as of December 31, 2013, are as follows: (a) Associates | | | | | | | | | | | | | | | | | Company | | Percentage of ownership (%) | | | Location | | Date of financial statements | | Remarks | | | 2012 | | | 2013 | | | | | KTCS Corporation 1 | | | 17.8 | % | | | 17.8 | % | | Korea | | December 31 | | | 1 | | KTIS Corporation 1 | | | 17.8 | % | | | 17.8 | % | | Korea | | December 31 | | | 1 | |
| | | | | | | | | | | | | | | | | Company | | Percentage of ownership (%) | | | Location | | Date of financial statements | | Remarks | | | 2012 | | | 2013 | | | | | Korea Information & Technology Fund | | | 33.3 | % | | | 33.3 | % | | Korea | | December 31 | | | | | KT-SB Venture Investment 2 | | | 50.0 | % | | | 50.0 | % | | Korea | | December 31 | | | | | Boston Global Film & Contents Fund L.P | | | 27.7 | % | | | 27.7 | % | | Korea | | December 31 | | | 2 | | Mongolian Telecommunications | | | 40.0 | % | | | 40.0 | % | | Mongolia | | December 31 | | | | | Metropol Property LLC | | | 34.0 | % | | | 34.0 | % | | Uzbekistan | | December 31 | | | | | KT Wibro Infra Co., Ltd. | | | 26.2 | % | | | 26.2 | % | | Korea | | December 31 | | | | | QTT Global (Group) Company Limited | | | 25.0 | % | | | 25.0 | % | | China | | December 31 | | | | |
1 | KTCS Corporation and KTIS Corporation provide telephone number directory enquiries services. At the end of the reporting period, even though the Group has less than 20% ownership, the equity method of accounting has been applied as it is considered that the Group has significant influence over the operating and financial policies of these entities. |
2 | At the end of the reporting period, even though the Group has 50% ownership, the equity method of accounting has been applied as the Group, which is a limited partner in the investment fund, cannot participate in determining the operating and financial policies. |
The changes in investments in associates and jointly controlled entities for the years ended December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | (in millions of Korean won) | | Beginning | | | Acquisition (Disposal) | | | Reclassification | | | Share of income (loss) from jointly controlled entities and associates 1 | | | Other | | | Ending | | KT Rental 2 | | ₩ | 175,235 | | | ₩ | — | | | ₩ | (179,719 | ) | | ₩ | 9,370 | | | ₩ | (4,886 | ) | | ₩ | — | | KTCS Corporation | | | 20,327 | | | | — | | | | — | | | | 1,456 | | | | 1 | | | | 21,784 | | KTIS Corporation | | | 21,088 | | | | — | | | | — | | | | 782 | | | | — | | | | 21,870 | | Korea Information & Technology Fund | | | 119,492 | | | | — | | | | — | | | | 1,621 | | | | — | | | | 121,113 | | KT-SB Venture Investment | | | 12,643 | | | | — | | | | — | | | | (258 | ) | | | — | | | | 12,385 | | Boston Global Film & Contents Fund L.P | | | 7,535 | | | | — | | | | — | | | | (633 | ) | | | — | | | | 6,902 | | Mongolian Telecommunications | | | 11,232 | | | | — | | | | — | | | | 232 | | | | (1,465 | ) | | | 9,999 | | Metropol Property LLC | | | 1,746 | | | | — | | | | — | | | | 37 | | | | — | | | | 1,783 | | KT Wibro Infra Co., Ltd. | | | 66,206 | | | | — | | | | — | | | | 534 | | | | 1 | | | | 66,741 | | SMART CHANNEL Co., Ltd. | | | 2,748 | | | | — | | | | — | | | | (2,748 | ) | | | — | | | | — | | KTF-CJ Music Contents Investment Fund 3 | | | 5,038 | | | | — | | | | — | | | | 14 | | | | — | | | | 5,052 | | QTT Global (Group) Company Limited | | | — | | | | 12,746 | | | | — | | | | 203 | | | | — | | | | 12,949 | | Others | | | 56,707 | | | | 38,540 | | | | — | | | | 13,698 | | | | (10,028 | ) | | | 98,917 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ₩ | 499,997 | | | ₩ | 51,286 | | | ₩ | (179,719 | ) | | ₩ | 24,308 | | | ₩ | 16,377 | | | ₩ | 379,495 | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 | KT Capital Co., Ltd., a subsidiary of the Company, recognizes its share in income (loss) from jointly controlled entities and associates as operating revenue and expense. These include its share in income from jointly controlled entities and associates of₩4,155 million (2011:₩2,701 million, 2012:₩6,591 million) recognized as operating revenue and the share in loss from jointly controlled entities and associates of₩534 million (2011:₩136 million , 2012:₩362 million) recognized as operating expense. |
2 | The Company had joint control over the entity until December 31, 2011, based on an agreement among the shareholders and classified the related investments as investments in joint ventures. However, during 2012, the restriction on controlling power of the Company under the shareholders’ agreement between the Company and the second major shareholder was lifted, and therefore KT rental became a subsidiary (Note 37), |
| | | | | | | | | | | | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | Beginning | | | Acquisition (Disposal) | | | Share of income (loss) from jointly controlled entities and associates 1 | | | Other | | | Ending | | KTCS Corporation | | ₩ | 21,784 | | | ₩ | — | | | ₩ | 2,702 | | | ₩ | (2,306 | ) | | ₩ | 22,180 | | KTIS Corporation | | | 21,870 | | | | — | | | | 2,511 | | | | (1,053 | ) | | | 23,328 | | Korea Information & Technology Fund | | | 121,113 | | | | — | | | | 2,910 | | | | (241 | ) | | | 123,782 | | KT-SB Venture Investment | | | 12,385 | | | | 3,750 | | | | 216 | | | | (421 | ) | | | 15,930 | | Boston Global Film & Contents Fund L.P | | | 6,902 | | | | — | | | | 94 | | | | — | | | | 6,996 | | Mongolian Telecommunications | | | 9,999 | | | | — | | | | 172 | | | | (1,475 | ) | | | 8,696 | | Metropol Property LLC | | | 1,783 | | | | — | | | | 558 | | | | (982 | ) | | | 1,359 | | KT Wibro Infra Co., Ltd. | | | 66,741 | | | | — | | | | 812 | | | | — | | | | 67,553 | | KTF-CJ Music Contents Investment Fund | | | 5,052 | | | | (3,561 | ) | | | (1,491 | ) | | | — | | | | — | | QTT Global (Group) Company Limited | | | 12,949 | | | | — | | | | 121 | | | | 45 | | | | 13,115 | | KT-CKP new media Investment Fund | | | — | | | | 2,250 | | | | (73 | ) | | | — | | | | 2,177 | | Others | | | 98,917 | | | | (9,188 | ) | | | 1,690 | | | | (12,632 | ) | | | 78,787 | | | | | | | | | | | | | | | | | | | | | | | | | ₩ | 379,495 | | | ₩ | (6,749 | ) | | ₩ | 10,222 | | | ₩ | (19,065 | ) | | ₩ | 363,903 | | | | | | | | | | | | | | | | | | | | | | |
The summary of financial information of associates and joint ventures as of and for the years ended December 31, 2012 and 2013, follows: | | | | | | | | | | | | | | | | | | | 2012 | | (In millions of Korean won) | | Current assets | | | Non-current assets | | | Current liabilities | | | Non-current liabilities | | KTCS Corporation | | ₩ | 145,616 | | | ₩ | 34,224 | | | ₩ | 55,562 | | | ₩ | 1,748 | | KTIS Corporation | | | 141,634 | | | | 37,076 | | | | 50,387 | | | | 5,287 | | Korea Information & Technology Fund | | | 195,164 | | | | 168,182 | | | | 6 | | | | — | | KT-SB Venture Investment | | | 4,898 | | | | 20,411 | | | | 538 | | | | — | | Boston Global Film & Contents Fund L.P. | | | 18,004 | | | | 6,925 | | | | 6 | | | | — | | Mongolian Telecommunications | | | 16,675 | | | | 15,707 | | | | 7,383 | | | | — | | Metropol Property LLC | | | 2,665 | | | | — | | | | 491 | | | | — | | KT Wibro Infra Co., Ltd | | | 135,638 | | | | 123,727 | | | | 4,772 | | | | 30 | | K-Realty CR-REITs No.1 | | | 13,376 | | | | 488,177 | | | | 3,739 | | | | 294,281 | | Others | | | 140,956 | | | | 312,872 | | | | 130,740 | | | | 59,479 | | | | | | | | | | | | | | | | | | | | | ₩ | 814,626 | | | ₩ | 1,207,301 | | | ₩ | 253,624 | | | ₩ | 360,825 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 2012 | | (In millions of Korean won) | | Operating revenue | | | Net profit (loss) | | | Other comprehensive income | | | Total comprehensive income | | | Dividends received from associates | | KTCS Corporation | | ₩ | 384,165 | | | ₩ | 17,714 | | | ₩ | (1,041 | ) | | ₩ | 16,673 | | | ₩ | 407 | | KTIS Corporation | | | 388,370 | | | | 17,535 | | | | (340 | ) | | | 17,195 | | | | 310 | | Korea Information & Technology Fund | | | 19,444 | | | | 5,820 | | | | — | | | | 5,820 | | | | 208 | | KT-SB Venture Investment | | | 141 | | | | (384 | ) | | | — | | | | (384 | ) | | | — | | Boston Global Film & Contents Fund L.P. | | | 762 | | | | (2,284 | ) | | | — | | | | (2,284 | ) | | | — | | Mongolian Telecommunications | | | 17,058 | | | | 342 | | | | 23 | | | | 365 | | | | 120 | | Metropol Property LLC | | | 747 | | | | 224 | | | | 3 | | | | 227 | | | | — | | KT Wibro Infra Co., Ltd | | | 2,084 | | | | 2,700 | | | | — | | | | 2,700 | | | | — | | K-Realty CR-REITs No.1 | | | 36,912 | | | | 12,280 | | | | — | | | | 12,280 | | | | 1,142 | | Others | | | 445,690 | | | | 2,997 | | | | 92 | | | | 3,089 | | | | 5,981 | | | | | | | | | | | | | | | | | | | | | | | | | ₩ | 1,295,373 | | | ₩ | 56,944 | | | ₩ | (1,263 | ) | | ₩ | 55,681 | | | ₩ | 8,168 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | 2013 | | (In millions of Korean won) | | Current assets | | | Non-current assets | | | Current liabilities | | | Non-current liabilities | | KTCS Corporation | | ₩ | 130,585 | | | ₩ | 50,403 | | | ₩ | 54,115 | | | ₩ | 2,061 | | KTIS Corporation | | | 140,119 | | | | 41,733 | | | | 48,636 | | | | 2,124 | | Korea Information & Technology Fund | | | 132,143 | | | | 239,203 | | | | — | | | | — | | KT-SB Venture Investment | | | 5,578 | | | | 26,964 | | | | 682 | | | | — | | Boston Global Film & Contents Fund L.P. | | | 12,905 | | | | 12,504 | | | | 147 | | | | — | | Mongolian Telecommunications | | | 14,670 | | | | 12,869 | | | | 5,798 | | | | — | | Metropol Property LLC | | | 4,267 | | | | — | | | | 3,340 | | | | — | | KT Wibro Infra Co., Ltd | | | 159,309 | | | | 103,401 | | | | 5,004 | | | | 45 | | K-Realty CR-REITs No.1 | | | 11,620 | | | | 484,204 | | | | 3,534 | | | | 294,474 | | Others | | | 126,914 | | | | 293,899 | | | | 122,742 | | | | 62,038 | | | | | | | | | | | | | | | | | | | | | ₩ | 738,110 | | | ₩ | 1,265,180 | | | ₩ | 243,998 | | | ₩ | 360,742 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 2013 | | (In millions of Korean won) | | Operating revenue | | | Net profit (loss) | | | Other comprehensive income | | | Total comprehensive income | | | Dividends received from associates | | KTCS Corporation | | ₩ | 396,212 | | | ₩ | 14,480 | | | ₩ | (4,293 | ) | | ₩ | 10,187 | | | ₩ | 813 | | KTIS Corporation | | | 387,720 | | | | 13,573 | | | | (3,274 | ) | | | 10,299 | | | | 620 | | Korea Information & Technology Fund | | | 17,345 | | | | 8,730 | | | | — | | | | 8,730 | | | | — | | KT-SB Venture Investment | | | 370 | | | | 637 | | | | — | | | | 637 | | | | 421 | | Boston Global Film & Contents Fund L.P. | | | 513 | | | | 339 | | | | — | | | | 339 | | | | — | | Mongolian Telecommunications | | | 10,877 | | | | 447 | | | | (42 | ) | | | 405 | | | | 23 | | Metropol Property LLC | | | 502 | | | | 133 | | | | 6 | | | | 139 | | | | 911 | | KT Wibro Infra Co., Ltd | | | 1,660 | | | | 3,169 | | | | — | | | | 3,169 | | | | — | | K-Realty CR-REITs No.1 | | | 39,064 | | | | 11,091 | | | | — | | | | 11,091 | | | | 2,521 | | Others | | | 395,534 | | | | (4,589 | ) | | | (336 | ) | | | (4,925 | ) | | | 5,292 | | | | | | | | | | | | | | | | | | | | | | | | | ₩ | 1,249,797 | | | ₩ | 48,010 | | | ₩ | (7,939 | ) | | ₩ | 40,071 | | | ₩ | 10,601 | | | | | | | | | | | | | | | | | | | | | | |
Details of a reconciliation of the summarized financial information to the carrying amount of interests in the associates and joint ventures as of and for the years end December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | (in millions of Korean won) | | Net assets | | | Percentage of ownership | | | Share in net assets | | | Goodwill | | | Intercompany transaction | | | Book value | | KTCS Corporation | | ₩ | 122,530 | | | | 17.8 | % | | ₩ | 21,811 | | | ₩ | — | | | ₩ | (27 | ) | | ₩ | 21,784 | | KTIS Corporation 2 | | | 123,036 | | | | 17.8 | % | | | 21,906 | | | | — | | | | (36 | ) | | | 21,870 | | Korea Information & Technology Fund | | | 363,340 | | | | 33.3 | % | | | 121,113 | | | | — | | | | — | | | | 121,113 | | KT-SB Venture Investment 3 | | | 24,771 | | | | 50.0 | % | | | 12,385 | | | | — | | | | — | | | | 12,385 | | Boston Global Film & Contents Fund L.P | | | 24,923 | | | | 27.7 | % | | | 6,902 | | | | — | | | | — | | | | 6,902 | | Mongolian Telecommunications | | | 24,999 | | | | 40.0 | % | | | 9,999 | | | | — | | | | — | | | | 9,999 | | Metropol Property LLC | | | 2,174 | | | | 34.0 | % | | | 739 | | | | 1,044 | | | | — | | | | 1,783 | | KT Wibro Infra Co., Ltd. | | | 254,563 | | | | 26.2 | % | | | 66,741 | | | | — | | | | — | | | | 66,741 | | | | | | 2013 | | (in millions of Korean won) | | Net assets | | | Percentage of ownership | | | Share in net assets | | | Goodwill | | | Intercompany transaction | | | Book value | | KTCS Corporation | | ₩ | 124,812 | | | | 17.8 | % | | ₩ | 22,217 | | | ₩ | — | | | ₩ | (37 | ) | | ₩ | 22,180 | | KTIS Corporation | | | 131,092 | | | | 17.8 | % | | | 23,340 | | | | — | | | | (12 | ) | | | 23,328 | | Korea Information & Technology Fund | | | 371,346 | | | | 33.3 | % | | | 123,782 | | | | — | | | | — | | | | 123,782 | | KT-SB Venture Investment 3 | | | 31,860 | | | | 50.0 | % | | | 15,930 | | | | — | | | | — | | | | 15,930 | | Boston Global Film & Contents Fund L.P | | | 25,262 | | | | 27.7 | % | | | 6,996 | | | | — | | | | — | | | | 6,996 | | Mongolian Telecommunications | | | 21,741 | | | | 40.0 | % | | | 8,696 | | | | — | | | | — | | | | 8,696 | | Metropol Property LLC | | | 927 | | | | 34.0 | % | | | 315 | | | | 1,044 | | | | — | | | | 1,359 | | KT Wibro Infra Co., Ltd. | | | 257,661 | | | | 26.2 | % | | | 67,553 | | | | — | | | | — | | | | 67,553 | |
Marketable investments in associates and joint ventures as of December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | 2012 | | | | Number of shares | | | Book Value (In millions of Korean won) | | | Fair Value (In millions of Korean won) | | KTCS Corporation | | | 8,132,130 | | | | 21,784 | | | | 18,623 | | KTIS Corporation | | | 6,196,190 | | | | 21,870 | | | | 19,518 | | Mongolian Telecommunications | | | 10,348,111 | | | | 9,999 | | | | 14,741 | |
| | | | | | | | | | | | | | | | | 2013 | | | | Number of shares | | | Book Value (In millions of Korean won) | | | Fair Value (In millions of Korean won) | | KTCS Corporation | | | 8,132,130 | | | | 22,180 | | | | 28,218 | | KTIS Corporation | | | 6,196,190 | | | | 23,328 | | | | 31,539 | | Mongolian Telecommunications | | | 10,348,111 | | | | 8,696 | | | | 10,083 | |
The Group has not recognized loss from associates and jointly controlled entities of₩17,428 million for the year (2011:₩5,633 million, 2012:₩7,308 million). The accumulated comprehensive loss of joint ventures and associates as of December 31, 2013, which was not recognized by the Group is₩39,571 million (2011:₩15,490 million, 2012:₩22,143 million). The following equity securities owned by the Company are pledged as collateral for the investee’s borrowings: | | | | | | | (In millions of Korean won) | | Investee | | Amount | | Investments in associate | | Smart Channel Co., Ltd. | | ₩ | 6,500 | |
15. Trade and other payables The Group’s trade and other payables as of December 31, 2012 and 2013, are as follows: | | | | | | | | | (In millions of Korean won) | | 2012 | | | 2013 | | Current liabilities | | | | | | | | | Trade payables | | ₩ | 1,822,895 | | | ₩ | 1,716,686 | | Other payables | | | 5,398,407 | | | | 5,697,137 | | | | | | | | | | | Total | | ₩ | 7,221,302 | | | ₩ | 7,413,823 | | | | | | | | | | | Non-current liabilities | | | | | | | | | Trade payables | | ₩ | 10,696 | | | ₩ | 10,430 | | Other payables | | | 690,664 | | | | 1,048,454 | | | | | | | | | | | Total | | ₩ | 701,360 | | | ₩ | 1,058,884 | | | | | | | | | | |
Details of other payables as of December 31, 2012 and 2013, are as follows: | | | | | | | | | (In millions of Korean won) | | 2012 | | | 2013 | | Non-trade payables 1 | | ₩ | 3,969,065 | | | ₩ | 4,469,781 | | Accrued expenses | | | 772,013 | | | | 937,307 | | Operating deposits | | | 880,895 | | | | 863,494 | | Other | | | 467,098 | | | | 475,009 | | Less: non-current | | | (690,664 | ) | | | (1,048,454 | ) | | | | | | | | | | Current | | ₩ | 5,398,407 | | | ₩ | 5,697,137 | | | | | | | | | | |
1 | Settlement payables of BC Card Co., Ltd. of₩1,725,396 million related to credit card transaction included as of December 31, 2013 (2012:₩1,519,242 million). |
16. Bonds Payable and Borrowings Details of bonds payable and long-term borrowings as of December 31, 2012 and 2013, are as follows: Bonds Payable | | | | | | | | | | | | | | | | | | | | | | | (In millions of Korean won and thousands of foreign currencies) | | | | | | | 2010.12.31 | | | 2009.12.31 | | Type | | Maturity | | | Annual Interest Rates | | Foreign Currency | | | Korean Won | | | Foreign Currency | | | Korean Won | | | | | | MTNP notes1 | | | 2014.6.24 | | | 5.88% | | | USD 600,000 | | | (Won) | 683,340 | | | | USD 600,000 | | | (Won) | 700,560 | | MTNP notes1 | | | 2034.9.7 | | | 6.50% | | | USD 100,000 | | | | 113,890 | | | | USD 100,000 | | | | 116,760 | | MTNP notes1 | | | 2015.7.15 | | | 4.88% | | | USD 400,000 | | | | 455,560 | | | | USD 400,000 | | | | 467,040 | | MTNP notes1 | | | 2016.5.3 | | | 5.88% | | | USD 200,000 | | | | 227,780 | | | | USD 200,000 | | | | 233,520 | | Euro bonds | | | 2012.4.11 | | | 5.13% | | | USD 200,000 | | | | 227,780 | | | | USD 200,000 | | | | 233,520 | | FR notes2 | | | 2013.9.11 | | | Libor(3M) +1.5% | | | USD 200,000 | | | | 227,780 | | | | USD 200,000 | | | | 233,520 | | FR notes2 | | | 2013.4.9 | | | Libor(3M) +0.47% | | | USD 100,000 | | | | 113,890 | | | | — | | | | — | | The 132nd Public bond | | | 2011.2.9 | | | 7.68% | | | — | | | | 70,000 | | | | — | | | | 70,000 | | The 159th Public bond | | | 2013.10.27 | | | 5.39% | | | — | | | | 300,000 | | | | — | | | | 300,000 | | The 160th Public bond | | | 2010.11.24 | | | 5.45% | | | — | | | | — | | | | — | | | | 200,000 | | The 161st Public bond | | | 2010.12.23 | | | 5.61% | | | — | | | | — | | | | — | | | | 230,000 | | The 162nd Public bond | | | 2011.2.27 | | | 5.52% | | | — | | | | 320,000 | | | | — | | | | 320,000 | | The 163rd Public bond | | | 2014.3.30 | | | 5.51% | | | — | | | | 170,000 | | | | — | | | | 170,000 | | The 164th Public bond | | | 2011.6.21 | | | 5.22% | | | — | | | | 260,000 | | | | — | | | | 260,000 | | The 165-1st Public bond | | | 2011.8.26 | | | 4.22% | | | — | | | | 130,000 | | | | — | | | | 130,000 | | The 165-2nd Public bond | | | 2014.8.26 | | | 4.44% | | | — | | | | 140,000 | | | | — | | | | 140,000 | | The 166-1st Public bond | | | 2010.3.21 | | | 4.37% | | | — | | | | — | | | | — | | | | 220,000 | | The 166-2nd Public bond | | | 2012.3.21 | | | 4.57% | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 167-1st Public bond | | | 2012.4.20 | | | 4.59% | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 167-2nd Public bond | | | 2015.4.20 | | | 4.84% | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 168-1st Public bond | | | 2012.6.21 | | | 4.43% | | | — | | | | 240,000 | | | | — | | | | 240,000 | | The 168-2nd Public bond | | | 2015.6.21 | | | 4.66% | | | — | | | | 90,000 | | | | — | | | | 90,000 | | The 169th Public bond | | | 2012.4.3 | | | 5.01% | | | — | | | | 140,000 | | | | — | | | | 140,000 | | The 170th Public bond2 | | | 2011.1.11 | | | Tibor(3M) +0.6% | | | JPY12,500,000 | | | | 174,635 | | | | JPY12,500,000 | | | | 157,853 | | The 171st Public bond | | | 2013.2.28 | | | 5.41% | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 172-1st Public bond2 | | | 2011.3.31 | | | Libor(3M) +1.5% | | | USD 50,000 | | | | 56,945 | | | | USD 50,000 | | | | 58,380 | | The 172-2nd Public bond2 | | | 2012.3.31 | | | Libor(3M) +1.6% | | | USD 110,000 | | | | 125,279 | | | | USD 110,000 | | | | 128,436 | | The 173-1st Public bond | | | 2013.8.6 | | | 6.49% | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 173-2nd Public bond | | | 2018.8.6 | | | 6.62% | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 174-1st Public bond | | | 2010.12.19 | | | 5.34% | | | — | | | | — | | | | — | | | | 100,000 | | The 174-2nd Public bond | | | 2011.12.19 | | | 5.56% | | | — | | | | 130,000 | | | | — | | | | 130,000 | | The 175-1st Public bond | | | 2012.2.27 | | | 4.80% | | | — | | | | 40,000 | | | | — | | | | 40,000 | | The 175-2nd Public bond | | | 2014.2.27 | | | 5.47% | | | — | | | | 360,000 | | | | — | | | | 360,000 | | The 176-1st Public bond | | | 2012.5.28 | | | 4.37% | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 176-2nd Public bond | | | 2014.5.28 | | | 5.06% | | | — | | | | 170,000 | | | | — | | | | 170,000 | | The 176-3rd Public bond | | | 2016.5.28 | | | 5.24% | | | — | | | | 260,000 | | | | — | | | | 260,000 | | The 177-1st Public bond | | | 2013.2.9 | | | 4.86% | | | — | | | | 240,000 | | | | — | | | | — | | The 177-2nd Public bond | | | 2015.2.9 | | | 5.26% | | | — | | | | 190,000 | | | | — | | | | — | | The 177-3rd Public bond | | | 2017.2.9 | | | 5.38% | | | — | | | | 170,000 | | | | — | | | | — | | The 47-2nd Public bond | | | 2011.7.12 | | | 5.32% | | | — | | | | 70,000 | | | | — | | | | 70,000 | | The 48th Public bond | | | 2010.2.15 | | | 5.31% | | | — | | | | — | | | | — | | | | 200,000 | | The 49th Public bond2 | | | 2011.2.25 | | | Libor(3M) +1.5% | | | USD 175,000 | | | | 199,308 | | | | USD 175,000 | | | | 204,330 | | The 50th Public bond2 | | | 2011.4.28 | | | Tibor(3M) +1.6% | | | JPY 7,000,000 | | | | 97,796 | | | | JPY 7,000,000 | | | | 88,397 | | The 51-1st Public bond2 | | | 2011.6.20 | | | Libor(3M) +1.6% | | | USD 95,000 | | | | 108,196 | | | | USD 95,000 | | | | 110,922 | |
| | | | | | | | | | | | | | | | | | | | | | | (in millions of Korean won and thousands of foreign currencies) | | | | | 2012 | | | 2013 | | Type | | Maturity | | Annual interest rates | | | Foreign currency | | | Korean won | | | Foreign currency | | | Korean won | | MTNP notes 1 | | Jun 24, 2014 | | | 5.88 | % | | USD | 600,000 | | | ₩ | 642,660 | | | USD | 600,000 | | | ₩ | 633,180 | | MTNP notes 1 | | Sep 07, 2034 | | | 6.50 | % | | USD | 100,000 | | | | 107,110 | | | USD | 100,000 | | | | 105,530 | | MTNP notes 1 | | Jul 15, 2015 | | | 4.88 | % | | USD | 400,000 | | | | 428,440 | | | USD | 400,000 | | | | 422,120 | | MTNP notes 1 | | May 03, 2016 | | | 5.88 | % | | USD | 200,000 | | | | 214,220 | | | USD | 200,000 | | | | 211,060 | | Reg S bonds | | Jan 20, 2017 | | | 3.88 | % | | USD | 350,000 | | | | 374,885 | | | USD | 350,000 | | | | 369,355 | | FR notes | | Sep 11, 2013 | | | LIBOR(3M) +1.50 | % | | USD | 200,000 | | | | 214,220 | | | | — | | | | — | | FR notes 2 | | Apr 9, 2013 | | | LIBOR(3M) +0.47 | % | | USD | 100,000 | | | | 107,110 | | | | — | | | | — | | FR notes 2 | | Jan 25, 2013 | | | 1.58 | % | | JPY | 35,000,000 | | | | 436,625 | | | | — | | | | — | | FR notes | | Aug 28, 2018 | | | LIBOR(3M) +1.15 | % | | | — | | | | — | | | USD | 300,000 | | | | 316,590 | | Japanese yen bonds | | Jan 29, 2015 | | | 0.59 | % | | | — | | | | — | | | JPY | 5,000,000 | | | | 50,233 | | Japanese yen bonds | | Jan 29, 2016 | | | 0.70 | % | | | — | | | | — | | | JPY | 18,200,000 | | | | 182,848 | | Japanese yen bonds | | Jan 29, 2018 | | | 0.86 | % | | | — | | | | — | | | JPY | 6,800,000 | | | | 68,317 | | The 159th Public bond | | Oct 27, 2013 | | | 5.39 | % | | | — | | | | 300,000 | | | | — | | | | — | | The 163rd Public bond | | Mar 30, 2014 | | | 5.51 | % | | | — | | | | 170,000 | | | | — | | | | 170,000 | | The 165-2nd Public bond | | Aug 26, 2014 | | | 4.44 | % | | | — | | | | 140,000 | | | | — | | | | 140,000 | | The 167-2nd Public bond | | Apr 20, 2015 | | | 4.84 | % | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 168-2nd Public bond | | Jun 21, 2015 | | | 4.66 | % | | | — | | | | 90,000 | | | | — | | | | 90,000 | | The 171st Public bond | | Feb 28, 2013 | | | 5.41 | % | | | — | | | | 100,000 | | | | — | | | | — | | The 173-1st Public bond | | Aug 6, 2013 | | | 6.49 | % | | | — | | | | 100,000 | | | | — | | | | — | | The 173-2nd Public bond | | Aug 06, 2018 | | | 6.62 | % | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 175-2nd Public bond | | Feb 27, 2014 | | | 5.47 | % | | | — | | | | 360,000 | | | | — | | | | 360,000 | | The 176-2nd Public bond | | May 28, 2014 | | | 5.06 | % | | | — | | | | 170,000 | | | | — | | | | 170,000 | | The 176-3rd Public bond | | May 28, 2016 | | | 5.24 | % | | | — | | | | 260,000 | | | | — | | | | 260,000 | | The 177-1st Public bond | | Feb 9, 2013 | | | 4.86 | % | | | — | | | | 240,000 | | | | — | | | | — | | The 177-2nd Public bond | | Feb 09, 2015 | | | 5.26 | % | | | — | | | | 190,000 | | | | — | | | | 190,000 | | The 177-3rd Public bond | | Feb 09, 2017 | | | 5.38 | % | | | — | | | | 170,000 | | | | — | | | | 170,000 | | The 178-1st Public bond 2 | | Jan 18, 2013 | | | LIBOR(3M) +1.05 | % | | USD | 100,000 | | | | 107,110 | | | | — | | | | — | | The 178-2nd Public bond 2 | | Jan 17, 2014 | | | LIBOR(3M) +1.05 | % | | USD | 100,000 | | | | 107,110 | | | USD | 100,000 | | | | 105,530 | | The 179th Public bond | | Mar 29, 2018 | | | 4.47 | % | | | — | | | | 260,000 | | | | — | | | | 260,000 | | The 180-1st Public bond | | Apr 26, 2016 | | | 4.35 | % | | | — | | | | 210,000 | | | | — | | | | 210,000 | | The 180-2nd Public bond | | Apr 26, 2021 | | | 4.71 | % | | | — | | | | 380,000 | | | | — | | | | 380,000 | | The 181-1st Public bond | | Aug 26, 2016 | | | 3.94 | % | | | — | | | | 260,000 | | | | — | | | | 260,000 | | The 181-2nd Public bond | | Aug 26, 2018 | | | 3.99 | % | | | — | | | | 90,000 | | | | — | | | | 90,000 | | The 181-3rd Public bond | | Aug 26, 2021 | | | 4.09 | % | | | — | | | | 250,000 | | | | — | | | | 250,000 | | The 182-1st Public bond | | Oct 28, 2016 | | | 4.11 | % | | | — | | | | 320,000 | | | | — | | | | 320,000 | | The 182-2nd Public bond | | Oct 28, 2021 | | | 4.31 | % | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 183-1st Public bond | | Dec 22, 2016 | | | 3.81 | % | | | — | | | | 50,000 | | | | — | | | | 50,000 | | The 183-2nd Public bond | | Dec 22, 2021 | | | 4.09 | % | | | — | | | | 90,000 | | | | — | | | | 90,000 | | The 183-3rd Public bond | | Dec 22, 2031 | | | 4.27 | % | | | — | | | | 160,000 | | | | — | | | | 160,000 | | The 184-1st Public bond | | Apr 10, 2018 | | | 2.74 | % | | | — | | | | — | | | | — | | | | 120,000 | | The 184-2nd Public bond | | Apr 10, 2023 | | | 2.95 | % | | | — | | | | — | | | | — | | | | 190,000 | | The 184-3rd Public bond | | Apr 10, 2033 | | | 3.17 | % | | | — | | | | — | | | | — | | | | 100,000 | | The 185-1st Public bond | | Sep 16, 2018 | | | 3.46 | % | | | — | | | | — | | | | — | | | | 200,000 | | The 185-2nd Public bond | | Sep 16, 2020 | | | 3.65 | % | | | — | | | | — | | | | — | | | | 300,000 | | The 51-2nd Public bond | | Jun 20,2013 | | | 6.41 | % | | | — | | | | 70,000 | | | | — | | | | — | | The 52-2nd Public bond | | Oct 4, 2013 | | | 6.64 | % | | | — | | | | 100,000 | | | | — | | | | — | | The 26th Public bond | | Apr 19, 2013 | | | 5.15 | % | | | — | | | | 10,000 | | | | — | | | | — | | The 27th Public bond | | Jul 25, 2014 | | | 5.04 | % | | | — | | | | 5,000 | | | | — | | | | 5,000 | | The 17-3rd Public bond | | May 30, 2013 | | | 7.14 | % | | | — | | | | 50,000 | | | | — | | | | — | | The 18-4th Public bond | | Jun 23, 2013 | | | 7.55 | % | | | — | | | | 10,000 | | | | — | | | | — | | The 32-2nd Public bond | | Jan 22, 2013 | | | 5.95 | % | | | — | | | | 50,000 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | (In millions of Korean won and thousands of foreign currencies) | | | | | | | 2010.12.31 | | | 2009.12.31 | | Type | | Maturity | | | Annual Interest Rates | | Foreign Currency | | | Korean Won | | | Foreign Currency | | | Korean Won | | | | | | The 51-2nd Public bond | | | 2013.6.20 | | | 6.41% | | | — | | | | 70,000 | | | | — | | | | 70,000 | | The 52-1st Private bond | | | 2011.8.4 | | | 6.20% | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 52-2nd Public bond | | | 2013.8.4 | | | 6.64% | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 53-1st Public bond | | | 2010.12.1 | | | 8.23% | | | — | | | | — | | | | — | | | | 20,000 | | The 53-2nd Public bond | | | 2011.12.1 | | | 8.36% | | | — | | | | 181,212 | | | | — | | | | 180,023 | | Public bond | | | 2010. 4.17 | | | 5.29% | | | — | | | | — | | | | — | | | | 10,000 | | Public bond | | | 2011.7.24 | | | 6.82% | | | — | | | | 5,000 | | | | — | | | | 5,000 | | Public bond | | | 2013.4.19 | | | 5.15% | | | — | | | | 10,000 | | | | — | | | | — | | Public bond(19-2nd) | | | 2010.5.10 | | | 4.69% | | | — | | | | — | | | | — | | | | 10,000 | | The 10th Public bond | | | 2010.6.18 | | | 5.70% | | | — | | | | — | | | | — | | | | 40,000 | | The 11th Private bond | | | 2010.12.6 | | | 6.85% | | | — | | | | — | | | | — | | | | 20,000 | | The 12th Public bond | | | 2011.5.23 | | | 6.39% | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 13-2nd Public bond | | | 2010.4.2 | | | 8.30% | | | — | | | | — | | | | — | | | | 10,000 | | The 14th Public bond | | | 2012.1.8 | | | 8.90% | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 15th Public bond | | | 2011.10.26 | | | 5.70% | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 16th Public bond | | | 2012.11.27 | | | 5.85% | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 17-1st Public bond | | | 2012.3.11 | | | 5.20% | | | — | | | | 10,000 | | | | — | | | | — | | The 18-1st Public bond | | | 2012.4.9 | | | 4.50% | | | — | | | | 10,000 | | | | — | | | | — | | The 18-2nd Public bond | | | 2013.4.9 | | | 5.04% | | | — | | | | 70,000 | | | | — | | | | — | | The 17-2nd Public bond | | | 2013.3.11 | | | 5.62% | | | — | | | | 30,000 | | | | — | | | | — | | The 1-2nd Public bond | | | 2011.2.6 | | | 8.74% | | | — | | | | 20,000 | | | | — | | | | — | | The 3rd Public bond | | | 2012.6.22 | | | 6.89% | | | — | | | | 100,000 | | | | — | | | | — | | The 1th Private bond | | | 2010.3.16 | | | 5.80% | | | — | | | | — | | | | — | | | | 30,000 | | The 2nd Private bond | | | 2010.4.16 | | | 5.94% | | | — | | | | — | | | | — | | | | 20,000 | | The 4th Public bond | | | 2010.5.30 | | | 5.70% | | | — | | | | — | | | | — | | | | 40,000 | | The 5th Private bond | | | 2010.6.29 | | | 5.67% | | | — | | | | — | | | | — | | | | 20,000 | | The 6-2nd Public bond | | | 2010.8.3 | | | 5.72% | | | — | | | | — | | | | — | | | | 30,000 | | The 7-2nd Public bond | | | 2010.8.31 | | | 6.05% | | | — | | | | — | | | | — | | | | 20,000 | | The 8th Private bond | | | 2010.9.28 | | | 6.26% | | | — | | | | — | | | | — | | | | 30,000 | | The 9-2nd Public bond | | | 2010.10.18 | | | 6.44% | | | — | | | | — | | | | — | | | | 20,000 | | The 11th Public bond | | | 2010.12.27 | | | CD(91D) +1.39% | | | — | | | | — | | | | — | | | | 20,000 | | The 13-1st Public bond | | | 2010.2.21 | | | 6.33% | | | — | | | | — | | | | — | | | | 30,000 | | The 13-2nd Public bond | | | 2011.2.21 | | | 6.48% | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 14-1st Public bond | | | 2010.3.28 | | | 6.37% | | | — | | | | — | | | | — | | | | 10,000 | | The 14-2nd Public bond | | | 2011.3.28 | | | 6.47% | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 15th Private bond | | | 2010.4.21 | | | MOR(3M) +1.28% | | | — | | | | — | | | | — | | | | 20,000 | | The 16-1st Public bond | | | 2010.1.30 | | | 6.33% | | | — | | | | — | | | | — | | | | 60,000 | | The 16-2nd Public bond | | | 2011.4.30 | | | 6.46% | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 17-3rd Public bond | | | 2013.5.30 | | | 7.14% | | | — | | | | 50,000 | | | | — | | | | 50,000 | | The 18-2nd Public bond | | | 2010.6.23 | | | 7.12% | | | — | | | | — | | | | — | | | | 40,000 | | The 18-3rd Public bond | | | 2011.6.23 | | | 7.22% | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 18-4th Public bond | | | 2013.6.23 | | | 7.55% | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 19-2nd Public bond | | | 2010.3.11 | | | 7.80% | | | — | | | | — | | | | — | | | | 10,000 | | The 19-3rd Public bond | | | 2010.9.11 | | | 7.93% | | | — | | | | — | | | | — | | | | 20,000 | | The 19-4th Public bond | | | 2010.9.11 | | | CD(91D) +1.95% | | | — | | | | — | | | | — | | | | 10,000 | | The 22-1st Public bond | | | 2010.7.23 | | | 8.70% | | | — | | | | — | | | | — | | | | 10,000 | | The 22-2nd Public bond | | | 2011.1.23 | | | 8.75% | | | — | | | | 35,000 | | | | — | | | | 35,000 | | The 22-3rd Public bond | | | 2012.1.23 | | | 8.95% | | | — | | | | 25,000 | | | | — | | | | 25,000 | | The 23rd Public bond | | | 2011.5.29 | | | 5.35% | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 24th Public bond | | | 2012.6.29 | | | 6.28% | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 25-1st Public bond | | | 2011.7.30 | | | 6.20% | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 25-2nd Public bond | | | 2012.7.30 | | | 5.75% | | | — | | | | 25,000 | | | | — | | | | 25,000 | | The 26th Public bond | | | 2012.8.27 | | | 6.33% | | | — | | | | 50,000 | | | | — | | | | 50,000 | |
| | | | | | | | | | | | | | | | | | | | | | | (in millions of Korean won and thousands of foreign currencies) | | | | | 2012 | | | 2013 | | Type | | Maturity | | Annual interest rates | | | Foreign currency | | | Korean won | | | Foreign currency | | | Korean won | | The 32-3rd Public bond | | Jan 22, 2015 | | | 6.70 | % | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 33rd Public bond | | Feb 11, 2015 | | | 6.45 | % | | | — | | | | 50,000 | | | | — | | | | 50,000 | | The 34-2nd Public bond | | Feb 26, 2013 | | | 5.60 | % | | | — | | | | 10,000 | | | | — | | | | — | | The 35-2nd Public bond | | Mar 22, 2013 | | | 5.05 | % | | | — | | | | 30,000 | | | | — | | | | — | | The 36-2nd Public bond | | Apr 30, 2013 | | | 4.75 | % | | | — | | | | 30,000 | | | | — | | | | — | | The 36-3rd Public bond | | Apr 30, 2015 | | | 5.65 | % | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 37-3rd Public bond | | Jun 30, 2013 | | | 5.45 | % | | | — | | | | 20,000 | | | | — | | | | — | | The 37-4th Public bond | | June 30, 2014 | | | 5.85 | % | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 38-3rd Public bond | | Jul 19, 2014 | | | 5.85 | % | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 39th Public bond | | Jul 30, 2013 | | | 5.35 | % | | | — | | | | 30,000 | | | | — | | | | — | | The 40-2nd Public bond | | Aug 10, 2013 | | | 5.33 | % | | | — | | | | 20,000 | | | | — | | | | — | | The 40-3rd Public bond | | Aug 10, 2015 | | | 5.95 | % | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 41-2nd Public bond | | Sep 17, 2013 | | | 4.63 | % | | | — | | | | 20,000 | | | | — | | | | — | | The 41-3rd Public bond | | Sep 17, 2014 | | | 5.10 | % | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 42-1st Public bond | | Nov 22, 2013 | | | 4.62 | % | | | — | | | | 30,000 | | | | — | | | | — | | The 42-2nd Public bond | | Nov 22, 2014 | | | 5.10 | % | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 42-3rd Public bond | | Nov 22, 2015 | | | 5.44 | % | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 43-1st Public bond | | Jan 28, 2014 | | | 5.05 | % | | | — | | | | 40,000 | | | | — | | | | 40,000 | | The 43-2nd Public bond | | Jan 28, 2015 | | | 5.32 | % | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 43-3rd Public bond | | Jan 28, 2016 | | | 5.75 | % | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 44-2nd Public bond | | Apr 28, 2013 | | | 4.53 | % | | | — | | | | 30,000 | | | | — | | | | — | | The 44-3rd Public bond | | Oct 28, 2013 | | | 4.76 | % | | | — | | | | 20,000 | | | | — | | | | — | | The 45th Private bond | | May 18, 2014 | | | 4.80 | % | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 46-1st Public bond | | Feb 26, 2013 | | | 4.10 | % | | | — | | | | 20,000 | | | | — | | | | — | | The 46-2nd Public bond | | May 26, 2014 | | | 4.50 | % | | | — | | | | 40,000 | | | | — | | | | 40,000 | | The 46-3rd Public bond | | May 26, 2015 | | | 4.71 | % | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 46-4th Public bond | | May 26, 2016 | | | 4.90 | % | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 47th Public bond | | Jun 23, 2014 | | | 4.50 | % | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 48th Public bond | | Aug 11, 2016 | | | 4.71 | % | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 49th Public bond | | Aug 23, 2014 | | | CD(91D) +0.93 | % | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 50-1st Public bond | | Mar 21, 2013 | | | 4.30 | % | | | — | | | | 20,000 | | | | — | | | | — | | The 50-2nd Public bond | | Sep 21, 2016 | | | 4.87 | % | | | — | | | | 5,000 | | | | — | | | | 5,000 | | The 51-1st Public bond | | Sep 30, 2014 | | | 4.69 | % | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 51-2nd Public bond | | Sep 30, 2016 | | | 4.92 | % | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 52-1st Public bond | | Oct 11, 2013 | | | 4.49 | % | | | — | | | | 10,000 | | | | — | | | | — | | The 52-2nd Public bond | | Oct 11, 2014 | | | CD(91D) +1.10 | % | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 53rd Public bond | | Oct 17, 2013 | | | 4.39 | % | | | — | | | | 20,000 | | | | — | | | | — | | The 54th Public bond | | Oct 28, 2014 | | | 4.64 | % | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 55-1st Public bond | | Nov 16, 2014 | | | 4.46 | % | | | — | | | | 40,000 | | | | — | | | | 40,000 | | The 55-2nd Public bond | | Nov 16, 2015 | | | 4.56 | % | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 55-3rd Public bond | | Nov 16, 2016 | | | 4.74 | % | | | — | | | | 5,000 | | | | — | | | | 5,000 | | The 56th Public bond | | Dec 13, 2014 | | | 4.18 | % | | | — | | | | 35,000 | | | | — | | | | 35,000 | | The 57-1st Public bond | | Oct 05, 2014 | | | CD(91D) +0.87 | % | | | — | | | | 50,000 | | | | — | | | | 50,000 | | The 57-2nd Public bond | | Jan 05, 2016 | | | 4.44 | % | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 57-3rd Public bond | | Jan 05, 2017 | | | 4.61 | % | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 58-1st Public bond | | Jul 10, 2014 | | | 4.27 | % | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 58-2nd Public bond | | Jul 10, 2015 | | | 4.37 | % | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 59-1st Public bond | | May 25, 2015 | | | 3.78 | % | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 59-2nd Public bond | | May 25, 2016 | | | 3.87 | % | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 59-3rd Public bond | | May 25, 2017 | | | 4.03 | % | | | — | | | | 40,000 | | | | — | | | | 40,000 | | The 60th Public bond | | Jul 13, 2015 | | | CD(91D) +0.39 | % | | | — | | | | 40,000 | | | | — | | | | 40,000 | | The 61st Public bond | | Sep 22, 2017 | | | 3.65 | % | | | — | | | | 45,000 | | | | — | | | | 45,000 | | The 62-1st Public bond | | Aug 27, 2015 | | | 3.19 | % | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 62-2nd Public bond | | Oct 11, 2017 | | | 3.43 | % | | | — | | | | 50,000 | | | | — | | | | 50,000 | | The 63rd Public bond | | Sep 27, 2017 | | | 3.44 | % | | | — | | | | 40,000 | | | | — | | | | 40,000 | | The 64-1st Public bond | | Oct 29, 2015 | | | 3.26 | % | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 64-2nd Public bond | | Dec 21, 2017 | | | 3.46 | % | | | — | | | | 50,000 | | | | — | | | | 50,000 | | The 65th Public bond | | Mar 22, 2018 | | | 3.47 | % | | | — | | | | 55,000 | | | | — | | | | 55,000 | |
| | | | | | | | | | | | | | | | | | | | | | | (In millions of Korean won and thousands of foreign currencies) | | | | | | | 2010.12.31 | | | 2009.12.31 | | Type | | Maturity | | | Annual Interest Rates | | Foreign Currency | | | Korean Won | | | Foreign Currency | | | Korean Won | | The 27th Private bond | | | 2012.9.4 | | | 6.33% | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 28-1st Public bond | | | 2011.11.12 | | | 5.70% | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 28-2nd Public bond | | | 2012.11.12 | | | 6.08% | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 29-1st Public bond | | | 2011.11.30 | | | 5.60% | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 29-2nd Public bond | | | 2012.11.30 | | | 6.00% | | | — | | | | 40,000 | | | | — | | | | 40,000 | | The 30-1st Public bond | | | 2011.6.23 | | | 5.30% | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 30-2nd Public bond | | | 2011.12.23 | | | 5.60% | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 30-3rd Public bond | | | 2012.12.23 | | | 5.95% | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 31st Public bond | | | 2012.12.31 | | | 5.98% | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 32-1st Public bond | | | 2012.1.22 | | | 5.65% | | | — | | | | 10,000 | | | | — | | | | — | | The 32-2nd Public bond | | | 2013.1.22 | | | 5.95% | | | — | | | | 50,000 | | | | — | | | | — | | The 32-3rd Public bond | | | 2015.1.22 | | | 6.70% | | | — | | | | 30,000 | | | | — | | | | — | | The 33rd Public bond | | | 2015.2.11 | | | 6.45% | | | — | | | | 50,000 | | | | — | | | | — | | The 34-1st Public bond | | | 2012.2.26 | | | 5.30% | | | — | | | | 30,000 | | | | — | | | | — | | The 34-2nd Public bond | | | 2013.2.26 | | | 5.60% | | | — | | | | 10,000 | | | | — | | | | — | | The 35-1st Public bond | | | 2012.3.22 | | | 4.65% | | | — | | | | 20,000 | | | | — | | | | — | | The 35-2nd Public bond | | | 2013.3.22 | | | 5.05% | | | — | | | | 30,000 | | | | — | | | | — | | The 36-1st Public bond2 | | | 2012.4.30 | | | CD(91D) +1.09% | | | — | | | | 20,000 | | | | — | | | | — | | The 36-2nd Public bond | | | 2013.4.30 | | | 4.75% | | | — | | | | 30,000 | | | | — | | | | — | | The 36-3rd Public bond | | | 2015.4.30 | | | 5.65% | | | — | | | | 20,000 | | | | — | | | | — | | The 37-1st Public bond | | | 2011.12.30 | | | 4.85% | | | — | | | | 10,000 | | | | — | | | | — | | The 37-2nd Public bond | | | 2012.6.30 | | | 5.13% | | | — | | | | 10,000 | | | | — | | | | — | | The 37-3rd Public bond | | | 2013.6.30 | | | 5.45% | | | — | | | | 20,000 | | | | — | | | | — | | The 37-4th Public bond | | | 2014.6.30 | | | 5.85% | | | — | | | | 10,000 | | | | — | | | | — | | The 38-1st Public bond | | | 2012.1.19 | | | 4.80% | | | — | | | | 30,000 | | | | — | | | | — | | The 38-2nd Public bond | | | 2012.7.19 | | | 5.08% | | | — | | | | 30,000 | | | | — | | | | — | | The 38-3rd Public bond | | | 2014.7.19 | | | 5.85% | | | — | | | | 10,000 | | | | — | | | | — | | The 39th Public bond | | | 2013.7.30 | | | 5.35% | | | — | | | | 30,000 | | | | — | | | | — | | The 40-1st Public bond | | | 2012.5.10 | | | 4.69% | | | — | | | | 40,000 | | | | — | | | | — | | The 40-2nd Public bond | | | 2013.8.10 | | | 5.33% | | | — | | | | 20,000 | | | | — | | | | — | | The 40-3rd Public bond | | | 2015.8.10 | | | 5.95% | | | — | | | | 20,000 | | | | — | | | | — | | The 41-1st Public bond | | | 2012.9.17 | | | 4.22% | | | — | | | | 30,000 | | | | — | | | | — | | The 41-2nd Public bond | | | 2013.9.17 | | | 4.63% | | | — | | | | 20,000 | | | | — | | | | — | | The 41-3rd Public bond | | | 2014.9.17 | | | 5.10% | | | — | | | | 10,000 | | | | — | | | | — | | The 42-1st Public bond | | | 2013.11.22 | | | 4.62% | | | — | | | | 30,000 | | | | — | | | | — | | The 42-2nd Public bond | | | 2014.11.23 | | | 5.10% | | | — | | | | 20,000 | | | | — | | | | — | | The 42-3rd Public bond | | | 2015.11.24 | | | 5.44% | | | — | | | | 10,000 | | | | — | | | | — | | The 1st Private bond | | | 2010.3.24 | | | BD+3.95% | | | — | | | | — | | | | — | | | | 40,000 | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | | 8,953,391 | | | | | | | | 8,913,261 | | Less: Current portion | | | | | | | | | | | | | (2,178,092 | ) | | | | | | | (1,540,000 | ) | Less: Discount on bonds | | | | | | | | | | | | | (29,626 | ) | | | | | | | (35,862 | ) | | | | | | | | | | | | | | | | | | | | | | | | Net | | | | | | | | | | | | (Won) | 6,745,673 | | | | | | | (Won) | 7,337,399 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | (in millions of Korean won and thousands of foreign currencies) | | | | | | 2012 | | | 2013 | | Type | | Maturity | | | Annual interest rates | | | Foreign currency | | | Korean won | | | Foreign currency | | | Korean won | | The 66th Public bond | | | Apr 02, 2018 | | | | 3.52 | % | | | — | | | | 54,000 | | | | — | | | | 54,000 | | The 67-1st Public bond | | | Mar 22, 2017 | | | | 3.00 | % | | | — | | | | — | | | | — | | | | 30,000 | | The 67-2nd Public bond | | | Mar 22, 2018 | | | | 3.10 | % | | | — | | | | — | | | | — | | | | 40,000 | | The 67-3rd Public bond | | | Mar 22, 2020 | | | | 3.37 | % | | | — | | | | — | | | | — | | | | 20,000 | | The 68-1st Public bond | | | Apr 30, 2016 | | | | 2.85 | % | | | — | | | | — | | | | — | | | | 40,000 | | The 68-2nd Public bond | | | Apr 30, 2017 | | | | 2.92 | % | | | — | | | | — | | | | — | | | | 10,000 | | The 69-1st Public bond | | | Dec 27, 2014 | | | | 3.11 | % | | | — | | | | — | | | | — | | | | 20,000 | | The 69-2nd Public bond | | | June 27, 2016 | | | | CD(91D) +0.43 | % | | | — | | | | — | | | | — | | | | 20,000 | | The 69-3rd Public bond | | | Jun 27, 2018 | | | | 3.81 | % | | | — | | | | — | | | | — | | | | 20,000 | | The 70-1st Public bond | | | Oct 28, 2016 | | | | 3.29 | % | | | — | | | | — | | | | — | | | | 40,000 | | The 70-2nd Public bond | | | Oct 28, 2018 | | | | 3.63 | % | | | — | | | | — | | | | — | | | | 10,000 | | The 71-1st Public bond | | | Nov 29, 2016 | | | | 3.46 | % | | | — | | | | — | | | | — | | | | 10,000 | | The 71-2nd Public bond | | | Nov 29, 2020 | | | | 4.14 | % | | | — | | | | — | | | | — | | | | 30,000 | | The 72-1st Public bond | | | Dec 23, 2015 | | | | 3.18 | % | | | — | | | | — | | | | — | | | | 10,000 | | The 72-2nd Public bond | | | Dec 23, 2016 | | | | 3.41 | % | | | — | | | | — | | | | — | | | | 30,000 | | Asset backed short-term bond | | | Mar 10, 2014 | | | | 2.85 | % | | | — | | | | — | | | | — | | | | 10,000 | | Asset backed short-term bond | | | Mar 12, 2014 | | | | 2.91 | % | | | — | | | | — | | | | — | | | | 10,000 | | Asset backed short-term bond | | | Mar 18, 2014 | | | | 3.02 | % | | | — | | | | — | | | | — | | | | 10,000 | | Asset backed short-term bond | | | Jan 28, 2014 | | | | 3.03 | % | | | — | | | | — | | | | — | | | | 10,000 | | Unsecured private convertible bond 3 | | | Jan 20, 2016 | | | | 2.00 | % | | | — | | | | 15,000 | | | | — | | | | 15,000 | | Unsecured public bond in won | | | Jan 24, 2016 | | | | 3.43 | % | | | — | | | | — | | | | — | | | | 30,000 | | The 16th unsecured bond | | | Apr 23, 2015 | | | | 3.80 | % | | | — | | | | 80,000 | | | | — | | | | 80,000 | | The 1st convertible preferred stock 3 | | | Dec 30, 2014 | | | | 3.00 | % | | | — | | | | 2,000 | | | | — | | | | 2,000 | | The 32-1st Public bond | | | Nov 20, 2015 | | | | 3.19 | % | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 32-2nd Public bond | | | Nov 20, 2017 | | | | 3.33 | % | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 33rd Public bond | | | Mar 21, 2018 | | | | 3.26 | % | | | — | | | | — | | | | — | | | | 53,000 | | The 17-2nd Public bond | | | Mar 11, 2013 | | | | 5.45 | % | | | — | | | | 30,000 | | | | — | | | | — | | The 27-2nd Public bond | | | Apr 9, 2013 | | | | 5.04 | % | | | — | | | | 70,000 | | | | — | | | | — | | The 28-1st Public bond | | | Apr 05, 2014 | | | | 4.61 | % | | | — | | | | 50,000 | | | | — | | | | 50,000 | | The 28-2nd Public bond | | | Apr 05, 2016 | | | | 5.25 | % | | | — | | | | 65,000 | | | | — | | | | 65,000 | | The 29th Public bond | | | Sep 05, 2016 | | | | 4.85 | % | | | — | | | | 45,000 | | | | — | | | | 45,000 | | The 30th Public bond | | | Oct 31, 2014 | | | | 4.50 | % | | | — | | | | 90,000 | | | | — | | | | 90,000 | | The 31-1st Public bond | | | Jun 15, 2015 | | | | 3.73 | % | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 31-2nd Public bond | | | Jun 15, 2017 | | | | 3.97 | % | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 34th Public bond | | | Mar 21, 2018 | | | | 3.21 | % | | | — | | | | — | | | | — | | | | 54,000 | | The 35th Public bond | | | Jun 21, 2018 | | | | 2.92 | % | | | — | | | | — | | | | — | | | | 50,000 | | The 36th Public bond | | | Jun 21, 2018 | | | | 2.92 | % | | | — | | | | — | | | | — | | | | 50,000 | | The 37th Public bond | | | Jun 21, 2018 | | | | 2.98 | % | | | — | | | | — | | | | — | | | | 50,000 | | The 38-1st Public bond | | | Nov 20, 2015 | | | | 3.13 | % | | | — | | | | — | | | | — | | | | 40,000 | | The 38-2nd Public bond | | | Nov 20, 2016 | | | | 3.39 | % | | | — | | | | — | | | | — | | | | 60,000 | | The 2nd unsecured convertible bond 3 | | | Sep 30, 2018 | | | | 2.00 | % | | | — | | | | — | | | | — | | | | 179 | | The 8th unsecured convertible bond 3 | | | Nov 26, 2015 | | | | — | | | | — | | | | 19,052 | | | | — | | | | 19,052 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 10,059,542 | | | | | | | | 10,011,994 | | Less: Current portion | | | | | | | | | | | | | | | (2,305,065 | ) | | | | | | | (2,185,017 | ) | Discount on bonds | | | | | | | | | | | | | | | (26,600 | ) | | | | | | | (22,348 | ) | Conversion right adjustment | | | | | | | | | | | | | | | (5,800 | ) | | | | | | | (3,987 | ) | Add: Premium on bonds redemption | | | | | | | | | | | | | | | 3,517 | | | | | | | | 3,566 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ₩ | 7,725,594 | | | | | | | ₩ | 7,804,208 | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 | As of December 31, 2010,2013, the Controlling Company has issuedoutstanding notes in the amount of USD 1,300 million with fixed interest rates under the Medium Term Note Program (“MTNP”) registered in the Singapore Stock Exchange, which allowsallowed issuance of notes of up to USD 2,000 million, with the unused balance under the program amounting to USD 700 million. The MTN Program has been suspended since 2007. |
2 | The Libor (3M), Tibor (3M) and CD(91D)CD (91D) are approximately 0.30%, 0.34%0.247 % and 2.80%,2.66 %, respectively, as of December 31, 2010.2013. |
3 | At the end of the reporting period, the terms and conditions of the convertible bonds are as follows: |
| | | | | | | | | | | | | | | | | | | Issuers | | Type | | KT Telecop Co., Ltd. | | | Korea HD Broadcasting Corp. | | | KT Music Co., Ltd. | | | Green point Co., Ltd. | | Issue date | | | Jan 20, 2011 | | | | Apr 30, 2010 | | | | Nov 26, 2012 | | | | Oct 1, 2013 | | Issue price | | ₩ | 15,000 million | | | ₩ | 2,000 million | | | ₩ | 19,502 million | | | ₩ | 179 million | | Coupon rate | | | 2 | % | | | 3 | % | | | 0 | % | | | 2 | % | Guaranteed margin ratio | | | 4 | % | | | 3 | % | | | 3 | % | | | Compound annual 5 | % | Conversion period | | | From one year after the issue date to December 20, 2015 | | | | From one year after the issue date to bond maturity | | | | From one year after the issue date to November 19, 2015 | | | | From the day succeeding the issue date till bond maturity | | Conversion price | | ₩ | 26,000 | | | ₩ | 500 | | | ₩ | 3,380 | | | ₩ | 27,952 | |
Long-term BorrowingsShort-term borrowings
| | | | | | | | | | | | | | | | | | | | | (In millions of Korean won and thousands of foreign currencies) | | | | | 2010.12.31 | | | 2009.12.31 | | Type | | Annual Interest Rates | | | Foreign Currency | | | Korean Won | | | Foreign Currency | | | Korean Won | | Informatization Promotion Fund1 | | | 3.52%~4.29% | | | (Won) | — | | | (Won) | 31,371 | | | | (Won)— | | | (Won) | 31,518 | | Inter-Korean Cooperation Fund1 | | | 2.00% | | | | — | | | | 6,415 | | | | — | | | | 6,415 | | Facility and working capital loans | | | 4.00%~8.43% | | | | — | | | | 357,609 | | | | — | | | | 67,411 | | General purpose loans | | | 4.06%~5.80% | | | | — | | | | 185,163 | | | | — | | | | 65,815 | | Commercial papers | | | 2.9%~6.60% | | | | — | | | | 85,000 | | | | — | | | | 50,000 | | Facility loans in foreign currency | | | LIBOR(3M) +2.0% | | | USD | 30,000 | | | | 34,167 | | | USD | 70,000 | | | | 81,732 | | Other long-term borrowings in foreign currency | | | LIBOR+1.70% | | | USD | 16,000 | | | | 18,222 | | | | USD 22,400 | | | | 26,154 | | | | | USD LIBOR(3M) +0.99% | | | | USD 11,000 | | | | 12,528 | | | | USD 15,000 | | | | 17,514 | | | | | LIBOR+3.5% | | | | — | | | | — | | | | RUB 29,380 | | | | 1,131 | | | | | 16.50% | | | | UZS 2,259 | | | | 1,581 | | | UZS | 2,047 | | | | 1,577 | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | 732,056 | | | | | | | | 349,267 | | Less: Current portion | | | | | | | | | | | (259,042 | ) | | | | | | | (150,340 | ) | Present value discounts | | | | | | | | | | | — | | | | | | | | (654 | ) | | | | | | | | | | | | | | | | | | | | | | Net | | | | | | | | | | (Won) | 473,014 | | | | | | | (Won) | 198,273 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | (in millions of Korean won and thousands of foreign currencies) | | | 2012 | | | 2013 | | Financial institution | | Type | | Annual interest rates | | | Foreign Currency | | | Korean won | | | Foreign Currency | | | Korean Won | | Shinhan Bank | | Commercial papers | | | 2.78~3.75 | % | | | — | | | ₩ | — | | | | — | | | ₩ | 40,000 | | | | General loan 1 | | | 4.45~5.17% | | | | — | | | | 93,200 | | | | — | | | | 81,200 | | | | Credit loan | | | 4.84~5.84 | % | | | — | | | | — | | | | — | | | | 12,000 | | | | Usance 1 | | | Financial bonds(6M) +1.27% | | | | — | | | | — | | | | — | | | | 5,000 | | Samsung Securities | | Commercial papers | | | 2.78~4.02 | % | | | — | | | | 90,000 | | | | — | | | | 15,000 | | Woori Bank | | General loans | | | 4.88 | % | | | — | | | | 14,500 | | | | — | | | | 500 | | | | Usance 1 | |
| KO-RIBOR(3M)
+1.33% |
| | | — | | | | — | | | | — | | | | 9,000 | | Korea Exchange Bank | | Commercial papers | | | 3.22~3.89 | % | | | — | | | | 20,000 | | | | — | | | | 30,000 | | Kookmin Bank | | Commercial papers | | | 2.10 | % | | | | | | | — | | | | — | | | | 10,494 | | Citibank | | General loans | | | 4.88 | % | | | — | | | | 2,000 | | | | — | | | | 1,500 | | | | Usance 1 | | | 3.95%(fixed rate) / CD3M +1.2%(variable rate) | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | KTB Investment & Securities | | Commercial papers | | | 2.93 ~ 4.02 | % | | | — | | | | 70,000 | | | | — | | | | — | | Hanyang Securities | | Commercial papers | | | 2.70 ~ 4.02 | % | | | — | | | | 50,000 | | | | — | | | | 50,000 | | SK Securities | | Commercial papers | | | 3.06 ~ 4.12 | % | | | — | | | | 20,000 | | | | — | | | | 10,000 | | Korea Development Bank | | Usance 1 | | | Industrial financial debentures + 1.28 | % | | | — | | | | 5,000 | | | | — | | | | 7,000 | | Hana Bank | | General loans | | | 4.45 ~ 4.95 | % | | | — | | | | 22,500 | | | | — | | | | — | | IBK Bank | | Credit loans | | | 4.75 ~ 5.89 | % | | | — | | | | 7,000 | | | | — | | | | 8,000 | | Daegu Bank | | Commercial papers | | | 5.54 ~ 5.93 | % | | | — | | | | 11,932 | | | | — | | | | — | | DGB Capital | | Commercial papers | | | 5.80 | % | | | — | | | | 5,000 | | | | — | | | | — | | NH Investment & Securities | | Commercial papers | | | 2.78 ~ 3.04 | % | | | — | | | | 20,000 | | | | — | | | | 10,000 | | HYUNDAI Securities | | Commercial papers | | | 2.71 ~ 3.10 | % | | | — | | | | 30,000 | | | | — | | | | 100,000 | | Dongbu Securities | | Commercial papers | | | 2.72 ~ 4.12 | % | | | — | | | | — | | | | — | | | | 95,000 | | Woori Investment & Securities | | Commercial papers | | | 2.92 ~ 3.06 | % | | | — | | | | — | | | | — | | | | 30,000 | | Korea Money Brokerage Corporation | | Commercial papers | | | 2.81 ~ 2.91 | % | | | — | | | | — | | | | — | | | | 20,000 | | Meritz Securities | | Commercial papers | | | 2.78 ~ 2.92 | % | | | — | | | | — | | | | — | | | | 30,000 | | Others 2 | | General loans | | | 3.98 ~ 4.12 | % | | | — | | | | 82,201 | | | | — | | | | 60,000 | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | ₩ | 553,333 | | | | | | | ₩ | 634,694 | | | | | | | | | | | | | | | | | | | | | | | | |
1 | KO-RIBOR(3M), CD(91D), Industrial financial debentures(1Y) and Financial Bond(6M, AAA) are approximately 2.66%, 2.66 %, 2.75%, and 2.71 %, respectively, as of December 31, 2013. |
2 | As of December 31, 2012, KT ENS Corporation, a subsidiary of the Company, accounted for the transferred accounts receivable of₩17,276 million, which do not qualify as derecognition, as secured borrowings. |
Long-term borrowings | | | | | | | | | | | | | | | | | | | | | | | (in millions of Korean won and thousands of foreign currencies) | | | 2012 | | | 2013 | | Financial institution | | Type | | Annual interest rates | | | Foreign currency | | | Korean won | | | Foreign currency | | | Korean won | | Kookmin Bank | | Informatization promotion funds | | | 3.04 | % | | | — | | | ₩ | 911 | | | | — | | | ₩ | — | | | | Working capital loans | | | 6.30 | % | | | — | | | | 10,000 | | | | — | | | | — | | | | Facility loans | | | 3.49~4.98 | % | | | — | | | | 80,000 | | | | — | | | | 60,000 | | Shinhan Bank | | Informatization promotion funds 1 | | | 3.22 | % | | | — | | | | 11,985 | | | | — | | | | 6,048 | | | | General loans 2 | | | 3.95~5.70 | % | | | — | | | | 37,560 | | | | — | | | | 20,000 | | | | loan on real estate | | | 4.00 | % | | | — | | | | 358 | | | | — | | | | — | | | | Facility loans 2 | | | 2.22~5.23 | % | | | — | | | | 67,723 | | | | — | | | | 42,331 | | Export-Import Bank of Korea | | Inter-Korean Cooperation Fund 1 | | | 2.00 | % | | | — | | | | 6,415 | | | | — | | | | 6,415 | | Korea Exchange Bank | | General loans 2 | | | LIBOR(3M)+2.03 | % | | USD | 6,520 | | | | 6,984 | | | USD | 2,200 | | | | 2,322 | | | | General loans | | | 3.94~4.18 | % | | | — | | | | — | | | | — | | | | 25,210 | | Woori Bank | | General loans | | | CD(91D)+1.39~5.98 | % | | | — | | | | 45,000 | | | | — | | | | — | | Hana Bank | | General loans | | | LIBOR(3M)+1.60 | % | | USD | 3,200 | | | | 3,428 | | | | — | | | | — | | National Federation of Fisheries Cooperatives | | General loans | | | 4.63 | % | | | — | | | | 50,000 | | | | — | | | | 50,000 | | NH Bank | | General loans | | | 3.99~6.00 | % | | | — | | | | 50,000 | | | | — | | | | 60,000 | | | | Facility loans | | | 4.32~4.68 | % | | | — | | | | 187,500 | | | | — | | | | 135,000 | | Korea Development Bank | | General loans | | | 4.32~4.91 | % | | | — | | | | — | | | | — | | | | 3,750 | | | | Facility loans | | | 4.49 | % | | | — | | | | 88,750 | | | | — | | | | 20,000 | | Industrial Bank of Korea | | Facility loans | | | 2.22 | % | | | — | | | | 1,500 | | | | — | | | | 833 | | Samsung Securities | | Commercial papers | | | 2.78~3.08 | % | | | — | | | | 60,000 | | | | — | | | | 100,000 | | Dongbu Securities | | Commercial papers | | | 4.12 | % | | | — | | | | 20,000 | | | | — | | | | — | | SK Securities | | Commercial papers | | | 4.12 | % | | | — | | | | 10,000 | | | | — | | | | — | | Cardnet | | General loans | | | 6.50 | % | | | — | | | | 348 | | | | — | | | | — | | HYUNDAI Securities | | Commercial papers | | | 2.81~3.08 | % | | | — | | | | — | | | | — | | | | 179,945 | | | | General loans - | | | 3.08 | % | | | — | | | | 49,947 | | | | — | | | | — | | IBK Securities | | Commercial papers | | | 2.78 | % | | | — | | | | — | | | | — | | | | 50,000 | | Shinhan invest corp | | Commercial papers | | | 2.93 | % | | | — | | | | — | | | | — | | | | 39,963 | | Others | | Redeemable convertible preferred stock 3 | | | — | | | | — | | | | 51,044 | | | | — | | | | 53,736 | | | | Other | | | 2.75~17.50 | % | | | — | | | | 7,465 | | | | — | | | | 4,423 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | 846,918 | | | | | | | | 859,976 | | Less: Current portion | | | | | | | | | | | | | (333,422 | ) | | | | | | | (200,997 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Net | | | | | | | | | | ₩ | 513,496 | | | | | | | ₩ | 658,979 | | | | | | | | | | | | | | | | | | | | | | | | |
1 | The above Informatization Promotion Funds are repayable in installments over three years after a two-year grace period, while Inter-Korean Cooperation Fund is repayable in installments over 1320 years after a seven-year grace period. |
Repayment Schedule
2 | Interest rates of LIBOR (3M) is approximately 0.247% as of December 31, 2013. |
3 | As of the end of the reporting period, the terms and conditions of the redeemable convertible preferred stocks are as follows: |
| | | | | | | | | | | | | | | | | | | | | | | Issued by | | | | Enswers Inc. | | | Korea HD Broadcasting Corp. | | | KT Telecop Co., Ltd. | | Type | | The A Redeemable convertible preferred stock | | | The B Redeemable convertible preferred stock | | | The C Redeemable convertible preferred stock | | | Redeemable convertible preferred stock | | | Redeemable convertible preferred stock | | Issue date | | | 2008.08.14 | | | | 2009.11.24 | | | | 2011.11.30 | | | | 2010.12.21 | | | | 2011.1.20 | | Issue price (per share) | | ₩ | 272,000 | | | ₩ | 408,400 | | | ₩ | 893,400 | | | ₩ | 500 | | | ₩ | 5,000 | | Number of share issued | | | 5,875 | | | | 1,225 | | | | 11,194 | | | | 1,900,000 | | | | 1,346,154 | | Conversion price (per share) | | ₩ | 272,000 | | | ₩ | 408,400 | | | ₩ | 893,400 | | | ₩ | 500 | | | ₩ | 26,000 | | Exercisable date of conversion rights | | | From the issue date to 2018.08.14 | | | | From the issue date to 2019.11.24 | | | | From the issue date to 2021.11.30 | | | | From the issue date to 2013.12.21 | | | | From one year after the issue date until exercise date | | Redemption price | | | Issue price + 5% compound annual interest | | | | Issue price + 5% compound annual interest | | | | Issue price + 5% compound annual interest | | | | Issue price + 1% compound annual interest | | |
| Issue price of preferred stock
not converted + 5% compound annual interest less dividends received |
| Exercisable date of redemption Rights | | | From three years after the issue date to 2018.08.14 | | | | From three years after the issue date to 2019.11.24 | | | | From three years after the issue date to 2021.11.30 | | | | From two years after the issue date to 2013.12.21 | | | | From five years (2016.01.20) after the issue date up to 3 months | |
Repayment schedule of the Company’sGroup’s bonds payable and long-termborrowings including the portion of current liabilities as of December 31, 2013, is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Bonds | | | Borrowings | | | Total | | (in millions of Korean won) | | In local currency | | | In foreign currency | | | Sub-total | | | In local currency | | | In foreign currency | | | Sub-total | | | 2014 | | ₩ | 1,442,000 | | | ₩ | 738,710 | | | ₩ | 2,180,710 | | | ₩ | 833,369 | | | ₩ | 2,322 | | | ₩ | 835,691 | | | ₩ | 3,016,401 | | 2015 | | | 1,029,052 | | | | 472,353 | | | | 1,501,405 | | | | 281,463 | | | | — | | | | 281,463 | | | | 1,782,868 | | 2016 | | | 1,585,179 | | | | 393,908 | | | | 1,979,087 | | | | 335,000 | | | | — | | | | 335,000 | | | | 2,314,087 | | 2017 | | | 667,000 | | | | 369,355 | | | | 1,036,355 | | | | 40,493 | | | | — | | | | 40,493 | | | | 1,076,848 | | Thereafter | | | 2,824,000 | | | | 490,437 | | | | 3,314,437 | | | | 2,023 | | | | — | | | | 2,023 | | | | 3,316,460 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | ₩ | 7,547,231 | | | ₩ | 2,464,763 | | | ₩ | 10,011,994 | | | ₩ | 1,492,348 | | | ₩ | 2,322 | | | ₩ | 1,494,670 | | | ₩ | 11,506,664 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Book value and fair value of the Group’s bonds payable and borrowings as of December 31, 2010,2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | 2012 | | | 2013 | | (in millions of Korean won) Type | | Book Value | | | Fair Value | | | Book Value | | | Fair Value | | Bonds payable | | ₩ | 10,035,868 | | | ₩ | 10,191,819 | | | ₩ | 9,989,223 | | | ₩ | 10,066,124 | | Long-term borrowings (Including current borrowings) | | | 846,918 | | | | 820,849 | | | | 859,976 | | | | 798,827 | | Short-term borrowings | | | 553,333 | | | | 553,333 | | | | 634,694 | | | | 634,694 | | | | | | | | | | | | | | | | | | | Total | | ₩ | 11,436,119 | | | ₩ | 11,566,001 | | | ₩ | 11,483,893 | | | ₩ | 11,499,645 | | | | | | | | | | | | | | | | | | |
The fair values of bonds payable and long-term borrowings are calculated by discounting the expected future cash flows at weighted average borrowing rate. The weighted average borrowing rate is approximately 4.53% as of December 31, 2013 (2012: 4.56%). 17. Provisions The changes in provisions during the years ended December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | 2012 | | (in millions of Korean won) | | Litigation | | | Asset retirement obligation | | | Other 1 | | | Total | | Balance at 2012.1.1 | | ₩ | 28,915 | | | ₩ | 108,651 | | | ₩ | 128,085 | | | ₩ | 265,651 | | Increase(Transfer) | | | 9,610 | | | | 12,533 | | | | 171,816 | | | | 193,959 | | Usage | | | (492 | ) | | | (2,470 | ) | | | (83,753 | ) | | | (86,715 | ) | Reversal | | | (747 | ) | | | (9,124 | ) | | | (7,501 | ) | | | (17,372 | ) | Changes in scope of consolidation | | | — | | | | 8 | | | | — | | | | 8 | | | | | | | | | | | | | | | | | | | Balance at 2012.12.31 | | ₩ | 37,286 | | | ₩ | 109,598 | | | ₩ | 208,647 | | | ₩ | 355,531 | | | | | | | | | | | | | | | | | | | Current portion | | | 33,678 | | | | 54 | | | | 171,859 | | | | 205,591 | | Non-current portion | | | 3,608 | | | | 109,544 | | | | 36,788 | | | | 149,940 | |
| | | | | | | | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | Litigation | | | Asset retirement obligation | | | Other 1 | | | Total | | Balance at 2013.1.1 | | ₩ | 37,286 | | | ₩ | 109,598 | | | ₩ | 208,647 | | | ₩ | 355,531 | | Increase (Transfer) | | | 4,440 | | | | 1,936 | | | | 55,120 | | | | 61,496 | | Usage | | | (714 | ) | | | (1,966 | ) | | | (139,569 | ) | | | (142,249 | ) | Reversal | | | (1,897 | ) | | | (5,251 | ) | | | (20,276 | ) | | | (27,424 | ) | Changes in scope of consolidation | | | — | | | | 962 | | | | — | | | | 962 | | | | | | | | | | | | | | | | | | | Balance at 2013.12.31 | | ₩ | 39,115 | | | ₩ | 105,279 | | | ₩ | 103,922 | | | ₩ | 248,316 | | | | | | | | | | | | | | | | | | | Current portion | | | 35,507 | | | | 46 | | | | 79,202 | | | | 114,755 | | Non-current portion | | | 3,608 | | | | 105,233 | | | | 24,720 | | | | 133,561 | |
1 | The Company has commitments to pay the subsidies to the customers relating to the handset sales, and the payment commitments are accounted for as deduction from receivables. The Company disposed of its trade receivables arising from handset sales to special purpose entities for securitization and the related payment commitments are accounted for as other provisions. |
18. Net Defined Benefit Liabilities The amounts recognized in the statements of financial position are determined as follows: | | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Present value of defined benefit obligations | | ₩ | 1,724,246 | | | ₩ | 1,636,593 | | Fair value of plan assets | | | (1,175,003 | ) | | | (1,050,510 | ) | | | | | | | | | | Liabilities | | ₩ | 549,243 | | | ₩ | 586,083 | | | | | | | | | | |
The changes in the defined benefit obligations for the years ended December 31, 2012 and 2013, are as follows: | | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Beginning | | ₩ | 1,474,481 | | | ₩ | 1,724,246 | | Current service cost | | | 206,389 | | | | 210,466 | | Interest expense | | | 57,156 | | | | 57,891 | | Benefit paid | | | (78,625 | ) | | | (97,956 | ) | Gains on settlements of plan 1 | | | (3,630 | ) | | | 2,171 | | Changes due to settlements of plan 1 | | | (125,540 | ) | | | (188,512 | ) | Remeasurements: | | | | | | | | | Actuarial gains and losses arising from changes in demographic assumptions | | | 52,497 | | | | 81,616 | | Actuarial gains and losses arising from changes in financial assumptions | | | 10,326 | | | | (144,111 | ) | Actuarial gains and losses arising from experience adjustments | | | 120,579 | | | | (9,521 | ) | Changes in scope of Consolidation | | | 10,613 | | | | 303 | | | | | | | | | | | Ending | | ₩ | 1,724,246 | | | ₩ | 1,636,593 | | | | | | | | | | |
1 | A settlement is a transaction that eliminates all further legal or constructive obligations for part or all of the benefits provided under a defined benefit plan. The Group has entitled employees to choose to transfer from defined benefit plans to contribution plans from December 2012. |
Changes in the fair value of plan assets for the years ended December 31, 2012 and 2013, are as follows: | | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Beginning | | ₩ | 1,048,436 | | | ₩ | 1,175,003 | | Interest income | | | 40,787 | | | | 42,964 | | Remeasurements: | | | | | | | | | Return on plan assets (excluding amounts included in interest income) | | | 8,800 | | | | 2,612 | | Benefits paid | | | (44,448 | ) | | | (57,866 | ) | Changes due to settlements of plan 1 | | | (99,853 | ) | | | (138,220 | ) | Employer contributions | | | 214,981 | | | | 26,161 | | Changes in scope of consolidation | | | 6,300 | | | | (144 | ) | | | | | | | | | | Ending | | ₩ | 1,175,003 | | | ₩ | 1,050,510 | | | | | | | | | | |
1 | The Group has operated both defined contribution plans and defined benefit plans from December 2012. The employees are entitled to choose either defined contribution plans and defined benefit plans. |
Amounts recognized in the statement of income for the years ended December 31, 2011, 2012 and 2013, are as follows: | | | | | | | | | | | | | (in millions of Korean won) | | 2011 | | | 2012 | | | 2013 | | Current service cost | | ₩ | 174,402 | | | ₩ | 206,389 | | | ₩ | 210,466 | | Interest cost | | | 53,320 | | | | 57,156 | | | | 57,891 | | Interest income | | | (40,018 | ) | | | (40,787 | ) | | | (42,964 | ) | Costs(gains) on settlements | | | — | | | | (3,630 | ) | | | 2,171 | | Transfer out | | | (4,405 | ) | | | (8,763 | ) | | | (10,502 | ) | | | | | | | | | | | | | | Total expenses | | ₩ | 183,299 | | | ₩ | 210,365 | | | ₩ | 217,062 | | | | | | | | | | | | | | |
Principal actuarial assumptions used are as follows: | | | | | | | | | | | | | | | 2011.12.31 | | | 2012.12.31 | | | 2013.12.31 | | Discount rate | | | 4.00% ~ 4.80% | | | | 3.13% ~ 4.10% | | | | 3.10% ~ 4.05% | | Future salary increase | | | 2.00% ~ 9.30% | | | | 3.00% ~ 8.10% | | | | 2.10% ~ 8.10% | |
Also, the life expectancy is based on the data provided by Korea Insurance Development Institute. As of December 31, 2013, all of the plan assets are invested in guaranteed financial instruments. The sensitivity of the defined benefit obligation as of December 31, 2013, to changes in the weighted principal assumptions is: | | | | | | | | | | | | | | | Effect on defined benefit obligation | | (in percentage, in millions of Korean won) | | Changes in principal assumption | | | Increase in principal assumption | | | Decrease in principal assumption | | Discount rate | | | 0.50 | % point | | ₩ | (61,946 | ) | | ₩ | 65,821 | | Salary growth rate | | | 0.50 | % point | | | 62,069 | | | | (59,111 | ) |
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings. 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 Group annually reviews funding levels of plan assets and has plan asset policies that require maintaining the funding level of the Group equal to or more than the level required under the Employee Retirement Benefit Security Act. Expected contributions to post-employment benefit plans for the year ending December 31, 2014, are₩219,753 million. Expected maturity analysis of undiscounted pension benefits as of December 31, 2013, is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (In millions of Korean won) | | Bonds | | | Borrowings | | Year ending December 31 | | In local currency | | | In foreign currency | | | Sub- total | | | Borrowings in local currency | | | Borrowings in foreign currency | | | Sub- total | | | Total | | 2011 | | (Won) | 1,541,213 | | | (Won) | 636,879 | | | (Won) | 2,178,092 | | | (Won) | 205,058 | | | (Won) | 53,984 | | | (Won) | 259,042 | | | (Won) | 2,437,134 | | 2012 | | | 1,350,000 | | | | 353,059 | | | | 1,703,059 | | | | 210,830 | | | | 8,871 | | | | 219,701 | | | | 1,922,760 | | 2013 | | | 1,320,000 | | | | 341,670 | | | | 1,661,670 | | | | 237,008 | | | | 3,643 | | | | 240,651 | | | | 1,902,321 | | 2014 | | | 890,000 | | | | 683,340 | | | | 1,573,340 | | | | 5,161 | | | | — | | | | 5,161 | | | | 1,578,501 | | Thereafter | | | 1,040,000 | | | | 797,230 | | | | 1,837,230 | | | | 7,501 | | | | — | | | | 7,501 | | | | 1,844,731 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 6,141,213 | | | (Won) | 2,812,178 | | | (Won) | 8,953,391 | | | (Won) | 665,558 | | | (Won) | 66,498 | | | (Won) | 732,056 | | | (Won) | 9,685,447 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | (in millions of Korean won) | | Less than 1 year | | | Between 1 and 2 years | | | Between 2 and 5 years | | | Over 5 years | | | Total | | Pension benefits | | ₩ | 112,402 | | | ₩ | 139,406 | | | ₩ | 556,304 | | | ₩ | 3,847,327 | | | ₩ | 4,655,439 | |
The weighted average duration of the defined benefit obligations is 9.06 years. 15. Accrued Severance Benefits19. Defined Contribution Plan
Changes in accrued severance benefitsRecognized expense related to the defined contribution plan for the year ended December 31, 20102013, is₩23,857 million (2012:₩1,703 million, 2011:₩230 million).
20. Commitments and 2009,Contingencies As of December 31, 2013, major commitments with local financial institutions are as follows: | | | | | | | | | | | | | | | (in millions of Korean won and thousands of foreign currencies) | | Financial institution | | Currency | | | Limit | | | Used amount | | Bank overdraft | | Kookmin Bank and others | | | KRW | | | | 1,573,500 | | | | — | | Commercial paper factoring | | Korea Exchange Bank | | | KRW | | | | 220,000 | | | | — | | Loan on information and communications fund | | Shinhan Bank | | | KRW | | | | 6,048 | | | | 6,048 | | Green energy factoring | | Shinhan Bank | | | KRW | | | | 374 | | | | 374 | | Collateralized loan on accounts receivable-trade | | Kookmin Bank and others | | | KRW | | | | 757,000 | | | | 131,175 | | Purchase commitment for foreign currency checks | | Korea Exchange Bank | | | USD | | | | 1,000 | | | | — | | Plus electronic notes payable | | Industrial Bank of Korea | | | KRW | | | | 50,000 | | | | 1,875 | | Loans for working capital | | Industrial Bank of Korea | | | KRW | | | | 100,000 | | | | — | | Comprehensive credit line | | Korea Exchange Bank | | | KRW | | | | 65,000 | | | | 15,277 | | Foreign currency transaction | | HSBC | | | USD | | | | 80,000 | | | | — | | Credit line for call loan | | Tongyang Securities Inc | | | KRW | | | | 120,000 | | | | — | |
As of December 31, 2013, guarantees received from financial institutions are as follows: | | | | | | | | | | | (in millions of Korean won and thousands of foreign currencies) | | Financial institution | | Currency | | | Limit | | Performance guarantee | | | | | USD | | | | 975 | | | | | | | DZD | 1 | | | 25,863 | | Warranty guarantee | | Export-Import Bank of Korea | | | USD | | | | 2,497 | | Guarantee for advances received | | | | | USD | | | | 2,925 | | | | | | | DZD | 1 | | | 77,589 | | Bid guarantee | | Korea Software Financial Cooperative | | | KRW | | | | 27,796 | |
| | | | | | | | | | | (in millions of Korean won and thousands of foreign currencies) | | Financial institution | | Currency | | | Limit | | Guarantees for accounts receivable from the handset sales | | Seoul Guarantee Insurance | | | KRW | | | | 667,817 | | Performance guarantee/Warranty guarantee | | Korea Software Financial Cooperative | | | KRW | | | | 201,892 | | Prepayment and other guarantee | | | | | KRW | | | | 77,284 | | Guarantee for payment in local currency | | Korea Exchange Bank | | | KRW | | | | 3,600 | | | Woori Bank | | | KRW | | | | 1,000 | | Guarantee for payment in foreign currency | | Kookmin Bank | | | USD | | | | 19,148 | | | | Shinhan Bank | | | USD | | | | 7,471 | | | | Hana Bank | | | USD | | | | 4,000 | | | | Korea Exchange Bank | | | USD | | | | 15,000 | | | | | | | PLN | 2 | | | 23,000 | | Guarantee for import letters of credit | | Korea Exchange Bank | | | USD | | | | 10,000 | | Performance guarantees | | Hana Bank | | | KRW | | | | 9,222 | | | | | | | USD | | | | 4,148 | | Performance guarantees | | Seoul Guarantee Insurance | | | KRW | | | | 60,215 | | Guarantees for licensing | | Seoul Guarantee Insurance | | | KRW | | | | 4,052 | | Guarantees for deposits | | Seoul Guarantee Insurance | | | KRW | | | | 3,535 | | Other | | Seoul Guarantee Insurance | | | KRW | | | | 137,552 | | Performance guarantees | | Korea Federation of small and medium business | | | KRW | | | | 5,818 | |
Details of collateral that KT Capital Co., Ltd., a subsidiary, is provided with by third parties as of December 31, 2013, are as follows: | | | | | (In millions of Korean won) | | 2010Details
| | Amounts | Balance at 2010.1.1Credits
| | Movables, real-estate, financial collateral | | (Won)₩858,444 | 1,488,086 | | Decrease
| | | (490,055 | ) | Provision for severance benefits
| | | 233,111 | | Others
| | | (137 | ) | | | | | | Balance at 2010.12.31
| | | 1,231,005 | | Less : Severance insurance deposits
| | | (870,928 | ) | Less : Cumulative deposits to the National Pension Fund
| | | (49 | ) | | | | | | Total
| | (Won) | 360,028 | | | | | | | | | (In millions of Korean won)
| | 2009 | | Balance at 2009.1.1
| | (Won) | 1,663,690 | | Decrease
| | | (409,295 | ) | Provision for severance benefits
| | | 233,691 | | | | | | | Balance at 2009.12.31
| | | 1,488,086 | | Less : Severance insurance deposits
| | | (1,150,544 | ) | Less : Cumulative deposits to the National Pension Fund
| | | (18 | ) | | | | | | Total
| | (Won) | 337,524 | | | | | | |
The estimated value of severance benefits for all employees, asAs of December 31, 2010, amounts to(Won)1,231,005 million which are fully recognized as accrued severance benefits. In addition, as of December 31, 2010, accrued severance benefits are funded at approximately 70.75% through2013, guarantees provided by the Group for a severance insurance plan and defined benefit severance pension plan with Samsung Life Insurance.
16. Provisions
Changes in provisions for the years ended December 31, 2010 and 2009,third party, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2010 | | | | 2010.1.1 | | | Increase | | | Transfer | | | Decrease | | | Others | | | 2010.12.31 | | (In millions of Korean won) | | | | | Usage | | | Reversal | | | | Current portion | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Litigation1 | | (Won) | 17,010 | | | (Won) | 9,630 | | | (Won) | — | | | (Won) | (2,116 | ) | | (Won) | (964 | ) | | (Won) | — | | | (Won) | 23,560 | | KT members points2 | | | 546 | | | | — | | | | — | | | | — | | | | (546 | ) | | | — | | | | — | | KT points3 | | | 3,591 | | | | — | | | | — | | | | (1,639 | ) | | | — | | | | — | | | | 1,952 | | Call bonus points4 | | | 7,271 | | | | — | | | | 12,990 | | | | (11,942 | ) | | | — | | | | — | | | | 8,319 | | Olleh club points5 | | | — | | | | — | | | | 27,013 | | | | (7,912 | ) | | | — | | | | — | | | | 19,101 | | Sales warranty reserve | | | 6,245 | | | | 5,684 | | | | — | | | | (6,261 | ) | | | — | | | | — | | | | 5,668 | | Others7 | | | 5,178 | | | | 44,637 | | | | (474 | ) | | | (12,763 | ) | | | (7,006 | ) | | | 1,009 | | | | 30,581 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Sub-total | | | 39,841 | | | | 59,951 | | | | 39,529 | | | | (42,633 | ) | | | (8,516 | ) | | | 1,009 | | | | 89,181 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-current portion | | | | | | | | | | | | | | | | | | | | | | | | | | | | | KT points3 | | | 2,457 | | | | — | | | | — | | | | — | | | | (1,016 | ) | | | — | | | | 1,441 | | Call bonus points4 | | | 6,438 | | | | 14,711 | | | | (12,990 | ) | | | — | | | | — | | | | — | | | | 8,159 | | Olleh club points5 | | | — | | | | 29,063 | | | | (27,013 | ) | | | — | | | | — | | | | — | | | | 2,050 | | Asset retirement obligation6 | | | 93,211 | | | | 22,759 | | | | 474 | | | | (6,936 | ) | | | (8,353 | ) | | | — | | | | 101,155 | | Others7 | | | 1,470 | | | | 656 | | | | — | | | | (47 | ) | | | (431 | ) | | | — | | | | 1,648 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Sub-total | | | 103,576 | | | | 67,189 | | | | (39,529 | ) | | | (6,983 | ) | | | (9,800 | ) | | | — | | | | 114,453 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 143,417 | | | (Won) | 127,140 | | | (Won) | — | | | (Won) | (49,616 | ) | | (Won) | (18,316 | ) | | (Won) | 1,009 | | | (Won) | 203,634 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2009 | | (In millions of Korean won) | | 2009.1.1 | | | Increase | | | Transfer | | | Decrease | | | Others | | | 2010.12.31 | | | | | | | | | | | | | | | | Usage | | | Reversal | | | | | Current portion | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Litigation1 | | (Won) | 19,572 | | | (Won) | 2,204 | | | (Won) | — | | | (Won) | (4,766 | ) | | (Won) | — | | | (Won) | — | | | (Won) | 17,010 | | KT members points2 | | | 681 | | | | — | | | | — | | | | (110 | ) | | | (25 | ) | | | — | | | | 546 | | KT points3 | | | 4,774 | | | | — | | | | 4,642 | | | | (5,825 | ) | | | — | | | | — | | | | 3,591 | | Call bonus points4 | | | 5,504 | | | | — | | | | 4,999 | | | | (3,232 | ) | | | — | | | | — | | | | 7,271 | | Sales warranty reserve | | | 5,299 | | | | 9,285 | | | | — | | | | (8,339 | ) | | | — | | | | — | | | | 6,245 | | Others7 | | | 2,985 | | | | 5,033 | | | | — | | | | (2,745 | ) | | | (719 | ) | | | 624 | | | | 5,178 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Sub-total | | | 38,815 | | | | 16,522 | | | | 9,641 | | | | (25,017 | ) | | | (744 | ) | | | 624 | | | | 39,841 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-current portion | | | | | | | | | | | | | | | | | | | | | | | | | | | | | KT points3 | | | 7,099 | | | | — | | | | (4,642 | ) | | | — | | | | — | | | | — | | | | 2,457 | | Call bonus points4 | | | 5,109 | | | | 7,935 | | | | (4,999 | ) | | | (1,607 | ) | | | — | | | | — | | | | 6,438 | | Asset retirement obligation6 | | | 71,533 | | | | 13,997 | | | | — | | | | (6,188 | ) | | | (3,935 | ) | | | 17,804 | | | | 93,211 | | Others7 | | | 1,405 | | | | 374 | | | | — | | | | — | | | | (309 | ) | | | — | | | | 1,470 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Sub-total | | | 85,146 | | | | 22,306 | | | | (9,641 | ) | | | (7,795 | ) | | | (4,244 | ) | | | 17,804 | | | | 103,576 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 123,961 | | | (Won) | 38,828 | | | (Won) | — | | | (Won) | (32,812 | ) | | (Won) | (4,988 | ) | | (Won) | 18,428 | | | (Won) | 143,417 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | (in millions of Korean won) | | Creditor | | Limit | | | Used amount | | | Period | | Individuals with the right of ownership of Gimhae apartment | | Shinhan Bank | | ₩ | 108,500 | | | ₩ | 36,560 | | | | 2012.5.21~2014.3.31 | | Ssangyong Information & Communication Corporation | | Nonghyup Bank | | | 20,000 | | | | 47 | | | | 2011.11.18~2014.11.28 | | Other Project Financing 1 | | NH Investment & Securities | | | 247,661 | | | | 246,202 | | | | 2010.1.31~2025.2.28 | |
1 | The amount recognizedAs of December 31, 2013, guarantee liabilities and loss of₩10,538 million in relation to guarantees for Project Financing loan are recorded as litigation provision represents‘other financial liabilities’ and ‘finance costs’ in the estimatefinancial statements. NH Investment & Securities requested early repayment of payments required₩45,372 million, representing the principal and interest related to settle the obligation. |
2 | Romanian sunlight generation project on February 20, 2014, and KT ENS took over the debt. However, KT ENS could not execute payment guarantee according to the request of early payment ofThe Company recorded provisions₩49,106 million, representing the principal and interest, on March 12, 2014 and therefore filed for the KT members points with which VIP customers of the fixed-line or mobile telephone service are entitled to receive certain goods and other benefits for up to(Won)25,000 per person.court receivership. (Note 41) |
3 | The amount recognized as call bonus points represents the estimate of payments for call bonus points which are provided to fixed-line customers based on the usage of the services. Once certain criteria are met, customers are entitled to receive certain goods and other benefits from the Company. Such provision is reviewed at each reporting date and adjusted to reflect the current best estimates based on changes in circumstances, or an acquisition of new information or additional experience on the usage rate, expiration of points and others. |
4 | The Company recorded provision for the Let’s 010 (KT-PCS) call bonus points with which its PCS subscribers are entitled to receive certain goods and other benefits from the Company. |
5 | The Company recognized estimated expenses for the integrated mileage program of wireless membership, wired and wireless mileage, Show point service and Shocking package, which commenced in June 2010. |
6 | When the Company is responsible for restoration of leased facility after termination of the lease contract, the present value of expected future expenditure for the restoration is recorded as a liability. |
7 | Points are granted to customers, employees and the customers of business partners. The Company accounts for this points as welfare expense and others based on nature of provision. |
17. Lease
As of December 31, 2013, the Company has provided a payment guarantee to Smart Channel Co., Ltd(“Smart Channel”). The Company pledged investment securities in Smart Channel Co., Ltd. as Lesseecollateral to the creditors of Smart Channel (Note 14). Furthermore, the Company recorded allowance for doubtful receivables of₩49,362 million against other receivables from Smart Channel. PropertyThe Company is jointly and equipment acquired through lease arrangementsseverally obligated with GE Capital and othersKT Sat Co., Ltd. to pay KT Sat Co., Ltd.’s outstanding liabilities as of December 4, 2012, spin-off date. As of December 31, 20102013, the Company and KT Sat Co., Ltd. are jointly and severally liable for₩7,949 million of KT Sat Co., Ltd.’s outstanding liabilities.
For the year ended December 31, 2013, the Company made agreements with the Securitization Specialty Companies Olleh KT Seventh to twelfth Securitization Specialty Co., Ltd. (in 2012: Olleh KT First to Sixth Securitization Specialty Co., Ltd.), and disposed of its trade receivables related to handset sales. The Company also made asset management agreements with each securitization specialty company and will receive the related management fees. On March 6, 2014, the website of the Company was accessed by unauthorized person and personal information of our customers was stolen by hackers. There is one lawsuit against the Company over this breach seeking damages of approximately₩20 million. The resolution of the lawsuit cannot yet be reasonably predicted. Also, there may be more lawsuits filed against the Company in the future. However, the size and result of any potential lawsuits cannot yet be reasonably predicted. As of December 31, 2013, the Group is a defendant in 279 lawsuits, with an aggregate amount of₩159,434 million. As of December 31, 2013, litigation provisions of₩39,115 million for various pending lawsuits and unasserted claims are recorded as liabilities for potential loss in the ordinary course of business. On January 24, 2014, the Company lost a lawsuit in relation to the interconnection with SK Telecom Co., Ltd. and recognized expenses of₩34,636 million relative to this in the 2013 statement of operations. The Company appealed to the Supreme Court and the final outcome of this case cannot yet be predicted. According to the financial and other covenants included in certain bonds and borrowings, the Group is required to maintain certain financial ratios such as debt to equity ratio, use the funds for the designated purpose and report to the creditors periodically. The covenant also contains restriction on provision of additional collateral and disposal of certain assets. The bond holders may request early repayment upon non-compliance of such covenants. As of December 31, 2013, the Group is in compliance with the related covenants. KT ENS, a wholly owned subsidiary, has been under investigation by the police and prosecutor’s office due to the allegation in which suppliers of KT ENS borrowed loans from several financial institutions collateralizing accounts receivable from KT ENS, however such collateralized accounts receivable are allegedly fictitious. The investigation has been ongoing to determine the authenticity of the accounts receivable from KT ENS and reasonable due care exercised by financial institutions to approve such loans in their loan approval process. There may be lawsuits depending on the outcome of this investigation. The Group expects the impact of this investigation on the financial statements will not be significant, but the final result cannot be reasonably predicted. Asia Broadcast Satellite Holdings, Ltd.(ABS) filed an arbitration against the Company and KT Sat, a subsidiary of the Company at The International Court of Arbitration of the International Chamber of Commerce on December 31, 2013, claiming on the ownership of satellite Mugunghwa and compensation of damages due to the breach of sales contract of the satellite, Mugunghwa, In addition, ABS filed an arbitration against the Company and KT Sat, a subsidiary of the Company, at International Centre for Dispute Resolution of the American Arbitration Association on December 24, 2013, claiming on the compensation of damages arising from the breach of entrustment contract. The outcome of these arbitrations cannot yet be reasonably predicted. 21. Lease TheGroup’s non-cancellable lease arrangements are as follows: The Group as the Lessee Finance Lease Details of finance lease assets as of December 31, 20102012 and 2013, are as follows: | | | | | (In millions | | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Acquisition costs | | ₩ | 55,477 | | | ₩ | 99,702 | | Accumulated depreciation | | | (15,282 | ) | | | (27,980 | ) | | | | | | | | | | Net balance | | ₩ | 40,195 | | | ₩ | 71,722 | | | | | | | | | | |
As of Korean won)
| | 2010 | | Acquisition costs
| | (Won) | 22,332 | | Accumulated depreciation
| | | (11,342 | ) | | | | | | Net balance
| | (Won) | 10,990 | | | | | | |
The related depreciation amounted to(Won)2,029 million for the year ended December 31, 2010.2013, the Group recognizes financial lease assets as other property and equipment.
Details of future minimum lease payments as of December 31, 20102012 and 2013, under capitalfinance lease contracts are summarized below: | (In millions of Korean won) | | Minimum lease payments | | | Present values | | | (in millions of Korean won) | | | 2012 | | 2013 | | Total amount of minimum lease payments | | | | | | Within one year | | (Won) | 6,387 | | | (Won) | 5,282 | | | ₩ | 15,826 | | | ₩ | 22,498 | | From one year to five years | | | 16,372 | | | | 14,527 | | | | 29,474 | | | | 52,877 | | Thereafter | | | | — | | | | — | | | | | | | | | | | | | | | Total | | (Won) | 22,759 | | | (Won) | 19,809 | | | ₩ | 45,300 | | | ₩ | 75,375 | | | | | | | | | | | | | | | Unrealized interest expense | | | ₩ | (3,654 | ) | | ₩ | (7,166 | ) | | | | | | | | | Net amount of minimum lease payments | | | | | | Within one year | | | ₩ | 14,033 | | | ₩ | 19,486 | | From one year to five years | | | | 27,613 | | | | 48,723 | | Thereafter | | | | — | | | | — | | | | | | | | | | Total | | | ₩ | 41,646 | | | ₩ | 68,209 | | | | | | | | | |
Operating Lease Details of future minimum lease payments as of December 31, 20102012 and 2013, under operating lease contracts are summarized below: | | | | | (In millions of Korean won)
| | 2010 | | Within one year
| | (Won) | 4,924 | | From one year to five years
| | | 2,670 | | | | | | | Total
| | (Won) | 7,594 | | | | | | |
| | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Within one year | | ₩ | 67,571 | | | ₩ | 78,245 | | From one year to five years | | | 279,906 | | | | 308,292 | | Thereafter | | | 312,778 | | | | 246,632 | | | | | | | | | | | Total | | ₩ | 660,255 | | | ₩ | 633,169 | | | | | | | | | | |
Operating lease expenses incurred for the yearyears ended December 31, 20102012 and 2013, amounted to(Won)₩28,278 million.41,999 million,₩61,201 million and₩77,657 million respectively. The CompanyGroup as the Lessor Finance Lease Details of finance lease investmentsassets as of December 31, 20102012, are as follow:follows: | (In millions of Korean won) | | Minimum lease payments | | | Unguaranteed residual value | | | Gross investment in the lease | | | Unaccrued interest | | | Net investment in the lease | | | (in millions of Korean won) | | | Minimum lease payments | | | Gross investment in the lease | | | Unaccrued interest | | Net investment in the lease | | Within one year | | (Won) | 299,364 | | | (Won) | 11,903 | | | (Won) | 311,267 | | | (Won) | 68,111 | | | (Won) | 243,156 | | | ₩ | 382,821 | | | ₩ | 382,821 | | | ₩ | (35,663 | ) | | ₩ | 347,158 | | From one year to five years | | | 539,092 | | | | 21,135 | | | | 560,227 | | | | 120,216 | | | | 440,011 | | | | 550,919 | | | | 550,919 | | | | (25,063 | ) | | | 525,856 | | Thereafter | | | 20,644 | | | | — | | | | 20,644 | | | | 1,552 | | | | 19,092 | | | | 11,848 | | | | 11,848 | | | | (1,273 | ) | | | 10,575 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 2010.12.31 | | (Won) | 859,100 | | | (Won) | 33,038 | | | (Won) | 892,138 | | | (Won) | 189,879 | | | (Won) | 702,259 | | | Total | | | ₩ | 945,588 | | | ₩ | 945,588 | | | ₩ | (61,999 | ) | | ₩ | 883,589 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Bad debts allowances providedDetails of finance lease assets as of December 31, 2013, are as follows:
| | | | | | | | | | | | | | | | | (in millions of Korean won) | | Minimum lease payments | | | Gross investment in the lease | | | Unaccrued interest | | | Net investment in the lease | | Within one year | | ₩ | 337,804 | | | ₩ | 337,804 | | | ₩ | (38,779 | ) | | ₩ | 299,025 | | From one year to five years | | | 454,542 | | | | 454,542 | | | | (32,922 | ) | | | 421,620 | | Thereafter | | | 10,395 | | | | 10,395 | | | | (913 | ) | | | 9,482 | | | | | | | | | | | | | | | | | | | Total | | ₩ | 802,741 | | | ₩ | 802,741 | | | ₩ | (72,614 | ) | | ₩ | 730,127 | | | | | | | | | | | | | | | | | | |
Details of bad debt allowance for doubtful minimumfinance lease receivables as of December 31, 20102012 and 2013, are as follow:follows: | | | | | | | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Within one year | | ₩ | 7,312 | | | ₩ | 4,817 | | From one year to five years | | | 14,414 | | | | 15,245 | | Thereafter | | | 208 | | | | 128 | | | | | | | | | | | Total | | ₩ | 21,934 | | | ₩ | 20,190 | | | | | | | | | | |
(In millions of Korean won)
| | 2010 | | Within one year
| | (Won) | 2,742 | | From one year to five years
| | | 5,025 | | Thereafter
| | | 230 | | | | | | | Total
| | (Won) | 7,997 | | | | | | |
Operating Lease Annual future lease receipts fromDetails of operating lease agreementsassets as of December 31, 20102012 and 2013, are as follows:
| | | | | | | | | (In millions of Korean won) | | Undiscounted amounts | | | Present values | | Within one year | | (Won) | 13,676 | | | (Won) | 11,879 | | From one year to five years | | | 31,888 | | | | 28,937 | | | | | | | | | | | Total | | (Won) | 45,564 | | | (Won) | 40,816 | | | | | | | | | | |
| | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Acquisition costs | | ₩ | 1,556,762 | | | ₩ | 2,073,592 | | Accumulated depreciation | | | (488,514 | ) | | | (606,148 | ) | | | | | | | | | | Net balance | | ₩ | 1,068,248 | | | ₩ | 1,467,444 | | | | | | | | | | |
18. Commitments and Contingencies
AsDetails of December 31, 2010, major commitments with local financial institutions are as follows:
| | | | | | | (In millions of Korean won and thousands of foreign currencies)
| | Financial Institution
| | Limit | | Bank overdraft
| | Kookmin Bank and others | | (Won) | 1,435,000 | | Commercial papers
| | Korea Exchange Bank | | | 100,000 | | Loan on information and communications fund
| | Kookmin Bank and others | | | 40,567 | | Collateralized loan on accounts receivable—trade
| | Kookmin Bank and others | | | 418,000 | | Collection for foreign currency denominated checks
| | Korea Exchange Bank | | USD | 1,000 | | Plus commercial papers
| | IBK Bank | | (Won) | 150,000 | | Letters of credit
| | Shinhan Bank and others | | | 348,000 | | | | | | USD | 13,000 | | Others
| | Shinhan Bank and others | | (Won) | 230,000 | | | | | | USD | 87,005 | | | | | | | | |
As of December 31, 2010, guarantees received from financial institutions are as follows:
| | | | | | | | | | | (In millions of Korean won and thousands of foreign currencies) | | Financial Institution | | Limit | | | Used Amount | | Performance guarantee for construction | | Seoul Guarantee Insurance | | (Won) | 76,313 | | | (Won) | — | | Performance guarantee | | Export-Import Bank of Korea | | USD | 4,518 | | | USD | 4,518 | | | | | SAR | 735 | | | SAR | 735 | | | | | DZD | 25,863 | | | DZD | 25,863 | | | Seoul Guarantee Insurance | | (Won) | 15,578 | | | (Won) | 15,578 | | | | Korea Software Financial Cooperative and others1 | | | 150,000 | | | | 76,220 | | | | | | | | | | | 56,628 | | Bid guarantee | | Seoul Guarantee Insurance | | | 30,248 | | | | 30,248 | | Bonds payable in foreign currency guarantee | | Kookmin Bank | | USD | 85,652 | | | USD | 5,652 | | | Korea Exchange Bank | | USD | 5,000 | | | USD | 2,191 | | | Shinhan Bank | | USD | 27,512 | | | | USD 21,502 | | | HSBC | | USD | 80,000 | | | USD | — | | Advances received guarantee | | Export-Import Bank of Korea | | USD | 2,925 | | | USD | 2,925 | | | | | DZD | 77,589 | | | DZD | 77,589 | | General guarantee | | Shinhan Bank | | (Won) | 26,398 | | | (Won) | 26,398 | | | | Korea Exchange Bank | | | 3,600 | | | | — | | Guarantee for import letter of credit | | Korea Exchange Bank | | USD | 5,000 | | | USD | — | | Others | | Industrial Bank of Korea | | USD | 400 | | | USD | 400 | |
1 | The maturities of guarantee contracts have lapsed. However, due to the two-year statute of limitations the Company still receives guarantees amounting to(Won)159,903 million from Korea Software Financial Cooperative as of December 31, 2010. |
As of December 31, 2010, guarantees provided by the Company for third parties are as follows:
| | | | | | | (In millions of Korean won) | | Creditor
| | Limit | | Eun-haeng 1-area urban environment Improving project union
| | Kookmin Bank | | (Won) | 2,600 | | General guarantee
| | KEPCO Corp. and others | | | 193 | | Defective guarantee
| | Samsung C&T Corporation and others | | | 19 | | Performance guarantee
| | National Federations of Fisheries Cooperative and others | | | 41 | | Permission guarantee and others
| | Seobu Regional Forest Management Office and others | | | 59 | | Other Project Financing
| | NH Investment & Securities Co. Ltd and others | | | 35,169 | | Employee Stock Ownership
| | Hana Bank | | | 154 | |
As of December 31, 2010, 127 lawsuits have been filed against the Company as a defendant, with an aggregate amount of(Won)220,300 million. As of December 31, 2010, litigation provision in
relation to the potential loss amounted to(Won)23,560 million and is recorded as liabilities. The final outcome of these cases cannot yet be determined as of the report date.
As of December 31, 2010, the Company’s investment in Smart Channel Co., Ltd. (formerly Mediapuff Plus) is pledged as collateral for the investee’s borrowings.
As of December 31, 2010, KT Capital has an agreement with construction developers to provide a loan covering up to(Won)38,000 million when the construction developers cannot redeem the project financing loan for construction at a maturity date due to the unsold apartments. Under the agreement, KT Capital has rights over the unsold apartments as collateral.
As of December 31, 2010, KT Rental media, one of the subsidiaries, provided two blank promissory notes to several financial institutions as collaterals for the performance guarantee.
In accordance with the debt covenant between KT Rental and the creditor group consisting of Korea Development Bank and National Federation of Fisheries Cooperatives, KT Rental should maintain its ratio of net borrowings to EBITA(Earnings Before Interest, Tax and Amortization) less than four as of each fiscal year end and report the calculation details of this ratio to an agent bank within 90 days from each fiscal year end. In case, KT Rental can not fulfill this condition, the creditors group is entitled to demand early repayment.
As of December 31, 2010, KT Music recorded accrued expenses of(Won)1,124 million as it is probable that Fair Trade Committee will impose the penalty due to price fixing among the on-line music service providers.
As of December 31, 2010, Telecop Service Co., Ltd. and KT Linkus Co., Ltd. have the joint responsibility to pay for the liabilities that KT Linkus Co., Ltd. incurred before its spin-off. Also, KTR Co., Ltd. and KT Rental Co., Ltd. have the joint responsibility to pay for the liabilities that KT Rental Co., Ltd. incurred before its spin-off.
19. Assets and Liabilities denominated in Foreign Currencies
Major assets and liabilities denominated in foreign currenciesfuture minimum lease payments as of December 31, 20102011, 2012 and 2009,2013, under operating lease contracts are summarized as follows:below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | 2010.12.31 | | | 2009.12.31 | | (In millions of Korean won and thousands of foreign currencies) | | Foreign Currencies | | | Korean Won | | | Foreign Currencies | | | Korean Won | | | | | | Cash and cash equivalents | | | USD | | | | 7,997 | | | (Won) | 9,108 | | | | USD | | | | 24,013 | | | (Won) | 28,038 | | | | | JPY | | | | 6,271 | | | | 93 | | | | JPY | | | | 702 | | | | 9 | | | | | EUR | | | | — | | | | — | | | | EUR | | | | 65 | | | | 110 | | | | | GBP | | | | — | | | | — | | | | GBP | | | | 10 | | | | 19 | | Short-term investment assets | | | USD | | | | 15,327 | | | | 17,456 | | | | USD | | | | 15,327 | | | | 17,896 | | Accounts receivable | | | USD | | | | 132,658 | | | | 151,084 | | | | USD | | | | 150,281 | | | | 175,468 | | | | | JPY | | | | 36,900 | | | | 516 | | | | JPY | | | | 78,500 | | | | 991 | | | | | SDR | | | | 5,721 | | | | 10,098 | | | | SDR | | | | 15,225 | | | | 27,767 | | | | | EUR | | | | 237 | | | | 359 | | | | EUR | | | | 211 | | | | 353 | | | | | AUD | | | | — | | | | — | | | | AUD | | | | 13 | | | | 14 | | Loans receivable | | | USD | | | | 23,538 | | | | 26,808 | | | | USD | | | | 35,769 | | | | 41,764 | | Accounts receivable | | | USD | | | | 390 | | | | 444 | | | | USD | | | | 438 | | | | 512 | | Guarantee deposits paid | | | USD | | | | — | | | | — | | | | USD | | | | 557 | | | | 650 | | Accounts payable | | | USD | | | | 103,757 | | | | 118,168 | | | | USD | | | | 119,636 | | | | 139,687 | | | | | JPY | | | | 240 | | | | 3 | | | | JPY | | | | 9,885 | | | | 125 | |
| | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Within one year | | ₩ | 364,404 | | | ₩ | 203,014 | | From one year to five years | | | 347,364 | | | | 687,162 | | | | | | | | | | | Total | | ₩ | 711,768 | | | ₩ | 890,176 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 2010.12.31 | | | 2009.12.31 | | (In millions of Korean won and thousands of foreign currencies) | | Foreign Currencies | | | Korean Won | | | Foreign Currencies | | | Korean Won | | | | | | | | | SDR | | | | 4,256 | | | | 7,512 | | | | SDR | | | | 8,566 | | | | 16,841 | | | | | EUR | | | | 153 | | | | 232 | | | | EUR | | | | 103 | | | | 172 | | Other accounts payable | | | USD | | | | 2,483 | | | | 2,827 | | | | USD | | | | 125 | | | | 146 | | | | | JPY | | | | 238 | | | | 3 | | | | JPY | | | | 1,653 | | | | 21 | | | | | GBP | | | | 44 | | | | 77 | | | | GBP | | | | 51 | | | | 96 | | | | | EUR | | | | 113 | | | | 170 | | | | EUR | | | | — | | | | — | | | | | KWD | | | | — | | | | — | | | | KWD | | | | 288 | | | | 483 | | Bonds (par value) | | | USD | | | | 2,230,000 | | | | 2,539,747 | | | | USD | | | | 2,130,000 | | | | 2,486,988 | | | | | JPY | | | | 19,500,000 | | | | 272,431 | | | | JPY | | | | 19,500,000 | | | | 246,250 | | Long-term borrowings | | | USD | | | | 61,713 | | | | 70,355 | | | | USD | | | | 114,683 | | | | 133,904 | | | | | JPY | | | | 17,314 | | | | 242 | | | | JPY | | | | 38,645 | | | | 488 | | | | | EUR | | | | 116 | | | | 175 | | | | EUR | | | | — | | | | — | | Withholdings | | | USD | | | | — | | | | — | | | | USD | | | | 728 | | | | 850 | | Accrued expenses | | | USD | | | | 330 | | | | 376 | | | | USD | | | | 350 | | | | 409 | | | | | EUR | | | | 39 | | | | 59 | | | | EUR | | | | 15 | | | | 25 | | Deposits received | | | USD | | | | 644 | | | | 733 | | | | USD | | | | 14 | | | | 16 | | Others | | | USD | | | | 1,018 | | | | 1,159 | | | | USD | | | | — | | | | — | |
As of December 31, 2010, the Company recognized(Won)65,793 million (2009:(Won)240,925 million) and(Won)31,871 million (2009:(Won)17,893 million) of foreign currency translation gain and loss as non-operating income and expense, respectively.
20. Common22. Capital Stock
As of December 31, 2010,2012 and 2013, the Controlling Company’s number of authorized shares is one billion, and the details of common stock are as follows:billion. | | | | | | | | | | | | | | | | | | | | | | | | | | | 2010.12.31 | | | 2009.12.31 | | | | Number of outstanding shares | | | Par value per share (Korean won) | | | Common stock (In millions of Korean won) | | | Number of outstanding shares | | | Par value per share (Korean won) | | | Common stock (In millions of Korean won) | | Common stock 1 | | | 261,111,808 | | | (Won) | 5,000 | | | (Won) | 1,564,499 | | | | 261,111,808 | | | (Won) | 5,000 | | | (Won) | 1,564,499 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | | 2013 | | | | Number of outstanding shares | | | Par value per share (Korean won) | | | Common stock (in millions of Korean won) | | | Number of outstanding shares | | | Par value per share (Korean won) | | | Common stock (in millions of Korean won) | | Common stock 1 | | | 261,111,808 | | | ₩ | 5,000 | | | ₩ | 1,564,499 | | | | 261,111,808 | | | ₩ | 5,000 | | | ₩ | 1,564,499 | |
1 | The Controlling Company retired 51,787,959 treasury shares against retained earnings. Therefore, the common stock amount differs from the amount resulting from multiplying the number of shares issued by(Won)₩5,000 par value per share of common stock. |
21. Treasury Stock23. Retained Earnings
The details in treasury stock owned by the Controlling CompanyDetails of retained earnings as of December 31, 20102012 and 2009,2013, are as follows:
| | | | | | | | | | | 2010.12.31 | | | 2009.12.31 | | Number of shares | | | 17,895,964 | | | | 17,915,340 | | Amounts(In millions of Korean won) | | (Won) | 955,083 | | | (Won) | 956,159 | |
| | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Legal reserve 1 | | ₩ | 782,249 | | | ₩ | 782,249 | | Voluntary reserves 2 | | | 4,911,362 | | | | 4,911,362 | | Unappropriated retained earnings | | | 4,952,772 | | | | 4,325,778 | | | | | | | | | | | Total | | ₩ | 10,646,383 | | | ₩ | 10,019,389 | | | | | | | | | | |
1 | The Commercial Code of the Republic of Korea requires the Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued capital stock. The reserve is not available for the payment of cash dividends, but may be transferred to capital stock with the approval of the Company’s Board of Directors or used to reduce accumulated deficit, if any, with the ratification of a company’s of majority shareholders. |
2 | Reserve for research and development discretionary reserves is accumulated separately when taxable reserves are appropriated to retained earnings. According to the Tax Reduction and Exemption Control Act, taxable reserves are included in deductible expenses when returns are adjusted in the process of calculating tax expenses. The reversed amount from the reserve can be allocated according to the related tax act. |
24. Accumulated Other Comprehensive Income and Other Components of Equity As of December 31, 2012 and 2013, the details of the Group’s accumulated other comprehensive income attributable to owners of the Company are as follows: | | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Investments in associates and joint ventures | | ₩ | (15,251 | ) | | ₩ | (12,681 | ) | Gain or loss on derivatives | | | (4,626 | ) | | | (9,337 | ) | Available-for-sale | | | 23,738 | | | | 55,836 | | Foreign currency translation adjustment | | | (2,536 | ) | | | (9,280 | ) | | | | | | | | | | Total | | ₩ | 1,325 | | | ₩ | 24,538 | | | | | | | | | | |
Changes in accumulated other comprehensive income for the years ended December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | 2012 | | (in millions of Korean won) | | Beginning | | | Increase/decrease | | | Reclassification as gain or loss | | | Ending | | Investments in associates and joint ventures | | ₩ | (6,811 | ) | | ₩ | (8,819 | ) | | ₩ | 379 | | | ₩ | (15,251 | ) | Gain or loss on derivatives | | | (30,254 | ) | | | (129,239 | ) | | | 154,867 | | | | (4,626 | ) | Available-for-sale | | | 11,719 | | | | 15,543 | | | | (3,524 | ) | | | 23,738 | | Foreign currency translation adjustment | | | 2,481 | | | | (5,017 | ) | | | — | | | | (2,536 | ) | | | | | | | | | | | | | | | | | | Total | | ₩ | (22,865 | ) | | ₩ | (127,532 | ) | | ₩ | 151,722 | | | ₩ | 1,325 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | Beginning | | | Increase/decrease | | | Reclassification as gain or loss | | | Ending | | Investments in associates and joint ventures | | ₩ | (15,251 | ) | | ₩ | 2,570 | | | ₩ | — | | | ₩ | (12,681 | ) | Gain or loss on derivatives | | | (4,626 | ) | | | (71,778 | ) | | | 67,067 | | | | (9,337 | ) | Available-for-sale | | | 23,738 | | | | 25,814 | | | | 6,284 | | | | 55,836 | | Foreign currency translation adjustment | | | (2,536 | ) | | | (6,744 | ) | | | — | | | | (9,280 | ) | | | | | | | | | | | | | | | | | | Total | | ₩ | 1,325 | | | ₩ | (50,138 | ) | | ₩ | 73,351 | | | ₩ | 24,538 | | | | | | | | | | | | | | | | | | |
As of December 31, 2012 and 2013, the Group’s other components of equity are as follows: | | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Treasury stock | | ₩ | (931,132 | ) | | ₩ | (922,175 | ) | Gain(loss) on disposal of treasury stock1 | | | (6,797 | ) | | | (2,170 | ) | Share-based payments | | | 3,912 | | | | (9,609 | ) | Others2 | | | (409,269 | ) | | | (386,989 | ) | | | | | | | | | | Total | | ₩ | (1,343,286 | ) | | ₩ | (1,320,943 | ) | | | | | | | | | |
1 | The tax effect directly reflected in equity is₩693 million (2012:₩2,170 million) as of December 31, 2013. |
2 | Profit and loss occurred from transactions with non-controlling interest and investment difference occurred from change in proportion of subsidiaries are included. |
As of December 31, 2012 and 2013, the details of treasury stock are as follows: | | | | | | | | | | | 2012 | | | 2013 | | Number of shares | | | 17,476,002 | | | | 17,308,160 | | Amounts(In millions of Korean won) | | ₩ | 931,132 | | | ₩ | 922,175 | |
Treasury stock is expected to be used foras stock compensation for the Company’s directors and employees and other purposes. 22.25. Share-Based Payments
The Company’sdetails of share-based compensation programs include the employee stock options and stock grants. The Company measures and recognizes compensation cost for all share-based payment awards made to employees and directors, including grants of employee stock options and employee stock grants. The fair value of awards granted that are expected to ultimately vest is recognized as expense over the requisite service periods. The number of options expected to vest equals the total options granted less an estimation of the number of forfeitures expected to occur prior to vesting. The forfeiture rate is calculated based on historical data and is adjusted if actual forfeitures differ significantly from the original estimates. The effect of any change in estimated forfeitures would be recognized through a cumulative adjustment that would be included in compensation cost in the period of the change in estimate.
Stock Options
The Company has granted stock options to its executive officers and directorspayments as of December 31, 2010 in accordance with the stock option plan approved by its board of directors, details of which are as follows:
| | | | | | | | | | | | | | | | | | | KT Co. | | | KT Hitel | | | | 4th grant | | | KTF-4th1 | | | 1st grant | | | 2nd grant | | Grant date | | 2005.2.4 | | | 2005.3.4 | | | 2010.8.27 | | | 2010.10.14 | | Grantee | | Former executives | | | Former executives and former outside directors | | | Former executives | | | Former executives | | Number of basic allocated shares upon grant | | | 50,800 | | | | 92,637 | | | | 165,923 | | | | 140,741 | | Number of additional shares related to business performance upon grant | | | 20,000 | | | | — | | | | — | | | | — | | Number of shares expected to be exercised upon grant | | | 60,792 | | | | 92,637 | | | | 165,923 | | | | 140,741 | | Number of settled or forfeited shares | | | (10,800 | ) | | | (13,437 | ) | | | — | | | | — | | Number of expired shares as of December 31, 2010 | | | — | | | | — | | | | — | | | | — | | Number of settled or forfeited additional shares related to business performance | | | (19,847 | ) | | | — | | | | — | | | | — | | Number of allocated shares as of December 31, 2010 | | | 40,000 | | | | 79,200 | | | | 165,923 | | | | 140,741 | | Number of additional shares related to business performance as of December 31, 2010 | | | 3,153 | | | | — | | | | — | | | | — | | Total number of shares as of December 31, 2010 | | | 43,153 | | | | 79,200 | | | | 165,923 | | | | 140,741 | | Number of shares expected to be exercised | | | 43,153 | | | | 79,200 | | | | 165,923 | | | | 140,741 | | Fair value per share (in Korean won) | | (Won) | 12,322 | | | (Won) | 4,328 | | | (Won) | 3,435 | | | (Won) | 3,332 | | Total compensation cost (in millions of Korean won) | | (Won) | 531 | | | (Won) | 343 | | | (Won) | 570 | | | (Won) | 469 | | Exercise price per share | | (Won) | 54,600 | | | (Won) | 42,684 | | | (Won) | 6,750 | | | (Won) | 8,060 | | Exercise period | |
| 2007.02.05~
2012.02.04 |
| | | 2007.03.05~ 2012.03.04 | | |
| 2012.08.27~
2015.08.26 |
| | | 2012.10.14~ 2015.10.13 | | Valuation method | | | Black-scholes model | | | | Black-scholes model | | | | Black-scholes model | | | | Black-scholes model | |
1 | The stock options granted to the directors, officers or employees of KTF prior to the merger were converted into KT stock options on June 1, 2009, granting the rights to purchase the stock of KT based on the merger ratio. |
Upon exercise, the Company can elect one of the following settlement methods: issuance of new shares, issuance of treasury stock or cash settlement, subject to certain circumstances.
The stock option of KT Hitel is a cash settlement option.
The Company adopted the fair value method to measure compensation costs based on the various valuation assumptions and methods, which are as follows:
| | | | | | | | | | | | | | | | | | | KT Co. | | | KT Hitel | | | | 4th grant | | | KTF-4th 1 | | | 1st grant | | | 2nd grant | | Risk free interest rate | | | 4.43 | % | | | 2.78 | % | | | 3.38 | % | | | 3.38 | % | Expected duration(year) | | | 4.5 ~ 5.5 | | | | 1.5 | | | | 3.5 | | | | 3.5 | | Expected volatility | | | 33.41% ~ 42.13 | % | | | 35.03 | % | | | 59.04 | % | | | 59.04 | % | Expected dividend yield ratio | | | 5.86 | % | | | 3.54 | % | | | 0.00 | % | | | 0.00 | % |
1 | The compensation costs for the stock options granted to the directors, officers or employees of KTF were recalculated considering risk-free rate, expected duration and other on the date of the merger. |
Of the total compensation costs calculated using the fair value method, the compensation costs recognized for the year ended December 31, 2010 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | KT Co. | | | KT Hitel | | | | | (In millions of Korean won) | | 4th grant | | | KTF-4th | | | 1st grant | | | 2nd grant | | | Total | | Total compensation costs before adjustment | | (Won) | 749 | | | (Won) | 343 | | | (Won) | 689 | | | (Won) | 525 | | | (Won) | 2,306 | | Total compensation costs cancelled | | | (218 | ) | | | — | | | | — | | | | — | | | | (218 | ) | Total compensation costs after adjustment | | | 531 | | | | 343 | | | | 689 | | | | 525 | | | | 2,088 | | Compensation costs recognized in prior periods | | | 531 | | | | 343 | | | | — | | | | — | | | | 874 | | Compensation costs recognized in the current period | | | — | | | | — | | | | 119 | | | | 56 | | | | 175 | | Compensation costs to be recognized after the current period | | | — | | | | — | | | | 570 | | | | 469 | | | | 1,039 | |
Other share-based compensation
The Company provided stock grants subject to both the service period and business performance goals.
The fair value of each stock grant awarded was estimated on the date of grant for performance based grants assuming that performance goals will be achieved. The expected term for grants is generally one year. The stock grants are settled with the new shares issued or treasury stock owned by the Company upon vesting. The fair value is based on the market price of the Company’s stock on the grant date. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting
The details of stocks grants as of December 31, 20102013, are as follows:
| | | | | 4th grant7th
| Grant date | | 2010.4.292013.04.26 | Grantee | | CEOs,CEO, inside directors, outside directors, executives | Estimated number of shares granted
| | 142,436 shares | Estimated number of shares to be exercisable
| | 142,436 shares | Vesting conditions (both conditions required) | | Service condition: 1 year Non-market performance condition: achievement of performance | Fair value per option (in Korean won) | | (Won)₩47,700 35,750 | Total compensation costs (in Korean won) | | (Won)₩6,794 4,082 million | Estimated exercise date (exercise date) | | During 20112014 | Valuation method | | Fair value method |
Above compensation costs were calculated based onThe changes in the fair value methodnumber of stock options and were charged to current operationsthe weighted-average exercise price, as of December 31, 2012 and 2013, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | | | Beginning | | | Granted | | | Expired | | | Exercised 1 | | | Ending | | | Number of shares exercisable | | 5th grant | | | 190,658 | | | | — | | | | 90,869 | | | | 99,789 | | | | — | | | | — | | 6th grant | | | — | | | | 255,110 | | | | — | | | | — | | | | 255,110 | | | | — | | Total | | | 190,658 | | | | 255,110 | | | | 90,869 | | | | 99,789 | | | | 255,110 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2013 | | | | Beginning | | | Granted | | | Expired | | | Forfeited | | | Exercised 1 | | | Ending | | | Number of shares exercisable | | 6th grant | | | 255,110 | | | | — | | | | 154,137 | | | | — | | | | 100,973 | | | | — | | | | — | | 7th grant | | | — | | | | 288,459 | | | | — | | | | 6,231 | | | | — | | | | 282,228 | | | | — | | Total | | | 255,110 | | | | 288,459 | | | | 154,137 | | | | 6,231 | | | | 100,973 | | | | 282,228 | | | | — | |
| | | | | (In millions of Korean won)
| 1 | 4th grantThe weighted average price of common stock at the time of exercise during 2013 was₩ | | Total compensation costs
| | 40,300 (2012:(Won)₩ | 6,794 | 28,700). | Compensation costs recognized in prior periods
| | | — | | Compensation costs recognized in the current period
| | | 6,794 | | Compensation costs to be recognized after the current period
| | | — | |
23. Retained Earnings
The Commercial Code of the Republic of Korea requires the Controlling Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued capital stock. The reserve is not available for the payment of cash dividends, but may be transferred to capital stock with the approval of the Controlling Company’s Board of Directors or used to reduce accumulated deficit, if any, with the ratification of the Controlling Company’s majority shareholders.
The Controlling Company appropriates a certain portion of retained earnings, pursuant to a shareholder resolution, as voluntary reserves. These reserves may be reversed and transferred to unappropriated retained earnings through a resolution of shareholders, and may be distributed as dividends after the reversal.
24.26. Operating Revenues
Operating revenues for the years ended December 31, 2010, 20092011, 2012 and 20082013, are as follows: | | | | | | | | | | | | | (In millions of Korean won) | | 2010 | | | 2009 | | | 2008 | | Internet | | (Won) | 2,567,001 | | | (Won) | 2,448,607 | | | (Won) | 2,481,171 | | Data communication | | | 1,309,010 | | | | 1,313,936 | | | | 1,335,769 | | Fixed-line telephone | | | 4,269,782 | | | | 4,696,980 | | | | 5,199,534 | | PCS | | | 7,083,345 | | | | 6,646,389 | | | | 6,424,414 | | Goods sold1 | | | 4,395,230 | | | | 3,396,886 | | | | 3,065,858 | | Other operating revenues2 | | | 1,706,945 | | | | 1,141,014 | | | | 1,080,496 | | | | | | | | | | | | | | | Operating revenues | | (Won) | 21,331,313 | | | (Won) | 19,643,812 | | | (Won) | 19,587,242 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | (in millions of Korean won) | | 2011 | | | 2012 | | | 2013 4 | | Sales of services | | ₩ | 16,941,430 | | | ₩ | 19,266,545 | | | ₩ | 19,663,014 | | Sale of goods | | | 4,369,375 | | | | 4,589,830 | | | | 4,065,659 | | Others 1, 2, 3 | | | 777,025 | | | | 787,397 | | | | 329,208 | | | | | | | | | | | | | | | Operating revenues | | ₩ | 22,087,830 | | | ₩ | 24,643,772 | | | ₩ | 24,057,881 | | | | | | | | | | | | | | |
1 | Goods sold represent revenue from the saleDisposed land and building (carrying amount:₩171,989 million) for₩470,347 million K-REALTYCR-REIT 1 and leased them in 2011. The Company recognized gain on disposal of handsetsproperty and others.equipment₩298,358 million and accounted for as an operating lease. |
2 | Revenues from the system integrationDisposed land and real estate are included.building (carrying amount:₩93,250 million) for₩232,000 million to AJU-KTM private funding real-estate investment trust No.1 and leased them in September 2012. The Company recognized gain on disposal of property and equipment of₩138,750 million and accounted for as an operating lease. |
Details of construction contracts, related to the other operating revenue, as of December 31, 2010, 2009 and 2008 are as follows:
3 | Disposed land and building (carrying amount:₩32,232 million) for₩144,100 million to K-REALTYCR-REIT 2 and leased them in November 2012. The Company recognized gain on disposal of property and equipment of₩111,868 million and accounted for as an operating lease. |
| | | | | | | | | | | | | | | | | | | | | | | 2010 | | (In millions of Korean won and us dollars in thousands) | | Beginning contract balance | | | Increase | | | Change in contracts | | | Recognized as revenue | | | Ending contract balance | | Bugae-dong, Incheon | | (Won) | 4,335 | | | (Won) | — | | | (Won) | — | | | (Won) | (4,335 | ) | | (Won) | — | | Sungsu-dong, Seoul (Factory building) | | | 18,714 | | | | — | | | | — | | | | (18,714 | ) | | | — | | Garak-dong, Seoul (Office building) | | | 40,733 | | | | — | | | | — | | | | (28,905 | ) | | | 11,828 | | Yeongdeungpo-gu, Seoul (Factory building) | | | — | | | | 146,733 | | | | — | | | | (6,417 | ) | | | 140,316 | | Incheon rural IT facility construction | | | 2,295 | | | | — | | | | — | | | | (1,423 | ) | | | 872 | | Pyeongtaek Cheongbuk area land development electrical facility construction | | | 1,130 | | | | — | | | | 500 | | | | (1,630 | ) | | | — | | Dang-dong, Gunpo (2)C-1BL apartment IT facility construction Section 4 | | | 2,734 | | | | — | | | | — | | | | (355 | ) | | | 2,379 | | DC link construction between Jindo and Jeju | |
| USD 82,367
11,436 |
| |
| —
— |
| |
| —
— |
| |
| (USD 25,990
(3,609 | )
) | |
| USD 56,377
7,827 |
| Submarine cable construction between Wando and Chungsando, Jeonnam | | | — | | | | 10,255 | | | | — | | | | (1,865 | ) | | | 8,390 | | Test solar concentrator | | | — | | | | 1,182 | | | | — | | | | (1,182 | ) | | | — | | Buoy installation | | | — | | | | 871 | | | | — | | | | (871 | ) | | | — | | Ocean Bottom Seismometer | | | — | | | | 1,016 | | | | — | | | | (1,016 | ) | | | — | | Others | | | 439 | | | | — | | | | — | | | | — | | | | 439 | | APCN2 submarine cable repair work | | | — | | | | USD 1,713 | | | | — | | | | (USD 1,713 | ) | | | — | | | | | | | | | | | | | | | | | | | | | | | Total (Korean won) | | (Won) | 81,816 | | | (Won) | 160,057 | | | (Won) | 500 | | | (Won) | (70,322 | ) | | (Won) | 172,051 | | Total (USD) | | | USD 82,367 | | | | USD 1,713 | | | | — | | | | (USD 27,703 | ) | | | USD 56,377 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 2009 | | (In millions of Korean won and us dollars in thousands) | | Beginning contract balance | | | Increase | | | Change in contracts | | | Recognized as revenue | | | Ending contract balance | | Bugae-dong, Incheon | | (Won) | 78,872 | | | (Won) | — | | | (Won) | — | | | (Won) | (74,537 | ) | | (Won) | 4,335 | | Sungsu-dong, Seoul (Hyundai apartment) | | | 13,528 | | | | — | | | | — | | | | (13,528 | ) | | | — | | Sungsu-dong, Seoul (Factory building) | | | 64,477 | | | | — | | | | — | | | | (45,763 | ) | | | 18,714 | | Garak-dong, Seoul (Office building) | | | — | | | | 48,873 | | | | — | | | | (8,140 | ) | | | 40,733 | | Deep ocean water intake and drainage facilities construction | | | — | | | | — | | | | 716 | | | | (716 | ) | | | — | | Incheon rural IT facility construction | | | 2,998 | | | | — | | | | 224 | | | | (927 | ) | | | 2,295 | | Pyeongtaek Cheongbuk area land development electrical facility construction | | | — | | | | 4,113 | | | | 2,728 | | | | (5,711 | ) | | | 1,130 | | Marine research technical service for DC link construction between Jindo and Jeju | | | — | | | | 2,013 | | | | (31 | ) | | | (1,982 | ) | | | — | | DC link construction between Jindo and Jeju | | | — | | | | USD 82,367 | | | | — | | | | — | | | | USD 82,367 | | | | | — | | | | 11,436 | | | | — | | | | — | | | | 11,436 | | Dang-dong, Gunpo (2)C-1BL apartment IT facility construction Section4 | | | — | | | | 2,790 | | | | — | | | | (56 | ) | | | 2,734 | | Others | | | 439 | | | | 421 | | | | (20 | ) | | | (401 | ) | | | 439 | | TPE submarine cable construction | | | USD 3,044 | | | | — | | | | — | | | | (USD 3,044 | ) | | | — | | AAG submarine cable repair work | | | USD 1,228 | | | | — | | | | USD 790 | | | | (USD 2,018 | ) | | | — | | RJK cable system dismantlement | | | — | | | | USD 1,927 | | | | (USD 241 | ) | | | (USD 1,686 | ) | | | — | | APCN2 submarine cable repair work | | | — | | | | USD 1,953 | | | | — | | | | (USD 1,953 | ) | | | — | | TPE 3M PLIB construction | | | — | | | | USD 3,595 | | | | (USD 154 | ) | | | (USD 3,441 | ) | | | — | | | | | | | | | | | | | | | | | | | | | | | Total (Korean won) | | (Won) | 160,314 | | | (Won) | 69,646 | | | (Won) | 3,617 | | | (Won) | (151,761 | ) | | (Won) | 81,816 | | Total (USD) | | | USD 4,272 | | | | USD 89,842 | | | | USD 395 | | | | (USD12,142 | ) | | | USD 82,367 | | | | | | | | | | | | | | | | | | | | | | | | | | | 2008 | | (In millions of Korean won and us dollars in thousands) | | Beginning contract balance | | | Increase | | | Change in contracts | | | Recognized as revenue | | | Ending contract balance | | Jeongja-dong, Suwon | | | 279 | | | | — | | | | — | | | | (279 | ) | | | — | | Bugae-dong, Incheon | | | 157,092 | | | | — | | | | — | | | | (78,220 | ) | | | 78,872 | | Sungsu-dong, Seoul (Hyundai apartment) | | | 63,836 | | | | — | | | | — | | | | (50,308 | ) | | | 13,528 | | Sungsu-dong, Seoul (Factory building) | | | — | | | | 64,689 | | | | — | | | | (212 | ) | | | 64,477 | | NAIMS system construction work/ Cable raising and laying | | | 714 | | | | — | | | | 80 | | | | (794 | ) | | | — | | Deep ocean water intake and drainage facilities construction | | | — | | | | 13,850 | | | | — | | | | (13,850 | ) | | | — | | Incheon rural IT facility construction | | | — | | | | 3,631 | | | | — | | | | (633 | ) | | | 2,998 | | Electrical facility construction Section 1 in Highway between busan- and Ulsan | | | — | | | | 2,446 | | | | 830 | | | | (3,276 | ) | | | — | | Maintenance of HVDC submarine cable, construction of protecting facilities for remained section | | | — | | | | 852 | | | | 81 | | | | (933 | ) | | | — | | Others | | | — | | | | 1,735 | | | | 13 | | | | (1,309 | ) | | | 439 | | TPE submarine cable construction | | | USD 11,022 | | | | — | | | | USD 14,096 | | | | USD (22,074 | ) | | | USD 3,044 | | KOC submarine cable construction | | | USD 1,151 | | | | — | | | | — | | | | USD (1,151 | ) | | | — | | AAG submarine cable construction | | | — | | | | USD 8,900 | | | | USD 722 | | | | USD (9,622 | ) | | | — | | AAG submarine cable repair work | | | — | | | | USD 2,761 | | | | — | | | | USD (1,533 | ) | | | USD 1,228 | | JAKABARE cable system PLGR work | | | — | | | | USD 1,215 | | | | — | | | | USD (1,215 | ) | | | — | | | | | | | | | | | | | | | | | | | | | | | Total(Korean won) | | (Won) | 221,921 | | | (Won) | 87,203 | | | (Won) | 1,004 | | | (Won) | (149,814 | ) | | (Won) | 160,314 | | Total(USD) | | | USD 12,173 | | | | USD 12,876 | | | | USD 14,818 | | | | (USD 35,595 | ) | | | USD 4,272 | | | | | | | | | | | | | | | | | | | | | | |
During the years ended December 31, 2010, 2009 and 2008, the changes in remaining contract balance of major system integration business included in other operating revenue are as follows:
| | | | | | | | | | | | | | | | | | | 2010 | | (In millions of Korean won) | | Beginning contract balance | | | Increase | | | Recognized as revenue | | | Ending contract balance | | Lease type private investment of advanced U-City broadband information network CCTV Construction, Ansan | | (Won) | 2,043 | | | (Won) | — | | | (Won) | (2,043 | ) | | (Won) | — | | Construction of information highway, Busan | | | 11,393 | | | | — | | | | (346 | ) | | | 11,047 | | Construction and support for infrastructure and service operation of digital textbook research school | | | 68 | | | | — | | | | (68 | ) | | | — | | Second phase construction of national defense transportation information system | | | 5,587 | | | | — | | | | (2,568 | ) | | | 3,019 | | System integration of SMRT Mall IT and advertising facility construction in Seoul Metropolitan Rapid Transit Corporation | | | — | | | | 69,759 | | | | (61,409 | ) | | | 8,350 | | Management and operation of SMRT Mall business | | | — | | | | 82,000 | | | | (4,762 | ) | | | 77,238 | | | | | | | | | | | | | | | | | | | Total | | (Won) | 19,091 | | | (Won) | 151,759 | | | (Won) | (71,196 | ) | | (Won) | 99,654 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | 2009 | | (In millions of Korean won) | | Beginning contract balance | | | Increase | | | Recognized as revenue | | | Ending contract balance | | Lease type private investment of advanced U-City broadband information network CCTV Construction, Ansan | | (Won) | — | | | (Won) | 13,116 | | | (Won) | (11,073 | ) | | (Won) | 2,043 | | Construction of information highway, Busan | | | 12,612 | | | | — | | | | (1,219 | ) | | | 11,393 | | Construction and support for infrastructure and service operation of digital textbook research school | | | — | | | | 9,727 | | | | (9,659 | ) | | | 68 | | Second phase construction of national defense transportation information system | | | — | | | | 7,973 | | | | (2,386 | ) | | | 5,587 | | | | | | | | | | | | | | | | | | | Total | | (Won) | 12,612 | | | (Won) | 30,816 | | | (Won) | (24,337 | ) | | (Won) | 19,091 | | | | | | | | | | | | | | | | | | | | | | | 2008 | | (In millions of Korean won) | | Beginning contract balance | | | Increase | | | Recognized as revenue | | | Ending contract balance | | Construction of information highway, Busan | | | 22,781 | | | | — | | | | (10,169 | ) | | | 12,612 | | Construction of U-City, Hwaseong Dongtan | | | 423 | | | | — | | | | (423 | ) | | | — | | Extension of combined Wireless communications, The National Emergency Management Agency’s | | | 115 | | | | — | | | | (115 | ) | | | — | | Second phase in the Establishment of system, National Health Service’s IP customer services | | | 7,808 | | | | — | | | | (7,808 | ) | | | — | | Construction of Frequency resource analysis system | | | 1,603 | | | | — | | | | (1,603 | ) | | | — | | Second phase in the construction of U-City, Hwaseong Dongtan | | | — | | | | 9,883 | | | | (9,883 | ) | | | — | | Adoption of Navy’s main computer system-08 | | | — | | | | 8,951 | | | | (8,951 | ) | | | — | | | | | | | | | | | | | | | | | | | Total | | (Won) | 32,730 | | | (Won) | 18,834 | | | (Won) | (38,952 | ) | | (Won) | 12,612 | | | | | | | | | | | | | | | | | | |
4 | Off-plan sales amounting to₩45,010 million, which should have been recorded as a deduction of operating revenue in 2012, was recorded as a deduction of operating revenue in 2013. |
25.27. Operating Expenses
Operating expenses for the years ended December 31, 2010, 20092011, 2012 and 20082013, are as follows: | | | | | | | | | | | | | (In millions of Korean won) | | 2010 | | | 2009 | | | 2008 | | Salaries and wages | | (Won) | 2,162,812 | | | (Won) | 2,192,935 | | | (Won) | 2,267,967 | | Provision for severance benefits | | | 242,770 | | | | 1,128,352 | | | | 360,968 | | Employee welfare | | | 374,300 | | | | 587,011 | | | | 565,738 | | Utilities | | | 254,085 | | | | 250,664 | | | | 248,777 | | Taxes and dues | | | 240,050 | | | | 207,234 | | | | 269,168 | | Rent | | | 278,049 | | | | 257,405 | | | | 249,101 | | Depreciation | | | 2,819,639 | | | | 2,873,831 | | | | 3,213,917 | | Amortization | | | 360,044 | | | | 402,792 | | | | 410,458 | | Repairs and maintenance | | | 551,389 | | | | 500,203 | | | | 580,333 | | Commissions | | | 1,450,286 | | | | 1,261,852 | | | | 1,353,903 | | Advertising | | | 195,759 | | | | 182,032 | | | | 221,754 | | Research | | | 268,802 | | | | 239,508 | | | | 235,508 | | Interconnection charges | | | 1,245,451 | | | | 1,227,088 | | | | 1,234,473 | | Cost of services | | | 804,108 | | | | 581,762 | | | | 525,948 | | International call settlement | | | 284,849 | | | | 263,749 | | | | 263,464 | | Cost of goods sold | | | 4,086,813 | | | | 3,118,512 | | | | 2,364,669 | | Promotion | | | 1,227,632 | | | | 1,121,880 | | | | 1,080,089 | | Sales commission | | | 1,621,430 | | | | 1,804,583 | | | | 2,129,675 | | Provision for doubtful accounts | | | 171,195 | | | | 103,852 | | | | 147,190 | | Other | | | 569,764 | | | | 406,289 | | | | 461,524 | | | | | | | | | | | | | | | Total | | | 19,209,227 | | | | 18,711,534 | | | | 18,184,624 | | Less : Transfer to other accounts | | | (52,996 | ) | | | (38,269 | ) | | | (40,197 | ) | | | | | | | | | | | | | | Net | | (Won) | 19,156,231 | | | (Won) | 18,673,265 | | | (Won) | 18,144,427 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | (in millions of Korean won) | | 2011 | | | 2012 | | | 2013 2 | | Salaries and wages | | ₩ | 2,854,361 | | | ₩ | 3,096,766 | | | ₩ | 3,288,942 | | Depreciation | | | 2,644,796 | | | | 2,894,400 | | | | 3,107,792 | | Amortization of intangible assets | | | 312,693 | | | | 379,678 | | | | 458,382 | | Commissions 1 | | | 3,313,431 | | | | 3,655,057 | | | | 3,575,488 | | Interconnection charges | | | 1,115,792 | | | | 901,314 | | | | 885,479 | | International interconnection fee | | | 333,659 | | | | 309,955 | | | | 265,467 | | Purchase of inventories | | | 4,518,983 | | | | 4,851,295 | | | | 3,565,948 | | Changes of inventories | | | 35,673 | | | | (259,078 | ) | | | 320,971 | | Service Cost | | | 1,331,302 | | | | 1,264,218 | | | | 1,834,425 | | Utilities | | | 262,454 | | | | 271,277 | | | | 309,497 | | Taxes and Dues | | | 219,245 | | | | 299,567 | | | | 257,931 | | Rent | | | 327,274 | | | | 371,030 | | | | 432,543 | | Insurance premium | | | 11,925 | | | | 243,666 | | | | 313,056 | | Installation fee | | | 339,860 | | | | 291,057 | | | | 260,498 | | Advertising expenses | | | 172,183 | | | | 150,399 | | | | 161,013 | | Research and development | | | 147,825 | | | | 153,171 | | | | 171,461 | | Expenses | | | | | | | | | | | | | Card service cost | | | 707,588 | | | | 2,771,383 | | | | 2,702,653 | | Others | | | 1,451,690 | | | | 1,318,518 | | | | 1,822,951 | | | | | | | | | | | | | | | Total | | ₩ | 20,100,734 | | | ₩ | 22,963,673 | | | ₩ | 23,734,497 | | | | | | | | | | | | | | |
26. Income Tax Expense
1 | The sales commission is included in commissions |
2 | ₩32,835 million of Operating expenses related to off-plan sales, which should have been recorded as a deduction of operating expenses in 2012, was recorded as a deduction of operating expenses in 2013. |
Income tax expense
Details of salaries and wages for the years ended December 31, 2010, 20092011, 2012 and 2008, consists of: The components of income tax expense
| | | | | | | | | | | | | (In millions of Korean won) | | 2010 | | | 2009 | | | 2008 | | Current income tax expense | | (Won) | 354,525 | | | (Won) | 144,272 | | | (Won) | 294,620 | | Changes in deferred income tax assets and liabilities related to temporary differences | | | (75,344 | ) | | | (28,985 | ) | | | (74,116 | ) | Changes in deferred income tax assets and liabilities related to tax credits | | | 80,328 | | | | (38,020 | ) | | | (59,547 | ) | Changes in deferred income tax assets and liabilities directly reflected in shareholders’ equity | | | 8,925 | | | | 1,044 | | | | 3,000 | | Income tax expense directly added to shareholders’ equity | | | 94 | | | | 31,539 | | | | 50 | | Others | | | 3,315 | | | | (2,087 | ) | | | 3,852 | | | | | | | | | | | | | | | Income tax expense | | (Won) | 371,843 | | | (Won) | 107,763 | | | (Won) | 167,859 | | | | | | | | | | | | | | |
Deferred tax assets and liabilities directly reflected in shareholders’ equity
| | | | | | | | | | | | | (In millions of Korean won) | | 2010 | | | 2009 | | | | | Gain on valuation of available-for-sale securities | | (Won) | (2,519 | ) | | (Won) | (2,023 | ) | | | | | Loss on valuation of available-for-sale securities | | | 177 | | | | 14 | | | | | | Increase in equity of associates | | | (438 | ) | | | (252 | ) | | | | | Decrease in equity of associates | | | 7,606 | | | | 1,386 | | | | | | Gain and loss on valuation of derivatives | | | 10,458 | | | | 530 | | | | | | Other capital adjustments | | | (5,443 | ) | | | 1,261 | | | | | | | | | | | | | | | | | | | Total | | (Won) | 9,841 | | | (Won) | 916 | | | | | | | | | | | | | | | | | | |
A reconciliation of the income tax expense and the income before income tax expense
| | | | | | | | | | | | | | | | | | | | | | | | | (In millions of Korean won) | | 2010 | | | 2009 | | | 2008 | | Income before income tax expense | | | | | | (Won) | 1,561,773 | | | | | | | (Won) | 719,275 | | | | | | | (Won) | 710,176 | | | | | | | | | | | | | | | | | | | | | | | | | | | Expected tax expense at statutory tax rate | | | | | | (Won) | 395,533 | | | | | | | (Won) | 174,064 | | | | | | | (Won) | 195,285 | | Differences | | | | | | | | | | | | | | | | | | | | | | | | | Non-taxable benefit | | | (4,750 | ) | | | | | | | (4,473 | ) | | | | | | | — | | | | | | Non-deductible expense | | | 29,874 | | | | | | | | 27,147 | | | | | | | | 25,412 | | | | | | Impact of not recording deferred taxes on certain temporary differences | | | (5,631 | ) | | | | | | | 4,507 | | | | | | | | 83,892 | | | | | | Changes in tax adjustment, additional income tax and tax refund for prior periods | | | 8,678 | | | | | | | | 12,758 | | | | | | | | (4,377 | ) | | | | | Tax credit carryforwards and deductions | | | (54,658 | ) | | | | | | | (110,969 | ) | | | | | | | (203,070 | ) | | | | | Changes in tax rates | | | 7,023 | | | | | | | | 3,194 | | | | | | | | 72,839 | | | | | | Others, net | | | (4,226 | ) | | | (23,690 | ) | | | 1,535 | | | | (66,301 | ) | | | (2,122 | ) | | | (27,426 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Income tax expense | | | | | | (Won) | 371,843 | | | | | | | (Won) | 107,763 | | | | | | | (Won) | 167,859 | | | | | | | | | | | | | | | | | | | | | | | | | | | Effective tax rate | | | | | | | 23.8 | % | | | | | | | 14.98 | % | | | | | | | 23.64 | % | | | | | | | | | | | | | | | | | | | | | | | | | |
Deferred tax assets and liabilities from the tax effects of temporary differences, including available tax credit carryforwards
| | | | | | | | | | | | | | | | | | | | | | | 2010 | | | | Temporary Differences | | | Deferred Income Tax Assets (Liabilities) | | (In millions of Korean won) | | Beginning Balance | | | Increase (Decrease) | | | Ending Balance | | | Beginning Balance | | | Ending Balance | | Deferred tax arising from temporary differences | | | | | | | | | | | | | | | | | | | | | Deferred tax arising from temporary differences | | | | | | | | | | | | | | | | | | | | | Allowance for doubtful accounts | | (Won) | 511,003 | | | (Won) | 31,972 | | | (Won) | 542,975 | | | (Won) | 122,873 | | | (Won) | 126,675 | | Derivatives | | | (132,351 | ) | | | (3,564 | ) | | | (135,915 | ) | | | (27,959 | ) | | | (30,583 | ) | Inventory valuation reserve | | | — | | | | 4,656 | | | | 4,656 | | | | — | | | | 1,125 | | Available-for-sale securities | | | 41,606 | | | | (4,338 | ) | | | 37,268 | | | | 9,154 | | | | 8,495 | | Equity method investments | | | 58,035 | | | | 44,169 | | | | 102,204 | | | | 12,773 | | | | 22,513 | | Depreciation | | | 101,206 | | | | 61,589 | | | | 162,795 | | | | 22,265 | | | | 35,471 | | Contribution for construction | | | 178,624 | | | | (35,782 | ) | | | 142,842 | | | | 39,297 | | | | 31,202 | | Inventories | | | 6,633 | | | | (5,431 | ) | | | 1,202 | | | | 1,174 | | | | 291 | | Accrued expenses | | | 140,169 | | | | 222,531 | | | | 362,700 | | | | 33,918 | | | | 87,997 | | Provisions | | | 58,338 | | | | 92,485 | | | | 150,823 | | | | 13,919 | | | | 34,176 | | Provision for severance indemnities | | | 1,157,978 | | | | (302,469 | ) | | | 855,509 | | | | 254,760 | | | | 188,409 | | Refundable deposits for telephone installation | | | 43,677 | | | | (1,484 | ) | | | 42,193 | | | | 9,609 | | | | 9,283 | | Accrued revenues | | | (7,657 | ) | | | 4,288 | | | | (3,369 | ) | | | (1,855 | ) | | | (818 | ) | Deposits for severance benefits | | | (1,136,144 | ) | | | 290,344 | | | | (845,800 | ) | | | (250,007 | ) | | | (186,019 | ) | Reserve for technology and human resource development | | | — | | | | (3,900 | ) | | | (3,900 | ) | | | — | | | | (858 | ) | Others | | | 935,826 | | | | (44,719 | ) | | | 891,107 | | | | 217,541 | | | | 212,448 | | Tax loss carryforwards | | | 281,201 | | | | (15,054 | ) | | | 266,147 | | | | 61,882 | | | | 60,999 | | | | | | | | | | | | | | | | | | | | | | | Total | | | 2,238,144 | | | | 335,293 | | | | 2,573,437 | | | | 519,344 | | | | 600,806 | | Not recognized as deferred income tax assets | | | (623,401 | ) | | | (26,636 | ) | | | (650,037 | ) | | | (138,740 | ) | | | (144,858 | ) | | | | | | | | | | | | | | | | | | | | | | Recognized as deferred income tax assets | | (Won) | 1,614,743 | | | (Won) | 308,657 | | | (Won) | 1,923,400 | | | | 380,604 | | | | 455,948 | | | | | | | | | | | | | | | | | | | | | | | Deferred tax assets arising from the carryforwards | | | | | | | | | | | | | | | | | | | | | Total tax credit carryforwards | | (Won) | 195,983 | | | (Won) | (89,372 | ) | | (Won) | 106,611 | | | | 195,983 | | | | 88,794 | | Not recognized as deferred income tax assets | | | (26,861 | ) | | | 18,910 | | | | (7,951 | ) | | | (26,861 | ) | | | — | | | | | | | | | | | | | | | | | | | | | | | Recognized as deferred income tax assets | | (Won) | 169,122 | | | (Won) | (70,462 | ) | | (Won) | 98,660 | | | | 169,122 | | | | 88,794 | | | | | | | | | | | | | | | | | | | | | | | Net deferred income tax assets | | | | | | | | | | | | | | (Won) | 549,725 | | | (Won) | 544,742 | | | | | | | | | | | | | | | | | | | | | | | Current deferred income tax assets | | | | | | | | | | | | | | (Won) | 437,525 | | | (Won) | 363,492 | | Non-current deferred income tax assets | | | | | | | | | | | | | | | 113,266 | | | | 185,724 | | Current deferred income tax liabilities | | | | | | | | | | | | | | | (1 | ) | | | (1,817 | ) | Non-current deferred income tax liabilities | | | | | | | | | | | | | | | (1,065 | ) | | | (2,657 | ) |
| | | | | | | | | | | | | | | | | | | | | | | 2009 | | | | Temporary Differences | | | Deferred Income Tax Assets (Liabilities) | | (in millions of Korean won) | | Beginning Balance | | | Increase (Decrease) | | | Ending Balance | | | Beginning Balance | | | Ending Balance | | Deferred tax arising from temporary differences | | | | | | | | | | | | | | | | | | | | | Allowance for doubtful accounts | | (Won) | 497,672 | | | (Won) | 13,331 | | | (Won) | 511,003 | | | (Won) | 119,855 | | | (Won) | 122,873 | | Derivatives | | | (479,015 | ) | | | 346,664 | | | | (132,351 | ) | | | (108,503 | ) | | | (27,959 | ) | Available-for-sale securities | | | 39,337 | | | | 2,269 | | | | 41,606 | | | | 8,840 | | | | 9,154 | | Equity method investment securities | | | 1,455,549 | | | | (1,397,514 | ) | | | 58,035 | | | | 320,220 | | | | 12,773 | | Depreciation | | | (23,595 | ) | | | 124,801 | | | | 101,206 | | | | (5,191 | ) | | | 22,265 | | Contribution for construction | | | 233,106 | | | | (54,482 | ) | | | 178,624 | | | | 51,283 | | | | 39,297 | | Inventories | | | 20,392 | | | | (13,759 | ) | | | 6,633 | | | | 4,543 | | | | 1,174 | | Accrued expenses | | | 222,590 | | | | (82,421 | ) | | | 140,169 | | | | 53,825 | | | | 33,918 | | Provisions | | | 182,556 | | | | (124,218 | ) | | | 58,338 | | | | 43,422 | | | | 13,919 | | Provision for severance indemnities | | | 1,152,303 | | | | 5,675 | | | | 1,157,978 | | | | 253,508 | | | | 254,760 | | Refundable deposits for telephone installation | | | 50,932 | | | | (7,255 | ) | | | 43,677 | | | | 11,205 | | | | 9,609 | | Accrued revenues | | | (11,652 | ) | | | 3,995 | | | | (7,657 | ) | | | (2,798 | ) | | | (1,855 | ) | Deposits for severance benefits | | | (1,111,846 | ) | | | (24,298 | ) | | | (1,136,144 | ) | | | (244,640 | ) | | | (250,007 | ) | Reserve for technology and human resource development | | | (106,667 | ) | | | 106,667 | | | | — | | | | (25,813 | ) | | | — | | Others | | | 1,140,412 | | | | (204,586 | ) | | | 935,826 | | | | 256,236 | | | | 217,541 | | Tax loss carryforwards | | | 223,560 | | | | 57,641 | | | | 281,201 | | | | 49,183 | | | | 61,882 | | | | | | | | | | | | | | | | | | | | | | | Total | | | 3,485,634 | | | (Won) | (1,247,490 | ) | | | 2,238,144 | | | | 785,175 | | | | 519,344 | | | | | | | | | | | | | | | | | | | | | | | Not recognized as deferred income tax assets | | | (1,962,652 | ) | | | | | | | (623,401 | ) | | | (433,556 | ) | | | (138,740 | ) | | | | | | | | | | | | | | | | | | | | | | Recognized as deferred income tax assets | | (Won) | 1,522,982 | | | | | | | (Won) | 1,614,743 | | | (Won) | 351,619 | | | (Won) | 380,604 | | | | | | | | | | | | | | | | | | | | | | | Deferred tax assets arising from the carryforwards | | | | | | | | | | | | | | | | | | | | | Total tax credit carryforwards | | (Won) | 153,193 | | | (Won) | 42,790 | | | (Won) | 195,983 | | | | 153,193 | | | | 195,983 | | Not recognized as deferred income tax assets | | | (22,091 | ) | | | | | | | (26,861 | ) | | | (22,091 | ) | | | (26,861 | ) | | | | | | | | | | | | | | | | | | | | | | Recognized as deferred income tax assets | | (Won) | 131,102 | | | | | | | (Won) | 169,122 | | | | 131,102 | | | | 169,122 | | | | | | | | | | | | | | | | | | | | | | | Net deferred income tax assets | | | | | | | | | | | | | | (Won) | 482,721 | | | (Won) | 549,725 | | | | | | | | | | | | | | | | | | | | | | | Current deferred income tax assets | | | | | | | | | | | | | | (Won) | 249,941 | | | (Won) | 437,525 | | Non-current deferred income tax assets | | | | | | | | | | | | | | | 235,514 | | | | 113,266 | | Current deferred income tax liabilities | | | | | | | | | | | | | | | — | | | | (1 | ) | Non-current deferred income tax liabilities | | | | | | | | | | | | | | | (2,734 | ) | | | (1,065 | ) |
The possibility of realization on deferred tax asset depends on many factors, such as the Company’s ability, overall economic environment, and industry prospects, within the realization period of temporary differences. The Company assesses such factors periodically, and recognizes the deferred tax assets as of December 31, 2010, as all deductable temporary differences2013, are considered realizable. However, the Company did not recognize the income tax assets resulting from the net operating loss carryforwards and equity-method investments to the extent the Company does not expect the related temporary differences to be reversed within the foreseeable future.
27. Income From Discontinued Operations
Doremi Media Co., Ltd is excluded from the consolidation as of December 31, 2010. The net income (loss) of Doremi Media and other subsidiaries for the years ended December 31, 2010, 2009 and 2008 are reclassified into income (loss) from discontinued operations, as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2010 | | | 2009 | | | 2008 | | (in millions of Korean won) | | Doremi Media | | | Doremi Media | | | Olive Nine | | | KT FDS | | | Total | | | Doremi Media | | | Olive Nine | | | KT FDS | | | Total | | Book Value | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Assets of discontinued operations | | (Won) | — | | | (Won) | 8,026 | | | (Won) | — | | | (Won) | — | | | (Won) | 8,026 | | | (Won) | 10,375 | | | (Won) | 43,666 | | | (Won) | 9,292 | | | (Won) | 63,333 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities of discontinued operations | | | — | | | | 8,409 | | | | — | | | | — | | | | 8,409 | | | | 8,676 | | | | 29,453 | | | | 9,132 | | | | 47,261 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income (loss) from discontinued operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating and non-operating loss | | (Won) | (574 | ) | | (Won) | (4,212 | ) | | (Won) | (7,432 | ) | | (Won) | (3,911 | ) | | (Won) | (15,555 | ) | | (Won) | (2,980 | ) | | (Won) | (22,600 | ) | | (Won) | (3,447 | ) | | (Won) | (29,027 | ) | Gain on disposal of discontinued operations | | | 3,186 | | | | — | | | | 4,035 | | | | 4,246 | | | | 8,281 | | | | — | | | | — | | | | — | | | | — | | Tax effect | | | — | | | | — | | | | 4,305 | | | | 1,152 | | | | 5,457 | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income (loss) from discontinued operations | | (Won) | 2,612 | | | (Won) | (4,212 | ) | | (Won) | 908 | | | (Won) | 1,487 | | | (Won) | (1,817 | ) | | (Won) | (2,980 | ) | | (Won) | (22,600 | ) | | (Won) | (3,447 | ) | | (Won) | (29,027 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | (in millions of Korean won) | | 2011 | | | 2012 | | | 2013 | | Short-term employee benefits | | ₩ | 2,598,889 | | | ₩ | 2,855,024 | | | ₩ | 3,031,435 | | Post-employment benefits(Defined benefit plan) | | | 183,299 | | | | 210,365 | | | | 217,062 | | Post-employment benefits(Defined contribution plan) | | | 230 | | | | 1,703 | | | | 23,857 | | Post-employment benefits (Others) | | | 65,217 | | | | 25,762 | | | | 12,506 | | Share-based payment | | | 6,726 | | | | 3,912 | | | | 4,082 | | | | | | | | | | | | | | | Total | | ₩ | 2,854,361 | | | ₩ | 3,096,766 | | | ₩ | 3,288,942 | | | | | | | | | | | | | | |
The consolidated statements28. Financial Income and Expenses
Details of financial income for the years ended December 31, 20092011, 2012 and 2008 have been retrospectively adjusted for discontinued operations.2013, are as follows: 28. Comprehensive Income
| | | | | | | | | | | | | (in millions of Korean won) | | 2011 | | | 2012 | | | 2013 | | Interest income | | ₩ | 151,634 | | | ₩ | 203,214 | | | ₩ | 108,794 | | Foreign currency transaction gain | | | 46,161 | | | | 20,159 | | | | 37,371 | | Foreign currency translation gain | | | 6,161 | | | | 266,623 | | | | 106,135 | | Gain on settlement of derivatives | | | 496 | | | | 2,824 | | | | 13,878 | | Gain on valuation of derivatives | | | 63,959 | | | | 118 | | | | 627 | | Others | | | 1,581 | | | | 5,719 | | | | 12,544 | | | | | | | | | | | | | | | Total | | ₩ | 269,992 | | | ₩ | 498,657 | | | ₩ | 279,349 | | | | | | | | | | | | | | |
Comprehensive incomeDetails of financial expenses for the years ended December 31, 2010, 20092011, 2012 and 2008 consists of:2013, are as follows:
| | | | | | | | | | | | | (in millions of Korean won) | | 2010 | | | 2009 | | | 2008 | | Net income | | (Won) | 1,192,542 | | | (Won) | 609,695 | | | (Won) | 513,290 | | Other comprehensive income | | | | | | | | | | | | | Cumulative effect of changes in accounting policies | | | — | | | | — | | | | 3,852 | | Gain on valuation of available-for-sale securities | | | 2,816 | | | | (113 | ) | | | (8,939 | ) | Loss on valuation of available-for-sale securities | | | (748 | ) | | | 7,687 | | | | (7,545 | ) | Changes in equity-method investees with accumulated comprehensive income | | | 85 | | | | (10,204 | ) | | | 9,954 | | Changes in equity-method investees with accumulated comprehensive expense | | | 7,820 | | | | (10,138 | ) | | | 961 | | Gain on valuation of financial derivatives | | | (6,769 | ) | | | 486 | | | | 9,374 | | Loss on valuation of financial derivatives | | | (28,384 | ) | | | (26,223 | ) | | | (18,370 | ) | Gain on translation of foreign operations | | | 6,885 | | | | (8,642 | ) | | | 13,559 | | Loss on translation of foreign operations | | | (23,198 | ) | | | (18,656 | ) | | | 11,779 | | | | | | | | | | | | | | | Comprehensive income | | (Won) | 1,151,049 | | | (Won) | 543,892 | | | (Won) | 527,915 | | | | | | | | | | | | | | | Attributable to : Equity holders of the parent | | (Won) | 1,129,900 | | | (Won) | 439,425 | | | (Won) | 462,258 | | Minority interests | | | 21,149 | | | | 104,467 | | | | 65,657 | |
| | | | | | | | | | | | | (in millions of Korean won) | | 2011 | | | 2012 | | | 2013 | | Interest expense | | ₩ | 480,609 | | | ₩ | 472,917 | | | ₩ | 450,302 | | Foreign currency transaction loss | | | 35,725 | | | | 17,974 | | | | 31,611 | | Foreign currency translation loss | | | 86,597 | | | | 7,249 | | | | 6,518 | | Loss on settlement of derivatives | | | 27,055 | | | | 7,804 | | | | 16,384 | | Loss on valuation of derivatives | | | 9,147 | | | | 241,358 | | | | 105,691 | | Others 1 | | | 3,222 | | | | 34,691 | | | | 36,994 | | | | | | | | | | | | | | | Total | | ₩ | 642,355 | | | ₩ | 781,993 | | | ₩ | 647,500 | | | | | | | | | | | | | | |
1 | The Company recognized funding obligation to Smart Channel Co., Ltd. as financial liabilities and recognized₩5,393 million as an expense in 2012. |
29. Deferred Income Tax and Income Tax Expense The analyses of deferred tax assets and deferred tax liabilities as of December 31, 2012 and 2013, are as follows: | | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Deferred tax assets | | | | | | | | | Deferred tax assets to be recovered within 12 months | | ₩ | 261,217 | | | ₩ | 396,831 | | Deferred tax assets to be recovered after more than 12 months | | | 764,563 | | | | 741,047 | | | | | | | | | | | | | ₩ | 1,025,780 | | | ₩ | 1,137,878 | | | | | | | | | | | Deferred tax liabilities | | | | | | | | | Deferred tax liability to be recovered within 12 months | | ₩ | (973 | ) | | ₩ | (1,015 | ) | Deferred tax liability to be recovered after more than 12 months | | | (551,332 | ) | | | (599,384 | ) | | | | | | | | | | | | | (552,305 | ) | | | (600,399 | ) | | | | | | | | | | Deferred tax assets (liabilities), net | | ₩ | 473,475 | | | ₩ | 537,479 | | | | | | | | | | |
The gross movements on the deferred income tax account for the years ended December 31, 2012 and 2013, are calculated as follows: | | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Beginning | | ₩ | 404,210 | | | ₩ | 473,475 | | Charged(credited) to the income statement | | | 24,409 | | | | 98,680 | | Charged(credited) to other comprehensive income | | | 32,670 | | | | (34,676 | ) | Changes in scope of consolidation | | | 12,186 | | | | — | | | | | | | | | | | Ending | | ₩ | 473,475 | | | ₩ | 537,479 | | | | | | | | | | |
The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows: | | | | | | | | | | | | | | | | | | | | | | | 2012 | | (in millions of Korean won) | | Beginning | | | Income statement | | | Other comprehensive income | | | Changes in scope of consolidation | | | Ending | | Deferred tax liabilities | | | | | | | | | | | | | | | | | | | | | Derivative financial assets | | ₩ | (37,861 | ) | | ₩ | 37,294 | | | ₩ | 270 | | | ₩ | — | | | ₩ | (297 | ) | Available-for-sale financial assets | | | (12,945 | ) | | | 7,732 | | | | (6,094 | ) | | | 638 | | | | (10,669 | ) | Investment in joint venture and associates | | | (200 | ) | | | (4,643 | ) | | | 3,148 | | | | 43 | | | | (1,652 | ) | Depreciation | | | (84,366 | ) | | | 51,350 | | | | — | | | | 1,118 | | | | (31,898 | ) | Deposits for severance benefits | | | (271,233 | ) | | | (23,283 | ) | | | (1,261 | ) | | | (1,339 | ) | | | (297,116 | ) | Accrued income | | | (1,855 | ) | | | 243 | | | | — | | | | (61 | ) | | | (1,673 | ) | Prepaid expenses | | | — | | | | 220 | | | | — | | | | — | | | | 220 | | Reserve for technology and human resource development | | | (63,491 | ) | | | (1,079 | ) | | | — | | | | — | | | | (64,570 | ) | Other | | | (149,388 | ) | | | 7,190 | | | | — | | | | (2,452 | ) | | | (144,650 | ) | | | | | | | | | | | | | | | | | | | | | | | | | (621,339 | ) | | | 75,024 | | | | (3,937 | ) | | | (2,053 | ) | | | (552,305 | ) | | | | | | | | | | | | | | | | | | | | | | Deferred tax assets | | | | | | | | | | | | | | | | | | | | | Derivatives | | | — | | | | 30,155 | | | | (8,436 | ) | | | — | | | | 21,719 | | Allowance for doubtful accounts | | | 112,203 | | | | 23,965 | | | | — | | | | 3,108 | | | | 139,276 | | Inventory valuation | | | 594 | | | | (292 | ) | | | — | | | | — | | | | 302 | | Contribution for construction | | | 29,301 | | | | (2,169 | ) | | | — | | | | — | | | | 27,132 | | Accrued expenses | | | 24,397 | | | | 3,316 | | | | — | | | | — | | | | 27,713 | | Provisions | | | 55,260 | | | | 7,115 | | | | — | | | | 321 | | | | 62,696 | | Retirement benefit obligations | | | 257,248 | | | | 18,981 | | | | 42,922 | | | | 1,758 | | | | 320,909 | | Withholding of facilities expenses | | | 9,389 | | | | (528 | ) | | | — | | | | — | | | | 8,861 | | Accrued payroll expenses | | | 28,670 | | | | 3,193 | | | | — | | | | 322 | | | | 32,185 | | Deduction of installment receivables | | | 78,880 | | | | (67,356 | ) | | | — | | | | — | | | | 11,524 | | Present value discount | | | 34,176 | | | | (19,276 | ) | | | — | | | | — | | | | 14,900 | | Assets retirement obligation | | | 16,283 | | | | 2,478 | | | | — | | | | — | | | | 18,761 | | Gain or loss foreign currency translation | | | 97,942 | | | | (77,215 | ) | | | — | | | | — | | | | 20,727 | | Deferred revenue | | | 51,183 | | | | 15,645 | | | | — | | | | — | | | | 66,828 | | Real-estate sales | | | 6,456 | | | | (5,762 | ) | | | — | | | | — | | | | 694 | | Tax credit carryforwards | | | 80,854 | | | | 69,480 | | | | — | | | | — | | | | 150,334 | | Foreign operation translation difference | | | 386 | | | | — | | | | 2,121 | | | | — | | | | 2,507 | | Other | | | 142,327 | | | | (52,345 | ) | | | — | | | | 8,730 | | | | 98,712 | | | | | | | | | | | | | | | | | | | | | | | | | | 1,025,549 | | | | (50,615 | ) | | | 36,607 | | | | 14,239 | | | | 1,025,780 | | | | | | | | | | | | | | | | | | | | | | | Net balance 1 | | ₩ | 404,210 | | | ₩ | 24,409 | | | ₩ | 32,670 | | | ₩ | 12,186 | | | ₩ | 473,475 | | | | | | | | | | | | | | | | | | | | | | |
1 | Deferred tax liabilities, amounting to₩1,680 million (2012: Deferred tax liabilities of₩43,693 million) that are related to the tax receivable of certain subsidiaries’ undistributed profit, are not recognized as of December 31, 2013. This undistributed profit is permanently reinvested. As of December 31, 2013, temporary difference of unrecognized deferred tax liabilities is₩381,666 million (2012:₩399,339 million). |
| | | | | | | | | | | | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | Beginning | | | Income statement | | | Other comprehensive income | | | Changes in scope of consolidation | | | Ending | | Deferred tax liabilities | | | | | | | | | | | | | | | | | | | | | Derivative financial assets | | ₩ | (297 | ) | | ₩ | (116 | ) | | ₩ | — | | | ₩ | — | | | ₩ | (413 | ) | Available-for-sale financial assets | | | (10,669 | ) | | | (5,198 | ) | | | (17,985 | ) | | | — | | | | (33,852 | ) | Investment in joint venture and associates | | | (1,652 | ) | | | (30,140 | ) | | | (780 | ) | | | — | | | | (32,572 | ) | Depreciation | | | (31,898 | ) | | | (38,229 | ) | | | — | | | | — | | | | (70,127 | ) | Deposits for severance benefits | | | (297,116 | ) | | | 29,963 | | | | (10 | ) | | | — | | | | (267,163 | ) | Accrued income | | | (1,673 | ) | | | 65 | | | | — | | | | — | | | | (1,608 | ) | Prepaid expenses | | | 220 | | | | 70 | | | | — | | | | — | | | | 290 | | Reserve for technology and human resource development | | | (64,570 | ) | | | 20,681 | | | | — | | | | — | | | | (43,889 | ) | Other | | | (144,650 | ) | | | (6,415 | ) | | | — | | | | — | | | | (151,065 | ) | | | | | | | | | | | | | | | | | | | | | | | | | (552,305 | ) | | | (29,319 | ) | | | (18,775 | ) | | | — | | | | (600,399 | ) | | | | | | | | | | | | | | | | | | | | | | Deferred tax assets | | | | | | | | | | | | | | | | | | | | | Derivatives | | ₩ | 21,719 | | | ₩ | 9,377 | | | ₩ | 1,499 | | | ₩ | — | | | ₩ | 32,595 | | Allowance for doubtful accounts | | | 139,276 | | | | 13,538 | | | | — | | | | — | | | | 152,814 | | Inventory valuation | | | 302 | | | | 1 | | | | — | | | | — | | | | 303 | | Contribution for construction | | | 27,132 | | | | (6 | ) | | | — | | | | — | | | | 27,126 | | Accrued expenses | | | 27,713 | | | | 27,576 | | | | — | | | | — | | | | 55,289 | | Provisions | | | 62,696 | | | | (28,976 | ) | | | — | | | | — | | | | 33,720 | | Retirement benefit obligations | | | 320,909 | | | | 16,263 | | | | (18,055 | ) | | | — | | | | 319,117 | | Withholding of facilities expenses | | | 8,861 | | | | (521 | ) | | | — | | | | — | | | | 8,340 | | Accrued payroll expenses | | | 32,185 | | | | 14,536 | | | | — | | | | — | | | | 46,721 | | Deduction of installment receivables | | | 11,524 | | | | (4,479 | ) | | | — | | | | — | | | | 7,045 | | Present value discount | | | 14,900 | | | | (9,931 | ) | | | — | | | | — | | | | 4,969 | | Assets retirement obligation | | | 18,761 | | | | 485 | | | | — | | | | — | | | | 19,246 | | Gain or loss foreign currency translation | | | 20,727 | | | | (10,491 | ) | | | — | | | | — | | | | 10,236 | | Deferred revenue | | | 66,828 | | | | (2,388 | ) | | | — | | | | — | | | | 64,440 | | Real-estate sales | | | 694 | | | | 4,720 | | | | — | | | | — | | | | 5,414 | | Tax credit carryforwards | | | 150,334 | | | | 14,067 | | | | — | | | | — | | | | 164,401 | | Foreign operation translation difference | | | 2,507 | | | | — | | | | 655 | | | | — | | | | 3,162 | | Other | | | 98,712 | | | | 84,228 | | | | — | | | | — | | | | 182,940 | | | | | | | | | | | | | | | | | | | | | | | | | | 1,025,780 | | | | 127,999 | | | | (15,901 | ) | | | — | | | | 1,137,878 | | | | | | | | | | | | | | | | | | | | | | | Net balance | | ₩ | 473,475 | | | ₩ | 98,680 | | | ₩ | (34,676 | ) | | ₩ | — | | | ₩ | 537,479 | | | | | | | | | | | | | | | | | | | | | | |
The tax impacts directly to equity as of December 31, 2011, 2012 and 2013, are as follows | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2011 | | | 2012 | | | 2013 | | (in millions of Korean won) | | Before recognition | | | Tax effect | | | After recognition | | | Before recognition | | | Tax effect | | | After recognition | | | Before recognition | | | Tax effect | | | After recognition | | Available-for-sale valuation gain (loss) | | ₩ | 78,441 | | | ₩ | (18,983 | ) | | ₩ | 59,458 | | | ₩ | 25,181 | | | ₩ | (6,094 | ) | | ₩ | 19,087 | | | ₩ | 74,317 | | | ₩ | (17,985 | ) | | ₩ | 56,332 | | Hedge instruments valuation gain (loss) | | | 37,165 | | | | (8,994 | ) | | | 28,171 | | | | 33,743 | | | | (8,166 | ) | | | 25,577 | | | | (6,195 | ) | | | 1,499 | | | | (4,696 | ) | Remeasurements from net defined benefit liabilities | | | (137,635 | ) | | | 33,308 | | | | (104,327 | ) | | | (172,153 | ) | | | 41,661 | | | | (130,492 | ) | | | 74,648 | | | | (18,065 | ) | | | 56,583 | | Shares of gain(loss) of joint ventures and associates | | | (10,087 | ) | | | 2,441 | | | | (7,646 | ) | | | (13,009 | ) | | | 3,148 | | | | (9,861 | ) | | | 3,221 | | | | (780 | ) | | | 2,441 | | Foreign operation translation difference | | | 37,658 | | | | (9,113 | ) | | | 28,545 | | | | (8,766 | ) | | | 2,121 | | | | (6,645 | ) | | | (2,708 | ) | | | 655 | | | | (2,053 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | ₩ | 5,542 | | | ₩ | (1,341 | ) | | ₩ | 4,201 | | | ₩ | (135,004 | ) | | ₩ | 32,670 | | | ₩ | (102,334 | ) | | ₩ | 143,283 | | | ₩ | (34,676 | ) | | ₩ | 108,607 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Details of income tax expenses for the years ended December 31, 2011, 2012 and 2013, are calculated as follows: | | | | | | | | | | | | | (in millions of Korean won) | | 2011 | | | 2012 | | | 2013 | | Current income tax expenses | | ₩ | 230,378 | | | ₩ | 282,499 | | | ₩ | 160,319 | | Adjustments of the current income tax expenses of prior year | | | — | | | | 15,988 | | | | (5,910 | ) | Impact of change in temporary difference | | | 162,121 | | | | (24,409 | ) | | | (104,830 | ) | Impact of change in tax rate | | | (18,144 | ) | | | — | | | | — | | | | | | | | | | | | | | | Total income tax expense | | ₩ | 374,385 | | | ₩ | 274,078 | | | ₩ | 49,579 | | | | | | | | | | | | | | | Income tax expense from continued operations | | | 318,459 | | | | 277,869 | | | | 49,579 | | Income tax expense for discontinued operations | | | 55,926 | | | | (3,791 | ) | | | — | |
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows: | | | | | | | | | | | | | (in millions of Korean won) | | 2011 | | | 2012 | | | 2013 | | Profit from continuing operations before income tax expenses | | ₩ | 1,609,222 | | | ₩ | 1,414,842 | | | ₩ | (38,166 | ) | | | | | | | | | | | | | | Expected tax expense at statutory tax rate | | | 389,432 | | | | 342,392 | | | | 9,263 | | Tax effects of Income not subject to tax | | | (393,557 | ) | | | (1,407 | ) | | | (25,130 | ) | Expenses not deductible for tax purposes | | | 396,673 | | | | 39,136 | | | | 87,220 | | Tax credit carry forwards and deductions | | | (169,217 | ) | | | (83,311 | ) | | | (15,673 | ) | Supplementary pay of corporation tax | | | — | | | | 59,755 | | | | (5,910 | ) | Changes in unrealizable deferred tax assets | | | 10,188 | | | | (55,006 | ) | | | 10,815 | | Deferred tax effects due to changes in tax rates and others | | | 85,146 | | | | (17,656 | ) | | | (62 | ) | Tax effect and adjustment on consolidation | | | — | | | | — | | | | (4,251 | ) | Others | | | (206 | ) | | | (6,034 | ) | | | (6,693 | ) | | | | | | | | | | | | | | Income tax expenses for continuing operations | | ₩ | 318,459 | | | ₩ | 277,869 | | | ₩ | 49,579 | | | | | | | | | | | | | | |
30. Earnings Per Share Basic and dilutedCalculation of earnings per share for the years ended December 31, 2010, 20092011, 2012 and 2008 are2013, is as follows:
Basic earnings per share from continuing operations | | | | | | | | | | | | | (in millions of Korean won, except for per share amounts) | | 2010 | | | 2009 | | | 2008 | | Income from continuing operations attributable to common shares | | (Won) | 1,166,733 | | | (Won) | 488,517 | | | (Won) | 470,540 | | Weighted-average number of common shares outstanding | | | 243,207,149 | | | | 219,512,696 | | | | 202,891,015 | | Basic earnings per share from continuing operations | | (Won) | 4,797 | | | (Won) | 2,225 | | | (Won) | 2,319 | |
Basic earnings per share from discontinued operations
| | | | | | | | | | | | | (in millions of Korean won, except for per share amounts) | | 2010 | | | 2009 | | | 2008 | | Income (loss) from discontinued operations attributable to common shares | | (Won) | 1,272 | | | (Won) | 6,329 | | | (Won) | (20,730 | ) | Weighted-average number of common shares outstanding | | | 243,207,149 | | | | 219,512,696 | | | | 202,891,015 | | Basic earnings per share from discontinued operations | | (Won) | 5 | | | (Won) | 29 | | | (Won) | (102 | ) |
Basic earnings per share
| | | | | | | | | | | | | (in millions of Korean won, except for per share amounts) | | 2010 | | | 2009 | | | 2008 | | Net income attributable to common stock | | (Won) | 1,168,005 | | | (Won) | 494,846 | | | (Won) | 449,810 | | Weighted-average number of common stock outstanding | | | 243,207,149 | | | | 219,512,696 | | | | 202,891,015 | | Basic earnings per share | | (Won) | 4,803 | | | (Won) | 2,254 | | | (Won) | 2,217 | |
Weighted-average number of common shares outstanding is adjusted to reflect weighted-average number of treasury stock for the years ended December 31, 2010, 2009 and 2008.
Diluted earnings per share from continuing operations
| | | | | | | | | | | | | (in millions of Korean won, except for per share amounts) | | 2010 | | | 2009 | | | 2008 | | Income from continuing operations attributable to common stock | | (Won) | 1,166,733 | | | (Won) | 488,517 | | | (Won) | 470,540 | | Exchangeable bond interest | | | — | | | | 4,395 | | | | — | | Adjusted income from continuing operations | | | 1,166,733 | | | | 492,912 | | | | 470,540 | | Dilutive potential common shares outstanding | | | 18,081 | | | | 4,655,062 | | | | — | | Weighted-average number of common shares outstanding and dilutive common shares | | | 243,225,230 | | | | 224,167,758 | | | | 202,891,015 | | Diluted earnings per share from continuing operations | | (Won) | 4,797 | | | (Won) | 2,199 | | | (Won) | 2,319 | |
Diluted earnings per share from discontinued operations
| | | | | | | | | | | | | (in millions of Korean won, except for per share amounts) | | 2010 | | | 2009 | | | 2008 | | Net income from discontinued operations attributable to common stock | | (Won) | 1,272 | | | (Won) | 6,329 | | | (Won) | (20,730 | ) | Adjusted income (loss) from discontinued operations | | (Won) | 1,272 | | | (Won) | 6,329 | | | (Won) | (20,730 | ) | Dilutive potential common shares outstanding | | | 18,081 | | | | 4,655,062 | | | | — | | Weighted-average number of common shares outstanding and dilutive common shares | | | 243,225,230 | | | | 224,167,758 | | | | 202,891,015 | | Diluted earnings per share from discontinued operations | | (Won) | 5 | | | (Won) | 28 | | | (Won) | (102 | ) |
Diluted earnings per share
| | | | | | | | | | | | | (in millions of Korean won, except for per share amounts) | | 2010 | | | 2009 | | | 2008 | | Net income attributable to common stock | | (Won) | 1,168,005 | | | (Won) | 494,846 | | | (Won) | 449,810 | | Exchangeable bond interest | | | — | | | | 4,395 | | | | — | | Adjusted net income attributable to common stock | | | 1,168,005 | | | | 499,241 | | | | 449,810 | | Dilutive potential common shares outstanding | | | 18,081 | | | | 4,655,062 | | | | — | | Weighted-average number of common shares outstanding and dilutive common shares | | | 243,225,230 | | | | 224,167,758 | | | | 202,891,015 | | Diluted earnings per share | | (Won) | 4,802 | | | (Won) | 2,227 | | | (Won) | 2,217 | |
Diluted net income per share is calculated by dividing adjusted net incomethe profit from operations attributable to equity holders of the Company by the weighted average number of common sharesstocks outstanding during the period, excluding common stocks purchased by the Company and dilutive common shares. Stock options and other share-based payments, which have no dilutive effect for each reporting period, are excluded from the calculation of dilutedheld as treasury stock (Note 24).
Basic earnings per share. Potential common shares as of December 31, 2010, 2009 and 2008 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | Par Value | | | Issue Date | | Maturity Date | | Exercisable Period | | Common shares to be issued | | | | | | | | | | | | | 2010.12.31 | | | 2009.12.31 | | | 2008.12.31 | | Stock options | | | 1 | | | Dec. 26, 2002 | | Dec. 26, 2009 | | From 2 years after grant date until maturity date | | | — | | | | — | | | | 371,632 | | Stock options | | | 1 | | | Sept. 16, 2003 | | Sept. 16, 2010 | | From 2 years after grant date until maturity date | | | — | | | | 3,000 | | | | 3,000 | | Stock options | | | 2 | | | Feb. 4, 2005 | | Feb. 4, 2012 | | Increase in the number of exercisable shares by 1/3 every year after two years from grant date | | | 43,153 | | | | 43,153 | | | | 43,153 | | Stock options | | | 3 | | | March 25, 2002 | | March 25, 2010 | | From 3 years after grant date until maturity date | | | — | | | | 20,570 | | | | — | | Stock options | | | 4 | | | Sept. 8, 2003 | | Sept. 8, 2010 | | From 2 years after grant date until maturity date | | | — | | | | 219,909 | | | | — | | Stock options | | | 5 | | | March 4, 2005 | | March 4, 2012 | | From 2 years after grant date until maturity date | | | 79,200 | | | | 79,200 | | | | — | | Other share-based payment | | | 6 | | | June 20, 2007 | | Exercised in first half of 2010 | | On maturity date, subject to the resolution of board of directors | | | — | | | | 11,790 | | | | — | | Other share-based payment | | | 6 | | | March 27, 2008 | | Exercised in first half of 2010 | | On maturity date, subject to the resolution of board of directors | | | — | | | | 13,345 | | | | 29,481 | | Other share-based payment | | | 6 | | | May 7, 2009 | | Exercised in first half of 2010 | | On maturity date, subject to the resolution of board of directors | | | — | | | | 29,055 | | | | — | | Other share-based payment | | | 6 | | | April 29, 2010 | | Expected to be exercised in 2011 | | On maturity date, subject to the resolution of board of directors | | | 142,436 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | | 264,789 | | | | 420,022 | | | | 447,266 | | | | | | | | | | | | | | | | | | | | | | | | |
1 | Exercise price of(Won)57,000 per common share. |
2 | Exercise price of(Won)54,600 per common share. |
3 | Exercise price of(Won)62,814 per common share. |
4 | Exercise price of(Won)41,711 per common share. |
5 | Exercise price of(Won)42,684 per common share. |
6 | Shares to be given subject to performance. |
30. Dividends
The details of dividends for common stocks included in the Controlling Company’s non-consolidated statements of appropriations of retained earningsshare from operations for the years ended December 31, 2010, 20092012 and 20082013, is calculated as follows:
| | | | | | | | | | | | | | | 2011 | | | 2012 | | | 2013 | | Profit (loss) from continuing operations attributable to common stock (in millions of Korean won) | | ₩ | 1,280,015 | | | ₩ | 1,075,694 | | | ₩ | (189,931 | ) | Profit (loss) from discontinued operations attributable to common stock (in millions of Korean won) | | | 165,675 | | | | 29,567 | | | | — | | | | | | | | | | | | | | | | | | 1,445,690 | | | | 1,046,127 | | | | (189,931 | ) | | | | | | | | | | | | | | Weighted average number of common stock outstanding | | | 243,268,052 | | | | 243,517,103 | | | | 243,737,431 | | Basic earnings (loss) per share | | ₩ | 5,943 | | | ₩ | 4,296 | | | ₩ | (779 | ) | Basic earnings (loss) per share from continuing operations (in Korean won) | | | 5,262 | | | | 4,417 | | | | (779 | ) | Basic earnings (loss) per share from discontinued operations (in Korean won) | | | 681 | | | | 121 | | | | — | |
Diluted earnings per share from operations are calculated by adjusting the weighted average number of common stocks outstanding to assume conversion of all dilutive potential common stocks. The Company has dilutive potential common stocks from stock options. Diluted earnings per share from operations for the years ended December 31, 2011, 2012 and 2013, is calculated as follows: | | | | | | | | | | | | | | | 2011 | | | 2012 | | | 2013 | | Adjusted profit(loss) from continuing operations attributable to common stock (in millions of Korean won) | | ₩ | 1,280,015 | | | ₩ | 1,075,694 | | | ₩ | (190,485 | ) | Adjusted profit(loss) from discontinued operations attributable to common stock (in millions of Korean won) | | | 165,675 | | | | (29,567 | ) | | | — | | | | | | | | | | | | | | | | | ₩ | 1,445,690 | | | ₩ | 1,046,127 | | | ₩ | (190,485 | ) | | | | | | | | | | | | | | Number of dilutive potential common shares outstanding | | | 32,960 | | | | 23,851 | | | | — | | Weighted-average number of common shares outstanding and dilutive common shares | | | 243,301,012 | | | | 243,540,954 | | | | 243,737,431 | | Diluted earnings per share | | ₩ | 5,942 | | | ₩ | 4,296 | | | ₩ | (782 | ) | Diluted earnings per share from continuing operations (in Korean won) | | | 5,261 | | | | 4,417 | | | | (782 | ) | Diluted earnings per share from discontinued operations (in Korean won) | | | 681 | | | | 121 | | | | — | |
31. Dividend The dividends paid by the Controlling Company in 2011, 2012 and 2013 were₩586,150 (₩2,410 per share),₩486,602 million (₩2,000 per share) and₩487,445 million (₩2,000 per share), respectively. A dividend in respect of the year ended December 31, 2013, of₩800 per share, amounting to a total dividend of₩195,112 million, was approved at the shareholders’ meeting on March 21, 2014. These consolidated financial statements do not reflect this dividend payable. 32. Cash Generated from Operations Cash flows from operating activities for the years ended December 31, 2011, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | 2010 | | | 2009 | | | 2008 | | Number of shares eligible for dividends | | | 243,215,844 | | | | 243,196,468 | | | | 202,035,296 | | Dividend rate | | | 48.2 | % | | | 40.0 | % | | | 22.4 | % | Dividend amount(in millions of Korean won) | | (Won) | 586,150 | | | (Won) | 486,393 | | | (Won) | 226,280 | | Payout ratio (Dividend / Net income) | | | 50.20 | % | | | 98.29 | % | | | 50.31 | % | Dividend yield ratio (Dividend Per Share / Stock price at year end) | | | 5.21 | % | | | 5.12 | % | | | 2.99 | % |
| | | | | | | | | | | | | (in millions of Korean won) | | 2011 | | | 2012 | | | 2013 | | 1. Profit(loss) for the year | | ₩ | 1,455,357 | | | ₩ | 1,105,439 | | | ₩ | (87,745 | ) | 2. Adjustments to reconcile net income (loss) | | | | | | | | | | | | | Income tax expenses | | | 318,459 | | | | 277,869 | | | | 49,579 | | Interest income | | | (325,374 | ) | | | (387,396 | ) | | | (279,392 | ) | Interest expense | | | 587,560 | | | | 589,727 | | | | 548,129 | | Dividend income | | | (7,823 | ) | | | (6,370 | ) | | | (20,841 | ) | Depreciation | | | 2,676,495 | | | | 2,925,170 | | | | 3,141,846 | | Amortization of intangible assets | | | 319,949 | | | | 388,663 | | | | 478,902 | | Provision for severance benefits | | | 183,299 | | | | 219,128 | | | | 227,564 | | Bad debt expense | | | 149,667 | | | | 150,389 | | | | 189,665 | | Income from jointly controlled entities and associates | | | 2,947 | | | | (24,308 | ) | | | (10,222 | ) | Gain on disposal of jointly controlled entities and associates | | | (190,631 | ) | | | (125,754 | ) | | | 1,254 | | Impairment loss on jointly controlled entities and associates | | | 5,107 | | | | 3,202 | | | | 6,006 | | Gain or loss on disposal of property and equipment | | | (287,932 | ) | | | (407,485 | ) | | | 393,567 | | Gains or loss on disposition of intangible assets | | | (1,528 | ) | | | (1,402 | ) | | | 52,008 | | Loss on impairment of intangible assets | | | 2,376 | | | | 6,115 | | | | 36,207 | | Foreign currency translation gain | | | 80,436 | | | | (259,374 | ) | | | (99,617 | ) | Gain or loss on valuation of derivatives | | | (28,370 | ) | | | 242,979 | | | | 105,248 | | Others | | | (51,529 | ) | | | (96,416 | ) | | | (53,907 | ) | 3. Changes in operating assets and liabilities | | | | | | | | | | | | | Decrease(increase) in trade receivables | | | (1,419,033 | ) | | | 1,848,011 | | | | 938,495 | | Decrease(increase) in other receivables | | | 875,140 | | | | (533,319 | ) | | | (7,194 | ) | Decrease(increase) in loans receivable | | | (152,497 | ) | | | 47,990 | | | | (156,418 | ) | Decrease(increase) in finance lease receivables | | | (183,669 | ) | | | 130,987 | | | | 147,735 | | Increase in other assets | | | (77,528 | ) | | | (86,993 | ) | | | (721,127 | ) | Decrease(increase) in inventories | | | 31,896 | | | | (286,513 | ) | | | 169,567 | | Increase(decrease) in trade payables | | | 98,761 | | | | 177,577 | | | | (145,363 | ) | Increase(decrease) in other payables | | | (1,069,737 | ) | | | 948,480 | | | | (69,265 | ) | Increase(decrease) in other liabilities | | | 63,975 | | | | (196,076 | ) | | | 181,610 | | Increase(decrease) in provisions | | | 28,423 | | | | (86,715 | ) | | | (150,457 | ) | Increase(decrease) in deferred revenue | | | 196,511 | | | | 153,034 | | | | (66,519 | ) | Decrease(increase) in plan assets | | | (126,384 | ) | | | (165,755 | ) | | | 249,102 | | Payment of severance benefits | | | (235,068 | ) | | | (111,192 | ) | | | (371,157 | ) | | | | | | | | | | | | | | 4. Net cash provided by operating activities (1+2+3) | | ₩ | 2,919,255 | | | ₩ | 6,439,692 | | | ₩ | 4,677,260 | | | | | | | | | | | | | | |
31. SupplementalThe Company entered into agreements with securitization specialty companies and disposed of its trade receivables related to handset sales (Note 20). Cash Flows Information
Theflows from the disposals are presented as cash and cash equivalents stated on statements of cash flows are the same amount of cash and cash equivalents less government grants on statements of financial position.generated from operations.
Significant transactions not affecting cash flows for the years ended December 31, 2010, 20092011, 2012 and 20082013, are as follows: | | | | | | | | | | | | | (in millions of Korean won) | | 2010 | | | 2009 | | | 2008 | | Reclassification of the current portion of bonds payable | | (Won) | 1,925,773 | | | (Won) | 1,539,203 | | | (Won) | 1,311,944 | | Reclassification of construction-in-progress to property and equipment | | | 2,379,598 | | | | 2,246,210 | | | | 3,080,337 | | Acquisition of equity-method investments through issuance of exchangeable bond | | | — | | | | 319,160 | | | | — | | Reissuance of treasury stock in exchange of exchangeable bonds | | | — | | | | 451,157 | | | | — | |
32. Related Party Transactions | | | | | | | | | | | | | (in millions of Korean won) | | 2011 | | | 2012 | | | 2013 | | Reclassification of the current portion of bonds payable | | ₩ | 1,181,049 | | | ₩ | 2,157,522 | | | ₩ | 1,791,454 | | Reclassification of construction-in-progress to property and equipment | | | 3,279,678 | | | | 3,142,858 | | | | 2,314,925 | | Reclassification of provisions | | | — | | | | 183,806 | | | | 43,522 | | Reclassification of accounts payable from property and equipment | | | — | | | | 68,766 | | | | 181,816 | | Reclassification of accounts payable from intangible assets | | | 252,690 | | | | — | | | | 567,550 | | Write-off of loans and receivables | | | 33,999 | | | | 13,245 | | | | 43,186 | | Transfer of prepaid lease | | | 23,529 | | | | 127,111 | | | | 94,196 | | Valuation of available-for-sale financial assets | | | 8,016 | | | | 31,599 | | | | 65,670 | | Contributions in kind of non-controlling interest | | | — | | | | — | | | | 84,122 | |
The list of subsidiaries of the Company as of December 31, 2010 is as follows:
| | | Type of control
| | Subsidiaries
| Ultimate Controlling Company
| | KT Co. | Direct control
| | KT Hitel, KT Submarine Co., KT Networks Corporation, KT Powertel, KT Linkus Co., KT Telecop Co., Ltd., KT Rental, KT Capital, Sidus FNH Co., Ltd., KTDS, Nasmedia, Inc., KT Edui Co., Ltd. (formerly “JungBoPremiumEdu Co., Ltd.”), Sofnics Inc., KT Tech, KT M Hows, KT M&S, KT Msusic, KT Innotz Inc., KT Estate Inc., KT Internal Venture Fund No.2, Sidus FNH Benex Cinema Investment Fund (formerly “Sidus FNH Benex Cinema Investment Fund”), KT New Business Fund No.1, KT Capital Media Contents Fund No.2, Gyeonggi-KT Green Growth Fund, KT Strategic Investment Fund No.1, Korea Telecom America, Inc., New Telephone Company Inc., Korea Telecom Japan Co., Ltd., Korea Telecom China Co., Ltd., KTSC Investment Management B.V., PT. KT Indonesia | Indirect control through KT Hitel
| | KT Commerce Inc. | Indirect control through KT Capital
| | Vanguard Private Equity Fund, KTC Media Contents Fund 1, KT-LIG ACE Private Equity Fund Co., Ltd. | Indirect control through KT Rental
| | KTR | Indirect control through KTSC
Investment Management B.V.
| | East Telecom and Super iMax | Indirect control through NTSC
| | Helios TV and Novaya Svyaz |
The Controlling Company’s significant transactions and balances with subsidiaries as of December 31, 2010, 2009 and 2008 and for the years then ended are as follows:
| | | | | | | | | | | | | | | | | (in millions of Korean won) | | Operating Revenue | | | Operating Expense | | | Receivables | | | Payables | | KT Powertel Co., Ltd. | | (Won) | 15,287 | | | (Won) | 3,773 | | | (Won) | 957 | | | (Won) | 1,259 | | KT Networks Corporation | | | 64,347 | | | | 119,356 | | | | 8,133 | | | | 53,280 | | KT Telecop Co., Ltd. | | | 12,336 | | | | 48,727 | | | | 426 | | | | 18,439 | | KT Hitel Co., Ltd. | | | 10,197 | | | | 67,777 | | | | 753 | | | | 38,147 | | KT Tech, Inc. | | | 1,296 | | | | 312,244 | | | | 159 | | | | 92,300 | | KTR Co., Ltd. | | | 4,802 | | | | 11,982 | | | | 2 | | | | 66,795 | | KT Rental Co., Ltd. | | | 9,783 | | | | 36,615 | | | | 61 | | | | 7,409 | | KT Capital Co., Ltd. | | | 80 | | | | 4,992 | | | | 7 | | | | 47,379 | | KTDS | | | 10,137 | | | | 335,534 | | | | 4,532 | | | | 97,465 | | KT M&S Co., Ltd. | | | 656,631 | | | | 137,673 | | | | 16,029 | | | | 54,380 | | Others | | | 34,623 | | | | 252,119 | | | | 5,234 | | | | 36,087 | | | | | | | | | | | | | | | | | | | 2010 Total | | (Won) | 819,519 | | | (Won) | 1,330,792 | | | (Won) | 36,293 | | | (Won) | 512,940 | | | | | | | | | | | | | | | | | | | 2009 Total | | (Won) | 594,026 | | | (Won) | 1,217,351 | | | (Won) | 63,120 | | | (Won) | 453,338 | | | | | | | | | | | | | | | | | | | 2008 Total | | (Won) | 528,311 | | | (Won) | 1,263,863 | | | (Won) | 68,654 | | | (Won) | 435,501 | | | | | | | | | | | | | | | | | | |
Significant balances and transactions among the subsidiaries as of December 31, 2010, 2009 and 2008 and for the years then ended are as follows:
| | | | | | | | | (in millions of Korean won) | | Receivables and Payables | | | Operating Revenue and Expense | | 2010 Total | | (Won) | 120,745 | | | (Won) | 75,085 | | | | | | | | | | | 2009 Total | | (Won) | 121,528 | | | (Won) | 502,106 | | | | | | | | | | | 2008 Total | | (Won) | 157,327 | | | (Won) | 1,115,712 | | | | | | | | | | |
The Controlling Company’s significant transactions and balances with equity-method investees as of December 31, 2010, 2009 and 2008 and for the years then ended are as follows:
| | | | | | | | | | | | | (in millions of Korean won) | | 2010 | | | 2009 | | | 2008 | | Operating Revenue | | (Won) | 164,778 | | | (Won) | 122,036 | | | (Won) | 118,269 | | Operating Expense | | | 905,504 | | | | 668,979 | | | | 585,555 | | Receivables | | | 15,530 | | | | 11,140 | | | | 9,031 | | Payables | | | 142,015 | | | | 89,290 | | | | 100,824 | |
Details of the Controlling Company’s ownership in the related parties, acquisition cost, fair value (or net asset) and book values are in Note 2 and Note 8.
Key management compensation for the years ended December 31, 2010, 2009 and 2008 consists of:
| | | | | | | | | | | | | | | (in millions of Korean won) | | 2010 | | | 2009 | | | 2008 | | | Description | Benefits | | (Won) | 33,744 | | | (Won) | 17,068 | | | (Won) | 20,203 | | | Salaries, bonuses, other allowances, retirement benefits, medical benefits and others | Compensation expenses | | | 6,794 | | | | 1,052 | | | | 1,420 | | | Compensation expenses associated with stock options, stock grants | | | | | | | | | | | | | | | | Total | | (Won) | 40,538 | | | (Won) | 18,120 | | | (Won) | 21,623 | | | | | | | | | | | | | | | | | | |
Key management consists of vice presidents and higher positions, who have the authority and responsibility for planning, operation and control and are in charge of a business unit or division, and non-permanent directors.
33. Segment Information The Company’sGroup’s operating segments are as follows: | | | Details | | Business service | PersonalTelecom & Convergence/ Customer Group (“Personal”)
| | PersonalTelecommunication service to mass customers using PCS and WiBro | | convergence business | Home CustomerGlobal & Enterprise Group (“Home”) Enterprise Customer Group (“Enterprise”)
| | Telephone, internet,Telecommunication service to global market and enterprise customers and data and othersservice | Finance / Rental Business Group | | Credit card, loan, lease and others | Others | | Global, real estate,Satellite TV, and others |
Details of each segment for the years ended December 31, 2010, 20092011, 2012, and 2008,2013 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | 2010 | | | | Personal | | | Home/ Enterprise | | | Others | | | Total | | | Elimination | | | Consolidated amount | | Operating revenues | | (Won) | 10,387,800 | | | (Won) | 9,845,716 | | | (Won) | 3,346,111 | | | (Won) | 23,579,627 | | | (Won) | (2,248,314 | ) | | (Won) | 21,331,313 | | Operating income | | | 1,477,844 | | | | 575,453 | | | | 149,391 | | | | 2,202,688 | | | | (27,606 | ) | | | 2,175,082 | | Depreciation and Amortization | | | 928,600 | | | | 1,985,755 | | | | 256,632 | | | | 3,170,987 | | | | 7,414 | | | | 3,178,401 | | Property and equipment and Intangible assets | | | 4,700,790 | | | | 10,385,029 | | | | 1,324,175 | | | | 16,409,994 | | | | 50,730 | | | | 16,460,724 | | | | | | 2009 | | | | Personal | | | Home/ Enterprise | | | Others | | | Total | | | Elimination | | | Consolidated amount | | Operating revenues | | (Won) | 9,313,751 | | | (Won) | 10,108,769 | | | (Won) | 2,423,569 | | | (Won) | 21,846,089 | | | (Won) | (2,202,277 | ) | | (Won) | 19,643,812 | | Operating income | | | 1,040,025 | | | | (44,044 | ) | | | (4,742 | ) | | | 991,239 | | | | (20,692 | ) | | | 970,547 | | Depreciation and Amortization | | | 1,013,685 | | | | 2,054,897 | | | | 199,853 | | | | 3,268,435 | | | | 7,374 | | | | 3,275,809 | | Property and equipment and Intangible assets | | | 4,757,330 | | | | 10,653,089 | | | | 619,465 | | | | 16,029,884 | | | | 24,176 | | | | 16,054,060 | | | | | | 2008 | | | | Personal | | | Home/ Enterprise | | | Others | | | Total | | | Elimination | | | Consolidated amount | | Operating revenues | | (Won) | 8,346,220 | | | (Won) | 11,784,835 | | | (Won) | 2,353,821 | | | (Won) | 22,484,876 | | | (Won) | (2,897,634 | ) | | (Won) | 19,587,242 | | Operating income | | | 454,381 | | | | 1,113,389 | | | | 28,944 | | | | 1,596,714 | | | | (153,899 | ) | | | 1,442,815 | | Depreciation and Amortization | | | 1,117,879 | | | | 2,205,496 | | | | 158,399 | | | | 3,481,774 | | | | 142,601 | | | | 3,624,375 | | Property and equipment and Intangible assets | | | 4,937,833 | | | | 10,825,720 | | | | 660,152 | | | | 16,423,705 | | | | 239,164 | | | | 16,662,869 | |
| | | | | | | | | | | | | | | 2011 | | (in millions of Korean won) | | Operating revenues | | | Operating income(loss) | | | Depreciation and Amortization | | Telecom & Convergence/Customer | | ₩ | 16,156,235 | | | ₩ | 1,139,933 | | | ₩ | 2,330,200 | | Global & Enterprise | | | 3,167,398 | | | | 525,989 | | | | 504,593 | | Finance/Rental | | | 1,010,502 | | | | 36,937 | | | | 16,988 | | Others | | | 4,039,112 | | | | 105,399 | | | | 121,557 | | | | | | | | | | | | | | | | | | 24,373,247 | | | | 1,808,258 | | | | 2,973,338 | | Adjustment 1 | | | (2,285,417 | ) | | | 178,838 | | | | (15,849 | ) | | | | | | | | | | | | | | Consolidated amount | | ₩ | 22,087,830 | | | ₩ | 1,987,096 | | | ₩ | 2,957,489 | | | | | | | | | | | | | | | | | | | 2012 | | (in millions of Korean won) | | Operating revenues | | | Operating income (loss) | | | Depreciation and Amortization | | Telecom & Convergence/Customer | | ₩ | 15,932,278 | | | ₩ | 733,461 | | | ₩ | 2,440,338 | | Global & Enterprise | | | 2,930,958 | | | | 327,300 | | | | 485,267 | | Finance/Rental | | | 3,717,181 | | | | 185,220 | | | | 181,904 | | Others | | | 4,252,074 | | | | 83,039 | | | | 147,238 | | | | | | | | | | | | | | | | | | 26,832,491 | | | | 1,329,020 | | | | 3,254,747 | | Adjustment 1 | | | (2,188,719 | ) | | | 351,079 | | | | 19,331 | | | | | | | | | | | | | | | Consolidated amount | | ₩ | 24,643,772 | | | ₩ | 1,680,099 | | | ₩ | 3,274,078 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | Operating revenues | | | Operating income (loss) | | | Depreciation and Amortization | | Telecom & Convergence/Customer | | ₩ | 14,938,037 | | | ₩ | 51,853 | | | ₩ | 2,445,321 | | Global & Enterprise | | | 2,917,116 | | | | 235,728 | | | | 486,258 | | Finance/Rental | | | 4,053,481 | | | | 279,856 | | | | 400,223 | | Others | | | 5,093,995 | | | | 287,482 | | | | 233,322 | | | | | | | | | | | | | | | | | | 27,002,629 | | | | 854,919 | | | | 3,565,124 | | Adjustment 1 | | | (2,944,748 | ) | | | (531,535 | ) | | | 1,050 | | | | | | | | | | | | | | | Consolidated amount | | ₩ | 24,057,881 | | | ₩ | 323,384 | | | ₩ | 3,566,174 | | | | | | | | | | | | | | |
1 | The basis of accounting for any transactions between reportable segments such as elimination, etc. |
Information by IndustryThe regional segment information provided to the management for the reportable segments as of December 31, 2011, 2012 and 2013, and for the years ended December 31, 20102012 and 2009 is2013, are as follows:
| | | | | | | | | | | | | | | | | | | | | (in millions of Korean won) | | Operating revenues | | | Non-current assets 3 | | | | 2011 | | | 2012 | | | 2013 | | | 2012 | | | 2013 | | Location | | | | | | | | | | | | | | | | | | | | | Domestic | | ₩ | 22,032,296 | | | ₩ | 24,609,126 | | | ₩ | 23,999,635 | | | ₩ | 20,136,194 | | | ₩ | 21,143,152 | | Overseas | | | 55,534 | | | | 34,646 | | | | 58,246 | | | | 39,023 | | | | 176,700 | | | | | | | | | | | | | | | | | | | | | | | Total | | ₩ | 22,087,830 | | | ₩ | 24,643,772 | | | ₩ | 24,057,881 | | | ₩ | 20,175,217 | | | ₩ | 21,319,852 | | | | | | | | | | | | | | | | | | | | | | |
1 | Non-current assets include fixed assets, intangible assets (excluding goodwill) and investment property. |
Assets and liabilities by industryof each segments as of December 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | | | (in millions of Korean won) | | 2012 | | | | Non-finance | | | Finance /Rental | | | Total | | | Adjustment | | | Consolidated amount | | Assets | | | | | | | | | | | | | | | | | | | | | Current | | ₩ | 7,870,747 | | | ₩ | 3,363,384 | | | ₩ | 11,234,131 | | | ₩ | (716,712 | ) | | ₩ | 10,517,419 | | Trade and other receivables | | | 4,767,604 | | | | 1,620,451 | | | | 6,388,055 | | | | (480,547 | ) | | | 5,907,508 | | Short-term loans | | | — | | | | 777,095 | | | | 777,095 | | | | (108,982 | ) | | | 668,113 | | Inventories | | | 931,979 | | | | 30,434 | | | | 962,413 | | | | (27,380 | ) | | | 935,033 | | Other assets | | | 2,171,164 | | | | 935,404 | | | | 3,106,568 | | | | (99,803 | ) | | | 3,006,765 | | Non-current | | | 23,278,749 | | | | 3,389,520 | | | | 26,668,269 | | | | (2,627,780 | ) | | | 24,040,489 | | Trade and other receivables | | | 1,050,481 | | | | 51,075 | | | | 1,101,556 | | | | (28,590 | ) | | | 1,072,966 | | Long-term loans | | | — | | | | 520,603 | | | | 520,603 | | | | (8,016 | ) | | | 512,587 | | Property, equipment and intangible assets (including investment property) | | | 18,022,270 | | | | 1,518,491 | | | | 19,540,761 | | | | 634,456 | | | | 20,175,217 | | Other assets | | | 4,205,998 | | | | 1,299,351 | | | | 5,505,349 | | | | (3,225,630 | ) | | | 2,279,719 | | | | | | | | | | | | | | | | | | | | | | | Total assets | | ₩ | 31,149,496 | | | ₩ | 6,752,904 | | | ₩ | 37,902,400 | | | ₩ | (3,344,492 | ) | | ₩ | 34,557,908 | | | | | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | Current | | ₩ | 8,617,269 | | | ₩ | 3,324,813 | | | ₩ | 11,942,082 | | | ₩ | (675,316 | ) | | ₩ | 11,266,766 | | Trade and other payables | | | 5,742,946 | | | | 2,064,281 | | | | 7,807,227 | | | | (585,925 | ) | | | 7,221,302 | | Borrowings | | | 2,066,871 | | | | 1,123,754 | | | | 3,190,625 | | | | 6,404 | | | | 3,197,029 | | Other liabilities | | | 807,452 | | | | 136,778 | | | | 944,230 | | | | (95,795 | ) | | | 848,435 | | Non-current | | | 7,681,087 | | | | 2,621,156 | | | | 10,302,243 | | | | (229,076 | ) | | | 10,073,167 | | Trade and other payables | | | 547,830 | | | | 168,589 | | | | 716,419 | | | | (15,059 | ) | | | 701,360 | | Borrowings | | | 6,005,239 | | | | 2,274,466 | | | | 8,279,705 | | | | (40,615 | ) | | | 8,239,090 | | Other liabilities | | | 1,128,018 | | | | 178,101 | | | | 1,306,119 | | | | (173,402 | ) | | | 1,132,717 | | | | | | | | | | | | | | | | | | | | | | | Total liabilities | | ₩ | 16,298,356 | | | ₩ | 5,945,969 | | | ₩ | 22,244,325 | | | ₩ | (904,392 | ) | | ₩ | 21,339,933 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | Non-finance | | | Finance /Rental | | | Total | | | Adjustment | | | Consolidated amount | | Assets | | | | | | | | | | | | | | | | | | | | | Current | | ₩ | 7,023,358 | | | ₩ | 3,920,164 | | | ₩ | 10,943,522 | | | ₩ | (971,603 | ) | | ₩ | 9,971,919 | | Trade and other receivables | | | 4,142,237 | | | | 1,864,709 | | | | 6,006,946 | | | | (767,377 | ) | | | 5,239,569 | | Short-term loans | | | — | | | | 889,418 | | | | 889,418 | | | | (50,694 | ) | | | 838,724 | | Inventories | | | 649,754 | | | | 25,596 | | | | 675,350 | | | | (1,732 | ) | | | 673,618 | | Other assets | | | 2,231,367 | | | | 1,140,441 | | | | 3,371,808 | | | | (151,800 | ) | | | 3,220,008 | | Non-current | | | 24,060,958 | | | | 3,730,135 | | | | 27,791,093 | | | | (2,912,895 | ) | | | 24,878,198 | | Trade and other receivables | | | 796,622 | | | | 68,877 | | | | 865,499 | | | | (52,028 | ) | | | 813,471 | | Long-term loans | | | — | | | | 542,267 | | | | 542,267 | | | | (32,394 | ) | | | 509,873 | | Property, equipment and intangible assets (including investment property) | | | 18,817,659 | | | | 1,931,006 | | | | 20,748,665 | | | | 571,187 | | | | 21,319,852 | | Other assets | | | 4,446,677 | | | | 1,187,985 | | | | 5,634,662 | | | | (3,399,660 | ) | | | 2,235,002 | | | | | | | | | | | | | | | | | | | | | | | Total assets | | ₩ | 31,084,316 | | | ₩ | 7,650,299 | | | ₩ | 38,734,615 | | | ₩ | (3,884,498 | ) | | ₩ | 34,850,117 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | Non-finance | | | Finance /Rental | | | Total | | | Adjustment | | | Consolidated amount | | Liabilities | | | | | | | | | | | | | | | | | | | | | Current | | ₩ | 8,452,101 | | | ₩ | 3,716,585 | | | ₩ | 12,168,686 | | | ₩ | (944,570 | ) | | ₩ | 11,224,116 | | Trade and other payables | | | 5,866,180 | | | | 2,344,098 | | | | 8,210,278 | | | | (796,455 | ) | | | 7,413,823 | | Borrowings | | | 1,785,879 | | | | 1,224,852 | | | | 3,010,731 | | | | 9,975 | | | | 3,020,706 | | Other liabilities | | | 800,042 | | | | 147,635 | | | | 947,677 | | | | (158,090 | ) | | | 789,587 | | Non-current | | | 8,238,497 | | | | 2,938,773 | | | | 11,177,270 | | | | (388,685 | ) | | | 10,788,585 | | Trade and other payables | | | 919,486 | | | | 168,630 | | | | 1,088,116 | | | | (29,232 | ) | | | 1,058,884 | | Borrowings | | | 6,024,803 | | | | 2,561,893 | | | | 8,586,696 | | | | (123,509 | ) | | | 8,463,187 | | Other liabilities | | | 1,294,208 | | | | 208,250 | | | | 1,502,458 | | | | (235,944 | ) | | | 1,266,514 | | | | | | | | | | | | | | | | | | | | | | | Total liabilities | | ₩ | 16,690,598 | | | ₩ | 6,655,358 | | | ₩ | 23,345,956 | | | ₩ | (1,333,255 | ) | | ₩ | 22,012,701 | | | | | | | | | | | | | | | | | | | | | | |
34. Related Party Transactions The list of related parties of the Group as of December 31, 2010 and 2009 | | | | | | | | | | | | | | | | | | | | | | | | | | | 2010 | | | 2009 | | | | Non-financial | | | Financial | | | Consolidated amount | | | Non-financial | | | Financial | | | Consolidated amount | | Assets | | | | | | | | | | | | | | | | | | | | | | | | | Current assets | | | | | | | | | | | | | | | | | | | | | | | | | Quick assets | | (Won) | 6,433,581 | | | (Won) | 983,219 | | | (Won) | 7,416,800 | | | (Won) | 6,587,387 | | | (Won) | 685,060 | | | (Won) | 7,272,447 | | Inventories | | | 655,831 | | | | — | | | | 655,831 | | | | 699,402 | | | | — | | | | 699,402 | | | | | | | | | | | | | | | | | | | | | | | | | | | Sub-total | | | 7,089,412 | | | | 983,219 | | | | 8,072,631 | | | | 7,286,789 | | | | 685,060 | | | | 7,971,849 | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-current assets | | | | | | | | | | | | | | | | | | | | | | | | | Investments | | | 696,623 | | | | 86,568 | | | | 783,191 | | | | 512,953 | | | | 48,417 | | | | 561,370 | | Property and equipment | | | 15,185,606 | | | | 42,252 | | | | 15,227,858 | | | | 14,750,631 | | | | 23,929 | | | | 14,774,560 | | Intangible assets | | | 1,232,395 | | | | 471 | | | | 1,232,866 | | | | 1,279,236 | | | | 264 | | | | 1,279,500 | | Other | | | 1,597,541 | | | | 799,372 | | | | 2,396,913 | | | | 1,352,597 | | | | 680,441 | | | | 2,033,038 | | | | | | | | | | | | | | | | | | | | | | | | | | | Sub-total | | | 18,712,165 | | | | 928,663 | | | | 19,640,828 | | | | 17,895,417 | | | | 753,051 | | | | 18,648,468 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total assets | | (Won) | 25,801,577 | | | (Won) | 1,911,882 | | | (Won) | 27,713,459 | | | (Won) | 25,182,206 | | | (Won) | 1,438,111 | | | (Won) | 26,620,317 | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | Current liabilities | | (Won) | 7,053,092 | | | (Won) | 376,538 | | | (Won) | 7,429,630 | | | (Won) | 6,145,841 | | | (Won) | 795,382 | | | (Won) | 6,941,223 | | Non-current liabilities | | | 7,326,898 | | | | 1,461,259 | | | | 8,788,157 | | | | 8,423,158 | | | | 588,497 | | | | 9,011,655 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total liabilities | | (Won) | 14,379,990 | | | (Won) | 1,837,797 | | | (Won) | 16,217,787 | | | (Won) | 14,568,999 | | | (Won) | 1,383,879 | | | (Won) | 15,952,878 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Results of operations by industry for the years ended December 31, 2010, 2009 and 2008
| | | | | | | | | | | | | | | 2010 | | | | Non-financial | | | Financial | | | Consolidated amount | | Operating revenues | | (Won) | 21,165,515 | | | (Won) | 165,798 | | | (Won) | 21,331,313 | | Operating expenses | | | 19,016,819 | | | | 139,412 | | | | 19,156,231 | | | | | | | | | | | | | | | Operating income | | | 2,148,696 | | | | 26,386 | | | | 2,175,082 | | Non-operating revenues | | | 522,722 | | | | 95 | | | | 522,817 | | Non-operating expenses | | | 1,136,118 | | | | 8 | | | | 1,136,126 | | | | | | | | | | | | | | | Income from continuing operations before income tax | | | 1,535,300 | | | | 26,473 | | | | 1,561,773 | | Income tax on continuing operations | | | 363,157 | | | | 8,686 | | | | 371,843 | | | | | | | | | | | | | | | Income from continuing operations | | | 1,172,143 | | | | 17,787 | | | | 1,189,930 | | Income (loss) from discontinued operations | | | 2,612 | | | | — | | | | 2,612 | | | | | | | | | | | | | | | Net income | | (Won) | 1,174,755 | | | (Won) | 17,787 | | | (Won) | 1,192,542 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 2009 | | | | Non-financial | | | Financial | | | Consolidated amount | | Operating revenues | | (Won) | 19,508,859 | | | (Won) | 134,953 | | | (Won) | 19,643,812 | | Operating expenses | | | 18,555,188 | | | | 118,077 | | | | 18,673,265 | | | | | | | | | | | | | | | Operating income | | | 953,671 | | | | 16,876 | | | | 970,547 | | Non-operating revenues | | | 806,521 | | | | 970 | | | | 807,491 | | Non-operating expenses | | | 1,058,757 | | | | 6 | | | | 1,058,763 | | | | | | | | | | | | | | | Income from continuing operations before income tax | | | 701,435 | | | | 17,840 | | | | 719,275 | | Income tax on continuing operations | | | 101,863 | | | | 5,900 | | | | 107,763 | | | | | | | | | | | | | | | Income from continuing operations | | | 599,572 | | | | 11,940 | | | | 611,512 | | Income (loss) from discontinued operations | | | (1,817 | ) | | | — | | | | (1,817 | ) | | | | | | | | | | | | | | Net income | | (Won) | 597,755 | | | (Won) | 11,940 | | | (Won) | 609,695 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 2008 | | | | Non-financial | | | Financial | | | Consolidated amount | | Operating revenues | | (Won) | 19,478,880 | | | (Won) | 108,362 | | | (Won) | 19,587,242 | | Operating expenses | | | 18,039,553 | | | | 104,874 | | | | 18,144,427 | | | | | | | | | | | | | | | Operating income | | | 1,439,327 | | | | 3,488 | | | | 1,442,815 | | Non-operating revenues | | | 1,050,331 | | | | 22 | | | | 1,050,353 | | Non-operating expenses | | | 1,782,921 | | | | 71 | | | | 1,782,992 | | | | | | | | | | | | | | | Income from continuing operations before income tax | | | 706,737 | | | | 3,439 | | | | 710,176 | | Income tax on continuing operations | | | 166,419 | | | | 1,440 | | | | 167,859 | | | | | | | | | | | | | | | Income from continuing operations | | | 540,318 | | | | 1,999 | | | | 542,317 | | Income (loss) from discontinued operations | | | (29,027 | ) | | | — | | | | (29,027 | ) | | | | | | | | | | | | | | Net income | | (Won) | 511,291 | | | (Won) | 1,999 | | | (Won) | 513,290 | | | | | | | | | | | | | | |
34. Employee Welfare
Cost on the various employee welfare programs of the Company for the years ended December 31, 2010, 2009 and 2008 totaled(Won)374,300 million,(Won)587,011 million and(Won)565,738 million, respectively.
35. Subsequent Events
Subsequent to December 31, 2010, the Controlling Company has issued the unsecured public bonds as follows:
| | | | | | | | | | | | | | | | | (in thousands) | | Issue Date | | | Par Value | | | Interest Rate | | Maturity Date | | | Repayment Method | USD denominated unsecured public bond (178-1st) with floating rate | | | 2011.1.11 | | | USD | 100,000 | | | Libor(3M) + 1.00% | | | 2013.1.18 | | | Lump sum repayment at maturity | USD denominated unsecured public bond (178-2nd) with floating rate | | | 2011.1.11 | | | USD | 100,000 | | | Libor(3M) + 1.05% | | | 2014.1.17 | | | Lump sum repayment at maturity | JPY denominated foreign public bond | | | 2011.1.20 | | | JPY | 35,000,000 | | | 1.58% | | | 2013.1.25 | | | Lump sum repayment at maturity | Unsecured public bond (179t) | | | 2011.3.29 | | | (Won) | 260,000 | | | 4.47% | | | 2018.3.29 | | | Lump sum repayment at maturity | Unsecured public bond (180-1st) | | | 2011.4.26 | | | (Won) | 210,000 | | | 4.35% | | | 2016.4.26 | | | Lump sum repayment at maturity | Unsecured public bond (180-2nd) | | | 2011.4.26 | | | (Won) | 380,000 | | | 4.71% | | | 2021.4.26 | | | Lump sum repayment at maturity |
On January 27, 2011 the Controlling Company acquired from Dutch Savings Holdings B.V 5,600,000 of redeemable convertible preferred stock with voting rights and the bonds convertible into 5,600,000 of common stock of Korea Digital Satellite Broadcasting CO., Ltd. for(Won)246,000 million. The accrued interest of(Won)7,969 million are also included in the amount of the convertible bond. Accordingly, the Controlling Company’s ownership in Korea Digital Satellite Broadcasting Co., Ltd. has increased from 32.12% to 46.41%. If the potential voting rights are also considered, the ownership increases to 53.05%.
As approved by the Board of Directors on May 4, 2011, the Company has decided to sell New Telephone Company, Inc. 5,309,189 shares (79.96%) to VIMPEL-COMMUNICATIONS. The selling price is $ 346,628 thousand.
As approved by the Board of Directors on February 3, 2011, KT Capital decided to acquire 1,489,400 of the common stocks of BC Card owned by Shinhan Bank, representing 33.85% of total outstanding shares, for(Won)231,602 million.
KT Rental and KTR merged on March 1, 2011, as approved by the Board of Directors on January 7, 2011.
36. Merger with KTF
On January 20, 2009, the Controlling Company entered into a merger agreement with KTF, which was subsequently approved by the shareholders on March 27, 2009. On June 1, 2009, the Controlling Company, as the surviving company, merged with KTF.
The Controlling Company issued 0.7192335 share of KT common stock with a par value per share of(Won)5,000 for one share of KTF. However, the Controlling Company did not issue any new common stock for the shares of KTF common stock held by the Controlling Company or for the treasury shares of KTF as of the date of the merger.
Details of merged companies:
| | | | | | | | | CEO
| | Business
| | Relationship
| KT Corporation (KT)
| | Lee Suk Chae | | Telephone service, new media business, telecommunication products sales and other | | Parent | KT Freetel Co., Ltd. (KTF)
| | Kwon Haing Min | | Mobile telecommunication service and other | | Subsidiary |
Accounting treatment
As this was a merger between parent and subsidiary, the Controlling Company accounted for the merger using the carrying amounts in its consolidated financial statements and accordingly, the excess of merger consideration given over the carrying amount of net assets acquired was recognized as capital adjustment after offsetting capital surplus, if any, from the similar type of transaction.
| | | | | Decrease in Minority interest (a):
| | (Won) | (1,553,491) | | | | | | | Changes in equity :
| | | | | Increase in common stock
| | | 3,501 | | Decrease in treasury stock
| | | 2,436,659 | | Decrease in gain on disposal of treasury stock
| | | (375 | ) | Decrease in accumulated other comprehensive income
| | | (6,932 | ) | Decrease in capital adjustments
| | | (879,362 | ) | | | | | | Sub-total (b) :
| | | 1,553,491 | | | | | | | Changes in total equity (a+b):
| | (Won) | — | | | | | | |
Goodwill
Changes in goodwill for the year ended December 31, 2010 and 2009 are as follows:
| | | | | January 1, 2009
| | (Won) | 195,170 | | Amortization
| | | (130,113 | ) | | | | | | December 31, 2009
| | | 65,057 | | Amortization
| | | (65,057 | ) | | | | | | December 31, 2010
| | (Won) | — | | | | | | |
The above goodwill includes the goodwill arising from the acquisition of KTF shares by KT in stages and the goodwill recorded in the book of KTF prior to the merger of KT and KTF. Goodwill is amortized on a straight-line basis over ten years and, as of June 30, 2010, the goodwill had been fully amortized.
Financial statements of the merged companies
Statements of financial position
| | | | | | | | | | | | | | | | | | | KT | | | KTF | | (in millions of Korean won) | | 2009.6.1 | | | 2008.12.31 | | | 2009.6.1 | | | 2008.12.31 | | Current assets | | (Won) | 4,926,684 | | | (Won) | 3,778,105 | | | (Won) | 2,716,833 | | | (Won) | 2,199,857 | | Investment assets | | | 3,846,019 | | | | 3,517,906 | | | | 270,019 | | | | 396,903 | | Property and equipment | | | 9,932,337 | | | | 10,428,674 | | | | 3,919,107 | | | | 4,165,339 | | Intangible assets | | | 344,330 | | | | 397,046 | | | | 783,254 | | | | 780,242 | | Other non-current assets | | | 503,787 | | | | 563,191 | | | | 559,353 | | | | 513,781 | | | | | | | | | | | | | | | | | | | Total assets | | (Won) | 19,553,157 | | | (Won) | 18,684,922 | | | (Won) | 8,248,566 | | | (Won) | 8,056,122 | | | | | | | | | | | | | | | | | | | Current liabilities | | (Won) | 2,871,186 | | | (Won) | 2,585,875 | | | (Won) | 2,657,350 | | | (Won) | 2,031,871 | | Non-current liabilities | | | 8,274,862 | | | | 7,267,158 | | | | 1,282,719 | | | | 1,658,402 | | | | | | | | | | | | | | | | | | | Total liabilities | | | 11,146,048 | | | | 9,853,033 | | | | 3,940,069 | | | | 3,690,273 | | | | | | | | | | | | | | | | | | | Total equity | | | 8,407,109 | | | | 8,831,889 | | | | 4,308,497 | | | | 4,365,849 | | | | | | | | | | | | | | | | | | | Total liabilities and equity | | (Won) | 19,553,157 | | | (Won) | 18,684,922 | | | (Won) | 8,248,566 | | | (Won) | 8,056,122 | | | | | | | | | | | | | | | | | | |
Statements of income
| | | | | | | | | | | | | | | | | | | KT | | | KTF | | (in millions of Korean won) | | For the period from Jan. 1, 2009 to June 1, 2009 | | | For the year ended Dec. 31, 2008 | | | For the period from Jan. 1, 2009 to June 1, 2009 | | | For the year ended Dec. 31, 2008 | | Operating revenues | | (Won) | 4,662,137 | | | (Won) | 11,784,835 | | | (Won) | 3,516,358 | | | (Won) | 8,346,220 | | Operating expenses | | | 4,078,756 | | | | 10,671,446 | | | | 3,131,947 | | | | 7,891,839 | | Non-operating revenues | | | 329,587 | | | | 855,289 | | | | 43,656 | | | | 201,470 | | Non-operating expenses | | | 372,047 | | | | 1,408,633 | | | | 152,858 | | | | 469,496 | | Income tax expense | | | 105,765 | | | | 110,235 | | | | 45,833 | | | | 21,776 | | | | | | | | | | | | | | | | | | | Net income | | (Won) | 435,156 | | | (Won) | 449,810 | | | (Won) | 229,376 | | | (Won) | 164,579 | | | | | | | | | | | | | | | | | | |
37. Adoption of K-IFRS
The Controlling Company plans to prepare its financial statements in accordance with K-IFRS starting from the year ending December 31, 2011. Since “the Roadmap to K-IFRS Adoption” has been announced in March 2007, the Controlling Company organized a task force team, conducted training, and analyzed the impact of the adoption of K-IFRS. The Controlling Company has analyzed the key differences and potential impact on financial statements.
Significant differences between the accounting policies chosen by the Controlling Company under K-IFRS and under current generally accepted accounting principles in the Republic of Korean (K-GAAP) are as follows:
| | | | | | | | | | | K-IFRS | | K-GAAP | First time adoption of K-IFRS | | Business combination | | Not applying IFRS 3 retrospectively to a past business combination | | Not available | | Fair value or revaluation as deemed cost | | Recognition of fair value in its opening IFRS statement of financial position as deemed cost for an item of property and equipment | | Not available | | Borrowing costs | | Capitalization of borrowing costs for qualifying assets acquired after the date of transition (January 1, 2010) | | Not available | | Decommissioning liabilities included in the cost of property, plant and equipment | | Regarding changes in a decommissioning, restoration or similar liability to be added to or deducted from the cost of the asset to which it relates, the Company had not applied the requirements under IFRS for changes in such liabilities that occurred before the date of transition to IFRS(January 1, 2010). | | Not available | | Transfers of Assets from Customers | | A first-time adopter may apply the transitional provisions set out in paragraph 22 of K-IFRS 2118‘Transfers of Assets from Customers’,which provides accounting guidance for the items including cash and property received from the customers that must be used to provide those customers with the related service. In that paragraph, reference to the effective date shall be interpreted as 1 July 2009 or the date of transition to K-IFRS, whichever is later. In addition, a first-time adopter may designate any date before the date of transition to IFRS and apply K-IFRS 2118 to all transfers of assets from customers received on or after that date. | | Not available | Initiation fee revenue
| | The amount of Initiation fee is deferred and recognized as a part of service revenue over the period during which the service is performed. | | The total amount of initiation fee is recognized as revenue when the fee is paid | Real estate revenue
| | According to revenue recognition arising from the sale of goods, real estate revenue is recognized at the time of the transfer of the legal title. | | Considered as a construction contract, the real estate revenue is recognized on a percentage of completion basis. | Customer Loyalty Programmes
| | The sales transaction in which they are granted is allocated to the separately identifiable component. The revenue is deferred and recognized as earned. | | The amount of future obligation is recognized as an expense and liability provision at the time of the sale transaction. | Change in scope of consolidated financial statements | | Regardless of size of each subsidiary, consolidated financial statements shall include all entities controlled by the parent. | | According to “the Act on External Audit of Stock Companies”, Section 1 paragraph 3 item 2, consolidated financial statement shall include all subsidiaries except for the entities of which the total assets as of prior year end were less than(Won)10 billion | Capitalization of borrowing costs | | An entity shall capitalize borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, acquired after the date of transition, as part of the cost of that asset. | | All borrowing costs are recognized as expense. |
| | | | | | | K-IFRS | | K-GAAP | Transfer of financial assets
| | Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. | | Transfers of financial assets must satisfy the control criteria for the transferred financial assets to be derecognized. | Employee benefits
| | For the employees who elect the defined benefit plan, the defined benefit obligations are measured using actuarial method. For the others, the accrued expenses are recognized using actuarial method. | | Accrued employee benefits represent the amount which would be payable assuming all eligible employees and directors were to terminate their employment as of the date of statement of financial position. The other employee benefits are recognized when obligations to pay the benefits are determined. | Goodwill
| | Goodwill is not amortized, but impairment test is performed annually at the year-end of reporting period, and a bargain purchase is recognized in profit or loss on the acquisition date. | | Goodwill recognized at the business combination is amortized using the straight-line method. Negative goodwill(a bargain purchase) is reversed as income when actual loss occurs, or during the period of weighted average useful life of amortizable assets on the straight-line method basis. | Deferred tax
| | Deferred tax assets or liabilities on investments in subsidiaries and associates are recognized by reflecting the tax consequences of each temporary difference.
An entity shall classify all deferred tax assets and liabilities as non-current.
| | Deferred tax assets or liabilities on investments in subsidiaries and associates are recognized by the net amount of temporary differences from each investment.
An entity classifies deferred tax assets and liabilities as current or non-current according to the period in which the temporary differences are reversed.
|
38. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements of the Company are prepared in accordance with generally accepted accounting principles in the Republic of Korea (“Korean GAAP”), which differs in certain significant respects from generally accepted accounting principles in the United States of America (“U.S. GAAP”). Application of U.S. GAAP would have affected the consolidated financial position of the company and subsidiaries as of December 31, 2010 and 2009 and the related consolidated net income for the three years ended December 31, 2010, 2009 and 2008 to the extent described below.
A description of the significant differences between Korean GAAP and U.S. GAAP as they relate to the Company are discussed in detail below.
(a) Reconciliation of Net Income from Korean GAAP to U.S. GAAP
| | | | | | | | | | | | | | | (in millions of Korean won) | | Note reference | | 2010 | | | 2009 | | | 2008 | | Net income in accordance with Korean GAAP | | | | (Won) | 1,192,542 | | | (Won) | 609,695 | | | (Won) | 513,290 | | Adjustments: | | | | | | | | | | | | | | | Goodwill impairment | | 38 (e) | | | — | | | | (1,132 | ) | | | (13,948 | ) | Equity in income of affiliates: | | | | | | | | | | | | | | | Reversal of amortization of goodwill | | 38 (e) | | | 93,391 | | | | 140,169 | | | | 166,422 | | Impairment loss relating to affiliates | | 38 (e) | | | — | | | | — | | | | (9,466 | ) | Additional acquisitions of affiliates | | 38 (g) | | | 3,094 | | | | (23,282 | ) | | | 6,351 | | Intangible assets | | 38 (h) | | | (14,764 | ) | | | (14,819 | ) | | | (14,329 | ) | Property and equipment | | 38 (i) | | | (52,811 | ) | | | (44,999 | ) | | | (114,744 | ) | Interest capitalization (including related depreciation), net | | 38 (j) | | | (1,750 | ) | | | (7,238 | ) | | | (2,128 | ) | Service installation fees | | 38 (k) | | | 18,783 | | | | 232,505 | | | | 5,865 | | Deferred income tax—methodology difference | | 38 (l) | | | (10,496 | ) | | | (6,357 | ) | | | 4,275 | | Deferred income tax effects of U.S. GAAP adjustments | | 38 (l) | | | 13,008 | | | | (34,698 | ) | | | (15,228 | ) | Capitalized foreign exchange transactions, net | | 38 (m) | | | (299 | ) | | | 6,473 | | | | 880 | | Loan Impairment | | 38 (f) | | | (22,450 | ) | | | — | | | | — | | Miscellaneous accounts | | 38 (l) | | | (7,773 | ) | | | (16,707 | ) | | | 35,230 | | Noncontrolling interest income | | 38 (c) and others | | | (14,335 | ) | | | 1,015 | | | | 10,953 | | | | | | | | | | | | | | | | | | | | | | 3,598 | | | (Won) | 230,930 | | | (Won) | 60,133 | | | | | | | | | | | | | | | | | Net income as adjusted in accordance with U.S. GAAP | | | | (Won) | 1,196,140 | | | (Won) | 840,625 | | | (Won) | 573,423 | | | | | | | | | | | | | | | | | Net income attributable to stockholders | | | | (Won) | 1,185,918 | | | (Won) | 741,921 | | | (Won) | 518,245 | | Net income attributable to noncontrolling interest | | | | (Won) | 10,222 | | | (Won) | 98,704 | | | (Won) | 55,178 | | | | | | | | | | | | | | | | |
(b) Reconciliation of Total Equity from Korean GAAP to U.S. GAAP
| | | | | | | | | | | (in millions of Korean won) | | Note reference | | 2010 | | | 2009 | | Total equity in accordance with Korean GAAP | | | | (Won) | 11,495,672 | | | (Won) | 10,667,439 | | Adjustments: | | | | | | | | | | | Goodwill impairment | | 38 (e) | | | (28,027 | ) | | | (28,027 | ) | Equity in earnings of affiliates: | | | | | | | | | | | Reversal of goodwill amortization | | 38 (e) | | | 1,235,977 | | | | 1,152,896 | | Impairment loss relating to affiliates | | 38 (e) | | | (1,471,474 | ) | | | (1,471,474 | ) | Additional acquisitions of affiliates | | 38 (g) | | | 767,105 | | | | 764,011 | | Different useful life of intangibles | | 38 (h) | | | 111,631 | | | | 111,631 | | Intangible assets | | 38 (h) | | | 9,098 | | | | 23,862 | | Accumulated depreciation | | 38 (i) | | | (722,575 | ) | | | (669,764 | ) | Interest capitalization, net | | 38 (j) | | | 56,706 | | | | 58,456 | | Service installation fees | | 38 (k) | | | (224,465 | ) | | | (243,248 | ) | Deferred tax—methodology difference | | 38 (l) | | | 16,011 | | | | 26,507 | | Deferred tax effects of U.S. GAAP adjustments | | 38 (l) | | | 169,751 | | | | 179,986 | | Capitalized foreign exchange transactions, net | | 38 (m) | | | 3,158 | | | | 3,457 | | Loan Impairment | | 38 (f) | | | (22,450 | ) | | | — | | Miscellaneous accounts | | 38 (l) | | | 8,277 | | | | 16,105 | | Noncontrolling interest | | 38 (c) and others | | | (304,242 | ) | | | (135,393 | ) | | | | | | | | | | | | | | | | | (395,519 | ) | | | (210,995 | ) | | | | | | | | | | | | Total equity as adjusted in accordance with U.S. GAAP | | | | (Won) | 11,100,153 | | | (Won) | 10,456,444 | | | | | | | | | | | | | Stockholders’ equity | | | | (Won) | 10,929,157 | | | (Won) | 10,287,594 | | Noncontrolling interest | | | | (Won) | 170,996 | | | (Won) | 168,850 | | | | | | | | | | | | |
(c) Companies Included in Consolidation
Under Korean GAAP, all majority-owned subsidiaries and entities of which the Company or a controlled subsidiary owns more than 30% of total outstanding voting stock and is the largest stockholder are consolidated. However, U.S. GAAP generally requires that majority-owned subsidiaries be consolidated and that an entity in which the Company has significant influence, generally including those in which it owns 20-50% of total outstanding voting stock, should not be consolidated; rather that entity should be accounted for under the equity method of accounting.
The following table shows the Company’s percentage of ownership and carrying value of each of its affiliates that are excluded from consolidation under U.S. GAAP and instead are accounted for under the equity method (in millions of Korean won):
| | | | | | | | | | | | | | | | | | | | | | | | | | | Percentage of ownership (%) | | | Carrying value | | Entity | | 2010 | | | 2009 | | | 2008 | | | 2010 | | | 2009 | | | 2008 | | Listed : | | | | | | | | | | | | | | | | | | | | | | | | | KTSM | | | 36.9 | | | | 36.9 | | | | 36.9 | | | (Won) | 25,497 | | | (Won) | 14,775 | | | (Won) | 11,072 | | KT Music (formerly, “KTF Music Corporation”) | | | 48.7 | | | | 35.3 | | | | 35.3 | | | (Won) | 16,008 | | | (Won) | 21,899 | | | (Won) | 18,705 | | Unlisted : | | | | | | | | | | | | | | | | | | | | | | | | | Olivenine | | | — | | | | — | | | | 19.5 | | | (Won) | — | | | (Won) | — | | | (Won) | 2,769 | | KTP | | | 44.9 | | | | 44.9 | | | | 44.9 | | | (Won) | 43,515 | | | (Won) | 37,430 | | | (Won) | 31,633 | | SFNH BF-(1) | | | 43.3 | | | | 43.3 | | | | 43.3 | | | (Won) | 6,645 | | | (Won) | 6,660 | | | (Won) | 10,505 | | KTR Co., Ltd. | | | 58.0 | | | | — | | | | — | | | (Won) | 19,627 | | | (Won) | — | | | (Won) | — | | KT Rental | | | 58.0 | | | | — | | | | — | | | (Won) | 165,724 | | | (Won) | — | | | (Won) | — | | KT-LIG ACE Private Equity Fund | | | 9.0 | | | | — | | | | — | | | (Won) | 4,882 | | | (Won) | — | | | (Won) | — | | Vanguard Private Equity Fund | | | 28.1 | | | | 16.1 | | | | — | | | (Won) | 5,155 | | | (Won) | 5,650 | | | (Won) | — | | Doremi Media(*1) | | | — | | | | 64.2 | | | | 64.2 | | | (Won) | — | | | (Won) | — | | | (Won) | — | |
(*1) | Disposed during 2010. Prior to disposal, it was consolidated by KT Music |
The quoted market values (based on closing KOSDAQ prices) of KTSM and KT Music shares held by the Company are(Won)33,229 million and(Won)39,279 million as of December 31, 2010, respectively.
Presented below is the summarized combined financial information of those entities that are consolidated under Korean GAAP but not for U.S. GAAP, prepared in accordance with Korean GAAP as of December 31, 2010 and 2009, and for each of the three years in the period ended December 31, 2010:
| | | | | | | | | (in millions of Korean won) | | 2010 | | | 2009 | | Current assets | | (Won) | 439,409 | | | (Won) | 175,096 | | Non-current assets | | | 1,183,498 | | | | 160,738 | | | | | | | | | | | Total assets | | | 1,622,907 | | | | 335,834 | | | | | | | | | | | Current liabilities | | | 403,857 | | | | 87,964 | | Non-current liabilities | | | 648,157 | | | | 41,404 | | | | | | | | | | | Total liabilities | | | 1,052,014 | | | | 129,368 | | | | | | | | | | | Net assets | | (Won) | 570,893 | | | (Won) | 206,466 | | | | | | | | | | |
| | | | | | | | | | | | | | | 2010 | | | 2009 | | | 2008 | | Operating revenues | | (Won) | 646,069 | | | (Won) | 232,746 | | | (Won) | 272,407 | | Operating income | | (Won) | 63,402 | | | (Won) | 224,110 | | | (Won) | 268,978 | | Net income | | (Won) | 32,149 | | | (Won) | 7,203 | | | (Won) | (15,551 | ) | | | | | | | 2010 | | | 2009 | | | 2008 | | Net cash provided by operating activities | | (Won) | 168,399 | | | (Won) | 62,018 | | | (Won) | 30,172 | | Net cash used in investing activities | | | (209,374 | ) | | | (31,534 | ) | | | (53,271 | ) | Net cash provided by (used in) financing activities | | | 47,909 | | | | (21,502 | ) | | | (2,546 | ) | Effect of changes in consolidated entities | | | (2,418 | ) | | | 20,580 | | | | — | | | | | | | | | | | | | | | Net increase (decrease) in cash and cash equivalents | | | 4,516 | | | | 29,562 | | | | (25,645 | ) | Cash and cash equivalents at beginning of the year | | | 71,448 | | | | 19,046 | | | | 47,185 | | | | | | | | | | | | | | | Cash and cash equivalents at end of the year | | (Won) | 75,964 | | | (Won) | 48,608 | | | (Won) | 21,540 | | | | | | | | | | | | | | |
Condensed consolidated balance sheets as of December 31, 2010 and 2009 and condensed consolidated statements of cash flows of the Company under U.S GAAP for the three years in the period ended December 31, 2010 are presented in Note 38(u).
(d) Debt and Equity Securities
Under Korean GAAP, non-marketable securities classified as available-for-sale securities are carried at cost or fair value if applicable with unrealized holding gains and losses reported as a capital adjustment, net of tax. For U.S. GAAP purposes, investment in non-marketable equity securities are accounted for under the cost method or the equity method of accounting in accordance with ASC Topic 323 “Investments Equity Method and Joint Ventures” and ASC Topic 325 “Investments Other.”
Under Korean GAAP, available-for-sale securities, whose likelihood of being disposed within one year from the balance sheet date is probable, are classified as current. Under U.S. GAAP, when the disposition of available-for-sale securities within one year is reasonably expected, available-for-sale securities are classified as current.
For U.S. GAAP purposes, the Company accounts for marketable equity and debt investments under the provisions of ASC Topic 320 “Debt and Equity Securities.” This guidance requires that marketable equity securities and all debt securities be classified in three categories and accounted for as follows:
Debt securities that the enterprise has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost.
Debt and equity securities that are bought and held principally for the purpose of selling in the short term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings.
Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders’ equity until realized.
Information under U.S. GAAP with respect to investments under ASC Topic 320 at December 31, 2010 and 2009 are as follows:
| | | | | | | | | | | | | | | | | | | 2010 | | (in millions of Korean won) | | Cost or amortized cost | | | Gross unrealized holding gains | | | Gross unrealized holding losses | | | Fair value | | Equity securities (available-for-sale) | | (Won) | 24,352 | | | (Won) | 12,202 | | | (Won) | (879 | ) | | (Won) | 35,672 | | Debt securities (available-for-sale) | | | 9,313 | | | | 69 | | | | — | | | | 9,382 | | | | | | | | | | | | | | | | | | | | | (Won) | 33,665 | | | (Won) | 12,271 | | | (Won) | (879 | ) | | (Won) | 45,057 | | | | | | | | | | | | | | | | | | | | | | | 2009 | | | | Cost or amortized cost | | | Gross unrealized holding gains | | | Gross unrealized holding losses | | | Fair value | | Equity securities (available-for-sale) | | (Won) | 18,726 | | | (Won) | 7,484 | | | (Won) | (104 | ) | | (Won) | 26,106 | | Debt securities (available-for-sale) | | | 4,877 | | | | 420 | | | | — | | | | 5,297 | | | | | | | | | | | | | | | | | | | | | (Won) | 23,603 | | | (Won) | 7,904 | | | (Won) | (104 | ) | | (Won) | 31,403 | | | | | | | | | | | | | | | | | | |
The proceeds from sales of available-for-sale securities were(Won)6,148 million in 2010,(Won)6,833 million in 2009 and 614,405 million in 2008. The realized gains on those sales were(Won)274 million in 2010,(Won)1,716 million in 2009 and(Won)5,587 million in 2008. The average-cost method is used to calculate gains or losses from the sale of available-for-sale securities.
Under Korean GAAP, when the subsequent recoveries of impaired available-for-sale securities and held-to-maturity securities result in an increase of their carrying amount, the recovery gains are reported in current operations up to the previously recognized impairment loss as reversal of loss on impairment of investment securities.
Under U.S. GAAP, the subsequent increase in carrying amount of the impaired and written down held-to-maturity securities is not allowed. The subsequent increase in fair value of available-for-sale securities is reported in other comprehensive income.
(e) Goodwill Impairment including Investor-level Goodwill
Under Korean GAAP, goodwill, which represents the excess of the acquisition cost over the fair value of net identifiable assets acquired, is amortized on a straight-line basis over its estimated economic useful life not exceeding 20 years. When it is no longer probable that goodwill will be recovered from expected future economic benefits, it is expensed immediately. Also, for investments in affiliated companies accounted for using the equity method, the excess of acquisition cost of the affiliates over the Company’s share of their net assets at the acquisition date is amortized by the straight-line method over its estimated useful life.
Under U.S. GAAP, goodwill and indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually. In accordance with ASC Topic 350, “Intangibles-Goodwill and Other”, goodwill is tested for impairment on an annual basis by comparing the fair value of the Company’s reporting units to their carrying amounts. The investor-level goodwill is tested for impairment in accordance with ASC Topic 323. The investor-level goodwill, which is recorded only at the investor’s financial statements, represents the excess of the acquisition cost of equity method investees over the fair value of investor’s share of net identifiable assets acquired.
The changes in the carrying amount of goodwill which is recorded in the Personal Customer Group for the years ended December 31, 2009 and 2010 are as follows (in millions of Korean won):
| | | | | Balance as of January 1, 2009
| | (Won) | 538,132 | | Goodwill acquired during the year
| | | — | | Balance as of December 31, 2009
| | | 538,132 | | Goodwill acquired during the year
| | | — | | Balance as of December 31, 2010
| | (Won) | 538,132 | |
(f) Loan Impairment
KT Capital Inc., a subsidiary of KT Corporation, estimates the allowances for the doubtful loan receivables based on the forward looking criteria (“FLC’), which is the regulatory guideline for assessing the collectability of the receivables applicable to the financial institutes in Korea, as permitted under Korean GAAP.
However, under U.S. GAAP, the impairment on the loans receivable is recorded when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement.
(g) Additional Equity Investments in and Transactions of Subsidiaries
Under Korean GAAP, subsequent to acquiring a controlling financial interest in a subsidiary, additional equity investments by the Company in a subsidiaries stock and other equity transactions of subsidiaries are accounted for assuming such transactions occur as of the date of audited or reviewed financial statements of the acquired subsidiary closest to the date of acquisition. In addition, the difference between the Company’s cost of the acquired additional interest and the corresponding share of stockholders’ equity of the acquired subsidiary is presented as an adjustment to capital surplus.
Under U.S. GAAP, such equity investments in and transactions of affiliates and subsidiaries are recorded and accounted for as of the date the transaction occurs. As a result, the Company has a different basis in its equity investments in the subsidiaries under Korean GAAP as compared to U.S. GAAP. Therefore, any gains or losses recorded by the Company (which are recorded as capital transactions in stockholders’ equity) when an equity investee sells shares of its stock will be different under U.S. GAAP as compared to Korean GAAP. In addition, prior to the fiscal year beginning on or after December 15, 2008, under U.S. GAAP, the cost of an additional equity interest would be allocated based on the fair value of net tangible and identifiable assets acquired and liabilities assumed, with the excess allocated to goodwill.
(h) Intangible Assets
Under Korean GAAP, the frequency usage right related to the second generation (“2G”) paid by the initial stockholders to obtain the operating licenses prior to the establishment of KTM.Com Co., Ltd. (“KTM”), which was merged into KTF in 2001, was not recognized as an intangible asset in applying purchase accounting of KTM by KT in 2000.
Under U.S. GAAP, the 2G frequency usage right was considered as indefinite lived intangible asset and thus in the process of purchase accounting of KTM, KT recognized the frequency usage right at fair value. However, on December 31, 2005, the Korea Communication Act (“Act”) was revised effective July 1, 2006. Under the revised Act, the frequency usage right of 2G will expire by June 2011. Thus, the Company amortizes the frequency usage right of 2G over the remaining useful life under U.S. GAAP beginning from the year ended December 31, 2006.
In addition, the frequency usage right related to the third generation (“3G”) acquired in 2000 has been accounted for in the same manner under Korean GAAP and U.S. GAAP.
Identifiable intangible assets determined in accordance with U.S. GAAP as of December 31, 2010 and 2009 are presented below.
| | | | | | | | | | | | | | | 2010 | | (In millions of Korean won) | | Gross carrying amount | | | Accumulated amortization | | | Net amount | | Amortizable intangible assets: | | | | | | | | | | | | | Internal-use software | �� | (Won) | 1,316,036 | | | (Won) | 807,422 | | | (Won) | 508,614 | | Frequency usage rights | | | 1,464,821 | | | | 858,668 | | | | 606,153 | | Buildings and facility utilization rights | | | 164,277 | | | | 93,836 | | | | 70,441 | | Other | | | 317,506 | | | | 291,823 | | | | 25,683 | | | | | | | | | | | | | | | Total | | (Won) | 3,262,640 | | | (Won) | 2,051,749 | | | (Won) | 1,210,891 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 2009 | | (In millions of Korean won) | | Gross carrying amount | | | Accumulated amortization | | | Net amount | | Amortizable intangible assets: | | | | | | | | | | | | | Internal-use software | | (Won) | 1,070,786 | | | (Won) | 686,739 | | | (Won) | 384,047 | | Frequency usage rights | | | 1,465,990 | | | | 726,088 | | | | 739,902 | | Buildings and facility utilization rights | | | 130,179 | | | | 85,702 | | | | 44,477 | | Other | | | 316,586 | | | | 251,834 | | | | 64,752 | | | | | | | | | | | | | | | Total | | (Won) | 2,983,541 | | | (Won) | 1,750,363 | | | (Won) | 1,233,178 | | | | | | | | | | | | | | |
| | | | | Amortization expense:
| | | | | For the year ended December 31, 2010
| | (Won) | 304,811million | | For the year ended December 31, 2009
| | | 314,102 million | | For the year ended December 31, 2008
| | | 306,000 million | |
Estimated amortization expense (in millions of Korean won):
| | | | | Year ending December 31, | | | | 2011 | | (Won) | 288,798 | | 2012 | | | 235,224 | | 2013 | | | 190,792 | | 2014 | | | 144,876 | | 2015 | | | 129,133 | | Thereafter | | | 222,067 | |
The weighted-average amortization period of total amortized intangible assets, internal-use software, frequency usage rights and utilization rights are 9 years, 6 years, 11 years and 20 years, respectively. The Company has no identifiable intangible assets that are not subject to amortization.
(i) Depreciation
In 1995, KT adopted a method of depreciation, as allowed under Korean GAAP, whereby property and equipment placed in service at any time during the first half of the year received a full year of depreciation expense, and property and equipment placed in service at any time during the
second half of the year received one-half year of depreciation. Also, as permitted under Korean GAAP, depreciation of these assets was based on lives which are shorter than their economic useful lives. In 1996, KT adopted the policy, also acceptable under Korean GAAP, whereby property and equipment is depreciated from the actual date it is placed in service, while continuing to use useful lives which are shorter than the economic useful lives of such assets. In 1998, under Korean GAAP, as required under a ruling by the National Tax Service (which is also applicable under Korean GAAP), the Company changed the estimated useful lives of certain assets, including underground access to cable tunnels and concrete and steel telephone poles acquired after 1995, from 6 years to periods ranging from 20 years to 40 years, and changed the depreciation method from the declining-balance method to the straight-line method.
In 1999, under Korean GAAP, the Company changed its depreciation method for buildings and structures acquired before December 31, 1994, from the declining-balance method to the straight-line method in order to be consistent with the method applied to buildings and structures acquired after January 1, 1995.
Under U.S. GAAP, property and equipment is generally depreciated over its estimated useful life in a systematic and rational manner. In addition, the depreciation method in the year of acquisition based on the Company’s in-service dates for its capital additions in 1995 described above, does not comply with U.S. GAAP in that significant depreciation expense is recognized prior to the actual use of the asset. The change in estimated useful lives in 1998, and the changes in 1998 and 1999 from the declining-balance method to the straight-line method would also not be appropriate under U.S. GAAP. Accordingly, adjustments have been reflected for U.S. GAAP purposes for the effect of each of these items.
Under U.S. GAAP, property and equipment is depreciated by using the declining-balance method except for the assets of certain subsidiaries, buildings and structures acquired in 1995 and thereafter which are depreciated using the straight-line method.
Under U.S. GAAP, the useful lives of property and equipment are summarized as follows:
| | | | | | | Estimated Useful Lives | | Buildings and structures
| | | 5-60 years | | Underground access to cable tunnels, and concrete and steel telephone poles
| | | 10-40 years | | Machinery and equipment
| | | 3-15 years | | Vehicles
| | | 3-10 years | | Tools, furniture and fixtures:
| | | | | Steel safe boxes
| | | 20 years | | Tools, computer equipment, furniture and fixtures
| | | 2-8 years | |
(j) Interest Capitalization
Under Korean GAAP, prior to January 1, 2003, interest was capitalized on borrowings related to the construction of all property and equipment and IMT-2000 frequency usage right, incurred prior to completing the acquisition, as part of the cost of such assets. Effective January 1, 2003, Korean GAAP was revised to allow a company to charge such interest expense to current operations. For Korean GAAP purpose, the Company adopted in 2003 the accounting policy not to capitalize such financing costs prospectively.
Under U.S. GAAP, interest costs related to certain assets that are routinely manufactured or otherwise produced in large quantities on a regular basis are not in the scope of interest capitalization. In addition, interest is capitalized in the amount that would have theoretically been avoided had expenditures not been made for assets which require a period of time to get them ready for their intended use.
Under U.S. GAAP, details of interest capitalization for the years ended December 31, 2010, 2009 and 2008 are as follows (in millions of Korean won):
| | | | | | | | | | | | | | | 2010 | | | 2009 | | | 2008 | | Total interest costs incurred | | (Won) | 519,021 | | | (Won) | 512,309 | | | (Won) | 471,816 | | Interest capitalized | | | 16,886 | | | | 8,330 | | | | 15,376 | | Amounts charged to expense | | (Won) | 502,135 | | | (Won) | 503,979 | | | (Won) | 456,440 | |
(k) Revenue Recognition
Under Korean GAAP, non-refundable service installation fees for telephone and initial subscription fees for PCS and leased-line services are recognized as revenue when installation and initiation services are rendered.
Under U.S. GAAP, service installation fees and initial subscription fees related to activation of service are deferred and recognized as revenue over the expected terms of customer relationships. In 2009, due to a change in the market condition the Company changed the estimate of the expected terms of customer relationships of telephone, PCS, and leased-line service from 15 years to 11 years, from 4 years to 2 years and from 3 years to 6 years, respectively. The change in the estimated expected terms of customer relationships is accounted for as a change in accounting estimate on a prospective basis effective January 1, 2009 under the accounting standard related to change in accounting estimates. As a result, net income for the year ended December 31, 2009 increased by(Won)153 billion.
Under Korean GAAP, handset subsidy paid by the Company is accounted for as expenses. However, under U.S. GAAP, the handset subsidy is treated as reduction of revenue in accordance with ASC Topic 605, “Revenue Recognition.”
Under Korean GAAP, the sales of the certain real estate are accounted for as the revenue and the costs of the related real estate are recorded as the cost of sales under certain circumstances permitted under Korean GAAP. However, under U.S. GAAP, gains and losses from the sale of the property used for operation are required to be recorded as a component of operating income in net of the proceeds from the sale and the related costs.
(l) Income Taxes
Under Korean GAAP, recognition of deferred income tax benefit from equity in losses of affiliates requires realization of the benefit within the near future, which is interpreted to mean within 5 years. The Company does not believe it is probable to realize such benefit within 5 years.
Under U.S. GAAP, deferred income tax assets are recognized for an excess of the tax basis over the amount for financial reporting of domestic and foreign investments accounted for on the equity method (except for corporate joint ventures). However, deferred income tax assets related to consolidated subsidiaries are recognized only if it is apparent that the temporary difference will reverse in the foreseeable future.
Under Korean GAAP, in accordance with SKAS No. 16, effective from January 1, 2005, the Company did not recognize deferred income tax liabilities related to equity in gains of affiliates when it 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.
Under U.S. GAAP, deferred income tax liabilities are fully recognized for an excess of the amount for financial reporting over the tax basis of an investment in domestic subsidiaries and corporate joint ventures, unless the investment in the subsidiary can be recovered tax-free under local
tax laws and management expects that it will ultimately use that means. However, deferred income tax liabilities are not recognized in an investment in a more than 50 percent-owned foreign subsidiary or foreign corporate joint venture that is essentially permanent in duration.
Under U.S. GAAP, on January 1, 2007, the Company adopted accounting guidance which clarifies the accounting guidance for uncertainties in income taxes. The guidance requires that the tax effect(s) of a position be recognized only if it is “more-likely-than-not” to be sustained based solely on its technical merits as of the reporting date. The more-likely-than-not threshold represents a positive assertion by management that a company is entitled to the economic benefits of a tax position. If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, no benefits of the tax position are to be recognized. The more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit. With the adoption of the accounting guidance, companies are required to adjust their financial statements to reflect only those tax positions that are more-likely-than-not to be sustained.
(m) Foreign Currency Transactions
Under Korean GAAP, prior to January 1, 2003, all unrealized foreign currency translation gains and losses on monetary assets and liabilities, except for amounts included in the cost of property and equipment, were included in the results of operations. Effective January 1, 2003 the Company adopted SKAS No. 7, “Capitalization of Financing Costs”. As allowed by the standard, the Company elected to include all unrealized foreign currency translation gains and losses (including property and equipment) in the results of operations.
Under U.S. GAAP, all foreign exchange transaction gains and losses (referred to as translation gains and losses under Korean GAAP) are included in the results of operations for the current period and therefore, the amounts included in property and equipment and related depreciation expense under Korean GAAP are reversed.
Under Korean GAAP, the convertible notes denominated in a foreign currency are regarded as non-monetary liabilities since they have equity-like characteristics, and the Company does not recognize the associated foreign currency translation gain and loss.
Under U.S. GAAP, the convertible notes denominated in a foreign currency are translated at the rate of exchange on the balance sheet date, and the resulting foreign currency transaction gain and loss is included in the results of operations.
(n) Noncontrolling Interest
Under Korean GAAP, minority interest in consolidated subsidiaries, which is noncontrolling interest under US GAAP, is presented as a separate component of equity in the consolidated balance sheet.
Under U.S. GAAP, as described in Note 38 (r) in 2009 the Company retrospectively adopted the presentation and disclosure provisions of new accounting guidance on a noncontrolling interest in its consolidated financial statements, which required noncontrolling interest to be presented as a separate component of equity in the consolidated financial statements as well as modified the presentation of net income and other comprehensive income to be attributed to controlling and noncontrolling interest. Consequently, there is no GAAP difference any longer in terms of presentation of noncontrolling interest in the consolidated financial statements except for terminology.
(o) Other
Korean GAAP requires gains and losses from the sale of property and equipment, impairment write-downs and other bad debt expenses to be included as part of non-operating income (expense). Under U.S. GAAP, gains and losses from the sale of property and equipment, impairment write-downs and other bad debt expenses are required to be recorded as a component of operating income.
Under Korean GAAP, purchase of treasury stock is regarded as temporary and does not impact the ownership percentages of stockholders unless there is an explicit purpose of retirement of the repurchased shares in accordance with resolution of board of directors or stockholders’ meeting. Under U.S. GAAP, purchase of treasury stock results in a change of an entity’s ownership structure and ownership percentages of stockholders.
(p) Comprehensive Income
Prior to January 1, 2007, Korean GAAP did not require the presentation of comprehensive income, however, effective January 1, 2007, the Company adopted SKAS No. 21, “Preparation and Presentation of Financial Statements 1”, which requires separate disclosure of the details of comprehensive income. Consequently, there is no GAAP difference any longer in terms of disclosure of comprehensive income and its components.
Under U.S. GAAP, comprehensive income and its components must be presented in the financial statements. Comprehensive income includes all changes in total equity during a period except those resulting from investments by, or distributions to, owners, including certain items not included in the current results of operations.
Comprehensive income for the years ended December 31, 2010, 2009 and 2008 is summarized as follows (in millions of Korean won):
| | | | | | | | | | | | | | | 2010 | | | 2009 | | | 2008 | | Attributable to stockholders : | | | | | | | | | | | | | Net income as attributable to stockholdersadjusted in accordance with U.S. GAAP | | (Won) | 1,185,918 | | | (Won) | 741,921 | | | (Won) | 518,245 | | Other comprehensive income, net of tax : | | | | | | | | | | | | | Foreign currency translation adjustments | | | (13,018 | ) | | | (19,389 | ) | | | 16,921 | | Unrealized gains on investments : | | | | | | | | | | | | | Unrealized holding gains (losses), net of tax of(Won)(3,739) million,(Won)384 million and(Won) (1,907) million in 2010, 2009 and 2008, respectively | | | (13,257 | ) | | | 1,362 | | | | (6,762 | ) | Reclassification adjustment for losses realized in net earnings due to disposal, net of tax of(Won)88 million,(Won)378 million and(Won)687 million in 2010, 2009 and 2008, respectively | | | 274 | | | | 1,388 | | | | 2,436 | | losses on valuation of derivatives for cash flow hedge, net of tax of(Won)(9,915) million,(Won)(5,840) million and(Won)(1,297) million in 2010, 2009 and 2008, respectively | | | (35,153 | ) | | | (20,705 | ) | | | (4,598 | ) | | | | | | | | | | | | | | Comprehensive income as adjusted in accordance with U.S. GAAP | | | 1,124,764 | | | | 704,577 | | | | 526,242 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 2010 | | | 2009 | | | 2008 | | Attributable to noncontrolling interest : | | | | | | | | | | | | | Net income as adjusted in accordance with U.S. GAAP | | | 10,222 | | | | 98,704 | | | | 55,178 | | Other comprehensive income, net of tax : | | | | | | | | | | | | | Foreign currency translation adjustments | | | (3,295 | ) | | | (7,910 | ) | | | 8,418 | | Others | | | 146 | | | | (2,938 | ) | | | (8,183 | ) | | | | | | | | | | | | | | Comprehensive income as adjusted in accordance with U.S. GAAP | | | 7,073 | | | | 87,856 | | | | 55,413 | | | | | | | | | | | | | | | Total Comprehensive Income | | (Won) | 1,131,837 | | | (Won) | 792,433 | | | (Won) | 581,655 | | | | | | | | | | | | | | |
(q) Statements of Cash Flows
Statements of cash flows under Korean GAAP include the cash flows of KTSM, KTP, SFNH BF-(1), KT Music (formerly, “KTF Music Corporation”), KTR Co., Ltd, KT Rental, KT-LIG ACE Private Equity Fund, Vanguard Private Equity Fund and Doremi Media, which are accounted for under the equity method under U.S. GAAP.
Under Korean GAAP, cash flows from contributions that are restricted for the purposes of constructing assets are included in investing activities. For U.S. GAAP purposes, those cash flows are included in financing activities. In addition, under Korean GAAP cash flows from initial consolidation or deconsolidation of a subsidiary is presented as a separate line whereas for U.S. GAAP purposes, it is categorized as investing activities net of cash paid or received.
(r) Significant Recent Accounting Pronouncements
(i) | In June 2009, the FASB amended the consolidation rules related to Variable Interest Entities (“VIEs”). The new rules expand the primary beneficiary analysis to incorporate a qualitative review of which entity controls and directs the activities of the VIE. The amendments also modify the rules regarding the frequency of ongoing reassessments of whether a company is the primary beneficiary. Under the revised guidance, companies are required to perform ongoing reassessments as opposed to only when certain triggering events occur, as was previously required. This guidance is effective in 2010 and there is no material impact on the consolidated financial statements. |
(ii) | In October 2009, the FASB issued ASU 2009-13 “Multiple-Deliverable Revenue Arrangements.” The update addresses how revenues should be allocated among all products and services included in sales arrangements. It establishes a selling price hierarchy for determining the selling price of each product or service, with vendor-specific objective evidence (“VSOE”) at the highest level, third-party evidence of selling price at the intermediate level, and a best estimate of the selling price at the lowest level. It replaces “fair value” with “selling price” in revenue allocation guidance, eliminates the residual method as an acceptable allocation method, and requires the use of the relative selling price method as the basis for allocation. It also significantly expands the disclosure requirements for such arrangements, including, potentially, certain qualitative disclosures. ASU 2009-13 will be effective prospectively for sales entered into or materially modified in fiscal years beginning on or after June 15, 2010. The FASB permits early adoption of ASU 2009-13, applied retrospectively, to the beginning of the year of adoption. The Company has not early adopted the accounting standard in 2010. |
(iii) | In October 2009, the FASB issued ASU 2009-14 “Certain Revenue Arrangements That Include Software Elements.” The update clarifies the guidance for allocating and measuring revenue, including how to identify software that is out of the scope. The update also amends accounting and reporting guidance for revenue arrangements involving both tangible products and software that is “more than incidental to the tangible product as a whole.” That type of software and hardware will be outside of the scope of software revenue guidance, and the hardware components will also be outside of the scope of software revenue guidance and may result in more revenue recognized at the time of the hardware sale. Additional disclosures will discuss allocation of revenue to products and services in sales arrangements and the significant judgments applied in the revenue allocation method, including impacts on the timing and amount of revenue recognition. ASU 2009-14 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. ASU 2009-14 has the same effective date, including early adoption provisions, as ASU 2009-13. The Company has not early adopted the accounting standard in 2010. |
(iv) | In December 2009, the FASB issued ASU 2009-16 “Transfers and Servicing.” This update removes the concept of a qualifying special-purpose entity (“QSPE”) and creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale. To determine if a transfer is to be accounted for as a sale, the transferor must assess whether it and all of the entities included in its consolidated financial statements have surrendered control of the assets. This standard is effective from January 1, 2010, with adoption applied prospectively for transfers that occur on and after the effective date. The elimination of the QSPE concept requires to retrospectively assess all current off-balance sheet QSPE structures for consolidation under ASC Topic 810, “Consolidation,” and record a cumulative-effect adjustment to retained earnings for any consolidation change. Retrospective application of ASU 2009-16, specially the QSPE removal, is being assessed as part of the analysis required from ASU 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” Refer to the section below for further information related to ASU 2009-17. |
(v) | In January 2010, the FASB amended the disclosure guidance related to fair value measurements. The amended disclosure guidance requires new fair value measurement disclosures and clarifies existing fair value measurement disclosure requirements. The amended disclosure guidance related to disclosures about purchases, sales, issuances and settlements of Level 3 instruments will be effective for fiscal years beginning after December 15, 2010. The remaining amended disclosure guidance will be effective for annual reporting periods beginning after December 15, 2009. The Company adopted the guidance in 2010 with no material impact on the consolidated financial statements. |
(vi) | In January 2010, the FASB issued authoritative guidance for improving disclosures about fair value measurements, which requires new and amended disclosure requirements for classes of assets and liabilities, inputs and valuation techniques and transfers between levels of fair value measurements and accounting for distributions to shareholders with components of stock and cash, which clarifies the accounting for distributions to shareholders that offer them the ability to elect to receive their entire distribution in cash or shares of equivalent value. The Company adopted the guidance in 2010 with no material impact on the consolidated financial statements. |
(vii) | The FASB issued ASU 2010-09 on February 24, 2010 to amend ASC 855, Subsequent Events to address certain implementation issues. The amendments remove the requirement for an SEC filer to disclose a date in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. Additionally, it has clarified that if the financial statements have been revised, then an entity that is not an SEC filer should disclose both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued. That amendment is effective for interim or annual periods ending after June 15, 2010. The Company adopted the standard in 2010 with no material impact on the consolidated financial statements. |
(viii) | The FASB issued ASU 2010-20 on July 21, 2010 to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. This amendment is intended to provide additional information to assist financial statement users in assessing and entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The Company adopted the standard in 2010 and accordingly, disclosed the additional information related to credit risk. |
(s) Income per Share
The following table sets forth the computation of basic and diluted income per share attributable to stockholders for the years ended December 31, 2010, 2009 and 2008:
| | | | | | | | | | | | | | | | | | | | | | | | | | | 2010 | | | 2009 | | | 2008 | | | | Diluted | | | Basic | | | Diluted | | | Basic | | | Diluted | | | Basic | | CONSOLIDATED (in millions of Korean won) | | | | | | | | | | | | | | | | | | | | | | | | | Net income from continuing operations | | (Won) | 1,185,918 | | | (Won) | 1,185,918 | | | (Won) | 746,849 | | | (Won) | 742,454 | | | (Won) | 521,692 | | | (Won) | 521,692 | | Net income (loss) from discontinued operations | | | — | | | | — | | | | (533 | ) | | | (533 | ) | | | (3,447 | ) | | | (3,447 | ) | Net income | | (Won) | 1,185,918 | | | (Won) | 1,185,918 | | | (Won) | 746,316 | | | (Won) | 741,921 | | | (Won) | 518,245 | | | (Won) | 518,245 | | AVERAGE EQUIVALENT SHARES | | | | | | | | | | | | | | | | | | | | | | | | | Shares of common stock outstanding | | | 243,207,149 | | | | 243,207,149 | | | | 219,512,696 | | | | 219,512,696 | | | | 202,891,015 | | | | 202,891,015 | | Dilutive effect of exchangeable bond | | | — | | | | — | | | | 4,655,062 | | | | — | | | | — | | | | — | | Dilutive effect of stock option and grant | | | 18,081 | | | | — | | | | — | | | | — | | | | — | | | | — | | Total average equivalent shares | | | 243,225,230 | | | | 243,207,149 | | | | 224,167,758 | | | | 219,512,696 | | | | 202,891,015 | | | | 202,891,015 | | PER SHARE AMOUNTS (in Korean won) | | | | | | | | | | | | | | | | | | | | | | | | | Net income from continuing operations | | (Won) | 4,876 | | | (Won) | 4,876 | | | (Won) | 3,332 | | | (Won) | 3,382 | | | (Won) | 2,571 | | | (Won) | 2,571 | | Net income (loss) from discontinued operations | | | — | | | | — | | | | (2 | ) | | | (2 | ) | | | (17 | ) | | | (17 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Net income per share | | (Won) | 4,876 | | | (Won) | 4,876 | | | (Won) | 3,330 | | | (Won) | 3,380 | | | (Won) | 2,554 | | | (Won) | 2,554 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic income per share is computed on the basis of the weighted-average number of common stock outstanding. Diluted income per share is computed on the basis of the weighted-average number of common stock outstanding plus the effect of outstanding exchangeable bonds, stock option and other stock compensation using the “if-exchanged method” and the “treasury stock” method if dilutive. The denominator of the diluted income per share computation is adjusted to include the number of additional common stock that would have been outstanding had the dilutive potential common stock been issued at the beginning of the period or since issued. In addition, the numerator is adjusted to include the after-tax amount of interest and foreign currency translation gain (loss) recognized associated with the exchangeable bonds. 43,153 shares, 365,832 shares and 417,785 shares of stock options outstanding as of December 31, 2010, 2009 and 2008, respectively, were not considered when calculating dilutive income per share because the exercise price of the stock options was greater than the average market price of the shares and, therefore the effect would have been antidilutive.
(t) Condensed Consolidated U.S. GAAP Financial Information
Condensed consolidated balance sheets in accordance with U.S. GAAP as of December 31, 2010 and 2009 are presented as follows (in millions of Korean won):
| | | | | | | | | | | 2010 | | | 2009 | | Current assets | | | | | | | | | Accounts receivable—trade | | (Won) | 3,744,375 | | | (Won) | 3,596,936 | | Other current assets | | | 3,996,880 | | | | 4,232,602 | | | | | | | | | | | Total current assets | | | 7,741,255 | | | | 7,829,538 | | Investments | | | 870,456 | | | | 463,701 | | Property and equipment, net | | | 13,681,924 | | | | 14,040,901 | | Goodwill | | | 560,808 | | | | 560,834 | | Other assets | | | 3,748,335 | | | | 3,630,526 | | | | | | | | | | | Total assets | | (Won) | 26,602,778 | | | (Won) | 26,525,500 | | | | | | | | | | | Current liabilities | | | | | | | | | Accounts payable—trade | | (Won) | 1,492,008 | | | (Won) | 1,478,667 | | Other current liabilities | | | 5,664,760 | | | | 5,505,811 | | | | | | | | | | | Total current liabilities | | | 7,156,768 | | | | 6,984,478 | | Long-term debt, excluding current portion | | | 6,719,071 | | | | 7,515,257 | | Other long-term liabilities | | | 1,626,786 | | | | 1,569,321 | | | | | | | | | | | Total liabilities | | | 15,502,625 | | | | 16,069,056 | | | | | | | | | | | Stockholders’ equity | | | 10,929,157 | | | | 10,287,594 | | Noncontrolling interest | | | 170,996 | | | | 168,850 | | Total equity | | | 11,100,153 | | | | 10,456,444 | | | | | | | | | | | Total liabilities and equity | | (Won) | 26,602,778 | | | (Won) | 26,525,500 | | | | | | | | | | |
Condensed consolidated statements of cash flows in accordance with U.S. GAAP for the years ended December 31, 2010, 2009 and 2008 are set out below (in millions of Korean won):
| | | | | | | | | | | | | | | 2010 | | | 2009 | | | 2008 | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | Net income | | (Won) | 1,196,140 | | | (Won) | 840,625 | | | (Won) | 573,423 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | Depreciation and amortization | | | 3,112,991 | | | | 3,287,343 | | | | 3,663,037 | | Provision for doubtful accounts | | | 191,009 | | | | 91,863 | | | | 139,441 | | Loss on disposal of property and equipment | | | 79,845 | | | | 118,925 | | | | 89,734 | | Equity in loss of associates | | | (91,239 | ) | | | (81,078 | ) | | | (164,336 | ) | Deferred income tax benefit | | | 17,922 | | | | (20,522 | ) | | | (115,337 | ) | Gain on disposition of available-for-sale securities, net | | | (356 | ) | | | (1,716 | ) | | | (5,587 | ) | Impairment losses of equity method affiliates | | | — | | | | — | | | | 22,058 | | Foreign currency translation loss (gain), net | | | (32,793 | ) | | | (245,748 | ) | | | 753,592 | | Loss (Gain) on settlement and valuation of derivatives, net | | | 7,576 | | | | 172,717 | | | | (649,360 | ) | Changes in assets and liabilities related to operating activities: | | | | | | | | | | | | | Notes and accounts receivable | | | (101,763 | ) | | | (620,909 | ) | | | (161,287 | ) | Inventories | | | (6,900 | ) | | | (287,367 | ) | | | (142,512 | ) | Advance payments | | | (59,995 | ) | | | (20,687 | ) | | | (2,795 | ) | Notes and long-term accounts receivable | | | (773,393 | ) | | | (533,925 | ) | | | (654,248 | ) | Accounts payable | | | 36,639 | | | | 1,612,516 | | | | (423,619 | ) | Advance receipts | | | (24,370 | ) | | | 52,707 | | | | 19,783 | | Income taxes payable | | | 298,990 | | | | (169,092 | ) | | | (153,173 | ) | Prepaid expenses | | | (4,704 | ) | | | (19,915 | ) | | | (44,291 | ) | Withholdings | | | 64,825 | | | | (129,912 | ) | | | 26,404 | | Accrued expenses | | | 77,837 | | | | (39,298 | ) | | | 24,904 | | Refundable deposits for telephone installation | | | (80,581 | ) | | | (85,129 | ) | | | (59,437 | ) | Payment of severance indemnities | | | (1,002,871 | ) | | | (214,965 | ) | | | 140,352 | | Deposits for severance indemnities | | | 281,576 | | | | 49,861 | | | | (148,822 | ) | Other, net | | | (164,804 | ) | | | (418,286 | ) | | | 160,633 | | | | | | | | | | | | | | | Net Cash Provided by Operating Activities | | | 3,021,581 | | | | 3,338,008 | | | | 2,888,557 | | | | | | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | Acquisition of property and equipment | | | (3,019,378 | ) | | | (2,759,777 | ) | | | (3,322,381 | ) | Disposal of property and equipment | | | 27,109 | | | | 69,777 | | | | 53,606 | | Decrease (increase) in short-term financial instruments, net | | | 252,216 | | | | (39,287 | ) | | | 209,474 | | Disposal of available-for-sale securities | | | 6,148 | | | | 6,833 | | | | 614,405 | | Proceeds from the sale of equity method investments | | | 56,260 | | | | 1,322 | | | | 1,047 | | Collection of held-to-maturity securities | | | — | | | | 14,093 | | | | 5 | | Acquisition of available-for-sale securities | | | (88,980 | ) | | | (79,847 | ) | | | (692,289 | ) | Acquisition of equity method investment securities | | | (86,798 | ) | | | (18,191 | ) | | | (123,171 | ) | Acquisition of held-to-maturity securities | | | — | | | | (5 | ) | | | (13,988 | ) | Acquisition of assets and liabilities of consolidated subsidiaries | | | (39,689 | ) | | | 37,580 | | | | (5,619 | ) | Acquisition of intangible assets | | | (348,736 | ) | | | (209,644 | ) | | | (181,937 | ) | Other, net | | | (35,001 | ) | | | 159,391 | | | | (41,422 | ) | | | | | | | | | | | | | | Net Cash Used in Investing Activities | | | (3,276,849 | ) | | | (2,817,755 | ) | | | (3,502,270 | ) | | | | | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | Payment of dividends | | | (493,156 | ) | | | (228,332 | ) | | | (408,242 | ) | Increase in short-term borrowings | | | 257,263 | | | | 101,395 | | | | 55,440 | | Repayment of long-term borrowings and current portion of long-term debt | | | (1,534,873 | ) | | | (1,431,343 | ) | | | (2,121,831 | ) | Increase in long-term borrowings | | | 1,610,833 | | | | 1,498,630 | | | | 3,735,500 | | Acquisition of treasury stock | | | (54 | ) | | | (528,143 | ) | | | (73,807 | ) | Outflows from capital transactions of consolidated entities | | | 9,576 | | | | (276,388 | ) | | | (110,917 | ) | Other, net | | | 33,550 | | | | (37,542 | ) | | | 70,702 | | | | | | | | | | | | | | | Net Cash Provided by (Used in) Financing Activities | | | (116,861 | ) | | | (901,723 | ) | | | 1,146,845 | | | | | | | | | | | | | | | NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | (372,130 | ) | | | (381,470 | ) | | | 533,132 | | CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR | | | 1,489,514 | | | | 1,870,984 | | | | 1,337,852 | | | | | | | | | | | | | | | CASH AND CASH EQUIVALENTS AT END OF THE YEAR | | (Won) | 1,117,384 | | | (Won) | 1,489,514 | | | (Won) | 1,870,984 | | | | | | | | | | | | | | | Supplemental schedule: | | | | | | | | | | | | | Cash paid for interest (net of amounts capitalized) | | (Won) | 462,560 | | | (Won) | 498,299 | | | (Won) | 406,485 | | Cash paid for income taxes | | (Won) | 134,649 | | | (Won) | 274,302 | | | (Won) | 453,532 | |
39. ADDITIONAL U.S. GAAP DISCLOSURES
(a) Income Tax Expense
The components of income tax expense for the years ended December 31, 2010, 2009 and 2008 are as follows (in millions of Korean won):
| | | | | | | | | | | | | | | 2010 | | | 2009 | | | 2008 | | Current income tax expense | | (Won) | 331,010 | | | (Won) | 138,194 | | | (Won) | 293,512 | | Deferred income tax benefit | | | 43,020 | | | | (20,522 | ) | | | (115,337 | ) | | | | | | | | | | | | | | Income tax expense | | (Won) | 374,030 | | | (Won) | 117,672 | | | (Won) | 178,175 | | | | | | | | | | | | | | |
Substantially all income before income taxes and related income tax expense (benefit) are attributable to domestic operations. The provision for income taxes using statutory tax rates differs from the actual provision for the years ended December 31, 2010, 2009 and 2008 for the following reasons (in millions of Korean won):
| | | | | | | | | | | | | | | 2010 | | | 2009 | | | 2008 | | Provision for income taxes at statutory tax rates | | (Won) | 379,955 | | | (Won) | 232,025 | | | (Won) | 207,625 | | Tax credits | | | (54,578 | ) | | | (110,825 | ) | | | (197,492 | ) | Additional income tax payment (refund) related to prior year | | | 8,208 | | | | 12,692 | | | | (4,716 | ) | Non-temporary difference | | | 12,553 | | | | 15,985 | | | | 24,863 | | Changes in deferred income tax unrecognized | | | 17,642 | | | | (35,338 | ) | | | (65 | ) | Tax rate changes | | | 6,922 | | | | 3,421 | | | | 142,437 | | Others | | | 3,328 | | | | (288 | ) | | | 5,523 | | | | | | | | | | | | | | | Actual provision for income taxes | | (Won) | 374,030 | | | (Won) | 117,672 | | | (Won) | 178,175 | | | | | | | | | | | | | | |
The effective tax rates after adjustments of certain differences between amounts reported for financial accounting and income tax purpose, were approximately 23.8%,12.3% and 23.6% for the years ended December 31, 2010, 2009 and 2008, respectively.
The tax effects of temporary differences that resulted in significant portions of the deferred income tax assets and liabilities at December 31, 2010 and 2009, computed under U.S. GAAP, and a description of financial statement items that created these differences are as follows (in millions of Korean won):
| | | | | | | | | | | 2010 | | | 2009 | | Deferred income tax assets: | | | | | | | | | Allowance for doubtful accounts | | (Won) | 132,099 | | | (Won) | 122,873 | | Refundable deposits for telephone installation | | | 9,283 | | | | 9,609 | | Investment securities | | | 8,495 | | | | 9,154 | | Inventories | | | 1,416 | | | | 1,174 | | Property and equipment | | | 181,393 | | | | 156,079 | | Unearned revenue | | | 50,989 | | | | 55,121 | | Equity method investment securities | | | 2,923 | | | | 23,737 | | Tax credit carryforwards | | | 88,794 | | | | 169,122 | | Tax loss carryforwards | | | 60,999 | | | | 61,882 | | Accrued expenses | | | 87,997 | | | | 33,918 | | Other | | | 238,774 | | | | 266,453 | | | | | | | | | | | Total deferred income tax assets | | | 863,162 | | | | 909,122 | | | | | | | | | | | Valuation allowance | | | (144,858 | ) | | | (88,229 | ) | | | | | | | | | | Deferred income tax assets | | | 718,304 | | | | 820,893 | | | | | | | | | | | Deferred income tax liabilities: | | | | | | | | | Equity method investment securities | | | — | | | | (47,623 | ) | Accrued interest income | | | (818 | ) | | | (1,855 | ) | | | | | | | | | | Deferred income tax liabilities | | | (818 | ) | | | (49,478 | ) | | | | | | | | | | Net deferred income tax assets | | (Won) | 717,486 | | | (Won) | 771,415 | | | | | | | | | | |
In 2010 and 2009, valuation allowances were recognized by certain subsidiaries as realization of deferred income tax asset was not assessed as more likely than not mainly due to lack of expected future taxable income.
In 2010, the Company was eligible for tax credits of(Won)257,331 million. However, due to the minimum tax provisions, the Company utilized only(Won)150,720 million. The remaining tax credit will expire in 2015. During 2010, the Company concluded that the remaining tax credits was more likely than not of realization in the future based on future taxable income estimates. As a result, the Company recorded an income tax benefit of(Won)88,794 million of the tax credit. The tax loss carryforwards of(Won)266,147 million as of December 31, 2010 will expire through 2020. During 2010, certain subsidiaries including KT Tech did not recognize deferred income tax assets amounting to(Won)57,620 million which resulted from the tax effects of tax loss carryforwards of(Won)261,909 million in excess of taxable differences and future taxable income. The valuation allowances reflect the uncertainty surrounding the Company’s ability to generate sufficient future taxable income in certain tax jurisdictions to utilize its net operating losses and the Company’s ability to generate sufficient capital gains to utilize all capital losses.
In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and tax carryforwards are utilizable. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible or utilized, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the valuation allowance recorded at December 31, 2010 and 2009. The amount of the deferred income tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.
The amount of unrecognized tax benefits that would favorably affect the effective income tax rate was(Won)5,761 million and ((Won)25,872) million for the years ended December 31, 2010 and 2009, respectively. The liability for uncertain tax positions is classified as a non-current liability in accordance with the guidance.
A reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period is as follows (in millions of Korean won):
| | | | | | | | | | | | | | | 2010 | | | 2009 | | | 2008 | | Balance at January 1, | | (Won) | (1,618 | ) | | (Won) | 4,252 | | | (Won) | 6,450 | | Additions to tax positions recorded during the current year | | | 6,281 | | | | (5,293 | ) | | | 573 | | Additions to tax positions recorded during prior years | | | 605 | | | | 347 | | | | 268 | | Reductions to tax positions recorded during prior years | | | (602 | ) | | | (360 | ) | | | (226 | ) | Reductions for settlement | | | — | | | | (564 | ) | | | (2,813 | ) | | | | | | | | | | | | | | Balance at December 31, | | (Won) | 4,666 | | | (Won) | (1,618 | ) | | (Won) | 4,252 | | | | | | | | | | | | | | |
The Company’s practice is to classify interest on uncertain tax positions in non-operating expense whereas penalties are classified in income tax expense. The Company recognized(Won)605 million and(Won)347 million in penalties for the years ended December 31, 2010 and 2009, respectively. As of December 31, 2010 and 2009, the Company had(Won)1,514 million and(Won)909 million accrued for the payment of penalties.
The Company has open tax years ranging from 2006 to 2010, by which its taxes remain subject to examination. However, the Company does not anticipate that the total amount of unrecognized tax benefits will significantly change in the next 12 months.
(b) Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). GAAP establishes a valuation hierarchy for prioritizing the inputs and the hierarchy places greater emphasis on the use of observable market inputs and less emphasis on unobservable inputs. When determining fair value, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of the hierarchy are as follows: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Following is a description of the valuation methodologies the Company used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.
(i) Recurring Fair Value
Securities
The Company classifies its securities within Level 1 of the valuation hierarchy where quoted prices are available in an active market.
Derivatives
The Company generally classifies derivatives within Level 2 of the valuation hierarchy. The derivative financial instruments consist of cross currency interest rate swap and forward. The cross currency interest swaps and forward are valued using valuation models that use as their basis readily observable market inputs, such as time value, forward interest rates, volatility factors and current and forward market prices for foreign currency.
The following fair value hierarchy table presents information regarding the assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 and 2009, respectively (in millions of Korean won):
| | | | | | | | | | | | | | | | | | | 2010 | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | ASSETS | | | | | | | | | | | | | | | | | Securities | | | | | | | | | | | | | | | | | • Beneficiary certificates | | (Won) | 67,826 | | | (Won) | — | | | (Won) | — | | | (Won) | 67,826 | | • Trading securities | | | 2,000 | | | | — | | | | — | | | | 2,000 | | • Available-for-sale securities | | | 20,121 | | | | — | | | | — | | | | 20,121 | | • Held-to-maturity securities | | | — | | | | 7 | | | | — | | | | 7 | | Derivative instruments assets : | | | | | | | | | | | | | | | | | • Interest rate swap | | | — | | | | 1,213 | | | | — | | | | 1,213 | | • Currency swap | | | — | | | | 34,193 | | | | — | | | | 34,193 | | • Combined interest rate currency swap | | | — | | | | 212,388 | | | | — | | | | 212,388 | | • Currency forwards | | | — | | | | 136 | | | | — | | | | 136 | | | | | | | | | | | | | | | | | | | Total | | (Won) | 89,947 | | | (Won) | 247,937 | | | (Won) | — | | | (Won) | 337,884 | | | | | | | | | | | | | | | | | | | LIABILITIES | | | | | | | | | | | | | | | | | Derivative instruments liabilities : | | | | | | | | | | | | | | | | | • Interest rate swap | | | — | | | | 214 | | | | — | | | | 214 | | • Currency swap | | | — | | | | 6,560 | | | | — | | | | 6,560 | | • Combined interest rate currency swap | | | — | | | | 13,277 | | | | — | | | | 13,277 | | • Currency forwards | | | — | | | | 420 | | | | — | | | | 420 | | | | | | | | | | | | | | | | | | | Total | | (Won) | — | | | (Won) | 20,471 | | | (Won) | — | | | (Won) | 20,471 | | | | | | | | | | | | | | | | | | | | | | | 2009 | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | ASSETS | | | | | | | | | | | | | | | | | Securities | | | | | | | | | | | | | | | | | • Beneficiary certificates | | (Won) | 84,199 | | | (Won) | — | | | (Won) | — | | | (Won) | 84,199 | | • Trading securities | | | 15,470 | | | | — | | | | — | | | | 15,470 | | • Available-for-sale securities | | | 31,403 | | | | — | | | | — | | | | 31,403 | | • Held-to-maturity securities | | | — | | | | 82 | | | | — | | | | 82 | | Derivative instruments assets : | | | | | | | | | | | | | | | | | • Interest rate swap | | | — | | | | 23 | | | | — | | | | 23 | | • Currency swap | | | — | | | | 47,547 | | | | — | | | | 47,547 | | • Combined interest rate currency swap | | | — | | | | 417,731 | | | | — | | | | 417,731 | | • Currency forwards | | | — | | | | 288 | | | | — | | | | 288 | | | | | | | | | | | | | | | | | | | Total | | (Won) | 131,072 | | | (Won) | 465,671 | | | (Won) | — | | | (Won) | 596,743 | | | | | | | | | | | | | | | | | | | LIABILITIES | | | | | | | | | | | | | | | | | Derivative instruments liabilities : | | | | | | | | | | | | | | | | | • Interest rate swap | | | — | | | | 5,775 | | | | — | | | | 5,775 | | • Currency swap | | | — | | | | 3,781 | | | | — | | | | 3,781 | | • Currency forwards | | | — | | | | 1,723 | | | | — | | | | 1,723 | | | | | | | | | | | | | | | | | | | Total | | (Won) | — | | | (Won) | 11,279 | | | (Won) | — | | | (Won) | 11,279 | | | | | | | | | | | | | | | | | | |
(ii) Non-recurring Fair Value
In 2009, the Company adopted the provisions of the authoritative guidance on fair value measurements for nonfinancial assets and nonfinancial liabilities that the Company does not recognize or disclose at fair value on a recurring basis (at least annually). These include reporting units measured at fair value in a goodwill impairment test, other nonfinancial assets or liabilities measured at fair value for impairment testing, and nonfinancial assets acquired and liabilities assumed in a business combination. In connection with the adoption of this guidance the Company analyzed and evaluated
them to determine whether nonfinancial assets and liabilities had any evidences of impairment. As a result of the evaluation, the Company noted that it currently does not have significant non-financial assets or non-financial liabilities that are required to be measured at fair value on a non-recurring basis.
(c) Fair Value of Financial Instruments
The following method and assumptions were used to estimate the fair value of each significant class of financial instrument for which it was practicable to estimate such value:
(i) Cash and cash equivalents, short-term financial instruments, accounts receivable, accounts payable and short-term borrowings
The carrying amount approximates fair value due to the short-term maturity of these instruments and credit risk.
(ii) Loans to employees
The carrying amount of short-term loans approximates fair value due to the short term maturities of these loans. The fair value of long-term loans is estimated based on discounted cash flows using current rates offered for loans of the similar remaining maturities.
(iii) Long-term debt
The fair value of the long-term debt, including current portion, is estimated based on quoted market prices for the same or similar issues or on the current rates offered for debt of the same remaining maturities.
The estimated fair values of the Company’s significant financial instruments at December 31, 2010 and 2009 are summarized as follows (in millions of Korean won):
| | | | | | | | | | | | | | | | | | | 2010 | | | 2009 | | | | Carrying amount | | | Fair value | | | Carrying amount | | | Fair value | | Cash and cash equivalents | | (Won) | 1,124,810 | | | (Won) | 1,124,810 | | | (Won) | 1,489,674 | | | (Won) | 1,489,674 | | Short-term financial instruments | | | 67,826 | | | | 67,826 | | | | 84,199 | | | | 84,199 | | Notes and accounts receivable | | | 4,282,543 | | | | 4,282,543 | | | | 4,082,386 | | | | 4,082,386 | | Loans to employees | | | 5,093 | | | | 4,727 | | | | 53,020 | | | | 52,801 | | Accounts payable | | | 1,492,019 | | | | 1,492,019 | | | | 1,479,812 | | | | 1,479,812 | | Short-term borrowings | | | 436,160 | | | | 436,160 | | | | 358,205 | | | | 358,205 | | Long-term debt, including current portion | | | 8,924,843 | | | | 8,827,137 | | | | 9,219,764 | | | | 9,154,905 | |
(d) Accrued Severance Indemnities
The Company expects to pay the following future benefits to its employees upon their normal retirement age (in millions of Korean won):
| | | | | Year ending December 31, | | | | 2011 | | (Won) | 3,224 | | 2012 | | | 2,937 | | 2013 | | | 5,952 | | 2014 | | | 16,317 | | 2015 | | | 45,783 | | 2016-2020 | | | 395,467 | |
(e) Loan Receivables
Loan receivables by type as of December 31, 2010, are as follows:
| | | | | | | | | | | | | | | | | 2010 | | (in millions of Korean won) | | | | Original Amount | | | Allowance for doubtful accounts | | | Carrying Value | | Loans receivable | | Factoring receivables | | (Won) | 35,737 | | | (Won) | (647 | ) | | (Won) | 35,090 | | | | Loans | | | 1,021,702 | | | | (27,934 | ) | | | 993,768 | | | | Accounts receivable-loans | | | 13,307 | | | | (2,402 | ) | | | 10,905 | | Loan for installment credit | | Loans for installment credit | | | 54,364 | | | | (2,573 | ) | | | 51,791 | | | | Accounts receivable-loans for installment credit | | | 528 | | | | (82 | ) | | | 446 | | Loan for new technology | | New technology financial investment assets | | | 3,984 | | | | (1,124 | ) | | | 2,860 | | | | New technology financial loans | | | 10,786 | | | | (181 | ) | | | 10,605 | | | | | | | | | | | | | | | | | | | Total | | (Won) | 1,140,408 | | | (Won) | (34,943 | ) | | (Won) | 1,105,465 | | | | | | | | | | | | | | | | |
The Company provides the allowance for the doubtful accounts for overdue receivables based on the aging analysis, historical bad debt experience and other relevant factors.
The aging analysis of loans receivables as of December 31, 2010,2013, is as follows:
| | | | | (in millionsType of Korean won)control
| | 2010Related parties
| | CurrentAssociates and jointly controlled entities
| | Korea Information & Technology Investment Fund, WiBro Infra Co., Ltd.,(Won)K-REALTY CR REIT 1, KTCS Corporation, KTIS Corporation, Mongolian Telecommunications,KT-SB | 1,066,046 | Venture Investment Fund, Company K Movie Asset Fund No.1, Boston Global Film & Contents Fund L.P., Metropol Property LLC, KTF-CJ Music Contents Investment, QTT Global (Group) Company Limited, Korea Telephone Directory Co., Ltd., CU Industrial Development Co., Ltd., MOS Facilities Co., Ltd., Exdell Corporation, Information Technology Solution Bukbu Corporation, Information Technology Solution Nambu Corporation, Information Technology Solution Seobu Corporation, Information Technology Solution Busan Corporation, Information Technology Solution Jungbu Corporation, Information Technology Solution Honam Corporation, Information Technology Solution Daegu Corporation, VANGUARD Private Equity Fund, KT-LIG ACE Private Equity Fund, Smart Channel Co., Ltd., HooH Healthcare Inc., KD Living, Inc., ChungHo EZ-Cash Co., Ltd., JNK Retech Co., Ltd., Harex Info Tech Inc., Boston Film Fund, KT-DoCoMo Mobile Investment Fund, MOS GS Co., Ltd., MOS Daegu Co., Ltd., MOS Chungcheong Co., Ltd., MOS Gangnam Co., Ltd., MOS GB Co., Ltd., MOS BS Co., Ltd., MOS Honam Co., Ltd., ANIMAX BROADCASTING KOREA Co., Ltd., SPERA Private Equity Fund, QCP New Technology Investment Fund No. 20, KT-IMM Investment Fund, Mirae Asset Good Company Investment Fund No.3, 2010 KIF-IMM IT Investment Fund, Saehacoms Co., Ltd., Oscar Ent. Co., Ltd., KoFC KTC-ORIX Korea-Japan Partnership Private Equity Fund II, Texno Pro Sistem, East Telecom Networks LLC, Hyundai Swiss Smartmall Private Special Asset Investment Trust, KT-CKP New Media Investment Fund, KT-Michigan Global Contents Fund, SP1 Private Equity Fund, LoginD Co., Ltd., Tosster Media Co., Ltd. | |
Past due but not impaired
| | | | |