| • | | 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 Convergence.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 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 52.554.7 million and the number of broadband Internet access subscribers in Korea was 17.918.7 million as of December 31, 2011.2013. As of December 31, 2011,2013, 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 107.2%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 102.8%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 and SK Telecom 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, | | | | 2007 | | 2008 | | 2009 | | 2010 | | 2011 | | | 2009 | | 2010 | | 2011 | | 2012 | | 2013 | | Total Korean Population(1) | | | 48,457 | | | | 48,607 | | | | 48,747 | | | | 48,875 | | | | 48,989 | | | | 49,773 | | | | 50,516 | | | | 50,734 | | | | 50,948 | | | | 51,141 | | Mobile Subscribers(2) | | | 43,498 | | | | 45,607 | | | | 47,944 | | | | 50,767 | | | | 52,507 | | | | 47,944 | | | | 50,767 | | | | 52,507 | | | | 53,624 | | | | 54,681 | | Mobile Subscriber Growth Rate | | | 8.2 | % | | | 4.9 | % | | | 5.1 | % | | | 5.9 | % | | | 3.4 | % | | | 5.1 | % | | | 5.9 | % | | | 3.4 | % | | | 2.1 | % | | | 2.0 | % | Mobile Penetration(3) | | | 89.8 | % | | | 93.8 | % | | | 98.4 | % | | | 103.9 | % | | | 107.2 | % | | | 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 W-CDMA technology and LTE technology. Prior to the merger of KTF into KT Corporation, we provided such services through KTF, which was formerly a consolidated subsidiary. KTF obtained one of the three licenses to provide nationwide PCS2G service in June 1996 and began offering PCS2G service in October 1997. OnIn June 1, 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. We 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.standards. In January 2012, we also began offering 4G LTE services under the brand name “WARP,” following the termination of our 2G PCS services. We completed the expansion of our 4G LTE service coverage to 84 cities throughout Koreanationwide in April 2012.October 2012 and commenced providing wideband LTE services in September 2013, and commercialized Wideband LTE-A services in March 2014, as discussed above. Revenues related to mobile service accounted for 31.0%27.9% of our operating revenues in 2011.In2013. In addition, our goods sold, which are primarily from mobile handset sales, accounted for 19.9%16.9% of our operating revenues in 2011.2013. 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, | | | | 2010 | | | 2011 | | | 2011 | | | 2012 | | | 2013 | | Outgoing Minutes (in millions) | | | 34,570 | | | | 36,102 | | | | 36,102 | | | | 34,520 | | | | 34,164 | | Average Monthly Outgoing Minutes per Subscriber (1) | | | 184 | | | | 184 | | | | 183 | | | | 174 | | | | 182 | | Average Monthly Revenue per Subscriber(2) | | (Won) | 36,801 | | | (Won) | 34,379 | | | ₩ | 34,379 | | | ₩ | 33,519 | | | ₩ | 35,236 | | Number of Subscribers (in thousands) | | | 16,041 | | | | 16,563 | | | | 16,563 | | | | 16,502 | | | | 16,454 | |
(1) | 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. |
(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, 2011,2013, we had approximately 16.5 million subscribers, or a market share of 31.5%30.1%, which was second largest among the three mobile service providers. We market our mobile services primarily through independent exclusive dealers located throughout Korea. As of December 31, 2011,2013, 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 17.3%12.4% of our operating revenues in 2011.2013. 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, | | | | 2007 | | | 2008 | | | 2009 | | | 2010 | | | 2011 | | | 2009 | | | 2010 | | | 2011 | | | 2012 | | | 2013 | | Total Korean population (thousands)(1) | | | 48,457 | | | | 48,607 | | | | 48,747 | | | | 48,875 | | | | 48,989 | | | | 49,773 | | | | 50,516 | | | | 50,734 | | | | 50,948 | | | | 51,141 | | Lines installed (thousands)(2) | | | 26,671 | | | | 26,008 | | | | 25,907 | | | | 25,524 | | | | 23,925 | | | | 25,907 | | | | 25,524 | | | | 23,925 | | | | 25,242 | | | | 24,264 | | Lines in service (thousands)(2) | | | 19,980 | | | | 18,883 | | | | 17,069 | | | | 16,620 | | | | 15,900 | | | | 17,069 | | | | 16,620 | | | | 15,900 | | | | 15,121 | | | | 14,032 | | Lines in service per 100 inhabitants(3) | | | 41.2 | | | | 38.8 | | | | 35.0 | | | | 34.0 | | | | 30.8 | | | | 34.3 | | | | 32.9 | | | | 31.3 | | | | 29.7 | | | | 27.4 | | Fiber optic cable (kilometers) | | | 267,421 | | | | 312,232 | | | | 405,528 | | | | 448,328 | | | | 527,188 | | | | 405,528 | | | | 448,328 | | | | 527,188 | | | | 584,932 | | | | 636,347 | | Number of public telephones installed (thousands) | | | 185 | | | | 161 | | | | 144 | | | | 123 | | | | 111 | | | | 144 | | | | 123 | | | | 111 | | | | 101 | | | | 94 | | Domestic long-distance call minutes (millions)(4) (5) | | | 13,375 | | | | 11,591 | | | | 9,526 | | | | 7,318 | | | | 6,574 | | | | 9,526 | | | | 7,318 | | | | 6,574 | | | | 6,067 | | | | 4,842 | | Local call pulses (millions)(4) | | | 14,676 | | | | 12,449 | | | | 8,406 | | | | 7,973 | | | | 6,697 | | | | 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. All of our lines 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. 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, 2011:2013: | | | Year Ended December 31, | | | Year Ended December 31, | | | | 2007 | | | 2008 | | | 2009 | | | 2010 | | | 2011 | | | 2009 | | | 2010 | | | 2011 | | | 2012 | | | 2013 | | | | (In millions of billed minutes) | | | (In millions of billed minutes) | | Incoming international long-distance calls | | | 627.4 | | | | 603.7 | | | | 442.2 | | | | 523.5 | | | | 541.6 | | | | 442.2 | | | | 523.5 | | | | 541.6 | | | | 520.3 | | | | 628.4 | | Outgoing international long-distance calls | | | 431.4 | | | | 398.1 | | | | 325.9 | | | | 325.1 | | | | 332.1 | | | | 325.9 | | | | 325.1 | | | | 332.1 | | | | 289.7 | | | | 244.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 1,058.8 | | | | 1,001.8 | | | | 768.1 | | | | 848.7 | | | | 873.6 | | | | 768.1 | | | | 848.6 | | | | 873.7 | | | | 810.0 | | | | 872.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Japan (18.5%(23.2%), China (17.4%(15.3%) and the United States (13.4%(11.5%) accounted for the greatest percentage of our international long-distance call traffic measured in minutes in 2011.2013. 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 3.5%2.3% of our operating revenues in 2011.2013. 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, 2011,2013, we had approximately 3.23.5 million subscribers. Internet Services Broadband Internet Access Service. Leveraging on our nationwide network of 527,188636,347 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 8.5%8.4% of our operating revenues in 2011.2013. 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 100,000114,000 hot-spot zones nationwide for wireless connection as of December 31, 2011;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 5 Mbps per user. We had 7.8approximately 8.1 million fixed-line olleh Internet subscribers and approximately 221 thousand142,000 ollehWiFi service subscribers as of December 31, 2011.We2013.We commercially launched our WiBro service in June 2006, and we had approximately 740,000846,000 subscribers as of December 31, 2011.2013. 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 3.9%4.1% of our operating revenues in 2011.2013. 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 in November 2008. We had 3.14.97 million olleh TV subscribers as of December 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, 2009, 20102011, 2012 and 2011,2013, we leased 366,191286,302 lines, 303,009246,951 lines and 276,147235,147 lines to domestic and international businesses. The data communication service accounted for 5.8%5.0% of our operating revenues in 2011.2013. We provide dedicated and secure broadband Internet connection service to institutional customers under the “Kornet” brand name. We provide high-speed connection up to 5.110.0 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. Satellite ServiceFinancial 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 two satellites, Koreasat 5 and Koreasat 6 (also known as olleh 1), and own interests in two additional satellites, ABS-1Koreasat 7 (also known as ABS-1) and Koreasat 7) and ABS-28 (also known as Koreasat 8)ABS-2). In August 2006, we launched Koreasat 5.5 to replace Koreasat 2 (also known as Mugunghwa 2, launched in 1996 with a design life of 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 fifteen years.15 years, to replace Koreasat 3 (also known as Mugunghwa 3, launched in 1999 with a design life of 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.satellite in order to provide global satellite services. ABS-1 began operationits operations in September 2010 and ABS-2 is under constructionlaunched its operations in February 2014. We sold to ABS the Mugunghwa 2 satellite in May 2010 and is expected to be launched during the first halfMugunghwa 3 satellite in September 2011 for a combined price of 2013. approximatelyMiscellaneous Services₩5 billion, as the satellites had reached the end of their design lives. We also engage in variousIn December 2012, we spun-off our satellite service business activities that extend beyond telephone services and data communications services, including information technology and network services, real estate development, car rental business, satellite TV services, with the consolidation ofby establishing KT Skylife Co. starting in January 2011 and credit card services, with the consolidation of BC CardSat Co., Ltd. starting, in October 2011. Our miscellaneous services accounted for 13.6%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 our operating revenues for 2011.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 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, and established KT 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 also operatemade a contribution in-kind of₩1,254 billion to KT Rental, a subsidiary that provides rental carsEstate Inc. in December 2012 to further strengthen KT Estate’s competitiveness 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(Won)263 billion, with each taking a 50% stake. Kumho Rent-A-Car was subsequently merged with the car rental business unit of KT Rental on June 1, 2010. KT Rental operated approximately 59,600 vehicles as of December 31, 2011 and has a market share of 21.2% of the domestic car rental market in 2011.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 arewere 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(Won)₩246 billion. We exercised the conversion rights on the redeemable convertible preferred stock and the convertible bonds in March 2011, and owned a 50.3%50.1% interest in KT Skylife Co., Ltd. as of December 31, 2011.2013. KT Skylife offers satellite TV services, which may also be packaged with our IP-TV services as further described below, and had consolidated salesoperating revenues of(Won)₩485630 billion and net income of(Won)₩2773 billion for the year ended December 31, 20112013 and consolidated assets of(Won)₩550685 billion and liabilities of(Won)₩258283 billion as of December 31, 2011.2013. To further diversify our business and to create synergies through utilization of our mobile telecommunications network in financial services,In December 2012, we through our subsidiaryalso established KT CapitalMedia Hub Co., Ltd., acquired 1,622,520 additional sharesa subsidiary that specializes in the development of common stockmedia contents, with a cash capital contribution of BC Card Co., Ltd. from Woori Bank₩80 billion. We believe that the media contents business will be a future growth opportunity for approximately(Won)252 billionus, and this subsidiary further enhances our specialization in October 2011. The acquisition increased our ownership interest in BC Card Co., Ltd.the media contents business. It also allows us to 38.86% as of December 31, 2011, and as we were deemed to have control over BC Card Co., Ltd., it became our consolidated subsidiary starting in October 2011. BC Card Co., Ltd.
offers various credit card and related services, and had consolidated sales of(Won)3,150 billion and net income of(Won)106 billion for the year ended December 31, 2011 and consolidated assets of(Won)1,874 billion and liabilities of(Won)1,366 billion as of December 31, 2011. See Note 37better adapt to the Consolidated Financial Statements.rapidly changing market environment in the field.
Revenues and Rates The table below shows the percentage of our revenues derived from each category of services for 2010 and 2011:each of the years from 2011 to 2013: | | | Year Ended December 31, | | | Year Ended December 31, | | | | 2010 | | 2011 | | | 2011 | | 2012 | | 2013 | | Mobile services | | | 34.2 | % | | | 31.0 | % | | | 30.7 | % | | | 26.7 | % | | | 27.9 | % | Fixed-line telephone services: | | | | | | | | | | | Local service | | | 12.6 | | | | 10.4 | | | | 10.3 | | | | 8.2 | | | | 7.7 | | Non-refundable service initiation fees | | | 0.3 | | | | 0.2 | | | | 0.2 | | | | 0.1 | | | | 0.1 | | Domestic long-distance service | | | 2.0 | | | | 1.4 | | | | 1.4 | | | | 1.1 | | | | 0.9 | | International long-distance service | | | 1.8 | | | | 1.8 | | | | 1.8 | | | | 1.6 | | | | 1.4 | | Land-to-mobile interconnection | | | 4.7 | | | | 3.5 | | | | 3.5 | | | | 2.7 | | | | 2.3 | | | | | | | | | | | | | | | | | | Sub-total | | | 21.4 | | | | 17.3 | | | | 17.2 | | | | 13.7 | | | | 12.4 | | | | | | | | | | | | | | | | | | Internet services: | | | | | | | | | | | Broadband Internet access service | | | 9.3 | | | | 8.5 | | | | 8.4 | | | | 8.3 | | | | 8.4 | | Other Internet-related services(1) | | | 3.3 | | | | 3.9 | | | | 3.9 | | | | 3.5 | | | | 4.1 | | | | | | | | | | | | | | | | | | Sub-total | | | 12.7 | | | | 12.4 | | | | 12.3 | | | | 11.8 | | | | 12.5 | | | | | | | | | | | | | | | | | | Goods sold(2) | | | 19.2 | | | | 19.9 | | | | 19.8 | | | | 18.6 | | | | 16.9 | | Data communications service(3) | | | 6.4 | | | | 5.8 | | | | 5.7 | | | | 5.3 | | | | 5.0 | | Miscellaneous services(4) | | | 6.2 | | | | 13.6 | | | 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 | % | | | | | | | | | | | | | | | | |
(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. In 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(Won)₩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 fixedflat rate plans for smart phonesmartphone users (effective October 24, 2011). ForWe 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)₩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) | 11,000 | | SHOW KING Sponsor Gold—Voice 150 (1) | | | 150 | | | | 15 | | | | 27,500 | | SHOW KING Sponsor Gold—Voice 250 (1) | | | 250 | | | | 0 | | | | 34,000 | | SHOW KING Sponsor Gold—Complete Freedom 150 (1) (2) | | | 150 | | | | 15 | | | | 36,000 | | SHOW KING Sponsor Gold—Voice 350 (1) | | | 350 | | | | 0 | | | | 44,000 | | SHOW KING Sponsor Gold—Voice 450 (1) | | | 450 | | | | 0 | | | | 54,000 | | SHOW KING Sponsor Gold—Voice 650 (1) | | | 650 | | | | 0 | | | | 66,000 | | SHOW KING Sponsor Gold—Voice 850 (1) | | | 850 | | | | 0 | | | | 74,000 | | SHOW KING Sponsor Gold—Voice 2000 (1) | | | 2,000 | (3) | | | 0 | | | | 96,000 | |
(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. 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 Voice 150(2) | | | 150 | | | | 0 megabytes | | | (Won) | 27,500 | | SHOW Smart Sponsor Voice 250(2) | | | 250 | | | | 0 | | | | 34,000 | | SHOW Smart Sponsor Voice 350(2) | | | 350 | | | | 0 | | | | 44,000 | | SHOW Smart Sponsor Voice 450(2) | | | 450 | | | | 0 | | | | 54,000 | | SHOW Smart Sponsor Voice 650(2) | | | 650 | | | | 0 | | | | 66,000 | | SHOW Smart Sponsor Voice 850(2) | | | 850 | | | | 0 | | | | 74,000 | | SHOW KING Sponsor i—Slim(3) | | | 150 | | | | 100 | | | | 34,000 | | SHOW KING Sponsor i—Lite(3) | | | 200 | | | | 500 | | | | 44,000 | | SHOW KING Sponsor i—Talk(3) | | | 250 | | | | 100 | | | | 44,000 | | SHOW KING Sponsor i—Value(3) | | | 300 | | | | Unlimited | | | | 54,000 | | SHOW KING Sponsor i—Medium(3) | | | 400 | | | | Unlimited | | | | 64,000 | | SHOW KING Sponsor i—Special(3) | | | 600 | | | | Unlimited | | | | 78,000 | | SHOW KING Sponsor i—Premium(3) | | | 800 | | | | Unlimited | | | | 94,000 | |
| | | | | | | | | | | | | | | | | | | | | | | 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(Won)₩0.0250.01 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 | | | Free Airtime Minutes (1) | | | Free Data Transmission (2) | | | Monthly Fee | | | | Voice or video calls to anyone | | | | | | Voice or video calls to our mobile subscribers | | | | | | | | | Voice or video calls to anyone | | | | | Voice or video calls to our mobile subscribers | | | (in megabytes) | | | | | LTE-340 | | | | | 160 | | | | | | 500 megabytes | | | (Won) | 34,000 | | | | | | 160 | | | | | | 750 | | | ₩ | 34,000 | | LTE-420 | | | | | 200 | | | | | | 1,000 megabytes | | | | 42,000 | | | | | | 200 | | | | | | 1,536 | | | | 42,000 | | LTE-520 | | | 250 | | | | | | 1,000 | | | | 1,500 megabytes | | | | 52,000 | | | | | | 250 | | | | | | 2,560 | | | | 52,000 | | LTE-620 | | | 350 | | | | | | 3,000 | | | | 3,000 megabytes | | | | 62,000 | | | | | | 350 | | | | | | 6,144 | | | | 62,000 | | LTE-720 | | | 450 | | | | | | 5,000 | | | | 5,000 megabytes | | | | 72,000 | | | | | | 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 | | | | | | 7,000 | | | | 7,000 megabytes | | | | 85,000 | | | | 650 | | | | | | 3,000 | | | | 14,336 | | | | 85,000 | | LTE-1000 | | | 1,050 | | | | | | 10,000 | | | | 10,000 megabytes | | | | 100,000 | | | | 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 will countcounts as 1.66 second of voice call. |
(2) | We do not charge for data transmission in wireless LAN zones. We charge(Won)₩0.01 per 0.5 kilobyte for any additional data transmission exceeding the free monthly quota, up to a maximum of(Won)₩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, several leading banks, an operator of cinema complexes, a leading automobile 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)₩10,00025,000 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
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| 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, 2011,2013, we had(Won)₩555467 billion ofin refundable service initiation deposits outstanding and 2,5232,162 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 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 at the applicable settlement rate specified under the agreement with the foreign carrier. We have entered into numerous bilateral agreements with foreign 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 | | | | January 1, 2009 | | | January 1, 2010 | | | January 1, 2011 | | SK Telecom | | (Won) | 32.9 | | | (Won) | 31.4 | | | (Won) | 30.5 | | LG U+ | | | 38.5 | | | | 33.6 | | | | 31.9 | |
| | | | | | | | | | | | | | | 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 | |
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, 2009 | | | January 1, 2010 | | | January 1, 2011 | | | January 1, 2011 | | | January 1, 2012 | | | January 1, 2013 | | Local access(1) | | (Won) | 18.1 | | | (Won) | 17.1 | | | (Won) | 16.4 | | | ₩ | 16.4 | | | ₩ | 15.5 | | | ₩ | 14.6 | | Single toll access(2) | | | 19.3 | | | | 19.1 | | | | 18.6 | | | | 18.6 | | | | 17.4 | | | | 16.7 | | Double toll access(3) | | | 20.4 | | | | 22.5 | | | | 22.2 | | | | 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 toof 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.calls: | | | Effective Starting | | | Effective Starting | | | | January 1, 2009 | | | January 1, 2010 | | | January 1, 2011 | | | January 1, 2011 | | | January 1, 2012 | | | January 1, 2013 | | SK Telecom | | (Won) | 32.9 | | | (Won) | 31.4 | | | (Won) | 30.5 | | | ₩ | 30.5 | | | ₩ | 27.1 | | | ₩ | 26.3 | | LG U+ | | | 38.5 | | | | 33.6 | | | | 31.9 | | | | 31.9 | | | | 28.2 | | | | 27.0 | | KT | | | 38.0 | | | | 33.4 | | | | 31.7 | | | | 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 Service Speed | | Monthly Fee | | olleh Internet Special(1)(6) | | 100 Mbps | | (Won)₩ | 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 10,000 megabytes of data transmission and(Won)₩10 per megabyte for any additional data transmission in excess of 10,000 megabytes per month. |
(3) | We charge a monthly fee of(Won)₩20,000 for up to 20,000 megabytes of data transmission and(Won)₩10 per megabyte for any additional data transmission in excess of 20,000 megabytes per month. |
(4) | We charge a monthly fee of(Won)₩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. |
(5) | We charge a monthly fee of(Won)₩40,000 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. |
(6) | Various discounts and promotional rates are available 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 (1) | | | Monthly Fee (2) | | olleh TV Video-On-Demand | | | 0 | | | (Won) | 10,000 | | olleh TV Live Choice(3) | | | 80~83 | | | | 10,000~16,000 | | olleh TV Live Education(4) | | | 59 | | | | 10,000~14,000 | | olleh TV Live Thrift(5) | | | 110 | | | | 12,000 | | olleh TV Live Standard(5) | | | 132 | | | | 16,000 | | olleh TV Live Deluxe(5) | | | 137 | | | | 23,000 | | olleh TV SkyLife Economy(6) | | | 117 | | | | 20,000 | | olleh TV SkyLife Standard(6) | | | 153 | | | | 25,000 | | olleh TV SkyLife Premium(6) | | | 185 | | | | 30,000 | | olleh TV Now(7) | | | 50 | | | | 5,000 | |
| | | | | | | | | | | 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) | Includes our Video-On-Demand services. |
(2) | 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. |
(3)(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. |
(4)(3) | Assuming selection of one package. Subscribers must choose at least one Video-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. |
(5)(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. |
(6)(5) | For subscription to olleh TV SkyLife service, installation fee is waived for a mandatory subscription period of three years. |
(7)(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 | | | Flat Rate | | | Mobile Monthly Fee | Internet / Internet Phone / Mobile | | (Won)₩ | 24,000 | | | Discounts ofare between 10% to 50%, subject to₩1,500 and₩10,000, depending on the number of subscribers who participatemobile 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 TV SkyLife Standard Plan. If olleh TV Live Video-on-Demand, olleh TV Live Choice, or olleh TV Live Education is selected, deduction of(Won)₩5,000 from the monthly flat rate. If olleh TV SkyLife Economy Plan is selected, deduction of(Won)₩3,000 from the monthly flat rate. If olleh TV SkyLife Premium Plan is selected, additional monthly charge of(Won)₩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 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 shares in the mobile telecommunications market as of the dates indicated: | | | | | | | | | | | | | | | Market Share (%) | | | | KT Corporation | | | SK Telecom | | | LG U+ | | December 31, 2009 | | | 31.3 | | | | 50.6 | | | | 18.1 | | December 31, 2010 | | | 31.6 | | | | 50.6 | | | | 17.8 | | December 31, 2011 | | | 31.5 | | | | 50.6 | | | | 17.9 | |
| | | | | | | | | | | | | | | 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 shares in the local telephone service market as of the dates indicated: | | | | | | | | | | | | | | | Market Share (%) | | | | KT Corporation | | | SK Broadband | | | LG U+ | | December 31, 2009 | | | 89.9 | | | | 8.4 | | | | 1.7 | | December 31, 2010 | | | 86.3 | | | | 11.7 | | | | 2.0 | | December 31, 2011 | | | 84.3 | | | | 13.3 | | | | 2.4 | |
| | | | | | | | | | | | | | | 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), 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)₩30,000. Also, the basic monthly charge of our competitors is(Won)₩4,500 compared to our basic charge of(Won)₩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, 2009 | | | 86.3 | | | | 6.8 | | | | 3.4 | | | | 1.6 | | | | 1.9 | | December 31, 2010 | | | 82.2 | | | | 11.1 | | | | 3.1 | | | | 1.2 | | | | 2.4 | | December 31, 2011 | | | 80.5 | | | | 12.5 | | | | 3.2 | | | | 1.1 | | | | 2.7 | |
| | | | | | | | | | | | | | | | | | | | | | | 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. |
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, 2011:2013: | | | | | | | | | | | | | | | | | | | | | | | 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 for 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, 2011:2013: | | | 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, 2009 | | | 42.5 | | | | 23.5 | | | | 15.4 | | | | 18.6 | | December 31, 2010 | | | 43.1 | | | | 23.1 | | | | 16.1 | | | | 17.7 | | December 31, 2011 | | | 43.8 | | | | 23.5 | | | | 15.7 | | | | 17.0 | |
| | | | | | | | | | | | | | | | | | | 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, 2011:2013: | | | 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) | 25,000 | | | (Won) | 25,000 | | | (Won) | 20,000 | | | ₩ | 25,500 | | | ₩ | 25,000 | | | ₩ | 25,000 | | | ₩ | 20,000 | | Monthly modem rental fee | | | None | | | | None | | | | 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, which 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 2011,2013, 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 July 2011,May 2010, the Korea Communications CommissionKCC issued a guideline that limits the marketing expenditure amounts of telecommunication service providers in Korea to 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)₩150100 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, 2011, 48.32%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, 20112013 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, we are currently pursuing major upgrades to our company-wide business information technology and operational systems, and as the first stage of such upgrades, a new enterprise resource planning system (the “New ERP System”) is expected to bewas completed and implemented during the second half of 2012. The New ERP System is expectedhas contributed to enhanceenhancing various aspects of our internal processes and control systems, and we are establishing various plans to effectively implementutilize the New ERP System and to stabilize our internal control processes duringin connection with the transition period. We also expect to gradually implement other upgrades to our information technology and operational systems in the near future.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, 2011:2013: | | | CDMA | | | W-CDMA | | | W-CDMA | | | LTE | | Mobile switching centers | | | 35 | | | | 24 | | | | 86 | | | | 33 | | Base station controllers | | | 300 | | | | 419 | | | | 692 | | | | — | | Base transceiver stations | | | 7,614 | | | | 7,391 | | | | 11,540 | | | | 21,436 | | Indoor and outdoor repeaters | | | 53,826 | | | | 257,946 | | | | 322,693 | | | | 226,090 | |
We have a license to use 40 MHz of bandwidth in the 2.1 GHz spectrum that we use to provide IMT-2000 services based on W-CDMA wireless network standards. Such license expires in December 2016, and we willare required to pay approximately(Won)₩1.3 trillion for use of such bandwidth during the license period of 15 years. In April 2010, the Korea Communications CommissionKCC announced its decision to allocate 20 MHz of bandwidth in the 900 MHz spectrum to us, which became effective in July 2011, for which we willare 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 that 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 1.8 GHz spectrum expired, and the Korea Communications CommissionKCC allocated back to us the right to use 20 MHz of such bandwidth in the 1.8 GHz spectrum upon expiration pursuant to our application, for which we willare 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 Korea Communications CommissionKCC at the time of allocationallocation. In August 2011, the Korea Communications CommissionKCC auctioned the right to use the remaining 20 MHz of bandwidth in the 1.8 GHz spectrum that we relinquished, 10 MHz of additional bandwidth in the 800 MHz spectrum and 20 MHz of additional bandwidth in the 2.1 GHz spectrum. We acquired the right to use the 10 MHz of bandwidth in the 800 MHz spectrum, for which we willare required to pay a total usage fee of(Won)₩261 billion during the license period of 10 years, SK Telecom acquired the right to use the 20 MHz of bandwidth in the 1.8 GHz spectrum and LG U+ acquired the right to use the 20 MHz of bandwidth in the 2.1 GHz spectrum. We began using the 20 MHz of bandwidth in the 1.8 GHz spectrum, which became available upon termination of our 2G PCS services, to provide our 4G LTE services starting in January 2012, and expect to utilize the newly allocated bandwidths in the 800 MHz and 900 MHz spectrums to further expand our 4Gcommenced providing wideband LTE services in the future, if necessary. Furthermore,September 2013 and commercialized Wideband LTE-A services in anticipation of a significant increase in data transmission traffic in the near future due to the changing mobile usage environment, we are seeking to maximize the utilization of our W-CDMA, Wibro and WiFi networks to provide better internet access for our customers, as well as applying our Cloud Communication Center technology to our 4G LTE services during 2012. Cloud Communications Center technology, which we applied to our 3G networks in Seoul and other metropolitan areas during 2011, allows faster and more stable access to the internet by dissipating heavy data traffic through utilization of virtual communication centers. We have also installed an intelligent network on our mobile network infrastructure to provide a wide range of advanced call features and value-added services.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 2.71.6 million lines connected to toll exchanges as of December 31, 2011.2013. 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, 2011,2013, 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 5.16.6 Tbps as of December 31, 2011.2013. 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, 2011,2013, our Internet protocol premium network had 1,032 lines installed to provide voice over Internet protocol services and a total capacity to handle up to 940 Gbps1.4 Tbps of IP-TV, voice and WiBro service traffic. Access Lines As of December 31, 2011,2013, we had 15.116.0 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, 2011,2013, we had approximately 13.414.4 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 527,188636,347 kilometers of fiber optic cables as of December 31, 20112013 of which 98,048116,117 kilometers of fiber optic cables are used to connect our backbone network and 429,140520,230 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 consisted of 55 relay sites as of December 31, 2011.2013. 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 270542 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 5 and 6, launched in 2006 and 2011,2010, respectively, and own interestscertain of the transponders in two additional satellites, ABS-1 launched in September 20112010 and ABS-2 expected to be launched in 2013.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; 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 IFRS as issued by the 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/Global & 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: acquisitions and disposals of interests in subsidiaries and joint ventures; employee reductions and changes in severance and retirement benefits;
usage fees for bandwidths; changes in the rate structure for our services; researching and implementing technology upgrades and additional telecommunication 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. Acquisitions and Disposals of Interests in Subsidiaries and Joint Ventures One key aspect of our overall business strategy calls for acquisitions of businesses and entering into joint ventures that complement or diversify our current business, as well as disposal 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 arewere 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(Won)₩246 billion, to respond to the trend of convergence in the telecommunications and 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 50.3%50.1% interest in KT Skylife Co., Ltd. as of December 31, 2011;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(Won)₩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 in part affected 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 subsidiary KT Capital Co., Ltd., acquired an additional 1,622,520 common shares of BC Card Co., Ltd. from Woori Bank for approximately(Won)₩252 billion, to further diversify our business and to create synergies through utilization of our 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 deemed control;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 December 2011, we entered intoJuly 2012, KT Rental Co., Ltd., our 58.0% owned subsidiary, became our consolidated subsidiary as a memorandumresult of understanding for a strategic partnership with, andthe acquisition of shares of, Telkom SA Limited,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 South African comprehensive telecommunications service provider. The proposed transaction with Telkom SA Limited may require significant capital resources if the acquisition is eventually successful.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 disposals.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 may lead to increased levels of debt and debt servicing costs in the future. 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 who have been employed by us for more than 20 years to retire early, as part of our efforts to improve operational efficiencies. In 2009, 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 who had been employed by us for more 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. In aggregate, 6,515 employees retired in 2009 under the voluntary early retirement plan and the special voluntary early retirement program. In 2010 and 2011, 124 and 334 employees, respectively, retired under our voluntary early retirement plan.
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 mobile telecommunications business and the increase in usage of wireless data transmission services have been significant factors in the increased utilization of our bandwidth, since wireless data applications are generally more bandwidth-intensive than voice 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 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 a usage fee, as well as a portion of expected sales as determined by the Korea Communications CommissionKCC at the time of allocation. ForIn August 2013, the Ministry of Science, ICT and Future Planning further auctioned 50 MHz of bandwidth in the 1.8 GHz spectrum, which had been used by governmental entities such as the military, and 80 MHz of bandwidth in the 2.6 GHz spectrum, which had been used for digital multimedia broadcasting services. We acquired the right to use 15 MHz of bandwidth in the 1.8 GHz spectrum, for which we are required to pay a descriptiontotal 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 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 licenses, see “Item 4.D.—Property, Plants and Equipment—Mobile Networks.” In orderLTE subscribers exceeded 7.8 million. Furthermore, in March 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 continueoffer wideband LTE services with the 10 MHz of bandwidth in the 900 MHz spectrum used to maintain sufficient bandwidth capacity, we will require additional capitaloffer standard LTE services by utilizing inter-band carrier aggregation technology to renew existing bandwidth spectrum or receive additional bandwidth allocation, or cost-effectively implement technologies that enhance bandwidth usage efficiency.support transmission speed of up to 225 Mbps. Changes in the Rate Structure for Our Services Periodically, we adjust 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 offer 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 Korea Communications Commission,MSIP, in consultation with the Ministry of Strategy and Finance, currently approves rates charged by us for local telephone service. In addition, the Korea Communications CommissionMSIP 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, 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. content with stronger stability. In addition, we have been building more advanced mobile telecommunications networks based on LTE technology, which is generally referred to as a 4G technology, and commenced providing commercial 4G LTE services in the Seoul metropolitan area on January 3, 2012. We completed the expansion of our 4G LTE service coverage to 84 cities throughout Koreanationwide in AprilOctober 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 be transmitted at speeds faster than W-CDMA, up to 75150 Mbps for downloading and up to 37.550 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 will continue to make capital expenditures, incur researchcompleted the expansion of our 4G LTE service coverage nationwide in October 2012 and development expenses and implement technology upgrades and additional telecommunicationscommenced providing wideband LTE services in order to effectively implement continual advancesSeptember 2013, and improvementscommercialized Wideband LTE-A services in telecommunications technology.March 2014, as discussed above. Critical Accounting Policies We have prepared our consolidated financial statements in accordance with IFRS as issued by the IASB. These accounting principles require our 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; defined benefit liability;provisions; and
provisions.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 impairment losses incurred on our existing notes and accounts receivable. We determine the allowance for doubtful notes and accounts receivable based on an aging analysis of balances, historical write-off 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 our trade and other receivables during 2010 and 2011in the three-year period ended December 31, 2013 are summarized as follows: | | | Year Ended December 31, | | | Year Ended December 31, | | | | 2010 | | 2011 | | | 2011 | | 2012 | | 2013 | | | | (In millions of Won) | | | (In millions of Won) | | Balance at beginning of year | | (Won) | 625,483 | | | (Won) | 646,963 | | | ₩ | 647,139 | | | ₩ | 642,475 | | | ₩ | 644,058 | | Provision | | | 158,147 | | | | 133,442 | | | | 133,442 | | | | 113,808 | | | | 160,166 | | Reversal or written-off | | | (131,931 | ) | | | (167,356 | ) | | | (167,413 | ) | | | (127,189 | ) | | | (127,206 | ) | Changes in the scope of consolidation | | | (2,501 | ) | | | 26,970 | | | | 26,970 | | | | 12,119 | | | | 2,687 | | Others | | | (2,235 | ) | | | 2,338 | | | | 2,337 | | | | 2,845 | | | | (1,443 | ) | | | | | | | | | | | | | | | | | Balance at end of year | | (Won) | 646,963 | | | (Won) | 642,357 | | | ₩ | 642,475 | | | ₩ | 644,058 | | | ₩ | 678,262 | | | | | | | | | | | | | | | | | |
Changes in the allowances for doubtful accounts for our loans receivables during 2010 and 2011in the three-year period ended December 31, 2013 are summarized as follows: | | | Year Ended December 31, | | | Year Ended December 31, | | | | 2010 | | 2011 | | | 2011 | | 2012 | | 2013 | | | | (In millions of Won) | | | (In millions of Won) | | Balance at beginning of year | | (Won) | 20,536 | | | (Won) | 35,583 | | | ₩ | 35,583 | | | ₩ | 43,587 | | | ₩ | 65,196 | | Provision | | | 30,808 | | | | 30,808 | | | | 30,808 | | | | 32,914 | | | | 40,743 | | Reversal or written-off | | | (8,470 | ) | | | (22,804 | ) | | | (22,804 | ) | | | (12,210 | ) | | | (30,448 | ) | Others | | | (7,291 | ) | | | — | | | | — | | | | 905 | | | | (2,416 | ) | | | | | | | | | | | | | | | | | Balance at end of year | | (Won) | 35,583 | | | (Won) | 43,587 | | | ₩ | 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)1 billion as of December 31, 2011. Useful Lives of Property and Equipment Property and equipment are depreciated using the straight-line method over their useful lives as disclosed in Note 2.11 to the Consolidated Financial Statements. An asset’s residual value and useful lives are reviewed and adjusted at the end 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. 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)₩193286 billion in 2011.2013. Impairment of Long-Lived Assets, including Goodwill Long-lived assets generally consist of property and equipment and intangible 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 recognized when the asset’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 determined based on value-in-use calculations, which requiretheir value in use calculated by applying the useannual discount rate of estimates.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 estimated recovery 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. The determination of impairment of goodwill requires a significant amount of management’s judgment. Valuation and Impairment of Financial Assets The fair 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 one 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 or prolonged decline in the fair value of the security below its cost, in addition to circumstances described below, may be considered as evidence that the asset is impaired. For assets carried at amortized cost, the amount of impairment is measured as the difference between the asset’s carrying amount and the present 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 removed from equity and recognized in the statement of income. Significant management judgment is involved in evaluating whether a loss event has occurred. The estimates and assumptions used by management to evaluate whether 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 other adverse changes in the payment status of borrowers in the 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 assessing the realizability of deferred tax assets 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. Deferred Revenue relating to Service Installation Fees and Initial Subscription Fees We charge service installation fees and initial subscription fees related to activation of many of our services, which are deferred and recognized as revenue over the expected terms of customer relationships. Our estimate of expected terms of customer relationship is based on the historical rate, which may differ in the future. If the management’s estimation is amended, it may cause significant differences in the timing of revenue recognition and amount recognized. DefinedPost-employment Benefit LiabilityLiabilities
Our accounting of employeepost-employment benefits, which mainly consist of a defined benefit plan (we began offering a defined contribution plan in December 2012), involves judgments about uncertain events including discount rates, life expectancy and future pay inflation and expected rate of return on plan assets.inflation. Any changes in these assumptions will impact the carrying 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 that 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 the reporting period when we have a present legal or constructive obligation, such as litigation or assets requirement obligations, as a result of past 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 and recognize as interest expense any increase in the provisions due to passage of time. See Notes 2.23,2.22, 3.7 and 1817 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 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; |
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 credit card services, 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: purchase of handsets,inventories, primarily consisting of our sale of mobile handsets and specially designed phones for fixed-line mobile convergence services; salaries and wages, including post-employment benefits, termination benefits and share-based payments; depreciation expenses incurred primarily in connection with our telecommunications network facilities; 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. Operating Results—20102012 Compared to 20112013 The following table presents selected income statement data and changes therein for 20102012 and 2011.2013: | | | For the Year Ended December 31, | | | Changes | | | For the Year Ended December 31, | | | Changes | | | | 2010 vs. 2011 | | | | 2012 vs. 2013 | | | | 2010 | | | 2011 | | Amount | | % | | | 2012 | | 2013 | | Amount | | % | | | | (In billions of Won) | | | (In billions of Won) | | Operating revenues | | (Won) | 20,326 | | | (Won) | 21,990 | | | (Won) | 1,664 | | | | 8.2 | % | | ₩ | 24,644 | | | ₩ | 24,058 | | | ₩ | (586 | ) | | | (2.4 | )% | Revenue | | | | 23,856 | | | | 23,729 | | | | (127 | ) | | | (0.5 | ) | Others | | | | 787 | | | | 329 | | | | (458 | ) | | | (58.2 | ) | Operating expenses | | | 18,318 | | | | 20,016 | | | | 1,698 | | | | 9.3 | | | | 22,964 | | | | 23,734 | | | | 770 | | | | 3.4 | | | | | | | | | | | | | | | | | | | | | | | | | Operating profit | | | 2,008 | | | | 1,974 | | | | (34 | ) | | | (1.7 | ) | | | 1,680 | | | | 323 | | | | (1,357 | ) | | | (80.8 | ) | Finance income | | | 239 | | | | 267 | | | | 28 | | | | 11.7 | | | | 499 | | | | 279 | | | | (220 | ) | | | (44.1 | ) | Finance expenses | | | 599 | | | | 640 | | | | 41 | | | | 6.8 | | | Income (loss) from jointly controlled entities and associates | | | 33 | | | | (3 | ) | | | (36 | ) | | | N.A. | | | 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 | | | 1,681 | | | | 1,598 | | | | (83 | ) | | | (5.0 | ) | | | 1,415 | | | | (38 | ) | | | (1,453 | ) | | | N.A. | | Income tax expense | | | 396 | | | | 317 | | | | (79 | ) | | | (19.9 | ) | | | 278 | | | | 50 | | | | (228 | ) | | | (82.0 | ) | Profit for the period from continuing operations | | | | 1,137 | | | | (88 | ) | | | (1,225 | ) | | | N.A. | | Profit from discontinued operations | | | 30 | | | | 171 | | | | 141 | | | | 470.0 | | | | (32 | ) | | | — | | | | 32 | | | | N.A. | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the period | | (Won) | 1,315 | | | (Won) | 1,452 | | | (Won) | 137 | | | | 10.4 | % | | ₩ | 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 2012 and 2013: | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, | | | Changes | | | | 2012 vs. 2013 | | | | 2012 | | | 2013 | | | Amount | | | % | | | | (In billions of Won) | | Mobile services | | ₩ | 6,578 | | | ₩ | 6,711 | | | ₩ | 133 | | | | 2.0 | % | Fixed-line telephone services: | | | | | | | | | | | | | | | | | Local service revenues | | | 2,019 | | | | 1,850 | | | | (169 | ) | | | (8.4 | ) | Non-refundable service installation fees | | | 32 | | | | 27 | | | | (5 | ) | | | (15.6 | ) | Domestic long-distance revenues | | | 268 | | | | 221 | | | | (47 | ) | | | (17.5 | ) | International long-distance revenues | | | 392 | | | | 342 | | | | (50 | ) | | | (12.8 | ) | Land-to-mobile interconnection revenues | | | 663 | | | | 544 | | | | (119 | ) | | | (17.9 | ) | | | | | | | | | | | | | | | | | | Sub-total | | | 3,374 | | | | 2,984 | | | | (390 | ) | | | (11.6 | ) |
| | | | | | | | | | | | | | | | | | | 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 decreased by 2.4%, or₩586 billion, from₩24,644 billion in 2012 to₩24,058 billion in 2013 primarily due to decreases in our sale of goods, fixed-line telephone service revenues and data communication services revenues, the impact of which was partially offset by increases in our automobile rental service revenues and mobile service revenues. Mobile Services Our mobile service revenues increased by 2.0%, or₩133 billion, from₩6,578 billion in 2012 to₩6,711 billion in 2013 primarily due to 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 greater 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 approximately 16,502,000 as of December 31, 2012 to approximately 16,454,000 in December 31, 2013. Fixed-line Telephone Services Our fixed-line telephone service revenues decreased by 11.6%, or₩390 billion, from₩3,374 billion in 2012 to₩2,984 billion in 2013 primarily due to decreases in local service revenues, land-to-mobile interconnection revenues, and international and domestic long-distance revenues. Specifically: Local service revenues decreased by 8.4%, or₩169 billion, from₩2,019 billion in 2012 to₩1,850 billion in 2013. The number of local call pulses decreased by 19.4% from 2012 to 2013, 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, Internet phone 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 number of calls made from landline users to mobile subscribers in 2013 compared to 2012. 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. International long-distance revenues decreased by 12.8%, or₩50 billion, from₩392 billion in 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 17.5%, or₩47 billion, from₩268 billion in 2012 to₩221 billion in 2013 primarily due to a decrease in the number of domestic long-distance call minutes by 20.2% from 2012 to 2013, primarily due to the continuing substitution effect from increase in usage of mobile telephone services, 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. Internet Services Our Internet service revenues increased by 3.0%, or₩86 billion, from₩2,910 billion in 2012 to₩2,996 billion in 2013 primarily due to an increase in the number of IP-TV subscribers from 4.0 million as of December 31, 2012 to 5.0 million as of December 31, 2013, 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, and an increase in the number of our 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, resulting from increased competition in 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 8.4%, or₩110 billion, from₩1,309 billion in 2012 to₩1,199 billion in 2013 primarily due to a decrease in revenues from our leased lines, resulting from increased competition in the telecommunications 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 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 decreased by 3.8%, or₩88 billion, from₩2,310 billion in 2012 to₩2,222 billion in 2013 primarily due to a 19.3%,₩57 billion, or decrease in operating revenues from KT Telecop Co., Ltd., our subsidiary specializing in security services. Operating Expenses The following table presents a breakdown of our operating expenses and changes therein for 2012 and 2013: | | | | | | | | | | | | | | | | | | | 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. N.A.(1) | means not available.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 3.4%, or₩770 billion, from₩22,964 billion in 2012 to₩23,734 billion in 2013 primarily due to increases in other operating expenses, change of inventories, service costs, depreciation and salaries and wages, the impact of which was partially offset by a decrease in purchase of inventories. Specifically: Other operating expenses increased by 17.5%, or₩664 billion, from₩3,789 billion in 2012 to₩4,453 billion in 2013, 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 our employees resulting from our newly consolidated subsidiaries in 2013, as well as an increase in salaries and severance benefits in 2013. These factors were partially offset by the following: Our operating expenses related to purchase of inventories decreased by 26.5%, or₩1,285 billion, from₩4,851 billion in 2012 to₩3,566 billion in 2013 primarily due to a decrease in the number of smartphones sold as discussed above. Operating Profit Due to the factors described above, our operating profit decreased by 80.8%, or₩1,357 billion, from₩1,680 billion in 2012 to₩323 billion in 2013. Our operating margin, which is operating profit as a percentage of operating revenues, decreased from 6.8% in 2012 to 1.3% in 2013. Finance Income (Costs) The following table presents a breakdown of our finance income and costs and changes therein for 2012 and 2013: | | | | | | | | | | | | | | | | | | | 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 finance costs increased by 30.0%, or₩85 billion, from₩283 billion in 2012 to₩368 billion in 2013 primarily due to decreases in net foreign currency translation gain and interest income, the impact of which was partially offset by a decrease in net loss on valuation of derivatives. Specifically: Our net foreign currency translation gain decreased by 61.4%, or₩159 billion, from₩259 billion in 2012 to₩100 billion in 2013, as the Market Average Exchange Rate of the Won against the U.S. dollar appreciated from₩1,153.3 to US$1.00 as of December 31, 2011 to₩1,071.1 to US$1.00 as of December 31, 2012, and further appreciated at a 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 46.3%, or₩94 billion, from₩203 billion in 2012 to₩109 billion in 2013 primarily due to a decrease in our average balance of interest-earning assets from 2012 to 2013, resulting from a reduction in our accounts receivables from our handset sales in 2013 due to the reasons discussed above, as well as a decrease in general interest rates from 2012 to 2013. These factors were partially offset by the following: Net loss on valuation of derivatives decreased by 56.4%, or₩136 billion, from₩241 billion in 2012 to₩105 billion in 2013, primarily due to a decrease in losses from our currency swap contracts due to the lower rate of appreciation of the exchange rates of the Won against the Japanese Yen and the U.S. dollar from 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 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 Our income tax expense decreased by 82.0%, or₩228 billion, from₩278 billion in 2012 to₩50 billion in 2013 primarily due to our 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 we, in preparing our consolidated financial statements, aggregate the tax results of ourselves and our subsidiaries, which had taxable income. See Note 29 to the Consolidated Financial Statements. We had an effective tax rate of 19.6% in 2012. We had net deferred income tax assets of₩537 billion as of December 31, 2013. Profit 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, we recorded a profit for the period of₩1,105 billion in 2012, compared to a loss of₩88 billion in 2013. Our net income margin, which is profit for the period as a percentage of operating revenues, was 4.5% in 2012, and our net loss margin, which is loss for the period as a percentage of operating revenues, was 0.4% in 2013. Segment Results—Telecommunication & 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 20102011 and 2011.2012: | | | For the Year Ended December 31, | | | Changes | | | For the Year Ended December 31, | | | Changes | | | | 2010 vs. 2011 | | | 2011 vs. 2012 | | | | 2010 | | | 2011 | | | Amount | | % | | | 2011 | | | 2012 | | | Amount | | % | | | | (In billions of Won) | | | (In billions of Won) | | Mobile services | | (Won) | 6,944 | | | (Won) | 6,813 | | | (Won) | (131 | ) | | | (1.9 | )% | | ₩ | 6,813 | | | ₩ | 6,578 | | | ₩ | (235 | ) | | | (3.4 | )% | Fixed-line telephone services: | | | | | | | | | | | | | | | | | Local service revenues | | | 2,568 | | | | 2,286 | | | | (282 | ) | | | (11.0 | ) | | | 2,286 | | | | 2,019 | | | | (267 | ) | | | (11.7 | ) | Non-refundable service installation fees | | | 55 | | | | 38 | | | | (17 | ) | | | (30.9 | ) | | | 38 | | | | 32 | | | | (6 | ) | | | (15.8 | ) | Domestic long-distance revenues | | | 403 | | | | 308 | | | | (95 | ) | | | (23.6 | ) | | | 308 | | | | 268 | | | | (40 | ) | | | (13.0 | ) | International long-distance revenues | | | 366 | | | | 398 | | | | 32 | | | | 8.7 | | | | 398 | | | | 392 | | | | (6 | ) | | | (1.5 | ) | Land-to-mobile interconnection revenues | | | 949 | | | | 782 | | | | (167 | ) | | | (17.6 | ) | | | 782 | | | | 663 | | | | (119 | ) | | | (15.2 | ) | | | | | | | | | | | | | | | | | | | | | | | | Sub-total | | | 4,341 | | | | 3,812 | | | | (529 | ) | | | (12.2 | ) | | | 3,812 | | | | 3,374 | | | | (438 | ) | | | (11.5 | ) | Internet services: | | | | | | | | | | | | | | | | | Broadband internet access service | | | 1,900 | | | | 1,868 | | | | (32 | ) | | | (1.7 | ) | | | 1,868 | | | | 2,036 | | | | 168 | | | | 9.0 | | Other Internet-related services | | | 680 | | | | 867 | | | | 187 | | | | 27.5 | | | | 867 | | | | 874 | | | | 7 | | | | 0.8 | | | | | | | | | | | | | | | | | | | | | | | | | Sub-total | | | 2,580 | | | | 2,735 | | | | 155 | | | | 6.0 | | | | 2,735 | | | | 2,910 | | | | 175 | | | | 6.4 | | Sale of goods | | | 3,899 | | | | 4,379 | | | | 480 | | | | 12.3 | | | | 4,369 | | | | 4,590 | | | | 221 | | | | 5.0 | | Data communication services | | | 1,298 | | | | 1,271 | | | | (27 | ) | | | (2.1 | ) | | | 1,271 | | | | 1,309 | | | | 38 | | | | 3.0 | | Financial services | | | | 996 | | | | 3,320 | | | | 2,324 | | | | 233.3 | | Automobile rental service | | | | — | | | | 253 | | | | 253 | | | | N.A. | | Other | | | 1,264 | | | | 2,980 | | | | 1,716 | | | | 135.8 | | | | 2,090 | | | | 2,310 | | | | 220 | | | | 10.5 | | | | | | | | | | | | | | | | | | | | | | | | | Total operating revenues | | (Won) | 20,326 | | | (Won) | 21,990 | | | (Won) | 1,664 | | | | 8.2 | % | | ₩ | 22,088 | | | ₩ | 24,644 | | | ₩ | 2,556 | | | | 11.6 | % | | | | | | | | | | | | | | | | | | | | | | | |
N.A. means not available. Total operating revenues increased by 8.2%11.6%, or(Won)₩1,6642,556 billion, from(Won)₩20,326 billion in 2010 to(Won)21,99022,088 billion in 2011 to₩24,644 billion in 2012 primarily due to increases in our financial service revenues, other operating revenues and sale of goods relating to mobile handset sales,automobile rental service revenues, the impact of which was partially offset by a decreasedecreases in our fixed-line telephone service revenues and mobile service revenues. Mobile Services Our mobile service revenues decreased by 1.9%3.4%, or(Won)₩131235 billion, from(Won)6,944 billion in 2010 to(Won)₩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 Korea Communications Commission,KCC, in particular for those applicable to 3G smartphones, the impact of which was offset in partfurther enhanced by an increasea decrease in our mobile subscribers from 16.0 million as of December 31, 2010 to 16.6 million as of December 31, 2011.2011 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 12.2%11.5%, or(Won)₩529438 billion, from(Won)4,341 billion in 2010 to(Won)₩3,812 billion in 2011 to₩3,374 billion in 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 11.0%11.7%, or(Won)₩282267 billion, from(Won)2,568 billion in 2010 to(Won)₩2,286 billion in 2011.2011 to₩2,019 billion in 2012. The number of local call pulses decreased by 16.0%9.3% from 20102011 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. However, the effect of such decreases was partially offset by participation by some of our subscribers in optional flat rate plans, as well as an increase in revenues from VoIP services. Land-to-mobile interconnection revenues decreased by 17.6%15.2%, or(Won)₩167119 billion, from(Won)949 billion in 2010 to(Won)₩782 billion in 2011 to₩663 billion in 2012 primarily due to a decrease in land-to-mobile interconnection rates for 2011 as well as a decrease in the volumenumber of calls betweenmade from landline users to mobile subscribers.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 23.6%13.0%, or(Won)₩9540 billion, from(Won)403 billion in 2010 to(Won)₩308 billion in 2011 to₩268 billion in 2012 primarily due to a decrease in the number of domestic long-distance call minutes by 10.2%7.7% from 20102011 to 2011,2012, primarily due to the substitution effect from increase in usage of mobile telephone services and Internet phone services, as well as an increase in our fixed-line subscribers who terminated their subscription to our optional flat rate plans, and a 4.9% decrease in interconnection rates received by approximately 2.0%the number of lines in service from 20102011 to 2011.2012. Internet Services Our Internet service revenues increased by 6.0%6.4%, or(Won)₩155175 billion, from(Won)2,580 billion in 2010 to(Won)₩2,735 billion in 2011 to₩2,910 billion in 2012 primarily due to an increase in the number of IP-TVour broadband subscribers from 2.17.8 million as of December 31, 20102011 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. The revenues from broadband Internet access service decreased by 1.7%, or(Won)32 billion, from(Won)1,900 billion in 2010 to(Won)1,868 billion in 2011. Sale of Goods Revenues from sale of goods increased by 12.3%5.0%, or(Won)₩480221 billion, from(Won)₩3,899 billion in 2010 to(Won)4,3794,369 billion in 2011 to₩4,590 billion in 2012 primarily due to an increase in the number of smart phonessmartphones sold, in particular LTE smartphones, that had relatively higher margins.prices. Data Communications Data communications service revenues decreasedincreased by 2.1%3.0%, or(Won)₩2738 billion, from(Won)1,298 billion in 2010 to(Won)₩1,271 billion in 2011 to₩1,309 billion in 2012 primarily due to service fee discounts offered to government agencies and a decreasean 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 Kornet broadband Internet connection service to institutional customers resultingthe 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 expiration of certain leased-line contracts.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 135.8%10.5%, or(Won)₩1,716220 billion, from(Won)₩1,264 billion in 2010 to(Won)2,9802,090 billion in 2011 to₩2,310 billion in 2012 primarily due to consolidation of thea₩112 billion increase in revenues of(after intercompany elimination) from H&C Network, which provides call center services to BC Card Co., Ltd. (which hadand 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(Won)3,205 billion in 2011) our consolidated revenue starting in October 1,2011, 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 Skylife Co., Ltd.Networks Corporation (which had revenueschanged its name to KT ENS Corporation in 2013) as a result of(Won)485 billion an increase in 2011) starting on January 1, 2011,our network construction projects as well as revenue ofsales in our ecologically safe or “green” information technology equipment. Such increases were offset in part by a(Won)₩29847 billion recordeddecrease in connection with thegains from sale and leaseback of certain of our propertiesland and buildings to K-REALTY CR-REIT I, our equity-method investee or special purpose companies specializing in real estate investments, establishedfrom₩298 billion in December 2011.2011 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 20102011 and 2011.2012: | | | For the Year Ended December 31, | | | Changes | | | For the Year Ended December 31, | | | Changes | | | | 2010 vs. 2011 | | | | 2011 vs. 2012 | | | | 2010 | | | 2011 | | | Amount | | % | | | 2011 | | | 2012 | | Amount | | % | | | | (In billions of Won) | | | (In billions of Won) | | Salaries and wages | | (Won) | 2,623 | | | (Won) | 2,856 | | | (Won) | 233 | | | | 8.9 | | | ₩ | 2,854 | | | ₩ | 3,097 | | | ₩ | 243 | | | | 8.5 | | Depreciation | | | 2,864 | | | | 2,647 | | | | (217 | ) | | | (7.6 | ) | | | 2,645 | | | | 2,894 | | | | 249 | | | | 9.4 | | Commissions | | | 1,292 | | | | 1,449 | | | | 157 | | | | 12.2 | | | | 1,448 | | | | 1,426 | | | | (22 | ) | | | (1.5 | ) | Interconnection charges | | | 1,226 | | | | 1,116 | | | | (110 | ) | | | (9.0 | ) | | | 1,116 | | | | 901 | | | | (215 | ) | | | (19.3 | ) | Purchase of handsets | | | 3,985 | | | | 4,250 | | | | 265 | | | | 6.6 | | | Purchase of inventories | | | | 4,519 | | | | 4,851 | | | | 332 | | | | 7.3 | | Changes of inventories | | | | 36 | | | | (259 | ) | | | (295 | ) | | | N.A. | | Sales commission | | | 1,910 | | | | 1,866 | | | | (44 | ) | | | (2.3 | ) | | | 1,865 | | | | 2,230 | | | | 365 | | | | 19.6 | | Research and development expenses | | | 306 | | | | 176 | | | | (130 | ) | | | (42.5 | ) | | Service cost | | | | 1,331 | | | | 1,264 | | | | (67 | ) | | | (5.0 | ) | Card service costs | | | | 708 | | | | 2,771 | | | | 2,063 | | | | 291.4 | | Others(1) | | | 4,112 | | | | 5,656 | | | | 1,544 | | | | 37.5 | | | | 3,579 | | | | 3,789 | | | | 210 | | | | 5.9 | | | | | | | | | | | | | | | | | | | | | | | | | Total operating expenses | | (Won) | 18,318 | | | (Won) | 20,016 | | | (Won) | 1,698 | | | | 9.3 | % | | ₩ | 20,101 | | | ₩ | 22,964 | | | ₩ | 2,863 | | | | 14.2 | % | | | | | | | | | | | | | | | | | | | | | | | |
N.A. means not available. (1) | Including other operating expenses (which includes serviceinclude miscellaneous expenses, commissions paidloss on credit card servicesdisposal of property and international roaming connection charges)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), rent, amortization of intangible assets, rent, insurance premium, utilities, international interconnection fee, installation fee, taxes and dues, advertisingresearch and development expenses and changes of inventories.advertising expenses. |
Total operating expenses increased by 9.3%14.2%, or(Won)₩1,6982,863 billion, from(Won)₩18,318 billion in 2010 to(Won)20,01620,101 billion in 2011 to₩22,964 billion in 2012 primarily due to increases in other operating expenses (which includescard service expenses, commissions paid on credit card services and international roaming connection charges), salaries and wages, commissions andcosts, purchase of handsets, sales commission and depreciation, the impact of which was partially offset by decreases in depreciation, research and development expenseschange of inventories and interconnection charges. Specifically: Other operating expensesCard service costs increased by 37.5%291.4%, or(Won)₩1,5442,063 billion, from(Won)₩4,112 billion in 2010 to(Won)5,656708 billion in 2011 to₩2,771 billion in 2012 primarily due to(Won)714 billion in commissions paid on credit card services in 2011, whereas there was no such expense in 2010, as a result of the consolidation of the full year expenses of BC Card Co., Ltd. starting in October 1, 2011, a 33.0%, or(Won)333 billion, increase in service2012 compared to only three months of expenses from(Won)1,008 billion in 2010 to(Won)1,341 billion in 2011 as a result of increases in expenses relating to our systems/network integration business and to purchase of multimedia contents from third-party developers and a 17.2%, or(Won)49 billion, increase in international roaming connection charges paid to overseas mobile operators, from(Won)285 billion in 2010 to(Won)334 billion in 2011, as a result of an increase in our smartphone users who use roaming services while traveling abroad.described above.
Salaries and wages increased by 8.9%, or(Won)233 billion, from(Won)2,623 billion in 2010 to(Won)2,856 billion in 2011 primarily due to an increase in the number of our consolidated employees, as a result of additional consolidated subsidiaries in 2011, including BC Card Co., Ltd. and KT Skylife Co., Ltd. and an increase in average wages.
Commissions, which primarily relate to payments for third-party outsourcing services, including commissions to the call center staff and building security, and discounts on our installment receivables on mobile and fixed-line contracts, increased by 12.2%, or(Won)157 billion, from(Won)1,292 billion in 2010 to(Won)1,449 billion in 2011 primarily due to an increase in discounts on installment receivables as a result of an increase in our mobile subscribers in 2011 and an increase in commissions paid for outsourcing of building security on our real estate holdings.
Our operating expenses related to purchase of handsetsinventories increased by 6.6%7.3%, or(Won)₩265332 billion, from(Won)₩3,985 billion in 2010 to(Won)4,2504,519 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 depreciation 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: Depreciation decreased by 7.6%, or(Won)217 billion, from(Won)2,864 billionWe recorded operating expenses relating to changes of inventories, which represent a decrease in 2010 toour inventories, of(Won)₩2,64736 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 one-time effectend of the shortening of estimated useful lives of assets in the Personal Customer Group, which is prospectively applicable from January 1, 2010, the transition date of IFRS, resulting in more assets fully depreciated in 2010 and less assets subject to depreciation in 2011.
Research and development expenses decreased by 42.5%, or(Won)130 billion, from(Won)306 billion in 2010 to(Won)176 billion in 2011 primarily due to an internal reorganization of our research and development staff, which decreased the number of departments and employees whose expenses are categorized in this category.year.
Interconnection charges decreased by 9.0%19.3%, or(Won)₩110215 billion, from(Won)1,226 billion in 2010 to(Won)₩1,116 billion in 2011 to₩901 billion in 2012 primarily due to decreases in land-to-mobile and land-to-landmobile-to-mobile interconnection rates charged by other telecommunications operators or are set by the KCC, as applicable, during 2011 comparedas well as a decrease in the number of calls made from fixed-line phones to 2010.mobile phones. Operating Profit Due to the factors described above, our operating profit decreased by 1.7%15.5%, or(Won)₩34307 billion, from(Won)₩2,0081,987 billion in 20102011 to(Won)₩1,9741,680 billion in 2011.2012. Our operating margin, which is operating profit as a percentage of operating revenues, decreased from 9.9% in 2010 to 9.0% in 2011.2011 to 6.8% in 2012. Finance Income (Expenses)(Costs) The following table presents a breakdown of our finance income and expenses on a net basiscosts and changes therein for 20102011 and 2011.2012: | | | For the Year Ended December 31, | | | Changes | | | For the Year Ended December 31, | | | Changes | | | | 2010 vs. 2011 | | | | 2011 vs. 2012 | | | | 2010 | | 2011 | | Amount | | % | | | 2011 | | 2012 | | Amount | | % | | | | (In billions of Won) | | | (In billions of Won) | | Interest income | | (Won) | 97 | | | (Won) | 151 | | | (Won) | 54 | | | | 55.7 | % | | ₩ | 152 | | | ₩ | 203 | | | ₩ | 51 | | | | 33.6 | % | Interest expense | | | (490 | ) | | | (481 | ) | | | 9 | | | | (1.8 | ) | | | (481 | ) | | | (472 | ) | | | 9 | | | | (1.9 | ) | Net foreign currency transaction gain (loss) | | | (3 | ) | | | 9 | | | | 13 | | | | N.A. | | | | 10 | | | | 2 | | | | (8 | ) | | | (80.0 | ) | Net foreign currency translation gain (loss) | | | 33 | | | | (79 | ) | | | (113 | ) | | | N.A. | | | | (80 | ) | | | 259 | | | | 339 | | | | N.A. | | Net loss on settlement of derivatives | | | (1 | ) | | | (27 | ) | | | (26 | ) | | | 2,600.0 | | | | (27 | ) | | | (5 | ) | | | 22 | | | | (81.5 | ) | Net gain on valuation of derivatives | | | 7 | | | | 55 | | | | 48 | | | | 685.7 | | | Net other finance expenses | | | (2 | ) | | | (1 | ) | | | 1 | | | | (50.0 | ) | | Net gain (loss) on valuation of derivatives | | | | 55 | | | | (241 | ) | | | (296 | ) | | | N.A. | | Net other finance costs | | | | (1 | ) | | | (29 | ) | | | (28 | ) | | | 2,800.0 | % | | | | | | | | | | | | | | | | | | | | | | | | Net finance expenses | | (Won) | (359 | ) | | (Won) | (373 | ) | | (Won) | (14 | ) | | | 3.9 | % | | Net finance costs | | | ₩ | (372 | ) | | ₩ | (283 | ) | | ₩ | 89 | | | | (23.9 | )% | | | | | | | | | | | | | | | | | | | | | | | |
N.A. means not available. Our net finance expenses increasedcosts decreased by 3.9%23.9%, or(Won)₩1489 billion, from(Won)₩359 billion in 2010 to(Won)373372 billion in 2011 to₩283 billion in 2012 primarily due to our recognition of net foreign currency translation gainloss in 20102011 compared to a net lossgain in 20112012 and an increase in net loss on settlement of derivatives,interest income, the impact of which was partially offset by an increase in interest income and an increase inour recognition of net gain on valuation of derivatives.derivatives in 2011, compared to a net loss in 2012. Specifically: We recorded net foreign currency translation gainloss of(Won)₩3380 billion in 20102011 compared to net foreign currency translation lossgain of(Won)₩79259 billion in 20112012 as the Market Average Exchange Rate of the Won against the U.S. dollar appreciateddepreciated from(Won)1,167.6 to US$1.00 as of December 31, 2009 to(Won)₩1,138.9 to US$1.00 as of December 31, 2010 but it depreciated to(Won)₩1,153.3 to US$1.00 as of December 31, 2011.2011 but it appreciated to₩1,071.1 to US$1.00 as of December 31, 2012. The impact of such net foreign currency translation lossgain was partially offset by an increase ina net gainloss on valuation of derivatives discussed below. Our net loss on settlement of derivativesinterest income increased by twenty-six fold33.6%, or(Won)₩2651 billion, from(Won)₩1 billion in 2010 to(Won)27152 billion in 2011 to₩203 billion in 2012 primarily due to a significantan increase in the sizeour average balance of interest-earning assets from 2011 to 2012, including our settled derivative contracts in 2011 compared to 2010.holdings of cash and cash equivalents. These factors were partially offset by the following: Our interest income increased by 55.7%, orWe recorded net gain on valuation of derivatives of(Won)₩54 billion, from(Won)9755 billion in 20102011 compared to net loss on valuation of derivatives of(Won)₩151241 billion in 20112012, primarily due to an increase in our average balance of interest-earning assetslosses from 2010 to 2011, including our holdings of cash and cash equivalents.
Our net gain on valuation of derivatives, which increased by 685.7%, or(Won)48 billion, from(Won)7 billion in 2010 to(Won)55 billion in 2011 primarily due to an increase in gains from our combined interest rate currency swap contracts due to the depreciationappreciation of the exchange rates of the Won against the Japanese Yen and the U.S. dollar from December 31, 20102011 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 income from jointly controlled entities and associates of(Won)33 billion in 2010 compared toa loss from jointly controlled entities and associates of(Won)₩36 billion in 2011 compared to a gain from jointly controlled entities and associates of₩18 billion in 2012 primarily due to ana 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(Won)₩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 20.1%12.6%, or(Won)₩7940 billion, from(Won)₩396 billion in 2010 to(Won)317318 billion in 2011 to₩278 billion in 2012 primarily due to an increase in tax credit carryforwards and deductions, as well as a decrease in profitsour profit from continuing operations before income tax.tax by 12.1%, or₩194 billion, from₩1,609 billion in 2011 to₩1,415 billion in 2012. See Note 3029 to the Consolidated Financial Statements. OurAs a result of the foregoing, our effective tax rate decreased from 23.6% in 2010 to 19.8% in 2011 primarily due to an increase19.6% in tax credit carryforwards and deductions in 2011.2012. We had net deferred income tax assets of(Won)₩405473 billion as of December 31, 2011.2012. Profit from Discontinued Operations OurWe recognized profit from discontinued operations increased by 469.9%, orof(Won)₩141 billion, from(Won)30165 billion in 20102011, compared to loss from discontinued operations of(Won)₩17132 billion in 20112012, primarily due to profits recognized from our sale of a 72.96%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 3840 to the Consolidated Financial Statements. Profit for the Period Due to the factors described above, our profit for the period increaseddecreased by 10.4%24.1%, or(Won)₩137350 billion, from(Won)₩1,3151,455 billion in 20102011 to(Won)₩1,4521,105 billion in 2011.2012. Our net income margin, which is profit for the period as a percentage of operating revenues, increaseddecreased from 6.5% in 2010 to 6.6% in 2011.2011 to 4.5% in 2012. Segment Results—PersonalTelecommunication & 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 4.7%, or₩110 billion, from₩2,330 billion in 2011 to₩2,440 billion in 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 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 3.2%267.7%, or(Won)₩3112,706 billion, from(Won)₩9,715 billion in 2010 to(Won)10,0261,011 billion in 2011 to₩3,717 billion in 2012, primarily due to an increasethe consolidation of full year revenues in the number of mobile subscribers2012 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 well as an increase in smart phones sold.described above. Our operating profitincome for this segment, prior to adjusting for inter-segment transactions, increased by 20.6%400.0%, or(Won)₩185148 billion, from(Won)₩902 billion in 2010 to(Won)1,08737 billion in 2011 to₩185 billion in 2012, as the 3.2%267.7% increase in the segment’s operating revenues outpaced a 1.4%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 9.3% in 2010 to 10.8% in 2011. Depreciation and amortization, prior to adjusting for inter-segment transactions, decreased by 14.9%, or(Won)206 billion, from(Won)1,383 billion in 2010 to(Won)1,177 billion3.7% in 2011 primarily due to the effect of the shortening of estimated useful lives of assets5.0% in the Personal Customer Group as described above.
Segment Results—Home/Global & Enterprise Customer Group
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, decreased by 0.5%, or(Won)53 billion, from(Won)10,194 billion in 2010 to(Won)10,141 billion in 2011, 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.
Our operating profit for this segment, prior to adjusting for inter-segment transactions, decreased by 14.0%, or(Won)153 billion, from(Won)1,092 billion in 2010 to(Won)939 billion in 2011, as the segment recorded a 0.5% decrease in operating revenues while recording a 1.1% increase in operating expenses, primarily due to the reasons discussed above. Operating margin decreased from 10.7% in 2010 to 9.3% in 2011.2012.
Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 0.3%970.6%, or(Won)₩5165 billion, from(Won)₩1,65617 billion in 20102011 to(Won)₩1,660182 billion in 2011.2012, primarily due to the effect of consolidation of KT Rental Co., Ltd. and the related assets starting in July 2012 as described above. Segment Results—Others Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 72.9%5.3%, or(Won)₩1,979213 billion, from(Won)₩2,717 billion in 2010 to(Won)4,6964,039 billion in 2011 to₩4,252 billion in 2012, primarily due to consolidation of theincreases in revenues of KT Skylife starting on January 1, 2011 and of BC Cardfrom H&C Network Co., Ltd. and its subsidiaries starting on October 1, 2011.KT Skylife Co., Ltd. as discussed above. Our operating profitincome for this segment, prior to adjusting for inter-segment transactions, increaseddecreased by 58.4%21.0%, or(Won)₩3922 billion, from(Won)₩67 billion in 2010 to(Won)106105 billion in 2011 to₩83 billion in 2012, as the segment recorded a 72.9%5.3% increase in operating revenues while recordingwas outpaced by a 73.2%6.0% increase in operating expenses, primarily due to the reasons discussed above. Operating margin decreased from 2.5%2.6% in 20102011 to 2.3%2.0% in 2011.2012. Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 54.3%20.5%, or(Won)₩4525 billion, from(Won)₩84122 billion in 20102011 to(Won)₩129147 billion in 2011.2012, primarily due to an increase in 2012 of depreciable assets owned by KT Skylife such as home satellite equipment, as a result of an increase in subscribers. Item 5.B.Liquidity and Capital Resources The following table sets forth the summary of our cash flows for the periods indicated.indicated: | | | For the Years Ended December 31, | | | For the Years Ended December 31, | | | | 2010 | | 2011 | | | 2011 | | 2012 | | 2013 | | | | (In billions of Won) | | | (In billions of Won) | | Net cash provided by operating activities | | (Won) | 2,973 | | | (Won) | 2,150 | | | ₩ | 2,164 | | | ₩ | 5,725 | | | ₩ | 4,111 | | Net cash used in investing activities | | | (2,949 | ) | | | (2,648 | ) | | | (2,666 | ) | | | (3,851 | ) | | | (3,783 | ) | Net cash provided by (used in) financing activities | | | (398 | ) | | | 768 | | | | 772 | | | | (1,278 | ) | | | (312 | ) | Cash and cash equivalents at beginning of period | | | 1,543 | | | | 1,162 | | | | 1,179 | | | | 1,462 | | | | 2,058 | | Cash and cash equivalents at end of period | | | 1,162 | | | | 1,445 | | | | 1,462 | | | | 2,058 | | | | 2,071 | | Net increase (decrease) in cash and cash equivalents | | | (381 | ) | | | 284 | | | | 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)₩2,7133,236 billion in 2010 and2011,(Won)₩3,2083,760 billion in 20112012 and₩3,088 billion in 2013 for the acquisition of property and equipment and investment property, primarily construction-in-progress. In our financing activities, we used cash of(Won)₩5,5766,058 billion in 2010 and2011,(Won)₩6,0254,591 billion in 20112012 and₩5,956 billion in 2013 for repayment of borrowings and bonds. In recent years, we have also required capital for payments of retirement and severance benefits related to our early retirement programs. We recorded payments of severance benefits of(Won)956 billion in 2010 and(Won)₩235 billion in 2011. In 2010, our payments were particularly high due to a special voluntary early retirement program held2011,₩111 billion in December 20092012 and₩371 billion in which 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. The special voluntary early retirement program resulted in the early retirement of 5,992 employees out of 25,340 eligible employees.2013. From time to time, we may also require capital for investments involving acquisitions, including shares of our affiliates, and strategic relationships. For example, we acquired redeemable convertible preferred stock with voting rights and convertible bonds of KT Skylife for(Won)₩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 shares of BC Card Co., Ltd. from Woori Bank for approximately₩252 billion. 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. Any such additional investments or acquisitions may require significant capital. Our cash dividends paid to shareholders and non-controlling interests amounted to(Won)493 billion in 2010 and(Won)₩595 billion in 2011.2011,₩498 billion in 2012 and₩511 billion in 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 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 Note 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, 2011:2013: | | | 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) | 10,639 | | | (Won) | 1,721 | | | (Won) | 4,600 | | | (Won) | 2,585 | | | (Won) | 1,733 | | | ₩ | 10,873 | | | ₩ | 2,382 | | | ₩ | 4,097 | | | ₩ | 2,673 | | | ₩ | 1,721 | | Capital lease obligations (including any interests) | | | 183 | | | | 67 | | | | 116 | | | | — | | | | — | | | | 75 | | | | 22 | | | | 53 | | | | — | | | | — | | Operating lease obligations | | | 427 | | | | 52 | | | | 80 | | | | 78 | | | | 217 | | | | 633 | | | | 78 | | | | 152 | | | | 156 | | | | 247 | | Severance payment obligations(2) | | | 2,094 | | | | 88 | | | | 264 | | | | 371 | | | | 1,371 | | | | 4,655 | | | | 112 | | | | 298 | | | | 398 | | | | 3,847 | | Long-term accounts payable—others | | | 496 | | | | 55 | | | | 270 | | | | 168 | | | | 3 | | | | 1,177 | | | | 276 | | | | 372 | | | | 204 | | | | 325 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 13,839 | | | (Won) | 1,983 | | | (Won) | 5,330 | | | (Won) | 3,202 | | | (Won) | 3,324 | | | ₩ | 17,413 | | | ₩ | 2,870 | | | ₩ | 4,972 | | | ₩ | 3,431 | | | ₩ | 6,140 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Estimate of interest payment based on contractual interest rates effective as of December 31, 2011 | | (Won) | 1,862 | | | (Won) | 454 | | | (Won) | 640 | | | (Won) | 323 | | | (Won) | 445 | | | 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 profits for the period, expenses not involving cash payments such as depreciation and amortization, and proceeds from issuance of bonds and borrowings. We expect that these sources will continue to be our principal sources of cash in the future. Profit for the period was(Won)₩1,3151,455 billion in 20102011 and(Won)₩1,4521,105 billion in 20112012, and we recorded a loss for the period of₩88 billion in 2013 due to the reasons discussed in Item 5.A. Operating Results. Depreciation and amortization of intangible assets was(Won)₩3,2392,996 billion in 2010 and2011,(Won)₩2,9923,314 billion in 20112012 and₩3,621 billion in 2013 primarily reflecting our capital investment activities during the recent years.years, 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 borrowings were(Won)₩5,6997,262 billion in 2010 and2011,(Won)₩7,2254,259 billion in 2011.2012 and₩6,200 billion in 2013. As of December 31, 2011,2013, we held 17,897,14717,308,160 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 successfully issued US$350 million of 3.875% notes due 2017 in January 2012.2012, 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$300 million floating rate notes due 2018 in August 2013 and₩300 billion of 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 equity was(Won)₩11,35412,588 billion as of December 31, 2010 and2011,(Won)₩12,53813,218 billion as of December 31, 2011.2012 and₩12,837 billion as of December 31, 2013. Liquidity We had a working capital (current assets minus current liabilities) deficitsurplus of(Won)₩3651,067 billion as of December 31, 2010 and surplus2011, deficit of(Won)₩1,046750 billion as of December 31, 2011.The2012 and deficit of₩1,252 billion as of December 31, 2013. The following table sets forth the summary of our significant current assets for the periods indicated.indicated: | | | As of December 31, | | | As of December 31, | | | | 2010 | | | 2011 | | | 2011 | | | 2012 | | | 2013 | | | | (In billions of Won) | | | (In billions of Won) | | Cash and cash equivalents | | (Won) | 1,162 | | | (Won) | 1,445 | | | ₩ | 1,462 | | | ₩ | 2,058 | | | ₩ | 2,071 | | Short-term loans receivables, net | | | 725 | | | | 698 | | | | 698 | | | | 668 | | | | 839 | | Trade and other receivables, net | | | 4,193 | | | | 6,159 | | | | 6,191 | | | | 5,908 | | | | 5,240 | | Inventories, net | | | 711 | | | | 675 | | | | 676 | | | | 935 | | | | 674 | |
Our cash, cash equivalents and net short-term loans receivable maturing within one year totaled(Won)₩1,8872,160 billion as of December 31, 2010 and2011,(Won)₩2,1432,726 billion as of December 31, 2011.2012 and₩2,910 billion as of December 31, 2013. Under 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 loans receivables primarily consist of loans and other non-derivative financial assets with fixed or determinable payments that are not quoted in an active market with maturities of twelve months or less. The following table sets forth the summary of our significant current liabilities for the periods indicated: | | | As of December 31, | | | As of December 31, | | | | 2010 | | | 2011 | | | 2011 | | | 2012 | | | 2013 | | | | (In billions of Won) | | | (In billions of Won) | | Trade and other payables | | (Won) | 4,424 | | | (Won) | 5,890 | | | ₩ | 5,902 | | | ₩ | 7,221 | | | ₩ | 7,414 | | Borrowings | | | 2,722 | | | | 2,112 | | | | 2,125 | | | | 3,197 | | | | 3,021 | |
As of December 31, 2011,2013, we entered into various commitments with financial institutions totaling(Won)₩2,7782,892 billion and US$8581 million. See Note 20 to the Consolidated Financial Statements. As of December 31, 2011,2013,(Won)₩115155 billion and US$14 million werewas 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)₩2,7133,236 billion in 2010 and2011,(Won)₩3,2083,760 billion in 20112012 and₩3,088 billion in 2013 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)₩3,5002,700 billion in 2012,2014, which may be adjusted depending on market conditions and our results of operations. The principal components of our capital investment plans are: approximately(Won)₩1,7861,014 billion in general expansion and modernization of our wireless network infrastructure (including approximately(Won)₩1,000978 billion in capital investments for LTE service); approximately(Won)₩1,1571,209 billion for general expansion and modernization of our fixed-line network infrastructure; and approximately(Won)₩557477 billion in capital investments for our other services, 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 2.9%4.0% in 20102011, 2.2% in 2012 and 4.3%1.3% in 2011.2013. 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 under IFRS
For a summary of new standards, amendments and interpretations issued under IFRS but not effective for 2011 and which have not been adopted early by us, see note 2.1 to the Consolidated Financial Statements.
For a summary of standards and exceptions applied by us in connection with the transition to IFRS starting in 2011, see note 4 to the 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 strategy office;new business development and incubation center; a technology development office;
a centralan infrastructure R&D laboratory;
a networkservice R&D laboratory; and a smart grid development center.convergence R&D laboratory. As of December 31, 2011, our Advanced Institute of Technology employed a total of 435 researchers and employees. As of December 31, 2011, our researchers and employees at our research centers had 72 doctoral degrees and 231 master’s degrees. As of December 31, 2011,2013, KT Corporation had 5,3505,183 registered patents domestically and 489808 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)₩306304 billion in 2010 and2011,(Won)₩176476 billion in 2011.2012 and₩309 billion in 2013.
In recent years, we have focused our research and development efforts in the following areas: open telecommunications service platforms;simplifying complex core networks and reducing costs;
development of ubiquitous servicescombining in-building management solutions for fixed-line and platforms relating to health care systems;wireless networks;
intelligent knowledgecombining operation management systems for fixed-line and smart interaction technologies;wireless networks;
various n-screen services, which allows purchased content to be viewed on multiple devicesfinding solutions for ultra-definition television set top box and platforms;additional solutions for smart IPTV;
smartaggregating heterogeneous wireless access for double network architecture;throughput;
futurea broadband internet solution that is 10 times faster using legacy copper and fiber lines;
a smart-grid platform for global energy control operation centers from South Korea to Finland; a telecommunication cloud solution which combines network structure and solutions;resource virtualization with cloud computing resource; and green energy solutions, including smart grid technologies.creating a new convergence business model based on Information Communication Technology (ICT) and 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 200923, 1953 | | September 11, 1945 | 2017 | | Hoon Han | | Senior Executive Vice President | | March 2014 | | March 23, 1958 | | | 2015 | | Sang-Hoon LeeHeon Moon Lim
| | Senior Executive Vice President | | March 20092014 | | January 24, 1955November 15, 1960 | | | 2013 | | Hyun-Myung Pyo
| | President | | March 2009 | | October 21, 1958 | | | 20132015 | | | | | | | Outside Directors(1) | | | | | | | | | | | | | | | | E. Han KimDo Kyun Song
| | Chairperson of the Board of Directors, Professor, University of MichiganAdvisor, Bae, Kim & Lee LLC | | March 20092013 | | May 27, 1946September 20, 1943 | | | 2015 | | Choon-Ho Lee
| | Chairperson of the Board of Directors of Korea Educational Broadcasting System
| | March 2009 | | July 22, 1945 | | | 2015 | | Jong-Hwan Song
| | Professor, Myongji University
| | March 2010 | | September 5, 1944 | | | 2013 | | Hyun Nak Lee
| | Professor, Sejong University
| | March 2011 | | November 4, 1941 | | | 2014 | | Byong Won Bahk
| | Chairperson, Korean Federation of Banks
| | March 2011 | | September 24, 1952 | | | 20142016 | | Keuk Je Sung | | Professor, Graduate School of Pan-PacificPan Pacific International Studies, Kyunghee University | | March 2012 | | June 4, 19531943 | | | 2015 | | Sang Kyun Cha | | Professor, Department of Electrical and Computer Engineering, Seoul National University | | March 2012 | | February 19, 1958 | | | 20132016 | | 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 non-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 senior advisorDistinguished Chair Professor at Sungkyunkwan University, president and National Chief Technology Officer of Bae, Kim & Lee LLC,the Office of Strategic Research and Development Planning at the former Ministry of Knowledge and Economy, president and chief economic advisor totechnology officer of the PresidentCorporate Technology Office at Samsung Electronics Co., Ltd. and as president and chief executive officer of Korea, Minister of Information and Telecommunications and Vice Minister of Finance and Economy.the Semiconductor Business at Samsung Electronics Co., Ltd. Mr. LeeHwang holds a bachelor’s degree and a master’s degree in economicselectric engineering from Seoul National University an M.A. degree in political economy from Boston University and a Ph.D. degree in economicselectronic and computer engineering from Boston University.the University of Massachusetts, Amherst. Sang-Hoon LeeHoon Han is a non-independent director and has served as the president of the Global & Enterprise Group since March 2009. He has previously served as senior executive vice president of the Business DevelopmentCorporate Planning Group and executive vice presidentsince February 2014. He has previously served as the chairperson of the Business Marketing Unit.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. LeeHan holds a bachelor’s degree in industrial engineering from Seoul National University, and both hisa master’s degree and Ph.D degree in electricindustrial engineering from UniversityKorea Advanced Institute of Pennsylvania.Science and Technology, and a Ph.D. in engineering economic systems from Stanford University.
Hyun-Myung PyoHeon Moon Lim is a non-independent director and has served as thesenior executive vice president of the PersonalKT’s Customer Business Group since December 2009.February 2014. He has previously served as seniora professor of economics and management at Chungnam University, executive vice presidentdirector for KT’s Telecom & Convergence department, and as executive director of the Corporate Center and senior vice president of the WiBro Business Unit and head of the Marketing Group of KTF.KT’s Home Consumer department. Mr. PyoLim holds a bachelor’s degree in electronic engineeringbusiness administration from KoreaYonsei 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 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 degreePh.D. in business administration from Cornell University 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 InhaNational University.
Jong-HwanDo Kyun Song has served as our outside director since 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.
Hyun-Nak Leehas served as our outside director since March 2011.2013. He is currently a professor at Sejong University, andan advisor to the law firm of Bae, Kim & Lee LLC. He was formerly a standing member of the KCC and the chief executive officer of Kyonggi Ilbo and an executive director and chief editor of Donga Ilbo.Seoul Broadcasting System Co., Ltd. Mr. LeeSong holds a bachelor’s degree in economicsSpanish literature from Seoul National University.Hanguk University of Foreign Studies.
Byong-Won Bahk has served as our outside director since March 2011. He is currently a chairperson of Korean Federation of Banks. 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 Washington University.
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 World Trade Organization’s General Agreement on Trade in Services. Mr. Sung holds a Ph.D. degree 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 professorProfessor of electricalElectrical and computer engineeringComputer Engineering at Seoul National University. He was formerly a founder and currently an outside director ofPreviously, he founded Transact In Memory, Inc. (currentlyin the United States, which was acquired by SAP AG in 2005, and was subsequently transformed into SAP Labs Korea).Korea, Inc. He continues to serve as a director of SAP Labs Korea, Inc. Mr. Cha holds a Ph.D. degree 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 Digital Cable Laboratories, president of Electronics and Telecommunications Research Institute, and secretary 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 Money Association and a member of the Steering Committee at the Korea Finance Corporation. Mr. Park holds a bachelor’s degree in economics from Seoul National University, a master’s degree in management science from Korea Advanced Institute of Science and Technology and a Ph.D. in economics from Harvard 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 | Sung-Bok Jung
| | President, Legal & Corporate Ethics Office | | January 2009 | | | 3 | | | December 7, 1954 | Yu-Yeol Seo
| | President, Home Business Group | | January 2010 | | | 33 | | | September 9, 1956 | Il-Yung KimKyu-Taek Nam
| | Senior Executive Vice President, Corporate CenterMarketing Group | | January 20102014 | | | 228 | | | September 8, 1956February 6, 1961 | Yeon-Hak Kim
| | Senior Executive Vice President, Mobile Business Chief Operating Office | | January 2012 | | | 24 | | | May 17, 1962 | Hong-Jin KimKyu-Shik Shin
| | Senior Executive Vice President, Global & Enterprise Business Operating OfficeGroup | | January 20122014 | | | 13 | | | April 25, 1953June 7, 1957 | Won-Ki Hong
| | Senior Executive Vice President, Advanced Institute of Technology | | March 2012 | | | 0 | | | September 28, 1959 | Sung-Man KimSeong-Mook Oh
| | Senior Executive Vice President, Network Group | | January 20102014 | | | 2928 | | | October 3, 1956August 20, 1960 | Jung-Hee SongKi Chul Kim
| | Senior Executive Vice President, Service InnovationIT Group | | January 20112014 | | | 19 | | | February 18, 1958 | Hong-Seok Seo
| | Senior Executive Vice President, Corporate Relations Office | | January 2011 | | | 1, | | | November 20, 1960 1955 | In-Sung Jun | | Senior Executive Vice President, Group Shared ServiceCorporate Relations Group | | January 20102014 | | | 3132 | | | October 9, 1958 | Joo-Sung KimJeong-Tae Park
| | Senior Executive Vice President, ContentsLegal & Media Task ForceEthics Office | | March 2012January 2014 | | | 030 | | | December 10, 1959 | Hae-Jung Park | | Executive Vice President, Integrated Marketing Communication Business Unit | | January 2014 | | | 7 | | | May 14, 196023, 1963 | Jeong-TaeJong-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 20122014 | | | 2725 | | | December 10, 1959 | Se-Hyun Oh
| | Executive Vice President, New Business Strategy Department | | January 2011 | | | October 1, | | | July 2, 1963 | Kyu-Taek NamBum-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 | Sun-Cheol Gweon
| | Executive Vice President, Synergy Management Department | | December 2010 | | | 20 | | | March 1, 1962 | Sang-Jik Lee
| | Executive Vice President, Legal Affairs Center | | June 2009 | | | 2 | | | September 6, 1965 | Tae-Hyo Ahn
| | Executive Vice President, Smart Eco Business Unit | | July 2011 | | | 27 | | | January 24, 1962 | Heon-Moon Lim
| | Executive Vice President, Home Business Chief Operating Office | | January 2012 | | | 24 | | | November 15,5, 1960 | Jong-Jin Chae
| | Executive Vice President, Professional Service Business Unit | | January 2012 | | | 25 | | | June 25, 1961 | Dong-Hoon Han | | Executive Vice President, Service Delivery Business UnitManagement Support Group | | December 2010January 2014 | | | 3033 | | | September 12, 1959 | Kyu-Shik ShinSang-Bong Nam
| | Executive Vice President, Domestic Enterprise Chief SalesLegal Affairs Center, Legal & Ethics Office | | January 20122014 | | | 1 | | | June 7, 1957 | Dong-Myun Lee
| | Executive Vice President, Technology Strategy Office | | December 2010 | | | 20 | | | October 15, 1962 | Kyeong-Soo Lee
| | Executive Vice President, Network Strategy Business Unit | | December 2010 | | | 19, | | | February 5, 1960 | Seong-Mok Oh
| | Executive Vice President, Mobile Network Business Unit | | December 2010 | | | 26 | | | August 20, 1960 | Tae-Il Park
| | Executive Vice President, Network Technology Support Business Unit | | December 2010 | | | 33 | | | February 24, 1956 | Hyun-Mi Yang
| | Executive Vice President, Customer Strategy Business Unit | | December 2010 | | | 2 | | | December 4, 1963 | Young-Hee Song
| | Executive Vice President, Content & Media Division | | December 2010 | | | 2 | | | February 10, 1961 | Tae-Yol Yoo | | Executive Vice President, Economics & Management Research LaboratoryInstitute | | January 20092014 | | | 2730 | | | April 4, 1960 | Bum-Joon KimHyeon-Mo Ku
| | Executive Vice President, Financial ManagementCEO Office Chief Financial Officer | | February 2012January 2014 | | | 827 | | | 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 19, 1960 | Dae-Gi Gong | | Senior Vice President, Gwanghwamun Sales Branch, Northern Seoul Sales Headquarter | | January 2014 | | | 27 | | | March 25, 196513, 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 | Seok-Keun Oh
| | Executive Vice President, Corporate Relations Support Office | | January 2012 | | | 13 | | | August 28, 1961 | Gil-Joo Lee
| | Executive Vice President, Public Relations Office | | November 2006 | | | 36 | | | September 20, 1955 | Jae-Geun Choi
| | Executive Vice President, Public Relations Department | | January 2010 | | | 2 | | | November 30, 1961 | Sang-Hyo Kim
| | Executive Vice President, Human Resources Office | | May 2010 | | | 1 | | | April 1, 1956 | Young-Hui Lee
| | Executive Vice President, Human Resources Office | | October 2011 | | | 30 | | | August 7, 1957 | Sa-Il Kwon
| | Executive Vice President, General Affairs Office | | January 2010 | | | 34 | | | January 30, 1957 | Eun-Hye Kim
| | Executive Vice President, Group Media & Communications Office | | December 2010 | | | 1 | | | January 6, 1971 | Yun-Su KimHee-Youp Chang
| | Senior Vice President, Corporate Planning DepartmentGangnam Sales Branch, Southern Seoul Sales Headquarter | | December 2010January 2014 | | | 1928 | | | November 2, 1963October 1, 1959 | Hwa JungSeong-Yll Cheon
| | Senior Vice President, Group Strategy Department | | December 2010 | | | 23 | | | August 10, 1964 | Sangwook Seo
| | Senior Vice President, Strategic Investment Department | | November 2011 | | | 0 | | | January 26, 1972 | Byung-Ho Nam
| | Senior Vice President, Synergy Development Department 1 | | January 2012 | | | 0 | | | February 23, 1967 | Eung-Ho Lee
| | Senior Vice President, Corporate Ethics Department 1 | | January 2010 | | | 21 | | | December 7, 1962 | Eun-Soo Park
| | Senior Vice President, Corporate Ethics Department 2 | | January 2010 | | | 22 | | | January 10, 1962 | Kuk-Hyun Kang
| | Senior Vice President, Mobile Product & Marketing Business Unit | | July 2011 | | | 22 | | | September 8, 1963 | Hyung-Wook Kim
| | Senior Vice President, Mobile Device Planning Department | | January 2010 | | | 15 | | | April 24, 1963 | Hyeon-Mo Ku
| | Senior Vice President, MobileSinsa Sales & CS Business Unit | | January 2012 | | | 24 | | | January 13, 1964 | Hyon-Seog Lee
| | Senior Vice President, Mobile Sales Planning Department | | January 2011 | | | 19 | | | March 10, 1962 | Chang-Young Yoon
| | Senior Vice President,Branch, Southern Metropolitan Mobile Sales Headquarter | | July 2011 | | | 25 | | | February 24, 1957 | Myung-Bum Pyun
| | Senior Vice President, Northern Metropolitan Mobile Sales Headquarter | | July 2011 | | | 14 | | | June 19, 1960 | Jae-Hyeon Kim
| | Senior Vice President, Chungcheong MobileSeoul Sales Headquarter | | January 2010 | | | 14 | | | September 26, 1962 | Bong-Goon Kwak
| | Senior Vice President, Mobile Business Fast Incubation Center | | July 20112014 | | | 27 | | | March 2,April 15, 1960 | Young-LyoulHong-Jae Lee
| | Senior Vice President, olleh tv Business Unit | | December 2010 | | | 5 | | | September 17, 1962 | Hae-Jung Park
| | Senior Vice President, Home Marketing Business Unit | | July 2011 | | | 5 | | | May 23, 1963 | Seung-Dong Gye
| | Senior Vice President, Home Sales Business Unit | | January 2012 | | | 34 | | | June 6, 1958 | Yong-Hwa Park
| | Senior Vice President, Home CS Business Unit | | July 2011 | | | 28 | | | March 2, 1958 | Youn-Mo Jeon
| | Senior Vice President, Southern Seoul Sales Headquarter | | December 2010 | | | 14 | | | September 6, 1960 | Jong-Hack Kang
| | Senior Vice President, NorthernWestern Seoul Sales Headquarter | | January 20122014 | | | 2629 | | | April 5, 1959 | Jun-Su Jeong
| | Senior Vice President, Southern Gyeonggi Sales Headquarter | | December 2010 | | | 19 | | | November 2,August 29, 1962 | Wook-Yeong RyuGang-Geun Lee
| | Senior Vice President, Busan Sales Headquarter | | January 20122014 | | | 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 2014 | | | 35 | | | September 23, 1958 | Yoon-Sik Jeong | | Senior Vice President, Enterprise Customer Business Unit | | January 2014 | | | 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 | | | February 25, 1959 | Jae-Yoon Park | | Senior Vice President, Network Strategy Business Unit | | January 2014 | | | 28 | | | December 18, 1960 | Cheol-Gyu Lee | | Senior Vice President, Network Operation & Maintenance Unit | | January 2014 | | | 28 | | | August 24, 1960 | Chang-Seok Seo | | Senior Vice President, Network Technology Unit | | January 2014 | | | 20 | | | July 5, 1967 | Mi-Na Oh | | Senior Vice President, Core Network Technology Department, Network Technology Unit | | January 2014 | | | 20 | | | April 11, 1969 | Young-Hyun Kim | | Senior Vice President, Gangbuk Network Operation & Maintenance Headquarter | | January 2014 | | | 36 | | | December 20, 195619, 1958 | Doo-Soo ChungYoung-Sik Kim
| | Senior Vice President, Incheon SalesGangnam Network Operation & Maintenance Headquarter | | January 20102014 | | | 3324 | | | August 22,March 15, 1961 | Ho-Won Moon | | Senior Vice President, Busan Network Operation & Maintenance Headquarter | | January 2014 | | | 28 | | | January 7, 1959 |
| | | | | | | | | | | Name(1) | | Title and Responsibilities | | Current Position Held Since | | Years with the Company | | | Date of Birth | Jin-HoonJong-Ok Park
| | Senior Vice President, IT Strategy & Planning Business Unit | | January 2014 | | | 23 | | | January 24, 1962 | June-Keun Kim | | Senior Vice President, Daegu Sales HeadquarterManagement Infrastructure Department, IT Strategy & Planning Business Unit | | January 20122014 | | | 4 | | | November 12, 1966 | Sang-Yong Lee | | Senior Vice President, Data & Information Security Department, IT Strategy & Planning Business Unit | | January 2014 | | | 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 | | | May 5, 1960November 13, 1961 | Young-Beum JooHong-Beom Jeon
| | Senior Vice President, Northern Gyeonggi Sales HeadquarterInfra Laboratory | | January 2012 | | | 22 | | | October 1, 1963 | Jin-Chul Kim
| | Senior Vice President, Jeonnam Sales Headquarter | | January 2012 | | | 23 | | | May 25, 1962 | Pan-Sik Shin
| | Senior Vice President, Global Project TF | | January 2012 | | | 25 | | | February 25, 1959 | Moon-Hwan Lee
| | Senior Vice President, Global & Enterprise Business Strategy Business Unit | | January 20122014 | | | 23 | | | October 1, 19633, 1962 | Won-Sik HanSook-Kyung Sung
| | Senior Vice President, Enterprise Product Business UnitIntellectual Property Rights Department, Infra Laboratory | | January 20122014 | | | 14 | | | November 18, 1964 | Seong-Choon Lee | | Senior Vice President, Service Laboratory | | January 2014 | | | 29 | | | March 28, 1960 | Ji-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, Corporate Planning Department, Strategy & Planning Office | | January 2014 | | | 29 | | | November 5, 1961 | Pill-Jai Lee | | Senior Vice President, Strategic Investment Department, Strategy & Planning Office | | February 2014 | | | 26 | | | October 26, 19603, 1961 | Jun-Sick BahkJeff Kahng
| | Senior Vice President, Global Business Development UnitValuation Department, Synergy Management Office | | January 20122014 | | | 1 | | | February 16, 1967August 13, 1966 | Jung-Sub Kwak
| | Senior Vice President, Global Sales Business Unit | | October 2011 | | | 0 | | | April 2, 1961 | Hyung-JoonWeon-Kyung Kim
| | Senior Vice President, Global Network Business DepartmentHuman Resources Office | | January 2012 | | | 17 | | | November 2, 1963 | Sang-Wook Kim
| | Senior Vice President, Asia Department | | January 2012 | | | 1 | | | February 14, 1965 | Dae-Su Park
| | Senior Vice President, Public Customer Business Unit | | January 2012 | | | 22 | | | October 28, 1963 | Jae-Gyo Kim
| | Senior Vice President, Public Customer Department 1 | | January 2011 | | | 33 | | | September 23, 1958 | Yoon-Sik Jeong
| | Senior Vice President, Enterprise Customer Business Unit 1 | | December 2010 | | | 3 | | | 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, SMB Customer Business Unit | | December 2010 | | | 33 | | | April 9, 1957 | Young-Taik Kim
| | Senior Vice President, Satellite Business Unit | | November 2011 | | | 25 | | | May 10, 1958 | Gang-Geun Lee
| | Senior Vice President, Northern Seoul Corporate Sales Headquarter | | January 20122014 | | | 23 | | | June 22, 196115, 1963 | Hong-Jae LeeDoo-Seong Cheon
| | Senior Vice President, Southern Seoul Corporate Sales HeadquarterHR Development Center, Human Resources Office | | January 20122014 | | | 264 | | | August 29, 1962May 1, 1968 | Hyung-Chul ParkJae-Eui Choi
| | Senior Vice President, Southern Gyeonggi Corporate Sales Headquarter | | December 2010 | | | 26 | Educational Dispatch, Human Resources Office | | February 2, 1962 | Tae-Il Kwon
| | Senior Vice President, Northern Gyeonggi Corporate Sales Headquarter | | January 2012 | | | 26 | | | January 11, 1958 | Sung-Hwan Gong
| | Senior Vice President, Jeonnam Corporate Sales Headquarter | | December 2010 | | | 26 | | | December 21, 1960 | Yoon-Young Park
| | Senior Vice President, Technology Development Office | | January 2010 | | | 19 | | | April 18, 1962 | Han-Wook Jung
| | Senior Vice President, Central R&D Laboratory | | January 2010 | | | 26 | | | January 22, 1961 | Sung-Chun Lee
| | Senior Vice President, Network R&D Laboratory | | December 2010 | | | 26 | | | May 28, 1960 | Jin-Soo Sohn
| | Senior Vice President, Smart Grid & Energy Business Development Unit | | January 2012 | | | 26 | | | December 15, 1960 | Jae-Yoon Park
| | Senior Vice President, Metropolitan Mobile Network O&M Headquarter | | January 2012 | | | 25 | | | December 18, 1960 | Cha-Hyun Yoon
| | Senior Vice President, Network Design Business Unit | | December 2010 | | | 26 | | | December 2, 1961 | Yung-Sig Yoon
| | Senior Vice President, Network O&M Business Unit | | December 20102014 | | | 27 | | | November 20, 1956April 17, 1961 | Young-Hyun KimHoon Cho
| | Senior Vice President, Gangbuk Network O&M HeadquarterEducational Dispatch, Human Resources Office | | January 2012February 2014 | | | 3421 | | | December 19, 19584, 1966 | Chan-Kyung ParkEung-Ho Lee
| | Senior Vice President, Gangnam Network O&M HeadquarterEducational Dispatch, Human Resources Office | | January 2012February 2014 | | | 2623 | | | January 1, 1959December 7, 1962 | Tae-Geun KimMin-Woo Seo
| | Senior Vice President, Chungcheong Network O&M HeadquarterEducational Dispatch, Human Resources Office | | December 2010January 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, Corporate Relations Support Department, Corporate Relations Group | | January 2014 | | | 8 | | | February 9, 1968 | Young-Ho Oh | | Senior Vice President, Public Relations Office | | March 2014 | | | 16 | | | September 16, 19591962 | Min-Woo Seo | | Senior Vice President, Public Relations Office | | January 2014 | | | 28 | | | February 7, 1960 |
| | | | | | | | | | | Name(1) | | Title and Responsibilities | | Current Position Held Since | | Years with the Company | | | Date of Birth | Cheol-GyuByung-Sam Park
| | Senior Vice President, Legal Affairs Department, Legal Affairs Center, Legal & Ethics Office | | January 2014 | | | 1 | | | October 13, 1966 | Hee-Su Kim | | Senior Vice President, Economics & Management Research Institute | | January 2014 | | | 3 | | | October 15, 1962 | Kyung-Joon Lee | | Senior Vice President, Honam Network O&M HeadquarterProject Planning Department, Economics & Management Research Institute | | January 20122014 | | | 23 | | | June 2, 1963 | Hwa Jung | | Senior Vice President, PEG, Project Planning Department, Economics & Management Research Institute | | January 2014 | | | 25 | | | August 24, 196010, 1964 | Kun-Muk ChoSang-Wook Seo
| | Senior Vice President, Busan Network O&M HeadquarterPEG, Project Planning Department, Economics & Management Research Institute | | January 2012 | | | 29 | | | November 7, 1958 | Hyeon-Kyu Lee
| | Senior Vice President, Advanced Platform Development Business Unit | | July 2011 | | | 1 | | | May 13, 1962 | Jae Lee
| | Senior Vice President, Biz & IS Transformation Unit | | December 2010 | | | 1 | | | March 2, 1970 | Moon-Chul Jung
| | Senior Vice President, Customer Satisfaction Planning Business Unit | | January 2012 | | | 26 | | | August 5, 1957 | Ji-Yun Kim
| | Senior Vice President, Cloud Business Unit | | January 2012 | | | 0 | | | January 27, 1968 | Dong-Sik Yun
| | Senior Vice President, Cloud Infrastructure Department | | April 2010 | | | 23 | | | June 9, 1963 | Kyung-Kon Koh
| | Senior Vice President, Internet Business Unit | | December 20102014 | | | 2 | | | April 28, 1963 | Jae-Ho Jang
| | Senior Vice President, IT Strategy Business Unit | | February 2012 | | | 0 | | | July 12, 1962 | Sang-Yong Lee
| | Senior Vice President, Data & Information Security Department | | November 2010 | | | 1 | | | December 23,
1967 | Young-Soo Woo
| | Senior Vice President, Value Creation Unit | | March, 2012 | | | 0 | | | August 13, 1964January 26, 1972 | Hyo-Sill Kim | | Senior Vice President, Smart Network Policy TFPEG, Project Planning Department, Economics & Management Research Institute | | February 2012January 2014 | | | 1921 | | | April 17, 1963 | Gwang-Suk ShinJae-Yon Cha
| | Senior Vice President, Financial ResourcesFinance Department, 1CEO Office | | December 2010January 2014 | | | 23 | | | January 5, 1960 | Seong-Jin Lee
| | Senior Vice President, Accounting Department | | January 2009 | | | 15 | | | December 2, 1958 | Hee-Su Kim
| | Senior Vice President, Corporate Relations Strategy Department | | February 2012 | | | 0 | | | October 15, 1962 | Choong-Seop Lee
| | Senior Vice President, Corporate Relations Cooperation Department | | January 2012 | | | 12 | | | June 3, 1958 | Young-Pil Park
| | Senior Vice President, Corporate Relations Support Department | | March 2009 | | | 7 | | | February 9, 1968 | Yong-Seok Yoon
| | Senior Vice President, Real Assets Management Office | | January 2012 | | | 19 | | | April 10, 1957 | Sang-Pyo Kwon
| | Senior Vice President, Procurement Strategy Office | | January 2012 | | | 26 | | | January 7, 1960 | Kwang-Jin Oh
| | Senior Vice President, Group Consulting Support Office | | January 2012 | | | 14 | | | January 15, 1959 | Pill-Jai Lee
| | Senior Vice President, BTO Planning Department | | September 2010 | | | 24 | | | October 3, 1961 | Sung-Hoon Shim
| | Senior Vice President, CEO Office | | January 2009 | | | 23 | | | February 25, 1964 | Ki-Soong Jang
| | Senior Vice President, Educational Dispatch | | January 2012 | | | 26 | | | October 17, 1958 | Jung-Won Park
| | Senior Vice President, Educational Dispatch | | January 2012 | | | 25 | | | July 26, 1959 | Hong-Beom Jeon
| | Senior Vice President, Educational Dispatch | | January 2012 | | | 20 | | | October 3, 1962 | Dae-San Lee
| | Senior Vice President, Research and Development | | January 2012 | | | 25 | | | January 10, 1961 | Seok-Gyoon Na
| | Senior Vice President, Research and Development | | January 2012 | | | 27 | | | October 26, 19581965 |
(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 In 2011,2013, the total amount of salaries, bonuses (including long-term performance-based incentives for directors) and allowances paid and accrued to all directors of KT Corporation for services in all capacities was approximately(Won)₩5 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)₩270639 million. The compensation of our directors and executive officers who received total annual compensation exceeding₩500 million in 2011. 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, 2011,2013, 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 onenon-independent director, Choon-Ho Lee, E. Han Kim,Suk-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 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, Hyun-Nak Lee, Choon-Ho Lee, Jong-HwanChu-Hwan Yim, Do Kyun Song, Pil Hwa Yoo and Keuk Je Sung.Suk-Gwon Chang. The chairperson is Hyun-Nak Lee.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 management 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 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, Byong Won Bahk, Keuk Je Sung, Jong-Goo Kim, Chu-Hwan Yim and Sang Kyun Cha.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 Hyun-Nak Lee, E. HanJong-Goo Kim, Keuk Je Sung, Sang Kyun Cha and Byong Won Bahk.Pil Hwa Yoo. The chairperson is Hyun-Nak Lee.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 31,21532,451 employees as of December 31, 2011,2013, compared to 31,15532,186 employees as of December 31, 20102012 and 30,84131,981 employees as of December 31, 2009.2011. 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 and 2011, 124 and 334 employees, respectively, retired under KT Corporation’s voluntary early retirement plan. We did not have a special voluntary early retirement program, in 2010 or 2011.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, 2011,2013, about 78.5%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 became 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 1.36%1.05% of our issued shares as of December 31, 2011.2013. 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 April 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 April 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)₩426586 billion as of December 31, 2011.2013. 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, 57,3395,599 common shares as of March 31, 2012,2014, 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
| | | 33,793— | | Sang-Hoon LeeHoon Han
| | | 13,8001,500 | | Hyun-Myung PyoHeon Moon Lim
| | | 6,266907 | | Sang Kyun ChaPil Hwa Yoo
| | | 2,400— | | E. Han Kim
| | | 270 | | Choon-Ho Lee
| | | 270 | | Jong-Hwan Song
| | | 270 | | Hae-Bang Chung
| | | 270 | | Hyun Nak LeeSuk-Gwon Chang
| | | — | | Keuk Je Sung | | | 396 | | Sang Kyun Cha | | | 2,796 | | Do Kyun Song | | | — | | Jong-Goo Kim | | | — | | Dae-Keun Park | | | — | | Chu-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, 2011:2013: | | | | | | | | | Shareholders | | Number of Shares | | | Percent of Total Shares Issued | | National Pension Corporation | | | 22,373,434 | | | | 8.57 | % | NTTDoCoMo, Inc. | | | 14,257,813 | | | | 5.46 | % | Employee stock ownership association | | | 3,558,570 | | | | 1.36 | % | Directors as a group | | | 57,339 | | | | 0.01 | % | Public | | | 203,054,090 | | | | 77.77 | % | KT Corporation (held in the form of treasury stock)(1) | | | 17,810,562 | | | | 6.82 | % | | | | | | | | | | 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 engaged in various transactions with our subsidiaries and affiliated companies. See Notes 35Note 34 to the Consolidated Financial Statements. We have not issued any guarantees in favor of our 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 Korea Communications CommissionKCC to terminate our 2G PCS services, and on November 23, 2011, the Korea Communications CommissionKCC approved our plan. However, on November 30, 2011, approximately 900 of our 2G PCS service subscribers filed a class-action suit against the Korea Communications CommissionKCC for its approval of our plan, claiming that we used improper means to reduce our 2G PCS subscribers to comply with regulatory requirements before terminating the 2G PSC services and that the Korea Communications CommissionKCC 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 PCS 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 Korea Communications Commission’sKCC’s approval. Accordingly, we terminated our 2G PCS 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. The outcomeOn 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 trial, and any effect it may have on us, cannot be determined at this time.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 MarchJuly 2012, the Fair Trade Commission issued to us an administrative fine of approximately(Won)₩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 expectfiled 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 paythe 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 second halfthree 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 2012.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) | | 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 | | | | 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 April 26, 201228, 2014 was(Won)₩29,65032,600 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 since January 2007.2009: | | | Price | | | Average Daily Trading Volume | | | Price | | | Average Daily Trading Volume | | | | High | | Low | | | | High | | | Low | | | | | (In Won) | | | (Number of shares) | | | (In Won) | | | (Number of shares) | | 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 | | | | 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 | | | 50,600 | | | | 39,150 | | | | 1,838,430 | | | | 35,450 | | | | 31,450 | | | | 1,031,595 | | Second quarter | | | 49,350 | | | | 44,650 | | | | 1,353,466 | | | | 31,600 | | | | 27,700 | | | | 1,056,858 | | Third quarter | | | 45,700 | | | | 41,100 | | | | 1,148,613 | | | | 36,350 | | | | 30,650 | | | | 1,181,895 | | Fourth quarter | | | 49,200 | | | | 43,500 | | | | 1,033,436 | | | | 39,750 | | | | 34,500 | | | | 993,862 | | 2011 | | | 45,500 | | | | 34,200 | | | | 1,063,506 | | | First quarter | | | 45,500 | | | | 37,850 | | | | 1,131,917 | | | Second quarter | | | 40,700 | | | | 36,350 | | | | 874,054 | | | Third quarter | | | 40,700 | | | | 34,200 | | | | 1,287,651 | | | Fourth quarter | | | 38,300 | | | | 35,450 | | | | 960,651 | | | 2012 (through April 26) | | | 35,450 | | | | 29,650 | | | | 969,569 | | | First quarter | | | 35,450 | | | | 30,650 | | | | 1,025,698 | | | January | | | 35,450 | | | | 33,150 | | | | 1,182,018 | | | February | | | 33,700 | | | | 32,100 | | | | 1,070,467 | | | March | | | 33,100 | | | | 30,650 | | | | 863,037 | | | Second quarter (through April 26) | | | 31,600 | | | | 29,650 | | | | 755,923 | | | April (through April 26) | | | 31,600 | | | | 29,650 | | | | 755,923 | | |
| | | | | | | | | | | | | | | 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 April 26, 201225, 2014 was $12.93$15.36 per ADS.TheADS. The table below shows the high and low trading prices and the average daily volume of trading activity on the New York Stock Exchange for our ADSs since January 2007.2009: | | | Price | | | Average Daily Trading Volume | | | Price | | | Average Daily Trading Volume | | | | High | | | Low | | | | High | | | Low | | | | | (In US$) | | | (Number of ADSs) | | | (In US$) | | | (Number of ADSs) | | 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 | | | | 22.62 | | | | 17.12 | | | | 784,905 | | 2011 | | | | 20.86 | | | | 14.49 | | | | 1,124,692 | | 2012 | | | | 18.23 | | | | 11.65 | | | | 1,004,064 | | First quarter | | | 21.43 | | | | 17.12 | | | | 718,461 | | | | 15.49 | | | | 13.69 | | | | 1,436,411 | | Second quarter | | | 22.62 | | | | 18.61 | | | | 744,727 | | | | 13.90 | | | | 11.65 | | | | 938,943 | | Third quarter | | | 20.46 | | | | 17.79 | | | | 868,906 | | | | 16.24 | | | | 13.38 | | | | 887,720 | | Fourth quarter | | | 22.07 | | | | 20.29 | | | | 803,784 | | | | 18.23 | | | | 15.38 | | | | 756,111 | | 2011 | | | 20.86 | | | | 14.49 | | | | 1,124,692 | | | 2013 | | | | 18.16 | | | | 14.33 | | | | 528,291 | | First quarter | | | 20.72 | | | | 18.34 | | | | 1,380,642 | | | | 18.07 | | | | 15.65 | | | | 766,282 | | Second quarter | | | 20.86 | | | | 17.75 | | | | 1,184,508 | | | | 18.16 | | | | 14.92 | | | | 518,995 | | Third quarter | | | 19.86 | | | | 14.78 | | | | 1,132,314 | | | | 17.25 | | | | 15.00 | | | | 368,603 | | Fourth quarter | | | 17.52 | | | | 14.49 | | | | 805,246 | | | | 17.24 | | | | 14.33 | | | | 474,159 | | 2012 (through April 26) | | | 15.49 | | | | 12.93 | | | | 1,331,248 | | | 2014 (through April 25) | | | | 15.73 | | | | 13.24 | | | | 527,105 | | First quarter | | | 15.49 | | | | 13.69 | | | | 1,436,313 | | | | 14.75 | | | | 13.24 | | | | 515,373 | | January | | | 15.49 | | | | 14.36 | | | | 1,529,210 | | | | 14.75 | | | | 13.41 | | | | 711,009 | | February | | | 15.20 | | | | 14.18 | | | | 1,298,580 | | | | 14.19 | | | | 13.56 | | | | 443,384 | | March | | | 14.80 | | | | 13.69 | | | | 1,386,164 | | | | 13.89 | | | | 13.24 | | | | 384,870 | | Second quarter (through April 26) | | | 13.90 | | | | 12.93 | | | | 969,356 | | | April (through April 26) | | | 13.90 | | | | 12.93 | | | | 969,356 | | | 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 Dealers Financial 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 | | | 2,078.08 | | | | 2,228.96 | | | | 1,652.71 | | | | 1,825.74 | | | | 1.5 | | | | 10.9 | | | 2012 (through April 26) | | | 1,826.37 | | | | 2,029.29 | | | | 1,875.68 | | | | 1,964.04 | | | | 1.4 | | | | 11.5 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | |
| | | 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 | | | | 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 | | | 791 | | | | 1,041,999 | | | | 903,493 | | | | 353,760 | | | | 6,863,146 | | | | 5,950,877 | | | | 791 | | | | 1,041,999 | | | | 903,493 | | | | 353,760 | | | | 6,863,146 | | | | 5,950,877 | | 2012 (through April 26) | | | 788 | | | | 1,129,236 | | | | 991,080 | | | | 518,357 | | | | 5,659,853 | | | | 4,967,398 | | | 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. Foreign investors are 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. Foreign investors are 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. Foreigners 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, 2011,2013, 261,111,808 Common Shares were issued, of which 17,897,14717,308,160 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, 2011, 1.36%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, both of conditions (i) and (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, 2011,2013, there were 17,897,14717,221,575 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 We have not entered into any material contracts since January 1, 2010, other than in the ordinary course of our business. For information regarding our agreements and transactions with certain related parties, see “Item 7.B. Related Party Transactions” and Note 3534 to the Consolidated Financial Statements. For a description of certain agreements entered into during the past two years related to our capital commitments and obligations, see “Item 5.B. Liquidity and 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 securities. Our long-term financial policies are annually reported to our Board of Directors, and our Value ManagementFinance Office conducts financial risk management and assessment. Upon identification and evaluation of our risk exposures, we, selectivelyhaving considered various circumstances, enter into derivative financial instruments to try to manage thesome 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 largely for hedging purposes. For our trading derivative contracts,financial instruments, we recognized a valuation gain of(Won)21 billion and a valuation loss of(Won)0 billion in 2010 and a valuation gain of(Won)₩13 billion and a valuation loss of(Won)₩0 billion in 2011.2011, 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(Won)₩3553 billion, a valuation loss of(Won)47 billion and accumulated other comprehensive expense of(Won)49 billion in 2010 and a valuation gain of(Won)54 billion, a valuation loss of(Won)₩9 billion and accumulated other comprehensive income of(Won)₩2283 billion in 2011.2011, 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 regarding the assets, liabilities, gains and losses recorded relating to our derivative contracts outstanding as of December 31, 20102011, 2012 and 2011,2013, see Note 98 to the Consolidated Financial Statements. 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. We have entered into several currency swap contracts, 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, 20102011, 2012 and 2011.2013: | | | As of December 31, | | | As of December 31, | | | | 2010 | | | 2011 | | | 2011 | | | 2012 | | | 2013 | | (in thousands of foreign currencies) | | Financial assets | | | Financial liabilities | | | Financial assets | | | Financial liabilities | | | Financial assets | | | Financial liabilities | | | Financial assets | | | Financial liabilities | | | Financial assets | | | Financial liabilities | | U.S. Dollar | | | 201,620 | | | | 2,421,054 | | | | 209,742 | | | | 2,299,644 | | | | 235,435 | | | | 2,323,677 | | | | 217,488 | | | | 2,377,137 | | | | 254,917 | | | | 2,225,700 | | Special Drawing Right | | | 5,721 | | | | 4,256 | | | | 1,160 | | | | 744 | | | | 1,160 | | | | 744 | | | | 494 | | | | 1,130 | | | | 1,105 | | | | 1,211 | | Japanese Yen | | | 970,586 | | | | 19,913,770 | | | | 1,080,392 | | | | 35,446,361 | | | | 1,080,822 | | | | 35,451,398 | | | | 657,947 | | | | 35,102,877 | | | | 190,520 | | | | 30,054,316 | | British Pound | | | 6 | | | | 131 | | | | 7 | | | | 108 | | | | 7 | | | | 131 | | | | 1 | | | | 9 | | | | — | | | | 134 | | Euro | | | 632 | | | | 1,317 | | | | 1,239 | | | | 3,357 | | | | 1,239 | | | | 3,357 | | | | 5,395 | | | | 2,614 | | | | 1,342 | | | | 4,943 | | Algerian Dinar | | | 20,339 | | | | — | | | | 18,714 | | | | — | | | | 18,714 | | | | — | | | | 3,770 | | | | — | | | | 2,798 | | | | — | | Chinese Yuan | | | 14,772 | | | | 991 | | | | 14,495 | | | | 700 | | | | 14,495 | | | | 700 | | | | 10,236 | | | | 197 | | | | — | | | | — | | Russian Ruble | | | 1,412,479 | | | | 238,975 | | | | — | | | | — | | | Uzbekistani Sum | | | 16,679,037 | | | | 59,788,523 | | | | — | | | | — | | | 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 | | | | 411,687 | | | | 10,000 | | | | 347,447 | | | | — | | | | — | | | | — | |
As of December 31, 20102011, 2012 and 2011,2013, a 10% increase in the exchange rate between the Won and all foreign currencies, with all other variables held constant, would have decreased our profitincome before income tax by(Won)₩6157 billion,₩65 billion and(Won)₩5746 billion, respectively, and shareholders’total equity by(Won)₩4650 billion,₩52 billion and(Won)₩5048 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 3635 to the Consolidated Financial Statements. 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 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 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, 20112013 which are sensitive to exchange rates and/or interest rates. The information is presented in Won, which is our reporting currency.currency: | | | Maturities | | | | | | | | | | | | | | | | | December 31, 2011 | | | | | | | | | | | | | | | | | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | Thereafter | | Total | | Fair Value | | | | | | | | | | | | | December 31, 2013 | | | | (In Won millions except rates) | | | 2014 | | 2015 | | 2016 | | 2017 | | Thereafter | | Total | | Fair Value | | Local currency: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed rate | | | 1,690,076 | | | | 1,527,610 | | | | 1,239,051 | | | | 612,648 | | | | 1,239,476 | | | | 1,618,963 | | | | 7,927,824 | | | | 7,975,810 | | | | 2,171,414 | | | | 1,269,235 | | | | 1,900,179 | | | | 707,493 | | | | 2,826,023 | | | | 8,874,344 | | | | 8,913,379 | | Average weighted rate (1) | | | 4.75 | % | | | 5.46 | % | | | 5.03 | % | | | 5.35 | % | | | 4.31 | % | | | 4.61 | % | | | 4.21 | % | | | — | | | | 4.47 | % | | | 4.33 | % | | | 4.06 | % | | | 4.00 | % | | | 3.91 | % | | | 4.15 | % | | | — | % | Variable rate | | | 51,342 | | | | 15,000 | | | | 30,000 | | | | 40,000 | | | | 0 | | | | 0 | | | | 136,342 | | | | 137,048 | | | | 101,640 | | | | 41,280 | | | | 20,000 | | | | — | | | | — | | | | 162,920 | | | | 164,686 | | Average weighted rate (1) | | | 3.77 | % | | | 4.94 | % | | | 4.54 | % | | | 4.97 | % | | | 0 | % | | | 0 | % | | | 4.42 | % | | | — | | | | 3.66 | % | | | 3.08 | % | | | 3.09 | % | | | 0.00 | % | | | 0.00 | % | | | 3.44 | % | | | — | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Sub-total | | | 1,741,418 | | | | 1,542,610 | | | | 1,269,051 | | | | 652,648 | | | | 1,239,476 | | | | 1,618,963 | | | | 8,064,166 | | | | 8,112,858 | | | | 2,273,054 | | | | 1,310,515 | | | | 1,920,179 | | | | 707,493 | | | | 2,826,023 | | | | 9,037,264 | | | | 9,078,065 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed rate | | | 235,243 | | | | 519,806 | | | | 691,980 | | | | 461,320 | | | | 230,660 | | | | 115,330 | | | | 2,254,339 | | | | 2,327,392 | | | | 635,495 | | | | 472,353 | | | | 393,908 | | | | 369,355 | | | | 173,847 | | | | 2,044,958 | | | | 2,018,733 | | Average weighted rate (1) | | | 5.35 | % | | | 1.58 | % | | | 5.88 | % | | | 4.88 | % | | | 5.88 | % | | | 6.50 | % | | | 4.66 | % | | | — | | | | 5.86 | % | | | 4.42 | % | | | 3.48 | % | | | 3.88 | % | | | 4.28 | % | | | 4.58 | % | | | — | % | Variable rate | | | 136,842 | | | | 461,320 | | | | 115,330 | | | | 0 | | | | 0 | | | | 0 | | | | 713,492 | | | | 686,780 | | | | 107,852 | | | | — | | | | — | | | | — | | | | 316,590 | | | | 424,442 | | | | 402,847 | | Average weighted rate (1) | | | 2.08 | % | | | 1.59 | % | | | 1.52 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 1.67 | % | | | — | | | | 1.32 | % | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 1.40 | % | | | 1.38 | % | | | 0.00 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Subtotal | | | 372,085 | | | | 981,126 | | | | 807,310 | | | | 461,320 | | | | 230,660 | | | | 115,330 | | | | 2,967,831 | | | | 3,014,172 | | | | 743,347 | | | | 472,353 | | | | 393,908 | | | | 369,355 | | | | 490,437 | | | | 2,469,400 | | | | 2,421,580 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 2,113,503 | | | | 2,523,736 | | | | 2,076,361 | | | | 1,113,968 | | | | 1,470,136 | | | | 1,734,293 | | | | 11,031,997 | | | | 11,127,030 | | | | 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, 20102011 and 2011,2012 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(Won)₩12 billion and(Won)₩1 billion,562 million, respectively and shareholders’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(Won)₩4 billion581 million and(Won)₩345368 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(Won)₩1713 billion,₩5 billion and(Won)₩1317 billion, respectively, and shareholders’total equity by(Won)₩1514 billion,₩5 billion and 14₩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, 20102011, 2012 and 2011,2013, a 10% increase in the equity indices where our marketable equity securities are listed, with all other variables held constant, would have increased our shareholders’total equity by(Won)₩210 billion,₩5 billion and(Won)₩46 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 2011,2013, we received the following payments, after deduction of applicable U.S. taxes, from the depositary: | | | | | | | Reimbursement of NYSE listing fees: | | $ | 103,750 | | | | Reimbursement of SEC filing fees: | | $ | 11,779 | | | | Reimbursement of settlement infrastructure fees (including maintenance fees): | | $ | 180,269 | | | | Reimbursement of proxy process expenses (printing, postage and distribution): | | $ | 40,292 | | | | Reimbursement of legal fees (reimbursement received in April 2012 in respect of 2011): | | $ | 363,953 | | | | Contributions toward our investor relations efforts (including non-deal roadshows, investor conferences and investor relations agency fees): | | $ | 456,951 | |
| | | | | 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, 2011.2013. 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, 20112013 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, 2011.2013. 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, 2011,2013, 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][Reserved] Item 16A. Audit Committee Financial Expert AtIn March 2014, our shareholders elected Keuk Je Sung, Jong-Goo Kim and Pil Hwa Yoo as members of the Audit Committee at our annual shareholders’ meetings in March 2012, our shareholders reelected E. Han Kim as a member of the Audit Committee.meeting. Our Audit Committee is comprised of Hyun-Nak Lee, E. HanSang Kyun Cha, Keuk Je Sung, Jong-Goo Kim and Byong Won Bahk.Pil Hwa Yoo. The board of directors has determined that E. Han Kim and Byong Won Bahk arePil Hwa Yoo is the audit committee financial experts.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 auditors,registered public accounting firm, during the fiscal year ended December 31, 20102012 and 2011:2013: | | | Year Ended December 31, | | | Year Ended December 31, | | | | 2010 | | | 2011 | | | 2012 | | | 2013 | | | | (In millions) | | | (In millions) | | Audit fees(1) | | (Won) | 2,380 | | | (Won) | 2,492 | | | ₩ | 2,830 | | | ₩ | 2,840 | | Audit-related fees | | | 70 | | | | 100 | | | | 0 | | | | 0 | | Tax fees(2) | | | 43 | | | | 146 | | | | 188 | | | | 1,778 | | Other fees | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | | | | | | | | | | | | Total fees | | (Won) | 2,493 | | | (Won) | 2,738 | | | ₩ | 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, 2011:2013: | | | | | | | | | | | | | | | | | 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 | | | — | | | | — | | | | — | | | | — | | 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. |
| | | NYSE Corporate Governance Standards
| | KT Corporation’s Corporate Governance Practice
| | | 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 nomination/nominating/corporate governance 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. | | | 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 Applicableapplicable. 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 | | Consolidated Statements of Financial Position as of December 31, 2010, 20112012 and January 1, 20102013 | | | F-2F-3 | | Consolidated Statements of IncomeOperations for the Years Ended December 31, 20102011, 2012 and 20112013 | | | F-5 | | Consolidated Statements of Comprehensive Income for the Years Ended December 31, 20102011, 2012 and 20112013 | | | F-6 | | Consolidated Statements of Changes in Shareholders’Shareholder’s Equity for the Years Ended December 31, 20102011, 2012 and 20112013 | | | F-7 | | Consolidated Statements of Cash Flows for the Years Ended December 31, 20102011, 2012 and 20112013 | | | F-10F-11 | | Notes to Consolidated Financial Statements | | | F-11F-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) | | | | 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 statements of financial position and the related consolidated statements of income,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, 20112013 and 2010 and January 1, 20102012 , and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 and 20102013 in conformity with International Financial Reporting Standards as issued by the 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, 2011,2013, 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 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 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 audits 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.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 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 April 26, 201228, 2014 KT Corporation and Subsidiaries Consolidated Statements of Financial Position January 1, 2010 and December 31, 20102012 and 20112013
| | | | | | | | | | | | | | (in thousands of U.S dollars) | | | | | | | | | | | (in thousands of U.S dollars) | | (in millions of Korean won) | | Notes | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | | 12.31.2011 | | | Notes | | 2012 | | | 2013 | | | 2013 | | | | | | | | | | | | | | | (Note 2) | | | | | (Restated) | | | | | | (Unaudited) (Note 2) | | Assets | | | | | | | | | | | | | | | | | | | Current assets | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | 2, 5, 6, 36 | | (Won) | 1,542,872 | | | (Won) | 1,161,641 | | | (Won) | 1,445,169 | | | $ | 1,253,073 | | | 4, 5 | | ₩ | 2,057,613 | | | ₩ | 2,070,869 | | | $ | 1,962,350 | | Trade and other receivables, net | | 2, 5, 7, 35, 36 | | | 3,735,368 | | | | 4,193,377 | | | | 6,158,914 | | | | 5,340,253 | | | 4, 6 | | | 5,907,508 | | | | 5,239,569 | | | | 4,965,004 | | Short-term loans, net | | 2, 5, 8, 36 | | | 443,722 | | | | 725,342 | | | | 698,030 | | | | 605,246 | | | 4, 7 | | | 668,113 | | | | 838,724 | | | | 794,773 | | Current finance lease receivables, net | | 2, 5, 21, 36 | | | 198,987 | | | | 194,771 | | | | 248,703 | | | | 215,645 | | | 4, 21 | | | 339,846 | | | | 294,208 | | | | 278,791 | | Other financial assets | | 2, 5, 9, 36 | | | 386,717 | | | | 269,692 | | | | 253,625 | | | | 219,912 | | | 4, 8 | | | 245,985 | | | | 480,062 | | | | 454,906 | | Current income tax assets | | 2 | | | 26,664 | | | | 287 | | | | 838 | | | | 727 | | | | | | 862 | | | | 35,273 | | | | 33,425 | | Inventories, net | | 2, 10 | | | 765,378 | | | | 710,617 | | | | 674,727 | | | | 585,040 | | | 9 | | | 935,033 | | | | 673,618 | | | | 638,319 | | Other current assets | | 11, 35 | | | 211,682 | | | | 263,720 | | | | 310,653 | | | | 269,360 | | | 10 | | | 362,459 | | | | 339,596 | | | | 321,800 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total current assets | | | | | 7,311,390 | | | | 7,519,447 | | | | 9,790,659 | | | | 8,489,256 | | | | | | 10,517,419 | | | | 9,971,919 | | | | 9,449,368 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-current assets | | | | | | | | | | | | | | | | | | | Trade and other receivables, net | | 2, 5, 7, 35, 36 | | | 779,639 | | | | 1,125,336 | | | | 1,723,415 | | | | 1,494,334 | | | 4, 6 | | | 1,072,966 | | | | 813,471 | | | | 770,843 | | Long-term loans, net | | 2, 5, 8, 36 | | | 467,507 | | | | 407,879 | | | | 491,301 | | | | 425,996 | | | 4, 7 | | | 512,587 | | | | 509,873 | | | | 483,155 | | Non-current finance lease receivables, net | | 2, 5, 21, 36 | | | 323,778 | | | | 402,568 | | | | 487,957 | | | | 423,096 | | | 4, 21 | | | 521,809 | | | | 415,729 | | | | 393,944 | | Other financial assets | | 2, 5, 9, 36 | | | 403,667 | | | | 269,358 | | | | 621,699 | | | | 539,061 | | | 4, 8 | | | 672,475 | | | | 672,645 | | | | 637,397 | | Property and equipment, net | | 2, 12, 21, 34 | | | 14,032,578 | | | | 13,398,272 | | | | 14,022,695 | | | | 12,158,757 | | | 11, 21 | | | 15,806,366 | | | | 16,386,964 | | | | 15,528,252 | | Investment property, net | | 2, 13, 34 | | | 1,030,018 | | | | 1,146,250 | | | | 1,159,105 | | | | 1,005,033 | | | 12 | | | 1,155,213 | | | | 1,105,495 | | | | 1,047,565 | | Intangible assets, net | | 2, 14, 34 | | | 1,385,694 | | | | 1,418,920 | | | | 2,643,485 | | | | 2,292,105 | | | 13 | | | 3,213,638 | | | | 3,827,393 | | | | 3,626,829 | | Investments in jointly controlled entities and associates | | 2, 15 | | | 306,064 | | | | 638,061 | | | | 529,184 | | | | 458,843 | | | 14 | | | 379,495 | | | | 363,903 | | | | 344,834 | | Deferred income tax assets | | 2, 30 | | | 570,778 | | | | 565,329 | | | | 529,856 | | | | 459,426 | | | 29 | | | 610,762 | | | | 706,977 | | | | 669,930 | | Other non-current assets | | 2, 11 | | | 52,581 | | | | 50,183 | | | | 86,053 | | | | 74,616 | | | 10 | | | 95,178 | | | | 75,748 | | | | 71,779 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total non-current assets | | | | | 19,352,304 | | | | 19,422,156 | | | | 22,294,750 | | | | 19,331,267 | | | | | | 24,040,489 | | | | 24,878,198 | | | | 23,574,528 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total assets | | | | (Won) | 26,663,694 | | | (Won) | 26,941,603 | | | (Won) | 32,085,409 | | | $ | 27,820,523 | | | | | ₩ | 34,557,908 | | | ₩ | 34,850,117 | | | $ | 33,023,896 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
KT Corporation and Subsidiaries Consolidated Statements of Financial Position (Continued)(continued) January 1, 2010 and December 31, 20102012 and 20112013
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in thousands of U.S dollars) | | (in millions of Korean won) | | Notes | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | | 12.31.2011 | | | | | | | | | | | | | | | (Note 2) | | Liabilities and Equity | | | | | | | | | | | | | | | | | | | Current liabilities | | | | | | | | | | | | | | | | | | | Trade and other payables | | 5, 16, 35, 36 | | (Won) | 5,288,058 | | | (Won) | 4,424,198 | | | (Won) | 5,890,425 | | | $ | 5,107,453 | | Current finance lease liabilities, net | | 5, 21, 35, 36 | | | 6,224 | | | | 33,089 | | | | 46,155 | | | | 40,020 | | Borrowings | | 5, 17, 36 | | | 2,049,155 | | | | 2,722,458 | | | | 2,112,438 | | | | 1,831,647 | | Other financial liabilities | | 5, 9, 20, 36 | | | 7,378 | | | | 1,143 | | | | 8,287 | | | | 7,185 | | Current income tax liabilities | | | | | 9,702 | | | | 283,828 | | | | 187,070 | | | | 162,204 | | Provisions | | 18, 20 | | | 28,906 | | | | 58,477 | | | | 122,585 | | | | 106,291 | | Deferred revenue | | | | | 128,308 | | | | 176,652 | | | | 167,907 | | | | 145,588 | | Other current liabilities | | 11, 35 | | | 222,838 | | | | 184,828 | | | | 210,258 | | | | 182,309 | | | | | | | | | | | | | | | | | | | | | Total current liabilities | | | | | 7,740,569 | | | | 7,884,673 | | | | 8,745,125 | | | | 7,582,697 | | | | | | | | | | | | | | | | | | | | | Non-current liabilities | | | | | | | | | | | | | | | | | | | Trade and other payables | | 5, 16, 35, 36 | | | 295,621 | | | | 381,507 | | | | 651,713 | | | | 565,085 | | Non-current finance lease liabilities, net | | 5, 21, 35, 36 | | | 1,329 | | | | 60,767 | | | | 90,042 | | | | 78,073 | | Borrowings | | 5, 17, 36 | | | 7,517,545 | | | | 6,659,906 | | | | 8,886,114 | | | | 7,704,946 | | Other financial liabilities | | 5, 9, 20, 36 | | | 19,487 | | | | 37,783 | | | | 288,473 | | | | 250,128 | | Retirement benefit liabilities | | 19 | | | 86,026 | | | | 263,978 | | | | 425,712 | | | | 369,125 | | Provisions | | 18, 20 | | | 102,999 | | | | 110,400 | | | | 142,965 | | | | 123,962 | | Deferred revenue | | | | | 154,448 | | | | 156,873 | | | | 160,981 | | | | 139,583 | | Deferred income tax liabilities | | 30 | | | 2,242 | | | | 4,449 | | | | 124,437 | | | | 107,896 | | Other non-current liabilities | | 11, 35 | | | 28,612 | | | | 27,212 | | | | 32,038 | | | | 27,781 | | | | | | | | | | | | | | | | | | | | | Total non-current liabilities | | | | | 8,208,309 | | | | 7,702,875 | | | | 10,802,475 | | | | 9,366,579 | | | | | | | | | | | | | | | | | | | | | Total liabilities | | | | (Won) | 15,948,878 | | | (Won) | 15,587,548 | | | (Won) | 19,547,600 | | | $ | 16,949,276 | | | | | | | | | | | | | | | | | | | | |
KT Corporation and Subsidiaries
Consolidated Statements of Financial Position (Continued)
January 1, 2010 and December 31, 2010 and 2011
| | | | | | | | | | | (in thousands of U.S dollars) | | | | | | | (in thousands of U.S dollars) | | (in millions of Korean won) | | Notes | | 1.1.2010 | | 12.31.2010 | | 12.31.2011 | | 12.31.2011 | | | 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 | | (Won) | 1,564,499 | | | (Won) | 1,564,499 | | | (Won) | 1,564,499 | | | $ | 1,356,541 | | | 22 | | | 1,564,499 | | | | 1,564,499 | | | | 1,482,516 | | Share premium | | | | | 1,440,258 | | | | 1,440,258 | | | | 1,440,258 | | | | 1,248,815 | | | | | | 1,440,258 | | | | 1,440,258 | | | | 1,364,785 | | Retained earnings | | 23 | | | 9,693,037 | | | | 9,466,168 | | | | 10,219,633 | | | | 8,861,210 | | | 23 | | | 10,646,383 | | | | 10,019,389 | | | | 9,494,351 | | Accumulated other comprehensive income | | | | | (40,557 | ) | | | (79,370 | ) | | | (22,865 | ) | | | (19,826 | ) | | 24 | | | 1,325 | | | | 24,538 | | | | 23,252 | | Other components of equity | | 24, 25 | | | (2,154,147 | ) | | | (1,258,293 | ) | | | (1,497,289 | ) | | | (1,298,265 | ) | | 24, 25 | | | (1,343,286 | ) | | | (1,320,943 | ) | | | (1,251,723 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 10,503,090 | | | | 11,133,262 | | | | 11,704,236 | | | | 10,148,475 | | | | | | 12,309,179 | | | | 11,727,741 | | | | 11,113,181 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-controlling interest | | | | | 211,726 | | | | 220,793 | | | | 833,573 | | | | 722,772 | | | | | | 908,796 | | | | 1,109,675 | | | | 1,051,526 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total equity | | | | | 10,714,816 | | | | 11,354,055 | | | | 12,537,809 | | | | 10,871,247 | | | | | | 13,217,975 | | | | 12,837,416 | | | | 12,164,707 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total liabilities and shareholders’ equity | | | | (Won) | 26,663,694 | | | (Won) | 26,941,603 | | | (Won) | 32,085,409 | | | $ | 27,820,523 | | | 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 ended December 31, 20102011, 2012 and 20112013 | (in millions of Korean won, except per share amounts) | | Notes | | 2010 | | | 2011 | | | (in thousands of U.S dollars) | | | | | | | | | | | (in thousands of U.S dollars) | | | | | 2011 | | | Notes | | 2011 | | 2012 | | 2013 | | 2013 | | | | | | | | | | (Note 2) | | | | | (Restated) | | (Restated) | | | | (Unaudited) (Note 2) | | Continuing Operations: | | | | | | | | | | Continuing Operations | | | | | | | | | | | | Operating revenue | | 2, 5, 9, 15, 26, 34, 35 | | (Won) | 20,326,275 | | | (Won) | 21,990,051 | | | $ | 19,067,069 | | | | 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 | | 2, 5, 9, 15, 27, 35 | | | 18,318,404 | | | | 20,016,330 | | | | 17,355,701 | | | | 4, 14, 27 | | | | 20,100,734 | | | | 22,963,673 | | | | 23,734,497 | | | | 22,490,758 | | | | | | | | | | | | | | | | | | Operating profit | | 28, 34 | | | 2,007,871 | | | | 1,973,721 | | | | 1,711,368 | | | | | | 1,987,096 | | | | 1,680,099 | | | | 323,384 | | | | 306,438 | | Finance income | | 29 | | | 239,379 | | | | 267,419 | | | | 231,873 | | | | 28 | | | | 269,992 | | | | 498,657 | | | | 279,349 | | | | 264,711 | | Finance costs | | 29 | | | (598,663 | ) | | | (640,216 | ) | | | (555,117 | ) | | | 28 | | | | (642,355 | ) | | | (781,993 | ) | | | (647,500 | ) | | | (613,570 | ) | Income (loss) from jointly controlled entities and associates | | 15 | | | 32,686 | | | | (3,038 | ) | | | (2,634 | ) | | Profit from continuing operations before income tax | | | | | 1,681,273 | | | | 1,597,886 | | | | 1,385,490 | | | 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 | | 2, 30 | | | (396,369 | ) | | | (316,735 | ) | | | (274,634 | ) | | | 29 | | | | 318,459 | | | | 277,869 | | | | 49,579 | | | | 46,982 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the period from the continuing operations | | | | | 1,284,904 | | | | 1,281,151 | | | | 1,110,856 | | | Profit(loss) for the year from the continuing operations | | | | | | 1,290,763 | | | | 1,136,973 | | | | (87,745 | ) | | | (83,148 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Discontinued Operations: | | | | | | | | | | Profit from discontinued operations | | 38 | | | 29,980 | | | | 170,868 | | | | 148,156 | | | Discontinued Operations | | | | | | | | | | | | Profit(loss) from discontinued operations | | | | | | 164,594 | | | | (31,534 | ) | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the period | | | | (Won) | 1,314,884 | | | (Won) | 1,452,019 | | | $ | 1,259,012 | | | Profit(loss) for the year | | | | | ₩ | 1,455,357 | | | ₩ | 1,105,439 | | | ₩ | (87,745 | ) | | $ | (83,148 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the period attributable to: | | | | | | | | | | Profit(loss) for the year attributable to: | | | | | | | | | | | | Equity holders of the Parent Company | | | | (Won) | 1,295,841 | | | (Won) | 1,446,551 | | | $ | 1,254,271 | | | | | ₩ | 1,445,690 | | | ₩ | 1,046,127 | | | ₩ | (189,931 | ) | | $ | (179,978 | ) | Profit from continuing operations | | | | | 1,273,191 | | | | 1,276,512 | | | | 1,106,834 | | | Profit from discontinued operations | | | | | 22,650 | | | | 170,039 | | | | 147,437 | | | 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 | | | | (Won) | 19,043 | | | (Won) | 5,468 | | | $ | 4,741 | | | | | ₩ | 9,667 | | | ₩ | 59,312 | | | ₩ | 102,186 | | | $ | 96,830 | | Profit from continuing operations | | | | | 11,713 | | | | 4,639 | | | | 4,022 | | | | | | 10,748 | | | | 61,279 | | | | 102,186 | | | | 96,830 | | Profit from discontinued operations | | | | | 7,330 | | | | 829 | | | | 719 | | | Earnings per share attributable to the equity holders of the Parent Company during the period (in won): | | | | | | | | | | Basic earnings per share | | 31 | | (Won) | 5,328 | | | (Won) | 5,946 | | | $ | 5.156 | | | 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 | | | | | 5,235 | | | | 5,247 | | | | 4.550 | | | | | | 5,262 | | | | 4,417 | | | | (779 | ) | | | (1 | ) | From discontinued operations | | | | | 93 | | | | 699 | | | | 0.606 | | | | | | 681 | | | | (121 | ) | | | — | | | | — | | Diluted earnings per share | | | | (Won) | 5,328 | | | (Won) | 5,946 | | | $ | 5.156 | | | Diluted earnings(loss) per share | | | | 30 | | | ₩ | 5,942 | | | ₩ | 4,296 | | | ₩ | (782 | ) | | $ | (1 | ) | From continuing operations | | | | | 5,235 | | | | 5,247 | | | | 4.550 | | | | | | 5,261 | | | | 4,417 | | | | (782 | ) | | | (1 | ) | From discontinued operations | | | | | 93 | | | | 699 | | | | 0.606 | | | | | | 681 | | | | (121 | ) | | | — | | | | — | |
The accompanying notes are an integral part of these consolidated financial statements. KT Corporation and Subsidiaries Consolidated Statements of Comprehensive Income Years ended December 31, 20102011, 2012 and 20112013 | | | | | | | | | | | | | | | (in millions of Korean won) | | Notes | | 2010 | | | 2011 | | | (in thousands of U.S dollars) | | | | | | 2011 | | | | | | | | | | | | (Note 2) | | Profit for the period | | | | (Won) | 1,314,884 | | | (Won) | 1,452,019 | | | $ | 1,259,012 | | Other comprehensive income | | | | | | | | | | | | | | | Changes in value of available-for-sale financial assets | | 9 | | | (1,033 | ) | | | 60,834 | | | | 52,748 | | Net reclassification adjustment for realized losses of available-for-sale financial assets | | 9 | | | 2,771 | | | | (1,376 | ) | | | (1,193 | ) | Actuarial loss on retirement benefit liabilities | | 19 | | | (146,728 | ) | | | (108,065 | ) | | | (93,701 | ) | Net gains(losses) on cashflow hedges | | 9 | | | (37,899 | ) | | | 16,459 | | | | 14,271 | | Net reclassification adjustment for cashflow hedges | | 9 | | | 2,746 | | | | 11,712 | | | | 10,155 | | Shares of other comprehensive income (expense) from jointly controlled entities and associates | | 15 | | | 2,379 | | | | (2,633 | ) | | | (2,283 | ) | Net reclassification to income for jointly controlled entities and associates | | 15 | | | — | | | | (2,055 | ) | | | (1,782 | ) | Shares of actuarial gain (loss) of jointly controlled entities and associates | | 15 | | | (238 | ) | | | (1,918 | ) | | | (1,663 | ) | Currency translation differences | | | | | (10,819 | ) | | | 12,029 | | | | 10,430 | | Net reclassification adjustment for currency translation differences | | | | | — | | | | 22,661 | | | | 19,649 | | | | | | | | | | | | | | | | | Total comprehensive income for the period | | | | (Won) | 1,126,063 | | | (Won) | 1,459,667 | | | $ | 1,265,643 | | | | | | | | | | | | | | | | | Comprehensive income for the period attributable to: | | | | | | | | | | | | | | | Equity holders of the Parent Company | | | | | 1,111,361 | | | | 1,396,415 | | | | 1,210,799 | | Non-controlling interest | | | | | 14,702 | | | | 63,252 | | | | 54,844 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (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 Changes in Shareholders’Shareholder’s Equity Years ended December 31, 20102011, 2012 and 20112013 | | | Attributable to equity holders of the Parent Company | | | | | | | 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 | | | 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, 2010 | | | | (Won) | 1,564,499 | | | (Won) | 1,440,258 | | | (Won) | 9,693,037 | | | (Won) | (40,557 | ) | | (Won) | (2,154,147 | ) | | (Won) | 10,503,090 | | | (Won) | 211,726 | | | (Won) | 10,714,816 | | | 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 period | | | | | — | | | | — | | | | 1,295,841 | | | | — | | | | — | | | | 1,295,841 | | | | 19,043 | | | | 1,314,884 | | | Profit for the year | | | | | | — | | | | — | | | | 1,445,690 | | | | — | | | | — | | | | 1,445,690 | | | | 9,667 | | | | 1,455,357 | | Changes in value of available-for-sale financial assets | | 9 | | | — | | | | — | | | | — | | | | 1,603 | | | | — | | | | 1,603 | | | | 135 | | | | 1,738 | | | 4 | | | — | | | | — | | | | — | | | | 5,090 | | | | — | | | | 5,090 | | | | 54,368 | | | | 59,458 | | Actuarial loss on retirement benefit liabilities | | 9 | | | — | | | | — | | | | (145,429 | ) | | | — | | | | — | | | | (145,429 | ) | | | (1,299 | ) | | | (146,728 | ) | | Net losses on cashflow hedge | | 9 | | | — | | | | — | | | | — | | | | (35,153 | ) | | | — | | | | (35,153 | ) | | | — | | | | (35,153 | ) | | 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 | | 15 | | | — | | | | — | | | | — | | | | 2,384 | | | | — | | | | 2,384 | | | | (5 | ) | | | 2,379 | | | | | | — | | | | — | | | | — | | | | (5,277 | ) | | | — | | | | (5,277 | ) | | | (458 | ) | | | (5,735 | ) | Shares of actuarial gain of jointly controlled entities and associates | | 15 | | | — | | | | — | | | | (238 | ) | | | — | | | | — | | | | (238 | ) | | | — | | | | (238 | ) | | Shares of gain on remeasurements of jointly controlled entities and associates | | | | | | — | | | | — | | | | (1,911 | ) | | | — | | | | — | | | | (1,911 | ) | | | — | | | | (1,911 | ) | Currency translation differences | | | | | — | | | | — | | | | — | | | | (7,647 | ) | | | — | | | | (7,647 | ) | | | (3,172 | ) | | | (10,819 | ) | | | | | — | | | | — | | | | — | | | | 28,521 | | | | — | | | | 28,521 | | | | 24 | | | | 28,545 | | Transactions with equity holders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends | | 32 | | | — | | | | — | | | | (486,393 | ) | | | — | | | | — | | | | (486,393 | ) | | | (6,792 | ) | | | (493,185 | ) | | | | | — | | | | — | | | | (586,150 | ) | | | — | | | | — | | | | (586,150 | ) | | | (9,235 | ) | | | (595,385 | ) | Appropriations of loss on disposal of treasury stock | | | | | — | | | | — | | | | (890,650 | ) | | | — | | | | 890,650 | | | | — | | | | — | | | | — | | | | | | — | | | | — | | | | (295 | ) | | | — | | | | 295 | | | | — | | | | — | | | | — | | Changes in consolidation scope | | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 503,588 | | | | 503,588 | | Change in ownership interest in subsidiaries | | | | | — | | | | — | | | | — | | | | — | | | | (520 | ) | | | (520 | ) | | | 2,175 | | | | 1,655 | | | | | | — | | | | — | | | | — | | | | — | | | | (253,445 | ) | | | (253,445 | ) | | | 36,457 | | | | (216,988 | ) | Others | | | | | — | | | | — | | | | — | | | | — | | | | 5,724 | | | | 5,724 | | | | (1,018 | ) | | | 4,706 | | | | | | — | | | | — | | | | — | | | | — | | | | 14,154 | | | | 14,154 | | | | 22,936 | | | | 37,090 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2010 | | | | (Won) | 1,564,499 | | | (Won) | 1,440,258 | | | (Won) | 9,466,168 | | | (Won) | (79,370 | ) | | (Won) | (1,258,293 | ) | | (Won) | 11,133,262 | | | (Won) | 220,793 | | | (Won) | 11,354,055 | | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at January 1, 2011 | | | | (Won) | 1,564,499 | | | (Won) | 1,440,258 | | | (Won) | 9,466,168 | | | (Won) | (79,370 | ) | | (Won) | (1,258,293 | ) | | (Won) | 11,133,262 | | | (Won) | 220,793 | | | (Won) | 11,354,055 | | | Comprehensive income | | | | | | | | | | | | | | | | | | | | Profit for the period | | | | | — | | | | — | | | | 1,446,551 | | | | — | | | | — | | | | 1,446,551 | | | | 5,468 | | | | 1,452,019 | | | Changes in value of available-for-sale financial assets | | 9 | | | — | | | | — | | | | — | | | | 5,090 | | | | — | | | | 5,090 | | | | 54,368 | | | | 59,458 | | | Actuarial loss on retirement benefit liabilities | | 9 | | | — | | | | — | | | | (104,723 | ) | | | — | | | | — | | | | (104,723 | ) | | | (3,342 | ) | | | (108,065 | ) | | Net gains on cashflow hedge | | 9 | | | — | | | | — | | | | — | | | | 28,178 | | | | — | | | | 28,178 | | | | (7 | ) | | | 28,171 | | |
KT Corporation and Subsidiaries Consolidated Statements of Changes in Shareholders’Shareholder’s Equity (Continued) Years ended December 31, 20102011, 2012 and 20112013 | | | Attributable to equity holders of the Parent Company | | | | | | | 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 | | | 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 | | 15 | | | — | | | | — | | | | — | | | | (5,283 | ) | | | — | | | | (5,283 | ) | | | 595 | | | | (4,688 | ) | | | | | — | | | | — | | | | — | | | | (8,440 | ) | | | — | | | | (8,440 | ) | | | (290 | ) | | | (8,730 | ) | Shares of actuarial gain of jointly controlled entities and associates | | 15 | | | — | | | | — | | | | (1,918 | ) | | | — | | | | — | | | | (1,918 | ) | | | — | | | | (1,918 | ) | | Shares of gain on remeasurements of jointly controlled entities and associates | | | | | | — | | | | — | | | | (1,131 | ) | | | — | | | | — | | | | (1,131 | ) | | | — | | | | (1,131 | ) | Currency translation differences | | | | | — | | | | — | | | | — | | | | 28,520 | | | | — | | | | 28,520 | | | | 6,170 | | | | 34,690 | | | | | | — | | | | — | | | | — | | | | (5,017 | ) | | | — | | | | (5,017 | ) | | | (1,628 | ) | | | (6,645 | ) | Transactions with equity holders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends | | 32 | | | — | | | | — | | | | (586,150 | ) | | | — | | | | — | | | | (586,150 | ) | | | (9,050 | ) | | | (595,200 | ) | | | | | — | | | | — | | | | (486,602 | ) | | | — | | | | — | | | | (486,602 | ) | | | (11,455 | ) | | | (498,057 | ) | Appropriations of loss on disposal of treasury stock | | | | | — | | | | — | | | | (295 | ) | | | — | | | | 295 | | | | — | | | | — | | | | — | | | Disposal of treasury stock | | | | | | — | | | | — | | | | — | | | | — | | | | 13,353 | | | | 13,353 | | | | — | | | | 13,353 | | Changes in consolidation scope | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 503,588 | | | | 503,588 | | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 133,767 | | | | 133,767 | | Change in ownership interest in subsidiaries | | | | | — | | | | — | | | | — | | | | — | | | | (253,445 | ) | | | (253,445 | ) | | | 36,457 | | | | (216,988 | ) | | | | | — | | | | — | | | | — | | | | — | | | | 141,303 | | | | 141,303 | | | | (163,404 | ) | | | (22,101 | ) | Others | | | | | — | | | | — | | | | — | | | | — | | | | 14,154 | | | | 14,154 | | | | 18,533 | | | | 32,687 | | | | | | — | | | | — | | | | — | | | | — | | | | (653 | ) | | | (653 | ) | | | 801 | | | | 148 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2011 | | | | (Won) | 1,564,499 | | | (Won) | 1,440,258 | | | (Won) | 10,219,633 | | | (Won) | (22,865 | ) | | (Won) | (1,497,289 | ) | | (Won) | 11,704,236 | | | (Won) | 833,573 | | | (Won) | 12,537,809 | | | 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 Shareholders’Shareholder’s Equity (Continued) Years ended December 31, 2011, 2012 and 2013 | | | Attributable to equity holders of the Parent Company | | | | | | | Attributable to equity holders of the Parent Company | | | | | | (in thousands of U.S dollars) (Note2) | | 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 | | | | $ | 1,356,541 | | | $ | 1,248,815 | | | $ | 8,207,898 | | | $ | (68,820 | ) | | $ | (1,091,037 | ) | | $ | 9,653,397 | | | $ | 191,446 | | | $ | 9,844,843 | | | (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 period | | | | | — | | | | — | | | | 1,254,271 | | | | — | | | | — | | | | 1,254,271 | | | | 4,741 | | | | 1,259,012 | | | Profit for the year | | | | | | — | | | | — | | | | (189,931 | ) | | | — | | | | — | | | | (189,931 | ) | | | 102,186 | | | | (87,745 | ) | Changes in value of available-for-sale financial assets | | 9 | | | — | | | | — | | | | — | | | | 4,414 | | | | — | | | | 4,414 | | | | 47,141 | | | | 51,555 | | | 4 | | | — | | | | — | | | | — | | | | 32,098 | | | | — | | | | 32,098 | | | | 24,234 | | | | 56,332 | | Actuarial loss on retirement benefit liabilities | | 9 | | | — | | | | — | | | | (90,803 | ) | | | — | | | | — | | | | (90,803 | ) | | | (2,898 | ) | | | (93,701 | ) | | Net gains on cashflow hedge | | 9 | | | — | | | | — | | | | — | | | | 24,432 | | | | — | | | | 24,432 | | | | (6 | ) | | | 24,426 | | | 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 | | 15 | | | — | | | | — | | | | — | | | | (4,581 | ) | | | — | | | | (4,581 | ) | | | 516 | | | | (4,065 | ) | | | | | — | | | | — | | | | — | | | | 2,570 | | | | — | | | | 2,570 | | | | 326 | | | | 2,896 | | Shares of actuarial gain of jointly controlled entities and associates | | 15 | | | — | | | | — | | | | (1,663 | ) | | | — | | | | — | | | | (1,663 | ) | | | — | | | | (1,663 | ) | | Shares of gain on remeasurements of jointly controlled entities and associates | | | | | | — | | | | — | | | | (463 | ) | | | — | | | | — | | | | (463 | ) | | | 7 | | | | (456 | ) | Currency translation differences | | | | | — | | | | — | | | | — | | | | 24,729 | | | | — | | | | 24,729 | | | | 5,350 | | | | 30,079 | | | | | | — | | | | — | | | | — | | | | (6,744 | ) | | | — | | | | (6,744 | ) | | | 4,691 | | | | (2,053 | ) | Transactions with equity holders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends | | 32 | | | — | | | | — | | | | (508,237 | ) | | | — | | | | — | | | | (508,237 | ) | | | (7,847 | ) | | | (516,084 | ) | | | | | — | | | | — | | | | (487,445 | ) | | | — | | | | — | | | | (487,445 | ) | | | (23,830 | ) | | | (511,275 | ) | Appropriations of loss on disposal of treasury stock | | | | | — | | | | — | | | | (256 | ) | | | — | | | | 256 | | | | — | | | | — | | | | — | | | | | | — | | | | — | | | | (6,796 | ) | | | — | | | | 6,796 | | | | — | | | | — | | | | — | | Changes in consolidation scope | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 436,650 | | | | 436,650 | | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 9,452 | | | | 9,452 | | Change in ownership interest in subsidiaries | | | | | — | | | | — | | | | — | | | | — | | | | (219,756 | ) | | | (219,756 | ) | | | 31,610 | | | | (188,146 | ) | | | | | — | | | | — | | | | — | | | | — | | | | 14,150 | | | | 14,150 | | | | 85,971 | | | | 100,121 | | Others | | | | | — | | | | — | | | | — | | | | — | | | | 12,272 | | | | 12,272 | | | | 16,069 | | | | 28,341 | | | | | | — | | | | — | | | | — | | | | — | | | | 1,397 | | | | 1,397 | | | | (1,115 | ) | | | 282 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2011 | | | | $ | 1,356,541 | | | $ | 1,248,815 | | | $ | 8,861,210 | | | $ | (19,826 | ) | | $ | (1,298,265 | ) | | $ | 10,148,475 | | | $ | 722,772 | | | $ | 10,871,247 | | | 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 Cash FlowsChanges in Shareholder’s Equity (Continued) Years ended December 31, 20102011, 2012 and 20112013 | | | | | | | | | | | | | | | (in millions of Korean won) | | Notes | | 2010 | | | 2011 | | | (in thousands of U.S dollars) | | | | | | 2011 | | | | | | | | | | | | (Note2) | | Cash flows from operating activities | | | | | | | | | | | | | | | Cash generated from operations | | 33 | | (Won) | 3,272,059 | | | (Won) | 2,905,037 | | | $ | 2,518,891 | | Interest paid | | | | | (554,054 | ) | | | (512,643 | ) | | | (444,501 | ) | Interest received | | | | | 252,161 | | | | 156,932 | | | | 136,072 | | Dividends received | | | | | 50,194 | | | | 15,330 | | | | 13,293 | | Income tax paid | | | | | (79,470 | ) | | | (414,631 | ) | | | (359,517 | ) | Income tax refund received | | | | | 32,218 | | | | 284 | | | | 246 | | | | | | | | | | | | | | | | | Net cash generated from operating activities | | | | | 2,973,108 | | | | 2,150,309 | | | | 1,864,484 | | | | | | | | | | | | | | | | | | | | | | Cash flows from investing activities | | | | | | | | | | | | | | | Collection of loans | | | | | 13,523 | | | | 66,713 | | | | 57,845 | | Origination of loans | | | | | (53,621 | ) | | | (71,450 | ) | | | (61,953 | ) | Disposal of available-for-sale financial assets | | | | | 74,363 | | | | 65,760 | | | | 57,019 | | Acquisition of available-for-sale financial assets | | | | | (86,289 | ) | | | (188,752 | ) | | | (163,663 | ) | Disposal of investments in jointly controlled entities and associates | | | | | 48,703 | | | | 102,563 | | | | 88,930 | | Acquisition of investments in jointly controlled entities and associates | | | | | (276,404 | ) | | | (65,055 | ) | | | (56,407 | ) | Disposal of current and non-current financial instruments | | | | | 476,443 | | | | 240,779 | | | | 208,774 | | Acquisition of current and non-current financial instruments | | | | | (252,035 | ) | | | (257,619 | ) | | | (223,376 | ) | Disposal of property and equipment | | | | | 181,425 | | | | 594,250 | | | | 515,261 | | Acquisition of property and equipment | | | | | (2,713,358 | ) | | | (3,208,337 | ) | | | (2,781,875 | ) | Disposal of intangible assets | | | | | 6,008 | | | | 14,763 | | | | 12,801 | | Acquisition of intangible assets | | | | | (331,779 | ) | | | (476,888 | ) | | | (413,499 | ) | Acquisition of subsidiaries, net of cash acquired | | | | | (2,749 | ) | | | 208,752 | | | | 181,004 | | Cash inflow(outflow) from changes in scope of consolidation | | | | | (33,298 | ) | | | 326,524 | | | | 283,121 | | | | | | | | | | | | | | | | | Net cash used in investing activities | | | | | (2,949,068 | ) | | | (2,647,997 | ) | | | (2,296,018 | ) | | | | | | | | | | | | | | | | Cash flows from financing activities | | | | | | | | | | | | | | | Proceeds from borrowings and bonds | | | | | 5,698,981 | | | | 7,224,666 | | | | 6,264,342 | | Repayments of borrowings and bonds | | | | | (5,575,825 | ) | | | (6,025,054 | ) | | | (5,224,186 | ) | Settlement of derivative assets and liabilities, net | | | | | 8,959 | | | | 130,119 | | | | 112,823 | | Cash inflow from consolidated capital transaction | | | | | 1,205 | | | | 83,855 | | | | 72,709 | | Cash outflow from consolidated capital transaction | | | | | (300 | ) | | | (2,213 | ) | | | (1,919 | ) | Dividends paid to shareholders | | | | | (486,393 | ) | | | (586,150 | ) | | | (508,237 | ) | Dividends paid to non-controlling interest | | | | | (6,792 | ) | | | (9,050 | ) | | | (7,847 | ) | Decrease in finance leases liabilities | | | | | (38,183 | ) | | | (47,701 | ) | | | (41,360 | ) | | | | | | | | | | | | | | | | Net cash provided by (used in) financing activities | | | | | (398,348 | ) | | | 768,472 | | | | 666,325 | | | | | | | | | | | | | | | | | Effect of exchange rate change on cash and cash equivalents | | | | | (6,923 | ) | | | 12,744 | | | | 11,050 | | | | | | | | | | | | | | | | | Net increase(decrease) in cash and cash equivalents | | | | | (381,231 | ) | | | 283,528 | | | | 245,841 | | Cash and cash equivalents | | | | | | | | | | | | | | | Beginning of the period | | 6 | | | 1,542,872 | | | | 1,161,641 | | | | 1,007,232 | | | | | | | | | | | | | | | | | End of the period | | 6 | | (Won) | 1,161,641 | | | (Won) | 1,445,169 | | | $ | 1,253,073 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 January 1, 2010 and December 31, 20102011, 2012 and 20112013
1. General Information The consolidated financial statements include the accounts of KT Corporation, which is the controlling company as defined under IAS 27,IFRS 10,Consolidated and Separate Financial Statements, and its 5168 controlled subsidiaries as described in Note 1.2 (collectively referred to as the “Company”“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-si, Gyeonggi-do,Seongnam City, Gyeonggi Province, Republic of Korea, and the address of its registered head office is 206, Jungja-dong,90, Buljeong-ro, Bundang-gu, Seongnam-si, Gyeonggi-do.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-owned shares were 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, 2011,the end of the reporting period, the Korean government does not own any shareshares in the Controlling Company. On June 1, 2009, the Controlling Company, which is an existing company, was merged with KT Freetel Co., Ltd., which was a subsidiary, to enhance the efficiency of business management.
Consolidated Subsidiaries The consolidated subsidiaries as of December 31, 2011,2013, are as follows: | | | | | | | | | | | | | (in millions of Korean won) | | Type of Business | | Location | | Percentage of ownership (%) 1 | | | Financial year end | | KT Powertel Co.,Ltd. 2 | | Trunk radio system business | | Domestic | | | 44.8 | | | | 12.31 | | KT Networks Corporation | | Group telephone management | | Domestic | | | 100.0 | | | | 12.31 | | KT Linkus Co.,Ltd. | | Public telephone maintenance | | Domestic | | | 93.8 | | | | 12.31 | | KT Telecop Co.,Ltd. | | Security service | | Domestic | | | 88.1 | | | | 12.31 | | KT Hitel Co.,Ltd. | | Data communication | | Domestic | | | 65.9 | | | | 12.31 | | KT Commerce Inc. | | B2C, B2B service | | Domestic | | | 100.0 | | | | 12.31 | | KT Tech, Inc. | | PCS handset development | | Domestic | | | 93.8 | | | | 12.31 | | KT Capital Co.,Ltd. | | Financing service | | Domestic | | | 100.0 | | | | 12.31 | | KT New Business Fund No.1 | | Investment fund | | Domestic | | | 100.0 | | | | 12.31 | | Gyeonggi-KT Green Growth Fund | | Venture investment of Green Growth Business | | Domestic | | | 56.5 | | | | 12.31 | |
| | | | | | | | | | | (in millions of Korean won) | | Type of Business | | Location | | | Percentage of ownership 1 (%) | | Subsidiary | | | | 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. | | Public telephone maintenance | | | Domestic | | | | 93.8 | | KT Submarine Co., Ltd. 2 | | Submarine cable construction and maintenance | | | Domestic | | | | 36.9 | | KT Telecop 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 | | | Financial year end | | KTC Media Contents Fund 1 3 | | New technology investment fund | | Domestic | | | 1.8 | | | | 4.30 | | KTC Media Contents Fund 2 | | New technology investment fund | | Domestic | | | 85.7 | | | | 12.31 | | KT Strategic Investment Fund No.1 | | Investment fund | | Domestic | | | 100.0 | | | | 12.31 | | BC card co., Ltd. 4 | | Credit card business | | Domestic | | | 38.9 | | | | 12.31 | | VP Inc. | | Payment security service for credit card and etc. | | Domestic | | | 50.9 | | | | 12.31 | | H&C Network 1 | | Call centre for financial sectors | | Domestic | | | 100.0 | | | | 12.31 | | BC card China Co.,Ltd. | | Research and development of calculation system and software | | Domestic | | | 100.0 | | | | 12.31 | | U Payment Co., Ltd | | Transportation card issuance and operations | | Domestic | | | 99.1 | | | | 12.31 | | INITECH Co., Ltd. | | Internet banking ASP and security solutions | | Domestic | | | 57.0 | | | | 12.31 | | InitechSmartro Holdings Co., Ltd. | | Holdings company | | Domestic | | | 100.0 | | | | 12.31 | | Smartro Co.Ltd. | | VAN(Value Added Network) business | | Domestic | | | 74.5 | | | | 12.31 | | Pay N Mobile Co., Ltd. | | Wired and wireless communication resale | | Domestic | | | 100.0 | | | | 12.31 | | Sidus FNH Corporation | | Movie production | | Domestic | | | 51.0 | | | | 12.31 | | Nasmedia, Inc. | | Online advertisement | | Domestic | | | 51.4 | | | | 12.31 | | Sofnics, Inc. | | Software development and sales | | Domestic | | | 60.0 | | | | 12.31 | | KT Edui Co.,Ltd. | | Online education business | | Domestic | | | 54.5 | | | | 12.31 | | KTDS Co., Ltd. | | System integration and maintenance | | Domestic | | | 95.3 | | | | 12.31 | | KT M Hows Co.,Ltd. | | Mobile marketing | | Domestic | | | 51.0 | | | | 12.31 | | KT M&S Co.,Ltd. | | PCS distribution | | Domestic | | | 100.0 | | | | 12.31 | | KT Music Corporation 2 | | Online music production and distribution | | Domestic | | | 48.7 | | | | 12.31 | | KT Innotz Inc., | | Software and solution related cloud computing | | Domestic | | | 100.0 | | | | 12.31 | | KT Skylife Co., Ltd. | | Satellite broadcasting business | | Domestic | | | 50.3 | | | | 12.31 | | Korea HD Broadcasting Corp. | | TV contents provider | | Domestic | | | 92.6 | | | | 12.31 | | KT Estate Inc. | | Residential Building Development and Supply | | Domestic | | | 100.0 | | | | 12.31 | | KT AMC Co., Ltd. | | Asset management and consulting services | | Domestic | | | 100.0 | | | | 12.31 | | NEXR Co., Ltd. | | Cloud system implementation | | Domestic | | | 65.7 | | | | 12.31 | | KTSB Data service | | Data centre development and related service | | Domestic | | | 51.0 | | | | 12.31 | | KT Cloudware Corporation | | Development of cloud computing operation | | Domestic | | | 100.0 | | | | 12.31 | | KC smart service Co., Ltd. | | U-City solution business | | Domestic | | | 82.8 | | | | 12.31 | | Enswers Inc. | | Video-clip searching service | | Domestic | | | 56.3 | | | | 12.31 | | Revlix Inc. | | Development of mobile SNS application | | Domestic | | | 100.0 | | | | 12.31 | | Soompi Meidia, LLC | | Domestic marketing for a website “soompi.com” | | Domestic | | | 100.0 | | | | 12.31 | | Soompi USA, LLC | | Operation service for “soompi.com” | | USA | | | 100.0 | | | | 12.31 | | OIC Korea Co., Ltd. | | Development and distribution of education contents and software | | Domestic | | | 79.2 | | | | 12.31 | | Korea Telecom Japan Co., Ltd. | | Foreign telecommunication business | | Japan | | | 100.0 | | | | 12.31 | | Korea Telecom China Co., Ltd. | | Foreign telecommunication business | | China | | | 100.0 | | | | 12.31 | | KTSC Investment Management B.V | | Management of Investment in Super iMax and East Telecom | | Netherlands | | | 60.0 | | | | 12.31 | | Super iMax | | Wireless high speed internet business | | Uzbekistan | | | 100.0 | | | | 12.31 | | East Telecom | | Fixed line telecommunication business | | Uzbekistan | | | 91.0 | | | | 12.31 | | Korea Telecom America, Inc. | | Foreign telecommunication business | | USA | | | 100.0 | | | | 12.31 | | PT. KT Indonesia | | Foreign telecommunication business | | Indonesia | | | 99.0 | | | | 12.31 | |
| | | | | | | (in millions of Korean won) | | Type of Business | | Location | | Percentage of ownership 1 (%) | Subsidiary | | | | KTC Media Contents Fund 2 | | New technology investment fund | | Domestic | | 85.7 | KT Strategic Investment Fund No.1 | | Investment fund | | Domestic | | 100.0 | KT Strategic Investment Fund No.2 | | Investment 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 |
| | | | | | | (in millions of Korean won) | | Type 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 Controlling Company and subsidiaries.subsidiaries |
2 | Even though the Controlling Company has less than 50% ownership in these subsidiaries, (KT Powertel Co.,Ltd.: 44.8%, KT Music Corporation: 48.7%), these entities are consolidated as the Company can exercise the majority voting rights in consideration of the dispersion of the non-controlling interests andits decision-making process at all times considering historical voting pattern at the shareholders’ meetings. |
3 | Even though KT Capital Co.,Ltd , a subsidiary of the company, has less than 50% ownership in KTC Media Contents Fund 1 (1.8%), KTC Media Contents Fund 1 is consolidated in consideration that KT Capital Co.,Ltd is a general partner with unlimited liability and has power to govern operating policies based on the agreement. |
4 | KT Capital Co.,Ltd., which is a subsidiary of the Controlling Company has less than 50% ownership in BC Card Co.,Ltd.(38.9%). However,these subsidiaries, these entities are consolidated as KT capital has the right to appointCompany holds the majority of the members of the board of directorsvoting right based on thean agreement with Vogo-BCC Investment Holdings Co., Ltd. (24.57%) and KGF-BCC LIMITED (6.11%). The Controlling Company is considered to have control of BC Card Co.,Ltd. and therefore BC Card Co.,Ltd is included in the scope of consolidation.other investors |
Changes in scope of consolidation in 20112013 are as follows: | | | | | | | Changes | | Location | | Subsidiaries | | Reason | InclusionIncluded
| | Domestic | | T-ON Telecom. | | Acquisition of ownership interest | | | | | KT Skylife Co.,Ltd. and its subsidiaries(Korea HD Broadcasting Corp.), NEXR Co.,Ltd., OIC Korea Co.,Ltd., Enswers Inc, Revlix Inc., Soompi Meidia, LLC, BC card co., Ltd., VP Inc., U PaymentRental 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., H&C Network, INITECH Co., Ltd., InitechSmartro Holdings Co., Ltd., Smartro Co.Ltd., Pay N Mobile | | Newly incorporated | | | | | GreenPoint Co., Ltd. | | Acquisition of ownership interest | | | | | KT AMC Co.,Ltd., KTSB Dataservice, KT Cloudware Corporation, KC smart service Co.,K-REALTY CR-REIT IV | | Newly incorporated | | | | | K-REALTY REIT V | | Newly incorporated | | | Rwanda | | Olleh Rwanda Networks Ltd. | | Newly incorporated | | | USABelgium | | Soompi USA, LLCKT Belgium | | AcquisitionNewly incorporated | | | | | KT ORS Belgium | | Newly incorporated | Excluded | | Domestic | | U payment Co., Ltd. | | Disposal of ownership interest | | | China | | BC card ChinaKumho Rent-a-car Co.,Ltd. | | | Exclusion
| | Russia | | New Telephone Company, Inc. and its subsidiaries(Helios TV, Novaya Svyaz) | | Disposal of ownership interest 1Liquidation | | | Domestic | | KT Internal venture Fund NO.2Revlix | | Liquidation |
1 | As described in Note 38, the Company lost its control over New Telephone Company, | | | KMP Holdings Co., Ltd. | | Merged | | | | | KT Tech Inc. due to the disposal of its interest in 2011. The profit of(Won)220,254million from this transaction is accounted for as profit from the discontinued operations. | | Liquidation | | | | | KT Innotz Inc. | | Merged |
A summary of financial data of the major consolidated subsidiaries as of and for the years ended December 31, 20102011, 2012 and 2011,2013, are as follows: | | | | | | | | | | | | | | | | | (in millions of Korean won) | | 2010 | | | Total assets | | | Total liabilities | | | Operating revenue | | | Net income(loss) | | KT Powertel Co.,Ltd. | | (Won) | 167,370 | | | (Won) | 73,547 | | | (Won) | 127,548 | | | (Won) | 15,158 | | KT Networks Corporation | | | 187,123 | | | | 135,764 | | | | 327,181 | | | | 2,909 | | KT Linkus Co.,Ltd. | | | 70,910 | | | | 59,797 | | | | 76,197 | | | | 2,577 | | KT Telecop Co.,Ltd. | | | 139,234 | | | | 99,274 | | | | 217,057 | | | | 11,956 | | KT Hitel Co.,Ltd. 1 | | | 254,292 | | | | 70,045 | | | | 312,576 | | | | (4,824 | ) | KT Tech, Inc. | | | 129,176 | | | | 157,707 | | | | 189,137 | | | | (13,641 | ) | KT Capital Co.,Ltd. 1 | | | 2,084,227 | | | | 1,838,254 | | | | 192,332 | | | | 11,212 | | Sidus FNH Corporation | | | 13,932 | | | | 6,760 | | | | 19,951 | | | | 358 | | Nasmedia, Inc. | | | 77,919 | | | | 58,778 | | | | 18,877 | | | | 4,507 | | Sofnics, Inc. | | | 1,071 | | | | 135 | | | | 609 | | | | (233 | ) | KT Edui Co.,Ltd. | | | 1,995 | | | | 1,659 | | | | 4,335 | | | | (2,577 | ) | KTDS Co., Ltd. | | | 148,685 | | | | 115,791 | | | | 356,160 | | | | 10,760 | | KT M Hows Co.,Ltd. | | | 15,939 | | | | 8,804 | | | | 37,638 | | | | 603 | | KT M&S Co.,Ltd. | | | 267,454 | | | | 240,077 | | | | 616,070 | | | | (17,261 | ) | KT Music Corporation | | | 32,885 | | | | 10,352 | | | | 43,332 | | | | 530 | | KT Innotz Inc. | | | 5,277 | | | | 1,643 | | | | 3,741 | | | | (1,343 | ) | KT Estate Inc. | | | 8,443 | | | | 427 | | | | 1,152 | | | | 16 | | KT Internal venture Fund No 2 | | | 5,200 | | | | 70 | | | | — | | | | 63 | | Korea Telecom Japan Co., Ltd. | | | 13,627 | | | | 9,154 | | | | 14,632 | | | | 51 | | Korea Telecom China Co., Ltd. | | | 2,610 | | | | 193 | | | | 2,089 | | | | 237 | | New Telephone Company, Inc. | | | 220,209 | | | | 18,610 | | | | 129,248 | | | | 30,962 | | KTSC Investment Management B.V 1 | | | 76,094 | | | | 20,122 | | | | 21,271 | | | | (471 | ) | Korea Telecom America, Inc. | | | 5,645 | | | | 1,548 | | | | 8,828 | | | | 136 | | PT. KT Indonesia | | | 70 | | | | 1 | | | | — | | | | (43 | ) |
| | | | | | | | | | | | | | | | | | | 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 | | | 2011 | | (in millions of Korean won) | | Total assets | | | Total liabilities | | | Operating revenue | | | Net income(loss) | | | Total assets | | | Total liabilities | | | Operating revenue | | | Net income (loss) | | KT Powertel Co.,Ltd. | | (Won) | 167,075 | | | (Won) | 59,061 | | | (Won) | 126,759 | | | (Won) | 14,569 | | | KT Networks Corporation | | | 212,867 | | | | 161,864 | | | | 375,773 | | | | 389 | | | KT Linkus Co.,Ltd. | | | 67,419 | | | | 64,081 | | | | 78,198 | | | | (6,667 | ) | | KT Telecop Co.,Ltd. | | | 156,479 | | | | 106,836 | | | | 261,172 | | | | 7,075 | | | 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 | | | 249,730 | | | | 69,376 | | | | 468,489 | | | | (2,002 | ) | | | 249,231 | | | | 79,511 | | | | 443,431 | | | | (8,902 | ) | KT Tech, Inc. | | | 110,923 | | | | 139,873 | | | | 247,443 | | | | 641 | | | | 13,190 | | | | 42,562 | | | | 175,861 | | | | 2,731 | | KT Capital Co.,Ltd. 1 | | | 4,454,475 | | | | 4,043,072 | | | | 1,011,342 | | | | 25,195 | | | KT Capital Co., Ltd. 1 | | | | 5,058,883 | | | | 4,519,485 | | | | 3,348,952 | | | | 98,353 | | H&C Network 1 | | | 197,726 | | | | 81,351 | | | | 45,013 | | | | 1,124 | | | | 244,031 | | | | 119,086 | | | | 199,143 | | | | 8,713 | | Sidus FNH Corporation | | | 9,838 | | | | 5,824 | | | | 7,227 | | | | (2,975 | ) | | | 9,534 | | | | 1,921 | | | | 2,066 | | | | 209 | | Nasmedia, Inc. | | | 92,384 | | | | 53,744 | | | | 21,718 | | | | 6,004 | | | | 90,675 | | | | 47,053 | | | | 23,463 | | | | 6,445 | | Sofnics, Inc. | | | 970 | | | | 521 | | | | 626 | | | | (481 | ) | | | 1,564 | | | | 207 | | | | 782 | | | | (279 | ) | KT Edui Co.,Ltd. | | | 1,119 | | | | 1,589 | | | | 3,997 | | | | (2,336 | ) | | KTDS Co., Ltd. | | | 146,236 | | | | 106,006 | | | | 498,107 | | | | 10,298 | | | | 171,546 | | | | 115,994 | | | | 570,703 | | | | 17,155 | | KT M Hows Co.,Ltd. | | | 15,148 | | | | 7,078 | | | | 34,933 | | | | 1,092 | | | KT M&S Co.,Ltd. | | | 249,280 | | | | 226,651 | | | | 917,410 | | | | (3,256 | ) | | KT Music Corporation | | | 27,840 | | | | 7,691 | | | | 31,432 | | | | (2,385 | ) | | 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. | | | 5,520 | | | | 1,727 | | | | 3,829 | | | | (4,623 | ) | | | 3,012 | | | | 344 | | | | 2,609 | | | | (1,411 | ) | KT Skylife Co.,Ltd. 1 | | | 550,443 | | | | 258,231 | | | | 485,225 | | | | 26,649 | | | KT Skylife Co., Ltd. 1 | | | | 641,564 | | | | 292,649 | | | | 574,829 | | | | 55,546 | | KT Estate Inc. 1 | | | 33,382 | | | | 3,175 | | | | 7,838 | | | | 1,337 | | | | 1,460,511 | | | | 145,885 | | | | 24,861 | | | | 3,124 | | NEXR Co.,Ltd. | | | 3,887 | | | | 1,726 | | | | 3,737 | | | | 756 | | | NEXR Co., Ltd. | | | | 2,305 | | | | 1,964 | | | | 2,651 | | | | (1,787 | ) | KTSB Dataservice | | | 58,755 | | | | 21,904 | | | | — | | | | (149 | ) | | | 32,733 | | | | 265 | | | | 439 | | | | (4,383 | ) | KT Cloudware Corporation | | | 916 | | | | 81 | | | | — | | | | (165 | ) | | | 21,345 | | | | 2,321 | | | | 3,878 | | | | (5,397 | ) | KC smart service Co.,Ltd. | | | 25,493 | | | | 357 | | | | — | | | | (377 | ) | | CENTIOS Co., Ltd 1 | | | | 32,848 | | | | 9,259 | | | | 171 | | | | (3,163 | ) | Enswers Inc. 1 | | | 16,543 | | | | 18,185 | | | | 797 | | | | (331 | ) | | | 13,966 | | | | 18,330 | | | | 4,896 | | | | (3,010 | ) | OIC Korea Co.,Ltd. | | | 5,201 | | | | 68 | | | | 30 | | | | (396 | ) | | 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. | | | 15,359 | | | | 9,813 | | | | 33,114 | | | | 731 | | | | 8,284 | | | | 3,955 | | | | 14,458 | | | | (324 | ) | Korea Telecom China Co.,Ltd. | | | 2,804 | | | | 128 | | | | 3,419 | | | | 111 | | | KTSC Investment Management B.V 1 | | | 65,587 | | | | 18,458 | | | | 17,470 | | | | (5,026 | ) | | Korea Telecom America, Inc. | | | 6,368 | | | | 2,069 | | | | 11,134 | | | | 149 | | | PT. KT Indonesia | | | 52 | | | | 1 | | | | — | | | | (8 | ) | | 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. |
2. Significant Accounting Policies The following is a summary of significant accounting policies followed by the CompanyGroup in the preparation of its financial statements. These policies have been consistently applied to all the periods presented, unless otherwise stated. 2.1 Basis of Preparation The Company determined to adoptconsolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“Standards(“IFRS”) as issued by the International Accounting Standards Board (“IASB”) for the annual periods beginning on or after January 1, 2011. The Company’s IFRS transition date from accounting principles generally accepted in the Republic of Korea (“Korean GAAP”) to IFRS according to IFRS 1,First-time Adoption of IFRS, is January 1, 2010, and reconciliations and descriptions of the effect of the transition from Korean GAAP to IFRS on the Company’s assets, liabilities, equity, and comprehensive income are provided in Note 4.
The preparation of the consolidated financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Company’sGroup’s accounting policies. The areas involving a higher degree of judgment andor complexity, or the areas where assumptions and estimates are significant to thesethe consolidated financial statements are disclosed in Note 3. New standards, amendments2.2 Changes in Accounting Policy and interpretations issued but not effective for the financial year beginning January 1, 2011, and not early adopted are as follows.Disclosures
—Amendments to IFRS 1, Hyperinflation(1) New standards and Removal of Fixed Dates for first-time adoptersamendments adopted by the Group
As an exception to retrospective application requirements, this amendment to IFRS 1 allows a prospective application of derecognition of financial assets for transactions occurring on or afterThe Group adopted the date of transition to IFRS, instead of fixed date (January 1, 2004). Accordingly, the Company is not required to restatefollowing amended and recognize those assets or liabilities that were derecognized as a result of a transaction that occurred before the dated of transition to IFRS. This amendment will be effectiveenacted standards for the Company from annual periodsperiod 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 after July 1, 2011.loss subsequently. The Controlling Company expects thatGroup applied the amendment retroactively and there is no impact of the application of this amendment would not have material impact on its consolidated financial statementstotal comprehensive income or loss. —Amendments to IAS 12, Income Taxes According to the amendments to IAS 12,Income Taxes, for the investment property that is measured using the fair value model, the measurement of deferred tax liability and deferred tax asset should reflect the tax consequences of recovering the carrying amount of the investment property entirely through sale, unless evidences support otherwise. This amendment will be effective for the Company as of January 1, 2012. The Controlling Company expects that the application of this amendment would not have material impact on its consolidated financial statements.
—AmendmentsAmendment to IAS 19, Employee Benefits
AccordingThe amendment requires entities to the amendments to IAS 19,Employee Benefits, use of a ‘corridor’ approach is no longer permitted, and thereforeimmediately recognize all actuarial gains and losses incurred are immediately recognized in other comprehensive income.income or loss. All past service costs incurred from changes in pension plan 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 interest costs and plan assets that usedhas been revised to be separately calculated are now changed to calculatingcalculate net interest expense (income) by applying the discount rate used in measuringthe defined benefit obligation measurement in the net defined benefit liabilities (assets). This amendment will be effective for the Company as of January 1, 2013, and The Controlling Company is assessing the impact of application of the amended IAS 19 on its consolidated financial statements as of the report date.
—Amendments to IFRS 7, Financial Instruments: Disclosures
According toGroup applies the amendment an entity should provide the required disclosures of nature, carrying amount, risk and rewards associated with all transferred financial instruments that are not derecognized from an entity’s financial statements. In addition, an entity is required to disclose additional information related to transferred and derecognized financial instruments for any continuing involvement in transferred assets. This amendment will be effective for the Company from annual periods beginning on or after July 1, 2011. The Company expects additional disclosures in relation to transfer of financial instruments upon application of the above amended IFRS requirement.
—Additions to IFRS 9, Financial instruments
IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortized cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instrumentsretroactively and the contractual cash flow characteristicscomparative consolidated statements of the instrument. For financial liabilities, the standard retains mostoperations and consolidated statements of the IAS 39 requirements. The main change is that, in cases where the fair
value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather thanare restated by reflecting adjustments resulting from the income statement, unless this creates an accounting mismatch. The Controlling Company is yet to assess IFRS 9’s full impact and intends to adopt IFRS 9 no later than the accounting period beginning on or after January 1, 2013.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, Consolidated financial statements’ builds on existing principlesthe Group consolidated KT Submarine Co., Ltd. by identifyingvirtue of de-facto control because the conceptGroup 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 controlownership (39.34% including treasury stocks). KT Submarine Co., Ltd. was classified as an associate in accordance with the determining factor in whether an entity should be included withinprevious 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 the parent company. The standard provides additional guidanceits interest. Results of retrospective application of amendment to assist in the determination of control where this is difficult to assess. The Controlling Company is yet to assess IFRS 10’s full impactIAS 19 and intends to adopt IFRS 10 no later than the accounting period beginning on or after January 1, 2013are 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 arrangementsArrangements IFRS 11, is a more realistic reflectionJoint Arrangements, reflects the substance of joint arrangements by focusingand focuses on the rights and obligations of the arrangementparties to the joint arrangements rather than itson the legal form. Thereforms of the arrangements. Joint arrangements are two types of joint arrangement:classified into joint operations andor joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assetsThe adoption of the arrangement and hence equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed. The Controlling Company expects that it wouldthis standard does not have a materialan impact on the consolidated financial statements. —IFRS 12, Disclosures of interestsInterests in other entitiesOther Entities IFRS 12, includes theDisclosure of Interests in Other Entities, provides disclosure requirements for all formstypes of interestsequity investments in other entities including subsidiaries, associates, joint arrangements, associates, special purpose vehiclesventures and other off balance sheet vehicles. The company is yet to assess IFRS 12’s full impactunconsolidated structured entities (Notes 14, 38 and intends to adopt IFRS 12 no later than the accounting period beginning on or after January 1, 2013.39). —Enactment of IFRS 13, Fair value measurementValue Measurement IFRS 13,Fair value measurementValue Measurement, aims to improve consistency and reduce complexity by providingprovides 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 1 does13 and there is no material impact of the application of this standard on the consolidated financial statements. (2) New standards, amendments and interpretations not extend the use of fair value accounting but provides guidance on how it should be applied where its use is already required or permitted by otheryet adopted New standards, within IFRSs. This amendment will beamendments and interpretations effective for the Company as ofannual periods beginning after January 1, 2013, and not early adopted by the Controlling CompanyGroup 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 itthe application of this amendment would not have a material impact on theits consolidated financial statements. 2.2—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 for a derivative that has been designated as a hedging instrument in a circumstance in which that derivative is novated to a central counterparty (CCP) as a consequence of laws or regulations. This amendment is effective for annual periods beginning on or after January 1, 2014, with early adoption permitted. The Group is assessing the impact of application of this amendment on its consolidated financial statements. —Enactment of 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 Company’sGroup has prepared the consolidated financial statements are prepared in accordance with IAS 27,IFRS 10,Consolidated and Separate Financial Statements.Statements. (1) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the CompanyGroup 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 to governover the financial and operating policies, generally which have more than halfinvestee. Consolidation of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. The company also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may arise in circumstances where the size of the Company’s voting rights relative to the size and dispersion of holdings of other shareholders give the company the power to govern the financial and operating policies and others.
Subsidiaries are fully consolidateda subsidiary begins from the date on whichthe Group obtains control of the subsidiary and is transferred todeconsolidated when the Company. Subsidiaries are de-consolidated fromsubsidiary ceases when the date thatGroup loses control ceases.of the subsidiary.
The Company usesGroup applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of subsidiary is measured at the fair valuevalues of the assets transferred, equity interests issued and liabilities incurred or assumed at the date of acquisition. The consideration transferred includes the fair value of any assets or liability resulting from a contingent consideration arrangement. Identifiableidentifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured initially at their fair values at the acquisition date. The Company measuresGroup recognizes any non-controlling interestsinterest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interests’interest’s proportionate share inof the recognized amounts of the acquiree’s identifiable net assets in the event of liquidation. Otherassets. All other non-controlling interests are measured at thetheir acquisition-date fair valuevalues, unless otherwiseanother measurement basis is required by other standards. IFRSs. Acquisition-related costs are expenseexpensed as incurred. If a business combination is achieved in stages, the acquirer’s previously held ownership of the acquire is re-measured at the fair value at the acquisition date and the resulting gain or loss Goodwill is recognized as the profit and loss. Any contingent consideration to be transferred by the Company is recognized at fair value at the acquisition date. Subsequent changes to the fair valueexcess of the contingent consideration that is deemed to be an asset or liability is recognized in accordance with IAS 39, either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.
The excessaggregate of the consideration transferred, the amount of any non-controlling interest in the acquiree, and the acquisition-date fair value of any previousthe acquirer’s previously held equity interest in the acquiree over the fair value of the Company’s share of the identifiable net assets acquired is recorded as goodwill.acquired. If this consideration is lesslower than the fair value of the net assets of the subsidiary acquired, in case of a bargain purchase, the difference is recognized directly in the statementprofit or loss.
Balances of income. Intercompany transactions, balancesreceivables and payables, income and expenses and unrealized gains and losses on transactions between consolidated companiesthe Company’s subsidiaries are eliminated after considering impairment of the asset transferred. Unrealized gains and losses are eliminated after recognizing impairment of transferred assets, accountingeliminated. Accounting policies of 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 TransactionsIn transactions with non-controlling interests, thatwhich do not result in loss of control, are accounted for asthe Group recognizes directly in equity transactions; that is, as transactions with the owners in their capacity as owners. Theany difference between the amount by which the non-controlling interests are adjusted and the fair value of anythe consideration paid or received, and attribute it to the relevant share acquiredowners of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.parent.
(3) Disposal of subsidiaries WhenIf the Company ceases to haveGroup loses control of a subsidiary, any investment continuously retained interest in the entitysubsidiary is re-measured to its fair value at the date when control is lost with the change in carrying amountand any resulting differences are recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Company had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.
(4) Associates Associates are all entities over which the CompanyGroup has significant influence which is the power to participate in the financial and operating policy decisions of the investee but is not control generally holding of between 20% and 50% of the voting rights.or joint control over those policies. Investments in associates are accounted forinitially recognized at acquisition cost using the equity method and are initially recognized at cost. The Company’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income is reclassified to profit or loss where appropriate.
The Company’s share of its associates’ post-acquisition profits or losses is recognized in the statement of income, and its share of post-acquisition movements in other reserves is recognized in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Company’s share of losses of an associate equals or exceeds its interest in the associate, including any unsecured receivables, the Company does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate.
The Company should assess at the end of each reporting period whether there is any objective evidence that an investment in associates is impaired. If any such evidence exists, the Company should recognize difference between recoverable amount and carrying amount of the associates as impairment loss.
method. Unrealized gains on transactions between the CompanyGroup and its associates are eliminated to the extent of the Company’sGroup’s interest in the associates. Unrealized losses are also eliminated unlessIf there is any objective evidence that the transaction provides evidence of an impairmentinvestment in the associate is impaired, the Group recognizes the difference between the recoverable amount of the asset transferred. Accounting policies of associates have been changed, where necessary, to ensure consistency with the policies adopted by the Company. Dilution gainsassociate and losses arising from investments in associates are recognized in the statement of income.its book value as impairment loss. (5) Jointly controlled entities A joint venture is a contractual arrangement wherebyof which two or more parties (venturers) undertake an economic activityhave 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 is subject to joint control. As with associates, investments in jointly controlled entities are accounted forinvestment using the equity method and are initially recognized at cost. The Company’s investment in jointly controlled entities includes goodwill identified on acquisition, net of any accumulated impairment loss. The Company does not recognize its share of profits or losses from the joint venture that result from the Company’s purchase of assets from the joint venture until it re-sells the assets to an independent party. However, a loss on the transaction is recognized immediately if the loss provides evidence of a reduction in the net realizable value of current assets, or an impairment loss. method.2.32.4 Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (Note 34)33). The chief operating decision-maker is responsible for making strategic decisions on resource allocation and performance assessment of the operating segments. 2.42.5 Foreign Currency Translation
(1) Functional and presentation currency Items included in the financial statements of each of the consolidated companiesGroup’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional(the “functional currency”). The consolidated financial statements are presented in ‘Korean won’,Korean won, which is the Controlling 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 wherewhen 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 the statement of income, except when deferred in other comprehensive incomeprofit or loss. Exchange differences arising on non-monetary financial assets and liabilities such as qualifying cash flow hedges. Changes in theequity instruments at fair value of monetary securities denominated in foreign currency classified asthrough profit or loss and available-for-sale are analyzed between translation differences resulting from changes in the amortized cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortized costequity instruments are recognized in profit or loss and other changes in carrying amount are recognizedincluded in other comprehensive income.
Foreign currency translation differences on non-monetary financial assets and liabilities are recognizedincome, respectively, as a part of the fair value gain or loss. Translation differences on equity instruments classified as available-for-sale are included in other comprehensive income, while translation differences on equity instruments classified as financial assets and liabilities at fair value through profit or loss are included in the statement of income.
(3) Overseas subsidiariesTranslation into presentation currency TheDifferent functional currency of all overseas subsidiaries is the local currency of the countries where the subsidiaries are located. The results and financial position of all consolidated companies whose functional currency is different from the presentation currencycurrencies are translated into the presentation currency as follows:using the following procedures.
Assets and liabilities are translated at the closing rate at the enddate of the reporting period;that statement of financial position Income and expenses are translated at an average rate for the period. However, if exchange rates fluctuate significantly, the actualperiod Equity at historical rate at the date of the transaction is used; and All resulting exchange differences are recognizedrecognised in other comprehensive income.income When the Controlling Company ceases to have control, exchange differences that were recorded in equity are recognized in profit and loss on disposal of the investment.
Goodwill and fair value adjustments arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity. These are presented in functional currency of the foreign entity, and translated at the closing rate.
2.52.6 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. 2.6 Trade Receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. Where, otherwise, they are presented as non-current assets.
Trade receivables are recognized initially at fair value, less allowance for doubtful accounts. Non-current trade receivables are measured at amortized cost using the effective interest method.
2.7 Financial Assets (1) Classification and measurement The CompanyGroup classifies its financial instrumentsassets in the following categories: financial assets and liabilities at fair value through profit or loss, loans and receivables, available-for-sale financial assets, held-to-maturity investments and financial liabilities measured at amortized cost. Management determines the classification of financial instruments at initial recognition. 1) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss, areavailable-for-sale financial instruments held for trading. Financial assets, are classified in this category if acquired or incurred principally for the purpose of selling or repurchase in the short term. Derivatives that are not subject to hedge accounting are also categorized in this category.
2) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period, which are classified as non-current assets. The Company’s loans and receivables, are classified as ‘cash and cash equivalents’, ‘trade and other receivables’, ‘loans receivable’, ‘finance lease receivables’ and ‘other financial assets’ in the financial statements.
3) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months from the end of the reporting period. The available-for-sale financial assets of the Company are classified to the ‘other financial assets’ in the financial statements.
4) Held-to-maturity investments
Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company’s management has the positive intention and ability to hold to maturity and are categorized in ‘other financial assets’ in the financial statements. If the Company were to sell other than an insignificant amount of held-to-maturity financial assets, the whole category would be tainted and reclassified as available-for-sale financial assets. Held-to-maturity financial assets are included in non-current assets, except for those with maturities of less than 12 months from the end of the reporting period which are classified as current assets.
(2) Recognition and Measurement
Regular purchases and sales of financial assets are recognized on the trade date (the date on which the Company commits to purchase or sell the assets). Investmentsdate. At initial recognition, financial assets are initially recognizedmeasured at fair value plus, transaction costs for allin the case of financial assets not carried at fair value through profit or loss. Financialloss, transaction costs. Transaction costs of financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in the statement of income. Financial assets are derecognized whenAfter 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. Available-for-saleinitial 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. Gains or losses arising from changesChanges in the fair value of the financial assets and liabilities at fair value through profit or loss are presented in the statement of income within ‘financial income and expenses’ in the period in which they arise. The Company recognizes a dividend income from financial assets at fair value through profit or loss in the statement of income when the Company’s right to receive payments is established.
Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are recognized at cost. Other than these investments, all available-for-sale financial assets are measured at fair value.
Changes in theprofit or loss and changes in fair value of monetary and non-monetary securities classified as available-for-sale financial assets are recognized in other comprehensive income. Generally, when securities classified asWhen the available-for-sale financial assets are sold or impaired, the accumulated fair value adjustments recognizedrecorded in equity are reported in the statement of income as ‘gains (losses) from investment securities’.
Interest on available-for-sale financial assets calculated using the effective interest method is recognized in the statement of income as part of ‘financial income’. Dividends on available-for-sale equity instruments are recognized in the statement of income as part of ‘financial income’ when the Company’s right to receive payments is established. However, in case a subsidiary is engaged in the financial industry, the realized accumulated fair value adjustment, interest and dividends on available-for-sale are recognized as ‘operating income and expense’ in the statement of income.reclassified into profit or loss.
(3) Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
(4) Derecognition of Financial Assets
Financial assets are derecognized when the contractual rights to receive cash flows from the investments have expired or have been transferred and the Company has substantially transferred all risks and rewards of ownership. If the risk and rewards of ownership of transferred assets have not been substantially transferred, the Company reviews the level of control retained over that asset and the extent of its continuing involvement to determine if transfers do not qualify for derecognition.
Collaterals (trade receivables and other) provided in transactions of discount and factoring of trade receivables do not meet the requirements for asset derecognition if risks and rewards do not substantially transfer in the event the debtor defaults. Financial liabilities recognized in relation to these transactions are included as borrowings in the Company’s statement of financial position.
2.8(2) Impairment of Financial Assets
(1) Assets carried at amortized cost
The CompanyGroup 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 criteria thatGroup writes off financial assets when the Company usesassets are determined to determine that there isbe no longer recoverable. The objective evidence of an impairment loss include: Significantthat a financial asset is impaired includes significant financial difficulty of the issuer or obligor;
A breach of contract, such as a default or delinquency in interest or principal payments;
The Company, for economicpayments over three months; or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;
It becomes probable that the borrower will enter bankruptcy or other financial reorganization;
The disappearance of an active market for that financial asset because of financial difficulties; or
Observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:
Adverse changes in the payment status of borrowers in the portfolio;
National or local economic conditions that correlate with defaults on the assets in the portfolio.
The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the
asset is reduced and the amount of the loss is recognized in the statement of income. The Company may measure impairment of the financial instruments on the basis of an instrument’s fair value using an observable market price.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the reversal of the previously recognized impairment loss is recognized in the statement of income.
(2) Assets classified as available-for-sale
The Company 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. For debt securities, the Company uses the criteria referred to (1) above. In the case of equity investments classified as available-for-sale, a significant or prolongeddifficulties. A decline in the fair value of the securityan 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 thatof impairment.
(3) Derecognition If the asset is impaired. If any such evidence exists for available-for-saleGroup transfers a financial assets, the cumulative loss—measured as the difference between the acquisition costasset and the current fair value, less any impairment loss on thattransfer does not result in derecognition because the Company has retained substantially of all risks and rewards of ownership of the transferred asset due to a recourse in the event the debtor defaults, the Group continues to recognize the transferred asset in its entirety and recognizes a financial asset previously recognized in profit or loss—liability for the consideration received. The related financial liability is removed from equity and recognizedclassified as ‘borrowings’ in the statement of income. Impairment losses recognized in the statement of income on equity instruments are not reversed through the statement of income. The fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the statement of income.financial position (Note 16). 2.92.8 Derivative Financial 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. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Company designates certain derivatives as either: Hedges ofChanges in the fair value of a recognized asset or liability or a firm commitment (fair value hedge); orthe
Hedges of a particular risk associated with a recognized asset or liability on a highly probable forecast transaction (cash flow hedge)
The Company documents at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are usednot qualified for hedge accounting are recognized in hedging transactions are highly effective in offsetting changes on fair values or cash flowsthe statement of hedged items.income within ‘finance income (expenses)’ according to the nature of transactions.
The fair values of various derivative instruments usedGroup applies cash flow hedge accounting for hedging purposes and movementsprice changes risks on the hedging reserveforecast purchases of inventories. The effective portion of changes in shareholders’ equity are shown in Note 9. The full fair value of aderivatives 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 derivative is classifiedinstruments accumulated in other comprehensive income are included in the initial measurement of the cost of non-financial assets as a non-current asset or liabilityhedging transactions and recognized as ‘cost of sales’ for the periods when the remaining hedged itemcorresponding transactions affect profit or loss. When a forecast transaction is more than 12 months, andno longer expected to occur, the cumulative gain or loss that is reported in other comprehensive income is recognized as a current asset or liability when the remaining maturity‘operating income (expenses)’. The Group applies fair value hedge accounting for hedging fixed interest risks on borrowings. The effective portion of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability. (1) Fair value hedge.
Changeschanges in the fair value of derivatives that are designated and qualify as fair value hedges are recorded inis recognized as ’finance cost’, and the ineffective portion is recognized as ‘operating income statement, together with any(expenses)’. However, changes in the fair value of the hedged asset or liability that areitems attributable to the hedged risk.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) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is hedges is recognized in other comprehensive income. The gain of loss relating to the ineffective portion is recognized immediately as financial income (costs) in the statement of income.
Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate foreign borrowings is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized as financial income in the statement of income.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to profits or losses in the statement of income.
2.102.9 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. Net realizable 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 is the estimated selling price in the ordinary course of business, less applicable selling expenses.costs to sell. 2.11 Property and Equipment All propertyProperty and equipment are stated at historicalits cost less depreciation.accumulated depreciation and accumulated impairment losses. Historical cost includes expenditureexpenditures that is directly attributedattributable to the acquisition of the items. However, in accordance with IFRS 1,First-time Adoption of IFRS, the Company measured certain buildings and telecommunications equipment at
The fair value atof a liability for an asset retirement obligation is recorded in the dateperiod in which it is incurred if a reasonable estimate of transition to IFRS and the fair value is used as their deemed cost at that date. Subsequent costs are includedcan be made. In periods subsequent to initial measurement, we recognize period-to-period changes in the asset’s carrying amountliability resulting from the passage of time and revisions to either the timing or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the statement of income during the financial period in which they are incurred.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 assets’depreciation method, residual values and useful lives of property and equipment are reviewed and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amountperiod and, if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognizedappropriate, accounted for as operating revenue or expenseschanges in the statement of income.accounting estimates. 2.12 Investment Property Investment property isProperty held to earn rentals or for capital appreciation or both.both is classified as investment property. Investment property is measured initially at its cost including transaction costs incurred in acquiring the asset.cost. After recognition as an asset, investment property is carried at its cost less any accumulated depreciation and impairment losses.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the statement of income during the financial period in which they are incurred.
Land held for investment is not depreciated. Investment property, except for land, is depreciated using the straight-line method over their estimated useful lives.
The depreciation method, the residual value and the useful life of an asset are reviewed at least at the end of each reporting period and, if management judges that previous estimates should be adjusted, the change is accounted for as a change in an accounting estimate.
Gains or losses arisinglives from the disposal of investment property shall be determined as the difference between the net disposal proceeds and the carrying amount of the asset and shall be recognized in the operating revenue and expenses in the income statement.10 to 40 years.
2.13 Intangible Assets (1) Goodwill Goodwill is measured as explained in Note 2.22.3 (1) and goodwill arising from acquisition of subsidiaries and 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 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 measuredshown at historical cost. These assets have definite useful lives and are carried at historical cost less accumulated amortization. Amortization is calculatedAssets with definite useful lives are amortized using the straight-line method according to allocate the cost of assets over their estimated useful lives.lives presented 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 for the Company.inflows. The useful life of an asset with indefinite useful life is reviewed each period to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If management judges that previous estimates should be adjusted, the change is accounted for as a change in an accounting estimate. The depreciation method and useful life of an asset with definite useful life are reviewed at the end of each reporting period.
The estimated useful life used for amortizing intangible assets is as follows: | | | | | Estimated Useful Lives | Goodwill
| | Unlimited useful life | Industrial property rights
| | 2 – 10 years | Development costs | | 5 – 6 years | Goodwill | | Unlimited useful life | Software | | 6 years | Industrial property rights | | 2 – 10 years | Frequency usage rights | | 5.75 – 1315 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 General and specific borrowingBorrowing costs directly attributable toincurred in the acquisition or construction or production of a qualifying assets, whichasset are assets that necessarily take a substantialcapitalized in the period of time to get readywhen it is prepared for theirits intended use, or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investmentand investment income earned on the temporary investment of specific borrowings pending their expenditure onmade specifically for the purpose obtaining a qualifying assetsasset is deducted from the borrowing costs eligible for capitalization. All othercapitalization during the period. Other borrowing costs are recognized in profit or loss inas expenses for the period in which they are incurred.
2.15 Government Grants Grants from a governmentGovernment grants related to assets are recognized at their fair value where there isin profit or loss on a reasonable assurance thatsystematic and rational basis over the useful life of the asset by setting up the grant will be receivedas deferred income, and the Company will comply with all attached conditions.
Governmentgovernment grants relatingrelated to costsincome are deferred and recognized in the statement of income overas part of operating income for the period necessary to match them within which the costs that they are intended to compensate. Government grants relating to property and equipment are deferred and are credited torelated expenses for the statement of income on a straight-line basis over the expected livespurpose of the related assets.government grants are incurred.
2.16 Impairment of Non-Financial Assets Assets that have anGoodwill or intangible assets with indefinite useful life such as goodwilllives 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 its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets, other than goodwill, that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
2.17 Financial liabilitiesLiabilities (1) Financial assets at fair value through profit or lossClassification 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 acquired or incurred principally for the purpose of selling or repurchaserepurchasing them in the shortnear term. Derivatives that are not subject to hedge accountingdesignated as hedges or bifurcated from financial instruments containing embedded derivatives are also categorized in this category. (2) Financial liabilities measured at amortized costas held-for-trading.
The CompanyGroup classifies non-derivative financial liabilities, as financial liabilities measured at amortized cost, except for financial liabilities at fair value through profit or loss, or forfinancial guarantee contracts and financial liabilities that arise when a transfer of a financial assetassets does not qualify for derecognition. For cases not qualifying for derecognition, the transferred asset continues to be recognized and aas financial liability is measured as the consideration received. Financial liabilities measuredcarried at amortized cost are includedand presented as ‘trade payables’, ‘borrowings’, and ‘other financial liabilities’ in non-current liabilities, exceptthe statement of financial position. Preferred shares that provide for liabilities with maturities of less than 12 months as of the end of the reporting period, whicha mandatory redemption at a particular date are classified as current 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 a foreign convertible bond. (2) Derecognition Financial liabilities are removed from the statement of financial position when it is extinguished, for example, when the obligation specified in the contract is discharged, cancelled or expired or when the terms of an existing financial liability are substantially modified. 2.18 Trade PayablesFinancial Guarantee Contracts Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year. If not, they are presented as non-current liabilities. Trade payables are initially recognized at fair value.
2.19 Financial guarantee contracts
A financial guarantee contract is a contract that requires provided by the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantee isGroup are initially measured at fair value on the date the guarantee was given. Subsequent to initial recognition, the Company’sGroup’s liabilities under such guarantees are measured at the higher of the amounts below. Any increase in the liability relating to guarantees is reportedbelow and recognized as other‘other financial liabilities:liabilities’:
| • | | The amountsthe amount determined in accordance with IAS 37,Provisions, Contingent Liabilities and Contingent Assets; or
|
The amounts initially recognized less the accumulated amortization accordance with IAS 18 Revenue
| • | | the initial amount, less accumulated amortization recognized in accordance with IAS 18,Revenue. |
2.20 Borrowings2.19 Compound Financial Instruments
BorrowingsCompound 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 net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the statement of income over the period of the borrowings using the effective interest method. However, in case a subsidiary is engaged in the financial industry, the interest expenses are recognized as operating expenses since it is considered as a main business activity of the subsidiary.
The Company classifies thesimilar liability as current when itthat does not have an unconditional rightequity 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 defer its settlement for at least 12 months after the reporting date.liability and equity components in proportion to their initial carrying amounts.
2.212.20 Employee Benefits
(1) Retirement benefit liabilitiesPost-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 the defined benefit pension planplans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changesobligation. The remeasurement of the net defined benefit liability is recognized in actuarial assumptions are charged or credited to other comprehensive income in the period in which they arise. To the extent that the benefits are already vested following the introduction ofincome.
If any plan amendments, curtailments, or changes to, a defined benefit plan, past-servicesettlements occur, past service costs or any gains or losses on settlement are recognized immediately in income, while costs are amortized over the vesting periodas profit or loss for the unvested benefits.year. (2) Termination benefits Termination benefits are payable when employment is terminated by the CompanyGroup before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The CompanyGroup recognizes termination benefits at the earlier of the following dates: when it is demonstrably committed to either: terminating the employmententity can no longer withdraw the offer of current employees according tothose benefits or when the entity recognizes costs for a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy.restructuring. 2.222.21 Share-based payments
The Controlling Company operatesEquity-settled share-based compensation plans, under whichpayments granted to employees are estimated at the Controlling Company receives services from employees as consideration for equity instruments (options) of the Controlling Company. Thegrant date fair value of the employee services received in exchange for the grant of the options isequity instruments and recognized as a compensation expense in the statement of incomeemployee benefit expenses over the vesting period. The number of equity instruments expected to vest is remeasured with consideration to non-market vesting conditions at the end of the reporting period, with any changes from the original measurement recognized in the profit for the year and equity.
2.23 Provisions
ProvisionsWhen the options are exercised, the Company issues new shares. The proceeds received, net of any directly attributable transaction costs, are recognized when the Company has a present legal or constructive obligation as a result of past eventsshare capital (nominal value) and an outflow of resources required to settle the obligation is probable and can be reliably estimated.share premium.
2.22 Provisions are not recognized for future operating losses. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation. Theobligation and the increase in the provisionsprovision due to passage of time is recognized as an interest expense. 2.242.23 Leases
(1) The Company as the Lessee A lease is an agreement, whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time. Leases in which a significant portion ofwhere all the risks and rewards of ownership are retained bynot transferred to the lessorGroup are classified as operating leases. Payments madeLease payments under operating leases are charged to the statement of incomerecognized as expenses on a straight-line basis over the period of the lease.lease term. Lease of property and equipmentLeases where the lesseeGroup has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease’s commencementand recognized as lease assets and liabilities at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant ratepayments on the outstanding balance. The corresponding rental obligations, net of finance charges, are included in the finance lease liabilities.
The interest elementopening date of the finance cost is charged to the statement of income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term.
(2) The Company as the Lessor ForA lease is classified as a finance leases, lease receivables are recognizedif it transfers substantially all the risks and rewards incidental to ownership at the amount equivalent toinception of the net investment in thelease. A lease asset. The Company recognizes interest income, which is calculated for netother than a finance lease receivable based on effective interest rate.is classified as an operating lease. Lease income from operating leases shall be
is recognized in income on a straight-line basis over the lease term. Initial direct costs incurred by lessorsthe lessor in negotiating and arranging an operating leases shall belease is added to the carrying amount of the leaseleased asset and recognized as the expensesan expense over the lease term corresponding toon the same basis as the lease income. 2.25 Dividend Distribution
Dividend distribution to the Company’s shareholders is recognized as a liability in the financial statements in the period in which the dividends are approved by the Company’s shareholders.
2.262.24 Capital Stock
Common stocks are classified as equity. Incremental costs directly attributable to the issue of new common stocks or options are shown in equity as a deduction, net of tax, from the proceeds. Where the Controlling Company purchases its own equity share capital, the consideration paid, including any directly attributable incremental costs, is deducted from equity attributable to the Controlling Company’s equity holders until the stocks are cancelled or reissued. Where such shares are subsequently reissued, any consideration received is included in equity attributable to the Controlling Company’s equity holders. 2.272.25 Revenue Recognition
Revenue comprisesis measured at the fair value of the consideration received or receivable for the salessale of goods andor rendering of services inarising from the ordinary coursenormal activities of the Company’s activities. RevenueGroup. It is shownstated as net of value-added tax,value added taxes, returns, rebates and discounts, and after eliminating sales within the Company. elimination of intra-company transactions. The CompanyGroup recognizes revenue when the amount of revenue can be reliably measured,measured; when it is probable that future economic benefits will flow to the entityentity; and when specific criteria have been met for each of the Company’sGroup’s activities, as described below. The CompanyGroup bases its estimatesestimate on historical results, taking into consideration the 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 SalesThe Group sells a range of handsets and other telephone products. Revenue from the sale of goods such as selling handsets areis recognized when the Company hasproducts are delivered products to the customer. Delivery does not occur until the products have been shipped to the
specified location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Company has objective evidence that all criteria for acceptance have been satisfied.purchaser.
(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 CompanyGroup 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.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 ana 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 right to receive payment is established. 2.28(7) Customer loyalty programme
The Group operates a customer loyalty program where customers accumulate points for purchases made which entitle them to discounts on future purchases. The reward points are recognized as a separately identifiable component of the initial sale transaction. The fair value of the consideration received or receivable in respect of the initial sale is allocated between the reward points and the other components of the sale. The fair value of the reward points is measured by taking into account the proportion of the reward points that are not expected to be redeemed by customers. Revenue from the reward points is recognized when the points are redeemed. 2.26 Current and Deferred Income Tax The tax expense for the period consists of current and deferred tax. Tax is recognized on the profit for the period in the statement of income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this exception,case, the tax is also recognized in other comprehensive income or directly in equity, respectively. The current income tax chargeexpense is calculated on the basis of the tax laws enacted or substantiallysubstantively enacted at the end of the reporting date in the countries where the Company operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.period. Deferred income tax is recognized using the liability method, onfor temporary differences arising between the tax bases of assets and liabilities and their carrying amounts inas expected tax consequences at the financial statements.recovery or settlement of the carrying amounts of the assets and liabilities. However, the deferred income tax isassets and liabilities are not accounted forrecognized if it arisesthey 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 noror loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilized. Deferred income tax liabilities are provided onliability is recognized for taxable temporary differences arising onassociated with investments in subsidiaries, associates, and associates,interests in joint ventures, except whereto the extent that the Group is able to control the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred incomeIn addition, deferred tax asset is recognized onlyfor deductible temporary differences arising from such investments to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention either to settle the balances on a net basis or to realize the asset and settle the liability simultaneously.basis. 2.292.27 Deferred Loan Fees and Costs
Loan origination fees in relation to loan origination process such as upfront fee, are deferred and amortized over the life of the loan as an adjustment to the yield of the loan using the effective interest rate method. Loan origination costs, which relates to loan origination activities such as commissions to brokers, are deferred and amortized over the life of the loan as an adjustment to the yield of the loan, using the effective interest rate method, if the future economic benefit related costs incurred can be matched with each loan. In addition, the amortization of the deferred loan origination fees onand costs isare offset and the net amounts are presented in the consolidated statement of financial position. 2.302.28 Non-current Assets Held for Sale and Discontinued Operations
Non-current assets (or disposal groups) are classified as ‘assets and liabilities classified as held for sale’ (or ‘groups classified as held for sale’) when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount or fair value less costs to sell.
When a component of the CompanyGroup 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 CompanyGroup 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 net cash flows attributable to the operating, investing and financing activities of discontinued operations are presented in the notes to the financial statements.statements (Note 40). 2.29 Dividend Dividend distribution to the Company’s shareholders is recognized as a liability in the financial statements in the period in which the dividends are approved by the Company’s shareholders. 2.30 Approval of Issuance of the Financial Statements The issuance of the December 31, 2013 financial statements of the Company was approved by the directors on April 11, 2014. 2.31 US Dollar Convenience Translation The December 31, 20112013 consolidated financial statements are expressed in Korean Won and have been translated into U.S. dollars at the rate of(Won)₩1,153.31,055.3 to US$1, the market average exchange rate announced by Seoul Money Brokerage Services, Ltd. and in effect on December 31, 2011,2013, 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. 3. Critical Accounting Estimates and Assumptions The CompanyGroup makes estimates and assumptions concerning the future. EstimatesThe estimates and assumptions are continuallycontinuously evaluated and are based onwith consideration to factors such as events reasonably predictable in the foreseeable future within the present circumstance according to historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.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 Estimated Impairment of Goodwill The CompanyGroup tests annually whether goodwill has suffered any impairment in accordance with the accounting policy stated in Note 2.16.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. These calculations require the use of estimates. (Note 14)13). 3.2 Income Taxes CurrentThe Group is operating in numerous countries and deferredthe income generated from these operations is subject to income taxes based on tax laws and interpretations of tax authorities in numerous jurisdictions. There are determined usingmany transactions and calculations for which the ultimate tax rates and laws that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.uncertain.
3.3 Fair Value of Derivatives and Financial Instruments The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The CompanyGroup uses its judgment to select a variety of methods and makesmake assumptions that are mainly based on market conditions existing at the end of each reporting period.period (Note 36). 3.4 Allowance for Doubtful Accounts The Company usesGroup 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 amortizationloss amount will be increased more than the estimated. 3.5 Defined Benefit ObligationNet defined benefit liability The present value of thenet defined benefit obligationliability depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the defined benefit obligation includeincluding the discount rate. Any changes in these assumptions will impact the carrying amount of the defined benefit obligation. The Company determines the appropriate discount rate at the end of each reporting period. This is the interest rate that is used to determine the present value of estimated future cash outflows expected to be required to settle the defined benefit obligation. In determining the appropriate discount rate, the Company considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related liability. Other key assumptions for defined benefit obligation are based in part on current market conditions. Additional information is disclosed in Note 19.(Note 18).
3.6 Deferred Revenue 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. 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 18,17, the CompanyGroup records provisions for litigation and assetsasset 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 equipmentEquipment and Investment Property Depreciation on the property and equipment excluding land, condominium memberships, golf club memberships, and broadcasting concession is calculated using straight linethe straight-line method over their useful lives. The estimated useful lives are determined based on expected usage of the assets and the estimates can be materially affected by technical changes and other factors. The CompanyGroup will increase depreciation if the useful lives are considered shorter than the previously estimated useful lives. 4. Transition to IFRS
The Company’s transition date to IFRS is January 1, 2010, and adoption date is January 1, 2011. The Company prepared the opening statement of financial position as of January 1, 2010.
In preparing these consolidated financial statements in accordance with IFRS 1,First-time Adoption of international Financial Reporting Standards, the Company has applied the mandatory exceptions and certain optional exemptions allowed by IFRS.
4.1 Exemptions options under IFRS 1
The Company has elected to apply the following optional exemptions from full retrospective application of the IFRS.
(1) Business combination
The Company has not retrospectively applied IFRS 3 to the business combinations that took place prior to the transition date of January 1, 2010 (the date of transition to IFRS).
(2) Deemed cost for property and equipment
The Company has elected to measure certain property and equipment at fair value as of January 1, 2010, (the date of transition to IFRS) and uses that fair value as its deemed cost at that date. The certain buildings and telecommunications equipment were measured using fair value as its deemed cost at transition date. The adjusted amount resulting from fair value revaluation is(Won)256,781 million (before the income tax effects), with the total fair value of(Won)6,492,658 million.
(3) Decommissioning liabilities included in the cost of property and equipment
According to IFRIC 1,Changes in Existing Decommissioning, Restoration and Similar liabilities, changes in a decommissioning, restoration or similar liability are added to or deducted from the cost of the asset to which it relates. The Company elects not to comply with these requirements for changes in such liabilities that occurred before the date of transition to IFRS. The amounts to be included as costs of decommissioning assets are measured by discounting the liability over the intervening period and the accumulated depreciation on that amount is calculated at the date of transition to IFRS.
(4) Borrowing costs
In respect of capitalizing borrowing costs incurred in the construction of a qualifying asset, the Company capitalizes interest on all qualifying assets for which the commencement date for capitalization is after the transition date subject to IAS 23.
(5) Contribution for construction
Subject to IFRIC 18, the Company applies this interpretation prospectively to contribution for construction received on or after January 1, 2010 (the date of transition to IFRS).
4.2 Mandatory exceptions to retrospective application of IFRS 1
The Company has applied the following mandatory exceptions.
(1) Derecognition of financial assets
The Company has prospectively applied IAS 39,Financial Instruments: Recognition and Measurement, to the transactions of financial assets after January 1, 2004. The Company has not applied IFRS to transactions of financial assets before January 1, 2004, even if they met the requirements of derecognition .
(2) Exception for estimates
The Company’s estimates in accordance with IFRS, at the date of transition (January 1, 2010) are consistent with estimates made for the same date in accordance with previous accounting standards(after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.
4.3 Significant Differences in Accounting Policies
Significant differences between the accounting policies chosen by the Company under IFRS and under Korean GAAP are as follows:
(1) Revenue recognition
Under Korean GAAP, non-refundable service installation fees for telephone and initial subscription fees for Personal Communications Services(PCS) and leased-line services are recognized as revenue when installation and initiation services are rendered. Under IFRS, service installation fees, and an initial subscription fees related to activation of service, are deferred and recognized as revenue over the expected terms of customer relationship.
In addition, under Korean GAAP, as the certain real estate revenue is considered as a construction type contract, the real estate revenue is recognized on a percentage of completion basis. Under IFRS, as the related real estate revenue is considered as a sale of goods, real estate revenue is recognized at the time of the transfer to customer.
(2) Employee benefits
Under Korean GAAP, provisions for severance benefits were estimated assuming all eligible employees were to terminate their employment at the end of reporting period. Under IFRS, the defined benefit obligations are measured by using actuarial method.
(3) Government grants
Under Korean GAAP, government grants were presented by deducting the grant in arriving at the carrying amount of the asset. Under IFRS, government grants are presented as liabilities for deferred revenue and recognized as revenue over the useful life of the asset.
(4) Goodwill or bargain purchase arising from business combinations
Under Korean GAAP, goodwill recognized at the business combination was amortized using the straight-line basis over 4~10 years from the year of acquisition and negative goodwill was recognized as income using the straight-line basis over the weighted average useful life of the acquired depreciable assets. Under IFRS, goodwill is not amortized or reversed but tested for impairment at least annually. Gain on bargain purchase is recognized immediately in the statement of income.
(5) Capitalization of borrowing costs
Under Korean GAAP, borrowing costs were expensed as incurred from the initial date of manufacture, acquisition, construction and development until getting ready for its intended use or sale. Under IFRS, the Company capitalizes 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.
(6) Customer loyalty programs
Under Korean GAAP, the amount of future obligation was recognized as expense and liability provision when sales occur. Under IFRS, awarded credits are separately accounted for as an identifiable component of the sales transaction in which they are granted and the related revenue is deferred.
(7) Transfer of financial assets
Under Korean GAAP, if the Company transferred a financial asset to financial institutions and it was determined that control over the asset has been transferred to financial institutions, the Company derecognized the financial asset. Under IFRS, if the Company retains substantially all the risks and rewards of ownership of the asset, the asset is not derecognized but instead the related cash proceeds are recognized as financial liabilities.
(8) Deferred income tax
Under Korean GAAP, deferred tax assets and liabilities were either classified as current or non-current based on the classification of their underlying assets and liabilities. If there are no corresponding assets or liabilities the deferred tax assets and liabilities are classified based on their expected recoverable periods.
Under IFRS, deferred tax and liabilities, are classified as non-current on the statement of financial position.
Under Korean GAAP, temporary differences related to investments in subsidiaries, associates and joint ventures were treated as a single difference in determining whether to recognize deferred tax assets or liabilities. Under IFRS, deferred tax assets and liabilities are recognized reflecting the manner of recovery or settlement of temporary difference of each component.
4.4 Changes in Scope of Consolidation
At January 1, 2010, the date of transition, changes in the scope of consolidation as a result of adoption of IFRS are as follows:
| | | | | Changes
| | Description
| | Name of Entity | Excluded
| | Under Korean GAAP, entities of which the Company owns more than 30% of shares and is the largest shareholder with the largest voting rights were included in scope of consolidation. Under IFRS, such entities are not subject to consolidation unless control over the entity is established. | | KT Submarine Co., Ltd.
Sidus FNH Benex,
Cinema Investment
Fund No. 1
| | | Under Korean GAAP, Private Equity Fund under theIndirect Investment Asset Management Business Act, which the Company is a managing partner of,was included in scope of consolidation. Under IFRS, such entities are not subject to consolidation unless control over the entity is established. | | Vanguard Private
Equity Fund | Newly added
| | — | | — |
As a result of adoption of IFRS, three subsidiaries are excluded from scope of consolidation at the date of transition.
4.5 Reconciliation between IFRS and Korean GAAP
(1) Effects on the consolidated total assets, liabilities and equity as of January 1, 2010, the transition date of IFRS
| | | | | | | | | | | | | (in millions of Korean won) | | Total assets | | | Total liabilities | | | Total equity | | Reported amount under Korean GAAP | | (Won) | 26,620,317 | | | (Won) | 15,952,878 | | | (Won) | 10,667,439 | | | | | | | | | | | | | | | Adjustments : | | | | | | | | | | | | | Change in revenue recognition of certain real estate sales | | | (176,352 | ) | | | 23,345 | | | | (199,697 | ) | Deferred revenue such as initial subscription fees | | | — | | | | 255,034 | | | | (255,034 | ) | Deemed cost of property and equipment | | | 256,781 | | | | — | | | | 256,781 | | Valuation of financial instruments (present value and others) | | | (6,503 | ) | | | (122 | ) | | | (6,381 | ) | Actuarial estimation of post employment benefit | | | 259 | | | | (251,011 | ) | | | 251,270 | | Readjustments of asset retirement obligation | | | 3,335 | | | | 9,639 | | | | (6,304 | ) | Reclassifications of government grants | | | 8,227 | | | | 8,610 | | | | (383 | ) | Effect of changes in the scope of consolidation | | | (77,759 | ) | | | (13,349 | ) | | | (64,410 | ) | Others | | | 36,541 | | | | (36,069 | ) | | | 72,610 | | Tax-effect on adjustments | | | (1,152 | ) | | | (77 | ) | | | (1,075 | ) | | | | | | | | | | | | | | Total | | | 43,377 | | | | (4,000 | ) | | | 47,377 | | | | | | | | | | | | | | | Adjusted amount under IFRS | | (Won) | 26,663,694 | | | (Won) | 15,948,878 | | | (Won) | 10,714,816 | | | | | | | | | | | | | | |
(2) Effects on the consolidated total assets, liabilities and equity as of December 31, 2010
| | | | | | | | | | | | | | | | | (in millions of Korean won) | | Total Assets | | | Total liabilities | | | Total equity | | | Comprehensive income | | Reported amount under Korean GAAP | | (Won) | 27,713,459 | | | (Won) | 16,217,787 | | | (Won) | 11,495,672 | | | (Won) | 1,151,049 | | | | | | | | | | | | | | | | | | | Adjustments : | | | | | | | | | | | | | | | | | Change in revenue recognition of certain real estate sales | | | 11,127 | | | | 23,536 | | | | (12,409 | ) | | | 187,288 | | Deferred revenue such as initial subscription fees | | | 1,519 | | | | 239,614 | | | | (238,095 | ) | | | 16,939 | | Deemed cost of property and equipment | | | 256,781 | | | | — | | | | 256,781 | | | | — | | Effect of depreciation cost to apply deemed cost and others | | | (112,190 | ) | | | — | | | | (112,190 | ) | | | (112,215 | ) | Valuation of financial instruments (present value and others) | | | (7,919 | ) | | | (211 | ) | | | (7,708 | ) | | | (1,118 | ) | Actuarial estimation of post employment benefit | | | 280 | | | | (91,869 | ) | | | 92,149 | | | | (158,984 | ) | Readjustments of asset retirement obligation | | | 1,320 | | | | 8,229 | | | | (6,909 | ) | | | (613 | ) | Reclassifications of government grants | | | 26,258 | | | | 25,604 | | | | 654 | | | | 654 | | Capitalization of borrowing cost | | | 16,550 | | | | — | | | | 16,550 | | | | 16,550 | | Effect of changes in the scope of consolidation | | | (1,083,170 | ) | | | (847,697 | ) | | | (235,473 | ) | | | (14,673 | ) | Others | | | 105,129 | | | | 10,642 | | | | 94,487 | | | | 30,804 | | Tax-effect on adjustments | | | 12,459 | | | | 1,913 | | | | 10,546 | | | | 10,382 | | | | | | | | | | | | | | | | | | | Total | | | (771,856 | ) | | | (630,239 | ) | | | (141,617 | ) | | | (24,986 | ) | | | | | | | | | | | | | | | | | | Adjusted amount under IFRS | | (Won) | 26,941,603 | | | (Won) | 15,587,548 | | | (Won) | 11,354,055 | | | (Won) | 1,126,063 | | | | | | | | | | | | | | | | | | |
(3) Adjustments to the statement of cash flows
According to IFRS, cash flows of the related income (expenses) and assets (liabilities) are adjusted to separately disclose the cash flows from interest received, interest paid and cash payments of income taxes that were not presented separately under Korean GAAP. Also, other IFRS transition effects are reflected on cash flows if they have an effect on cash flow.
5.4. Financial Instruments by category
Financial instruments by category as of January 1, 2010 and December 31, 20102012 and 20112013, are as follows: | (In millions of Korean won) | | 01.01.2010 | | | 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 | | | 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 | | (Won) | 1,542,872 | | | (Won) | — | | | (Won) | — | | | (Won) | — | | | (Won) | — | | | (Won) | 1,542,872 | | | ₩ | 2,057,613 | | | ₩ | — | | | ₩ | — | | | ₩ | — | | | ₩ | — | | | ₩ | 2,057,613 | �� | Trade and other receivables | | | 4,515,007 | | | | — | | | | — | | | | — | | | | — | | | | 4,515,007 | | | | 6,980,474 | | | | — | | | | — | | | | — | | | | — | | | | 6,980,474 | | Loans receivable | | | 911,229 | | | | — | | | | — | | | | — | | | | — | | | | 911,229 | | | | 1,180,700 | | | | — | | | | — | | | | — | | | | — | | | | 1,180,700 | | Finance lease receivables | | | 522,765 | | | | — | | | | — | | | | — | | | | — | | | | 522,765 | | | | 861,655 | | | | — | | | | — | | | | — | | | | — | | | | 861,655 | | Other financial assets | | | 346,596 | | | | 31,368 | | | | 295,058 | | | | 117,280 | | | | 82 | | | | 790,384 | | | | 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 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | In millions of Korean won) | | 1.1.2010 | | Financial liabilities | | Liabilities at fair value through the profit and loss | | | Derivatives used for hedge | | | Financial liabilities at amortized cost | | | Total | | Trade and other payables | | (Won) | — | | | (Won) | — | | | (Won) | 5,583,679 | | | (Won) | 5,583,679 | | Finance lease liabilities | | | — | | | | — | | | | 7,553 | | | | 7,553 | | Borrowings | | | — | | | | — | | | | 9,566,700 | | | | 9,566,700 | | Other financial liabilities | | | 7,497 | | | | 3,782 | | | | 15,586 | | | | 26,865 | |
| | | | | | | | | | | | | | | | | | | | | | | | | (In millions of Korean won) | | 12.31.2010 | | 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 | | (Won) | 1,161,641 | | | (Won) | — | | | (Won) | — | | | (Won) | — | | | (Won) | — | | | (Won) | 1,161,641 | | Trade and other receivables | | | 5,318,713 | | | | — | | | | — | | | | — | | | | — | | | | 5,318,713 | | Loans receivable | | | 1,133,221 | | | | — | | | | — | | | | — | | | | — | | | | 1,133,221 | | Finance lease receivables | | | 597,339 | | | | — | | | | — | | | | — | | | | — | | | | 597,339 | | Other financial assets | | | 106,630 | | | | 6,010 | | | | 247,794 | | | | 178,609 | | | | 7 | | | | 539,050 | |
| | | | | | | | | | | | | | | | | | | | | (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 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (In millions of Korean won) | | 12.31.2010 | | Financial liabilities | | Liabilities at fair value through the profit and loss | | | Derivatives used for hedge | | | Financial liabilities at amortized cost | | | Total | | Trade and other payables | | (Won) | — | | | (Won) | — | | | (Won) | 4,805,705 | | | (Won) | 4,805,705 | | Finance lease liabilities | | | — | | | | — | | | | 93,856 | | | | 93,856 | | Borrowings | | | — | | | | — | | | | 9,382,364 | | | | 9,382,364 | | Other financial liabilities | | | 634 | | | | 19,837 | | | | 18,455 | | | | 38,926 | |
| | | | | | | | | | | | | | | | | | | | | | | | | (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) | | 12.31.2011 | | 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 | | (Won) | 1,445,169 | | | (Won) | — | | | (Won) | — | | | (Won) | — | | | (Won) | — | | | (Won) | 1,445,169 | | Trade and other receivables | | | 7,882,329 | | | | — | | | | — | | | | — | | | | — | | | | 7,882,329 | | Loans receivable | | | 1,189,331 | | | | — | | | | — | | | | — | | | | — | | | | 1,189,331 | | Finance lease receivables | | | 736,660 | | | | — | | | | — | | | | — | | | | — | | | | 736,660 | | Other financial Assets | | | 280,700 | | | | 5,538 | | | | 160,283 | | | | 428,796 | | | | 7 | | | | 875,324 | |
| | | | | | | | | | | | | | | | | | | | | (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 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (In millions of Korean won) | | 12.31.2011 | | Financial liabilities | | Liabilities at fair value through the profit and loss | | | Derivatives used for hedge | | | Financial liabilities at amortized cost | | | Total | | Trade and other payables | | (Won) | — | | | (Won) | — | | | (Won) | 6,542,138 | | | (Won) | 6,542,138 | | Finance lease liabilities | | | — | | | | — | | | | 136,197 | | | | 136,197 | | Borrowings | | | — | | | | — | | | | 10,998,552 | | | | 10,998,552 | | Other financial liabilities | | | 2,730 | | | | 6,076 | | | | 287,954 | | | | 296,760 | |
Income or expense (gain or loss) by financial instrumentsinstrument category for the years ended December 31, 20102011, 2012 and 2011,2013, are as follows: | | | | | | | | | (In millions of Korean won | | 12.31.2010 | | | 12.31.2011 | | Loans and receivables | | | | | | | | | Interest income 1 | | (Won) | 253,437 | | | (Won) | 314,125 | | Gain or loss on valuation | | | (194,005 | ) | | | (146,177 | ) | Foreign currency transaction gain or loss | | | (15,227 | ) | | | 5,284 | | Foreign currency translation gain or loss | | | (2,967 | ) | | | 4,646 | | Gain or loss on disposal | | | (482 | ) | | | (3,807 | ) | Assets at fair value through the profit and loss | | | | | | | | | Interest income 1 | | | 3,048 | | | | 10,684 | | Dividend income | | | 2 | | | | 13 | | Gain or loss on valuation | | | 14,460 | | | | 10,263 | | Foreign currency transaction gain or loss | | | 352 | | | | 8 | | Foreign currency translation gain or loss | | | 3 | | | | 116 | | Gain or loss on disposal | | | 92 | | | | (1,120 | ) | Reclassified to profit or loss from other comprehensive income 2, 3 | | | — | | | | 879 | |
| | | | | | | | | (In millions of Korean won | | 12.31.2010 | | | 12.31.2011 | | Derivatives used for hedging | | | | | | | | | Transaction gain or loss | | | (824 | ) | | | (26,882 | ) | Gain or loss on valuation | | | 114 | | | | 43,755 | | Other comprehensive income 2 | | | (27,897 | ) | | | 13,509 | | Reclassified to profit or loss from other comprehensive income 2, 4 | | | 3,259 | | | | 6,374 | | Available -for-sale | | | | | | | | | Interest income 1 | | | 998 | | | | 219 | | Dividend income | | | 561 | | | | 7,840 | | Gain or loss on disposal | | | 2,305 | | | | 6,724 | | Impairment loss | | | (6,043 | ) | | | (4,727 | ) | Other comprehensive income 2 | | | (1,324 | ) | | | 80,521 | | Reclassified to profit or loss from other comprehensive income 2 | | | 3,553 | | | | (1,764 | ) | Liabilities at fair value through the profit and loss | | | | | | | | | Interest expense 1 | | | (5,380 | ) | | | (11,777 | ) | Gain or loss on valuation | | | 4,998 | | | | (142 | ) | Gain or loss on disposal | | | (732 | ) | | | 40 | | Derivatives used for hedging | | | | | | | | | Gain or loss on valuation | | | (12,810 | ) | | | 1,041 | | Other comprehensive income 2 | | | (20,692 | ) | | | 8,205 | | Financial liabilities at amortized cost | | | | | | | | | Interest expense 1, 5 | | | (580,082 | ) | | | (576,589 | ) | Foreign currency transaction gain or loss | | | 11,685 | | | | 4,063 | | Foreign currency translation gain or loss | | | 36,303 | | | | (83,939 | ) | Financial guarantee gain or loss | | | (239 | ) | | | (4,973 | ) | | | | | | | | | | Total | | (Won) | (533,534 | ) | | (Won) | (343,588 | ) | | | | | | | | | |
| | | | | | | | | | | | | (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 | KT Capital Co., 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(Won)₩170,598 million (2011:₩173,740 million, (2010:2012:(Won)₩ 160,043184,182 million) and interest expense recognized as operating expense is(Won)₩97,827 million (2011:₩106,951 million, (2010:2012:(Won)₩ 95,537116,810 million) for the year ended December 31, 2011.2013. |
2 | The amounts directly reflected in equity before adjustments of deferred income tax. |
3 | The Company discontinued prospectively hedge accounting for certain cash flow hedge derivatives, which are reclassified as financial instruments at fair value through profit or loss. The related gain or loss on valuation of cash flow hedge in other comprehensive income was reclassified to profit or loss for the period (Note 9). |
4 | During the period,year, the certain derivatives of the CompanyGroup 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 period.year. |
54 | The amounts reflected as interest expense arising from derivatives. |
6.5. Cash and Cash Equivalents
Cash and cash equivalents as of January 1, 2010 and December 31, 20102012 and 20112013, are as follows: | (In millions of Korean won) | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | | 2012 | | | 2013 | | Cash on hand | | (Won) | 3,212 | | | (Won) | 8,646 | | | (Won) | 11,330 | | | ₩ | 5,943 | | | ₩ | 5,712 | | Cash in banks | | | 351,243 | | | | 418,984 | | | | 652,374 | | | | 860,956 | | | | 885,620 | | Money market trust | | | 108,000 | | | | 320,000 | | | | 464,000 | | | | 768,259 | | | | 817,466 | | Other financial instruments | | | 1,080,417 | | | | 414,011 | | | | 317,465 | | | | 422,455 | | | | 362,071 | | | | | | | | | | | | | | | | | | Total | | (Won) | 1,542.872 | | | (Won) | 1,161,641 | | | (Won) | 1,445,169 | | | ₩ | 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 January 1, 2010 and December 31, 20102012 and 20112013, are as follows: | | | | | | | | | | | | | | | | | | | (In millions of Korean won) | | Type | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | | Description | | Cash and cash equivalents | | Restricted deposit | | (Won) | 10,341 | | | (Won) | 9,494 | | | (Won) | 8,707 | | | | Deposit restricted for governmental project | |
| | | | | | | | | | | | | | | (In millions of Korean won) | | Type | | 2012 | | | 2013 | | | Description | | Cash and cash equivalents | | Restricted deposit | | ₩ | 6,690 | | | ₩ | 1,998 | | | | Deposit restricted for governmental project | |
7.6. Trade and Other Receivables
Trade and other receivables as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | | | 1.1.2010 | | | 2012 | | (in millions of Korean won) | | Total amounts | | | Allowance for doubtful accounts | | Present value discount | | Carrying value | | | Total amounts | | | Allowance for doubtful accounts | | Present value discount | | Carrying value | | Current assets | | | | | | | | | | | | | | | | | Trade receivables | | (Won) | 3,886,679 | | | (Won) | (462,430 | ) | | (Won) | (28,167 | ) | | (Won) | 3,396,082 | | | ₩ | 4,468,062 | | | ₩ | (464,126 | ) | | ₩ | (30,906 | ) | | ₩ | 3,973,030 | | Other receivables | | | 500,423 | | | | (160,173 | ) | | | (964 | ) | | | 339,286 | | | | 2,101,533 | | | | (166,204 | ) | | | (851 | ) | | | 1,934,478 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 4,387,102 | | | (Won) | (622,603 | ) | | (Won) | (29,131 | ) | | (Won) | 3,735,368 | | | ₩ | 6,569,595 | | | ₩ | (630,330 | ) | | ₩ | (31,757 | ) | | ₩ | 5,907,508 | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-current assets | | | | | | | | | | | | | | | | | Trade receivables | | (Won) | 448,218 | | | (Won) | (2,778 | ) | | (Won) | (48,592 | ) | | (Won) | 396,848 | | | ₩ | 688,303 | | | ₩ | (3,992 | ) | | ₩ | (52,252 | ) | | ₩ | 632,059 | | Other receivables | | | 419,652 | | | | (102 | ) | | | (36,759 | ) | | | 382,791 | | | | 494,494 | | | | (9,736 | ) | | | (43,851 | ) | | | 440,907 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 867,870 | | | (Won) | (2,880 | ) | | (Won) | (85,351 | ) | | (Won) | 779,639 | | | ₩ | 1,182,797 | | | ₩ | (13,728 | ) | | ₩ | (96,103 | ) | | ₩ | 1,072,966 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 12.31.2010 | | | 2013 | | (in millions of Korean won) | | Total amounts | | | Allowance for doubtful accounts | | Present value discount | | Carrying value | | | Total amounts | | | Allowance for doubtful accounts | | Present value discount | | Carrying value | | Current assets | | | | | | | | | | | | | | | | | Trade receivables | | (Won) | 4,318,381 | | | (Won) | (495,049 | ) | | (Won) | (48,699 | ) | | (Won) | 3,774,633 | | | ₩ | 3,791,089 | | | ₩ | (523,098 | ) | | ₩ | (28,248 | ) | | ₩ | 3,239,743 | | Other receivables | | | 563,403 | | | | (144,408 | ) | | | (251 | ) | | | 418,744 | | | | 2,143,203 | | | | (142,821 | ) | | | (556 | ) | | | 1,999,826 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 4,881,784 | | | (Won) | (639,457 | ) | | (Won) | (48,950 | ) | | (Won) | 4,193,377 | | | ₩ | 5,934,292 | | | ₩ | (665,919 | ) | | ₩ | (28,804 | ) | | ₩ | 5,239,569 | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-current assets | | | | | | | | | | | | | | | | | Trade receivables | | (Won) | 880,214 | | | (Won) | (7,199 | ) | | (Won) | (76,636 | ) | | (Won) | 796,379 | | | ₩ | 404,372 | | | ₩ | (2,568 | ) | | ₩ | (33,539 | ) | | ₩ | 368,265 | | Other receivables | | | 361,402 | | | | (307 | ) | | | (32,138 | ) | | | 328,957 | | | | 500,028 | | | | (9,775 | ) | | | (45,047 | ) | | | 445,206 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 1,241,616 | | | (Won) | (7,506 | ) | | (Won) | (108,774 | ) | | (Won) | 1,125,336 | | | ₩ | 904,400 | | | ₩ | (12,343 | ) | | ₩ | (78,586 | ) | | ₩ | 813,471 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 12.31.2011 | | | (in millions of Korean won) | | Total amounts | | | Allowance for doubtful accounts | | Present value discount | | Carrying value | | | Current assets | | | | | | | | | | Trade receivables | | (Won) | 5,318,171 | | | (Won) | (462,502 | ) | | (Won) | (64,229 | ) | | (Won) | 4,791,440 | | | Other receivables | | | 1,536,616 | | | | (169,042 | ) | | | (100 | ) | | | 1,367,474 | | | | | | | | | | | | | | | | | Total | | (Won) | 6,854,787 | | | (Won) | (631,544 | ) | | (Won) | (64,329 | ) | | (Won) | 6,158,914 | | | | | | | | | | | | | | | | | Non-current assets | | | | | | | | | | Trade receivables | | (Won) | 1,452,685 | | | (Won) | (10,716 | ) | | (Won) | (115,171 | ) | | (Won) | 1,326,798 | | | Other receivables | | | 442,640 | | | | (97 | ) | | | (45,926 | ) | | | 396,617 | | | | | | | | | | | | | | | | | Total | | (Won) | 1,895,325 | | | (Won) | (10,813 | ) | | (Won) | (161,097 | ) | | (Won) | 1,723,415 | | | | | | | | | | | | | | | | |
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 yearyears ended December 31, 20102012 and 2011,2013, are as follows: | | | 2010 | | 2011 | | | 2012 | | 2013 | | (in millions of Korean won) | | Trade receivables | | Other receivables | | Trade receivables | | Other receivables | | | Trade receivables | | Other receivables | | Trade receivables | | Other receivables | | Beginning balance | | (Won) | 465,208 | | | (Won) | 160,275 | | | (Won) | 502,248 | | | (Won) | 144,715 | | | ₩ | 473,311 | | | ₩ | 169,164 | | | ₩ | 468,118 | | | ₩ | 175,940 | | Provision | | | 151,475 | | | | 6,672 | | | | 109,034 | | | | 24,408 | | | | 99,037 | | | | 14,771 | | | | 151,240 | | | | 8,926 | | Reversal or written-off | | | (110,464 | ) | | | (21,467 | ) | | | (160,173 | ) | | | (7,183 | ) | | | (117,567 | ) | | | (9,622 | ) | | | (92,979 | ) | | | (34,227 | ) | Changes in the scope of consolidation | | | (2,064 | ) | | | (437 | ) | | | 21,954 | | | | 5,016 | | | | 10,487 | | | | 1,632 | | | | 338 | | | | 2,349 | | Others | | | (1,907 | ) | | | (328 | ) | | | 155 | | | | 2,183 | | | | 2,850 | | | | (5 | ) | | | (1,051 | ) | | | (392 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance | | (Won) | 502,248 | | | (Won) | 144,715 | | | (Won) | 473,218 | | | (Won) | 169,139 | | | ₩ | 468,118 | | | ₩ | 175,940 | | | ₩ | 525,666 | | | ₩ | 152,596 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Provisions for doubtful trade and other receivables are recognized as operating expenses.expenses or finance costs. Details of aging analysis of trade receivables as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | (in millions of Korean won) | | Trade receivables | | | 2012 | | 2013 | | | 1.1.2010 | | 12.31.2010 | | 12.31.2011 | | | Neither past due nor impaired | | (Won) | 2,870,902 | | | (Won) | 3,949,439 | | | (Won) | 5,381,202 | | | ₩ | 3,874,113 | | | ₩ | 2,959,284 | | | | | | | | | | Past due and impaired | | | | | | | | | | | Up to six months | | | 580,042 | | | | 643,801 | | | | 560,314 | | | | 700,683 | | | | 725,681 | | Six months to twelve months | | | 204,807 | | | | 144,260 | | | | 162,911 | | | | 131,928 | | | | 105,607 | | Over twelve months | | | 602,387 | | | | 335,760 | | | | 487,029 | | | | 366,483 | | | | 343,102 | | Subtotal | | | 1,387,236 | | | | 1,123,821 | | | | 1,210,254 | | | | | | | | | | | | | | | 1,199,094 | | | | 1,174,390 | | Allowance for doubtful accounts | | | (465,208 | ) | | | (502,248 | ) | | | (473,218 | ) | | | (468,118 | ) | | | (525,666 | ) | | | | | | | | | | | | | | | | | Total | | (Won) | 3,792,930 | | | (Won) | 4,571,012 | | | (Won) | 6,118,238 | | | ₩ | 4,605,089 | | | ₩ | 3,608,008 | | | | | | | | | | | | | | | | | |
The detail of other receivables as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | (in millions of Korean won) | | 1.1.2010 | | 12.31.2010 | | 12.31.2011 | | | 2012 | | 2013 | | Loans | | (Won) | 109,512 | | | (Won) | 107,274 | | | (Won) | 100,251 | | | ₩ | 131,324 | | | ₩ | 89,134 | | Receivables 1 | | | 433,564 | | | | 494,455 | | | | 1,489,040 | | | | 2,029,077 | | | | 2,096,086 | | Accrued income | | | 22,536 | | | | 13,093 | | | | 17,651 | | | | 24,656 | | | | 22,603 | | Refundable deposits | | | 315,903 | | | | 277,526 | | | | 325,603 | | | | 365,161 | | | | 389,199 | | Others | | | 837 | | | | 68 | | | | 685 | | | | 1,107 | | | | 606 | | Allowance | | | (160,275 | ) | | | (144,715 | ) | | | (169,139 | ) | | | (175,940 | ) | | | (152,596 | ) | | | | | | | | | | | | | | | | | Total | | (Won) | 722,077 | | | (Won) | 747,701 | | | (Won) | 1,764,091 | | | ₩ | 2,375,385 | | | ₩ | 2,445,032 | | | | | | | | | | | | | | | | | | Current | | | 339,286 | | | | 418,744 | | | | 1,367,474 | | | | 1,934,478 | | | | 1,999,826 | | Non-current | | | 382,791 | | | | 328,957 | | | | 396,617 | | | | 440,907 | | | | 445,206 | |
1 | The settlement receivables of BC Card Co., Ltd. of(Won)₩863,8531,553,823 million included, as of December 31, 2011.(2012:₩1,343,859 million) included. |
Details of aging analysis of other receivables as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as followsfollows: | | | | | | | | | | | | | (in millions of Korean won) | | Other receivables | | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | Neither past due nor impaired | | (Won) | 712,373 | | | (Won) | 726,812 | | | (Won) | 1,712,284 | | Past due and impaired | | | | | | | | | | | | | Up to six months | | | 100,060 | | | | 38,312 | | | | 160,612 | | Six months to twelve months | | | 18,000 | | | | 77,841 | | | | 12,322 | | Over twelve months | | | 51,919 | | | | 49,451 | | | | 48,012 | | Subtotal | | | 169,979 | | | | 165,604 | | | | 220,946 | | Allowance for doubtful accounts | | | (160,275 | ) | | | (144,715 | ) | | | (169,139 | ) | | | | | | | | | | | | | | Total | | (Won) | 722,077 | | | (Won) | 747,701 | | | (Won) | 1,764,091 | | | | | | | | | | | | | | |
| | | | | | | | | (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, 2011.2013. 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. 8.7. 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 January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: Current | | | | | | | | | | | | | | | 1.1.2010 | | (in millions of Korean won) | | Original amount | | | Allowance for doubtful accounts | | | Carrying Value | | Factoring receivables | | (Won) | 492 | | | (Won) | (4 | ) | | (Won) | 488 | | Loans | | | 422,293 | | | | (8,167 | ) | | | 414,126 | | Accounts receivable-loans | | | 2,149 | | | | (427 | ) | | | 1,722 | | Loans for installment credit | | | 29,298 | | | | (2,882 | ) | | | 26,416 | | Deferred loan origination costs | | | 170 | | | | — | | | | 170 | | Accounts receivable-loans for installment credit | | | 924 | | | | (124 | ) | | | 800 | | | | | | | | | | | | | | | Total | | (Won) | 455,326 | | | (Won) | (11,604 | ) | | (Won) | 443,722 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 12.31.2010 | | (in millions of Korean won) | | Original amount | | | Allowance for doubtful accounts | | | Carrying Value | | Factoring receivables | | (Won) | 35,737 | | | (Won) | (647 | ) | | (Won) | 35,090 | | Loans | | | 676,273 | | | | (19,030 | ) | | | 657,243 | | Accounts receivable-loans | | | 13,307 | | | | (2,402 | ) | | | 10,905 | | Loans for installment credit | | | 22,849 | | | | (1,191 | ) | | | 21,658 | | Accounts receivable-loans for installment credit | | | 528 | | | | (82 | ) | | | 446 | | | | | | | | | | | | | | | Total | | (Won) | 748,694 | | | (Won) | (23,352 | ) | | (Won) | 725,342 | | | | | | | | | | | | | | |
| | | 12.31.2011 | | | 2012 | | | 2013 | | (in millions of Korean won) | | Original amount | | | Allowance for doubtful accounts | | Carrying value | | | Original amount | | | Allowance for doubtful accounts | | Carrying Value | | | Original amount | | Allowance for doubtful accounts | | Carrying Value | | Factoring receivables | | (Won) | 47,201 | | | (Won) | (1,012 | ) | | (Won) | 46,189 | | | ₩ | 71,293 | | | ₩ | — | | | ₩ | 71,293 | | | ₩ | 82,994 | | | ₩ | (1,245 | ) | | ₩ | 81,749 | | Loans | | | 640,580 | | | | (22,352 | ) | | | 618,228 | | | | 581,351 | | | | (33,256 | ) | | | 548,095 | | | | 752,165 | | | | (32,722 | ) | | | 719,443 | | Accounts receivable-loans | | | 3,084 | | | | (221 | ) | | | 2,863 | | | Loans for installment credit | | | 31,044 | | | | (655 | ) | | | 30,389 | | | | 49,205 | | | | (1,235 | ) | | | 47,970 | | | | 38,799 | | | | (1,205 | ) | | | 37,594 | | Accounts receivable-loans for installment credit | | | 393 | | | | (32 | ) | | | 361 | | | Deferred loan origination costs | | | | 755 | | | | — | | | | 755 | | | | (62 | ) | | | — | | | | (62 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 722,302 | | | (Won) | (24,272 | ) | | (Won) | 698,030 | | | ₩ | 702,604 | | | ₩ | (34,491 | ) | | ₩ | 668,113 | | | ₩ | 873,896 | | | ₩ | (35,172 | ) | | ₩ | 838,724 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-Current | | | | | | | | | | | | | | | 1.1.2010 | | (in millions of Korean won) | | Original amount | | | Allowance for doubtful accounts | | | Carrying value | | Factoring receivables | | (Won) | 17,528 | | | (Won) | (96 | ) | | (Won) | 17,432 | | Loans | | | 404,028 | | | | (4,870 | ) | | | 399,158 | | Deferred loan origination fees | | | (3,746 | ) | | | — | | | | (3,746 | ) | Loans for installment credit | | | 42,570 | | | | (2,881 | ) | | | 39,689 | | New technology financial investment assets | | | 5,846 | | | | (1,027 | ) | | | 4,819 | | New technology financial loans | | | 10,213 | | | | (58 | ) | | | 10,155 | | | | | | | | | | | | | | | Total | | (Won) | 476,439 | | | (Won) | (8,932 | ) | | (Won) | 467,507 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 12.31.2010 | | (in millions of Korean won) | | Original amount | | | Allowance for doubtful accounts | | | Carrying value | | Loans | | (Won) | 349,734 | | | (Won) | (8,904 | ) | | (Won) | 340,830 | | Deferred loan origination fees | | | (1,030 | ) | | | — | | | | (1,030 | ) | Loans for installment credit | | | 30,564 | | | | (1,382 | ) | | | 29,182 | | Deferred loan origination costs | | | 951 | | | | — | | | | 951 | | New technology financial investment assets | | | 7,876 | | | | (1,371 | ) | | | 6,505 | | New technology financial loans | | | 32,015 | | | | (574 | ) | | | 31,441 | | | | | | | | | | | | | | | Total | | (Won) | 420,110 | | | (Won) | (12,231 | ) | | (Won) | 407,879 | | | | | | | | | | | | | | |
| | | 12.31.2011 | | | 2012 | | | 2013 | | (in millions of Korean won) | | Original amount | | Allowance for doubtful accounts | | Carrying value | | | Original amount | | | Allowance for doubtful accounts | | Carrying Value | | | Original amount | | | Allowance for doubtful accounts | | Carrying Value | | Factoring receivables | | (Won) | 23,948 | | | (Won) | (513 | ) | | (Won) | 23,435 | | | ₩ | 6,051 | | | ₩ | (1,599 | ) | | ₩ | 4,452 | | | ₩ | 1,073 | | | ₩ | (103 | ) | | ₩ | 970 | | Loans | | | 388,870 | | | | (11,474 | ) | | | 377,396 | | | | 406,410 | | | | (15,161 | ) | | | 391,249 | | | | 426,218 | | | | (15,929 | ) | | | 410,289 | | Deferred loan origination fees | | | (987 | ) | | | — | | | | (987 | ) | | Loans for installment credit | | | 45,358 | | | | (954 | ) | | | 44,404 | | | | 66,517 | | | | (1,935 | ) | | | 64,582 | | | | 46,849 | | | | (5,007 | ) | | | 41,842 | | Deferred loan origination costs | | | 1,457 | | | | — | | | | 1,457 | | | | 2,336 | | | | — | | | | 2,336 | | | | 3,432 | | | | — | | | | 3,432 | | New technology financial investment assets | | | 10,241 | | | | (3,668 | ) | | | 6,573 | | | | 6,788 | | | | (2,433 | ) | | | 4,355 | | | | 6,629 | | | | (803 | ) | | | 5,826 | | New technology financial loans | | | 41,729 | | | | (2,706 | ) | | | 39,023 | | | | 55,190 | | | | (9,577 | ) | | | 45,613 | | | | 63,575 | | | | (16,061 | ) | | | 47,514 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 510,616 | | | (Won) | (19,315 | ) | | (Won) | 491,301 | | | ₩ | 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, 20102012 and 2011,2013, are as follows: | (in millions of Korean won) | | 2010 | | 2011 | | | 2012 | | 2013 | | Beginning | | (Won) | 20,536 | | | (Won) | 35,583 | | | ₩ | 43,587 | | | ₩ | 65,196 | | Provision | | | 30,808 | | | | 30,808 | | | | 32,914 | | | | 40,743 | | Reversal or written-off | | | (8,470 | ) | | | (22,804 | ) | | | (12,210 | ) | | | (30,448 | ) | Others | | | (7,291 | ) | | | — | | | | 905 | | | | (2,416 | ) | | | | | | | | | | | | | | Ending | | (Won) | 35,583 | | | (Won) | 43,587 | | | ₩ | 65,196 | | | ₩ | 73,075 | | | | | | | | | | | | | | |
Provisions for doubtful loans receivable are recognized as operating expenses. Details of aging analysis of loans receivables as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | (in millions of Korean won) | | 1.1.2010 | | 12.31.2010 | | 12.31.2011 | | | 2012 | | 2013 | | Neither past due nor impaired | | (Won) | 881,471 | | | (Won) | 1,094,265 | | | (Won) | 1,147,671 | | | ₩ | 1,155,838 | | | ₩ | 1,322,206 | | | | | | | | | | Past due and impaired | | | | | | | | | | | Up to six months | | | 38,840 | | | | 64,672 | | | | 85,247 | | | | 75,942 | | | | 54,263 | | Six months to twelve months | | | 7,510 | | | | 8,955 | | | | — | | | | 3,767 | | | | 27,312 | | Over twelve months | | | 3,944 | | | | 912 | | | | — | | | | 10,349 | | | | 7,891 | | Subtotal | | | 50,294 | | | | 74,539 | | | | 85,247 | | | | | | | | | | | | | | | 90,058 | | | | 89,466 | | Allowance for doubtful accounts | | | (20,536 | ) | | | (35,583 | ) | | | (43,587 | ) | | | (65,196 | ) | | | (73,075 | ) | | | | | | | | | | | | | | | | | Total | | (Won) | 911,229 | | | (Won) | 1,133,221 | | | (Won) | 1,189,331 | | | ₩ | 1,180,700 | | | ₩ | 1,348,597 | | | | | | | | | | | | | | | | | |
The maximum exposure of loans receivables to credit risk is carrying value as of December 31, 2011. 2013.9.8. Other Financial Assets and Liabilities
Other financial assets and liabilities as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | (In millions of Korean won) | | 1.1.2010 | | 12.31.2010 | | 12.31.2011 | | | 2012 | | 2013 | | Other financial assets | | | | | | | | | | | Derivatives | | (Won) | 308,324 | | | (Won) | 250,630 | | | (Won) | 164,434 | | | Assets at fair value through the profit and loss | | | ₩ | 6,407 | | | ₩ | 15,643 | | Derivatives used for hedge | | | | 21,348 | | | | 3,496 | | Financial instruments1 | | | 370,262 | | | | 116,269 | | | | 289,628 | | | | 460,394 | | | | 582,693 | | Available-for-sale financial assets | | | 111,716 | | | | 172,144 | | | | 421,255 | | | | 429,875 | | | | 547,627 | | Held-to-maturity investments | | | 82 | | | | 7 | | | | 7 | | | | 436 | | | | 3,248 | | Less: Non-current | | | (403,667 | ) | | | (269,358 | ) | | | (621,699 | ) | | | (672,475 | ) | | | (672,645 | ) | | | | | | | | | | | | | | | | | Current | | (Won) | 386,717 | | | (Won) | 269,692 | | | (Won) | 253,625 | | | ₩ | 245,985 | | | ₩ | 480,062 | | | | | | | | | | | | | | | | | | Other financial liabilities | | | | | | | | | | | Derivatives | | (Won) | 11,279 | | | (Won) | 20,471 | | | (Won) | 8,806 | | | Financial liabilities | | | 15,586 | | | | 18,455 | | | | 287,954 | | | 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 | | | (19,487 | ) | | | (37,783 | ) | | | (288,473 | ) | | | (69,813 | ) | | | (178,812 | ) | | | | | | | | | | | | | | | | | Current | | (Won) | 7,378 | | | (Won) | 1,143 | | | (Won) | 8,287 | | | ₩ | 71,983 | | | ₩ | 63,820 | | | | | | | | | | | | | | | | | |
1 | Financial assets amounting to(Won)₩22,90023,870 million (2010:(2012:(Won)₩6,74120,834 million) and(Won)₩12370 million (2010:(2012:(Won)₩4977 million) are collaterals pledged against the investee’s debt and checking account deposit, which are subject to withdrawal restrictions. |
Derivatives
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 January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | | | 1.1.2010 | | 12.31.2010 | | 12.31.2011 | | | 2012 | | | 2013 | | (in millions of Korean won) | | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities | | | Assets | | | Liabilities | | | Assets | | | Liabilities | | Financial instruments held for trading | | | | | | | | | | Interest rate swap | | (Won) | 23 | | | (Won) | 5,775 | | | (Won) | 1,213 | | | (Won) | 213 | | | (Won) | 49,485 | | | (Won) | 180 | | | ₩ | 1 | | | ₩ | 63 | | | ₩ | 1 | | | ₩ | — | | Currency swap | | | 295,035 | | | | 3,782 | | | | 246,716 | | | | 19,852 | | | | 110,798 | | | | 6,076 | | | | — | | | | — | | | | 7,238 | | | | — | | Currency forward | | | 288 | | | | 1,722 | | | | — | | | | 406 | | | | — | | | | 292 | | | | 119 | | | | — | | | | 499 | | | | 6 | | Other derivatives 1 | | | 12,978 | | | | — | | | | 2,701 | | | | — | | | | 4,151 | | | | 2,258 | | | Other derivatives | | | | 6,287 | | | | — | | | | 7,905 | | | | 148 | | Financial instruments at fair value through the profit and loss | | | | — | | | | 3,153 | | | | — | | | | 2,802 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 308,324 | | | (Won) | 11,279 | | | (Won) | 250,630 | | | (Won) | 20,471 | | | (Won) | 164,434 | | | (Won) | 8,806 | | | ₩ | 6,407 | | | ₩ | 3,216 | | | ₩ | 15,643 | | | ₩ | 2,956 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Less: | | | | | | | | | | | | | | Non-current | | | | | | | | | | | | | | Interest rate swap | | | (23 | ) | | | (119 | ) | | | — | | | | — | | | | (3 | ) | | | (45 | ) | | Currency swap | | | (295,035 | ) | | | (3,782 | ) | | | (97,166 | ) | | | (19,837 | ) | | | (110,798 | ) | | | (1,076 | ) | | | | | | | | | | | | | | | | | | | | | | | | | (295,058 | ) | | | (3,901 | ) | | | (97,166 | ) | | | (19,837 | ) | | | (110,801 | ) | | | (1,121 | ) | | | | | | | | | | | | | | | | | | | | | | Current | | (Won) | 13,266 | | | (Won) | 7,378 | | | (Won) | 153,464 | | | (Won) | 634 | | | (Won) | 53,633 | | | (Won) | 7,685 | | | | | | | | | | | | | | | | | | | | | | |
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 | H&C Network, a subsidiaryThe 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 has entered into the option contract included in the share transfer agreement with 14 shareholders including the major shareholder of Initech Smartro Holdings Co., Ltd and Smartro Co., Ltd. On July 8, 2010, 135,796 shares out of 203,694 shares included in the option contract were transferred accordinghedges its exposures to the above agreement. The Company may receive the request for the exercise of the option for the remaining 67,898 shares under option contract.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, 20102011, 2012 and 2011,2013, are as follows: | | | | | | | | | | | | | | | | | | | | | | | 2010 | | (in millions of Korean won) | | For trading | | | For hedging | | Type of Transaction | | Valuation gain | | | Valuation loss | | | Valuation gain | | | Valuation loss | | | Accumulated other comprehensive income 1 | | Interest rate swap2, 5 | | (Won) | 4,999 | | | (Won) | — | | | (Won) | 1,190 | | | (Won) | — | | | (Won) | — | | Currency swap3, 4 | | | 1,311 | | | | — | | | | 33,595 | | | | 47,481 | | | | (48,589 | ) | Currency forward 5 | | | 136 | | | | 15 | | | | — | | | | — | | | | — | | Other derivatives | | | 14,379 | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 20,825 | | | (Won) | 15 | | | (Won) | 34,785 | | | (Won) | 47,481 | | | (Won) | (48,589 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | 2011 | | (in millions of Korean won) | | For trading | | | For hedging | | Type of Transaction | | Valuation gain | | | Valuation loss | | | Valuation gain | | | Valuation loss | | | Accumulated other comprehensive income 1 | | Interest rate swap2 | | (Won) | 3 | | | (Won) | 45 | | | (Won) | — | | | (Won) | — | | | (Won) | — | | Currency swap3, 4 | | | 10,230 | | | | — | | | | 53,727 | | | | 8,931 | | | | 21,714 | | Currency forward 5 | | | 294 | | | | 180 | | | | — | | | | — | | | | — | | Other derivatives 5 | | | 2,270 | | | | 36 | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 12,797 | | | (Won) | 261 | | | (Won) | 53,727 | | | (Won) | 8,931 | | | (Won) | 21,714 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (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. |
2 | The interest rate swap contract is to hedge the risk of variability in future fair value of the bond. |
3 | The currency swap contract is to hedge the risk of variability in cash flow from the bond. |
4 | In applying the cash flow hedge accounting, the Company hedges its exposures to cash flow fluctuation until September 7, 2034. |
5 | Gain on valuation of derivative recognized as operating income is(Won) 2,564 million (2010:(Won)1,311 million) for December 31, 2011. |
There is no gain or loss on valuation due to fair value valuation of bond to hedge fair value in 2011 (2010: gain on valuation of(Won)1,190 million).
The ineffective portion of recognized in profit or loss on the cash flow hedge is gain on valuation loss of(Won)₩1,241 million for the current period (2011: valuation profit of₩2,714 million, in 2011. (2010: gain on2012: valuation loss of(Won)₩10,34129,183 million). The Company discontinued prospectively hedge accounting for certain currency swaps that were previously designated as hedging instruments for cash flows because the hedge effectiveness could not be demonstrated. The derivatives were reclassified to the financial instruments at fair value through profit or loss.
Details of available-for-sale financial assets as of January 1, 2010 and December 31, 20102012 and 2011, 2010,2013, are as follows: | | | | | | | | | | | | | (In millions of Korean won) | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | Marketable equity securities | | (Won) | 15,587 | | | (Won) | 25,469 | | | (Won) | 101,183 | | Non-marketable equity securities | | | 92,978 | | | | 145,110 | | | | 294,243 | | Marketable debt securities | | | — | | | | — | | | | 18,400 | | Non-marketable debt securities | | | 3,151 | | | | 1,565 | | | | 7,429 | | Others | | | 5,564 | | | | 6,465 | | | | 7,541 | | Total | | | 117,280 | | | | 178,609 | | | | 428,796 | | Less: non-current | | | (111,716 | ) | | | (172,144 | ) | | | (421,255 | ) | | | | | | | | | | | | | | Current | | (Won) | 5,564 | | | (Won) | 6,465 | | | (Won) | 7,541 | | | | | | | | | | | | | | |
| | | | | | | | | (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, 20102012 and 2011,2013, are as follows;follows: | (In millions of Korean won) | | 2010 | | 2011 | | | 2012 | | 2013 | | Beginning | | (Won) | 117,280 | | | (Won) | 178,609 | | | ₩ | 429,065 | | | ₩ | 429,875 | | Acquisition | | | 108,492 | | | | 168,060 | | | | 86,622 | | | | 127,052 | | Disposal | | | (52,062 | ) | | | (21,216 | ) | | | (111,194 | ) | | | (66,917 | ) | Valuation 1 | | | (1,324 | ) | | | 80,521 | | | | 31,599 | | | | 65,670 | | Gain (loss) reclassified from equity 1 | | | 3,553 | | | | (1,764 | ) | | Impairment | | | (6,043 | ) | | | (4,727 | ) | | | (3,401 | ) | | | (5,053 | ) | Reclassification | | | | (3,762 | ) | | | (3,000 | ) | Changes in scope of consolidation | | | — | | | | 14,094 | | | | 1,056 | | | | — | | Others | | | 8,713 | | | | 15,219 | | | | (110 | ) | | | — | | | | | | | | | | | | | | | Ending | | (Won) | 178,609 | | | (Won) | 428,796 | | | ₩ | 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, 2011.2013. 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. 10.9. Inventories
Inventories as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | | | 1.1.2010 | | 12.31.2010 | | 12.31.2011 | | | 2012 | | | 2013 | | (in millions of Korean won) | | Acquisition cost | | Valuation allowance 1 | | Book Value | | Acquisition cost | | Valuation allowance 1 | | Book Value | | Acquisition cost | | Valuation allowance 1 | | Book Value | | | Acquisition cost | | | Valuation allowance | | Book Value | | | Acquisition cost | | | Valuation allowance | | Book Value | | Merchandise | | (Won) | 635,778 | | | (Won) | (45,116 | ) | | (Won) | 590,662 | | | (Won) | 617,919 | | | (Won) | (39,695 | ) | | (Won) | 578,224 | | | (Won) | 622,196 | | | (Won) | (29,022 | ) | | (Won) | 593,194 | | | ₩ | 702,249 | | | ₩ | (33,988 | ) | | ₩ | 668,261 | | | ₩ | 719,164 | | | ₩ | (122,919 | ) | | ₩ | 596,245 | | Supplies | | | 31,989 | | | | (662 | ) | | | 31,327 | | | | 29,595 | | | | (196 | ) | | | 29,399 | | | | 20,396 | | | | (144 | ) | | | 20,252 | | | Goods in transit | | | 69,250 | | | | — | | | | 69,250 | | | | 55,564 | | | | — | | | | 55,564 | | | | — | | | | — | | | | — | | | | 193,720 | | | | — | | | | 193,720 | | | | 611 | | | | — | | | | 611 | | Others | | | 77,107 | | | | (2,968 | ) | | | 74,139 | | | | 48,627 | | | | (1,197 | ) | | | 47,430 | | | | 62,274 | | | | (993 | ) | | | 61,281 | | | | 73,326 | | | | (274 | ) | | | 73,052 | | | | 77,051 | | | | (289 | ) | | | 76,762 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 814,124 | | | (Won) | (48,746 | ) | | (Won) | 765,378 | | | (Won) | 751,705 | | | (Won) | (41,088 | ) | | (Won) | 710,617 | | | (Won) | 704,866 | | | (Won) | (30,139 | ) | | (Won) | 674,727 | | | ₩ | 969,295 | | | ₩ | (34,262 | ) | | ₩ | 935,033 | | | ₩ | 796,826 | | | ₩ | (123,208 | ) | | ₩ | 673,618 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 | The Company records valuation allowance for inventories when the Company determined that the costs of inventories are not recoverable as these inventories are damaged, as they become wholly or partially obsolete or as the selling prices have declined. | 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).11.10. Other Assets and Liabilities
Other assets and liabilities as of January 1, 2010 and December 31, 20102012 and 2011, 2010,2013, are as follows: | (In millions of Korean won) | | 1.1.2010 | | 12.31.2010 | | 12.31.2011 | | | 2012 | | 2013 | | Other assets | | | | | | | | | | | Advance payments | | (Won) | 102,140 | | | (Won) | 141,820 | | | (Won) | 136,172 | | | ₩ | 128,838 | | | ₩ | 134,758 | | Prepaid expenses | | | 154,955 | | | | 165,107 | | | | 218,638 | | | | 244,771 | | | | 258,387 | | Others | | | 7,168 | | | | 6,976 | | | | 41,896 | | | | 84,028 | | | | 22,199 | | Less: Non-current | | | (52,581 | ) | | | (50,183 | ) | | | (86,053 | ) | | | (95,178 | ) | | | (75,748 | ) | | | | | | | | | | | | | | | | | Current | | (Won) | 211,682 | | | (Won) | 263,720 | | | (Won) | 310,653 | | | ₩ | 362,459 | | | ₩ | 339,596 | | | | | | | | | | | | | | | | | | Other liabilities | | | | | | | | | | | Advances received | | (Won) | 178,941 | | | (Won) | 172,560 | | | (Won) | 117,178 | | | ₩ | 146,678 | | | ₩ | 191,767 | | Withholdings | | | 43,318 | | | | 36,971 | | | | 52,995 | | | | 93,910 | | | | 129,484 | | Unearned revenue | | | 27,868 | | | | 2,054 | | | | 71,290 | | | | 42,208 | | | | 27,313 | | Others | | | 1,323 | | | | 455 | | | | 833 | | | | 1,035 | | | | 1,512 | | Less: Non-current | | | (28,612 | ) | | | (27,212 | ) | | | (32,038 | ) | | | (41,426 | ) | | | (2,000 | ) | | | | | | | | | | | | | | | | | Current | | (Won) | 222,838 | | | (Won) | 184,828 | | | (Won) | 210,258 | | | ₩ | 242,405 | | | ₩ | 348,076 | | | | | | | | | | | | | | | | | |
12.11. Property and Equipment
The changes in property and equipment for the years ended December 31, 20102012 and 2011,2013, are as follows: | | | 2010 | | | 2012 | | (in millions of Korean won) | | Land | | Buildings and structures | | Machinery and equipment | | Others | | Construction -in-progress | | Total | | | Land | | Buildings and structures | | Machinery and equipment | | Others | | Construction- in-progress | | Total | | Acquisition cost | | (Won) | 1,202,008 | | | (Won) | 3,759,859 | | | (Won) | 31,414,707 | | | (Won) | 2,351,662 | | | (Won) | 650,978 | | | (Won) | 39,379,214 | | | ₩ | 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 | ) | | | (1,037,237 | ) | | | (22,427,855 | ) | | | (1,820,789 | ) | | | (60,623 | ) | | | (25,346,636 | ) | | | (132 | ) | | | (1,218,432 | ) | | | (24,259,715 | ) | | | (1,445,321 | ) | | | (26,886 | ) | | | (26,950,486 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 1.1.2010 | | (Won) | 1,201,876 | | | (Won) | 2,722,622 | | | (Won) | 8,986,852 | | | (Won) | 530,873 | | | (Won) | 590,355 | | | (Won) | 14,032,578 | | | Balance at 2012.1.1 | | | ₩ | 1,207,071 | | | ₩ | 2,359,799 | | | ₩ | 9,224,305 | | | ₩ | 567,360 | | | ₩ | 731,459 | | | ₩ | 14,089,994 | | Acquisition | | | — | | | | 913 | | | | 54,184 | | | | 71,463 | | | | 2,594,060 | | | | 2,720,620 | | | | 9,554 | | | | 4,582 | | | | 151,698 | | | | 447,717 | | | | 3,253,263 | | | | 3,866,814 | | Disposal | | | (19,823 | ) | | | (42,723 | ) | | | (109,038 | ) | | | (45,435 | ) | | | — | | | | (217,019 | ) | | Disposal/Abandonment 1 | | | | (17,200 | ) | | | (42,335 | ) | | | (65,727 | ) | | | (156,694 | ) | | | (12,065 | ) | | | (294,021 | ) | Depreciation | | | — | | | | (196,724 | ) | | | (2,565,191 | ) | | | (164,656 | ) | | | — | | | | (2,926,571 | ) | | | — | | | | (134,673 | ) | | | (2,389,952 | ) | | | (351,539 | ) | | | — | | | | (2,876,164 | ) | Transfer in (out) | | | 6,997 | | | | 125,348 | | | | 2,199,428 | | | | 108,388 | | | | (2,440,161 | ) | | | — | | | | 16,049 | | | | 82,700 | | | | 2,922,815 | | | | 121,294 | | | | (3,142,858 | ) | | | — | | Exclusion in the scope of consolidation | | | (1,412 | ) | | | (2,984 | ) | | | — | | | | (97,376 | ) | | | — | | | | (101,772 | ) | | 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 | | | (59,996 | ) | | | (98,893 | ) | | | (23,363 | ) | | | 33,225 | | | | 39,463 | | | | (109,564 | ) | | | 14,685 | | | | (89,708 | ) | | | 9,801 | | | | 75,164 | | | | 21,701 | | | | 31,643 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 12.31.2010 | | (Won) | 1,127,642 | | | (Won) | 2,507,559 | | | (Won) | 8,542,872 | | | (Won) | 436,482 | | | (Won) | 783,717 | | | (Won) | 13,398,272 | | | Balance at 2012.12.31 | | | ₩ | 1,243,256 | | | ₩ | 2,185,930 | | | ₩ | 9,852,958 | | | ₩ | 1,671,198 | | | ₩ | 853,024 | | | ₩ | 15,806,366 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Acquisition cost | | (Won) | 1,127,774 | | | (Won) | 3,675,370 | | | (Won) | 31,441,259 | | | (Won) | 1,806,746 | | | (Won) | 822,637 | | | (Won) | 38,873,786 | | | Accumulated depreciation (including accumulated impairment loss and others) | | | (132 | ) | | | (1,167,811 | ) | | | (22,898,387 | ) | | | (1,370,264 | ) | | | (38,920 | ) | | | (25,475,514 | ) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 2011 | | (in millions of Korean won) | | Land | | | Buildings and structures | | | Machinery and equipment | | | Others | | | Construction -in-progress | | | Total | | Acquisition cost | | (Won) | 1,127,774 | | | (Won) | 3,675,370 | | | (Won) | 31,441,259 | | | (Won) | 1,806,746 | | | (Won) | 822,637 | | | (Won) | 38,873,786 | | Accumulated depreciation (including accumulated impairment loss and others) | | | (132 | ) | | | (1,167,811 | ) | | | (22,898,387 | ) | | | (1,370,264 | ) | | | (38,920 | ) | | | (25,475,514 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 1.1.2011 | | (Won) | 1,127,642 | | | (Won) | 2,507,559 | | | (Won) | 8,542,872 | | | (Won) | 436,482 | | | (Won) | 783,717 | | | (Won) | 13,398,272 | | Acquisition | | | 5 | | | | 3,541 | | | | 48,258 | | | | 35,901 | | | | 3,158,247 | | | | 3,245,952 | | — Disposal 1 | | | (35,475 | ) | | | (104,079 | ) | | | (108,415 | ) | | | (56,414 | ) | | | (363 | ) | | | (304,746 | ) | Depreciation | | | — | | | | (146,096 | ) | | | (2,313,287 | ) | | | (165,254 | ) | | | — | | | | (2,624,637 | ) | Transfer in (out) | | | 3,802 | | | | 94,763 | | | | 3,048,999 | | | | 132,114 | | | | (3,279,678 | ) | | | — | | Inclusion in scope of consolidation | | | 115,978 | | | | 46,445 | | | | 175,758 | | | | 28,668 | | | | 50,424 | | | | 417,273 | | Exclusion in scope of consolidation | | | — | | | | (6,626 | ) | | | (96,067 | ) | | | (4,662 | ) | | | (32,606 | ) | | | (139,961 | ) | Others | | | (10,942 | ) | | | (40,097 | ) | | | (76,767 | ) | | | 110,327 | | | | 48,021 | | | | 30,542 | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 12.31.2011 | | (Won) | 1,201,010 | | | (Won) | 2,355,410 | | | (Won) | 9,221,351 | | | (Won) | 517,162 | | | (Won) | 727,762 | | | (Won) | 14,022,695 | | | | | | | | | | | | | | | | | | | | | | | | | | | Acquisition cost | | (Won) | 1,201,142 | | | (Won) | 3,570,608 | | | (Won) | 33,455,278 | | | (Won) | 1,944,129 | | | (Won) | 754,648 | | | (Won) | 40,925,805 | | Accumulated depreciation (including accumulated impairment loss and others) | | | (132 | ) | | | (1,215,198 | ) | | | (24,233,927 | ) | | | (1,426,967 | ) | | | (26,886 | ) | | | (26,903,110 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 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 (Note26)(Note 29). |
Certain land
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 buildings are pledgedequipment provided as collaterals for borrowings of up to(Won)1,940 millioncollateral as of December 31, 2011 (2010.12.31:(Won)3,498 million, 1.1.2010:(Won)8,300 million).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(Won)₩20,144 million (2011:₩14,675 million, (2010:2012:(Won)₩17,02412,126 million) in 2011.2013. The interest rate applied to calculate the capitalized borrowing costs in 20112013 is 5.23%3.95% to 6.83%4.44%. (2010: 5.08%(2012: 4.46% to 6.76%4.89%). 13.12. Investment Property
The changes in investment property for years ended December 31, 20102012 and 2011,2013, are as follows: | | | 2010 | | 2011 | | | 2012 | | (in millions of Korean won) | | Land | | Buildings | | Total | | Land | | Buildings | | Total | | | Land | | Buildings | | Total | | Acquisition cost | | (Won) | 260,190 | | | (Won) | 1,026,880 | | | (Won) | 1,287,070 | | | (Won) | 320,739 | | | (Won) | 1,158,558 | | | (Won) | 1,479,297 | | | ₩ | 325,158 | | | ₩ | 1,195,175 | | | ₩ | 1,520,333 | | Accumulated depreciation (including accumulated impairment loss and others) | | | — | | | | (257,052 | ) | | | (257,052 | ) | | | — | | | | (333,047 | ) | | | (333,047 | ) | | Accumulated depreciation | | | | — | | | | (361,228 | ) | | | (361,228 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | (Won) | 260,190 | | | (Won) | 769,828 | | | (Won) | 1,030,018 | | | (Won) | 320,739 | | | (Won) | 825,511 | | | (Won) | 1,146,250 | | | Beginning | | | ₩ | 325,158 | | | ₩ | 833,947 | | | ₩ | 1,159,105 | | Disposal 1 | | | (2,952 | ) | | | (5,710 | ) | | | (8,662 | ) | | | (10,660 | ) | | | (27,023 | ) | | | (37,683 | ) | | | (2,619 | ) | | | (70,024 | ) | | | (72,643 | ) | Depreciation | | | — | | | | (45,932 | ) | | | (45,932 | ) | | | — | | | | (47,221 | ) | | | (47,221 | ) | | | — | | | | (49,006 | ) | | | (49,006 | ) | Transfer in | | | 63,501 | | | | 107,325 | | | | 170,826 | | | | 15,079 | | | | 82,680 | | | | 97,759 | | | Transfer | | | | 12,908 | | | | 104,849 | | | | 117,757 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance | | (Won) | 320,739 | | | (Won) | 825,511 | | | (Won) | 1,146,250 | | | (Won) | 325,158 | | | (Won) | 833,947 | | | (Won) | 1,159,105 | | | Ending | | | ₩ | 335,447 | | | ₩ | 819,766 | | | ₩ | 1,155,213 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Acquisition cost | | | 320,739 | | | | 1,158,558 | | | | 1,479,297 | | | | 325,158 | | | | 1,195,175 | | | | 1,520,333 | | | ₩ | 335,447 | | | ₩ | 1,022,454 | | | ₩ | 1,357,901 | | Accumulated depreciation (including accumulated impairment loss and others) | | | — | | | | (333,047 | ) | | | (333,047 | ) | | | — | | | | (361,228 | ) | | | (361,228 | ) | | 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 (Note26).included. |
The buildings mentioned above are depreciated over 10 to 40 years using the straight-line method.
| | | | | | | | | | | | | | | | | | | 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(Won)₩2,524,0392,051,183 million as of December 31, 2011. (12.31.2010:2013 (2012:(Won)₩2,207,754 million, 1.1.2010:(Won)2,026,0232,335,642 million). The fair value of investment property is estimated based on the expected cash flow. Rental income from investment property is(Won)₩197,673 million in 2013 (2011:₩150,752 million, in 2011(2010:2012:(Won)₩114,779203,328 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. Certain lands and buildings are pledgedDetails of investment property provided as collateral related to the rental contracts up to(Won)70,317millioncollaterals as of December 31, 2011 (12.31.2010:(Won)67,206 million, 1.1.2010: 65,092 million).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 | | | | |
14.13. Intangible Assets
The changes in intangible assets for the years ended December 31, 20102012 and 2011,2013, are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2010 | | (in millions of Korean won) | | Goodwill | | | Industrial rights | | | Development costs | | | Software | | | Frequency usage rights | | | Others | | | Total | | Acquisition cost | | (Won) | 91,513 | | | (Won) | 24,109 | | | (Won) | 782,749 | | | (Won) | 390,858 | | | (Won) | 1,342,023 | | | (Won) | 357,371 | | | (Won) | 2,988,623 | | Accumulated amortization (including accumulated impairment loss and others) | | | (7,749 | ) | | | (13,625 | ) | | | (555,155 | ) | | | (225,309 | ) | | | (647,395 | ) | | | (153,696 | ) | | | (1,602,929 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 1.1.2010 | | (Won) | 83,764 | | | (Won) | 10,484 | | | (Won) | 227,594 | | | (Won) | 165,549 | | | (Won) | 694,628 | | | (Won) | 203,675 | | | (Won) | 1,385,694 | | Acquisition | | | — | | | | 738 | | | | 243,198 | | | | 63,862 | | | | — | | | | 23,556 | | | | 331,354 | | Disposal | | | — | | | | — | | | | (14,248 | ) | | | (5,788 | ) | | | — | | | | (4,421 | ) | | | (24,457 | ) | Amortization | | | — | | | | (1,775 | ) | | | (69,824 | ) | | | (54,507 | ) | | | (115,418 | ) | | | (24,775 | ) | | | (266,299 | ) | Impairment loss | | | — | | | | — | | | | — | | | | (2,072 | ) | | | — | | | | (1,631 | ) | | | (3,703 | ) | Changes in scope of Consolidation | | | — | | | | — | | | | (829 | ) | | | (11 | ) | | | — | | | | (2,134 | ) | | | (2,974 | ) | Others | | | — | | | | (143 | ) | | | (889 | ) | | | 1,760 | | | | — | | | | (1,423 | ) | | | (695 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 12.31.2010 | | (Won) | 83,764 | | | (Won) | 9,304 | | | (Won) | 385,002 | | | (Won) | 168,793 | | | (Won) | 579,210 | | | (Won) | 192,847 | | | (Won) | 1,418,920 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Acquisition cost | | (Won) | 91,513 | | | (Won) | 24,840 | | | (Won) | 947,053 | | | (Won) | 438,302 | | | (Won) | 1,342,023 | | | (Won) | 351,630 | | | (Won) | 3,195,361 | | Accumulated amortization (including accumulated impairment loss and others) | | | (7,749 | ) | | | (15,536 | ) | | | (562,051 | ) | | | (269,509 | ) | | | (762,813 | ) | | | (158,783 | ) | | | (1,776,441 | ) |
| | | 2011 | | | 2012 | | (in millions of Korean won) | | Goodwill | | Industrial rights | | Development costs | | Software | | Frequency usage rights | | Others 1 | | Total | | | Goodwill | | Development costs | | Software | | Frequency usage rights | | Others | | Total | | Acquisition cost | | (Won) | 91,513 | | | (Won) | 24,840 | | | (Won) | 947,053 | | | (Won) | 438,302 | | | (Won) | 1,342,023 | | | (Won) | 351,630 | | | (Won) | 3,195,361 | | | ₩ | 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 | ) | | | (15,536 | ) | | | (562,051 | ) | | | (269,509 | ) | | | (762,813 | ) | | | (158,783 | ) | | | (1,776,441 | ) | | | (7,749 | ) | | | (642,530 | ) | | | (331,169 | ) | | | (887,811 | ) | | | (238,549 | ) | | | (2,107,808 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 1.1.2011 | | (Won) | 83,764 | | | (Won) | 9,304 | | | (Won) | 385,002 | | | (Won) | 168,793 | | | (Won) | 579,210 | | | (Won) | 192,847 | | | (Won) | 1,418,920 | | | Acquisition | | | 366,858 | | | | 116 | | | | 156,114 | | | | 100,870 | | | | 441,485 | | | | 415,399 | | | | 1,480,842 | | | Disposal | | | — | | | | (491 | ) | | | (1,849 | ) | | | (105 | ) | | | — | | | | (9,444 | ) | | | (11,889 | ) | | 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 | | | — | | | | (2,668 | ) | | | (102,806 | ) | | | (54,976 | ) | | | (124,998 | ) | | | (34,427 | ) | | | (319,875 | ) | | | — | | | | (127,237 | ) | | | (59,931 | ) | | | (118,500 | ) | | | (82,995 | ) | | | (388,663 | ) | Impairment loss | | | (1,227 | ) | | | — | | | | (430 | ) | | | (297 | ) | | | — | | | | (593 | ) | | | (2,547 | ) | | Changes in scope of Consolidation | | | — | | | | 42 | | | | 257 | | | | 11,467 | | | | — | | | | 80,986 | | | | 92,752 | | | Inclusion in scope of consolidation2 | | | | 150,337 | | | | 9,341 | | | | 1,176 | | | | — | | | | 77,035 | | | | 237,889 | | Exclusion in scope of consolidation | | | | — | | | | — | | | | (234 | ) | | | — | | | | — | | | | (234 | ) | Others | | | — | | | | (78 | ) | | | (9,660 | ) | | | (1,433 | ) | | | — | | | | (3,547 | ) | | | (14,718 | ) | | | — | | | | (1,807 | ) | | | 3,084 | | | | — | | | | (3,871 | ) | | | (2,594 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 12.31.2011 | | (Won) | 449,395 | | | (Won) | 6,225 | | | (Won) | 426,628 | | | (Won) | 224,319 | | | (Won) | 895,697 | | | (Won) | 641,221 | | | (Won) | 2,643,485 | | | Balance at 2012.12.31 | | | ₩ | 598,027 | | | ₩ | 628,663 | | | ₩ | 240,026 | | | ₩ | 1,044,358 | | | ₩ | 702,564 | | | ₩ | 3,213,638 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Acquisition cost | | (Won) | 457,630 | | | (Won) | 18,294 | | | (Won) | 1,069,158 | | | (Won) | 555,154 | | | (Won) | 1,783,508 | | | (Won) | 867,700 | | | (Won) | 4,751,444 | | | ₩ | 605,776 | | | ₩ | 1,393,089 | | | ₩ | 614,069 | | | ₩ | 1,924,869 | | | ₩ | 1,013,046 | | | ₩ | 5,550,849 | | Accumulated amortization (including accumulated impairment loss and others) | | | (8,235 | ) | | | (12,069 | ) | | | (642,530 | ) | | | (330,835 | ) | | | (887,811 | ) | | | (226,479 | ) | | | (2,107,959 | ) | | | (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 | IntangibleAs a result of additional acquisition of ownership interest in KT Rental, intangible assets of KT Skylife Co.,Ltd., Enswers Inc. and BC card co., Ltd, , amounting to(Won)391,409 million,such as the customer base measured at fair value in accordance with IFRS 3, “Business Combination”,are included. Others also include facility usage rights with indefinite useful life.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(Won)₩153,797150,654 million (12.31.2010:(2012:(Won)₩149,847 million, 1.1.2010:(Won)162,556160,299 million) as of December 31, 2011.2013. Goodwill is allocated to the Company’sGroup’s cash-generating unit which is identified by operating segments.unit. As of December 31, 2011,2013, goodwill allocated to each cash-generation unit is as follows: | | | | | (in millions of Korean won) | | | | PersonalTelecom wireless business & Convergence/Customer1
| | (Won)₩ | 65,057 | | Finance and Rental | | | | | KT Rental2 | | | 131,426 | | BC Card Co., Ltd.3 | | | 41,234 | | Others | | | | | KT Powertel Co.,Ltd.
| | | 1,920 | | BC card co., Ltd
| | | 41,234 | | H&C Network
| | | 1,990 | | KT Music Corporation
| | | 6,724 | | Nasmedia
| | | 8,836 | | KT Skylife Co.,Ltd.4 | | | 306,303 | | NEXRKT Powertel Co.,Ltd. and others
| | | 3,386 | | Enswers Inc.
| | | 12,425 | | OIC Korea Co.,Ltd
| | | 1,520 | | | | | | | Sub-total
| | | 384,33848,319 | | | | | | | Total | | (Won)₩ | 449,395592,339 | | | | | | |
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 from obtainingallocated to the controlling interestmobile 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 FreetelRental 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. |
Goodwill impairment reviews are undertaken annually. The recoverable amounts for some goodwill of(Won)328,759 million allocated to others are determined based on the related CGUs’ fair value less costs to sell and the recoverable amounts of all other CGUs, to which goodwill of(Won)120,636 is allocated, have been determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management. Cash flows beyond the Company’s financial plan are extrapolated using the estimated growth rates and the growth rate does not exceed the long-term average growth rate for the business in which the CGU operates.
The Company determined the gross margin rate based on past performance and its expectations of market development. The average growth rates used are estimated based on the historical growth rate. In addition, the Company estimated the pre-tax cash flow based on past performance and its expectation of market growth and the discount rates used are pre-tax and reflect specific risks relating to the relevant CGUs.
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 CompanyGroup recognized the impairment losses of(Won)₩1,22712,954 million on goodwill allocated to KT Edui Co., Ltd.Enswers Inc. and others and recognized the losses as operating expenses in the consolidated statement of the consolidated income. The CompanyGroup considers that the carrying value of other cash generating units does not exceed the recoverablerecoverable amount of the CGUs other than KT Edui Co., Ltd.CGUs. 15.14. Investments in Associates and Jointly Controlled Entities and Associates
The changes in investments in jointly controlled entities andDetails of associates for the years endedas of December 31, 2010 and 2011,2013, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | 12.31.2010 | | (in millions of Korean won) | | Beginning | | | Acquisition (Disposal) | | | Reclassification | | | Interest in jointly controlled entities and associates 3 | | | Others | | | Ending | | KT Submarine Co., Ltd. | | (Won) | 24,462 | | | (Won) | — | | | (Won) | — | | | (Won) | 2,884 | | | (Won) | (518 | ) | | (Won) | 26,828 | | KT Rental | | | — | | | | — | | | | 162,413 | | | | 61 | | | | 9,080 | | | | 171,554 | | KTCS corporation | | | 16,154 | | | | — | | | | — | | | | 3,369 | | | | (388 | ) | | | 19,135 | | KTIS Corporation | | | 15,661 | | | | — | | | | — | | | | 4,411 | | | | (1,024 | ) | | | 19,048 | | KT Skylife Co.,Ltd. 1 | | | 15,353 | | | | 65,296 | | | | — | | | | 12,892 | | | | 215 | | | | 93,756 | | Korea Information & Technology Fund | | | 115,636 | | | | — | | | | — | | | | 6,914 | | | | (508 | ) | | | 122,042 | | KT-Global New Media Fund | | | 12,932 | | | | — | | | | — | | | | (270 | ) | | | — | | | | 12,662 | | Company K Movie Asset Fund No.1 | | | 8,806 | | | | — | | | | — | | | | 556 | | | | — | | | | 9,362 | | Boston Global Film & Contents Fund L.P. | | | 8,768 | | | | — | | | | — | | | | 54 | | | | — | | | | 8,822 | | Mongolian Telecommunications | | | 11,135 | | | | — | | | | — | | | | (27 | ) | | | 1,204 | | | | 12,312 | | Metropol Property LLC | | | 1,684 | | | | — | | | | — | | | | 253 | | | | (266 | ) | | | 1,671 | | KT wibro infra Co., Ltd. | | | — | | | | 65,000 | | | | — | | | | 505 | | | | (3 | ) | | | 65,502 | | KTF-CJ Music Contents Investment Fund | | | 4,954 | | | | — | | | | — | | | | (3 | ) | | | — | | | | 4,951 | | KT-DoCoMo Mobile Investment Fund | | | 4,473 | | | | — | | | | — | | | | 384 | | | | — | | | | 4,857 | | Others | | | 66,046 | | | | 114,464 | | | | (116,176 | ) | | | 1,199 | | | | 26 | | | | 65,559 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 306,064 | | | (Won) | 244,760 | | | (Won) | 46,237 | | | (Won) | 33,182 | | | (Won) | 7,818 | | | (Won) | 638,061 | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) Associates | | | | | | | | | | | | | | | | | | | | | | | | | | | 12.31.2011 | | (in millions of Korean won) | | Beginning | | | Acquisition (Disposal) | | | Reclassification | | | Interest in jointly controlled entities and associates 3 | | | Others | | | Ending | | KT Submarine Co., Ltd. | | (Won) | 26,828 | | | (Won) | — | | | (Won) | — | | | (Won) | 2,365 | | | (Won) | (7 | ) | | (Won) | 29,186 | | KT Rental | | | 171,554 | | | | (15,849 | ) | | | — | | | | 21,817 | | | | (2,287 | ) | | | 175,235 | | KTCS corporation | | | 19,135 | | | | — | | | | — | | | | 3,350 | | | | (2,158 | ) | | | 20,327 | | KTIS Corporation | | | 19,048 | | | | — | | | | — | | | | 3,473 | | | | (1,433 | ) | | | 21,088 | | KT Skylife Co.,Ltd. 1 | | | 93,757 | | | | — | | | | (280,772 | ) | | | — | | | | 187,015 | | | | — | | Korea Information & Technology Fund | | | 122,041 | | | | — | | | | — | | | | 1,556 | | | | (4,106 | ) | | | 119,491 | | KT-Global New Media Fund | | | 12,662 | | | | — | | | | — | | | | (19 | ) | | | — | | | | 12,643 | | Company K Movie Asset Fund No.1 | | | 9,362 | | | | — | | | | — | | | | 231 | | | | — | | | | 9,593 | | Boston Global Film & Contents Fund L.P | | | 8,822 | | | | — | | | | — | | | | (1,287 | ) | | | — | | | | 7,535 | | Mongolian Telecommunications | | | 12,312 | | | | — | | | | — | | | | 409 | | | | (1,489 | ) | | | 11,232 | | Metropol Property LLC | | | 1,671 | | | | — | | | | — | | | | 137 | | | | (62 | ) | | | 1,746 | | KT wibro infra Co., Ltd. | | | 65,502 | | | | — | | | | — | | | | 704 | | | | — | | | | 66,206 | | SMART CHANNEL Co., Ltd. 2 | | | — | | | | 6,000 | | | | 500 | | | | (3,752 | ) | | | — | | | | 2,748 | | Kan Communications Co., Ltd. | | | — | | | | 3,000 | | | | — | | | | (184 | ) | | | — | | | | 2,816 | | KTF-CJ Music Contents Investment Fund | | | 4,951 | | | | — | | | | — | | | | 86 | | | | — | | | | 5,037 | | KT-DoCoMo Mobile Investment Fund | | | 4,857 | | | | (393 | ) | | | — | | | | (11 | ) | | | (346 | ) | | | 4,107 | | Others | | | 65,559 | | | | (14,394 | ) | | | 32,632 | | | | (29,348 | ) | | | (14,255 | ) | | | 40,194 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 638,061 | | | (Won) | (21,636 | ) | | (Won) | (247,640 | ) | | (Won) | (473 | ) | | (Won) | 160,872 | | | (Won) | 529,184 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 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 | As a result of acquisition of additional interest, the Controlling Company acquired control over KT Skylife Co., Ltd.KTCS Corporation and the Controlling Company’s previously held equity interest in KT Skylife Co., Ltd. is measured at its fair value at the acquisition date. With regard to this transaction, the Company accounted for the difference ((Won)187,458 million) between the fair value of(Won)280,773 million and carrying value of(Won)93,315 million (including net reclassification adjustments of other comprehensive income of(Won)291 million) of the Controlling Company’s previously held equity interest as ‘other operating revenue’ in the statement of income. (Note 37) |
2 | The equity investment in SmartChannel Co., Ltd. amounting(Won)500 million was reclassified from available-for-sale assets to investment in jointly controlled entities and associates in 2011. |
3 | These include the equity in income of jointly controlled entities and associates of(Won)2,701 million (2010:(Won)622 million) recognized as operating revenue and the equity in loss of jointly controlled entities and associates of(Won)136 million (2010:(Won)126 million) recognized as operating expenses. |
The summary of financial information of joint ventures and associates as of and for the years ended January 1, 2010 and December 31, 2010 and 2011, are as follows:
| | | | | | | | | | | | | | | | | 1.1.2010 | | (In millions of Korean won) | | Location | | % of ownership interest | | | Assets | | | Liabilities | | KT Submarine Co., Ltd. | | Domestic | | | 36.92 | % | | | 109,996 | | | | 43,877 | | KTCS corporation | | Domestic | | | 20.06 | % | | | 130,587 | | | | 48,486 | | KTIS Corporation | | Domestic | | | 20.32 | % | | | 126,501 | | | | 45,990 | | KT Skylife Co.,Ltd | | Domestic | | | 26.74 | % | | | 448,079 | | | | 344,151 | | Korea Information & Technology Fund | | Domestic | | | 33.33 | % | | | 346,908 | | | | — | | KT-Global New Media Fund | | Domestic | | | 50.00 | % | | | 26,139 | | | | 274 | | Company K movie asset fund No.1 3 | | Domestic | | | 60.00 | % | | | 14,676 | | | | — | | Boston Global Film & Contents Fund L.P | | Domestic | | | 27.69 | % | | | 31,860 | | | | 195 | | Mongolian Telecommunications | | Mongolia | | | 40.00 | % | | | 33,775 | | | | 6,263 | | Metropol Property LLC | | Uzbekistan | | | 34.00 | % | | | 1,951 | | | | 437 | | KTF-CJ Music Contents Investment Fund | | Domestic | | | 50.00 | % | | | 9,959 | | | | 50 | | KT-DoCoMo Mobile Investment Fund | | Domestic | | | 45.00 | % | | | 10,048 | | | | 107 | | Others | | | | | | | | | 428,198 | | | | 182,561 | | | | | | | | | | | | | | | | | Total | | | | | | | | (Won) | 1,718,677 | | | (Won) | 672,391 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | 12.31.2010 | | (In millions of Korean won) | | Location | | % of ownership interest | | | Assets | | | Liabilities | | | Operating revenue | | | Net profit (loss) | | KT Submarine Co., Ltd. | | Domestic | | | 36.92 | % | | (Won) | 106,037 | | | (Won) | 33,366 | | | (Won) | 71,153 | | | (Won) | 8,182 | | KT Rental1 | | Domestic | | | 58.00 | % | | | 933,556 | | | | 673,211 | | | | 378,775 | | | | 13,797 | | KTCS corporation 2 | | Domestic | | | 17.05 | % | | | 168,242 | | | | 53,237 | | | | 353,950 | | | | 16,269 | | KTIS Corporation 2 | | Domestic | | | 17.80 | % | | | 160,555 | | | | 54,849 | | | | 349,114 | | | | 20,536 | | KT Skylife Co.,Ltd | | Domestic | | | 37.41 | % | | | 533,246 | | | | 385,935 | | | | 431,356 | | | | 42,956 | | Korea Information & Technology Fund | | Domestic | | | 33.33 | % | | | 367,721 | | | | — | | | | 28,376 | | | | 22,014 | | KT-Global New Media Fund | | Domestic | | | 50.00 | % | | | 25,356 | | | | 31 | | | | — | | | | (539 | ) | Company K movie asset fund No.1 3 | | Domestic | | | 60.00 | % | | | 15,603 | | | | — | | | | 1,708 | | | | 926 | | Boston Global Film & Contents Fund L.P. | | Domestic | | | 27.69 | % | | | 32,054 | | | | 204 | | | | 995 | | | | 186 | | Monogolian Telecommunications | | Mongolia | | | 40.00 | % | | | 41,074 | | | | 10,294 | | | | 19,635 | | | | 1,363 | | Metropol Property LLC | | Uzbekistan | | | 34.00 | % | | | 2,119 | | | | 273 | | | | 418 | | | | 418 | | KT wibro infra Co., Ltd | | Domestic | | | 26.22 | % | | | 338,491 | | | | 88,829 | | | | 373 | | | | 1,739 | | KTF-CJ Music Contents Investment Fund | | Domestic | | | 50.00 | % | | | 9,903 | | | | — | | | | 627 | | | | 6 | | KT-DoCoMo Mobile Investment Fund | | Domestic | | | 45.00 | % | | | 10,944 | | | | 149 | | | | 944 | | | | 854 | | Others | | | | | | | | | 450,294 | | | | 186,794 | | | | 746,670 | | | | (5,225 | ) | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | (Won) | 3,195,195 | | | (Won) | 1,487,172 | | | (Won) | 2,384,094 | | | (Won) | 123,482 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | (In millions of Korean won) | | 12.31.2011 | | | | Location | | | % of ownership interest | | | Assets | | | Liabilities | | | Operating revenue | | | Net profit (loss) | | KT Submarine Co., Ltd. | | | Domestic | | | | 36.92 | % | | (Won) | 127,062 | | | (Won) | 48,004 | | | (Won) | 111,453 | | | (Won) | 6,700 | | KT Rental 1 | | | Domestic | | | | 58.00 | % | | | 1,419,392 | | | | 1,167,454 | | | | 657,971 | | | | 27,320 | | KTCS corporation 2 | | | Domestic | | | | 17.49 | % | | | 172,267 | | | | 56,071 | | | | 380,506 | | | | 19,922 | | KTIS corporation 2 | | | Domestic | | | | 17.80 | % | | | 174,459 | | | | 56,013 | | | | 373,397 | | | | 21,077 | | Korea Information & Technology Fund | | | Domestic | | | | 33.33 | % | | | 358,475 | | | | — | | | | 15,630 | | | | 2,880 | | KT-Global New Media Fund | | | Domestic | | | | 50.00 | % | | | 25,822 | | | | 535 | | | | — | | | | (38 | ) | Company K Movie Asset Fund No.1 3 | | | Domestic | | | | 60.00 | % | | | 15,997 | | | | 8 | | | | 2,751 | | | | 385 | | Boston Global Film & Contents Fund L.P. | | | Domestic | | | | 27.69 | % | | | 27,411 | | | | 204 | | | | 933 | | | | (4,643 | ) | Mongolian Telecommunications | | | Mongolia | | | | 40.00 | % | | | 28,080 | | | | — | | | | 20,747 | | | | 779 | | Metropol Property LLC | | | Uzbekistan | | | | 34.00 | % | | | 4,075 | | | | 846 | | | | 1,512 | | | | 486 | | KT wibro infra Co., Ltd | | | Domestic | | | | 26.22 | % | | | 257,744 | | | | 5,220 | | | | 2,294 | | | | 2,863 | | SMART CHANNEL Co., Ltd 1 | | | Domestic | | | | 65.00 | % | | | 91,383 | | | | 98,306 | | | | 9,785 | | | | (9,471 | ) | Kan Communications Co.,Ltd. | | | Domestic | | | | 50.00 | % | | | 5,797 | | | | 167 | | | | — | | | | (369 | ) | KTF-CJ Music Contents Investment Fund | | | Domestic | | | | 50.00 | % | | | 10,076 | | | | — | | | | 318 | | | | 173 | | KT-DoCoMo Mobile Investment Fund | | | Domestic | | | | 45.00 | % | | | 9,286 | | | | 162 | | | | 92 | | | | (26 | ) | Others | | | | | | | | | | | 756,795 | | | | 392,769 | | | | 417,142 | | | | 15,990 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | (Won) | 3,484,121 | | | (Won) | 1,825,759 | | | (Won) | 1,994,531 | | | (Won) | 84,028 | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 | As a result of acquisition of additional interest, the Company has 65% of ownership in Smart Channel Co.,Ltd.; however, the entity was classified as an associate and equity-method accounting has been applied as the Company has the significant influence but no control under the arrangement of shareholders. In addition, the Company has 58% of ownership in KT Rental Co.,Ltd.; however, the entity was classified as a joint venture due to exercise of joint control under the arrangement of shareholders.
|
2 | KTIS Corporation provide telephone number directory enquiries services. At the end of the reporting period, even though the CompanyGroup has ownership less than 20%, ownership, the equity method of accounting has been applied as it is considered that the CompanyGroup has the significant influence over the operating and financial policies of thosethese entities. |
32 | At the end of the reporting period, even though the CompanyGroup has 50% ownership, more than 50%, the equity method of accounting has been applied as it the Company,Group, which is a limited partner ofin 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 and associates as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | | | 1.1.2010 | | | 2012 | | | | Number of shares | | | Market Price per Share (Korean won) | | | Fair Value (In millions of Korean won) | | | Book Value (In millions of Korean won) | | | Number of shares | | | Book Value (In millions of Korean won) | | | Fair Value (In millions of Korean won) | | KT Submarine Co., Ltd. | | | 1,617,000 | | | (Won) | 15,200 | | | (Won) | 24,578 | | | (Won) | 24,370 | | | KTCS Corporation | | | | 8,132,130 | | | | 21,784 | | | | 18,623 | | KTIS Corporation | | | | 6,196,190 | | | | 21,870 | | | | 19,518 | | Mongolian Telecommunications | | | 10,348,111 | | | | 1,878 | | | | 19,434 | | | | 11,135 | | | | 10,348,111 | | | | 9,999 | | | | 14,741 | |
| | | | | | | | | | | | | | | | | | | 12.31.2010 | | | | Number of shares | | | Market Price per Share (Korean won) | | | Fair Value (In millions of Korean won) | | | Book Value (In millions of Korean won) | | KT Submarine Co., Ltd. | | | 1,617,000 | | | (Won) | 20,550 | | | (Won) | 33,229 | | | (Won) | 26,828 | | KTCS Corporation | | | 8,132,130 | | | | 2,210 | | | | 17,972 | | | | 19,135 | | KTIS Corporation | | | 6,196,190 | | | | 3,510 | | | | 21,749 | | | | 19,048 | | Mongolian Telecommunications | | | 10,348,111 | | | | 3,413 | | | | 35,319 | | | | 12,312 | |
| | | 12.31.2011 | | | | | Number of shares | | | Market Price per Share (Korean won) | | | Fair Value (In millions of Korean won) | | | Book Value (In millions of Korean won) | | | 2013 | | KT Submarine Co., Ltd. | | | 1,617,000 | | | (Won) | 13,200 | | | (Won) | 21,344 | | | (Won) | 29,186 | | | | | | Number of shares | | | Book Value (In millions of Korean won) | | | Fair Value (In millions of Korean won) | | KTCS Corporation | | | 8,132,130 | | | | 2,070 | | | | 16,834 | | | | 20,327 | | | | 8,132,130 | | | | 22,180 | | | | 28,218 | | KTIS Corporation | | | 6,196,190 | | | | 2,800 | | | | 17,349 | | | | 21,088 | | | | 6,196,190 | | | | 23,328 | | | | 31,539 | | Mongolian Telecommunications | | | 10,348,111 | | | | 2,268 | | | | 23,470 | | | | 11,232 | | | | 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, 20112013, which was not recognized by the CompanyGroup is(Won)₩22,00439,571 million (2010.12.31(2011:(Won)₩ 9,857million, 2010.1.1 2010.12.3115,490 million, 2012:(Won)₩ 23,91522,143 million). The following equity securities owned by the Company are pledged as collateralscollateral for Investees’ borrowings.the investee’s borrowings: | | | | | | | (In millions of Korean won) | | Investee company | | Amount | | Investments in associatesassociate | | SmartChannelSmart Channel Co., Ltd. (formerly, Media Plus Co., Ltd.) | | (Won)₩ | 6,500 | |
16.15. Trade and other payables
The Company’sGroup’s trade and other payables as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | | | | | | | | | | | | | (In millions of Korean won) | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | Current liabilities | | | | | | | | | | | | | Trade payables | | (Won) | 1,492,503 | | | (Won) | 1,523,983 | | | (Won) | 1,635,361 | | Other payables | | | 3,795,555 | | | | 2,900,215 | | | | 4,255,064 | | | | | | | | | | | | | | | Total | | | 5,288,058 | | | (Won) | 4,424,198 | | | (Won) | 5,890,425 | | | | | | | | | | | | | | | Non-current liabilities | | | | | | | | | | | | | Trade payables | | | 14,602 | | | (Won) | 41,186 | | | (Won) | 24,222 | | Other payables | | | 281,019 | | | | 340,321 | | | | 627,491 | | | | | | | | | | | | | | | Total | | (Won) | 295,621 | | | (Won) | 381,507 | | | (Won) | 651,713 | | | | | | | | | | | | | | |
| | | | | | | | | (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 January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | (In millions of Korean won) | | 1.1.2010 | | 12.31.2010 | | 31.12.2011 | | | 2012 | | 2013 | | Non-trade payables 1 | | (Won) | 2,449,146 | | | (Won) | 1,513,325 | | | (Won) | 3,214,585 | | | ₩ | 3,969,065 | | | ₩ | 4,469,781 | | Accrued expenses | | | 628,263 | | | | 716,316 | | | | 543,972 | | | | 772,013 | | | | 937,307 | | Operating deposits | | | 755,568 | | | | 738,091 | | | | 764,660 | | | | 880,895 | | | | 863,494 | | Others | | | 243,597 | | | | 272,804 | | | | 359,338 | | | (non-current) | | | (281,109 | ) | | | (340,321 | ) | | | (627,491 | ) | | Other | | | | 467,098 | | | | 475,009 | | Less: non-current | | | | (690,664 | ) | | | (1,048,454 | ) | | | | | | | | | | | | | | | | | Current | | (Won) | 3,795,555 | | | (Won) | 2,900,215 | | | (Won) | 4,255,064 | | | ₩ | 5,398,407 | | | ₩ | 5,697,137 | | | | | | | | | | | | | | | | | |
1 | Settlement payables of BC card Co,.Card Co., Ltd. of(Won)₩ 997,9151,725,396 million related to credit card transaction included as of December 31, 2011.2013 (2012:₩1,519,242 million). |
17.16. Bonds Payable and Borrowings
Details of bonds payable and borrowings as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: Bonds Payable | (in millions of Korean won and thousands of foreign currencies) | (in millions of Korean won and thousands of foreign currencies) | | 1.1.2010 | | 12.31.2010 | | 12.31.2011 | | (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 | | Foreign currency | | Korean won | | | Maturity | | Annual interest rates | | Foreign currency | | Korean won | | Foreign currency | | Korean won | | MTNP notes 1 | | | 06.24.2014 | | | | 5.88 | % | | | USD 600,000 | | | (Won) | 700,560 | | | | USD 600,000 | | | (Won) | 683,340 | | | | USD 600,000 | | | (Won) | 691,980 | | | Jun 24, 2014 | | | 5.88 | % | | USD | 600,000 | | | ₩ | 642,660 | | | USD | 600,000 | | | ₩ | 633,180 | | MTNP notes 1 | | | 09.07.2034 | | | | 6.50 | % | | | USD 100,000 | | | | 116,760 | | | | USD 100,000 | | | | 113,890 | | | | USD 100,000 | | | | 115,330 | | | Sep 07, 2034 | | | 6.50 | % | | USD | 100,000 | | | | 107,110 | | | USD | 100,000 | | | | 105,530 | | MTNP notes 1 | | | 07.14.2015 | | | | 4.88 | % | | | USD 400,000 | | | | 467,040 | | | | USD 400,000 | | | | 455,560 | | | | USD 400,000 | | | | 461,320 | | | Jul 15, 2015 | | | 4.88 | % | | USD | 400,000 | | | | 428,440 | | | USD | 400,000 | | | | 422,120 | | MTNP notes 1 | | | 05.03.2016 | | | | 5.88 | % | | | USD 200,000 | | | | 233,520 | | | | USD 200,000 | | | | 227,780 | | | | USD 200,000 | | | | 230,660 | | | May 03, 2016 | | | 5.88 | % | | USD | 200,000 | | | | 214,220 | | | USD | 200,000 | | | | 211,060 | | MTNP notes | | | 04.11.2012 | | | | 5.13 | % | | | USD 200,000 | | | | 233,520 | | | | USD 200,000 | | | | 227,780 | | | | USD 200,000 | | | | 230,660 | | | The 170th Public bond | | | 01.11.2011 | | | | — | | | | JPY12,500,000 | | | | 157,853 | | | | JPY12,500,000 | | | | 174,635 | | | | — | | | | — | | | The 172-1st Public bond | | | 03.31.2011 | | | | — | | | | USD 50,000 | | | | 58,380 | | | | USD 50,000 | | | | 56,945 | | | | — | | | | — | | | The 172-2nd Public bond 2 | | | 03.31.2012 | | |
| LIBOR(3M)+
1.60% |
| | | USD 110,000 | | | | 128,436 | | | | USD 110,000 | | | | 125,279 | | | | USD 110,000 | | | | 126,863 | | | 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 | | | 09.11.2013 | | |
| LIBOR(3M)+
1.50% |
| | | USD 200,000 | | | | 233,520 | | | | USD 200,000 | | | | 227,780 | | | | USD 200,000 | | | | 230,660 | | | Apr 9, 2013 | | | LIBOR(3M) +0.47 | % | | USD | 100,000 | | | | 107,110 | | | | — | | | | — | | FR notes 2 | | | 04.09.2013 | | |
| LIBOR(3M)+
0.47% |
| | | — | | | | — | | | | USD 100,000 | | | | 113,890 | | | | USD 100,000 | | | | 115,330 | | | 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 | | | 01.18.2013 | | |
| LIBOR(3M)+
1.00% |
| | | — | | | | — | | | | — | | | | — | | | | USD 100,000 | | | | 115,330 | | | Jan 18, 2013 | | | LIBOR(3M) +1.05 | % | | USD | 100,000 | | | | 107,110 | | | | — | | | | — | | The 178-2nd Public bond2 | | | 01.17.2014 | | |
| LIBOR(3M)+
1.05% |
| | | — | | | | — | | | | — | | | | — | | | | USD 100,000 | | | | 115,330 | | | Jan 17, 2014 | | | LIBOR(3M) +1.05 | % | | USD | 100,000 | | | | 107,110 | | | USD | 100,000 | | | | 105,530 | | MTNP notes | | | 01.25.2013 | | | | 1.58% | | | | — | | | | — | | | | — | | | | — | | | | JPY 35,000,000 | | | | 519,806 | | | The 49th Public bond | | | 02.25.2011 | | | | — | | | | USD 175,000 | | | | 204,330 | | | | USD 175,000 | | | | 199,308 | | | | — | | | | — | | | The 50th Public bond | | | 04.28.2011 | | | | — | | | | JPY 7,000,000 | | | | 88,397 | | | | JPY 7,000,000 | | | | 97,795 | | | | — | | | | — | | | The 51-1st Public bond | | | 06.20.2011 | | | | — | | | | USD 95,000 | | | | 110,922 | | | | USD 95,000 | | | | 108,196 | | | | — | | | | — | | | 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) | | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | Type | | Maturity | | | Annual interest rates | | | Foreign currency | | | Korean won | | | Foreign currency | | | Korean won | | | Foreign currency | | | Korean won | | The 132nd Public bond | | | 02.09.2011 | | | | — | | | | — | | | | 70,000 | | | | — | | | | 70,000 | | | | — | | | | — | | The 159th Public bond | | | 10.27.2013 | | | | 5.39 | % | | | — | | | | 300,000 | | | | — | | | | 300,000 | | | | — | | | | 300,000 | | The 160th Public bond | | | 11.24.2010 | | | | — | | | | — | | | | 200,000 | | | | — | | | | — | | | | — | | | | — | | The 161st Public bond | | | 12.23.2010 | | | | — | | | | — | | | | 230,000 | | | | — | | | | — | | | | — | | | | — | | The 162nd Public bond | | | 02.27.2011 | | | | — | | | | — | | | | 320,000 | | | | — | | | | 320,000 | | | | — | | | | — | | The 163rd Public bond | | | 03.30.2014 | | | | 5.51 | % | | | — | | | | 170,000 | | | | — | | | | 170,000 | | | | — | | | | 170,000 | | The 164th Public bond | | | 06.21.2011 | | | | — | | | | — | | | | 260,000 | | | | — | | | | 260,000 | | | | — | | | | — | | The 165-1st Public bond | | | 08.26.2011 | | | | — | | | | — | | | | 130,000 | | | | — | | | | 130,000 | | | | — | | | | — | | The 165-2nd Public bond | | | 08.26.2014 | | | | 4.44 | % | | | — | | | | 140,000 | | | | — | | | | 140,000 | | | | — | | | | 140,000 | | The 166-1st Public bond | | | 03.21.2010 | | | | — | | | | — | | | | 220,000 | | | | — | | | | — | | | | — | | | | — | | The 166-2nd Public bond | | | 03.21.2012 | | | | 4.57 | % | | | — | | | | 100,000 | | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 167-1st Public bond | | | 04.20.2012 | | | | 4.59 | % | | | — | | | | 100,000 | | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 167-2nd Public bond | | | 04.20.2015 | | | | 4.84 | % | | | — | | | | 100,000 | | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 168-1st Public bond | | | 06.21.2012 | | | | 4.43 | % | | | — | | | | 240,000 | | | | — | | | | 240,000 | | | | — | | | | 240,000 | | The 168-2nd Public bond | | | 06.21.2015 | | | | 4.66 | % | | | — | | | | 90,000 | | | | — | | | | 90,000 | | | | — | | | | 90,000 | | The 169th Public bond | | | 04.03.2012 | | | | 5.01 | % | | | — | | | | 140,000 | | | | — | | | | 140,000 | | | | — | | | | 140,000 | | The 171st Public bond | | | 02.28.2013 | | | | 5.41 | % | | | — | | | | 100,000 | | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 173-1st Public bond | | | 08.06.2013 | | | | 6.49 | % | | | — | | | | 100,000 | | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 173-2nd Public bond | | | 08.06.2018 | | | | 6.62 | % | | | — | | | | 100,000 | | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 174-1st Public bond | | | 12.19.2010 | | | | — | | | | — | | | | 100,000 | | | | — | | | | — | | | | — | | | | — | | The 174-2nd Public bond | | | 12.19.2011 | | | | — | | | | — | | | | 130,000 | | | | — | | | | 130,000 | | | | — | | | | — | | The 175-1st Public bond | | | 02.27.2012 | | | | 4.80 | % | | | — | | | | 40,000 | | | | — | | | | 40,000 | | | | — | | | | 40,000 | | The 175-2nd Public bond | | | 02.27.2014 | | | | 5.47 | % | | | — | | | | 360,000 | | | | — | | | | 360,000 | | | | — | | | | 360,000 | | The 176-1st Public bond | | | 05.28.2012 | | | | 4.37 | % | | | — | | | | 100,000 | | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 176-2nd Public bond | | | 05.28.2014 | | | | 5.06 | % | | | — | | | | 170,000 | | | | — | | | | 170,000 | | | | — | | | | 170,000 | | The 176-3rd Public bond | | | 05.28.2016 | | | | 5.24 | % | | | — | | | | 260,000 | | | | — | | | | 260,000 | | | | — | | | | 260,000 | | The 177-1st Public bond | | | 02.09.2013 | | | | 4.86 | % | | | — | | | | — | | | | — | | | | 240,000 | | | | — | | | | 240,000 | | The 177-2nd Public bond | | | 02.09.2015 | | | | 5.26 | % | | | — | | | | — | | | | — | | | | 190,000 | | | | — | | | | 190,000 | | The 177-3rd Public bond | | | 02.09.2017 | | | | 5.38 | % | | | — | | | | — | | | | — | | | | 170,000 | | | | — | | | | 170,000 | | The 179th Public bond | | | 03.29.2018 | | | | 4.47 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 260,000 | | The 180-1st Public bond | | | 04.26.2016 | | | | 4.35 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 210,000 | | The 180-2nd Public bond | | | 04.26.2021 | | | | 4.71 | % | | | — | | | | — | | | | — | | | | — | | | | — | | �� | | 380,000 | | The 47-2nd Public bond | | | 07.12.2011 | | | | — | | | | — | | | | 70,000 | | | | — | | | | 70,000 | | | | — | | | | — | | The 48th Public bond | | | 02.15.2010 | | | | — | | | | — | | | | 200,000 | | | | — | | | | — | | | | — | | | | — | | The 51-2nd Public bond | | | 06.20.2013 | | | | 6.41 | % | | | — | | | | 70,000 | | | | — | | | | 70,000 | | | | — | | | | 70,000 | | The 52-1st Private bond | | | 08.04.2011 | | | | — | | | | — | | | | 100,000 | | | | — | | | | 100,000 | | | | — | | | | — | | The 52-2nd Public bond | | | 08.04.2013 | | | | 6.64 | % | | | — | | | | 100,000 | | | | — | | | | 100,000 | | | | — | | | | 100,000 | | The 53-1st Public bond | | | 12.01.2010 | | | | — | | | | — | | | | 20,000 | | | | — | | | | — | | | | — | | | | — | | The 53-2nd Public bond | | | 12.01.2011 | | | | — | | | | — | | | | 180,023 | | | | — | | | | 181,213 | | | | — | | | | — | | The 181-1st Public bond | | | 08.26.2016 | | | | 3.94 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 260,000 | | The 181-2nd Public bond | | | 08.26.2018 | | | | 3.99 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 90,000 | | The 181-3rd Public bond | | | 08.26.2021 | | | | 4.09 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 250,000 | | The 182-1st Public bond | | | 10,28.2016 | | | | 4.11 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 320,000 | | The182-2nd Public bond | | | 10.28.2021 | | | | 4.31 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 100,000 | | The 183-1st Public bond | | | 12.22.2016 | | | | 3.81 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 50,000 | | The 183-2nd Public bond | | | 12.22.2021 | | | | 4.09 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 90,000 | | The 183-3rd Public bond | | | 12.22.2031 | | | | 4.27 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 160,000 | | The 24th Public bond | | | 04.17.2010 | | | | — | | | | — | | | | 10,000 | | | | — | | | | — | | | | — | | | | — | | The 25th Public bond | | | 07.24.2011 | | | | — | | | | — | | | | 5,000 | | | | — | | | | 5,000 | | | | — | | | | — | | The 26th Public bond | | | 04.19.2013 | | | | 5.15 | % | | | — | | | | — | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 27th Public bond | | | 07.25.2014 | | | | 5.04 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,000 | | The 19-2nd Public bond | | | 05.10.2010 | | | | — | | | | — | | | | 10,000 | | | | — | | | | — | | | | — | | | | — | | The 10th Public bond | | | 06.18.2010 | | | | — | | | | — | | | | 40,000 | | | | — | | | | — | | | | — | | | | — | | The 11st Private bond | | | 12.06.2010 | | | | — | | | | — | | | | 20,000 | | | | — | | | | — | | | | — | | | | — | | The 12nd Public bond | | | 05.23.2011 | | | | — | | | | — | | | | 20,000 | | | | — | | | | — | | | | — | | | | — | | The 13-2nd Public bond | | | 04.02.2010 | | | | — | | | | — | | | | 10,000 | | | | — | | | | — | | | | — | | | | — | | The 14th Public bond | | | 01.08.2012 | | | | — | | | | — | | | | 30,000 | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | (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) | | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | Type | | Maturity | | | Annual interest rates | | | Foreign currency | | | Korean won | | | Foreign currency | | | Korean won | | | Foreign currency | | | Korean won | | The 15th Public bond | | | 10.26.2011 | | | | — | | | | — | | | | 30,000 | | | | — | | | | — | | | | — | | | | — | | The 16th Public bond | | | 11.27.2012 | | | | — | | | | — | | | | 30,000 | | | | — | | | | — | | | | — | | | | — | | The 1st Private bond | | | 03.16.2010 | | | | — | | | | — | | | | 30,000 | | | | — | | | | — | | | | — | | | | — | | The 2nd Private bond | | | 04.16.2010 | | | | — | | | | — | | | | 20,000 | | | | — | | | | — | | | | — | | | | — | | The 4th Public bond | | | 05.30.2010 | | | | — | | | | — | | | | 40,000 | | | | — | | | | — | | | | — | | | | — | | The 5th Private bond | | | 06.29.2010 | | | | — | | | | — | | | | 20,000 | | | | — | | | | — | | | | — | | | | — | | The 6-2nd Public bond | | | 08.03.2010 | | | | — | | | | — | | | | 30,000 | | | | — | | | | — | | | | — | | | | — | | The 7-2nd Public bond | | | 08.31.2010 | | | | — | | | | — | | | | 20,000 | | | | — | | | | — | | | | — | | | | — | | The 8th Private bond | | | 09.28.2010 | | | | — | | | | — | | | | 30,000 | | | | — | | | | — | | | | — | | | | — | | The 9-2nd Public bond | | | 10.18.2010 | | | | — | | | | — | | | | 20,000 | | | | — | | | | — | | | | — | | | | — | | The 11st Public bond | | | 12.27.2010 | | | | — | | | | — | | | | 20,000 | | | | — | | | | — | | | | — | | | | — | | The 13-1st Public bond | | | 02.21.2010 | | | | — | | | | — | | | | 30,000 | | | | — | | | | — | | | | — | | | | — | | The 13-2nd Public bond | | | 02.21.2011 | | | | — | | | | — | | | | 30,000 | | | | — | | | | 30,000 | | | | — | | | | — | | The 14-1st Public bond | | | 03.28.2010 | | | | — | | | | — | | | | 10,000 | | | | — | | | | — | | | | — | | | | — | | The 14-2nd Public bond | | | 03.28.2011 | | | | — | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | | | — | | | | — | | The 15th Private bond | | | 04.21.2010 | | | | — | | | | — | | | | 20,000 | | | | — | | | | — | | | | — | | | | — | | The 16-1st Public bond | | | 01.30.2010 | | | | — | | | | — | | | | 60,000 | | | | — | | | | — | | | | — | | | | — | | The 16-2nd Public bond | | | 04.30.2011 | | | | — | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | | | — | | | | — | | The 17-3rd Public bond | | | 05.30.2013 | | | | 7.14 | % | | | — | | | | 50,000 | | | | — | | | | 50,000 | | | | — | | | | 50,000 | | The 18-2nd Public bond | | | 06.23.2010 | | | | — | | | | — | | | | 40,000 | | | | — | | | | — | | | | — | | | | — | | The 18-3rd Public bond | | | 06.23.2011 | | | | — | | | | — | | | | 20,000 | | | | — | | | | 20,000 | | | | — | | | | — | | The 18-4th Public bond | | | 06.23.2013 | | | | 7.55 | % | | | — | | | | 10,000 | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 19-2nd Public bond | | | 03.11.2010 | | | | — | | | | — | | | | 10,000 | | | | — | | | | — | | | | — | | | | — | | The 19-3rd Public bond | | | 09.11.2010 | | | | — | | | | — | | | | 20,000 | | | | — | | | | — | | | | — | | | | — | | The 19-4st Public bond | | | 09.11.2010 | | | | — | | | | — | | | | 10,000 | | | | — | | | | — | | | | — | | | | — | | The 22-1st Public bond | | | 07.23.2010 | | | | — | | | | — | | | | 10,000 | | | | — | | | | — | | | | — | | | | — | | The 22-2nd Public bond | | | 01.23.2011 | | | | — | | | | — | | | | 35,000 | | | | — | | | | 35,000 | | | | — | | | | — | | The 22-3rd Public bond | | | 01.23.2012 | | | | 8.95 | % | | | — | | | | 25,000 | | | | — | | | | 25,000 | | | | — | | | | 25,000 | | The 23th Public bond | | | 05.29.2011 | | | | — | | | | — | | | | 20,000 | | | | — | | | | 20,000 | | | | — | | | | — | | The 24th Public bond | | | 06.29.2012 | | | | 6.28 | % | | | — | | | | 30,000 | | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 25-1st Public bond | | | 07.30.2011 | | | | — | | | | — | | | | 20,000 | | | | — | | | | 20,000 | | | | — | | | | — | | The 25-2nd Public bond | | | 07.30.2012 | | | | 6.20 | % | | | — | | | | 25,000 | | | | — | | | | 25,000 | | | | — | | | | 25,000 | | The 26th Public bond | | | 08.27.2012 | | | | 6.33 | % | | | — | | | | 50,000 | | | | — | | | | 50,000 | | | | — | | | | 50,000 | | The 27th Private bond | | | 09.04.2012 | | | | 6.33 | % | | | — | | | | 10,000 | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 28-1st Public bond | | | 11.12.2011 | | | | — | | | | — | | | | 20,000 | | | | — | | | | 20,000 | | | | — | | | | — | | The 28-2nd Public bond | | | 11.12.2012 | | | | 6.08 | % | | | — | | | | 30,000 | | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 29-1st Public bond | | | 11.30.2011 | | | | — | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | | | — | | | | — | | The 29-2nd Public bond | | | 11.30.2012 | | | | 6.00 | % | | | — | | | | 40,000 | | | | — | | | | 40,000 | | | | — | | | | 40,000 | | The 30-1st Public bond | | | 06.23.2011 | | | | — | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | | | — | | | | — | | The 30-2nd Public bond | | | 12.23.2011 | | | | — | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | | | — | | | | — | | The 30-3rd Public bond | | | 12.23.2012 | | | | 5.95 | % | | | — | | | | 10,000 | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 31st Public bond | | | 12.31.2012 | | | | 5.98 | % | | | — | | | | 10,000 | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 32-1st Public bond | | | 01.22.2012 | | | | 5.65 | % | | | — | | | | — | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 32-2nd Public bond | | | 01.22.2013 | | | | 5.95 | % | | | — | | | | — | | | | — | | | | 50,000 | | | | — | | | | 50,000 | | The 32-3rd Public bond | | | 01.22.2015 | | | | 6.70 | % | | | — | | | | — | | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 33rd Public bond | | | 02.11.2015 | | | | 6.45 | % | | | — | | | | — | | | | — | | | | 50,000 | | | | — | | | | 50,000 | | The 34-1st Public bond | | | 02.26.2012 | | | | 5.30 | % | | | — | | | | — | | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 34-2nd Public bond | | | 02.26.2013 | | | | 5.60 | % | | | — | | | | — | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 35-1st Public bond | | | 03.22.2012 | | | | 4.65 | % | | | — | | | | — | | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 35-2nd Public bond | | | 03.22.2013 | | | | 5.05 | % | | | — | | | | — | | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 36-1st Public bond2 | | | 04.30.2012 | | | | CD(91D)+ 1.09 | % | | | — | | | | — | | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 36-2nd Public bond | | | 04.30.2013 | | | | 4.75 | % | | | — | | | | — | | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 36-3rd Public bond | | | 04.30.2015 | | | | 5.65 | % | | | — | | | | — | | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 37-1st Public bond | | | 12.30.2011 | | | | — | | | | — | | | | — | | | | — | | | | 10,000 | | | | — | | | | — | | The 37-2nd Public bond | | | 06.30.2012 | | | | 5.13 | % | | | — | | | | — | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 37-3rd Public bond | | | 06.30.2013 | | | | 5.45 | % | | | — | | | | — | | | | — | | | | 20,000 | | | | — | | | | 20,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | (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 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 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions of Korean won and thousands of foreign currencies) | | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | Type | | Maturity | | | Annual interest rates | | | Foreign currency | | | Korean won | | | Foreign currency | | | Korean won | | | Foreign currency | | | Korean won | | The 37-4th Public bond | | | 06.30.2014 | | | | 5.85% | | | | — | | | | — | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 38-1st Public bond | | | 01.19.2012 | | | | 4.80% | | | | — | | | | — | | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 38-2nd Public bond | | | 07.19.2012 | | | | 5.08% | | | | — | | | | — | | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 38-3rd Public bond | | | 07.19.2014 | | | | 5.85% | | | | — | | | | — | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 39th Public bond | | | 07.30.2013 | | | | 5.35% | | | | — | | | | — | | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 40-1st Public bond | | | 05.10.2012 | | | | 4.69% | | | | — | | | | — | | | | — | | | | 40,000 | | | | — | | | | 40,000 | | The 40-2nd Public bond | | | 08.10.2013 | | | | 5.33% | | | | — | | | | — | | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 40-3rd Public bond | | | 08.10.2015 | | | | 5.95% | | | | — | | | | — | | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 41-1st Public bond | | | 09.17.2012 | | | | 4.22% | | | | — | | | | — | | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 41-2nd Public bond | | | 09.17.2013 | | | | 4.63% | | | | — | | | | — | | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 41-3rd Public bond | | | 09.17.2014 | | | | 5.10% | | | | — | | | | — | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 42-1st Public bond | | | 11.22.2013 | | | | 4.62% | | | | — | | | | — | | | | — | | | | 30,000 | | | | — | | | | 30,000 | | The 42-2nd Public bond | | | 11.22.2014 | | | | 5.10% | | | | — | | | | — | | | | — | | | | 20,000 | | | | — | | | | 20,000 | | The 42-3rd Public bond | | | 11.22.2015 | | | | 5.44% | | | | — | | | | — | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | The 43-1st Public bond | | | 01.28.2014 | | | | 5.05% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 40,000 | | The 43-2nd Public bond | | | 01.28.2015 | | | | 5.32% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 10,000 | | The 43-3rd Private bond | | | 01.28.2016 | | | | 5.75% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 30,000 | | The 44-1st Public bond | | | 10.28.2012 | | | | 4.30% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 30,000 | | The 44-2nd Public bond | | | 04.28.2013 | | | | 4.53% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 30,000 | | The 44-3rd Public bond | | | 10.28.2013 | | | | 4.76% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 20,000 | | The 45th Public bond | | | 05.18.2014 | | | | 4.80% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 30,000 | | The 46-1st Public bond | | | 02.26.2013 | | | | 4.10% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 20,000 | | The 46-2nd Public bond | | | 05.26.2014 | | | | 4.50% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 40,000 | | The 46-3rd Public bond | | | 05.26.2015 | | | | 4.71% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 20,000 | | The 46-4th Public bond | | | 05.26.2016 | | | | 4.90% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 20,000 | | The 47th Public bond | | | 06.23.2014 | | | | 4.50% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 30,000 | | The 48th Public bond | | | 08.11.2016 | | | | 4.71% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 10,000 | | The 49th Public bond2 | | | 08.23.2014 | | | | CD(91D)+ 0.93% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 20,000 | | The 50-1st Public bond | | | 03.21.2013 | | | | 4.30% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 20,000 | | The 50-2nd Public bond | | | 09.21.2016 | | | | 4.87% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,000 | | The 51-1st Public bond | | | 09.30.2014 | | | | 4.69% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 10,000 | | The 51-2nd Public bond | | | 09.30.2016 | | | | 4.92% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 20,000 | | The 52-1st Public bond | | | 10.11.2013 | | | | 4.49% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 10,000 | | The 52-2nd Public bond 2 | | | 10.11.2014 | | | | CD(91D)+ 1.10% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 10,000 | | The 53rd Public bond | | | 10.17.2013 | | | | 4.39% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 20,000 | | The 54th Public bond | | | 10.28.2014 | | | | 4.64% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 10,000 | | The 55-1st Public bond | | | 11.16.2014 | | | | 4.46% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 40,000 | | The 55-2nd Public bond | | | 11.16.2015 | | | | 4.56% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 20,000 | | The 55-3rd Public bond | | | 11.16.2016 | | | | 4.74% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,000 | | The 56th Public bond | | | 12.13.2014 | | | | 4,18% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 35,000 | | Unsecured private convertible bond | | | 01.20.2016 | | | | 2.00% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 15,000 | | The 14-2nd unsecured bond | | | 05.22.2012 | | | | 6.00% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 50,000 | | The 15th unsecured bond | | | 06.22.2012 | | | | 5.90% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 50,000 | | Redeemable convertible preferred stock | | | 12.17.2013 | | | | 10.27% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 950 | | The 1st unsecured redeemable convertible preferred stock | | | 12.30.2014 | | | | 3.00% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,000 | | The 1st private bond | | | 03.24.2010 | | | | — | | | | — | | | | 40,000 | | | | — | | | | — | | | | — | | | | — | | The A Redeemable convertible preferred stock | | | 08.14.2018 | | | | 5.00% | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,927 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions of Korean won and thousands of foreign currencies) | | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | Type | | Maturity | | | Annual interest rates | | | Foreign currency | | | Korean won | | | Foreign currency | | | Korean won | | | Foreign currency | | | Korean won | | The B Redeemable convertible preferred stock | | | 11.24.2019 | | | | 5.00 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 634 | | The C Redeemable convertible preferred stock | | | 11.30.2021 | | | | 5.00 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 9,987 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | | | (Won) | 8,913,261 | | | | | | | (Won) | 8,603,391 | | | | | | | (Won) | 10,133,767 | | Less:Current portion | | | | | | | | | | | | | | | (1,540,000 | ) | | | | | | | (2,108,092 | ) | | | | | | | (1,657,524 | ) | Discount on bonds | | | | | | | | | | | | | | | (36,056 | ) | | | | | | | (27,841 | ) | | | | | | | (31,104 | ) | Conversion right adjustment | | | | | | | | | | | | | | | — | | | | | | | | — | | | | | | | | (3,026 | ) | Premium on bonds redemption | | | | | | | | | | | | | | | — | | | | | | | | — | | | | | | | | 1,750 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net | | | | | | | | | | | | | | (Won) | 7,337,205 | | | | | | | (Won) | 6,467,458 | | | | | | | (Won) | 8,443,863 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 | As of December 31, 2011,2013, the Company has outstanding notes issued byin the Company amount toof USD 1,300 million with fixed interest rates under the Medium Term Note Program (“MTNP”) listedregistered in the Singapore Stock Exchange, which allowed issuance of notes of up to USD 2,000 million. However, thisThe MTN Program has not been validsuspended since 2007. |
2 | Libor (3M) and CD (91D) are approximately 0.580.247 % and 3.522.66 %, respectively, as of December 31, 2011. 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 | |
Short-term borrowings | (in millions of Korean won and thousands of foreign currencies) | (in millions of Korean won and thousands of foreign currencies) | | 1.1.2010 | | 12.31.2010 | | 12.31.2011 | | (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 | | Foreign currency | | Korean won | | | Type | | Annual interest rates | | Foreign Currency | | | Korean won | | | Foreign Currency | | | Korean Won | | Shinhan Bank | | Commercial papers | | | 3,81 | % | | | | (Won) | 60,000 | | | | — | | | (Won) | 45,000 | | | | — | | | (Won) | 10,000 | | | Commercial papers | | | 2.78~3.75 | % | | | — | | | ₩ | — | | | | — | | | ₩ | 40,000 | | | | General loan 1 | |
| 5.09~CD(91D)
+1.44 |
% | | | | | 20,000 | | | | — | | | | 88,000 | | | | — | | | | 73,500 | | | General loan 1 | | | 4.45~5.17% | | | | — | | | | 93,200 | | | | — | | | | 81,200 | | | | Usance(EUR) 1 | | | LIBOR(3M) +1.70 | % | | | | | 3,066 | | | | EUR 116 | | | | 2,274 | | | | — | | | | 2,036 | | | Credit loan | | | 4.84~5.84 | % | | | — | | | | — | | | | — | | | | 12,000 | | | | Usance(USD) 1 | | | USD 2,611 | | | | USD 1,842 | | | | USD 1,671 | | | | Usance 1 | | | Financial bonds(6M) +1.27% | | | | — | | | | — | | | | — | | | | 5,000 | | | | Usance(JPY) 1 | | | JPY 1,456 | | | | — | | | | JPY 7,354 | | | | Samsung Securities | | Commercial papers | | | 3.92%~3,94 | % | | | — | | | | 12,000 | | | | — | | | | 10,000 | | | | — | | | | 20,000 | | | Commercial papers | | | 2.78~4.02 | % | | | — | | | | 90,000 | | | | — | | | | 15,000 | | Meritz Securities | | Commercial papers | | | 3.85~3.92 | % | | | — | | | | 15,000 | | | | — | | | | 20,000 | | | | — | | | | 25,000 | | | Woori Bank | | Commercial papers | | | — | | | | — | | | | 10,000 | | | | — | | | | — | | | | — | | | | — | | | General loans | | | 4.88 | % | | | — | | | | 14,500 | | | | — | | | | 500 | | | | General loans 1 | | | CD(91D) +1.61~1.79% | | | | — | | | | 27,300 | | | | — | | | | 5,000 | | | | — | | | | 18,000 | | | 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(USD) 1 | | | LIBOR(3M) +1.70 | % | | | USD 428 | | | | 499 | | | | USD 1,324 | | | | 1,508 | | | | USD 2,192 | | | | 2,527 | | | Usance 1 | | | 3.95%(fixed rate) / CD3M +1.2%(variable rate) | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | Korea Exchange Bank | | Commercial papers | | | 3.76 | % | | | — | | | | — | | | | — | | | | 50,000 | | | | — | | | | 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 | | | | General loans | | | — | | | | — | | | | 8,000 | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | Total | | | | | | | | | ₩ | 553,333 | | | | | ₩ | 634,694 | | | | Usance(EUR 1 | | | LIBOR(3M) +1.70 | % | | | — | | | | — | | | | — | | | | — | | | | EUR1,740 | | | | 2,600 | | | | | | | | | | | | | | | | Kookmin Bank | | General loans | | | 1.42~4.80 | % | | | — | | | | — | | | | — | | | | 20,890 | | | | — | | | | 22,397 | | | Shinhan Investment Corp. | | Commercial papers | | | — | | | | — | | | | — | | | | — | | | | 20,000 | | | | — | | | | — | | | Woori Investment & Securities | | Commercial papers | | | 3.76 | % | | | — | | | | 25,000 | | | | — | | | | 5,000 | | | | — | | | | 5,000 | | | Dongbu Securities | | Commercial papers | | | — | | | | — | | | | 21,000 | | | | — | | | | 21,200 | | | | — | | | | — | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions of Korean won and thousands of foreign currencies) | | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | Financial institution | | Type | | Annual interest rates | | | Foreign Currency | | | Korean won | | | Foreign Currency | | | Korean won | | | Foreign currency | | | Korean won | | KTB Investment & Securities | | Commercial papers | | | 3.91~3.95 | % | | | — | | | | — | | | | — | | | | 40,000 | | | | — | | | | 20,000 | | Hanyang Securities | | Commercial papers | | | 3.95 | % | | | — | | | | — | | | | — | | | | 25,000 | | | | — | | | | 10,000 | | HI Investment & Securities | | Commercial papers | | | — | | | | — | | | | — | | | | — | | | | 20,000 | | | | — | | | | — | | Standard Chartered Securities | | Commercial papers | | | 3.90 | % | | | — | | | | — | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | Eugene Investment & Securities | | Commercial papers | | | — | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | | | — | | | | — | | Kumho Investment Bank | | Commercial papers | | | — | | | | — | | | | 30,000 | | | | — | | | | 10,000 | | | | — | | | | — | | Tong Yang Securities | | Commercial papers | | | — | | | | — | | | | 17,000 | | | | — | | | | 40,000 | | | | — | | | | — | | SK Securities | | Commercial papers | | | 3.99~4.00 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 40,000 | | Shinyoung Securities | | Commercial papers | | | 3.76 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 10,000 | | Korea Development Bank | | General loans | | | 16.50 | % | | | — | | | | — | | | | USD 3,995 | | | | 7,474 | | | | USD 3,973 | | | | 4,583 | | General loans | | | | | 5.10~5.51 | % | | | — | | | | 30,276 | | | | — | | | | 25,000 | | | | — | | | | 22,500 | | Hana Bank | | Usance(USD) 1 | | | LIBOR(3M) +1.70 | % | | | USD 4,202 | | | | 5,376 | | | | USD 1,525 | | | | 1,978 | | | | USD 2,442 | | | | 2,816 | | Usance(JPY) | | | | | — | | | | JPY 37,189 | | | | | JPY 17,314 | | | | | — | | | IBK Bank | | General loans | | | 4.33 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,342 | | Usance | | | | | — | | | | — | | | | 50 | | | | — | | | | — | | | | — | | | | — | | Korea Investment & Securities | | Commercial papers | | | — | | | | — | | | | 20,000 | | | | — | | | | — | | | | — | | | | — | | Shinhan Investment Corp | | Commercial papers | | | — | | | | — | | | | 20,000 | | | | — | | | | — | | | | — | | | | — | | Daewoo Securities | | Commercial papers | | | — | | | | — | | | | 20,000 | | | | — | | | | — | | | | — | | | | — | | Daegu Bank | | General loans | | | 5.55 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 10,000 | | Others | | Others | | | 8.00~8.50 | % | | | — | | | | 14,239 | | | | — | | | | — | | | | — | | | | 170 | | Factoring Receivables | | Factoring Receivables | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 69,252 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | (Won) | 368,806 | | | | | | | (Won) | 478,324 | | | | | | | (Won) | 392,723 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 | Libor (3M)KO-RIBOR(3M), CD(91D), Industrial financial debentures(1Y) and CD (91D)Financial Bond(6M, AAA) are approximately 0.58%2.66%, 2.66 %, 2.75%, and 3.52%,2.71 %, respectively, as of December 31, 2011. 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) | | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | Financial institution | | Type | | Annual interest rates | | | Foreign currency | | | Korean won | | | Foreign currency | | | Korean won | | | Foreign currency | | | Korean won | | Kookmin Bank | | Informatization promotion funds 1 | | | 3.80 | % | | | — | | | (Won) | 21,643 | | | | — | | | (Won) | 13,126 | | | | — | | | (Won) | 5,541 | | | | Capital Factoring | | | — | | | | — | | | | — | | | | — | | | | 1,498 | | | | — | | | | — | | | | Loans for operation | | | 5.96 | % | | | — | | | | 10,000 | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | | | General loans | | | 4.88~6.30 | % | | | — | | | | 40,000 | | | | — | | | | 20,000 | | | | — | | | | 30,000 | | | | Facility loans | | | 4.56~4.98 | % | | | — | | | | 2,250 | | | | — | | | | 10,000 | | | | — | | | | 60,000 | | | | Foreign Currency Loans | | | — | | | | USD 15,000 | | | | 17,514 | | | | USD 11,000 | | | | 12.527 | | | | — | | | | — | | | | Redeemable convertible preferred stock | | | 1.00 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 35,196 | | Shinhan Bank | | Informatization 1 | | | 3.80 | % | | | — | | | | 8,575 | | | | — | | | | 17,812 | | | | — | | | | 16,383 | | | | Loans for operation | | | 5.88~6.39 | % | | | — | | | | 7,000 | | | | — | | | | 14,000 | | | | — | | | | 14,000 | | | | General loans | | | 5.70%~6.80 | % | | | — | | | | — | | | | — | | | | 35,000 | | | | — | | | | 47,000 | | | | Mortgage loan | | | 4.00 | % | | | — | | | | 797 | | | | — | | | | 677 | | | | — | | | | 517 | | | | Facility loans 2 | | | 3.38%~ Financing bonds + 1.47 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 40,878 | | | | Commercial papers | | | — | | | | — | | | | 10,000 | | | | — | | | | — | | | | — | | | | — | | Export-Import Bank of Korea | | Inter-Korean Cooperation Fund 1 | | | 2.00 | % | | | — | | | | 6,415 | | | | — | | | | 6,415 | | | | — | | | | 6,415 | | Bank of Communications | | Facility loans | | | — | | | | USD 30,000 | | | | 35,028 | | | | USD 30,000 | | | | 34,167 | | | | — | | | | — | | Woori Bank | | General loans 2 | | | 5.98~ CD(91D) + 1.39 | % | | | — | | | | 15,815 | | | | — | | | | 45,000 | | | | — | | | | 45,000 | | | | Facility loans | | | — | | | | — | | | | — | | | | — | | | | 164 | | | | — | | | | — | | Hana Bank | | General loans | | | — | | | | — | | | | 10,000 | | | | — | | | | — | | | | — | | | | — | | Kwangju Bank | | General loans | | | — | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | | | — | | | | — | | National Federation of Fisheries Cooperatives | | General loans | | | — | | | | — | | | | 10,000 | | | | — | | | | 10,000 | | | | — | | | | — | | NH Bank | | Loans for operation | | | — | | | | — | | | | 15,000 | | | | — | | | | — | | | | — | | | | — | | | | General loans | | | 5.80~6.00 | % | | | — | | | | 28,800 | | | | — | | | | 50,000 | | | | — | | | | 50,000 | | | | Facility loans | | | 4.68 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 50,000 | | Standard Chartered Securities | | Commercial papers | | | — | | | | — | | | | — | | | | — | | | | 10,000 | | | | — | | | | — | | Korea Development Bank | | Informatization | | | — | | | | — | | | | 1,300 | | | | — | | | | — | | | | — | | | | — | | | | General loans | | | — | | | | USD 40,000 | | | | 46,704 | | | | USD 83 | | | | 93 | | | | — | | | | — | | | | Facility loans | | | 4.49 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 20,000 | | IBK Bank | | Facility loans | | | 4.33 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,000 | | Korea Development Bank | | Capital Factoring | | | 1.90 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,577 | | Samsung Securities | | Commercial papers | | | 4.02 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 10,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions of Korean won and thousands of foreign currencies) | | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | Financial institution | | Type | | Annual interest rates | | | Foreign currency | | | Korean won | | | Foreign currency | | | Korean won | | | Foreign currency | | | Korean won | | Dongbu Securities | | Commercial papers | | | 4.12 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 20,000 | | SK Securities | | Commercial papers | | | 4.12 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 10,000 | | KTB Investment & Securities | | Commercial papers | | | 4.02 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 20,000 | | Hanyang securities | | Commercial papers | | | 4.02 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 10,000 | | RCPS(Redeemable Convertible Preferred Stock) | | Loans for operation | | | — | | | | — | | | | — | | | | — | | | | 30,000 | | | | — | | | | — | | Shinhan Investment Corp. | | Commercial papers | | | — | | | | — | | | | 20,000 | | | | — | | | | — | | | | — | | | | — | | Korea Credit Guarantee Fund | | Loans for operation | | | — | | | | — | | | | 2,893 | | | | — | | | | — | | | | — | | | | — | | Others | | General loans | | | — | | | | — | | | | 1,537 | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | (Won) | 321,271 | | | | | | | (Won) | 330,479 | | | | | | | (Won) | 505,507 | | Less: Current portion | | | | | | | | | | | | | (140,931 | ) | | | | | | | (138,031 | ) | | | | | | | (63,256 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net | | | | | | | | | | | | (Won) | 180,340 | | | | | | | (Won) | 192,448 | | | | | | | (Won) | 442,251 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | (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. |
2 | The CD (91D) and financial bonds(AAA) interestInterest rates areof LIBOR (3M) is approximately 3.52% and 3.59%, respectively,0.247% as of December 31, 20112013. |
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 borrowings including the portion of current liabilities as of December 31, 2011,2013, 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 | | | 2012.01.01~ 2012.12.31 | | (Won) | 1,300,000 | | | (Won) | 357,523 | | | (Won) | 1,657,523 | | | (Won) | 441,418 | | | (Won) | 14,562 | | | (Won) | 455,980 | | | (Won) | 2,113,503 | | 2013.01.01~ 2013.12.31 | | | 1,340,950 | | | | 981,126 | | | | 2,322,076 | | | | 201,660 | | | | — | | | | 201,660 | | | | 2,523,736 | | 2014.01.01~ 2014.12.31 | | | 1,162,000 | | | | 807,310 | | | | 1,969,310 | | | | 107,051 | | | | — | | | | 107,051 | | | | 2,076,361 | | 2015.01.01~ 2015.12.31 | | | 560,000 | | | | 461,320 | | | | 1,021,320 | | | | 92,648 | | | | — | | | | 92,648 | | | | 1,113,968 | | Thereafter | | | 2,817,548 | | | | 345,990 | | | | 3,163,538 | | | | 40,891 | | | | — | | | | 40,891 | | | | 3,204,429 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (Won) | 7,180,498 | | | (Won) | 2,953,269 | | | (Won) | 10,133,767 | | | (Won) | 883,668 | | | (Won) | 14,562 | | | (Won) | 898,230 | | | (Won) | 11,031,997 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 Company’sGroup’s bonds payable and borrowings as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | (in millions of Korean won) Type | | Book Value | | | Fair Value | | | Book Value | | | Fair Value | | | Book Value | | | Fair Value | | Bonds payable | | (Won) | 8,876,623 | | | (Won) | 9,092,948 | | | (Won) | 8,573,561 | | | (Won) | 8,876,175 | | | (Won) | 10,100,322 | | | (Won) | 10,253,221 | | Short-term borrowings | | | 368,806 | | | | 368,806 | | | | 478,324 | | | | 478,324 | | | | 392,723 | | | | 392,723 | | Long-term borrowings (Including current borrowings) | | | 321,271 | | | | 293,625 | | | | 330,479 | | | | 409,871 | | | | 505,507 | | | | 481,086 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 9,566,700 | | | (Won) | 9,755,379 | | | (Won) | 9,382,364 | | | (Won) | 9,764,370 | | | (Won) | 10,998,552 | | | (Won) | 11,127,030 | | | | | | | | | | | | | | | | | | | | | | | | | | |
The fair value of short-term borrowings equals its book value because the discounting effect is immaterial.
| | | | | | | | | | | | | | | | | | | 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 4.64%4.53% as of December 31, 2011 (2010.12.31: 4.83%, 2010.1.1: 5.12%2013 (2012: 4.56%). 18.17. Provisions
The changes in provisions during the years ended December 31, 20102012 and 2011,2013, are as follows: | | | 2010 | | | 2012 | | (in millions of Korean won) | | Litigation 1 | | Asset retirement obligation 2 | | Others 3 | | Total | | | Litigation | | Asset retirement obligation | | Other 1 | | Total | | Balance at 1.1.2010 | | (Won) | 17,011 | | | (Won) | 102,863 | | | (Won) | 12,031 | | | (Won) | 131,905 | | | Increase | | | 9,630 | | | | 20,552 | | | | 43,048 | | | | 73,230 | | | Balance at 2012.1.1 | | | ₩ | 28,915 | | | ₩ | 108,651 | | | ₩ | 128,085 | | | ₩ | 265,651 | | Increase(Transfer) | | | | 9,610 | | | | 12,533 | | | | 171,816 | | | | 193,959 | | Usage | | | (2,117 | ) | | | (6,977 | ) | | | (18,651 | ) | | | (27,745 | ) | | | (492 | ) | | | (2,470 | ) | | | (83,753 | ) | | | (86,715 | ) | Reversal | | | (964 | ) | | | (4,925 | ) | | | (7,487 | ) | | | (13,376 | ) | | | (747 | ) | | | (9,124 | ) | | | (7,501 | ) | | | (17,372 | ) | Others | | | — | | | | (2,114 | ) | | | 6,977 | | | | 4,863 | | | Changes in scope of consolidation | | | | — | | | | 8 | | | | — | | | | 8 | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at 12.31.2010 | | (Won) | 23,560 | | | (Won) | 109,399 | | | (Won) | 35,918 | | | (Won) | 168,877 | | | Balance at 2012.12.31 | | | ₩ | 37,286 | | | ₩ | 109,598 | | | ₩ | 208,647 | | | ₩ | 355,531 | | | | | | | | | | | | | | | | | | | | | | | | | | | Current portion | | | 23,560 | | | | — | | | | 34,917 | | | | 58,477 | | | | 33,678 | | | | 54 | | | | 171,859 | | | | 205,591 | | Non-current portion | | | — | | | | 109,399 | | | | 1,001 | | | | 110,400 | | | | 3,608 | | | | 109,544 | | | | 36,788 | | | | 149,940 | |
| | | | | | | | | | | | | | | | | | | 2011 | | (in millions of Korean won) | | Litigation 1 | | | Asset retirement obligation 2 | | | Others 3 | | | Total | | Balance at 1.1.2011 | | (Won) | 23,560 | | | (Won) | 109,399 | | | (Won) | 35,918 | | | (Won) | 168,877 | | Increase | | | 5,377 | | | | 5,444 | | | | 104,940 | | | | 115,761 | | Usage | | | (2,499 | ) | | | (2,962 | ) | | | (11,822 | ) | | | (17,283 | ) | Reversal | | | (936 | ) | | | (3,285 | ) | | | (1,128 | ) | | | (5,349 | ) | Changes in scope of consolidation | | | 3,413 | | | | — | | | | — | | | | 3,413 | | Others | | | — | | | | 55 | | | | 76 | | | | 131 | | | | | | | | | | | | | | | | | | | Balance at 12.31.2011 | | (Won) | 28,915 | | | (Won) | 108,651 | | | (Won) | 127,984 | | | (Won) | 265,550 | | | | | | | | | | | | | | | | | | | Current portion | | | 25,502 | | | | 19 | | | | 97,064 | | | | 122,585 | | Non-current portion | | | 3,413 | | | | 108,632 | | | | 30,920 | | | | 142,965 | |
| | | | | | | | | | | | | | | | | | | 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 amounts represent a provision for certain legal claims brought againstCompany has commitments to pay the Company by various parties (Note 20). |
2 | The Company leased the buildings and structures to establish its communication equipment. A provision is recognized for the present value of costs to be incurred for the restoration of the leased properties. |
3 | Others include the provision relatedsubsidies to the termination of 2G services, provision arising from the non-cancellable service contract and others. The Company recorded the provisioncustomers relating to the discontinued 2G services in 2011.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. |
19. Retirement18. Net Defined Benefit ObligationLiabilities
The amounts recognized in the statements of financial position are determined as follows: | | | | | | | | | | | | | (in millions of Korean won) | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | Present value of defined benefit obligations | | (Won) | 1,235,683 | | | (Won) | 1,129,912 | | | (Won) | 1,462,720 | | Fair value of plan assets | | | (1,149,657 | ) | | | (865,934 | ) | | | (1,037,008 | ) | | | | | | | | | | | | | | Liabilities | | (Won) | 86,026 | | | (Won) | 263,978 | | | (Won) | 425,712 | | | | | | | | | | | | | | |
| | | | | | | | | (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, 20102012 and 2011,2013, are as follows: | (in millions of Korean won) | | 2010 | | 2011 | | | 2012 | | 2013 | | Beginning | | (Won) | 1,235,683 | | | (Won) | 1,129,912 | | | ₩ | 1,474,481 | | | ₩ | 1,724,246 | | Current service cost | | | 145,119 | | | | 174,089 | | | | 206,389 | | | | 210,466 | | Interest expense | | | 68,140 | | | | 53,257 | | | | 57,156 | | | | 57,891 | | Past service cost | | | (38,416 | ) | | | 26 | | | Benefit paid | | | (53,230 | ) | | | (81,284 | ) | | | (78,625 | ) | | | (97,956 | ) | Costs on settlements | | | 29,966 | | | | — | | | Changes due to settlements of plan | | | (429,751 | ) | | | — | | | Actuarial losses | | | 174,499 | | | | 144,856 | | | 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 | | | (2,098 | ) | | | 41,864 | | | | 10,613 | | | | 303 | | | | | | | | | | | | | | | Ending | | (Won) | 1,129,912 | | | (Won) | 1,462,720 | | | ₩ | 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, 20102012 and 2011,2013, are as follows: | (in millions of Korean won) | | 2010 | | 2011 | | | 2012 | | 2013 | | Beginning | | (Won) | 1,149,657 | | | (Won) | 865,934 | | | ₩ | 1,048,436 | | | ₩ | 1,175,003 | | Expected return on plan assets | | | 64,047 | | | | 41,146 | | | 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 | | | 9,772 | | | | 131,421 | | | | 214,981 | | | | 26,161 | | Plan participants’ contributions | | | 689 | | | | 18,571 | | | Benefits paid | | | (31,927 | ) | | | (44,396 | ) | | Changes due to settlements of plan | | | (313,872 | ) | | | — | | | Changes in scope of Consolidation | | | (2,217 | ) | | | 22,190 | | | Actuarial gains (losses) | | | (10,215 | ) | | | 2,142 | | | Changes in scope of consolidation | | | | 6,300 | | | | (144 | ) | | | | | | | | | | | | | | Ending | | (Won) | 865,934 | | | (Won) | 1,037,008 | | | ₩ | 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, 20102011, 2012 and 2011,2013, are as follows: | (in millions of Korean won) | | 2010 | | 2011 | | | 2011 | | 2012 | | 2013 | | Current service cost | | (Won) | 145,119 | | | (Won) | 174,089 | | | ₩ | 174,402 | | | ₩ | 206,389 | | | ₩ | 210,466 | | Interest cost | | | 68,140 | | | | 53,257 | | | | 53,320 | | | | 57,156 | | | | 57,891 | | Expected return on plan assets | | | (64,047 | ) | | | (41,146 | ) | | Past service cost | | | (38,416 | ) | | | 26 | | | Costs on settlements | | | 29,966 | | | | — | | | Interest income | | | | (40,018 | ) | | | (40,787 | ) | | | (42,964 | ) | Costs(gains) on settlements | | | | — | | | | (3,630 | ) | | | 2,171 | | Transfer out | | | (8,609 | ) | | | (4,054 | ) | | | (4,405 | ) | | | (8,763 | ) | | | (10,502 | ) | | | | | | | | | | | | | | | | | Total expenses | | (Won) | 132,153 | | | (Won) | 182,172 | | | ₩ | 183,299 | | | ₩ | 210,365 | | | ₩ | 217,062 | | | | | | | | | | | | | | | | | |
Principal actuarial assumptions used are as follows: | | | 1.1.2010 | | 12.31.2010 | | 12.31.2011 | | 2011.12.31 | | | 2012.12.31 | | | 2013.12.31 | | Discount rate | | 5.07% ~ 5.90% | | 4.00% ~ 5.70% | | 4.00% ~ 4.80% | | | 4.00% ~ 4.80% | | | | 3.13% ~ 4.10% | | | | 3.10% ~ 4.05% | | Expected rate of return | | 3.00% ~ 6.60% | | 3.30% ~ 5.80% | | 4.10% ~ 5.80% | | Future salary increase | | 1.50% ~ 6.00% | | 2.00% ~ 6.90% | | 2.00% ~ 9.30% | | | 2.00% ~ 9.30% | | | | 3.00% ~ 8.10% | | | | 2.10% ~ 8.10% | |
DetailsAlso, 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 January 1, 2010 and December 31, 2010 and 2011, are2013, is as follows: | | | | | | | | | | | | | (in millions of Korean won) | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | Pension deposit | | (Won) | — | | | (Won) | — | | | (Won) | 1,009,754 | | Severance insurance deposits | | | 1,149,657 | | | | 865,934 | | | | 27,254 | | | | | | | | | | | | | | | Total | | (Won) | 1,149,657 | | | (Won) | 865,934 | | | (Won) | 1,037,008 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | (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. 19. Defined Contribution Plan Actual return onRecognized expense related to the defined contribution plan assets for the yearsyear ended December 31, 2010 and 2011, are as follows:2013, is₩23,857 million (2012:₩1,703 million, 2011:₩230 million).
| | | | | | | | | (in millions of Korean won) | | 12.31.2010 | | | 12.31.2011 | | Actual return on plan assets | | (Won) | 53,832 | | | (Won) | 43,288 | |
Details of adjustments for the differences between initial assumptions and actual figures as of January 1, 2010 and December 31, 2010 and 2011, are as follows:
| | | | | | | | | | | | | (in millions of Korean won) | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | Present value of the defined benefit obligations | | (Won) | 1,235,683 | | | (Won) | 1,129,912 | | | (Won) | 1,462,720 | | Fair value of plan assets | | | (1,149,657 | ) | | | (865,934 | ) | | | (1,037,008 | ) | Deficit in the plan | | | 86,026 | | | | 263,978 | | | | 425,712 | | Experience adjustments on defined benefit liabilities | | | — | | | | (60,691 | ) | | | (2,900 | ) | Experience adjustments on plan assets | | | — | | | | (10,215 | ) | | | 2,142 | |
20. Commitments and Contingencies As of December 31, 2011,2013, 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 | | | | 1,659,000 | | | | — | | Commercial papers factoring | | Korea Exchange Bank | | | KRW | | | | 277,000 | | | | — | | Loan on information and communications fund | | Shinhan Bank and others | | | KRW | | | | 39,138 | | | | 21,924 | | Collateralized loan on accounts receivable-trade | | Kookmin Bank and others | | | KRW | | | | 618,000 | | | | 91,384 | | Collection for foreign currency denominated checks | | Korea Exchange Bank | | | USD | | | | 1,000 | | | | — | | Plus electronic bill | | Industrial Bank of Korea | | | KRW | | | | 50,000 | | | | — | | Comprehensive credit line | | Korea Exchange Bank | | | KRW | | | | 5,000 | | | | — | | Others | | Kookmin Bank and others | | | KRW | | | | 130,000 | | | | 2,000 | | | | | | | USD | | | | 83,500 | | | | 14,439 | | | | | | | | | | | | | | | | | Total | | | | | KRW | | | | 2,778,138 | | | | 115,308 | | | | | | | USD | | | | 84,500 | | | | 14,439 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | (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, 2011,2013, guarantees received from financial institutions are as follows: | | | | | | | | | | | | | | | (in millions of Korean won and thousands of foreign currencies) | | Financial institution | | Currency | | | Limit | | | Used amount | | Performance guarantee for construction | | Seoul Guarantee Insurance | | | KRW | | | | 36,498 | | | | — | | Performance guarantee | | Export-Import Bank of Korea | | | USD | | | | 3,835 | | | | 3,835 | | | | | | | SAR | 1 | | | 735 | | | | 735 | | | | | | | DZD | 2 | | | 25,863 | | | | 25,863 | | | | Seoul Guarantee Insurance | | | KRW | | | | 12,861 | | | | — | | | | Korea Software Financial Cooperative | | | KRW | | | | 184,094 | | | | 184,094 | | Bid guarantee | | Korea Software Financial Cooperative | | | KRW | | | | 10,202 | | | | 10,202 | | Advances received guarantee | | Export-Import Bank of Korea | | | USD | | | | 2,925 | | | | 2,925 | | | | | | | DZD | | | | 77,589 | | | | 77,589 | | Prepayment guarantee | | Korea Software Financial Cooperative | | | KRW | | | | 116,895 | | | | 116,895 | | Warranties guarantee | | Export-Import Bank of Korea | | | USD | | | | 971 | | | | 971 | | | | Korea Software Financial Cooperative | | | KRW | | | | 22,260 | | | | 22,260 | | Currency guarantee | | Korea exchange Bank | | | KRW | | | | 23,600 | | | | 1,930 | | | | Woori Bank | | | KRW | | | | 50,000 | | | | 3,887 | | | | Shinhan Bank | | | KRW | | | | 44,550 | | | | 26,100 | | | | Korea Software Financial Cooperative | | | KRW | | | | 5,770 | | | | 5,770 | | | | Export-Import Bank of Korea | | | KRW | | | | 8,369 | | | | — | | Foreign currency guarantee | | Kookmin Bank | | | USD | | | | 6,866 | | | | 4,039 | | | | Shinhan Bank | | | USD | | | | 9,877 | | | | 867 | | | | Korea exchange Bank | | | USD | | | | 45,000 | | | | 41,255 | | | | HSBC | | | USD | | | | 40,000 | | | | 40,000 | | Guarantee deposit | | Seoul Guarantee Insurance | | | KRW | | | | 31,013 | | | | — | | Guarantee for import letters of credit | | Korea Exchange Bank | | | USD | | | | 5,000 | | | | — | | | | | | | | | | | | | | | | | Total | | | | | KRW | | | | 546,112 | | | | 371,138 | | | | | | | USD | | | | 114,474 | | | | 93,892 | | | | | | | SAR | | | | 735 | | | | 735 | | | | | | | DZD | | | | 103,452 | | | | 103,452 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | (in millions of Korean won and thousands of foreign currencies) | | Financial institution | | Currency | | | Limit | | Performance guarantee | | | | | USD | | | | 975 | | | | | | 1 | DZD | 1 | | | 25,863 | | Warranty guarantee | | Export-Import Bank of Korea | | | USD | | | | 2,497 | | Guarantee for advances received | | | | | USD | | | | 2,925 | | | | | | Saudi Riyal. | 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 collateralscollateral that KT Capital Co.,Ltd., a subsidiary, of KT Corporation, is provided with by third parties as of December 31, 2011,2013, are as follows: | | | | | (In millions of Korean won) | | Details | | Amounts | Credits | | Movables, real-estate, financial collateral | | (Won)₩984,078858,444 |
As of December 31, 2011,2013, guarantees provided by the CompanyGroup for a third party, are as follows: | | | | | | | (In millions of Korean won)
| | Creditor
| | Limit | | Eun-haeng 1-area urban environment Improving project union
| | Kookmin Bank | | (Won) | 2,600 | | Yeongdeungpo apartment-type factory People who have the right of ownership
| | Woori Bank | | | 13,000 | | Samsung Engineering Co.and others
| | Seoul Guarantee Insurance | | | 911 | | Other Project Financing 1
| | Kookmin Bank and others | | | 41,769 | |
| | | | | | | | | | | | | | | (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 | As of December 31, 2011,2013, guarantee liabilities and loss of(Won)₩ 2,839million (2010.12.31:(Won) 2,919 million)10,538 million in relation to guarantees for PFProject Financing loan are recorded as ‘other financial liabilities’ and ‘finance costs’ in the statementfinancial statements. NH Investment & Securities requested early repayment of financial position.₩ 45,372 million, representing the principal and interest related to the 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 of₩49,106 million, representing the principal and interest, on March 12, 2014 and therefore filed for court receivership. (Note 41) |
As of December 31, 2011,2013, 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 collateral 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. The Company is jointly and severally obligated with KT Sat Co., Ltd. to pay KT Sat Co., Ltd.’s outstanding liabilities as of December 4, 2012, spin-off date. As of December 31, 2013, 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 142279 lawsuits, with an aggregate amount of(Won)₩ 37,065million.159,434 million. As of December 31, 2011,2013, litigation provisions of(Won)₩ 28,91539,115 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 these casesthis case cannot yet be predicted. According to the financial and other covenants included in certain bonds and borrowings, the CompanyGroup is required to maintain certain financial ratios such as debt/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 collateralscollateral and disposal of certain assets. The bond holders may request early repayment upon non-compliance of such covenants. As of December 31, 2011,2013, the CompanyGroup 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 The Company’sGroup’s non-cancellable lease arrangements are as follows: The CompanyGroup as the Lessee Finance Lease Details of finance lease assets as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | (in millions of Korean won) | | 1.1.2010 | | 12.31.2010 | | 12.31.2011 | | | 2012 | | 2013 | | Acquisition costs | | (Won) | 35,233 | | | (Won) | 137,182 | | | (Won) | 166,181 | | | ₩ | 55,477 | | | ₩ | 99,702 | | Accumulated depreciation | | | (30,382 | ) | | | (83,348 | ) | | | (67,250 | ) | | | (15,282 | ) | | | (27,980 | ) | | | | | | | | | | | | | | | | | Net balance | | (Won) | 4,851 | | | (Won) | 53,834 | | | | 98,931 | | | ₩ | 40,195 | | | ₩ | 71,722 | | | | | | | | | | | | | | | | | |
The related depreciation amounted to(Won) 26,024 million (2010:(Won) 28,319 million) for the year endedAs of December 31, 2011.2013, the Group recognizes financial lease assets as other property and equipment.
Details of future minimum lease payments as of January 1, 2010 and December 31, 20102012 and 2011,2013, under finance lease contracts are summarized below: | (in millions of Korean won) | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | | 2012 | | 2013 | | Type | | Minimum lease payments | | | Present Values | | | Minimum lease payments | | | Present Values | | | Minimum lease payments | | | Present Values | | | Total amount of minimum lease payments | | | | | | Within one year | | (Won) | 6,519 | | | (Won) | 6,224 | | | (Won) | 46,144 | | | (Won) | 33,089 | | | (Won) | 66,635 | | | (Won) | 46,155 | | | ₩ | 15,826 | | | ₩ | 22,498 | | From one year to five years | | | 1,348 | | | | 1,329 | | | | 74,118 | | | | 60,767 | | | | 116,627 | | | | 90,042 | | | | 29,474 | | | | 52,877 | | Thereafter | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 7,867 | | | (Won) | 7,553 | | | (Won) | 120,262 | | | (Won) | 93,856 | | | (Won) | 183,262 | | | (Won) | 136,197 | | | ₩ | 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 January 1, 2010 and December 31, 20102012 and 2011,2013, under operating lease contracts are summarized below: | (in millions of Korean won) | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | | 2012 | | | 2013 | | Within one year | | (Won) | 19,923 | | | (Won) | 23,971 | | | (Won) | 52,053 | | | ₩ | 67,571 | | | ₩ | 78,245 | | From one year to five years | | | 7,734 | | | | 17,915 | | | | 158,560 | | | | 279,906 | | | | 308,292 | | Thereafter | | | — | | | | — | | | | 217,115 | | | | 312,778 | | | | 246,632 | | | | | | | | | | | | | | | | | | Total | | (Won) | 27,657 | | | (Won) | 41,886 | | | (Won) | 427,728 | | | ₩ | 660,255 | | | ₩ | 633,169 | | | | | | | | | | | | | | | | | |
Operating lease expenses incurred for the years ended December 31, 20102012 and 2011,2013, amounted to(Won)₩ 23,68041,999 million,₩61,201 million and(Won)₩ 41,49977,657 million respectively. The CompanyGroup as the Lessor Finance Lease Details of finance lease assets as of January 1, 2010, isDecember 31, 2012, are as follows: | (in millions of Korean won) | | Minimum lease payments | | | Unguaranteed residual value | | | Gross investment in the lease | | | Unaccrued interest | | Net investment in the lease | | | Minimum lease payments | | | Gross investment in the lease | | | Unaccrued interest | | Net investment in the lease | | Within one year | | (Won) | 228,346 | | | (Won) | 114 | | | (Won) | 228,460 | | | (Won) | (25,466 | ) | | (Won) | 202,994 | | | ₩ | 382,821 | | | ₩ | 382,821 | | | ₩ | (35,663 | ) | | ₩ | 347,158 | | From one year to five years | | | 358,948 | | | | 5,802 | | | | 364,750 | | | | (39,774 | ) | | | 324,976 | | | | 550,919 | | | | 550,919 | | | | (25,063 | ) | | | 525,856 | | Thereafter | | | 8,667 | | | | — | | | | 8,667 | | | | (413 | ) | | | 8,254 | | | | 11,848 | | | | 11,848 | | | | (1,273 | ) | | | 10,575 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 595,961 | | | (Won) | 5,916 | | | (Won) | 601,877 | | | (Won) | (65,653 | ) | | (Won) | 536,224 | | | ₩ | 945,588 | | | ₩ | 945,588 | | | ₩ | (61,999 | ) | | ₩ | 883,589 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Details of finance lease assets as of December 31, 2010,2013, are as follows: | | | | | | | | | | | | | | | | | | | | | (in millions of Korean won) | | Minimum lease payments | | | Unguaranteed residual value | | | Gross investment in the lease | | | Unaccrued interest | | | Net investment in the lease | | Within one year | | (Won) | 240,988 | | | (Won) | — | | | (Won) | 240,988 | | | (Won) | (41,293 | ) | | (Won) | 199,695 | | From one year to five years | | | 480,037 | | | | — | | | | 480,037 | | | | (74,407 | ) | | | 405,630 | | Thereafter | | | 10,248 | | | | — | | | | 10,248 | | | | (1,577 | ) | | | 8,671 | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 731,273 | | | (Won) | — | | | (Won) | 731,273 | | | (Won) | (117,277 | ) | | (Won) | 613,996 | | | | | | | | | | | | | | | | | | | | | | |
Details of finance lease assets as of December 31, 2011, are as follows:
| (in millions of Korean won) | | Minimum lease payments | | | Unguaranteed residual value | | | Gross investment in the lease | | | Unaccrued interest | | Net investment in the lease | | | Minimum lease payments | | | Gross investment in the lease | | | Unaccrued interest | | Net investment in the lease | | Within one year | | (Won) | 290,511 | | | (Won) | — | | | (Won) | 290,511 | | | (Won) | (39,066 | ) | | (Won) | 251,445 | | | ₩ | 337,804 | | | ₩ | 337,804 | | | ₩ | (38,779 | ) | | ₩ | 299,025 | | From one year to five years | | | 514,243 | | | | — | | | | 514,243 | | | | (42,951 | ) | | | 471,292 | | | | 454,542 | | | | 454,542 | | | | (32,922 | ) | | | 421,620 | | Thereafter | | | 25,960 | | | | — | | | | 25,960 | | | | (3,171 | ) | | | 22,789 | | | | 10,395 | | | | 10,395 | | | | (913 | ) | | | 9,482 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 830,714 | | | (Won) | — | | | (Won) | 830,714 | | | (Won) | (85,188 | ) | | (Won) | 745,526 | | | ₩ | 802,741 | | | ₩ | 802,741 | | | ₩ | (72,614 | ) | | ₩ | 730,127 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Details of bad debtsdebt allowance for finance lease receivables as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | (in millions of Korean won) | | 1.1.2010 | | 12.31.2010 | | 12.31.2011 | | | 2012 | | | 2013 | | Within one year | | (Won) | (4,007 | ) | | (Won) | (4,924 | ) | | (Won) | (2,742 | ) | | ₩ | 7,312 | | | ₩ | 4,817 | | Over five years | | | (1,306 | ) | | | — | | | | — | | | From one year to five years | | | | 14,414 | | | | 15,245 | | Thereafter | | | (8,146 | ) | | | (11,733 | ) | | | (6,124 | ) | | | 208 | | | | 128 | | | | | | | | | | | | | | | | | | Total | | (Won) | (13,459 | ) | | (Won) | (16,657 | ) | | (Won) | (8,866 | ) | | ₩ | 21,934 | | | ₩ | 20,190 | | | | | | | | | | | | | | | | | |
Operating Lease Details of operating lease assets as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | | | | | | | | | | | | | (in millions of Korean won) | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | Acquisition costs | | (Won) | 228,286 | | | (Won) | 22,761 | | | (Won) | 24,866 | | Accumulated depreciation | | | (116,068 | ) | | | (11,075 | ) | | | (6,614 | ) | | | | | | | | | | | | | | Net balance | | (Won) | 112,218 | | | (Won) | 11,686 | | | (Won) | 18,252 | | | | | | | | | | | | | | |
| | | | | | | | | (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 | | | | | | | | | | |
Details of future minimum lease payments as of January 1, 2010 and December 31, 20102011, 2012 and 2011,2013, under operating lease contracts are summarized below: | (in millions of Korean won) | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | | 2012 | | | 2013 | | Within one year | | (Won) | 7,339 | | | (Won) | 5,226 | | | (Won) | 7,381 | | | ₩ | 364,404 | | | ₩ | 203,014 | | From one year to five years | | | 3,615 | | | | 2,203 | | | | 7,153 | | | | 347,364 | | | | 687,162 | | | | | | | | | | | | | | | | | | Total | | (Won) | 10,954 | | | (Won) | 7,429 | | | (Won) | 14,534 | | | ₩ | 711,768 | | | ₩ | 890,176 | | | | | | | | | | | | | | | | | |
22. Capital Stock As of January 1, 2010 and December 31, 20102012 and 2011,2013, the Company’s number of authorized shares is one billion. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | | | Number of issued 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) | | | 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 | | | | 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 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. |
23. Retained Earnings Details of retained earnings as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | (in millions of Korean won) | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | | 2012 | | | 2013 | | Legal reserve1 | | (Won) | 780,499 | | | (Won) | 780,499 | | | (Won) | 782,249 | | | ₩ | 782,249 | | | ₩ | 782,249 | | Voluntary reserves | | | 4,758,012 | | | | 4,651,362 | | | | 4,911,362 | | | Voluntary reserves 2 | | | | 4,911,362 | | | | 4,911,362 | | Unappropriated retained earnings | | | 4,154,526 | | | | 4,034,307 | | | | 4,526,022 | | | | 4,952,772 | | | | 4,325,778 | | | | | | | | | | | | | | | | | | Total | | (Won) | 9,693,037 | | | (Won) | 9,466,168 | | | (Won) | 10,219,633 | | | ₩ | 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 the Company’sa 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 January 1, 2010 and December 31, 20102012 and 2011,2013, the Company’sdetails 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) | | 1.1.2010 | | 12.31.2010 | | 12.31.2011 | | | 2012 | | 2013 | | Treasury stock | | (Won) | (956,159 | ) | | (Won) | (955,083 | ) | | (Won) | (953,608 | ) | | ₩ | (931,132 | ) | | ₩ | (922,175 | ) | Loss on disposal of treasury stock | | | (890,650 | ) | | | (295 | ) | | | — | | | Gain(loss) on disposal of treasury stock1 | | | | (6,797 | ) | | | (2,170 | ) | Share-based payments | | | 3,619 | | | | 7,669 | | | | 7,455 | | | | 3,912 | | | | (9,609 | ) | Others 1 | | | (310,957 | ) | | | (310,584 | ) | | | (551,136 | ) | | Others2 | | | | (409,269 | ) | | | (386,989 | ) | | | | | | | | | | | | | | | | | Total | | (Won) | (2,154,147 | ) | | (Won) | (1,258,293 | ) | | (Won) | (1,497,289 | ) | | ₩ | (1,343,286 | ) | | ₩ | (1,320,943 | ) | | | | | | | | | | | | | | | | |
1 | 1The tax effect directly reflected in equity is₩693 million (2012:₩2,170 million) as of December 31, 2013. |
Gain (loss)2
| Profit and loss occurred from transactions with non-controlling shareholdersinterest and changesinvestment difference occurred from change in interest inproportion of subsidiaries are included. |
As of January 1, 2010 and December 31, 20102012 and 2011,2013, the details of treasury stock are as follows: | | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | | 2012 | | | 2013 | | Number of shares | | | 17,915,340 | | | | 17,895,964 | | | | 17,897,147 | | | | 17,476,002 | | | | 17,308,160 | | Amounts(In millions of Korean won) | | (Won) | 965,159 | | | (Won) | 955,083 | | | (Won) | 953,608 | | | ₩ | 931,132 | | | ₩ | 922,175 | |
Treasury stock is expected to be used for theas stock compensation for the Company’s directors and employees and other purposes. 25. Share-Based Payments The controlling 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, 2011, in accordance with the stock option plan approved by its board of directors, details of which are as follows:
| | | | | | | 4th grant | | KTF-4th1 | Grant date | | 2005.2.4 | | 2005.3.4 | Grantee | | Former executives | | Executives and former outside directors | Number of basic allocated shares upon grant | | 50,800 shares | | 92,637 shares | Number of additional shares related to business performance upon grant | | 20,000 shares | | — | Number of shares expected to be exercised upon grant | | 60,792 shares | | 92,637 shares | Number of settled or forfeited shares | | 10,800 shares | | 46,888 shares | Number of expired shares as of December 31, 2011 | | — | | — | Number of basic allocated shares as of December 31, 2011 | | 40,000 shares | | 45,749 shares | Number of additional shares related to business performance as of December 31, 2011 | | 3,153 shares | | — | Number of shares expected to be exercised | | 43,153 shares | | 45,749 shares | Fair value per share (in Korean won) | | (Won)12,322 | | (Won)4,328 | Total compensation cost (in millions of Korean won) | | (Won) 531million | | (Won) 343 million | Exercise price per share (in Korean won) | | (Won)54,600 | | (Won)42,684 | Exercise period | | 2007.2.5~2012.2.4 | | 2007.3.5~2012.3.4 | Valuation method | | Fair value method | | Fair value method |
1 | The stock options granted to the directors, officers or employees of KTF prior to the merger were converted into stock options on June 1, 2009, granting the rights to purchase the stock of KT based on the merger ratio. |
Upon exercise, the controlling 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 changes of the number of stock options and a weighted-average exercise prices, as of December 31, 2010 and 2011 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | 2010 | | (in Korean won) | | Beginning | | | Expired | | | Exercised 1 | | | Ending | | | Number of shares exercisable | | 2nd grant | | | 3,000 | | | | 3,000 | | | | — | | | | — | | | | — | | 4th grant | | | 43,153 | | | | — | | | | — | | | | 43,153 | | | | 43,153 | | KTF-2nd | | | 20,570 | | | | 20,570 | | | | — | | | | — | | | | — | | KTF-3rd | | | 219,909 | | | | 35,811 | | | | 184,098 | | | | — | | | | — | | KTF-4th | | | 79,200 | | | | — | | | | 33,451 | | | | 45,749 | | | | 45,749 | | Total | | | 365,832 | | | | 59,381 | | | | 217,549 | | | | 88,902 | | | | 88,902 | | Weighted-average exercise prices | | | 44,754 | | | | 49,794 | | | | 41,861 | | | | 48,468 | | | | | | | | | | 2011 | | (in Korean won) | | Beginning | | | Expired | | | Exercised 1 | | | Ending | | | Number of shares exercisable | | 4th grant | | | 43,153 | | | | — | | | | — | | | | 43,153 | | | | 43,153 | | KTF-4th | | | 45,749 | | | | — | | | | — | | | | 45,749 | | | | 45,749 | | Total | | | 88,902 | | | | — | | | | — | | | | 88,902 | | | | 88,902 | | Weighted-average exercise prices | | | 48,468 | | | | — | | | | — | | | | 48,468 | | | | | |
1 | Weighted—average price of the common stock at the time of exercise. |
The controlling Company adopted the fair value method to measure compensation costs based on the various valuation assumptions and methods, which are as follows:
| | | | | | | | | | | 4th grant | | | KTF-4th 1 | | Risk-free interest rate | | | 4.43 | % | | | 2.78 | % | Expected duration(year) | | | 4.5 ~ 5.5 | | | | 1.5 | | Expected volatility | | | 33.41%~42.13 | % | | | 35.03 | % | Expected dividend yield ratio | | | 5.86 | % | | | 3.54 | % |
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 others on the date of the merger. |
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, 20112013, are as follows:
| | | | | 5th grant7th
| Grant date | | 4.29.20112013.04.26 | Grantee | | CEOs,CEO, inside directors, outside directors, executives | Estimated number of shares granted at grant date
| | 185,338 shares | Estimated number of shares granted as of December 31, 2011
| | 185,338 shares | Vesting conditions | | Service condition: 1 year Non-market performance condition: achievement of performance | Fair value per option (in Korean won) | | (Won)₩ 38,50035,750 | Total compensation costs (in Korean won) | | (Won)₩ 7,1364,082 million | Estimated exercise date (exercise date) | | During 20122014 | Valuation method | | Fair value method |
Changes ofThe changes in the number of other share-based payments,stock options and the weighted-average exercise price, as of December 31, 20102012 and 20112013, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | 2010 | | | | Beginning | | | Grant | | | Expired | | | Exercised 1 | | | Ending | | | Number of shares exercisable | | 2nd grant | | | 13,345 | | | | — | | | | 13,345 | | | | — | | | | — | | | | — | | 3rd grant | | | 29,055 | | | | — | | | | — | | | | 29,055 | | | | — | | | | — | | 4th grant | | | — | | | | 142,436 | | | | — | | | | — | | | | 142,436 | | | | — | | KTF-2nd | | | 11,790 | | | | — | | | | 11,790 | | | | — | | | | — | | | | — | | Total | | | 54,190 | | | | 142,436 | | | | 25,135 | | | | 29,055 | | | | 142,436 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2011 | | | | Beginning | | | Grant | | | Expired | | | Exercised 1 | | | Ending | | | Number of shares exercisable | | 4th grant | | | 142,436 | | | | — | | | | 11,924 | | | | 130,512 | | | | — | | | | — | | 5th grant | | | — | | | | 185,338 | | | | — | | | | — | | | | 185,338 | | | | — | | Total | | | 142,436 | | | | 185,338 | | | | 11,924 | | | | 130,512 | | | | 185,338 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | — | |
1 | The weighted average price of common stock at the time of exercise during 20112013 was(Won)₩38,500(2010:40,300 (2012:(Won)₩47,700)28,700). |
26. Operating Revenues Operating revenues for the years ended December 31, 20102011, 2012 and 2011,2013, are as follows: | (in millions of Korean won) | | 2010 | | | 2011 | | | 2011 | | | 2012 | | | 2013 4 | | Sales of services | | | ₩ | 16,941,430 | | | ₩ | 19,266,545 | | | ₩ | 19,663,014 | | Sale of goods | | (Won) | 3,899,128 | | | (Won) | 4,378,852 | | | | 4,369,375 | | | | 4,589,830 | | | | 4,065,659 | | Sales of services | | | 16,110,222 | | | | 16,831,158 | | | Others 1 | | | 316,925 | | | | 780,041 | | | Others 1, 2, 3 | | | | 777,025 | | | | 787,397 | | | | 329,208 | | | | | | | | | | | | | | | | | | Operating revenues | | (Won) | 20,326,275 | | | (Won) | 21,990,051 | | | ₩ | 22,087,830 | | | ₩ | 24,643,772 | | | ₩ | 24,057,881 | | | | | | | | | | | | | | | | | |
1 | In December 2011, the Company sold its certainDisposed land and buildings with carrying value ofbuilding (carrying amount:(Won)₩171,989 millionmillion) for a total purchase price of(Won)₩470,347 million.million K-REALTYCR-REIT 1 and leased them in 2011. The land and buildings were sold and the related properties leased back from K-Realty CR-REIT, which is an equity investee of the Company. As a result of this transaction, the Company recognized other operating revenuegain on disposal of property and equipment(Won)₩298,358 million and the lease contracts with K-REALTY CR-REIT are accounted for as an operating lease (Note 21).lease. |
2 | Disposed land and 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. |
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. |
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. |
27. Operating Expenses Operating expenses for the years ended December 31, 20102011, 2012 and 2011,2013, are as follows: | (in millions of Korean won) | | 2010 | | 2011 | | | 2011 | | | 2012 | | 2013 2 | | Salaries and wages | | (Won) | 2,623,098 | | | (Won) | 2,856,020 | | | ₩ | 2,854,361 | | | ₩ | 3,096,766 | | | ₩ | 3,288,942 | | Depreciation | | | 2,864,356 | | | | 2,646,503 | | | | 2,644,796 | | | | 2,894,400 | | | | 3,107,792 | | Amortization of intangible assets | | | 244,087 | | | | 312,979 | | | | 312,693 | | | | 379,678 | | | | 458,382 | | Commissions | | | 1,291,873 | | | | 1,449,446 | | | Commissions 1 | | | | 3,313,431 | | | | 3,655,057 | | | | 3,575,488 | | Interconnection charges | | | 1,225,581 | | | | 1,115,792 | | | | 1,115,792 | | | | 901,314 | | | | 885,479 | | Purchase of handsets | | | 3,984,934 | | | | 4,249,972 | | | International interconnection fee | | | | 333,659 | | | | 309,955 | | | | 265,467 | | Purchase of inventories | | | | 4,518,983 | | | | 4,851,295 | | | | 3,565,948 | | Changes of inventories | | | (54,761 | ) | | | (35,890 | ) | | | 35,673 | | | | (259,078 | ) | | | 320,971 | | Sales commission | | | 1,910,415 | | | | 1,866,331 | | | Service Cost | | | | 1,331,302 | | | | 1,264,218 | | | | 1,834,425 | | Utilities | | | 250,347 | | | | 262,930 | | | | 262,454 | | | | 271,277 | | | | 309,497 | | Taxes and Dues | | | 230,424 | | | | 219,352 | | | | 219,245 | | | | 299,567 | | | | 257,931 | | Rent | | | 284,257 | | | | 324,324 | | | | 327,274 | | | | 371,030 | | | | 432,543 | | Insurance premium | | | | 11,925 | | | | 243,666 | | | | 313,056 | | Installation fee | | | | 339,860 | | | | 291,057 | | | | 260,498 | | Advertising expenses | | | 181,644 | | | | 184,544 | | | | 172,183 | | | | 150,399 | | | | 161,013 | | Research and development expenses | | | 305,658 | | | | 175,917 | | | Research and development | | | | 147,825 | | | | 153,171 | | | | 171,461 | | Expenses | | | | | | | | Card service cost | | | | 707,588 | | | | 2,771,383 | | | | 2,702,653 | | Others | | | 2,976,491 | | | | 4,388,110 | | | | 1,451,690 | | | | 1,318,518 | | | | 1,822,951 | | | | | | | | | | | | | | | | | | Total | | (Won) | 18,318,404 | | | (Won) | 20,016,330 | | | ₩ | 20,100,734 | | | ₩ | 22,963,673 | | | ₩ | 23,734,497 | | | | | | | | | | | | | | | | | |
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. |
Details of salaries and wages for the years ended December 31, 20102011, 2012 and 20112013, are as follows: | (in millions of Korean won) | | 2010 | | | 2011 | | | 2011 | | | 2012 | | | 2013 | | Short-term employee benefits | | (Won) | 2,458,527 | | | (Won) | 2,601,675 | | | ₩ | 2,598,889 | | | ₩ | 2,855,024 | | | ₩ | 3,031,435 | | Post-employment benefits | | | 132,153 | | | | 202,862 | | | Share-based payment (Note 25) | | | 6,794 | | | | 6,726 | | | Termination benefits | | | 25,624 | | | | 44,757 | | | 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 | | (Won) | 2,623,098 | | | (Won) | 2,856,020 | | | ₩ | 2,854,361 | | | ₩ | 3,096,766 | | | ₩ | 3,288,942 | | | | | | | | | | | | | | | | | |
28. Classification of Operating Income The Company’s operating income is calculated by deducting operating expenses such as salaries and amortization cost and others, from operating revenue which includes sales of services and others. Major items and related amounts included in operating revenue and expenses are described in Notes 26 and 27.
29. Financial Income and Expenses
Details of financial income for the years ended December 31, 20102011, 2012 and 2011,2013, are as follows: | | | | | | | | | (in millions of Korean won) | | 2010 | | | 2011 | | Interest income | | (Won) | 97,440 | | | (Won) | 151,288 | | Foreign currency transaction gain | | | 21,963 | | | | 44,217 | | Foreign currency translation gain | | | 64,983 | | | | 6,097 | | Gain on settlement of derivatives | | | 197 | | | | 389 | | Gain on valuation of derivatives | | | 54,299 | | | | 63,959 | | Others | | | 497 | | | | 1,469 | | | | | | | | | | | Total | | (Won) | 239,379 | | | (Won) | 267,419 | | | | | | | | | | |
| | | | | | | | | | | | | (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 | | | | | | | | | | | | | | |
Details of financial expenses for the years ended December 31, 20102011, 2012 and 2011,2013, are as follows: | (in millions of Korean won) | | 2010 | | | 2011 | | | 2011 | | | 2012 | | | 2013 | | Interest expenses | | (Won) | 489,925 | | | (Won) | 481,415 | | | Interest expense | | | ₩ | 480,609 | | | ₩ | 472,917 | | | ₩ | 450,302 | | Foreign currency transaction loss | | | 25,153 | | | | 34,862 | | | | 35,725 | | | | 17,974 | | | | 31,611 | | Foreign currency translation loss | | | 31,644 | | | | 85,274 | | | | 86,597 | | | | 7,249 | | | | 6,518 | | Loss on settlement of derivatives | | | 1,595 | | | | 27,055 | | | | 27,055 | | | | 7,804 | | | | 16,384 | | Loss on valuation of derivatives | | | 47,496 | | | | 9,192 | | | | 9,147 | | | | 241,358 | | | | 105,691 | | Others | | | 2,850 | | | | 2,418 | | | Others 1 | | | | 3,222 | | | | 34,691 | | | | 36,994 | | | | | | | | | | | | | | | | | | Total | | (Won) | 598,663 | | | (Won) | 640,216 | | | ₩ | 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. |
30.29. Deferred Income Tax and Income Tax Expense
The analysisanalyses of deferred tax assets and deferred tax liabilities as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | (in millions of Korean won) | | 1.1.2010 | | 12.31.2010 | | 12.31.2011 | | | 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 | | (Won) | 253,806 | | | (Won) | 273,371 | | | (Won) | 237,586 | | | | 764,563 | | | | 741,047 | | Deferred tax assets to be recovered within 12 months | | | 696,865 | | | | 592,330 | | | | 787,314 | | | | | | | | | | | | | | | | | | | | | (Won) | 950,671 | | | (Won) | 865,701 | | | (Won) | 1,024,900 | | | ₩ | 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 | | | (6,040 | ) | | | (961 | ) | | | (846 | ) | | | (551,332 | ) | | | (599,384 | ) | Deferred tax liability to be recovered within 12 months | | | (376,095 | ) | | | (303,860 | ) | | | (618,635 | ) | | | | | | | | | | | | | | | | | | | | (Won) | (382,135 | ) | | (Won) | (304,821 | ) | | (Won) | (619,481 | ) | | | (552,305 | ) | | | (600,399 | ) | | | | | | | | | | | | | | | | | Deferred tax assets (liabilities), net | | (Won) | 568,536 | | | (Won) | 560,880 | | | (Won) | 405,419 | | | ₩ | 473,475 | | | ₩ | 537,479 | | | | | | | | | | | | | | | | | |
The gross movements on the deferred income tax account for the years ended December 31, 20102012 and 2011,2013, are calculated as follows: | | | | | | | | | (in millions of Korean won) | | 2010 | | | 2011 | | Beginning | | (Won) | 568,536 | | | (Won) | 560,880 | | Charged/(credited) to the income statement | | | (53,014 | ) | | | (142,012 | ) | Charged/(credited) to other comprehensive income | | | 48,358 | | | | 36,233 | | Changes in scope of consolidation | | | (3,000 | ) | | | (49,682 | ) | | | | | | | | | | Ending | | (Won) | 560,880 | | | (Won) | 405,419 | | | | | | | | | | |
| | | | | | | | | (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: | | | 2010 | | | 2012 | | (in millions of Korean won) | | Beginning | | Income statement | | Other comprehensive income | | Changes in scope of consolidation | | Ending | | | Beginning | | Income statement | | Other comprehensive income | | Changes in scope of consolidation | | Ending | | Deferred tax liabilities | | | | | | | | | | | | | | | | | | | | | Derivative financial assets | | (Won) | (39,273 | ) | | (Won) | (1,759 | ) | | (Won) | 10,178 | | | (Won) | — | | | (Won) | (30,854 | ) | | ₩ | (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 | | | (48,596 | ) | | | 1,406 | | | | 195 | | | | — | | | | (46,995 | ) | | | (200 | ) | | | (4,643 | ) | | | 3,148 | | | | 43 | | | | (1,652 | ) | Depreciation | | | (39,642 | ) | | | 33,413 | | | | — | | | | — | | | | (6,229 | ) | | | (84,366 | ) | | | 51,350 | | | | — | | | | 1,118 | | | | (31,898 | ) | Deposits for severance benefits | | | (244,854 | ) | | | 54,861 | | | | — | | | | — | | | | (189,993 | ) | | | (271,233 | ) | | | (23,283 | ) | | | (1,261 | ) | | | (1,339 | ) | | | (297,116 | ) | Accrued income | | | (1,551 | ) | | | 849 | | | | — | | | | — | | | | (702 | ) | | | (1,855 | ) | | | 243 | | | | — | | | | (61 | ) | | | (1,673 | ) | Others | | | (5,625 | ) | | | (24,423 | ) | | | — | | | | — | | | | (30,048 | ) | | 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 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Subtotal | | (Won) | (379,541 | ) | | (Won) | 64,347 | | | (Won) | 10,373 | | | (Won) | — | | | (Won) | (304,821 | ) | | | | | | (621,339 | ) | | | 75,024 | | | | (3,937 | ) | | | (2,053 | ) | | | (552,305 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deferred tax assets | | | | | | | | | | | | | | | | | | | | | Derivatives | | | | — | | | | 30,155 | | | | (8,436 | ) | | | — | | | | 21,719 | | Allowance for doubtful accounts | | (Won) | 115,151 | | | (Won) | 12,889 | | | (Won) | — | | | (Won) | — | | | (Won) | 128,040 | | | | 112,203 | | | | 23,965 | | | | — | | | | 3,108 | | | | 139,276 | | Inventory valuation | | | 10,494 | | | | (9,814 | ) | | | — | | | | — | | | | 680 | | | | 594 | | | | (292 | ) | | | — | | | | — | | | | 302 | | Available-for-sale financial assets | | | 12,147 | | | | 892 | | | | (52 | ) | | | — | | | | 12,987 | | | Contribution to construction | | | 39,296 | | | | (8,108 | ) | | | — | | | | — | | | | 31,188 | | | Contribution for construction | | | | 29,301 | | | | (2,169 | ) | | | — | | | | — | | | | 27,132 | | Accrued expenses | | | 30,176 | | | | (1,687 | ) | | | — | | | | — | | | | 28,489 | | | | 24,397 | | | | 3,316 | | | | — | | | | — | | | | 27,713 | | Provisions | | | 12,051 | | | | 6,198 | | | | — | | | | — | | | | 18,249 | | | | 55,260 | | | | 7,115 | | | | — | | | | 321 | | | | 62,696 | | Defined benefit liabilities | | | 194,921 | | | | (72,790 | ) | | | 38,433 | | | | — | | | | 160,564 | | | Withholdings for facilities expenses | | | 9,609 | | | | (326 | ) | | | — | | | | — | | | | 9,283 | | | 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 | | | 37,410 | | | | 12,345 | | | | — | | | | — | | | | 49,755 | | | | 28,670 | | | | 3,193 | | | | — | | | | 322 | | | | 32,185 | | Deduction of installment receivables | | | 34,603 | | | | 37,568 | | | | — | | | | — | | | | 72,171 | | | | 78,880 | | | | (67,356 | ) | | | — | | | | — | | | | 11,524 | | Present value discount | | | 8,922 | | | | 15,045 | | | | — | | | | — | | | | 23,967 | | | | 34,176 | | | | (19,276 | ) | | | — | | | | — | | | | 14,900 | | Assets retirement obligation | | | 13,657 | | | | 1,628 | | | | — | | | | — | | | | 15,285 | | | | 16,283 | | | | 2,478 | | | | — | | | | — | | | | 18,761 | | Gain or loss foreign currency translation | | | 86,843 | | | | (5,732 | ) | | | — | | | | — | | | | 81,111 | | | | 97,942 | | | | (77,215 | ) | | | — | | | | — | | | | 20,727 | | Deferred revenue | | | 59,560 | | | | (5,748 | ) | | | — | | | | — | | | | 53,812 | | | | 51,183 | | | | 15,645 | | | | — | | | | — | | | | 66,828 | | Real-estate sales | | | 48,327 | | | | (45,387 | ) | | | — | | | | — | | | | 2,940 | | | | 6,456 | | | | (5,762 | ) | | | — | | | | — | | | | 694 | | Tax credit carryforwards | | | 169,615 | | | | (80,229 | ) | | | — | | | | — | | | | 89,386 | | | | 80,854 | | | | 69,480 | | | | — | | | | — | | | | 150,334 | | Others | | | 65,295 | | | | 25,895 | | | | (396 | ) | | | (3,000 | ) | | | 87,794 | | | Foreign operation translation difference | | | | 386 | | | | — | | | | 2,121 | | | | — | | | | 2,507 | | Other | | | | 142,327 | | | | (52,345 | ) | | | — | | | | 8,730 | | | | 98,712 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Subtotal | | (Won) | 948,077 | | | (Won) | (117,361 | ) | | (Won) | 37,985 | | | (Won) | (3,000 | ) | | (Won) | 865,701 | | | | | | | | | | | | | | | | | | | | | 1,025,549 | | | | (50,615 | ) | | | 36,607 | | | | 14,239 | | | | 1,025,780 | | Net balance | | (Won) | 568,536 | | | (Won) | (53,014 | ) | | (Won) | 48,358 | | | (Won) | (3,000 | ) | | (Won) | 560,880 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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). |
| | | 2011 | | | 2013 | | (in millions of Korean won) | | Beginning | | Income statement | | Other comprehensive income | | Changes in scope of consolidation | | Ending | | | Beginning | | Income statement | | Other comprehensive income | | Changes in scope of consolidation | | | Ending | | Deferred tax liabilities | | | | | | | | | | | | | | | | | | | | | Derivative financial assets | | (Won) | (30,854 | ) | | (Won) | (6,178 | ) | | (Won) | (829 | ) | | (Won) | — | | | (Won) | (37,861 | ) | | ₩ | (297 | ) | | ₩ | (116 | ) | | ₩ | — | | | ₩ | — | | | ₩ | (413 | ) | Available-for-sale financial assets | | | 12,987 | | | | (27,472 | ) | | | (648 | ) | | | 2,188 | | | | (12,945 | ) | | | (10,669 | ) | | | (5,198 | ) | | | (17,985 | ) | | | — | | | | (33,852 | ) | Investment in joint venture and associates | | | (46,995 | ) | | | 46,083 | | | | 1,076 | | | | (364 | ) | | | (200 | ) | | | (1,652 | ) | | | (30,140 | ) | | | (780 | ) | | | — | | | | (32,572 | ) | Depreciation | | | (6,229 | ) | | | (73,284 | ) | | | — | | | | (2,995 | ) | | | (82,508 | ) | | | (31,898 | ) | | | (38,229 | ) | | | — | | | | — | | | | (70,127 | ) | Deposits for severance benefits | | | (189,993 | ) | | | (83,396 | ) | | | 502 | | | | 1,654 | | | | (271,233 | ) | | | (297,116 | ) | | | 29,963 | | | | (10 | ) | | | — | | | | (267,163 | ) | Accrued income | | | (702 | ) | | | (1,105 | ) | | | — | | | | (29 | ) | | | (1,836 | ) | | | (1,673 | ) | | | 65 | | | | — | | | | — | | | | (1,608 | ) | Prepaid expenses | | | | 220 | | | | 70 | | | | — | | | | — | | | | 290 | | Reserve for technology and human resource development | | | — | | | | (63,491 | ) | | | — | | | | — | | | | (63,491 | ) | | | (64,570 | ) | | | 20,681 | | | | — | | | | — | | | | (43,889 | ) | Others | | | (30,048 | ) | | | (60,717 | ) | | | — | | | | (58,642 | ) | | | (149,407 | ) | | Other | | | | (144,650 | ) | | | (6,415 | ) | | | — | | | | — | | | | (151,065 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Subtotal | | (Won) | (291,834 | ) | | (Won) | (269,560 | ) | | (Won) | 101 | | | (Won) | (58,188 | ) | | (Won) | (619,481 | ) | | | | | | (552,305 | ) | | | (29,319 | ) | | | (18,775 | ) | | | — | | | | (600,399 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deferred tax assets | | | | | | | | | | | | | | | | | | | | | Allowance for Doubtful Accounts | | (Won) | 128,040 | | | (Won) | (20,556 | ) | | (Won) | 106 | | | (Won) | 4,613 | | | (Won) | 112,203 | | | Derivatives | | | ₩ | 21,719 | | | ₩ | 9,377 | | | ₩ | 1,499 | | | ₩ | — | | | ₩ | 32,595 | | Allowance for doubtful accounts | | | | 139,276 | | | | 13,538 | | | | — | | | | — | | | | 152,814 | | Inventory valuation | | | 680 | | | | (508 | ) | | | — | | | | 422 | | | | 594 | | | | 302 | | | | 1 | | | | — | | | | — | | | | 303 | | Contribution for construction | | | 31,188 | | | | (1,887 | ) | | | — | | | | — | | | | 29,301 | | | | 27,132 | | | | (6 | ) | | | — | | | | — | | | | 27,126 | | Accrued expenses | | | 28,489 | | | | (4,405 | ) | | | — | | | | (1 | ) | | | 24,083 | | | | 27,713 | | | | 27,576 | | | | — | | | | — | | | | 55,289 | | Provisions | | | 18,249 | | | | 36,248 | | | | — | | | | 741 | | | | 55,238 | | | | 62,696 | | | | (28,976 | ) | | | — | | | | — | | | | 33,720 | | Defined benefit liabilities | | | 160,564 | | | | 58,518 | | | | 37,418 | | | | 748 | | | | 257,248 | | | Retirement benefit obligations | | | | 320,909 | | | | 16,263 | | | | (18,055 | ) | | | — | | | | 319,117 | | Withholding of facilities expenses | | | 9,283 | | | | 106 | | | | — | | | | — | | | | 9,389 | | | | 8,861 | | | | (521 | ) | | | — | | | | — | | | | 8,340 | | Accrued payroll expenses | | | 49,755 | | | | (21,085 | ) | | | — | | | | — | | | | 28,670 | | | | 32,185 | | | | 14,536 | | | | — | | | | — | | | | 46,721 | | Deduction of installment receivables | | | 72,171 | | | | 6,709 | | | | — | | | | — | | | | 78,880 | | | | 11,524 | | | | (4,479 | ) | | | — | | | | — | | | | 7,045 | | Present value discount | | | 23,967 | | | | 10,208 | | | | — | | | | 1 | | | | 34,176 | | | | 14,900 | | | | (9,931 | ) | | | — | | | | — | | | | 4,969 | | Assets retirement obligation | | | 15,285 | | | | 998 | | | | — | | | | — | | | | 16,283 | | | | 18,761 | | | | 485 | | | | — | | | | — | | | | 19,246 | | Gain or loss foreign currency translation | | | 81,111 | | | | 16,524 | | | | — | | | | (3 | ) | | | 97,632 | | | | 20,727 | | | | (10,491 | ) | | | — | | | | — | | | | 10,236 | | Deferred revenue | | | 53,812 | | | | (2,629 | ) | | | — | | | | — | | | | 51,183 | | | | 66,828 | | | | (2,388 | ) | | | — | | | | — | | | | 64,440 | | Real-estate sales | | | 2,940 | | | | 3,516 | | | | — | | | | — | | | | 6,456 | | | | 694 | | | | 4,720 | | | | — | | | | — | | | | 5,414 | | Tax credit carryforwards | | | 89,386 | | | | (8,532 | ) | | | — | | | | — | | | | 80,854 | | | | 150,334 | | | | 14,067 | | | | — | | | | — | | | | 164,401 | | Others | | | 87,794 | | | | 54,323 | | | | (1,392 | ) | | | 1,985 | | | | 142,710 | | | Foreign operation translation difference | | | | 2,507 | | | | — | | | | 655 | | | | — | | | | 3,162 | | Other | | | | 98,712 | | | | 84,228 | | | | — | | | | — | | | | 182,940 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Subtotal | | (Won) | 852,714 | | | (Won) | 127,548 | | | (Won) | 36,132 | | | (Won) | 8,506 | | | (Won) | 1,024,900 | | | | | | | 1,025,780 | | | | 127,999 | | | | (15,901 | ) | | | — | | | | 1,137,878 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net balance | | (Won) | 560,880 | | | (Won) | (142,012 | ) | | (Won) | 36,233 | | | (Won) | (49,682 | ) | | (Won) | 405,419 | | | ₩ | 473,475 | | | ₩ | 98,680 | | | ₩ | (34,676 | ) | | ₩ | — | | | ₩ | 537,479 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The tax impacts directly to equity as of January 1, 2010 and December 31, 20102011, 2012 and 2011,2013, are as follows:follows | | | 1.1.2010 | | 12.31.2010 | | 12.31.2011 | | | 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 | | | Before recognition | | Tax effect | | After recognition | | Before recognition | | Tax effect | | After recognition | | Before recognition | | Tax effect | | After recognition | | Available-for-sale valuation gain (loss) | | (Won) | 8,651 | | | (Won) | (1,907 | ) | | (Won) | 6,744 | | | (Won) | 10,874 | | | (Won) | (2,392 | ) | | (Won) | 8,482 | | | (Won) | 85,974 | | | (Won) | (18,034 | ) | | (Won) | 67,940 | | | ₩ | 78,441 | | | ₩ | (18,983 | ) | | ₩ | 59,458 | | | ₩ | 25,181 | | | ₩ | (6,094 | ) | | ₩ | 19,087 | | | ₩ | 74,317 | | | ₩ | (17,985 | ) | | ₩ | 56,332 | | Hedge instruments valuation gain (loss) | | | (23,559 | ) | | | 280 | | | | (23,279 | ) | | | (59,142 | ) | | | 710 | | | | (58,432 | ) | | | (30,629 | ) | | | 368 | | | | (30,261 | ) | | | 37,165 | | | | (8,994 | ) | | | 28,171 | | | | 33,743 | | | | (8,166 | ) | | | 25,577 | | | | (6,195 | ) | | | 1,499 | | | | (4,696 | ) | Actuarial gain (loss) | | | — | | | | — | | | | — | | | | (188,113 | ) | | | 41,385 | | | | (146,728 | ) | | | (326,658 | ) | | | 71,865 | | | | (254,793 | ) | | Shares of other comprehensive gain (loss) of joint ventures and associates | | | 503 | | | | (111 | ) | | | 392 | | | | 3,553 | | | | (782 | ) | | | 2,771 | | | | (2,458 | ) | | | 541 | | | | (1,917 | ) | | Shares of actuarial gain (loss) of Joint ventures and associates | | | — | | | | — | | | | — | | | | (305 | ) | | | 67 | | | | (238 | ) | | | (2,764 | ) | | | 608 | | | | (2,156 | ) | | Others | | | (318,483 | ) | | | 47 | | | | (318,436 | ) | | | (318,898 | ) | | | 81 | | | | (318,817 | ) | | | (317,577 | ) | | | 157 | | | | (317,420 | ) | | 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 | | (Won) | (332,888 | ) | | (Won) | (1,691 | ) | | (Won) | (334,579 | ) | | (Won) | (552,031 | ) | | (Won) | 39,069 | | | (Won) | (512,962 | ) | | (Won) | (594,112 | ) | | (Won) | 55,505 | | | (Won) | (538,607 | ) | | ₩ | 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, 20102011, 2012 and 20112013, are calculated as follows: | | | | | | | | | (in millions of Korean won) | | 2010 | | | 2011 | | Current income tax expenses | | | 352,471 | | | | 229,861 | | Impact of change in temporary difference | | | 53,014 | | | | 160,126 | | Impact of change in tax rate 1 | | | — | | | | (18,114 | ) | | | | | | | | | | Total income tax expense | | (Won) | 405,485 | | | (Won) | 371,873 | | | | | | | | | | | Income tax expense from continued operations | | | 396,369 | | | | 316,735 | | Income tax expense for discontinued operations | | | 9,116 | | | | 55,138 | |
1 | During the year, as a result of the change in the Korean corporation tax rate from 22% to 24.2% that was enacted on December 31, 2011, the relevant deferred tax balances have been re-measured. Deferred tax expected to be realized in the year to December 31, 2011, has been measured using the effective rate 24.2% applicable for the period.
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| | | | | | | | | | | | | (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 Company’sGroup’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) | | 2010 | | 2011 | | | 2011 | | 2012 | | 2013 | | Profit before continuing operations before income tax expenses | | (Won) | 1,681,273 | | | (Won) | 1,597,886 | | | Profit from continuing operations before income tax expenses | | | ₩ | 1,609,222 | | | ₩ | 1,414,842 | | | ₩ | (38,166 | ) | | | | | | | | | | | | Expected tax expense at statutory tax rate | | | 406,868 | | | | 386,688 | | | | 389,432 | | | | 342,392 | | | | 9,263 | | Tax effects of | | | | | | Income not subject to tax | | | (6,199 | ) | | | (394,462 | ) | | Tax effects of Income not subject to tax | | | | (393,557 | ) | | | (1,407 | ) | | | (25,130 | ) | Expenses not deductible for tax purposes | | | 36,466 | | | | 396,673 | | | | 396,673 | | | | 39,136 | | | | 87,220 | | Tax credit carry forwards and deductions | | | (87,666 | ) | | | (169,057 | ) | | | (169,217 | ) | | | (83,311 | ) | | | (15,673 | ) | Supplementary pay of corporation tax | | | | — | | | | 59,755 | | | | (5,910 | ) | Changes in unrealizable deferred tax assets | | | 957 | | | | 10,188 | | | | 10,188 | | | | (55,006 | ) | | | 10,815 | | Deferred tax effects due to changes in tax rates and others | | | 25,362 | | | | 85,146 | | | | 85,146 | | | | (17,656 | ) | | | (62 | ) | Tax effect and adjustment on consolidation | | | | — | | | | — | | | | (4,251 | ) | Others | | | 20,581 | | | | 1,559 | | | | (206 | ) | | | (6,034 | ) | | | (6,693 | ) | | | | | | | | | | | | | | | | | Income tax expenses for continuing operations | | (Won) | 396,369 | | | (Won) | 316,735 | | | ₩ | 318,459 | | | ₩ | 277,869 | | | ₩ | 49,579 | | | | | | | | | | | | | | | | | | Average effective tax rate | | | 23.6 | % | | | 19.8 | % | |
31.30. Earnings Per Share
Calculation of earnings per share for the years ended December 31, 20102011, 2012 and 2011, are2013, is as follows: 1) Basic earnings per share from continuing operations
Basic earnings per share from continuing operations is calculated by dividing the profit from continuing operations attributable to equity holders of the Company by the weighted average number of common stocks outstanding during the period, excluding common stocks purchased by the Company and held as treasury stock (Note 24). Basic earnings per share from continuing operations for the years ended December 31, 20102012 and 2011, are2013, is calculated as follows: | | | | | | | | | | | 2010 | | | 2011 | | Profit from continuing operations attributable to common stock (in millions of Korean won) | | (Won) | 1,273,191 | | | (Won) | 1,276,512 | | Weighted average number of common stock outstanding | | | 243,207,149 | | | | 243,268,052 | | Basic earnings per share from continuing operations (in Korean won) | | (Won) | 5,235 | | | (Won) | 5,247 | |
| | | | | | | | | | | | | | | 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 | | | | — | |
2) Basic earnings per share from discontinued operations
Basic earnings per share from discontinued operations is calculated by dividing the profit from discontinued operations attributable to equity holders of the Company by the weighted average number of common stocks outstanding during the period, excluding common stocks purchased by the Company and held as treasury stock (Note 24).
Basic earnings per share from discontinued operations for the years ended December 31, 2010 and 2011, are calculated as follows:
| | | | | | | | | | | 2010 | | | 2011 | | Profit from discontinued operations attributable to common stock (in millions of Korean won) | | (Won) | 22,650 | | | (Won) | 170,039 | | Weighted average number of common stock outstanding | | | 243,207,149 | | | | 243,268,052 | | Basic earnings per share from discontinued operations (in Korean won) | | (Won) | 93 | | | (Won) | 699 | |
3) Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of common stocks outstanding during the year, excluding common stocks purchased by the Company and held as treasury stock (Note 24).
Basic earnings per share for the years ended December 31, 2010 and 2011, are calculated as follows:
| | | | | | | | | | | 2010 | | | 2011 | | Net income attributable to common stock (in millions of Korean won) | | (Won) | 1,295,841 | | | (Won) | 1,446,551 | | Weighted average number of common stock outstanding | | | 243,207,149 | | | | 243,268,052 | | Basic earnings per share (in Korean won) | | (Won) | 5,328 | | | (Won) | 5,946 | |
4) Diluted earnings per share from continuing operations
Diluted earnings per share from continuing operations isare 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 continuing operations for the years ended December 31, 20102011, 2012 and 2011, are2013, is calculated as follows: | | | | | | | | | | | 2010 | | | 2011 | | Profit from continuing operations attributable to common stock (in millions of Korean won) | | (Won) | 1,273,191 | | | (Won) | 1,276,512 | | Adjusted Profit from continuing operations attributable to common stock (in millions of Korean won) | | | 1,273,191 | | | | 1,276,512 | | Number of dilutive potential common shares outstanding | | | 18,081 | | | | 32,960 | | Weighted-average number of common shares outstanding and dilutive common shares | | | 243,225,230 | | | | 243,301,012 | | Diluted earnings per share from continuing operations (in Korean won) | | (Won) | 5,235 | | | (Won) | 5,247 | |
Diluted earnings per share from continuing operations is calculated by dividing adjusted profit from continuing operations attributable to equity holders of the Company by the sum of the number of common stocks and dilutive potential common stocks. Certain stock options and other share-based payments have no dilutive effect and are excluded from the calculation of diluted earnings per share from continuing operations.
| | | | | | | | | | | | | | | 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 | | | | — | |
5) Diluted earnings per share from discontinued operations
Diluted earnings per share from discontinued operations is 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 discontinued operations for the years ended December 31, 2010 and 2011, are calculated as follows:
| | | | | | | | | | | 2010 | | | 2011 | | Profit from discontinued operations attributable to common stock (in millions of Korean won) | | (Won) | 22,650 | | | (Won) | 170,039 | | Adjusted profit from discontinued operations attributable to common stock (in millions of Korean won) | | | 22,650 | | | | 170,039 | | Number of dilutive potential common shares outstanding | | | 18,081 | | | | 32,960 | | Weighted-average number of common shares outstanding and dilutive common shares | | | 243,225,230 | | | | 243,301,012 | | Diluted earnings per share from discontinued operations (in Korean won) | | (Won) | 93 | | | (Won) | 699 | |
Diluted earnings per share from discontinued operations is calculated by dividing adjusted profit from discontinued operations attributable to equity holders of the Company by the sum of the number of common stocks and dilutive potential common stocks. Certain stock options and other share-based payments have no dilutive effect and are excluded from the calculation of diluted earnings per share from discontinued operations.
6) Diluted earnings per share
Diluted earnings per share is 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 for the years ended December 31, 2010 and 2011, are calculated as follows:
| | | | | | | | | | | 2010 | | | 2011 | | Net income attributable to common stock (in millions of Korean won) | | (Won) | 1,295,841 | | | (Won) | 1,446,551 | | Adjusted net income attributable to common stock(in millions of Korean won) | | | 1,295,841 | | | | 1,446,551 | | Number of dilutive potential common shares outstanding | | | 18,081 | | | | 32,960 | | Weighted-average number of common shares outstanding and dilutive common shares | | | 243,225,230 | | | | 243,301,012 | | Diluted earnings per share(in Korean won) | | (Won) | 5,328 | | | (Won) | 5,946 | |
Diluted earnings per share is calculated by dividing adjusted net income attributable to equity holders of the Company by the sum of the number of common stocks and dilutive potential common stocks. Certain stock options and other share-based payments have no dilutive effect and are excluded from the calculation of diluted earnings per share.
32. Dividends31. Dividend
The dividends paid by the Controlling Company in 2011, 2012 and 20102013 were(Won)₩586,150 million ((Won)₩2,410 per share) and,(Won)₩486,393486,602 million ((Won)₩2,000 per share) and₩487,445 million (₩2,000 per share), respectively. A dividend in respect of the year ended December 31, 2011,2013, of(Won)₩2,000800 per share, amounting to a total dividend of(Won)₩486,602195,112 million, was approved at the shareholders’ meeting on March 16, 2012.21, 2014. These consolidated financial statements do not reflect this dividend payable. 33.32. Cash Generated from Operations
Cash flows from operating activities for the years ended December 31, 20102011, 2012 and 20112013, are as follows: | | | | | | | | | (in millions of Korean won) | | 2010 | | | 2011 | | 1. Profit for the period | | (Won) | 1,314,884 | | | (Won) | 1,452,019 | | 2. Adjustments to reconcile net income | | | | | | | | | Income tax expenses | | | 396,369 | | | | 316,735 | | Interest income 1 | | | (257,483 | ) | | | (325,028 | ) | Interest expense 1 | | | 585,462 | | | | 588,366 | | Depreciation | | | 2,972,503 | | | | 2,671,858 | | Amortization of intangible assets | | | 266,299 | | | | 319,875 | | Provision for severance benefits | | | 160,095 | | | | 250,576 | | Bad debt expenses | | | 204,009 | | | | 168,096 | | Income or losses from jointly controlled entities and associates 2 | | | (33,182 | ) | | | 473 | | Gain or loss on disposal of jointly controlled entities and associates | | | (16,727 | ) | | | (190,631 | ) | Impairment on jointly controlled entities and associates | | | — | | | | 5,107 | | Impairment on property and equipment | | | 10,464 | | | | 18,594 | | Gain or loss on disposal of property and equipment | | | 62,425 | | | | (226,571 | ) | Contribution of provisions | | | 58,253 | | | | 59,116 | | Reversal of provisions | | | (12,909 | ) | | | (4,963 | ) | Foreign currency translation gain (loss) | | | (33,339 | ) | | | 79,189 | | Gain or loss on valuation of derivatives | | | (5,405 | ) | | | (28,101 | ) | Others | | | (83,628 | ) | | | (282,083 | ) | 3. Changes in operating assets and liabilities | | | | | | | | | Increase in trade receivables | | | (1,033,307 | ) | | | (1,412,493 | ) | Decrease in other receivables | | | 208 | | | | 879,746 | | Increase in loans receivable | | | (285,207 | ) | | | (152,497 | ) | Increase in finance lease receivables | | | (156,863 | ) | | | (183,669 | ) | Increase in other assets | | | (167,179 | ) | | | (79,175 | ) | Decrease in inventories | | | 55,954 | | | | 32,113 | | Increase in trade payables | | | 142,014 | | | | 98,761 | | Decrease in other payables | | | (393,388 | ) | | | (1,077,806 | ) | Increase in other liabilities | | | (3,034 | ) | | | 62,579 | | Decrease in provisions | | | 264,900 | | | | 29,365 | | Increase in deferred revenue | | | 219,629 | | | | 196,507 | | Increase in contribution on plan assets | | | (3,848 | ) | | | (125,984 | ) | Payment of severance benefits | | | (955,910 | ) | | | (235,037 | ) | | | | | | | | | | 4. Net cash provided by operating activities (1+2+3) | | (Won) | 3,272,059 | | | (Won) | 2,905,037 | | | | | | | | | | |
| | | | | | | | | | | | | (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 | | | | | | | | | | | | | | |
The Company entered into agreements with securitization specialty companies and disposed of its trade receivables related to handset sales (Note 20). Cash flows from the disposals are presented as cash generated from operations. 1 | Interest income of(Won)173,740 million (2010:(Won)160,043 million) recognized as operating revenues and interest expense(Won)106,951million (2010:(Won)95,537 million) recognized as operating expense are included. |
2 | Operating revenue of(Won)2,701 million (2010:(Won)622 million) and operating expenses of(Won)136 million (2010:(Won)126 million) from jointly controlled entities and associates are included. |
Significant transactions not affecting cash flows for the years ended December 31, 20102011, 2012 and 2011,2013, are as follows: | (in millions of Korean won) | | 2010 | | | 2011 | | | 2011 | | | 2012 | | | 2013 | | Reclassification of the current portion of bonds payable | | (Won) | 1,920,773 | | | (Won) | 1,080,549 | | | ₩ | 1,181,049 | | | ₩ | 2,157,522 | | | ₩ | 1,791,454 | | Reclassification of construction-in-progress to property and equipment | | | 2,383,898 | | | | 3,165,808 | | | | 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 | |
34.33. 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 Wibroconvergence business | Home /Global & Enterprise Customer Group (“Home” / “Enterprise”)
| | Telephone, internet,Telecommunication service to global market and enterprise customers and data service | Finance / Rental Business Group | | Credit card, loan, lease and others | Others | | Facilities, installment financing,Satellite TV, and others |
Details of each segment for the years ended December 31, 20102011, 2012, and 2011,2013 are as follows: | | | | | | | | | | | | | | | 2010 | | (in millions of Korean won) | | Operating revenues | | | Operating income (loss) | | | Depreciation and Amortization | | Personal | | (Won) | 9,715,134 | | | (Won) | 902,014 | | | (Won) | 1,383,402 | | Home/Enterprise | | | 10,193,591 | | | | 1,091,903 | | | | 1,655,961 | | Others | | | 2,716,780 | | | | 67,238 | | | | 83,673 | | | | | | | | | | | | | | | Sub-total | | | 22,625,505 | | | | 2,061,155 | | | | 3,123,036 | | Elimination | | | (2,299,230 | ) | | | (53,284 | ) | | | (14,593 | ) | | | | | | | | | | | | | | Consolidated amount | | (Won) | 20,326,275 | | | (Won) | 2,007,871 | | | (Won) | 3,108,443 | | | | | | | | | | | | | | | | | | | 2011 | | (in millions of Korean won) | | Operating revenues | | | Operating income (loss) | | | Depreciation and Amortization | | Personal | | (Won) | 10,026,309 | | | (Won) | 1,087,406 | | | (Won) | 1,177,272 | | Home/Enterprise | | | 10,140,508 | | | | 938,520 | | | | 1,660,489 | | Others | | | 4,696,234 | | | | 106,485 | | | | 129,139 | | | | | | | | | | | | | | | Sub-total | | | 24,863,051 | | | | 2,132,411 | | | | 2,966,900 | | Elimination | | | (2,873,000 | ) | | | (158,690 | ) | | | (7,418 | ) | | | | | | | | | | | | | | Consolidated amount | | (Won) | 21,990,051 | | | (Won) | 1,973,721 | | | (Won) | 2,959,482 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 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. |
The geographic dataregional segment information provided to the management for the geographic datareportable segments as of December 31, 2011, 2012 and 2013, and for the years ended December 31, 20102012 and 2011,2013, are as follows: | (In millions of Korean won) | | Operating revenues | | | Non-current assets1 | | | (in millions of Korean won) | | | Operating revenues | | | Non-current assets 3 | | | | 2010 | | | 2011 | | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | | 2011 | | | 2012 | | | 2013 | | | 2012 | | | 2013 | | Location | | | | | | | | | | | | | | | | | | | | | Domestic | | (Won) | 20,287,117 | | | (Won) | 21,934,481 | | | (Won) | 16,172,144 | | | (Won) | 15,677,411 | | | (Won) | 17,325,954 | | | ₩ | 22,032,296 | | | ₩ | 24,609,126 | | | ₩ | 23,999,635 | | | ₩ | 20,136,194 | | | ₩ | 21,143,152 | | Overseas | | | 39,158 | | | | 55,570 | | | | 194,303 | | | | 202,267 | | | | 49,936 | | | | 55,534 | | | | 34,646 | | | | 58,246 | | | | 39,023 | | | | 176,700 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 20,326,275 | | | (Won) | 21,990,051 | | | (Won) | 16,366,447 | | | (Won) | 15,879,678 | | | (Won) | 17,375,890 | | | ₩ | 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 of 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 | | | | | | | | | | | | | | | | | | | | | | |
35.34. Related Party Transactions
The list of subsidiariesrelated parties of the CompanyGroup as of December 31, 2011,2013, is described in Note 1.2.as follows: | | | Type of control | | Related parties | Associates and jointly controlled entities | | Korea Information & Technology Investment Fund, WiBro Infra Co., Ltd.,K-REALTY CR REIT 1, KTCS Corporation, KTIS Corporation, Mongolian Telecommunications,KT-SB 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. |
The related receivables and payables as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | (in millions of Korean won) | | Receivables | | | Payables | | | Receivables | | | Payables | | | Receivables | | | Payables | | Associates | | (Won) | 11,317 | | | (Won) | 194,461 | | | (Won) | 16,933 | | | (Won) | 335,610 | | | (Won) | 8,308 | | | (Won) | 372,457 | | Joint Ventures | | | — | | | | — | | | | 1,099 | | | | 111,120 | | | | 2,321 | | | | 125,439 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 11,317 | | | (Won) | 194,461 | | | (Won) | 18,032 | | | (Won) | 446,730 | | | (Won) | 10,629 | | | (Won) | 497,896 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | | | Receivables | | | Payables | | (in millions of Korean won) | | Trade receivables | | | Loans | | | Other receivables | | | Trade payables | | | Other payables | | Associates and jointly controlled entities | | KTCS Corporation | | ₩ | 2,597 | | | ₩ | — | | | ₩ | 162 | | | ₩ | — | | | ₩ | 23,307 | | | KTIS Corporation | | | 3,587 | | | | 654 | | | | 57 | | | | 1,897 | | | | 26,782 | | | Information Technology Solution Bukbu Corporation | | | 2 | | | | — | | | | — | | | | — | | | | 3,410 | | | Information Technology Solution Nambu Corporation | | | 1 | | | | — | | | | 9 | | | | — | | | | 3,961 | | | Information Technology Solution Seobu Corporation | | | 5 | | | | — | | | | — | | | | — | | | | 3,703 | | | Information Technology Solution Busan Corporation | | | 1 | | | | — | | | | 1 | | | | 34 | | | | 1,561 | | | Information Technology Solution Jungbu Corporation | | | 2 | | | | — | | | | — | | | | — | | | | 3,282 | | | Information Technology Solution Honam Corporation | | | 103 | | | | — | | | | — | | | | — | | | | 3,152 | | | Information Technology Solution Daegu Corporation | | | 100 | | | | — | | | | — | | | | — | | | | 1,698 | | | KT Wibro Infra Co., Ltd. | | | — | | | | — | | | | — | | | | — | | | | 214,866 | | | Smart Channel Co., Ltd. | | | 7,824 | | | | 9,638 | | | | 39,724 | | | | 1,589 | | | | 1,668 | | | K-REALTY CR REIT1 | | | 948 | | | | — | | | | 36,000 | | | | — | | | | — | | | MOS GS Co., Ltd. | | | 64 | | | | — | | | | 1 | | | | 1,552 | | | | 773 | | | MOS Daegu Co., Ltd. | | | 11 | | | | — | | | | 6 | | | | 1,181 | | | | 8 | | | MOS Chungcheong Co., Ltd. | | | 1 | | | | — | | | | 1 | | | | 962 | | | | 85 | | | MOS Gangnam Co., Ltd. | | | 20 | | | | — | | | | 8 | | | | — | | | | 58 | | | MOS GB Co., Ltd. | | | 96 | | | | — | | | | 5 | | | | 2,045 | | | | 400 | | | MOS BS Co., Ltd. | | | 2 | | | | — | | | | 1 | | | | 1,169 | | | | 13 | | | MOS Honam Co., Ltd. | | | 4 | | | | — | | | | 2 | | | | 1,310 | | | | 220 | | | Others | | | 187 | | | | — | | | | 110 | | | | 273 | | | | 3,339 | | | | | | | | | | | | | | | | | | | | | | | | | | | ₩ | 15,555 | | | ₩ | 10,292 | | | ₩ | 76,087 | | | ₩ | 12,012 | | | ₩ | 292,286 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | 2013 | | | | Receivables | | | Payables | | (in millions of Korean won) | | Trade receivables | | | Loans | | | Other receivables | | | Trade payables | | | Other payables | | Associates and jointly controlled entities | | KTCS Corporation | | ₩ | 2,079 | | | ₩ | — | | | ₩ | 606 | | | ₩ | 765 | | | ₩ | 14,372 | | | KTIS Corporation | | | 1,388 | | | | — | | | | 95 | | | | 137 | | | | 35,416 | | | Information Technology Solution Bukbu Corporation | | | 3 | | | | — | | | | 610 | | | | 2 | | | | 4,555 | | | Information Technology Solution Nambu Corporation | | | 2 | | | | — | | | | 9 | | | | — | | | | 3,989 | | | Information Technology Solution Seobu Corporation | | | 8 | | | | — | | | | 577 | | | | — | | | | 4,095 | | | Information Technology Solution Busan Corporation | | | 1 | | | | — | | | | 191 | | | | 20 | | | | 1,810 | | | Information Technology Solution Jungbu Corporation | | | 2 | | | | — | | | | 375 | | | | — | | | | 3,697 | | | Information Technology Solution Honam Corporation | | | 2 | | | | — | | | | 239 | | | | — | | | | 3,110 | | | Information Technology Solution Daegu Corporation | | | 3 | | | | — | | | | 198 | | | | — | | | | 2,257 | | | KT Wibro Infra Co., Ltd. | | | — | | | | — | | | | — | | | | — | | | | 172,081 | | | Smart Channel Co., Ltd. | | | 9,717 | | | | 9,638 | | | | 39,724 | | | | 2,261 | | | | 75 | | | K-REALTY CR REIT1 | | | 949 | | | | — | | | | 36,000 | | | | — | | | | — | | | MOS GS Co., Ltd. | | | 74 | | | | — | | | | 1 | | | | — | | | | 1,813 | | | MOS Daegu Co., Ltd. | | | 4 | | | | — | | | | — | | | | 1,154 | | | | 17 | | | MOS Chungcheong Co., Ltd. | | | 39 | | | | — | | | | 1 | | | | 1,186 | | | | 230 | | | MOS Gangnam Co., Ltd. | | | 2 | | | | — | | | | 1 | | | | — | | | | 180 | | | MOS GB Co., Ltd. | | | 94 | | | | — | | | | 5 | | | | 2,442 | | | | 131 | | | MOS BS Co., Ltd. | | | 3 | | | | — | | | | 1 | | | | 1,006 | | | | 53 | | | MOS Honam Co., Ltd. | | | 1 | | | | — | | | | 2 | | | | 1,517 | | | | 183 | | | Others | | | 226 | | | | 400 | | | | 1,889 | | | | 52 | | | | 1,989 | | | | | | | | | | | | | | | | | | | | | | | | | | | ₩ | 14,597 | | | ₩ | 10,038 | | | ₩ | 80,524 | | | ₩ | 10,542 | | | ₩ | 250,053 | | | | | | | | | | | | | | | | | | | | | | | | |
Significant transactions with related parties for the years ended December 31, 20102011, 2012 and 2011,2013, are as follows: | | | | | | | | | | | | | | | | | | | 2010 | | | 2011 | | (in millions of Korean won) | | Operating revenue | | | Operating Expenses | | | Operating revenue | | | Operating Expenses | | Associates | | (Won) | 169,526 | | | (Won) | 923,592 | | | (Won) | 76,419 | | | (Won) | 870,681 | | Joint Ventures | | | 23,684 | | | | 55,139 | | | | 13,531 | | | | 55,787 | | | | | | | | | | | | | | | | | | | Total | | (Won) | 193,210 | | | (Won) | 978,731 | | | (Won) | 89,950 | | | (Won) | 926,468 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | 2011 | | (in millions of Korean won) | | Sales | | | Purchases | | Associates and jointly controlled entities | | KTCS Corporation | | ₩ | 16,613 | | | ₩ | 279,840 | | | KTIS Corporation | | | 28,545 | | | | 258,902 | | | Information Technology Solution Bukbu Corporation | | | 3,091 | | | | 27,249 | | | Information Technology Solution Nambu Corporation | | | 3,505 | | | | 33,220 | | | Information Technology Solution Seobu Corporation | | | 1,874 | | | | 37,862 | | | Information Technology Solution Busan Corporation | | | 2,736 | | | | 22,001 | | | Information Technology Solution Jungbu Corporation | | | 3,946 | | | | 30,004 | | | Information Technology Solution Honam Corporation | | | 2,698 | | | | 41,790 | | | Information Technology Solution Daegu Corporation | | | 1,862 | | | | 14,961 | | | KT Wibro Infra Co., Ltd. | | | 6 | | | | 2,294 | | | K-REALTY CR REIT1 | | | 3,315 | | | | — | | | MOS GS Co., Ltd. | | | 677 | | | | 16,625 | | | MOS Daegu Co., Ltd. | | | 197 | | | | 11,829 | | | MOS Chungcheong Co., Ltd | | | 333 | | | | 9,385 | | | MOS Gangnam Co., Ltd. | | | 65 | | | | 13,881 | | | MOS GB Co., Ltd. | | | 692 | | | | 20,694 | | | MOS BS Co., Ltd. | | | 335 | | | | 15,434 | | | MOS Honam Co., Ltd. | | | 309 | | | | 13,691 | | | Others | | | 18,653 | | | | 74,909 | | | | | | | | | | | | | | | ₩ | 89,452 | | | ₩ | 924,571 | | | | | | | | | | | | |
| | | | | | | | | | | | | 2012 | | (in millions of Korean won) | | Sales | | | Purchases | | Associates and jointly controlled entities | | KTCS Corporation | | ₩ | 44,649 | | | ₩ | 262,227 | | | KTIS Corporation | | | 38,144 | | | | 273,938 | | | Information Technology Solution Bukbu Corporation | | | 4,081 | | | | 26,004 | | | Information Technology Solution Nambu Corporation | | | 3,344 | | | | 31,156 | | | Information Technology Solution Seobu Corporation | | | 4,589 | | | | 33,548 | | | Information Technology Solution Busan Corporation | | | 2,750 | | | | 18,327 | | | Information Technology Solution Jungbu Corporation | | | 4,228 | | | | 26,394 | | | Information Technology Solution Honam Corporation | | | 2,845 | | | | 35,666 | | | Information Technology Solution Daegu Corporation | | | 1,872 | | | | 12,696 | | | KT Wibro Infra Co., Ltd. | | | 6 | | | | 2,083 | | | Smart Channel Co., Ltd. | | | 5,039 | | | | 1,670 | | | K-REALTY CR REIT1 | | | 2,038 | | | | 35,290 | | | MOS GS Co., Ltd. | | | 1,033 | | | | 17,620 | | | MOS Daegu Co., Ltd. | | | 429 | | | | 12,318 | | | MOS Chungcheong Co., Ltd | | | 462 | | | | 12,760 | | | MOS Gangnam Co., Ltd. | | | 372 | | | | 14,474 | | | MOS GB Co., Ltd. | | | 1,401 | | | | 22,113 | | | MOS BS Co., Ltd. | | | 575 | | | | 15,716 | | | MOS Honam Co., Ltd. | | | 542 | | | | 13,799 | | | Others | | | 3,002 | | | | 19,895 | | | | | | | | | | | | | | | | ₩ | 121,401 | | | ₩ | 887,694 | | | | | | | | | | | | |
| | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | Sales | | | Purchases | | Associates and jointly controlled entities | | KTCS Corporation | | ₩ | 45,172 | | | ₩ | 258,203 | | | KTIS Corporation | | | 59,537 | | | | 281,219 | | | Information Technology Solution Bukbu Corporation | | | 4,784 | | | | 29,626 | | | Information Technology Solution Nambu Corporation | | | 4,871 | | | | 33,232 | | | Information Technology Solution Seobu Corporation | | | 5,397 | | | | 34,526 | | | Information Technology Solution Busan Corporation | | | 2,920 | | | | 18,967 | | | Information Technology Solution Jungbu Corporation | | | 5,318 | | | | 27,483 | | | Information Technology Solution Honam Corporation | | | 3,122 | | | | 36,096 | | | Information Technology Solution Daegu Corporation | | | 2,048 | | | | 13,462 | | | KT Wibro Infra Co., Ltd. | | | 9 | | | | 1,660 | | | Smart Channel Co., Ltd. | | | 8,188 | | | | — | | | K-REALTY CR REIT1 | | | 2,039 | | | | 36,349 | | | MOS GS Co., Ltd. | | | 1,465 | | | | 17,337 | | | MOS Daegu Co., Ltd. | | | 806 | | | | 12,061 | | | MOS Chungcheong Co., Ltd | | | 819 | | | | 12,111 | | | MOS Gangnam Co., Ltd. | | | 749 | | | | 15,078 | | | MOS GB Co., Ltd. | | | 1,981 | | | | 22,858 | | | MOS BS Co., Ltd. | | | 914 | | | | 15,117 | | | MOS Honam Co., Ltd. | | | 948 | | | | 13,803 | | | Others | | | 2,739 | | | | 15,766 | | | | | | | | | | | | | | | | ₩ | 153,826 | | | ₩ | 894,954 | | | | | | | | | | | | |
Key management compensation for the years ended December 31, 20102011, 2012 and 2011,2013, consists of: | (in millions of Korean won) | | 2010 | | | 2011 | | | 2011 | | | 2012 | | | 2013 | | Salaries and other short-term benefits | | (Won) | 3,011 | | | (Won) | 3,153 | | | ₩ | 3,153 | | | ₩ | 3,166 | | | ₩ | 3,203 | | Provision for severance benefits | | | 150 | | | | 270 | | | | 270 | | | | 274 | | | | 335 | | Stock-based compensation | | | 2,147 | | | | 1,990 | | | | 1,990 | | | | 1,078 | | | | 842 | | | | | | | | | | | | | | | | | | Total | | (Won) | 5,308 | | | (Won) | 5,413 | | | ₩ | 5,413 | | | ₩ | 4,518 | | | ₩ | 4,380 | | | | | | | | | | | | | | | | | |
Fund transactions with related parties for the years ended December 31, 2011, 2012, 2013, are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | 2011 | | | | | | Loan transactions | | | Borrowing transactions | | | Equity contributions in cash | | (in millions of Korean won) | | Loans | | | Repayments | | | Borrowings | | | Repayments | | | Associates and jointly controlled entities | | KTIS Corporation | | ₩ | 338 | | | ₩ | — | | | ₩ | — | | | ₩ | — | | | ₩ | — | | | Kan Communications Co., Ltd. | | | — | | | | — | | | | — | | | | — | | | | 3,000 | | | K-REALTY CR REIT1 | | | — | | | | — | | | | — | | | | — | | | | 30,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ₩ | 338 | | | ₩ | — | | | ₩ | — | | | ₩ | — | | | ₩ | 33,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | | | | | Loan transactions | | | Borrowing transactions | | | Equity contributions in cash | | (in millions of Korean won) | | Loans | | | Repayments | | | Borrowings | | | Repayments | | | Associates and jointly controlled entities | | KTIS Corporation | | ₩ | 654 | | | ₩ | 338 | | | ₩ | — | | | ₩ | — | | | ₩ | — | | | Smart Channel Co., Ltd. 1 | | | 9,638 | | | | — | | | | — | | | | — | | | | — | | | ChungHo EZ-Cash Co., Ltd. | | | — | | | | — | | | | — | | | | — | | | | 3,440 | | | QTT Global (Group) Company Limited | | | — | | | | — | | | | — | | | | — | | | | 12,746 | | | HooH Healthcare Inc. | | | — | | | | — | | | | — | | | | — | | | | 490 | | | | | | | | | | | | | | | | | | | | | | | | | | | ₩ | 10,292 | | | ₩ | 338 | | | ₩ | — | | | ₩ | — | | | ₩ | 16,676 | | | | | | | | | | | | | | | | | | | | | | | | |
1 | Provisions are made for loans to Smart Channel Co., Ltd. as of December 31, 2013. |
| | | | | | | | | | | | | | | | | | | | | | | | | 2013 | | | | | | Loan transactions | | | Borrowing transactions | | | Equity contributions in cash | | (in millions of Korean won) | | Loans | | | Repayments | | | Borrowings | | | Repayments | | | Associates and jointly controlled entities | | KTIS Corporation | | ₩ | — | | | ₩ | 654 | | | ₩ | — | | | ₩ | — | | | ₩ | — | | | KT-SB Venture Investment Fund | | | — | | | | — | | | | — | | | | — | | | | 6,000 | | | JNK Retech Co., Ltd | | | — | | | | — | | | | — | | | | — | | | | 1,176 | | | KT-CKP New Media Investment Fund | | | — | | | | — | | | | — | | | | — | | | | 2,250 | | | | | | | | | | | | | | | | | | | | | | | | | | | ₩ | — | | | ₩ | 654 | | | ₩ | — | | | ₩ | — | | | ₩ | 9,426 | | | | | | | | | | | | | | | | | | | | | | | |
Payment guarantees and collateral provided by the Group As of December 31, 2013, based on the investors’ agreement, the Company has an obligation to provide funding to Smart Channel Co., Ltd. if Smart Channel Co, Ltd. is unable to fulfill its obligation. The Company pledged investment securities in Smart Channel Co., Ltd. as collateral (Note 14). There are no collateral and payment guarantees provided by the related parties. 36.35. Financial risk management
(1) Financial risk factors The Company’sGroup’s activities expose itselfit to a variety of financial risks such as changes in foreign exchange rates,risks: market risk (including currency risk, fair value interest ratesrate risk, cash flow interest rate risk and market prices arising from future commercial transactionsprice risk), credit risk and recognized assets and liabilities.liquidity risk. The Company’s financialGroup’s overall risk management is focusedprogram focuses on controlling these risks in its operatingthe unpredictability of financial markets and financing activities.seeks to minimize potential adverse effects on the Group’s financial performance. The CompanyGroup uses derivativesderivative financial instruments to hedge certain financial risk exposures such as fair value risk and cash flow risk.exposures. The Company’sGroup’s financial policy is set up in the long-term perspective and annually reported to the Board of Directors. The financial risk management is carried out by the Value Management Office, which identifies, evaluates and hedges financial risks. The treasury department in the Value Management Office considers various finance market conditions to estimate the effect from the market changes. 1) Market risk The Company’sGroup’s market risk management focuses on controlling the extent of exposure to the risk in order to minimize revenue volatility. Market risk is a risk that decreases value or profit of the Company’sGroup’s portfolio due to changes in market interest rate, foreign exchange rate and other factors. (i) Sensitivity analysis Sensitivity analysis is performed for each type of market risk to which the CompanyGroup is exposed. Reasonably possible changes in the relevant risk variable such as prevailing market interest rates, currency rates, equity prices or commodity prices are estimated and if the rate of change in the underlying risk variable is stable, the CompanyGroup does not alter the chosen reasonably possible change in the risk variable. The reasonably possible change does not include remote or ‘worst case’ scenarios or ‘stress tests’. (ii) Foreign exchange risk The CompanyGroup is exposed to foreign exchange risk arising from operating, investing and financing activities. Foreign exchange risk is managed within the range of the possible effect on the Company’sGroup’s cash flows. Foreign exchange risk unaffecting the Company’sGroup’s cash flows is not hedged but can be hedged at a particular situation. As of December 31, 20102011, 2012 and 2011,2013, if the foreign exchange rate had strengthened/weakened by 10% with all other variables held constant, the effects on profit before income tax and shareholders’ equity would have been as follows: | | | | | | | | | | | | | (in millions of Korean won) | | Fluctuation of foreign exchange rate | | | Income before tax | | | Shareholders’ equity | | 12.31.2010 | | | +10 | % | | (Won) | (60,833 | ) | | (Won) | (45,933 | ) | | | | - 10 | % | | | 60,833 | | | | 45,933 | | 12.31.2011 | | | +10 | % | | | (57,174 | ) | | | (50,471 | ) | | | | - 10 | % | | | 57,174 | | | | 50,471 | |
| | | | | | | | | | | | | (in millions of Korean won) | | Fluctuation of foreign exchange rate | | | Income before tax | | | Shareholders’ equity | | 2011 | | | +10 | % | | ₩ | (56,994 | ) | | ₩ | (50,291 | ) | | | -10 | % | | | 56,994 | | | | 50,291 | | 2012 | | | +10 | % | | | (64,746 | ) | | | (52,203 | ) | | | -10 | % | | | 64,746 | | | | 52,203 | | 2013 | | | +10 | % | | | (46,173 | ) | | | (47,888 | ) | | | -10 | % | | | 46,173 | | | | 47,888 | |
The above analysis is a simple sensitivity analysis which assumes that all the variables other than foreign exchange rates are held constant. Therefore, the analysis does not reflect any correlation between foreign exchange rates and other variables, nor the management’s decision to decrease the risk. Details of foreign assets and liabilities of the CompanyGroup as of January 1, 2010 and December 31, 20102011, 2012 and 2011,2013, are as follows: | (in thousands of foreign currencies) | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | | | Financial assets | | | Financial liabilities | | | Financial assets | | | Financial liabilities | | | Financial assets | | | Financial liabilities | | | | | | 2011 | | | 2012 | | | 2013 | | (in thousands of Foreign currencies) | | | Financial assets | | | Financial liabilities | | | Financial assets | | | Financial liabilities | | | Financial assets | | | Financial liabilities | | USD | | | 226,385 | | | | 2,365,536 | | | | 201,620 | | | | 2,421,054 | | | | 209,742 | | | | 2,299,644 | | | | 235,435 | | | | 2,323,677 | | | | 217,488 | | | | 2,377,137 | | | | 254,917 | | | | 2,225,700 | | SDR | | | 15,225 | | | | 8,566 | | | | 5,721 | | | | 4,256 | | | | 1,160 | | | | 744 | | | | 1,160 | | | | 744 | | | | 494 | | | | 1,130 | | | | 1,105 | | | | 1,211 | | JPY | | | 79,202 | | | | 19,550,183 | | | | 970,586 | | | | 19,913,770 | | | | 1,080,392 | | | | 35,446,361 | | | | 1,080,822 | | | | 35,451,398 | | | | 657,947 | | | | 35,102,877 | | | | 190,520 | | | | 30,054,316 | | GBP | | | 10 | | | | 51 | | | | 6 | | | | 131 | | | | 7 | | | | 108 | | | | 7 | | | | 131 | | | | 1 | | | | 9 | | | | — | | | | 134 | | EUR | | | 276 | | | | 118 | | | | 632 | | | | 1,317 | | | | 1,239 | | | | 3,357 | | | | 1,239 | | | | 3,357 | | | | 5,395 | | | | 2,614 | | | | 1,342 | | | | 4,943 | | DZD | | | — | | | | — | | | | 20,339 | | | | — | | | | 18,714 | | | | — | | | | 18,714 | | | | — | | | | 3,770 | | | | — | | | | 2,798 | | | | — | | AUD | | | 13 | | | | — | | | | — | | | | — | | | | — | | | | — | | | CNY | | | — | | | | — | | | | 14,772 | | | | 991 | | | | 14,495 | | | | 700 | | | | 14,495 | | | | 700 | | | | 10,236 | | | | 197 | | | | — | | | | — | | RUR | | | — | | | | — | | | | 1,412,479 | | | | 238,975 | | | | — | | | | — | | | UZS | | | — | | | | — | | | | 16,679,037 | | | | 59,788,523 | | | | — | | | | — | | | | 13,534,203 | | | | 44,788,561 | | | | 7,920,825 | | | | 38,727,985 | | | | 1,805,565 | | | | — | | RWF | | | | — | | | | — | | | | — | | | | — | | | | 11,962 | | | | — | | IDR | | | — | | | | — | | | | — | | | | — | | | | 411,687 | | | | 10,000 | | | | 411,687 | | | | 10,000 | | | | 347,447 | | | | — | | | | — | | | | — | | KWD | | | — | | | | 288 | | | | — | | | | — | | | | — | | | | — | | |
(iii) Price risk As of December 31, 20102011, 2012 and 2011,2013, the CompanyGroup is exposed to equity securities price risk because the securities held by the CompanyGroup are traded in active markets. If the market prices had increased/decreased by 10% with all other variables held constant, the effects on profit before income tax and shareholders’ equity would have been as follows: | | | | | | | | | | | | | (in millions of Korean won) | | Fluctuation of price | | | Income before tax | | | Shareholders’ equity | | 12.31.2010 | | | +10 | % | | (Won) | — | | | (Won) | 1,914 | | | | | - 10 | % | | | — | | | | (1,914 | ) | 12.31.2011 | | | +10 | % | | (Won) | — | | | | 4,375 | | | | | - 10 | % | | | — | | | | (4,375 | ) |
| | | | | | | | | | | | | (in millions of Korean won) | | Fluctuation of price | | | Income before tax | | | Shareholders’ equity | | 2011 | | | +10 | % | | ₩ | — | | | ₩ | 10,118 | | | | | -10 | % | | | — | | | | (10,118 | ) | 2012 | | | +10 | % | | | — | | | | 4,916 | | | | | -10 | % | | | — | | | | (4,916 | ) | 2013 | | | +10 | % | | | — | | | | 5,535 | | | | | -10 | % | | | — | | | | (5,535 | ) |
The above analysis is based on the assumption that the equity index had increased/decreased by 10% with all other variables held constant and all the Company’sGroup’s marketable equity instruments had moved according to the historical correlation with the index. (iv) Cash flowCashflow and fair value interest rate risk The Company’sGroup’s interest rate risk arises from liabilities in foreign currency such as foreign currency bonds payable. Bonds payable in foreign currency issued at variable rates expose the Company Group to cash flow interest rate risk which is partially offset by swap transactions. Bonds payable and borrowings issued at fixed rates expose the CompanyGroup to fair value interest rate risk. The CompanyGroup sets the policy and operates to minimize the uncertainty of the changes in interest rates and financial costs.
As of December 31, 20102011, 2012 and 2011,2013, if the market interest rate had increased/decreased by 100bp with other variables held constant, the effects on profit before income tax and shareholders’ equity would be as follows: | | | | | | | | | | | (In millions of Korean won) | | Fluctuation of interest rate | | Income before tax | | | Shareholders’ equity | | 12.31.2010 | | + 100 bp | | (Won) | (660 | ) | | (Won) | (3,618 | ) | | | - 100 bp | | | (17,293 | ) | | | (14,603 | ) | 12.31.2011 | | + 100 bp | | | (1,488 | ) | | | (345 | ) | | | - 100 bp | | | (13,108 | ) | | | (14,445 | ) |
| | | | | | | | | | | | | (In millions of Korean won) | | Fluctuation of interest rate | | | Income before tax | | | Shareholders’ equity | | 2011 | | | + 100 bp | | | ₩ | (1,724 | ) | | ₩ | (581 | ) | | | | - 100 bp | | | | (12,872 | ) | | | (14,209 | ) | 2012 | | | + 100 bp | | | | (562 | ) | | | (368 | ) | | | | - 100 bp | | | | (5,100 | ) | | | (5,361 | ) | 2013 | | | + 100 bp | | | | 10,345 | | | | 12,846 | | | | | - 100 bp | | | | (17,201 | ) | | | (19,017 | ) |
The above analysis is a simple sensitivity analysis which assumes that all the variables other than market interest rates are held constant. Therefore, the analysis does not reflect any correlation between market interest rates and other variables, nor the management’s decision to decrease the risk. 2) Credit risk Credit risk is managed on the CompanyGroup basis with the purpose of minimizing financial loss. Credit risk arises from the normal transactions and investing activities, where clients or other party fails to discharge an obligation on contract conditions. To manage credit risk, the CompanyGroup considers the counterparty’s credit based on the counterparty’s financial conditions, default history and other important factors. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as outstanding receivables. To minimize such risk, only the financial institutions with strong credit ratings are accepted. As of January 1, 2010 and December 31, 20102012 and 2011,2013, maximum exposure to credit risk that are not considered of value of collateral held regarding financial instrument areis as follows.follows: | (In millions of Korean won) | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | | 2012 | | | 2013 | | Cash equivalents (except cash on hand) | | (Won) | 1,539,660 | | | (Won) | 1,152,995 | | | (Won) | 1,433,839 | | | Trade and other receivables | | | 4,515,007 | | | | 5,318,713 | | | | 7,882,329 | | | Cash equivalents(except cash on hand) | | | ₩ | 2,051,670 | | | ₩ | 2,065,157 | | Trade and other receivables1 | | | | 6,980,474 | | | | 6,053,040 | | Loans receivable | | | 911,229 | | | | 1,133,221 | | | | 1,189,331 | | | | 1,180,700 | | | | 1,348,597 | | Finance lease receivables | | | 522,765 | | | | 597,339 | | | | 736,660 | | | | 861,655 | | | | 709,937 | | Other financial assets | | | | | | | | | | | Derivate financial assets | | | 308,324 | | | | 250,630 | | | | 164,434 | | | Financial instrument | | | 370,262 | | | | 116,269 | | | | 289,628 | | | Financial assets at fair value through the profit or loss | | | | 6,407 | | | | 15,643 | | Derivative used for hedging | | | | 21,348 | | | | 3,496 | | Time deposits and others | | | | 460,394 | | | | 582,693 | | Available-for-sale financial assets | | | 3,151 | | | | 1,565 | | | | 25,829 | | | | 10,953 | | | | 25,978 | | Held-to-maturity financial assets | | | 82 | | | | 7 | | | | 7 | | | | 436 | | | | 3,248 | | Financial guarantee contracts 1 | | | 9,469 | | | | 37,923 | | | | 57,369 | | | Performance guarantee contracts 1 | | | — | | | | 312 | | | | 910 | | | Financial guarantee contracts2 | | | | 213,947 | | | | 389,814 | | Performance guarantee contracts2 | | | | 14,490 | | | | — | | | | | | | | | | | | | | | | | | Total | | (Won) | 8,179,949 | | | (Won) | 8,608,974 | | | (Won) | 11,780,336 | | | ₩ | 11,802,474 | | | ₩ | 11,197,603 | | | | | | | | | | | | | | | | | |
1 | As of December 31, 2013, the Company is provided with a payment guarantee of₩667,817 million from Seoul Guarantee Insurance related to the sale of certain accounts receivable arising from handset sales. |
2 | Total amounts guaranteed by the CompanyGroup according to the guarantee contractscontracts. |
3) Liquidity risk The CompanyGroup manages its liquidity risk by liquidity strategy and plans. The CompanyGroup considers the maturity of financial assets and financial liabilities and the estimated cash flows from operations. The table below analysesanalyzes the Company’sGroup’s liabilities into relevant maturity groups based on the remaining period at the date of the end of each reporting period to the contractual maturity date.date as of December 31, 2012 and 2013. These amounts are contractual undiscounted cash flows. | | | 12.31.2010 | | | 2012 | | (in millions of Korean won) | | Less than 1 year | | | 1-5 years | | | More than 5 years | | | Total | | | Less than 1 year | | | 1-5 years | | | More than 5 years | | | Total | | Trade and other payables | | (Won) | 5,436,441 | | | (Won) | 483,379 | | | (Won) | 27,179 | | | (Won) | 5,946,999 | | | ₩ | 7,253,043 | | | ₩ | 686,700 | | | ₩ | 104,857 | | | ₩ | 8,044,600 | | Finance lease payables | | | 46,144 | | | | 74,188 | | | | — | | | | 120,332 | | | | 15,826 | | | | 29,474 | | | | — | | | | 45,300 | | Borrowings | | | 3,200,317 | | | | 6,746,895 | | | | 1,152,118 | | | | 11,099,330 | | | Other non-derivative financial liabilities1 | | | 4,183 | | | | 12,071 | | | | 4,719 | | | | 20,973 | | | Borrowings(including bonds payable) | | | | 3,631,441 | | | | 7,578,276 | | | | 1,878,606 | | | | 13,088,323 | | Other non-derivative financial liabilities | | | | — | | | | 80,752 | | | | — | | | | 80,752 | | Financial guarantee contracts1 | | | 37,923 | | | | — | | | | — | | | | 37,923 | | | | 213,947 | | | | — | | | | — | | | | 213,947 | | Obligation guarantee contracts1 | | | 312 | | | | — | | | | — | | | | 312 | | | Performance guarantee contracts 1 | | | | 14,490 | | | | — | | | | — | | | | 14,490 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | (Won) | 8,725,320 | | | (Won) | 7,316,533 | | | (Won) | 1,184,016 | | | (Won) | 17,225,869 | | | ₩ | 11,128,747 | | | ₩ | 8,375,202 | | | ₩ | 1,983,463 | | | ₩ | 21,487,412 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | 12.31.2011 | | (in millions of Korean won) | | Less than 1 year | | | 1-5 years | | | More than 5 years | | | Total | | Trade and other payables | | (Won) | 5,708,878 | | | (Won) | 618,231 | | | (Won) | 21,771 | | | (Won) | 6,348,880 | | Finance lease payables | | | 66,635 | | | | 116,627 | | | | — | | | | 183,262 | | Borrowings | | | 2,546,855 | | | | 8,144,611 | | | | 2,139,458 | | | | 12,830,924 | | Other non-derivative financial liabilities 1 | | | — | | | | 331,170 | | | | — | | | | 331,170 | | Financial guarantee contracts 1 | | | 57,369 | | | | — | | | | — | | | | 57,369 | | Performance guarantee contracts 1 | | | 910 | | | | — | | | | — | | | | 910 | | | | | | | | | | | | | | | | | | | Total | | (Won) | 8,380,647 | | | (Won) | 9,210,639 | | | (Won) | 2,161,229 | | | (Won) | 19,752,515 | | | | | | | | | | | | | | | | | | |
1 | Total amount guaranteed by the CompanyGroup according to guarantee contracts. Cash flow from financial guarantee contracts is classified as the maturity group in the earliest period when the financial guarantee contracts can be executedexecuted. |
| | | | | | | | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | Less than 1 year | | | 1-5 years | | | More than 5 years | | | Total | | Trade and other payables | | ₩ | 7,429,289 | | | ₩ | 789,999 | | | ₩ | 352,928 | | | ₩ | 8,572,216 | | Finance lease payables | | | 22,498 | | | | 52,877 | | | | — | | | | 75,375 | | Borrowings(including bond payables) | | | 3,147,761 | | | | 5,408,176 | | | | 3,468,282 | | | | 12,024,219 | | Other non-derivative financial liabilities | | | — | | | | 3,166 | | | | 53,704 | | | | 56,870 | | Financial guarantee contracts 1 | | | 389,814 | | | | — | | | | — | | | | 389,814 | | | | | | | | | | | | | | | | | | | Total | | ₩ | 10,989,362 | | | ₩ | 6,254,218 | | | ₩ | 3,874,914 | | | ₩ | 21,118,494 | | | | | | | | | | | | | | | | | | |
Cash outflow and inflow of derivatives settled gross or net are undiscounted contractual cash flow and can differ from the amount in the financial statements. | | | 12.31.2010 | | | 2011 | | (in millions of Korean won) | | Less than 1 year | | | 1-5 years | | | More than 5 years | | | Total | | | Less than 1 year | | | 1-5 years | | | More than 5 years | | | Total | | Outflow | | (Won) | 613,404 | | | (Won) | 1,590,493 | | | (Won) | 43,805 | | | (Won) | 2,247,702 | | | ₩ | 414,646 | | | ₩ | 1,949,253 | | | ₩ | 42,541 | | | ₩ | 2,406,440 | | Inflow | | | 753,842 | | | | 1,660,349 | | | | 50,909 | | | | 2,465,100 | | | | 436,469 | | | | 2,038,288 | | | | 50,053 | | | | 2,524,810 | |
| | | 12.31.2011 | | | 2012 | | (in millions of Korean won) | | Less than 1 year | | | 1-5 years | | | More than 5 years | | | Total | | | Less than 1 year | | | 1-5 years | | | More than 5 years | | | Total | | Outflow | | (Won) | 414,646 | | | (Won) | 1,949,253 | | | (Won) | 42,541 | | | (Won) | 2,406,440 | | | ₩ | 1,020,494 | | | ₩ | 1,507,287 | | | ₩ | 41,292 | | | ₩ | 2,569,073 | | Inflow | | | 436,469 | | | | 2,038,288 | | | | 50,053 | | | | 2,524,810 | | | | 949,921 | | | | 1,550,822 | | | | 45,093 | | | | 2,545,836 | |
| | | | | | | | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | Less than 1 year | | | 1-5 years | | | More than 5 years | | | Total | | Outflow | | ₩ | 971,454 | | | ₩ | 1,377,071 | | | ₩ | 38,795 | | | ₩ | 2,387,320 | | Inflow | | | 910,488 | | | | 1,256,407 | | | | 41,648 | | | | 2,208,543 | |
(2) Disclosure of capital management The Company’sGroup’s objectives when managing capital are to safeguard the Company’sGroup’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other shareholders and to maintain an optimal capital structure to reduce the cost of capital. The Company’sGroup’s capital structure consists of liabilities including borrowings, cash and cash equivalents, and shareholders’ equity. The treasury department monitors the Company’sGroup’s capital structure and considers cost of capital and risks related each capital component. The debtdebt-to-equity ratios as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | | | | | | | | | | | | | (in millions of Korean won) | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | Total liabilities | | (Won) | 15,948,878 | | | (Won) | 15,587,548 | | | (Won) | 19,547,600 | | Total equity | | | 10,714,816 | | | | 11,354,055 | | | | 12,537,809 | | Gearing ratio | | | 149 | % | | | 137 | % | | | 156 | % |
| | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Total liabilities | | ₩ | 21,339,933 | | | ₩ | 22,012,701 | | Total equity | | | 13,217,975 | | | | 12,837,416 | | Debt-to-equity ratio | | | 161 | % | | | 171 | % |
The CompanyGroup manages capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as ‘equity’ in the statement of financial position plus net debt. The gearing ratioratios as of January 1, 2010 and December 31, 20102012 and 2011,2013, are as follows: | (in millions of Korean won, %) | | 1.1.2010 | | 12.31.2010 | | 12.31.2011 | | | 2012 | | 2013 | | Total borrowings | | (Won) | 9,566,700 | | | (Won) | 9,382,364 | | | (Won) | 10,998,552 | | | ₩ | 11,477,765 | | | | 11,552,103 | | Less: cash and cash equivalents | | | (1,542,872 | ) | | | (1,161,641 | ) | | | (1,445,169 | ) | | | (2,057,613 | ) | | | (2,070,869 | ) | | | | | | | | | | | | | | | | | Net debt | | | 8,023,828 | | | | 8,220,723 | | | | 9,553,383 | | | | 9,420,152 | | | | 9,481,234 | | Total equity | | | 10,714,816 | | | | 11,354,055 | | | | 12,537,809 | | | | 13,217,975 | | | | 12,837,416 | | | | | | | | | | | | | Total capital | | (Won) | 18,738,644 | | | (Won) | 19,574,778 | | | (Won) | 22,091,192 | | | | 22,638,127 | | | | 22,318,650 | | Gearing ratio | | | 43 | % | | | 42 | % | | | 43 | % | | | 42 | % | | | 42 | % |
(3) Offsetting Financial Assets and Financial Liabilities Details of the Group’s recognized financial assets subject to enforceable master netting arrangements or similar agreements are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | (in millions of Korean won) | | Gross assets | | | Gross liabilities offset | | | Net amounts presented in the statement of financial position | | | Amounts not offset | | | Net amount | | | | | | Financial instruments | | | Cash collateral | | | Derivative assets for hedging purpose 1 | | ₩ | 11,120 | | | ₩ | — | | | ₩ | 11,120 | | | ₩ | (11,120 | ) | | ₩ | — | | | ₩ | — | | Trade receivables 2 | | | 103,733 | | | | (32 | ) | | | 103,701 | | | | (87,276 | ) | | | — | | | | 16,425 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ₩ | 114,853 | | | ₩ | (32 | ) | | ₩ | 114,821 | | | ₩ | (98,396 | ) | | ₩ | — | | | ₩ | 16,425 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | Gross assets | | | Gross liabilities offset | | | Net amounts presented in the statement of financial position | | | Amounts not offset | | | Net amount | | | | | | Financial instruments | | | Cash collateral | | | Derivative assets for hedging purpose 1 | | ₩ | 5,393 | | | ₩ | — | | | ₩ | 5,393 | | | ₩ | (5,393 | ) | | ₩ | — | | | ₩ | — | | Trade receivables 2 | | | 100,989 | | | | (60 | ) | | | 100,929 | | | | (92,979 | ) | | | — | | | | 7,950 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ₩ | 106,382 | | | ₩ | (60 | ) | | ₩ | 106,322 | | | ₩ | (98,372 | ) | | ₩ | — | | | ₩ | 7,950 | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 | The amount applied with master netting arrangements under the standard contract of ISDA(International Swap and Derivatives Association). |
2 | The amount applied with netting arrangements under the reference offer of the telecommunication facility interconnection and sharing data among telecommunications companies. |
The Group’s recognized financial liabilities subject to enforceable master netting arrangements or similar agreements are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | (in millions of Korean won) | | Gross liabilities | | | Gross assets offset | | | Net amounts presented in the statement of financial position | | | Amounts not offset | | | Net amount | | | | | | Financial instruments | | | Cash collateral | | | Derivative liabilities for hedging purpose 1 | | ₩ | 16,848 | | | ₩ | — | | | ₩ | 16,848 | | | ₩ | (11,120 | ) | | ₩ | — | | | ₩ | 5,728 | | Trade payables 2 | | | 89,665 | | | | — | | | | 89,665 | | | | (87,276 | ) | | | — | | | | 2,389 | | Other payables 2 | | | 4 | | | | (1 | ) | | | 3 | | | | — | | | | — | | | | 3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ₩ | 106,517 | | | ₩ | (1 | ) | | ₩ | 106,516 | | | ₩ | (98,396 | ) | | ₩ | — | | | ₩ | 8,120 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | Gross liabilities | | | Gross assets offset | | | Net amounts presented in the statement of financial position | | | Amounts not offset | | | Net amount | | | | | | Financial instruments | | | Cash collateral | | | Derivative liabilities for hedging purpose 1 | | ₩ | 9,889 | | | ₩ | — | | | ₩ | 9,889 | | | ₩ | (5,393 | ) | | ₩ | — | | | ₩ | 4,496 | | Trade payables 2 | | | 95,754 | | | | — | | | | 95,754 | | | | (92,979 | ) | | | — | | | | 2,775 | | Other payables 2 | | | 11 | | | | (2 | ) | | | 9 | | | | — | | | | — | | | | 9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ₩ | 105,654 | | | ₩ | (2 | ) | | ₩ | 105,652 | | | ₩ | (98,372 | ) | | ₩ | — | | | ₩ | 7,280 | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 | The amount applied with master netting arrangements under the standard contract of ISDA(International Swap and Derivatives Association). |
2 | The amount applied with netting arrangements under the reference offer of the telecommunication facility interconnection and sharing data among telecommunications companies. |
36. Fair Value (1) Fair Value of Financial Instruments by Category Carrying amount and fair value of financial instruments by category as of December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | 2012 | | | 2013 | | (in millions of Korean won) | | Carrying amount | | | Fair value | | | Carrying amount | | | Fair value | | Financial assets | | | | | | | | | | | | | | | | | Cash and cash equivalents 1 | | ₩ | 2,057,613 | | | ₩ | 2,057,613 | | | ₩ | 2,070,869 | | | ₩ | 2,070,869 | | Trade and other receivables 1 | | | 6,980,474 | | | | 6,980,474 | | | | 6,053,040 | | | | 6,053,040 | | Other financial assets | | | | | | | | | | | | | | | | | Financial instruments at fair value through profit or loss | | | 6,407 | | | | 6,407 | | | | 15,643 | | | | 15,643 | | Derivative financial instruments for hedging purpose | | | 21,348 | | | | 21,348 | | | | 3,496 | | | | 3,496 | | Time deposits and others 1 | | | 460,830 | | | | 460,830 | | | | 585,941 | | | | 585,941 | | Available-for-sale financial assets 2 | | | 301,718 | | | | 301,718 | | | | 405,194 | | | | 405,194 | | | | | | | | | | | | | | | | | | | | | ₩ | 9,828,390 | | | ₩ | 9,828,390 | | | ₩ | 9,134,183 | | | ₩ | 9,134,183 | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities | | | | | | | | | | | | | | | | | Trade and other liabilities1 | | ₩ | 7,922,662 | | | ₩ | 7,922,662 | | | ₩ | 8,472,707 | | | ₩ | 8,472,707 | | Financial lease liabilities | | | 41,646 | | | | 41,646 | | | | 68,210 | | | | 68,210 | | Borrowings | | | 11,436,119 | | | | 11,566,001 | | | | 11,483,893 | | | | 11,499,645 | | Other financial liabilities | | | | | | | | | | | | | | | | | Financial instruments at fair value through profit or loss | | | 3,216 | | | | 3,216 | | | | 2,956 | | | | 2,956 | | Derivative financial instruments for hedging purpose | | | 112,603 | | | | 112,603 | | | | 150,612 | | | | 150,612 | | Financial guarantee liability 1 | | | 9,328 | | | | 9,328 | | | | 15,984 | | | | 15,984 | | Other financial liabilities 1 | | | 16,649 | | | | 16,649 | | | | 73,080 | | | | 73,080 | | | | | | | | | | | | | | | | | | | | | ₩ | 19,542,223 | | | ₩ | 19,672,105 | | | ₩ | 20,267,442 | | | ₩ | 20,283,194 | | | | | | | | | | | | | | | | | | |
1 | The Group did not conduct fair value estimation since the book value is a reasonable approximation of the fair value. |
2 | Equity instruments that do not have a quoted price in an active market are measured at cost because their fair value cannot be measured reliably and excluded from the fair value disclosures. |
(2) Financial Instruments Measured at Cost Available-for-sale financial assets measured at cost as of December 31, 2012 and 2013, are as follows: | | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | SBS KT SPC | | ₩ | 25,000 | | | ₩ | 25,000 | | MBC KT SPC | | | 11,000 | | | | 11,000 | | KBS KT SPC | | | 11,000 | | | | 11,000 | | IBK-AUCTUS Green Growth Private Equity Fund | | | 14,319 | | | | 14,319 | | Ustream Inc. | | | 11,295 | | | | 11,295 | | KOCREF REITs | | | — | | | | 7,000 | | Presto Private Equity Fund | | | — | | | | 4,000 | | Enterprise DB(Convertible Preferred Stock) | | | 3,013 | | | | 3,013 | | The 1st Praxis PE | | | — | | | | 3,000 | | Soulbay Indochina Private Equity Fund | | | — | | | | 3,000 | | AMOGREENTECH | | | 3,000 | | | | 3,000 | | Kokam Co., Ltd. | | | 2,794 | | | | 2,794 | | Channel A | | | 2,391 | | | | 2,391 | | Nexenta Systems(Convertible Preferred Stock) | | | 2,260 | | | | 2,260 | | KOFSGSK Corporate’s Financial Stabilization Private Equity Fund | | | — | | | | 2,000 | | Kamur Private Equity Fund No.1(Partnership enterprises) | | | — | | | | 2,000 | | JTBC | | | 2,000 | | | | 2,000 | | CSTV | | | 2,000 | | | | 2,000 | | Shinhan K2 Secondary Fund | | | 1,050 | | | | 1,950 | | JKL Private Equity Fund No.4 | | | 1,905 | | | | 1,905 | | JKL-Quintessa Private Equity Fund | | | — | | | | 1,833 | | Minigate(Convertible Preferred Stock) | | | 1,800 | | | | 1,800 | | United Turnaround PEF No.3 | | | — | | | | 1,187 | | Newkyunggi Resort Corp | | | 1,240 | | | | 1,240 | | Nexenta Systems | | | 1,029 | | | | 1,029 | | Goods Flow Co., Ltd. | | | 1,000 | | | | 1,000 | | Mirae Asset Good Company Secondary Investment Fund | | | — | | | | 1,000 | | Innopolis-CJ Bio Healthcare Fund | | | — | | | | 1,000 | | KaKao Co., Ltd | | | — | | | | 1,000 | | Others | | | 30,061 | | | | 16,417 | | | | | | | | | | | | | ₩ | 128,157 | | | ₩ | 142,433 | | | | | | | | | | |
The range of cashflow estimates is significant and the probabilities of the various estimates cannot be reasonably assessed and therefore these instruments are measured at cost. The Group does not have any plans to dispose of the above-mentioned equities instruments in the near future. These instruments will be measured at fair value when the Group can develop a reliable estimate of the fair value. (3) Fair value estimationValue Hierarchy The table below analyses financial instruments carriedAssets measured at fair value by valuation method. The differentor for which the fair value is disclosed are categorized within the fair value hierarchy, and the defined levels have been definedare as follows:
Quoted prices (unadjusted) in active markets for identical assets or liabilities (level(Level 1) Inputs other than quoted prices included within levelLevel 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level(Level 2) Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level(Level 3) The following table presents
Fair value hierarchy classifications of the Company’sfinancial assets and financial liabilities that are measured at fair value or its fair value is disclosed as of January 1, 2010 and December 31, 2010 and 2011:2013, are as follows: | | | | | | | | | | | | | | | | | | | 1.1.2010 | | (in millions of Korean won) | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets | | | | | | | | | | | | | | | | | Available-for-sale | | (Won) | 15,587 | | | (Won) | 3,151 | | | (Won) | — | | | (Won) | 18,738 | | Derivative financial assets | | | — | | | | 308,324 | | | | — | | | | 308,324 | | | | | | | | | | | | | | | | | | | Total | | (Won) | 15,587 | | | (Won) | 311,475 | | | (Won) | — | | | (Won) | 327,062 | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | Derivative financial liabilities | | (Won) | — | | | (Won) | 11,279 | | | (Won) | — | | | (Won) | 11,279 | | Hedged bonds | | | — | | | | 180,023 | | | | — | | | | 180,023 | | | | | | | | | | | | | | | | | | | Total | | (Won) | — | | | (Won) | 191,302 | | | (Won) | — | | | (Won) | 191,302 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | 2012 | | (in millions of Korean won) | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Recurring fair value measurements | | | | | | | | | | | | | | | | | Other financial assets | | | | | | | | | | | | | | | | | Financial assets at fair value through profit or loss | | ₩ | — | | | ₩ | 119 | | | ₩ | 6,288 | | | ₩ | 6,407 | | Derivative financial assets for hedging purpose | | | — | | | | 837 | | | | 20,511 | | | | 21,348 | | Available-for-sale financial assets | | | 49,156 | | | | 35,361 | | | | 217,201 | | | | 301,718 | | | | | | | | | | | | | | | | | | | | | | 49,156 | | | | 36,317 | | | | 244,000 | | | | 329,473 | | | | | | | | | | | | | | | | | | | Disclosed fair value | | | | | | | | | | | | | | | | | Jointly controlled entities and associates | | | 52,882 | | | | — | | | | — | | | | 52,882 | | Investment property 1 | | | — | | | | — | | | | 2,335,642 | | | | 2,335,642 | | | | | | | | | | | | | | | | | | | | | | 52,882 | | | | — | | | | 2,335,642 | | | | 2,388,524 | | | | | | | | | | | | | | | | | | | | | ₩ | 102,038 | | | ₩ | 36,317 | | | ₩ | 2,579,642 | | | ₩ | 2,717,997 | | | | | | | | | | | | | | | | | | | Recurring fair value measurements | | | | | | | | | | | | | | | | | Other financial liabilities | | | | | | | | | | | | | | | | | Financial liabilities at fair value through profit or loss | | ₩ | — | | | ₩ | 63 | | | ₩ | 3,153 | | | ₩ | 3,216 | | Derivative financial liabilities for hedging purpose | | | — | | | | 89,063 | | | | 23,540 | | | | 112,603 | | | | | | | | | | | | | | | | | | | | | | — | | | | 89,126 | | | | 26,693 | | | | 115,819 | | | | | | | | | | | | | | | | | | | Disclosed fair value | | | | | | | | | | | | | | | | | Borrowings | | | — | | | | — | | | | 11,566,001 | | | | 11,566,001 | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | 11,566,001 | | | | 11,566,001 | | | | | | | | | | | | | | | | | | | | | ₩ | — | | | ₩ | 89,126 | | | ₩ | 11,592,694 | | | ₩ | 11,681,820 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | 12.31.2010 | | (in millions of Korean won) | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets | | | | | | | | | | | | | | | | | Assets at fair value through the profit and loss | | (Won) | — | | | (Won) | 1,173 | | | (Won) | — | | | (Won) | 1,173 | | Available-for-sale | | | 25,469 | | | | 1,565 | | | | — | | | | 27,034 | | Derivative financial assets | | | — | | | | 250,630 | | | | — | | | | 250,630 | | | | | | | | | | | | | | | | | | | Total | | (Won) | 25,469 | | | (Won) | 253,368 | | | (Won) | — | | | (Won) | 278,837 | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | Derivative financial liabilities | | (Won) | — | | | (Won) | 20,471 | | | (Won) | — | | | (Won) | 20,471 | | Hedged bonds | | | — | | | | 181,244 | | | | — | | | | 181,244 | | Financial guarantee liabilities | | | — | | | | 3,157 | | | | — | | | | 3,157 | | | | | | | | | | | | | | | | | | | Total | | (Won) | — | | | (Won) | 204,872 | | | (Won) | — | | | (Won) | 204,872 | | | | | | | | | | | | | | | | | | |
1 | The highest and best use of a non-financial asset does not differ from its current use. |
| | | | | | | | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Recurring fair value measurements | | | | | | | | | | | | | | | | | Other financial assets | | | | | | | | | | | | | | | | | Financial assets at fair value through profit or loss | | ₩ | — | | | ₩ | 499 | | | ₩ | 15,144 | | | ₩ | 15,643 | | Derivative financial assets for hedging purpose | | | — | | | | — | | | | 3,496 | | | | 3,496 | | Available-for-sale financial assets | | | 55,347 | | | | 57,533 | | | | 292,314 | | | | 405,194 | | | | | | | | | | | | | | | | | | | | | | 55,347 | | | | 58,032 | | | | 310,954 | | | | 424,333 | | | | | | | | | | | | | | | | | | | Disclosed fair value | | | | | | | | | | | | | | | | | Jointly controlled entities and associates | | | 69,840 | | | | — | | | | — | | | | 69,840 | | Investment property 1 | | | — | | | | — | | | | 2,051,183 | | | | 2,051,183 | | | | | | | | | | | | | | | | | | | | | | 69,840 | | | | — | | | | 2,051,183 | | | | 2,121,023 | | | | | | | | | | | | | | | | | | | | | ₩ | 125,187 | | | ₩ | 58,032 | | | ₩ | 2,362,137 | | | ₩ | 2,545,356 | | | | | | | | | | | | | | | | | | | Recurring fair value measurements | | | | | | | | | | | | | | | | | Other financial liabilities | | | | | | | | | | | | | | | | | Financial liabilities at fair value through profit or loss | | ₩ | — | | | ₩ | 6 | | | ₩ | 2,950 | | | ₩ | 2,956 | | Derivative financial liabilities for hedging purpose | | | — | | | | 113,980 | | | | 36,632 | | | | 150,612 | | | | | | | | | | | | | | | | | | | | | | — | | | | 113,986 | | | | 39,582 | | | | 153,568 | | | | | | | | | | | | | | | | | | | Disclosed fair value | | | | | | | | | | | | | | | | | Borrowings | | | — | | | | — | | | | 11,499,645 | | | | 11,499,645 | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | 11,499,645 | | | | 11,499,645 | | | | | | | | | | | | | | | | | | | | | ₩ | — | | | ₩ | 113,986 | | | ₩ | 11,539,227 | | | ₩ | 11,653,213 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | 12.31.2011 | | (in millions of Korean won) | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets | | | | | | | | | | | | | | | | | Assets at fair value through the profit and loss | | (Won) | — | | | (Won) | 1,386 | | | (Won) | — | | | (Won) | 1,386 | | Available-for-sale | | | 101,183 | | | | 25,829 | | | | 134,346 | | | | 261,358 | | Derivative financial assets | | | — | | | | 164,434 | | | | — | | | | 164,434 | | | | | | | | | | | | | | | | | | | Total | | (Won) | 101,183 | | | (Won) | 191,649 | | | (Won) | 134,346 | | | (Won) | 427,178 | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | Derivative financial liabilities | | (Won) | — | | | (Won) | 6,548 | | | (Won) | 2,258 | | | (Won) | 8,806 | | Financial guarantee liabilities | | | — | | | | 8,042 | | | | — | | | | 8,042 | | | | | | | | | | | | | | | | | | | Total | | (Won) | — | | | (Won) | 14,590 | | | (Won) | 2,258 | | | (Won) | 16,848 | | | | | | | | | | | | | | | | | | |
The(4) Transfers Between Fair Value Hierarchy Levels of Recurring Fair Value Measurements
(a) Details of transfers between Level 1 and Level 2 of the fair value hierarchy for the recurring fair value measurements are as follows: There are no transfers between Level 1 and Level 2 of the fair value hierarchy for the recurring fair value measurements. (b) Details of changes in Level 3 of the fair value hierarchy for the recurring fair value measurements are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | | | Interest rate swap | | | Other derivative assets | | | Derivative financial assets for hedging purpose | | | Available- for-sale | | | Financial liabilities designated as at fair value through profit or loss | | | Derivative financial liabilities for
hedging purpose | | Beginning balance | | ₩ | — | | | ₩ | 4,151 | | | ₩ | 63,689 | | | ₩ | 134,346 | | | ₩ | — | | | ₩ | — | | Reclassification | | | — | | | | — | | | | (12,886 | ) | | | — | | | | — | | | | 12,886 | | Amount recognized in profit or loss1 | | | 1 | | | | — | | | | (29,350 | ) | | | (1,122 | ) | | | (334 | ) | | | 28,708 | | Amount recognized in other comprehensive income 2 | | | — | | | | — | | | | (942 | ) | | | 38,679 | | | | — | | | | (18,054 | ) | Purchases | | | — | | | | 2,136 | | | | — | | | | 13,209 | | | | 3,487 | | | | — | | Sales | | | — | | | | — | | | | — | | | | (6,164 | ) | | | — | | | | — | | Transfer into Level 3 (From Cost method) | | | — | | | | — | | | | — | | | | 38,253 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance | | ₩ | 1 | | | ₩ | 6,287 | | | ₩ | 20,511 | | | ₩ | 217,201 | | | ₩ | 3,153 | | | ₩ | 23,540 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2013 | | | | Interest rate swap | | | Other derivative assets | | | Derivative financial assets for hedging purpose | | | Available- for-sale | | | Other derivative liabilities | | | Financial liabilities designated as at fair value through profit or loss | | | Derivative financial liabilities for hedging purpose | | Beginning balance | | ₩ | 1 | | | ₩ | 6,287 | | | ₩ | 20,511 | | | ₩ | 217,201 | | | ₩ | — | | | ₩ | 3,153 | | | ₩ | 23,540 | | Reclassification | | | 15,633 | | | | — | | | | (15,633 | ) | | | — | | | | — | | | | — | | | | — | | Amount recognized in profit or loss1 | | | (8,395 | ) | | | 2,469 | | | | 127 | | | | (3,844 | ) | | | 148 | | | | (351 | ) | | | 9,268 | | Amount recognized in other comprehensive income2 | | | — | | | | — | | | | (1,509 | ) | | | 95,434 | | | | — | | | | — | | | | 3,824 | | Purchases | | | — | | | | — | | | | — | | | | 3,009 | | | | — | | | | — | | | | — | | Sales | | | — | | | | (851 | ) | | | — | | | | (29,851 | ) | | | — | | | | — | | | | — | | Transfer into Level 3 (From Cost method) | | | — | | | | — | | | | — | | | | 10,365 | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance | | ₩ | 7,239 | | | ₩ | 7,905 | | | ₩ | 3,496 | | | ₩ | 292,314 | | | ₩ | 148 | | | ₩ | 2,802 | | | ₩ | 36,632 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(5) Valuation Technique and the Inputs Valuation techniques and inputs used in the recurring, non-recurring fair value measurements and disclosed fair values categorized within Level 2 and Level 3 of the fair value hierarchy as of December 31, 2012 and 2013, are as follows: | | | | | | | | | | | | | 2012 | (in millions of Korean won) | | Fair value | | | Level | | | Valuation techniques | Recurring fair value measurements | | | | | | | | | | | Other financial assets | | | | | | | | | | | Financial assets at fair value through profit or loss | | | | | | | | | | | Held for trading financial assets | | | | | | | | | | | Interest rate swap | | ₩ | 1 | | | | 3 | | | Hull-White model | Currency forward | | | 119 | | | | 2 | | | Discounted cash flow model | Other derivative assets | | | 6,287 | | | | 3 | | | Option model (binomial trees) | Derivative financial assets for hedging purpose | | | 837 | | | | 2 | | | Discounted cash flow model | | | | 20,511 | | | | 3 | | | Hull-White model | Available-for-sale financial assets | | | 252,562 | | | | 2,3 | | | Discounted cash flow model | Disclosed fair value | | | | | | | | | | | Investment property | | | 2,335,642 | | | | 3 | | | Discounted cash flow model | | | | | Recurring fair value measurements | | | | | | | | | | | Other financial liabilities | | | | | | | | | | | Financial liabilities at fair value through profit or loss | | | | | | | | | | | Held for trading financial assets | | | | | | | | | | | Interest rate swap | | | 63 | | | | 2 | | | Discounted cash flow model | Financial liabilities designated as at fair value through profit or loss | | | 3,153 | | | | 3 | | | Option model (binomial trees) | Derivative financial liabilities for hedging purpose | | | 89,063 | | | | 2 | | | Discounted cash flow model | | | | 23,540 | | | | 3 | | | Hull-White model | Disclosed fair value Borrowings | | | 11,566,001 | | | | 3 | | | Discounted cash flow model |
| | | | | | | | | | | | | 2013 | (in millions of Korean won) | | Fair value | | | Level | | | Valuation techniques | Recurring fair value measurements | | | | | | | | | | | Other financial assets | | | | | | | | | | | Financial assets at fair value through profit or loss | | | | | | | | | | | Held for trading financial assets | | | | | | | | | | | Interest rate and currency swap | | ₩ | 7,239 | | | | 3 | | | Hull-White model | Currency forward | | | 499 | | | | 2 | | | Discounted cash flow model | Other derivative assets | | | 7,905 | | | | 3 | | | Monte-Carlo Simulation Option model (binomial trees) | Derivative financial assets for hedging purpose | | | 3,496 | | | | 3 | | | Discounted cash flow model | Available-for-sale financial assets | | | 349,847 | | | | 2,3 | | | Discounted cash flow model | Disclosed fair value | | | | | | | | | | | Investment property | | | 2,051,183 | | | | 3 | | | Discounted cash flow model | | | | | Recurring fair value measurements | | | | | | | | | | | Other financial liabilities | | | | | | | | | | | Financial liabilities at fair value through profit or loss | | | | | | | | | | | Held for trading financial assets | | | | | | | | | | | Currency forward | | | 6 | | | | 2 | | | Discounted cash flow model | Other derivatives | | | 148 | | | | 3 | | | Option model (binomial trees) | Financial liabilities designated as at fair value through profit or loss | | | 2,802 | | | | 3 | | | Option model (binomial trees) | Derivative financial liabilities for hedging purpose | | | 113,980 | | | | 2 | | | Discounted cash flow model | | | | 36,632 | | | | 3 | | | Hull-White model | Disclosed fair value Borrowings | | | 11,499,645 | | | | 3 | | | Discounted cash flow model |
(6) Gains and losses on valuation at the transaction date In the case that the Group estimates the fair value of derivative financial instruments traded in active markets is based on quoted market prices at the date of the end of reporting period. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the Company is the bid price. These instruments are included in level 1. Instruments included in level 1 comprise listed equity investments classified as available-for-sale. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value of an instrument are observable, the instrument is included in level 2.
If one or more of the significant inputs are not based on observable market data, and the instrumentfair value calculated by the said valuation technique differs from the transaction price, then the fair value of the financial instruments is includedrecognized as the transaction price. The difference between the fair value at initial recognition and the transaction price is deferred and amortized using a straight-line method by maturity of the financial instrument. However, in level 3.the case that inputs of the valuation techniques become observable in the markets, the remaining deferred difference is immediately recognized in full in profit for the year.
TheIn relation to this, details and changes of the financial instrument included in Level 3total deferred difference for the yearyears ended December 31, 20112012 and 2013, are as follows:
| | | | | | | | | (in millions of Korean won) | | Available-for-sale financial assets | | | Derivative financial liabilities | | Beginning | | (Won) | — | | | (Won) | — | | Total profit | | | — | | | | — | | Income for the year | | | — | | | | (36 | ) | Other comprehensive income | | | 14,850 | | | | — | | Transfer into Level 3 from the cost method | | | 17,544 | | | | — | | Changes in scope of consolidation | | | 101,952 | | | | (2,222 | ) | | | | | | | | | | Ending | | (Won) | 134,346 | | | (Won) | (2,258 | ) | | | | | | | | | |
The details of equity securities measured at historical cost as of January 1, 2010 and December 31, 2010 and 2011, are as follows.
| | | | | | | | | | | | | (in millions of Korean won) | | 1.1.2010 | | | 12.31.2010 | | | 12.31.2011 | | SBSKTSPC 1 | | (Won) | 15,000 | | | (Won) | 25,000 | | | (Won) | 25,000 | | MBCKTSPC 1 | | | 11,000 | | | | 11,000 | | | | 11,000 | | KBSKTSPC 1 | | | — | | | | — | | | | 11,000 | | IBK-AUCTUS Green Growth Private Equity Fund 1 | | | 100 | | | | 7,000 | | | | 10,340 | | ELAND RETAIL.Ltd. 1 | | | — | | | | — | | | | 9,998 | | Vogo II-2 Investment Holdings Co., Ltd. 1 | | | — | | | | — | | | | 4,813 | | Revolution Private Equity Fund 1 | | | — | | | | — | | | | 4,500 | | KoFC-IMM Pioneer Champ 2010-17 venture investment 1 | | | — | | | | 2,010 | | | | 3,000 | | Enterprise DB Corp. 1 | | | — | | | | 3,013 | | | | 3,013 | | Others | | | 66,878 | | | | 97,087 | | | | 77,233 | | | | | | | | | | | | | | | Total | | (Won) | 92,978 | | | (Won) | 145,110 | | | (Won) | 159,897 | | | | | | | | | | | | | | |
1 | The range of cashflow estimates is significant and the probabilities of the various estimates cannot be reasonably assessed and therefore these instruments are measured at cost. |
The Company does not have any plans to dispose the above-mentioned equities instruments in the near future. These instruments will be measured at fair value when the Company can develop a reliable estimate of the fair value.
| | | | | | | | | (in millions of Korean won) | | 2012 | | | 2013 | | Beginning balance | | ₩ | — | | | ₩ | 54,152 | | New transactions | | | 54,152 | | | | — | | Amortization | | | — | | | | (10,830 | ) | | | | | | | | | | Ending balance | | ₩ | 54,152 | | | ₩ | 43,322 | | | | | | | | | | |
37. Business Combination (1) KT SkylifeRental Co., Ltd. Due toOn July 2012, the trend of convergence in the telecommunications and broadcasting market, the Controlling Company needed to obtain control over a broadcasting company to enhance the synergy effectsrestriction on controlling power of the resources withinCompany under the consolidated subsidiaries. On January 27, 2011,shareholders’ agreement between 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 ofsecond major shareholder was lifted, and therefore KT Skylife Co., Ltd. (formerly “Korea Digital Satellite Broadcasting Co., Ltd.”)rental became a subsidiary. These transactions were accounted for(Won)246,400 million, which is engaged in the satellite broadcasting business. Including the potential voting rights, the Controlling Company’s ownership in KT Skylife Co., Ltd. has increased to 53.05% and accordingly, the Controlling Company has control over KT Skylife Co., Ltd. On March 10, 2011, the Controlling Company exercised the conversion right of both redeemable convertible preferred stocks and convertible bonds.
accordance with IFRS 3, Business Combinations. As a result of applying the acquisition method, the Company recognized goodwill of(Won)₩306,303 million, which is the excess of total consideration transferred over the fair value of the net assets at the acquisition date. The fair value of the net assets at the acquisition date includes the identifiable intangible assets such as customer relationship, which was not previously recognized in the subsidiary’s financial statements.131,426 million. Details of the consideration transferred, fair value of the acquired identifiable assets and liabilities and goodwill at the acquisition date are as follows: | | | | | (in millions of Korean won) | | Amounts | | Consideration transferred (cash and cash equivalents)Fair value of existing shares before business combination
| | (Won)₩ | 246,400305,730 | | The acquisition-date fair value of the acquirer’s previously held equity interest
| | | 280,773 | | | | | | | Consideration transferred (a) | | (Won)₩ | 527,173305,730 | | | | | | | The recognizedRecognized amounts of assets acquired and liabilities assumed 1
| | | | | Cash and cash equivalents | | (Won)₩ | 78,73023,160 | | Trade and other receivables | | | 120,964 | | Loans receivable | | | 49,805 | | Financial lease receivables | | | 254,264 | | Other financial assets | | | 88,176 | | Trade and other accounts receivable
| | | 140,1801,983 | | Inventories | | | 5,715779 | | FixedTangible assets including broadcast equipment and satellite communication facilities(rental vehicle, others)
| | | 142,641992,516 | | Intangible assets including broadcast license and(orders on hand, customer relationship, others) | | | 305,564 | | Investments in associates
| | | 5,71669,866 | | Other assets | | | 36,10434,031 | | Trade and other accounts payablepayables | | | (130,758195,933 | ) | Borrowings | | | (164,572985,790 | ) | Provisions for severance benefitsCurrent income tax liabilities
| | | (11,2565,138 | ) | Accrued provisionsRetirement benefit obligation
| | | (9194,065 | ) | Deferred income tax liabilities | | | (51,1719,151 | ) | Other liabilities | | | (26,17846,759 | ) | | | | | | The net of total amounts of identifiable assets and liabilities measured at fair value (b) | | (Won)₩ | 417,972300,532 | | | | | | | Non-controlling interests 2 (c) | | | 197,102126,228 | | | | | | | Goodwill 3 (a-b+c) | | (Won)₩ | 306,303131,426 | | | | | | |
1 | The assets acquired and liabilities assumed are measured at fair value in accordance with IFRS 3,Business Combination. |
2 | At the date of acquisition, the Company measures any non-controlling interest in KT SkylifeRental Co., Ltd. at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. The amounts include non-controlling interest in Korea HD Broadcasting Corp., the subsidiary of KT Skylife. |
3 | Goodwill is not tax deductible |
As described in Note 15,14, the previously held interest in KT SkylifeRental Co., Ltd. was measured at fair value, and the Company recognized other operating income of(Won)₩187,458126,011 million arising from the fair value measurement on acquisition. After the acquisition date, the operating revenue and net income for consolidation of KT SkylifeRental Co., Ltd. before the elimination of intercompanyrelated party transactions with its subsidiaries are(Won)₩116,748368,228 million and(Won)₩7,32111,072 million, respectively. The difference between itsIf KT Rental Co., Ltd. was consolidated on January 1, 2012, the operating revenue and net income from the acquisition date and the revenue and net income if KT Skylife Co., Ltd. had been consolidated from January 1, 2011, included in consolidation is insignificant.consolidated income statement would have been₩715,604 million and₩25,995 million, respectively. The fair value of trade accounts receivable and other receivablesothers acquired from KT SkylifeRental Co., Ltd. is(Won)₩140,180120,964 million, whilebut the full contract value is(Won)₩168,693132,915 million. The uncollectible amounts from these receivables are expected to be(Won)₩28,51311,951 million. (2) BC Card Co.,Ltd.
KT Capital Co.,Ltd., which is a subsidiary of the Controlling Company, acquired common shares with voting right at(Won)252,302 million from Woori Bank on October 6, 201138. Interests in order to secure stable management control of BC card co., Ltd. and strengthen synergies between two firms based on determination of board meetings at February 11 and February 23, 2011. By this acquisition, the company’s ownership interests of BC Card Co.,Ltd. increased to 38.86% including ownership which were previously acquired from Citi Bank. Also, the Company entered into shareholders’ agreement to
exercise voting right of 1,349,920 registered common shares of BC Card Co.,Ltd. (30.68% of total BC Card Co.,Ltd. shares) owned by Vogo-BCC Investment Holdings Co.,Ltd. and KGF-BCC LIMITED on March 25, 2011. Based on the shareholders’ agreement and the acquisition of common shares described above, the Company has control of BC card co., Ltd. from October 6, 2011(acquisition date).
As a result of applying the acquisition method, the Company recognized goodwill of(Won)41,234 million, which is the excess of total consideration transferred over the fair value of the net assets at the acquisition date. The fair value of the net assets at the acquisition date includes the identifiable intangible assets such as customer relationship, which was not previously recognized in the subsidiary’s financial statements.Unconsolidated Structured Entities
Details of information about its interests in unconsolidated structured entities, which the consideration transferred, fair valueGroup does not have control over, including the nature, purpose and activities of the acquired identifiable assetsstructured entities and liabilities, and goodwill athow the acquisition datestructured entities are financed, are as follows.follows: | | | Remarks | | Nature, Purpose, Activities and Others | Real estate finance | | A structured entity incorporated for the purpose of real estate development is provided with funds by investors’ investments in equity and borrowings from financial institutions (including long-term and short-term loans and issuance of Asset Based Commercial Paper due in three months), and based on these, the structured entity implements activities such as real estate acquisition, development and mortgage loans. The structured entity repays loan principals with funds from installment house sales after the completion of real estate development or with collection of the principal of mortgage loan. The remaining shares are distributed to investors. As of December 31, 2013, the Group is engaged in real estate finance structured entity, and generates revenues by receiving dividends from direct investments in or receiving interests on loans to the structured entity. Financial institutions including the Group are provided with guarantees including joint guarantees or real estate collateral from investors and others. Consequently, the Group has priority order than other parties in collecting loans to and investments in structured entity. However, when the credit rating of investors and others decreases or when the value of real estate decreases, the Group may incur losses. | | | PEF and investment funds | | Minority investors including managing members contribute to Private Equity Fund (PEF) and investment funds incorporated for the purpose of providing funds to the small, medium, or venture entities, and the managing member implements activities such as investments in equity or loans based on the contributions. As of December 31, 2013, the Group is engaged in PEF and investment funds structured entity, and after contributing to PEF and investment funds, the Group receives dividends for operating revenues from these contributions. The Group is provided with underlying assets of PEF and investment funds as collateral. However, when the value of the underlying assets decreases, the Group may incur losses. |
| | | Remarks | | Nature, Purpose, Activities and Others | M&A finance | | A structured entity incorporated for the purpose of supporting a certain company’s financial structure improvement or acquiring equity or convertible bonds is provided with funds by investors’ investments in equity and long-term or short-term borrowings from financial institutions, and based on these, the structured entity acquires shares held by the entity, which has plans to improve its financial structure, or to dispose convertible bonds and others. The structured entity repays loan principals with funds from disposals of holding shares after a certain period. The remaining shares are distributed to investors. As of December 31, 2013, the Group is engaged in M&A finance structured entity, and receives interests. Financial institutions are provided with guarantees including joint guarantees or shares subject to M&A from investors and others. Consequently, the Group has priority order than other parties in collecting loans and investments. However, when the credit rating of investors and others decreases or when the value of shares provided as collateral decreases, the Group may incur losses. | | | Asset securitization | | A transferor other than the Group transfers the assets, which are subject to securitization, to a structured entity incorporated by the transferor or other financial institutions other than the Group, and based on this as underlying assets, the structured entity is provided with funds by asset-backed borrowings and pays acquisition costs of the acquired underlying assets. As of December 31, 2013, the Group is engaged in the structured entity, and generates revenues by receiving interest income as the Group provides asset-backed loans directly to the structured entity. When the structured entity has difficulty repaying loan principal, the transferor has obligation to cover the lack of funds. Consequently, the Group has priority order than other parties in collecting loans to structured entity. However, when the credit rating of transferor decreases, the Group may incur losses. | | | Other | | There are other structured entity types, which the Group is engaged in, such as Special Purpose Acquisition Company (SPAC) and others. Interest income is realized from the Group’s loans to the relevant structured entity. When SPAC is listed or merged after the Group invests in shares or convertible bonds issued by the relevant structured entity, revenues are realized from disposal of the shares of the convertible bonds. However, the Group may incur losses when SPAC is liquidated if the SPAC is not listed or merged. |
| | | | | | | | | | | | | | | | | | | | | | | | | (in millions of Korean won) | | Real Estate Finance | | | PEF & Investment Fund | | | Acquisition Finance | | | Asset- backed | | | Others | | | Total | | Total amount of Unconsolidated Structured Entities | | ₩ | 4,970,665 | | | ₩ | 7,915,355 | | | ₩ | 2,175,476 | | | ₩ | 5,981,382 | | | ₩ | 163,702 | | | ₩ | 21,206,580 | | Assets recognized in statement of financial position | | | | | | | | | | | | | | | | | | | | | | | | | Loans | | ₩ | 277,663 | | | ₩ | 360 | | | ₩ | 101,969 | | | ₩ | 228,413 | | | ₩ | 12,043 | | | ₩ | 620,448 | | Other financial assets | | | 32,244 | | | | 134,523 | | | | 981 | | | | — | | | | 8,690 | | | | 176,438 | | Jointly investment entities and associates | | | — | | | | 183,200 | | | | — | | | | — | | | | 28,406 | | | | 211,606 | | | | ₩ | 309,907 | | | ₩ | 318,083 | | | ₩ | 102,950 | | | ₩ | 228,413 | | | ₩ | 49,139 | | | ₩ | 1,008,492 | | Maximum loss exposure 1 | | | | | | | | | | | | | | | | | | | | | | | | | Investment Assets | | ₩ | 309,907 | | | ₩ | 318,083 | | | ₩ | 102,950 | | | ₩ | 228,413 | | | ₩ | 49,139 | | | ₩ | 1,008,492 | | Credit grants | | | 103,500 | | | | — | | | | — | | | | — | | | | — | | | | 103,500 | | | | ₩ | 413,407 | | | ₩ | 318,083 | | | ₩ | 102,950 | | | ₩ | 228,413 | | | ₩ | 49,139 | | | ₩ | 1,111,992 | |
1 | Maximum exposure to loss includes the investments recognized in the Group’s financial statements and the amounts which are probable to be determined when certain conditions are met by agreements including purchase agreements, credit granting and others. |
39. Information About Non-controlling Interests Summarized Financial Information on Subsidiaries The summarized financial information for each subsidiary with non-controlling interests that are material to the Group before inter-company eliminations as of December 31, 2011, 2012 and 2013, are as follows: | | | | | | | | | | | | | | | | | | | 2011 | | (in millions of Korean won) | | KT Skylife Co., Ltd. | | | BC Card Co., Ltd. | | | KT Powertel Co., Ltd. | | | KT Hitel Co., Ltd. | | Non-controlling Interests | | | 49.73 | % | | | 63.57 | % | | | 55.15 | % | | | 34.06 | % | Current assets | | ₩ | 251,268 | | | ₩ | 1,316,363 | | | ₩ | 87,053 | | | ₩ | 130,307 | | Non-current assets | | | 299,175 | | | | 557,973 | | | | 80,022 | | | | 119,423 | | Current liabilities | | | 235,849 | | | | 1,180,578 | | | | 41,709 | | | | 65,428 | | Non-current liabilities | | | 22,382 | | | | 186,109 | | | | 17,352 | | | | 3,948 | | Equity | | | 292,212 | | | | 507,649 | | | | 108,014 | | | | 180,353 | | Accumulated non-controlling interests | | | 145,315 | | | | 322,728 | | | | 59,575 | | | | 61,425 | | Sales | | | 480,468 | | | | 782,262 | | | | 126,354 | | | | 463,032 | | Profit or loss for the year | | | 26,649 | | | | (945 | ) | | | 14,566 | | | | (2,016 | ) | Total comprehensive income | | | 28,022 | | | | 8,505 | | | | 14,189 | | | | (3,913 | ) | The profit or loss allocated to non-controlling interests | | | 13,252 | | | | (601 | ) | | | 8,034 | | | | (687 | ) | Cash flows from operating activities | | | 92,889 | | | | (300,423 | ) | | | 26,984 | | | | 1,654 | | Cash flows from investing activities | | | (116,410 | ) | | | (24,453 | ) | | | (20,903 | ) | | | 1,197 | | Cash flows from financing activities before dividends paid to non-controlling interests | | | (13,346 | ) | | | 2,000 | | | | (5,000 | ) | | | (25 | ) | Dividends paid to non-controlling interests | | | — | | | | — | | | | — | | | | — | | Effect of exchange rate change on cash and cash equivalents | | | — | | | | (13 | ) | | | 5 | | | | 1 | | Net (decrease)/increase in cash and cash equivalents | | | (36,867 | ) | | | (322,889 | ) | | | 1,086 | | | | 2,827 | |
| | | | | | | | | | | | | | | | | | | | | | | 2012 | | (in millions of Korean won) | | KT Skylife Co., Ltd. | | | BC Card Co., Ltd. | | | KT Rental | | | KT Powertel Co., Ltd. | | | KT Hitel Co., Ltd. | | Non-controlling Interests | | | 49.85 | % | | | 34.35 | % | | | 42.00 | % | | | 55.15 | % | | | 34.06 | % | Current assets | | ₩ | 303,069 | | | ₩ | 1,792,439 | | | ₩ | 305,651 | | | ₩ | 93,877 | | | ₩ | 132,892 | | Non-current assets | | | 338,495 | | | | 735,663 | | | | 1,388,370 | | | | 81,985 | | | | 116,339 | | Current liabilities | | | 197,972 | | | | 1,696,058 | | | | 537,424 | | | | 39,029 | | | | 75,727 | | Non-current liabilities | | | 94,677 | | | | 211,820 | | | | 889,060 | | | | 16,584 | | | | 3,784 | | Equity | | | 348,915 | | | | 620,224 | | | | 267,537 | | | | 120,249 | | | | 169,719 | | Accumulated non-controlling interests | | | 173,932 | | | | 213,049 | | | | 112,369 | | | | 66,323 | | | | 57,803 | | Sales | | | 574,829 | | | | 3,128,882 | | | | 368,228 | | | | 124,936 | | | | 443,431 | | Profit or loss for the year | | | 55,546 | | | | 103,797 | | | | 11,072 | | | | 12,527 | | | | (8,902 | ) | Total comprehensive income | | | 52,152 | | | | 127,976 | | | | 10,107 | | | | 12,229 | | | | (10,659 | ) | The profit or loss allocated to non-controlling interests | | | 27,689 | | | | 35,655 | | | | 4,650 | | | | 6,909 | | | | (3,032 | ) | Cash flows from operating activities | | | 170,815 | | | | 18,310 | | | | 105,771 | | | | 8,734 | | | | (14,954 | ) | Cash flows from investing activities | | | (76,320 | ) | | | (35,116 | ) | | | (265,429 | ) | | | (6,997 | ) | | | 5,263 | | Cash flows from financing activities before dividends paid to non-controlling interests | | | (18,642 | ) | | | 8,070 | | | | 169,963 | | | | — | | | | — | | Dividends paid to non-controlling interests | | | — | | | | (5,290 | ) | | | — | | | | — | | | | — | | Effect of exchange rate change on cash and cash equivalents | | | — | | | | — | | | | — | | | | — | | | | (10 | ) | Net (decrease)/increase in cash and cash equivalents | | | 75,853 | | | | (14,026 | ) | | | 10,305 | | | | 1,737 | | | | (9,701 | ) |
| | | | | | | | | | | | | | | | | | | | | | | 2013 | | (in millions of Korean won) | | KT Skylife Co., Ltd. | | | BC Card Co., Ltd. | | | KT Rental | | | KT Powertel Co., Ltd. | | | KT Hitel Co., Ltd. | | Non-controlling Interests | | | 49.89 | % | | | 34.61 | % | | | 42.00 | % | | | 55.15 | % | | | 36.30 | % | Current assets | | ₩ | 287,142 | | | ₩ | 2,292,323 | | | ₩ | 362,040 | | | ₩ | 87,932 | | | ₩ | 178,659 | | Non-current assets | | | 397,509 | | | | 672,427 | | | | 1,826,231 | | | | 79,199 | | | | 115,006 | | Current liabilities | | | 191,181 | | | | 1,958,506 | | | | 532,634 | | | | 30,433 | | | | 99,348 | | Non-current liabilities | | | 91,887 | | | | 216,505 | | | | 1,363,625 | | | | 13,579 | | | | 3,296 | | Equity | | | 401,583 | | | | 789,738 | | | | 292,013 | | | | 123,119 | | | | 191,021 | | Accumulated non-controlling interests | | | 200,360 | | | | 273,328 | | | | 122,650 | | | | 67,906 | | | | 69,343 | | Sales | | | 627,415 | | | | 3,090,434 | | | | 885,294 | | | | 112,742 | | | | 579,987 | | Profit or loss for the year | | | 72,724 | | | | 128,475 | | | | 32,400 | | | | 5,453 | | | | 3,551 | | Total comprehensive income | | | 73,943 | | | | 198,778 | | | | 31,041 | | | | 5,661 | | | | 8,109 | | The profit or loss allocated to non-controlling interests | | | 36,284 | | | | 44,465 | | | | 13,608 | | | | 3,008 | | | | 1,289 | | Cash flows from operating activities | | | 141,282 | | | | 273,904 | | | | (346,309 | ) | | | 16,010 | | | | 11,108 | | Cash flows from investing activities | | | (218,797 | ) | | | (17,335 | ) | | | (39,246 | ) | | | (15,794 | ) | | | (18,199 | ) | Cash flows from financing activities before dividends paid to non-controlling interests | | | (14,346 | ) | | | 10,216 | | | | 392,098 | | | | (6,252 | ) | | | 13,192 | | Dividends paid to non-controlling interests | | | (8,344 | ) | | | (10,051 | ) | | | (2,075 | ) | | | (1,538 | ) | | | — | | Effect of exchange rate change on cash and cash equivalents | | | — | | | | — | | | | (287 | ) | | | — | | | | (49 | ) | Net (decrease)/increase in cash and cash equivalents | | | (100,205 | ) | | | 256,734 | | | | 4,181 | | | | (7,574 | ) | | | 6,052 | |
Transactions with Non-controlling Interests The effects of changes in the ownership interest on the equity attributable to owners of the Company during the year are summarized as follows: | | | | | | | | | | | | | (in millions of Korean won) | | 2011 | | | 2012 | | | 2013 | | Carrying amount of non-controlling interests acquired1 | | ₩ | 2,846 | | | ₩ | 178,763 | | | ₩ | 14,353 | | Consideration paid to non-controlling interests2 | | | (39,302 | ) | | | (15,359 | ) | | | (16,202 | ) | | | | | | | | | | | | | | Excess of consideration paid recognized in parent’s equity | | ₩ | (36,456 | ) | | ₩ | 163,404 | | | ₩ | (1,849 | ) | | | | | | | | | | | | | |
1 | In 2013, the Company acquired the remaining 40% of the issued shares of KT Dutch B.V., a subsidiary, for a purchase consideration of₩3,980 million. The Company now holds 100% equity interest in KT Dutch B.V. The carrying amount of the non-controlling interests in KT Dutch B.V.at the date of acquisition was₩14,353 million. As a result, the Company derecognized non-controlling interests of₩14,353 million and recorded an increase in equity attributable to owners of the parent of₩10,373 million. |
| In 2012, the Company acquired 30.68% of the issued shares of BC Card Co., Ltd, a subsidiary of Vogo-BCC Investment Holdings Co., Ltd. and KGF-BCC LIMITED, for a purchase consideration of₩288,828 million. The Company now holds 69.54% equity interest in BC Card Co., Ltd. The carrying amount of the non-controlling interests in BC Card Co., Ltd. at the date of acquisition was₩272,273 million. As a result, the Company derecognized non-controlling interests of₩172,376 million and recorded an increase in equity attributable to owners of the parent of₩116,452 million. |
| In 2011, the Company’s non-controlling interest decreased by 2.68% through inequality capital increase of KT Capital Co., Ltd. on September 30, 2011. This resulted in a decrease in the carrying amount of non-controlling interest of₩1,615 million. Also, the Company acquired the remaining 20% of the issued shares of KT Innotz Inc., a subsidiary. As a result, the Company holds 100% of the issued shares of KT Innotz Inc and the carrying amount of non-controlling interest decreased by₩1,049 million. |
2 | In 2013, the Company’s non-controlling interest increased by 2.24% through inequality capital increase of KT Hitel Co., Ltd. This resulted in an increase in the carrying amount of non-controlling interest of₩8,439 million. Also, on July 11, 2013, the Company’s non-controlling interest increased by 6.04% through inequality capital increase of Nasmedia, Inc. As a result, the carrying amount of non-controlling interest increased by₩7,239 million. |
| In 2012, the Company’s non-controlling interest increased by 13.85% through inequality capital increase of KT Cloudware Corporation on March 26, June 13 and November 30, 2012. This resulted in an increase in the carrying amount of non-controlling interest of₩4,060 million. Also, on November 21, 2012, the Company’s non-controlling interest increased by 9.09% through inequality capital increase of KT music Corporation. As a result, the carrying amount of non-controlling interest increased by₩5,360 million. |
| In 2011, the Company’s non-controlling interest increased by 2.78% through inequality capital increase of KT Skylife Co., Ltd. on June 1, 2011. This resulted in an increase in the carrying amount of non-controlling interest of₩32,294 million. Also, on December 29 and 30, 2011, the Company’s non-controlling interest increased by 17.24% through inequality capital increase of Centios Co., Ltd. As a result, the carrying amount of non-controlling interest increased by₩4,399 million. |
40. Discontinued Operations As approved by the Company’s Board of Directors on August 9, 2012, the Company decided to sell KT Tech, Inc., its subsidiary, and discontinued the operations related to handset development. KT-Tech’s liquidation procedure has been completed and KT Tech’s electrical operating performance was reflected in profit or loss from discontinued operations. Income and loss from discontinued operations for the year ended December 31, 2012, are as follows: | | | | | (in millions of Korean won) | | Amounts2012 | | Consideration transferred (cash and cash equivalents)Revenue
| | (Won)₩ | 257,137431 | | Commitment for dividends payable1Expense
| | | 39,220(35,756 | ) | Income from discontinued operations before income taxes | | ₩ | (35,325 | ) | Income tax expense for discontinued operations | | | 3,791 | | | | | | | The acquisition-date fair value of the acquirer’s previously held equity interest
| | | 8,712 | | | | | | | Total consideration transferred (a)Income (loss) from discontinued operations
| | (Won)₩ | 305,069(31,534 | | | | | | | The recognized amounts of assets acquired and liabilities assumed 2
| | | | | Cash and cash equivalents
| | (Won) | 657,956 | | Other financial assets
| | | 2,046,522 | | Trade and other accounts receivable
| | | 1,307 | | Fixed assets
| | | 242,411 | | Investment properties
| | | 2,845 | | Intangible assets including customer relationship
| | | 165,916 | | Available-for-sale financial assets
| | | 108,170 | | Other assets
| | | 60,942 | | Trade and other accounts payable
| | | (1,890,937 | ) | Borrowings
| | | (58,000 | ) | Current tax liabilities
| | | (30,942 | ) | Provisions
| | | (25,674 | ) | Provisions for severance benefits
| | | (7,861 | ) | Deferred income tax liabilities
| | | (46,176 | ) | Other liabilities
| | | (568,028 | ) | | | | | | The net of total amounts of identifiable assets and liabilities measured at fair value (b)
| | (Won) | 658,451 | | | | | | | Non-controlling interests 3 (c)
| | | 394,616 | | | | | | | Goodwill (a-b+c) 4
| | (Won) | 41,234 | | | | | | |
1 | On June 23, 2010, the Korean Commercial Arbitration Board concluded that BC Card should pay the proceeds from the disposal of the shares of Visa Card to the member banks. Accordingly, the Company recorded the related proceeds to be paid to the member banks as other financial liabilities in the financial statements at the acquisition date. |
2 | Assets and liabilities acquired were measured at fair value in accordance with IFRS 3‘Business Combinations’ |
3 | Non-controlling interests in the acquiree on acquisition are measured at the non-controlling interests’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets in the event of liquidation. |
4 | Goodwill is not tax deductible |
AfterCash flows from discontinued operations for the acquisition date, the revenue and net income for consolidation of BC Card Co,. Ltd. before the elimination of inter-company transactions with its subsidiaries are(Won)782,853million and(Won)945 million, respectively. If BC Card Co.,Ltd had been consolidated from January 1, 2011, the revenue and net income included in consolidation should have been(Won)3,376,113million and(Won)102,459million, respectively.
(3) Enswers Inc.
As approved by Board of Directors on November 11, 2011, the Company acquired onyear ended December 7, 2011, from existing shareholders 14,185 common shares and 3,676 of redeemable convertible preferred stock with voting rights of Enwers Inc, which is specialized in the video-related technology, in order to develop a new business and strengthen the existing business. The Company’s ownership in Enwers Inc. has increased to 56.3% including the potential voting rights and accordingly, the Company acquired control over Enswers Inc.
Details of the consideration transferred, fair value of the acquired identifiable assets and liabilities, and goodwill at the acquisition date31, 2012, are as follows.follows:
| | | | | (in millions of Korean won) | | Amounts2012 | | Consideration transferred (cash and cash equivalents)Cash flows from operating activities
| | (Won)₩ | 15,95740,017 | | The acquisition-date fair value of the acquirer’s previously held equity interest
| | | 4,378 | | | | | | | Total consideration transferred (a)
| | (Won) | 20,335 | | | | | | | The recognized amounts of assets acquired and liabilities assumed 1
| | | | | Cash and cash equivalents | | (Won) | 920 | | Other financial assets
| | | 2,962 | | Trade and other accounts receivable
| | | 387 | | Current tax assets
| | | 41 | | Fixed assets
| | | 704 | | Intangible assets including Patents-Industrial and customer relationship
| | | 12,535 | | Other assets
| | | 562 | | Trade and other accounts payableflows from investing activities
| | | (193,609 | ) | Other financial liabilitiesCash flows from financing activities
| | | (2,70228,243 | ) | Provisions for severance benefitsChanges in foreign exchange rates
| | | (479 | ) | Deferred income tax liabilities
| | | (2,701 | ) | Other liabilities
| | | (1,0636 | ) | | | | | | The net of total amounts of identifiable assets and liabilities measured at fair value (b)Total cash flows
| | (Won)₩ | 11,147 | | | | | | | Non-controlling interests 2 (c)
| | | 3,237 | | | | | | | Goodwill (a – b + c) 3
| | (Won) | 12,4258,159 | | | | | | |
1 | Assets and liabilities acquired were measured at fair value in accordance with IFRS 3 ‘Business combinations’ |
2 | Non-controlling interests in the acquiree on acquisition are measured at the non-controlling interests’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets in the event of liquidation. |
3 | Goodwill is not tax deductible |
The previously held interest in Enswers Inc. was measured at fair value, and the Company recognized other operating income of(Won)1,942 million arising from the fair value measurement on acquisition.41. Subsequent Events
After the acquisition date, the revenue and net loss for consolidation of Enswers Inc. before the elimination of inter-company transactions with its subsidiaries are(Won)797 and(Won)331 million, respectively. If Enswers Inc. had been consolidated from January 1, 2011, the revenue and net loss included in consolidation should have been(Won)3,467million and(Won)1,512million, respectively.
The fair value of trade accounts receivable and other receivables acquired from Enswers Inc. is(Won)387 million, while the full contract value is(Won)414 million. The uncollectible amounts from these receivables are expected to be(Won)27 million. 38. Assets Held for Sale and Discontinued Operations
As approved by the Controlling Company’s Board of Directors on May 4, 2011, the Controlling Company decided to sell 5,309,189 shares (79.96%) of New Telephone Company, Inc. to Vimpel-Communication and the Controlling Company lost its control of New Telephone Company. The prior
period financial statements presented for comparative purposes have been restated in accordance with IFRS 5,Non-current Assets Held for Sale and Discontinued Operations. Profit or loss arising from net fair value measurement and related income tax effect is reflected in profit or loss from discontinued operations.
The liquidationinvestment business division of KT Internal venture Fund NO.2, a former subsidiary, was completed on December 28, 2011. Therefore, the Company accounted for the operating result until the liquidation as discontinued operation and restated the prior year statement of income presented for the comparative purpose in accordance with IFRS 5“Non-current Assets Held for Sale and Discontinued Operations”.The Company also included the related gains or losses and income tax effects in the profit from the discontinued operation.
On June 1, 2010, the rent-a-car business segment of Kumho Rent-A-Car GlobalCapital Co., Ltd., a joint venture investment,consolidated subsidiary, was splitspun off and was merged with Kumho Rental Co., Ltd., resulting in the decrease of the Company’s ownership in Kumho Rental Co., Ltd. from 100% to 58%. And as the Company has joint control of KT Rental Co., Ltd. under the shareholders’ agreement, this subsidiary is accounted for under the equity method in accordance with IAS 31,Interest in Joint Ventures. The operating results of KT Rental Co., Ltd. until the date the Company lost control are accounted for under discontinued operations.
The Company sold all shares of DOREMI MEDIA CO.,LTD and D&G Star to the third parties. The operating results of DOREMI MEDIA CO.,LTD and D&G Star prior to the loss of the control were accounted for as discontinued operation in 2010 and the related gains or losses and income tax effects are included in the profit from the discontinued operation.
Income and loss from discontinued operations for the year ended December 31, 2010 and 2011, are as follows:
| | | | | | | | | (in millions of Korean won) | | 2010 | | | 2011 | | Revenue | | (Won) | 159,866 | | | (Won) | 28,460 | | Expense | | | (133,605 | ) | | | (22,630 | ) | Income (loss) from discontinued operations before income taxes | | | 26,261 | | | | 5,830 | | Income tax expense for discontinued operations | | | (8,054 | ) | | | (1,836 | ) | Income (loss) from discontinued operations | | | 18,207 | | | | 3,994 | | Gain on disposal and fair valuation before income taxes | | | 12,835 | | | | 220,176 | | Income tax expense | | | (1,062 | ) | | | (53,302 | ) | Gain on disposal and fair valuation after tax | | | 11,773 | | | | 166,874 | | | | | | | | | | | Income (loss) from discontinued operations | | (Won) | 29,980 | | | (Won) | 170,868 | | | | | | | | | | |
Cash flows from discontinued operations for the year ended December 31, 2010 and 2011, are as follows:
| | | | | | | | | (in millions of Korean won) | | 2010 | | | 2011 | | Cash flows from operating activities | | (Won) | 8,416 | | | (Won) | 6,527 | | Cash flows from investing activities | | | (8,241 | ) | | | (4,095 | ) | Cash flows from financing activities | | | 4,632 | | | | (47,023 | ) | Changes in foreign exchange rates | | | (7,384 | ) | | | 8,365 | | | | | | | | | | | Total cash flows | | (Won) | (2,577 | ) | | (Won) | (36,226 | ) | | | | | | | | | |
39. Subsequent Eventson March 13, 2014.
Subsequent to December 31, 2011,2013, the Company has issued the unsecured public bonds,commercial paper securities, as follows: | | | | | | | | | | | | | | | | | | | (in millions of Korean won and thousands of foreign currencies) | | Issue date | | | Face value of bond | | | Interest rate | | | Maturity date | | | Repayment method | The 57-1stnon-registered unsecured bond | | | 01.05.2012 | | | | (Won)50,000 | | | | 4.43 | % | | | 10.05.2014 | | | Lump sum repayment at maturity | The 57-2nd non-registered unsecured bond | | | 01.05.2012 | | | | (Won)20,000 | | | | 4.44 | % | | | 10.05.2014 | | | Lump sum repayment at maturity | The 57-3rd non-registered unsecured bond | | | 01.05.2012 | | | | (Won)30,000 | | | | 4.61 | % | | | 10.05.2014 | | | Lump sum repayment at maturity | Regulation S.Bond | | | 01.20.2012 | | | | USD 350,000 | | | | 3.875 | % | | | 01.20.2017 | | | Lump sum repayment at maturity |
| | | | | | | | | | | | | | | | | (in millions of Korean won) | | Issue date | | | Face value of bond | | | Total issued amount | | | Maturity date | | Commercial paper securities | | | 2014.02.17 | | | ₩ | 300,000 | | | ₩ | 252,398 | | | | 2019.02.18 | |
Subsequent to December 31, 2011,2013, the additional contributions was madeCompany has decided to acquire these debts, as follows: | | | | | | | | | | | | | (in millions of Korean won) Original debtor | | Creditor | | Acquisition price | | | Acquisition date | | | Remarks | Malou (1st) | | Green power(17th) | | ₩ | 11,584 | | | | 2014.2.20 | | | Debt related to Romania solar PF | Korean alpha solar (2nd) | | Grand(1st) | | | 15,416 | | | | 2014.2.20 | | | Debt related to Romania solar PF | Korean alpha solar (2nd) | | Grand(1st) | | | 18,372 | | | | 2014.2.20 | | | Debt related to Romania solar PF |
On March 12, 2014, KT ENS has filed for court receivership after failing to pay₩49,106 million of commercial paper. There may be lawsuits against KT ENS on this matter in the future, and the effect of this matter cannot be reasonably predicted. KT Skylife and NDS Limited have had a dispute on the right to use of conditional access system provided by NDS Limited and business interruption of KT Skylife. On February 24, 2014, KT Skylife and NDS Limited sent the first written form of compensation for the damages to the other party. KT Skylife and NDS Limited have requested₩33,457 million and₩28,163 million, respectively, with 6% of annual interest rate to the other party. As of March 7, 2014, the Ministry of Science, ICT, and Future Planning banned the mobile carriers including the Company from subscribing new customers and selling handsets to the existing customers. These mobile carriers are those who violated the prohibition released by the ControllingKorea Communications Commission and provided discriminative subsidy on handsets. This ban on the Company lasts for 45 days, from March 13, 2014 to April 26, 2014. In April 2014, the Company announced that it will discontinue operations related to fixed-line sales activities such as follows. | | | | | | | | | | | | | | | (in millions of Korean won) | | Date | | | Number of shares | | | Amount | | | Purpose | KT Capital Co.,Ltd | | | 01.25.2012 | | |
| 4,712,103
common shares |
| | | 41,000 | | | To strengthen the financial stability |
The Company entered into the shareholders’ agreement with Vogo-BCC Investment Holdings Co.,Ltd.on-site sales, activation, after service and KGF-BCC LIMITED on March 25, 2011 for the sustainable control over BC card co., Ltd, which is a subsidiarycustomer centers. These operations will be outsourced to certain of subsidiaries and associates of the Company. Based on this agreement,On April 23, 2014, the Company has exerciseddetermined that 8,304 employees will retire through its special early retirement program. It is expected to record approximately₩1.2 trillion as severance indemnity in connection with the call option for 1,349,920 common sharesspecial early retirement program, all of BC Card Co., Ltd, owned by Vogo-BCC Investment Holdings Co.,Ltd. and KGF-BCC LIMITED(30.68% of total shares) for(Won)28,713,408 million on January 27, 2012.
On April 18, 2012, the Company entered into a contract with Olleh KT First Securitization Specialty Co., Ltd. which is a special purpose entity formed for the securitization of KT’s accounts receivable. Based on this contract, the Company sold its accounts receivables with book value of(Won)529,776 million for a total sales price of(Won)525,400 million.expected to be recorded during 2014.
SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. | KT CORPORATION | (Registrant) | | /s/ Suk-Chae LeeCHANG-GYU HWANG | Name: Suk-Chae LeeChang-Gyu Hwang | Title: Chief Executive Officer |
Date: April 27, 201228, 2014 |