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Title of Each Class | Name of Each Exchange on Which Registered | |
AMERICAN DEPOSITARY SHARES, EACH REPRESENTING ONE-NINTH OF ONE SHARE OF COMMON STOCK | NEW YORK STOCK EXCHANGE, INC. | |
COMMON STOCK, PAR VALUE WON 500 PER SHARE | NEW YORK STOCK EXCHANGE, INC.* |
þ Yes | o No |
o Item 17 | þ Item 18 |
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• | our ability to anticipate and respond to various competitive factors affecting the industry, including new services that may be introduced, changes in consumer preferences, economic conditions and discount pricing strategies by competitors; | |
• | our implementation of CDMA 1xEV/ DO technology and other technologies such as W-CDMA, which is commonly referred to as third generation, or 3G, wireless technology; | |
• | our plans to spend approximately Won 1.6 trillion for capital expenditures in 2005 for a range of projects, including expansion and improvement of our wireless networks, investments in our Internet-related businesses and expansion of our W-CDMA network and our expected future capital expenditures on various initiatives; | |
• | our efforts to make significant investments to build, develop and broaden our businesses, including developing and providing wireless data, multimedia, mobile commerce and Internet services; | |
• | our ability to comply with governmental rules and regulations, including the MIC regulations related to telecommunications providers, rules related to our status as a “market-dominating business entity” under the Fair Trade Commission of Korea’s Korean Monopoly Regulation and Fair Trade Act, or the FTA, and the effectiveness of steps we have taken to comply with such regulations; | |
• | our ability to manage effectively our bandwidth and to implement timely and efficiently new bandwidth-efficient technologies; | |
• | our expectations and estimates related to interconnection fees; tariffs charged by wireless operators; regulatory fees; operating costs and expenditures; working capital requirements; principal repayment |
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obligations with respect to long-term borrowings, bonds and obligations under capital leases; and research and development expenditures and other financial estimates; | ||
• | the effect of the number portability system that allows wireless subscribers to switch wireless service operators while retaining the same mobile phone number and the use of the common prefix identification system; | |
• | the success of our various joint ventures and investments in other telecommunication service providers; and | |
• | the telecommunications industry in Korea and other markets in which we do business and the effect economic, political or social conditions have on our number of subscribers, call volumes and results of operations. |
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As of or for the Year Ended December 31, | |||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2004* | ||||||||||||||||||||
(In billions of won and millions of dollars, except per share and percentage data) | |||||||||||||||||||||||||
INCOME STATEMENT DATA | |||||||||||||||||||||||||
Korean GAAP: | |||||||||||||||||||||||||
Total Operating Revenue(1) | W | 7,423.1 | W | 8,371.9 | W | 9,324.0 | W | 10,272.1 | W | 10,570.6 | US$ | 10,212.2 | |||||||||||||
Cellular Service(1) | 7,245.1 | 8.203.0 | 9,156.8 | 10,091.8 | 10,297.6 | 9,948.4 | |||||||||||||||||||
Paging Service(2) | 57.7 | 8.8 | — | — | — | — | |||||||||||||||||||
Other(3) | 120.3 | 160.1 | 167.2 | 180.3 | 273.0 | 263.8 | |||||||||||||||||||
Operating Expenses | 5,927.6 | 6,047.4 | 6,526.4 | 7,167.0 | 8,130.9 | 7,855.2 | |||||||||||||||||||
Operating Income | 1,495.5 | 2,324.5 | 2,797.6 | 3,105.1 | 2,439.7 | 2,357.0 | |||||||||||||||||||
Income before Income Taxes and Minority Interest | 1,287.8 | 1,976.7 | 2,218.8 | 2,754.3 | 2,123.2 | 2,051.2 | |||||||||||||||||||
Income before Minority Interest | 920.5 | 1,126.4 | 1,520.3 | 1,965.3 | 1,493.4 | 1,442.8 | |||||||||||||||||||
Net Income | 972.3 | 1,146.0 | 1,487.2 | 1,966.1 | 1,491.5 | 1,440.9 | |||||||||||||||||||
Income per Share of Common Stock(4) | 11,146 | 13,242 | 17,647 | 26,187 | 20,261 | 19.57 | |||||||||||||||||||
Diluted Net Income per Share of Common Stock(4) | 11,146 | 13,242 | 17,647 | 26,187 | 20,095 | 19.41 | |||||||||||||||||||
Dividends per Share of Common Stock(5) | 540 | 690 | 1,800 | 5,500 | 10,300 | 9.95 | |||||||||||||||||||
Weighted Average Number of Shares | 87,226,559 | 86,545,041 | 84,270,450 | 75,078,219 | 73,614,297 | 73,614,297 | |||||||||||||||||||
U.S. GAAP: | |||||||||||||||||||||||||
Net Income | W | 895.4 | W | 1,111.6 | W | 1,301.1 | W | 2,062.7 | W | 1,553.1 | US$ | 1,500.4 | |||||||||||||
Income per Share of Common Stock(4) | 10,265 | 12,844 | 15,440 | 27,475 | 21,097 | 20.38 | |||||||||||||||||||
Diluted Net Income per Share of Common Stock(4) | 10,265 | 12,844 | 15,439 | 27,475 | 20,921 | 20.21 | |||||||||||||||||||
Dividends per Share of Common Stock(5) | 540 | 690 | 1,800 | 5,500 | 10,300 | 9.95 | |||||||||||||||||||
Weighted Average Number of Shares | 87,226,559 | 86,545,041 | 84,270,450 | 75,078,219 | 73,614,297 | 73,614,297 |
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As of or for the Year Ended December 31, | |||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2004* | ||||||||||||||||||||
(In billions of won and millions of dollars, except per share and percentage data) | |||||||||||||||||||||||||
BALANCE SHEET DATA | |||||||||||||||||||||||||
Korean GAAP: | |||||||||||||||||||||||||
Working Capital (Deficiency)(6) | W | (374.6 | ) | W | 668.2 | W | (189.7 | ) | W | (461.4 | ) | W | 1,323.8 | US$ | 1,278.9 | ||||||||||
Fixed Assets — Net | 4,543.2 | 4,174.7 | 4,569.4 | 4,641.5 | 4,703.9 | 4,544.4 | |||||||||||||||||||
Total Assets | 11,044.2 | 13,326.3 | 14,228.7 | 13,818.2 | 14,283.4 | 13,799.1 | |||||||||||||||||||
Long-term Liabilities(7) | W | 1,727.2 | W | 3,498.4 | W | 3,693.4 | W | 3,193.5 | W | 4,010.7 | US$ | 3,874.7 | |||||||||||||
Total Shareholders’ Equity | 6,142.7 | 6,149.3 | 6,231.9 | 6,093.8 | 7,205.7 | 6,961.4 | |||||||||||||||||||
U.S. GAAP: | |||||||||||||||||||||||||
Working Capital (Deficiency) | (332.5 | ) | 729.6 | (108.2 | ) | (445.5 | ) | 1,311.3 | 1,266.8 | ||||||||||||||||
Total Assets | 11,182.8 | 13,841.0 | 15,720.7 | 15,586.2 | 15,576.8 | 15,048.6 | |||||||||||||||||||
Total Shareholders’ Equity | 6,117.9 | 5,820.1 | 6,356.2 | 7,014.7 | 8,237.0 | 7,957.7 | |||||||||||||||||||
OTHER FINANCIAL DATA | |||||||||||||||||||||||||
Korean GAAP: | |||||||||||||||||||||||||
EBITDA(8) | W | 2,941.7 | W | 3,932.4 | W | 3,954.1 | W | 4,706.4 | W | 4,085.8 | US$ | 3,947.3 | |||||||||||||
Capital Expenditures(9) | 2,241.1 | 1,382.1 | 2,024.7 | 1,647.6 | 1,704.3 | 1,646.5 | |||||||||||||||||||
R&D Expenses(10) | 117.1 | 153.7 | 253.3 | 300.2 | 336.1 | 324.7 | |||||||||||||||||||
Internal R&D | 78.8 | 130.7 | 194.3 | 235.8 | 267.1 | 258.0 | |||||||||||||||||||
External R&D | 38.3 | 23.0 | 59.0 | 64.4 | 69.0 | 66.7 | |||||||||||||||||||
Depreciation and Amortization | 1,456.4 | 1,759.7 | 1,543.3 | 1,646.3 | 1,741.6 | 1,682.5 | |||||||||||||||||||
Cash Flow from Operating Activities | 3,043.5 | 2,423.9 | 4,267.8 | 3,328.8 | 2,516.1 | 2,430.8 | |||||||||||||||||||
Cash Flow from Investing Activities | (4,667.8 | ) | (1,972.8 | ) | (3,063.4 | ) | (1,414.4 | ) | (1,469.5 | ) | (1,419.7 | ) | |||||||||||||
Cash Flow from Financing Activities | 1,629.3 | 331.2 | (1,418.2 | ) | (2,261.0 | ) | (968.6 | ) | (935.8 | ) | |||||||||||||||
Margins (% of total sales): | |||||||||||||||||||||||||
EBITDA Margin(8) | 39.6 | % | 47.0 | % | 42.4 | % | 45.8 | % | 38.7 | % | 38.7 | % | |||||||||||||
Operating Margin | 20.1 | 27.8 | 30.0 | 30.2 | 23.1 | 23.1 | |||||||||||||||||||
Net Margin | 13.1 | 13.7 | 15.9 | 19.1 | 14.1 | 14.1 | |||||||||||||||||||
U.S. GAAP: | |||||||||||||||||||||||||
EBITDA(8) | 2,930.5 | 3,859.1 | 3,620.7 | 4,679.1 | 3,970.4 | 3,835.8 | |||||||||||||||||||
Capital Expenditures(9) | 2,241.1 | 1,382.1 | 2,024.7 | 1,647.6 | 1,704.3 | 1,646.5 | |||||||||||||||||||
Cash Flow from Operating Activities | 3,043.5 | 2,423.8 | 3,708.9 | 3,281.3 | 2,985.9 | 2,884.7 | |||||||||||||||||||
Cash Flow from Investing Activities | (4,667.8 | ) | (1,972.8 | ) | (2,995.2 | ) | (1,422.5 | ) | (1,393.2 | ) | (1,346.0 | ) | |||||||||||||
Cash Flow from Financing Activities | 1,629.3 | 331.2 | (927.5 | ) | (2,205.5 | ) | (1,514.8 | ) | (1,463.4 | ) |
As of or for the Year Ended December 31, | |||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | |||||||||||||||||
SELECTED OPERATING DATA | |||||||||||||||||||||
Population of Korea (millions)(11) | 47.1 | 47.4 | 47.6 | 47.9 | 48.2 | ||||||||||||||||
Our Wireless Penetration(12) | 30.7 | % | 32.0 | % | 36.1 | % | 38.2 | % | 39.0 | % | |||||||||||
Number of Employees(13) | 7,279 | 5,693 | 6,241 | 6,286 | 7,353 | ||||||||||||||||
Total Sales per Employee (millions) | W | 1,019.8 | W | 1,470.6 | W | 1,494.0 | W | 1,634.1 | W | 1,437.6 | |||||||||||
Wireless Subscribers(14) | 14,452,683 | 15,179,163 | 17,219,562 | 18,313,315 | 18,783,338 | ||||||||||||||||
Digital(14) | 14,452,683 | 15,179,163 | 17,219,562 | 18,313,315 | 18,783,338 | ||||||||||||||||
Analog(15) | — | — | — | — | — | ||||||||||||||||
Average Monthly Outgoing Voice Minutes per Subscriber(16) | 148 | 172 | 191 | 197 | 194 | ||||||||||||||||
Average Monthly Revenue per Subscriber(17) | W | 32,906 | W | 36,400 | W | 38,383 | W | 39,739 | W | 39,689 | |||||||||||
Average Monthly Churn Rate(18) | 2.8 | % | 1.4 | % | 1.4 | % | 1.2 | % | 1.7 | % | |||||||||||
Digital Cell Sites(19) | 7,008 | 6,056 | 7,384 | 8,309 | 9,458 |
* | The conversion into US Dollars was made at the rate of Won 1,035.1 to US$1.00. See note 2(a) of the notes to our consolidated financial statements. |
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(1) | Includes Won 494.0 billion for 2000, Won 702.4 billion for 2001, Won 534.0 billion for 2002, Won 612.0 billion for 2003 and Won 649.8 billion for 2004 from the sale of digital handsets and Won 1,312.4 billion for 2000, Won 1,339.9 billion for 2001, Won 1,043.2 billion for 2002, Won 1,017.1 billion for 2003 and Won 849.4 billion for 2004 of interconnection revenue (including interconnection revenue in respect of calls between mobile users starting in 2000). Shinsegi was merged into us on January 13, 2002. See “Information on the Company — Business overview — Interconnection”. | |
(2) | In March 2001, we transferred our paging business to Real Telecom Co., Ltd. (formerly known as INTEC Telecom Co., Ltd.) in exchange for 9.9% of Real Telecom’s newly issued shares and bonds with a principal amount of Won 9.5 billion that can be converted into an additional 7.8% interest in Real Telecom. | |
(3) | For more information about our other revenue, see “Operating and Financial Review and Prospects” and “Information on the Company”. | |
(4) | Income per share of common stock is calculated by dividing net income by the weighted average number of shares outstanding during the period, giving effect to the 10-for-1 stock split of our common shares which became effective on April 21, 2000 and resulted in the par value of each share being reduced from Won 5,000 to Won 500. | |
(5) | Dividend per share has been adjusted to give effect to the 10-for-1 stock split of our common shares which became effective on April 21, 2000. On January 1, 2002, we early adopted Statement of Korea Accounting Standards (“SKAS”) No. 6, “Events Occurring after Balance Sheet Date”. This statement requires that proposed cash dividends be reflected on the balance sheet when the appropriations are approved by shareholders which is similar to U.S. GAAP. In order to reflect this accounting change, prior year’s financial statements have been restated. See note 2(w) of the notes to our consolidated financial statements. | |
(6) | Working capital means current assets minus current liabilities. | |
(7) | Our monetary assets and liabilities denominated in foreign currencies are valued at the exchange rate of Won 1,260 to US$1.00 as of December 31, 2000, Won 1,326 to US$1.00 as of December 31, 2001, Won 1,200 to US$1.00 as of December 31, 2002, Won 1,198 to US$1.00 as of December 31, 2003 and Won 1,044 to US$1.00 as of December 31, 2004, the rates of exchange permitted under Korean GAAP as of those dates. See note 2(s) of the notes to our consolidated financial statements. | |
(8) | EBITDA refers to income before interest income, interest expense, taxes, depreciation and amortization. EBITDA is commonly used in the telecommunications industry to analyze companies on the basis of operating performance, leverage and liquidity. Since the telecommunications business is a very capital intensive business, capital expenditures and level of debt and interest expenses may have a significant impact on net income for companies with similar operating results. Therefore, for a telecommunications company such as ourselves, we believe that EBITDA provides a useful reflection of our operating results. We use EBITDA as a measurement of operating performance because it assists us in comparing our performance on a consistent basis as it removes from our operating results the impact of our capital structure, which includes interest expense from our outstanding debt, and our asset base, which includes depreciation and amortization of our property and equipment. However, EBITDA should not be construed as an alternative to operating income or any other measure of performance determined in accordance with Korean GAAP or U.S. GAAP or as an indicator of our operating performance, liquidity or cash flows generated by operating, investing and financing activities. Other companies may define EBITDA differently than we do. EBITDA under U.S. GAAP is computed using interest income, interest expense, depreciation, amortization and income taxes under U.S. GAAP which may differ from Korean GAAP for these items. |
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As of or For the Year Ended December 31, | |||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2004* | ||||||||||||||||||||
(In billions of won and millions of dollars) | |||||||||||||||||||||||||
Net Income | W | 895.4 | W | 1,111.6 | W | 1,301.1 | W | 2,062.7 | W | 1,553.1 | US$ | 1,500.4 | |||||||||||||
ADD: Interest income | (67.6 | ) | (101.8 | ) | (90.8 | ) | (93.9 | ) | (86.7 | ) | (83.8 | ) | |||||||||||||
Interest expense | 215.1 | 274.4 | 396.6 | 387.1 | 291.0 | 281.2 | |||||||||||||||||||
Taxes | 408.5 | 791.3 | 585.0 | 811.4 | 611.1 | 590.3 | |||||||||||||||||||
Depreciation and Amortization | 1,479.1 | 1,783.6 | 1,428.8 | 1,511.7 | 1,601.9 | 1,547.6 | |||||||||||||||||||
EBITDA | W | 2,930.5 | W | 3,859.1 | W | 3,620.7 | W | 4,679.0 | W | 3,970.4 | US$ | 3,835.7 | |||||||||||||
As of or For the Year Ended December 31, | |||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2004* | ||||||||||||||||||||
(In billions of won and millions of dollars) | |||||||||||||||||||||||||
Net Income | W | 972.3 | W | 1,146.0 | W | 1,487.2 | W | 1,966.1 | W | 1,491.5 | US$ | 1,440.9 | |||||||||||||
ADD: Interest income | (67.6 | ) | (97.4 | ) | (86.0 | ) | (86.5 | ) | (80.5 | ) | (77.8 | ) | |||||||||||||
Interest expense | 213.3 | 273.9 | 311.1 | 391.5 | 303.4 | 293.1 | |||||||||||||||||||
Taxes | 367.3 | 850.3 | 698.5 | 789.0 | 629.8 | 608.5 | |||||||||||||||||||
Depreciation and Amortization | 1,456.4 | 1,759.6 | 1,543.3 | 1,646.3 | 1,741.6 | 1,682.5 | |||||||||||||||||||
EBITDA | W | 2,941.7 | W | 3,932.4 | W | 3,954.1 | W | 4,706.4 | W | 4,085.8 | US$ | 3,947.2 | |||||||||||||
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(9) | Consists of investments in property, plant and equipment. |
(10) | Includes donations to Korean research institutes and educational organizations. See “Information on the Company — Research and Development”. |
(11) | Population estimates based on historical data published by the National Statistical Office of Korea. |
(12) | Wireless penetration is determined by dividing subscribers by total estimated population, as of the end of the period. |
(13) | Includes regular employees and temporary employees. See “Information on the Company — Employees”. Includes 1,687 and 1,332 Shinsegi employees as of December 31, 2000 and 2001, respectively. |
(14) | Wireless subscribers include those subscribers who are temporarily deactivated, including (1) subscribers who voluntarily deactivate temporarily for a period of up to three months no more than twice a year and (2) subscribers with delinquent accounts who may be involuntarily deactivated up to two months before permanent deactivation, which we determine based on various factors, including prior payment history. Wireless subscribers also include 3,517,831 Shinsegi subscribers as of December 31, 2000 and 3,311,874 as of December 31, 2001. Shinsegi was merged into SK Telecom on January 13, 2002. |
(15) | We discontinued our analog service on December 31, 1999. |
(16) | The average monthly outgoing voice minutes per subscriber is computed by dividing the total minutes of outgoing voice usage for the period by the monthly weighted average number of subscribers for the period and dividing the quotient by the number of months in the period. The monthly weighted average number of subscribers is the sum of the average number of subscribers for the month, calculated by taking the simple average number of subscribers at the beginning of the month and at the end of the month, divided by the number of months in the period. Shinsegi’s subscribers and outgoing voice minutes are included from April 1, 2000. |
(17) | The average monthly revenue per subscriber excludes interconnection revenue and is computed by dividing total initial connection fees, monthly access fees, usage charges for voice and data, international charges, value-added service fees; and interest on overdue accounts (net of telephone tax) for the period by the monthly weighted average number of subscribers for the period and dividing the quotient by the number of months in the period. Including interconnection revenue, consolidated average monthly revenue per subscriber was Won 43,958 for 2002, Won 44,546 for 2003 and Won 43,542 for 2004. Shinsegi’s subscribers and revenue are included from April 1, 2000. For information about the average monthly revenue per subscriber of SK Telecom and Shinsegi on a stand-alone basis, see “Operating and Financial Review and Prospects — Overview”. |
(18) | The average monthly churn rate for a period is the number calculated by dividing the sum of voluntary and involuntary deactivations during the period by the simple average of the number of subscribers at the beginning and end of the period and dividing the quotient by the number of months in the period. Churn includes subscribers who upgrade to CDMA lxRTT or CDMA 1xEV/ DO-capable handsets by terminating their service and opening a new subscriber account. |
(19) | Includes 2,532 cell sites of Shinsegi as of December 31, 2000 and 1,685 cell sites as of December 31, 2001. |
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At End | Average | |||||||||||||||
Year Ended December 31, | Of Period | Rate(1) | High | Low | ||||||||||||
(Won per US$1.00) | ||||||||||||||||
2000 | 1,267 | 1,140 | 1,267 | 1,106 | ||||||||||||
2001 | 1,314 | 1,293 | 1,369 | 1,234 | ||||||||||||
2002 | 1,186 | 1,250 | 1,332 | 1,161 | ||||||||||||
2003 | 1,192 | 1,193 | 1,262 | 1,146 | ||||||||||||
2004 | 1,035 | 1,145 | 1,195 | 1,035 |
Past Six Months | High | Low | ||||||
(Won per | ||||||||
US$1.00) | ||||||||
November 2004 | 1,119 | 1,046 | ||||||
December 2004 | 1,067 | 1,035 | ||||||
January 2005 | 1,058 | 1,024 | ||||||
February 2005 | 1,044 | 1,001 | ||||||
March 2005 | 1,024 | 998 | ||||||
April 2005 | 1,019 | 997 | ||||||
through May 25, 2005 | 1,009 | 997 |
(1) | The average rates for the annual periods were calculated based on the average noon buying rate on the last day of each month (or portion thereof) during the period. The average rate for the monthly periods were calculated based on the average noon buying rate of each day of the month (or portion thereof). |
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Competition may reduce our market share and harm our results of operation and financial condition. |
Significant technological advancements affecting the wireless industry may harm our business. |
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W-CDMA technology may require significant capital and other expenditures for implementation which we may not recoup and may be difficult to integrate with our other businesses. |
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Our business environment requires us to continually invest in the growth of our business, and as a result, we may make significant investments in new businesses and regions, including businesses and regions in which we have limited experience. |
Due to the existing high penetration rate of wireless services in Korea and the Korean government’s prohibition on handset subsidies, we are unlikely to maintain our subscriber growth rate, which could adversely affect our results of operations. |
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Our business and results of operations may be adversely affected if we fail to acquire adequate spectrum or use efficiently our bandwidth to accommodate subscriber growth and subscriber usage. |
We may have to make further financing arrangements to meet our capital requirements and contractual payment obligations. |
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Termination or impairment of our relationship with a small number of key suppliers could adversely affect our results of operations. |
Our businesses are subject to extensive government regulation and any change in government policy relating to the telecommunications industry could have a material adverse effect on our results of operations and financial condition. |
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We are subject to additional regulation as a result of our market position, which could harm our ability to compete effectively. |
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Financial difficulties and charges of financial statement irregularities at our affiliate, SK Networks (formerly SK Global), may cause disruptions in our business. |
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Concerns that radio frequency emissions may be linked to various health concerns could adversely affect the market prices of our ADSs and common stock and we could be subject to litigation relating to these health concerns. |
Our businesses may be adversely affected by developments affecting the Korean economy. |
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• | financial problems relating to Korean conglomerates, or chaebols, or their suppliers, and their potential adverse impact on Korea’s financial sector, including as a result of recent investigations relating to unlawful political contributions by chaebols; | |
• | failure of restructuring of large troubled companies, including LG Card and other troubled credit card companies and financial institutions; | |
• | adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including depreciation of the Dollar or Yen), interest rates and stock markets; | |
• | increased reliance on exports to service foreign currency debts, which could cause friction with Korea’s trading partners; | |
• | adverse developments in the economies of countries such as the United States, China and Japan to which Korea exports, or in emerging market economies in Asia or elsewhere that could result in a loss of confidence in the Korean economy; | |
• | the continued emergence of China, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign investment and the relocation of the manufacturing base from Korea to China); | |
• | social and labor unrest or declining consumer confidence or spending resulting from lay-offs, increasing unemployment and lower levels of income; | |
• | another widespread outbreak of severe acute respiratory syndrome, or SARS, or any similar contagion, in Asia and other parts of the world; |
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• | another occurrence of natural disasters of large scale such as the earthquakes and tsunami that hit many parts of Southeast Asia and East Africa; | |
• | a decrease in tax revenues and a substantial increase in the Korean government’s expenditures for unemployment compensation and other social programs that, together, lead to an increased government budget deficit; | |
• | political uncertainty or increasing strife among or within political parties in Korea; and | |
• | a deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including such deterioration resulting from trade disputes or disagreements in foreign policy. |
Depreciation of the value of the won against the dollar and other major foreign currencies may have a material adverse effect on our results of operations and on the prices of our common stock and the ADSs. |
• | an increase in the amount of Won required by us to make interest and principal payments on our foreign currency-denominated debt, which accounted for approximately 18.7% of our total consolidated long-term debt, including current portion, as of December 31, 2004; and | |
• | an increase, in Won terms, of the costs of equipment that we purchase from overseas sources which we pay for in Dollars or other foreign currencies. |
• | dividends, which will be paid in Won to the ADR depositary and converted by the ADR depositary into Dollars; | |
• | the Dollar value of the proceeds that a holder will receive upon sale in Korea of the shares; and | |
• | the secondary market price of the ADSs. |
Increased tensions with North Korea could have an adverse effect on us and the prices of our common stock and the ADSs. |
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If SK Corporation causes us to breach the foreign ownership limitations on shares of our common stock, we may experience a change of control. |
If our convertible notes are converted by foreign holders and the conversion would cause a violation of the foreign ownership restrictions of the Telecommunications Business Law, or in certain other circumstances, we may have to sell common stock in order to settle the converting holders’ conversion rights in cash rather than by issuing common stock to them, and these sales might adversely affect the market price of our common stock or ADRs. |
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Sales of SK Telecom shares by companies in the SK Group, POSCO and/or other large shareholders may adversely affect the prices of SK Telecom’s common stock and the ADSs. |
Korea’s new legislation allowing class action suits related to securities transactions may expose us to additional litigation risk. |
If an investor surrenders his ADSs to withdraw the underlying shares, he may not be allowed to deposit the shares again to obtain ADSs. |
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An investor in our ADSs may not be able to exercise preemptive rights for additional shares and may suffer dilution of his equity interest in us. |
• | a registration statement filed by us under the U.S. Securities Act of 1933, as amended, is in effect with respect to those shares; or | |
• | the offering and sale of those shares is exempt from, or is not subject to, the registration requirements of the U.S. Securities Act. |
Short selling of our ADSs by purchasers of securities convertible or exchangeable into our ADSs could materially adversely affect the market price of our ADSs. |
After the exchange of ADSs into the underlying common shares of the company, seller or purchasers of the underlying common shares may have to pay securities transaction tax upon the transfer of the shares. |
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We are generally subject to Korean corporate governance and disclosure standards, which may differ from those in other countries. |
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• | Enhance the technical capabilities of our wireless networks to improve data transmission rates and service quality and to enable us to offer an increased range of services. We are expanding the geographic coverage and subscriber capacity of our existing CDMA 1xRTT network and are progressively upgrading this network to employ CDMA 1xEV/DO technology, capable of data transmission at speeds of up to 2.4 Mbps. | |
• | Offer a broad range of new and innovative wireless data and Internet services. Through our integrated wireless and on-line portal, NATE, we plan to continue expanding the range of our wireless data and Internet services with a view to increasing revenue from these services. Our strategy includes the introduction of sophisticated multimedia services (such as June, a premium wireless data service that |
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provides streaming multimedia video content through our CDMA 1xEV/DO technology), mobile commerce services (such as Moneta and Liquid Screen Small Payment Service, wireless credit and payment systems which allow subscribers to provide merchants with credit card information and payment authorization using chips embedded in their wireless handsets), mobile community portal services (such as Mobile Cyworld which allows subscribers to enjoy Cyworld, the wire-line community portal service, through their cellular phone) and mobile finance services (such as Nemo, a mobile payment solution which allows subscribers to transfer money from their accounts to the accounts of other Nemo subscribers by typing in the recipient’s wireless handset number) that can be accessed using handsets and other devices such as personal computers, personal digital assistants and vehicle mounted terminals. | ||
• | Retain and capitalize on our large, high-quality wireless subscriber base. With approximately 19.1 million subscribers as of April 30, 2005, we have the largest wireless subscriber base in Korea. We focus on maintaining and expanding our high-quality subscriber base through the provision of enhanced wireless services, particularly advanced wireless data and Internet based applications, at higher speeds than previously available. As part of this strategy, we encourage our CDMA subscribers to migrate to our CDMA 1xRTT network. | |
• | Position ourselves to be a leader in implementing new and improved wireless technologies. We pursue a research and development program designed to allow us to implement new wireless technologies as market opportunities arise. We operate a network research and development center which is focused on wireless network design, digital cellular technologies and wireless telecommunications applications. This center includes a research team that is helping to develop fourth generation wireless technology, which is expected to enable wireless data transmission at speeds of up to 155 Mbps, 70 times faster than 3G technology. We have acquired a license to develop and operate a W-CDMA network using 2 × 20 MHz of spectrum in the 2 GHz band. We have commenced provision of our IMT-2000 services based on our W-CDMA network on a limited basis in Seoul at the end of 2003. We expect to provide W-CDMA services in the Seoul metropolitan area and other local metropolitan areas of Korea by the end of 2005. In the first half of 2006, we plan to start deploying high speed download packet access (“HSDPA”), also known as 3.5G technology, which enables data to be transmitted at speeds of up to two to three times faster than 1xEV/DO. We have commenced testing of the system that will enable such upgrade to HSDPA by simply upgrading applicable software and without requiring any new infrastructure. | |
• | Take initiative in transition to the convergent and ubiquitous era. We are striving to satisfy our customers’ ever-growing needs by launching such new services as Telematics, Broadband Convergence Networks and Digital Home. In particular, we obtained a 2.3Ghz portable Internet (WiBro) service license in January of 2005. This service will be deployed in a way that will maximize its synergistic effect with conventional mobile phone services. We are actively implementing new businesses with an objective of achieving significant synergies between our subsidiary and affiliate companies. In this regard, TU Media Corp., one of our affiliates, successfully launched satellite DMB service in May 2005. | |
• | Continue to reach for overseas markets. We have been seeking advancement into various overseas markets. Through the launch of a joint venture company with China Unicom in February 2004, we are rapidly extending our wireless Internet service in China. We are also providing a CDMA cellular service in the Vietnamese market. In addition, we have been exporting Coloring solution, and wireless Internet platforms and solutions, to such countries as Taiwan and Thailand. We established a joint venture with EarthLink, the third largest Internet service provider in the U.S., to launch voice and data services across the U.S. as a mobile virtual network operator (MVNO) in 2005. |
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• | Decommissioned Shinsegi’s former network and transfer Shinsegi’s former subscribers to SK Telecom’s networks. We have allowed transferred subscribers to continue receiving services under their existing rate plans. However, after the merger, no new subscribers have been accepted under Shinsegi’s plans and further marketing efforts have been limited to the SK Telecom brands. Shinsegi’s subscribers did not have to purchase new handsets, were allowed to use the same telephone numbers assigned to them and had access to the same services as before the merger. | |
• | Re-allocated the spectrum formerly used by Shinsegi’s network to SK Telecom’s CDMA and CDMA 1xRTT networks. | |
• | A portion of Shinsegi’s former network equipment was re-deployed in SK Telecom’s CDMA network or sold for use outside Korea. The remainder of Shinsegi’s former network equipment was discarded and written off and an impairment loss of Won 185.8 billion was recorded in 2002. |
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Exports of wireless Internet Technology and Network Solution |
Overseas Operations |
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Handset Manufacturing |
International calling services |
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Telematics |
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As of and For the Year Ended December 31, | |||||||||||||
2002 | 2003 | 2004 | |||||||||||
(In billions of Won) | |||||||||||||
Initial Connection Fees | W | 230.4 | W | 176.6 | W | 198.4 | |||||||
Monthly Access Fees | 3,055.4 | 3,132.2 | 3,266.1 | ||||||||||
Usage Charges | 3,415.6 | 3,615.1 | 5,300.7 | ||||||||||
Interconnection Revenue | 1,043.2 | 1,017.1 | 849.4 | ||||||||||
Revenue from Sales of Digital Handsets(1) | 534.0 | 612.0 | 649.8 | ||||||||||
Other Revenue(2) | 878.2 | 1,538.8 | 33.2 | ||||||||||
Total | W | 9,156.8 | W | 10,091.8 | W | 10,297.6 | |||||||
Additional Facility Deposits | W | 11.0 | W | 5.0 | W | 31.8 | |||||||
Refunded Facility Deposits | 20.6 | 7.7 | 44.6 | ||||||||||
Facility Deposits at Period End | 46.9 | 44.2 | 31.4 |
(1) | Our revenue from handset sales consists of sales by our subsidiary, SK Teletech. |
(2) | Other revenue includes revenue from value-added services, including voice-activated dialing, caller ID, call forwarding, call waiting and three-way calling. |
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Off-Peak Usage | Night-Time | |||||||||||||||||||
Monthly | Included Airtime/ | Peak Usage Charges | Charges | Usage Charges | ||||||||||||||||
Access Fee | Discount(1)(2) | (per 10 seconds)(2) | (per 10 seconds)(2) | (per 10 seconds) | ||||||||||||||||
Standard | ||||||||||||||||||||
Regular | W13,000 | 10 minutes | W | 20 | W | 13 | W | 10 | ||||||||||||
Slim | 12,500 | 19 | 19 | 19 | ||||||||||||||||
Family | 13,000 | 5 minutes | 18 | 12 | 9 | |||||||||||||||
Silver(3) | 11,000 | 30 minutes | 38 | 38 | 38 | |||||||||||||||
TTL Plans | ||||||||||||||||||||
TTL Discount(4) | 15,500-22,000 | 7 minutes | 9-21 | 9-20 | 9-12 | |||||||||||||||
Ting Plans | ||||||||||||||||||||
Ting | 12,500-15,000 | 70 minutes | 12-37 | 12-24 | 9-18 | |||||||||||||||
Data Free Plan(5) | 26,000 | |||||||||||||||||||
“Free Plans” | ||||||||||||||||||||
Free Holiday | — | (6) | ||||||||||||||||||
Free Eleven | — | (7) |
(1) | Discounts may include free text messages, ring tone downloads, colorings and NATE minutes. |
(2) | Excludes a 5% discount on domestic calls for customers who have subscribed to our cellular services for over 1 year; a 10% discount for customers who have subscribed to our cellular services over 2 years; a 15% discount for customers who have subscribed to our cellular services over 3 years and a 20%, discount for customers who have subscribed to our cellular services for over 5 years. |
(3) | Subscribers must be 65 years old or older and each subscriber is limited to one silver Plan. |
(4) | Includes TTL plan for designated numbers, designated area and TTL plan for couples. |
(5) | Includes unlimited use of data service. Plan will be offered until September 30, 2005 and offer is effective until June 30, 2005. |
(6) | 11 hours of free weekend airtime for an additional Won 10,000 per month. |
(7) | 11 hours of free airtime exceeding the average number of minutes used November and December 2003 for an additional Won 15,000 per month. |
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• | our expansion and technical enhancement of our digital network, including with high-speed data capabilities; | |
• | increasing consumer awareness of the benefits of wireless telecommunications; | |
• | until June 2000, when the MIC prohibited subsidies on handset sales, the decline in handset prices in Korea through the payment of subsidies to subscribers, which effectively lowered the cost of initiating service; | |
• | an effective marketing strategy; | |
• | our focus on customer service; |
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• | the introduction of new, value-added services, such as voicemail services, call-forwarding, caller ID, three-way calling and wireless data and Internet services provided by NATE; and | |
• | our acquisition of Shinsegi. |
As of or For the Year Ended December 31, | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
Subscribers | 17,219,562 | 18,313,153 | 18,783,338 | |||||||||
Subscribers Growth Rate | 13.4 | % | 6.4 | % | 2.6 | % | ||||||
Activations | 4,769,612 | 3,688,312 | 4,407,087 | |||||||||
Deactivations | 2,729,113 | 2,594,721 | 3,936,884 | |||||||||
Average Monthly Churn Rate(1) | 1.4 | % | 1.2 | % | 1.7 | % |
(1) | Average monthly churn rate for a period is the number calculated by dividing the sum of deactivations during the period by the simple average of the number of subscribers at the beginning and end of the period and dividing the quotient by the number of months in the period. Churn includes subscribers who upgrade to CDMA 1xRTT or CDMA lxEV/DO-capable handsets by terminating their service and opening a new subscriber account. |
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Month | SKT → KTF | SKT → LGT | KTF → SKT | KTF → LGT | LGT → SKT | LGT → KTF | Total | ||||||||||||||||||||||
Jan. 2004 | 203,853 | 101,414 | — | — | — | — | 305,267 | ||||||||||||||||||||||
Feb. 2004 | 102,282 | 81,594 | — | — | — | — | 183,876 | ||||||||||||||||||||||
Mar. 2004 | 111,077 | 103,155 | — | — | — | — | 214,232 | ||||||||||||||||||||||
Apr. 2004 | 139,508 | 122,146 | — | — | — | — | 261,654 | ||||||||||||||||||||||
May 2004 | 167,228 | 92,414 | — | — | — | — | 259,642 | ||||||||||||||||||||||
Jun. 2004 | 137,489 | 73,100 | — | — | — | — | 210,589 | ||||||||||||||||||||||
Jul. 2004 | 53,611 | 23,116 | 277,751 | 20,504 | — | — | 374,982 | ||||||||||||||||||||||
Aug. 2004 | 29,698 | 60,240 | 67,743 | 45,724 | — | — | 203,405 | ||||||||||||||||||||||
Sep. 2004 | 90,075 | 49,959 | 5,744 | 42,995 | — | — | 188,773 | ||||||||||||||||||||||
Oct. 2004 | 64,563 | 46,169 | 62,131 | 39,701 | — | ��� | 212,564 | ||||||||||||||||||||||
Nov. 2004 | 74,478 | 56,135 | 59,578 | 51,802 | — | — | 241,993 | ||||||||||||||||||||||
Dec. 2004 | 97,210 | 47,635 | 94,466 | 41,773 | — | — | 281,084 | ||||||||||||||||||||||
Jan. 2005 | 145,295 | 71,142 | 135,862 | 75,069 | 115,197 | 106,024 | 649,589 | ||||||||||||||||||||||
Feb. 2005 | 120,638 | 32,654 | 106,099 | 33,629 | 49,159 | 57,555 | 399,734 | ||||||||||||||||||||||
Mar. 2005 | 125,453 | 43,690 | 112,711 | 47,696 | 48,823 | 56,743 | 435,116 | ||||||||||||||||||||||
Apr. 2005 | 120,781 | 69,318 | 131,266 | 72,072 | 55,483 | 47,863 | 496,783 | ||||||||||||||||||||||
Total | 1,783,239 | 1,073,881 | 1,053,351 | 470,965 | 268,662 | 268,185 | 4,919,283 | ||||||||||||||||||||||
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Number of New Wireless Subscribers/Percentage of | ||||||||||||
New Wireless Subscribers | ||||||||||||
Month | SK Telecom | KT Freetel | LG Telecom | |||||||||
January 2004 | 382,420/42.1% | 375,181/41.3% | 149,737/16.5% | |||||||||
February 2004 | 422,816/43.6% | 329,066/33.9% | 218,435/22.5% | |||||||||
March 2004 | 405,199/39.0% | 356,003/34.3% | 276,537/26.6% | |||||||||
April 2004 | 448,997/41.2% | 330,441/30.3% | 309,736/28.4% | |||||||||
May 2004 | 499,799/48.1% | 353,389/34.0% | 186,011/17.9% | |||||||||
June 2004 | 327,863/43.7% | 305,488/40.7% | 117,594/15.7% | |||||||||
July 2004 | 332,833/63.5% | 132,141/25.2% | 59,151/11.3% | |||||||||
August 2004 | 185,687/42.2% | 112,455/25.5% | 142,308/32.3% | |||||||||
September 2004 | 28,626/6.7% | 256,558/60.3% | 140,351/33.0% | |||||||||
October 2004 | 276,359/48.3% | 169,364/29.6% | 125,994/22.0% | |||||||||
November 2004 | 278,694,45.7% | 183,200/30.0% | 148,562/24.3% | |||||||||
December 2004 | 240,306/43.6% | 200,054/36.3% | 110,269/20.0% | |||||||||
January 2005 | 233,921/40.6% | 209,182.36.3% | 132,639/23.0% | |||||||||
February 2005 | 248,073/43.1% | 231,803/40.3% | 95,236/16.6% | |||||||||
March 2005 | 257,062/43.0% | 229,202/38.4% | 111,036/18.6% | |||||||||
April 2005 | 214,949/45.5% | 148,820/31.5% | 108,962/23.0% |
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Year | SK Telecom | KT Freetel | LG Telecom | |||||||||
(Won/Minute) | ||||||||||||
2003 | 41.02 | 47.99 | 52.89 | |||||||||
2004 | 31.81 | 47.66 | 58.55 | |||||||||
2005 | 31.19 | 46.70 | 54.98 |
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Domestic calls |
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International calls |
International roaming arrangements |
CDMA Networks |
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CDMA 1xRTT Network |
W-CDMA Network |
Network infrastructure |
• | cell sites, which are physical locations equipped with transmitters, receivers and other equipment that communicate by radio signals with wireless handsets within range of the cell (typically a 3 to 40 kilometer radius); | |
• | base station transceiver subsystems, which manage the radio transmission by the equipment located at one or more cell sites, including radio-channel management, message transport and hand-off of calls between cell sites; | |
• | switching stations, which switch calls to the proper destinations; and |
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• | leased lines, microwave links or other connectionswhich link the switching stations, cell sites and the public switched telephone networks of KT Corporation and Hanaro Telecom. |
Switching | ||||||||
Cell Sites | Stations | |||||||
CDMA Network (excluding CDMA lxRTT and CDMA 1xEV/DO) | 5,484 | 56 | ||||||
CDMA 1xRTT Network and CDMA 1xEV/DO | 3,348 | 55 | ||||||
W-CDMA | 626 | 3 |
— | Information Technology and Content Providers. We hold investments in approximately 40 companies, with an aggregate book value of approximately Won 36.0 billion as of December 31, 2004, which develop technology and content for use in our fixed-line and wireless data and Internet businesses and for continuing development of our multimedia platforms and networks. | |
— | Joint Ventures. We own a 50% interest in a joint venture with Hewlett-Packard Company to support development of next generation wireless multi-media and mobile commerce services and a 50% interest in a joint venture with Qualcomm Incorporated, formed for the purpose of funding venture startup companies engaged in development and commercialization of new applications or services utilizing CDMA technology. We have committed to invest US$5 million in each of these ventures. As of December 31, 2004, we invested Won 5.1 billion in our joint venture with Qualcomm and Won 5.3 billion in our joint venture with Hewlett-Packard. In addition, pursuant to an agreement entered into on March 20, 2003, we established in December 2003, UniSK, a joint venture company with China Unicom, China’s second largest mobile phone operator and exclusive CDMA wireless service provider, to develop wireless Internet platform and content. We and China Unicom have a 49% interest and 51% |
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interest, respectively, in UniSK. UniSK, which had an initial capitalization of US$6 million, commenced offering portal services in February 2004. In September 2003, we reached a business cooperation agreement with Teliasonera for the purpose of jointly developing and commercializing new businesses cross-licensing, partnership exchange and joint advancement into overseas markets. On September 16, 2003, we signed a memorandum of understanding with Alcatel for a joint development of a Mobile Payment Service by combining our Nemo with Alcatel’s Prepayment Instant Billing System. | ||
— | Mobile Broadcasting Corporation. In September 2003, we entered into an agreement with Mobile Broadcasting Corporation, a wireless multi-media company in Japan, for the purposes of co-owning and launching a satellite for the satellite DMB business. MBCO is a developer and provider of content and technology related to wireless multimedia services and developed new services in Satellite DMB. Under the terms of the agreement, SK Telecom is committed to fund 34.7% of the cost of launching and maintaining the operations of the satellite, which is approximately Won 100.8 billion. As of December 31, 2004, we have invested a total of Won 27.3 billion, and had a 7.3% interest in MBCO. We launched the satellite in March 2004. In March 2004, we were assigned by the MIC frequency for satellite DMB. In October 2004, we granted the right to use our satellite, satellite orbit and frequency to TU Media Corp., one of our affiliates, which received a license from the MIC as a satellite DMB provider on December 30, 2004. On May 1, 2005, TU Media Corp. began to provide satellite DMB services. See “Information on the Company — Multimedia”. | |
— | Mobile Data and Digital Content Market. In order to generate new revenue from the ever growing mobile data and digital content market, we plan to increase our investment in the entertainment sector, particularly in music, movies and games. As mobile data and digital content market has become increasingly important in the growth of our business, we are seeking to secure valuable mobile data and digital contents by making equity investment in various content providers. In March 2005, we acquired 8 million shares, or 21.66% of the issued and outstanding shares of iHQ Inc. for Won 14.44 billion with an option to purchase 5 million additional shares from Mr. Hun-Tak Jeong, a majority shareholder of iHQ Inc., during the period starting on March 15, 2006 and ending on April 30, 2006. iHQ Inc. is an entertainment management firm producing films, managing entertainers and operating on-line game services. In addition, our board of directors resolved to form a ‘movie fund’ on May 3, 2005 and a ‘music fund’ on May 27, 2005, each with local investment companies to expand our business to media and entertainment. The size of the fund will be around Won 20 billion and Won 29.7 billion, respectively. Once each of the fund is formed, we will have a 26.66% interest in the movie fund and a 99.0% interest in the music fund. On May 27, 2005, our board of directors also resolved to purchase a 60% interest in YBM Seoul Records, one of the leading record companies in Korea whose music sources are critical in our advancement into digital music business from the offline record label business, for Won 29.2 billion. |
— | Skytel. In July 1999, we acquired a 27.8% equity interest in Skytel, Mongolia’s second-largest cellular service provider, by providing approximately Won 1.5 billion worth of analog infrastructure. As of December 31, 2004, Skytel had approximately 75,607 subscribers. We, together with Skytel, have been providing cellular service in Mongolia since July 1999, and CDMA service since February 2001. In April 2001, we completed installing the equipment necessary to provide WAP service. In December 2002, we subscribed to the newly issued common shares of Skytel. As a result, as of December 31, 2004, our equity interest in Skytel is 28.6%. | |
— | SLD Telecom. In a series of transactions during 2000, we entered the Vietnam CDMA market through the acquisition of a 53.8% equity interest of SLD Telecom Pte. Ltd. in return for an investment of US$1.35 million. SLD Telecom entered into a business cooperation contract with Saigon Post & Telecommunication Services Corporation to provide CDMA service throughout Vietnam. We commenced CDMA service through Saigon Post & Telecommunication Service Corporation in July 2003. Under the business cooperation contract, SLD Telecom will contribute no less than $150 million to the investment capital for the joint CDMA business in Vietnam through 2016, which amount will include |
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capital expenditures as well as contribution to the working capital. Our contribution amount will be determined according to our equity interests in SLD Telecom from time to time. We have invested US$86.2 million as of December 31, 2004. | ||
— | SK-EarthLink. On March 24, 2005, EarthLink and we completed the formation of SK-EarthLink, a joint venture to market wireless voice and data services in the U.S. The joint-venture is a non-facilities-based nationwide mobile virtual network operator (“MVNO”) offering cellular voice and data services to U.S. consumers. SK-EarthLink expects to enter into a previously under-served, but rapidly growing wireless data, entertainment, and voice market. SK-EarthLink will leverage our expertise in developing and implementing 3G technology and other cutting-edge applications and EarthLink’s established sales channels, Wi-Fi experience, network data centers and billing capabilities. Each of the Company and EarthLink has a 50 percent voting and economic ownership interests in SK- EarthLink. |
— | Hanaro Telecom. As of December 31, 2004, we owned a 4.8% interest in the outstanding capital stock of Hanaro Telecom. On September 2, 2003, we purchased Won 120.0 billion of Hanaro Telecom commercial paper in order to provide Hanaro Telecom with short-term liquidity while it attempted to secure a foreign investor that would inject new capital into the company. The decision to provide liquidity support to Hanaro Telecom was made to protect the value of our stake in Hanaro Telecom. Following an investment in Hanaro Telecom by a consortium led by AIG and Newbridge, we disposed of the Hanaro Telecom commercial paper in December 2003. In May 2004, we purchased from Samsung Electronics Co., Ltd. 13,870,000 shares of Hanaro Telecom, representing 3.0% of the outstanding shares of Hanaro for Won 39.3 billion as part of our strategic efforts in consideration of increasing convergence between wireless and fixed-line services. As a result of the acquisition, our equity interest in Hanaro increased to 4.8% as of December 31, 2004, up from 1.8% as of December 31, 2003. | |
— | Powercomm. We currently own a 5.0% interest in Powercomm Corporation with a book value as of December 31, 2004 of Won 71.6 billion. For more information, see note 3 of the notes to our consolidated financial statements. Powercomm is an operator of fixed-line networks that provides wholesale fixed-line network services, such as leased lines, to telecommunications, Internet and cable television service providers in Korea. We have no current plans to either increase or decrease our investment in Powercomm. | |
— | SKC&C. We currently own a 30.0% equity interest in SKC&C Co., Ltd. with a book value as of December 31, 2004 of Won 201.4 billion. SKC&C is an information technologies services provider. Substantially all of SKC&C’s revenue is generated from services provided to member companies of the SK group, including us. We are party to several service contracts with SKC&C related to development and maintenance of our information technologies systems. See “Major Shareholders and Related Party Transactions — Certain Relationships and Related Party Transactions”. | |
— | SK Group Japan Co., Ltd. In December 2001, we invested Won 5.3 billion in SK Group Japan Co., Ltd., a trading company. We held a 16.5% equity interest in SK Group Japan with an acquisition cost of Won 16.4 billion, which was written off due to an impairment. SK Group Japan was dissolved as of January 17, 2005. | |
— | SK Communications. In August 2002, we purchased a 44.5% interest from Mirae Corporation in Lycos Korea, one of Korea’s leading Internet portals, for Won 12.3 billion. Subsequently, we subscribed for additional shares in Lycos Korea and increased our interest in Lycos Korea to 90.3%. Lycos Korea was renamed SK Communications after it acquired Netsgo Co., Ltd. and business rights to Nate.com service in November 2002. SK Communications subsequently consolidated services from Lycos and Nate.com to offer portal service on-line. |
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Overview |
• | entry into the telecommunications industry; | |
• | scope of services provided by telecommunications service providers; | |
• | allocation of radio spectrum; | |
• | setting of technical standards and promotion of technical standardization; | |
• | rates, terms and practices of telecommunications service providers; | |
• | customer complaints; | |
• | interconnection and revenue-sharing between telecommunications service providers; |
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• | disputes between telecommunications service providers; | |
• | research and development budgeting and objectives of telecommunications service providers; and | |
• | competition among telecommunications service providers. |
Rate Regulation |
Interconnection |
Wireless Internet Network Co-Share |
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Contributions to Fund for Development of Information Telecommunications |
Universal Service Obligation |
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Frequency Allocation |
Competition Regulation |
Number Portability |
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Contribution to 114 Directory Service |
Foreign Ownership and Investment Restrictions and Requirements |
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Restrictions on Investment in Telecommunications Companies |
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Significant subsidiaries |
Approximate Area | Nature of | |||||||||||
in Square Feet | Primary Use | Interest | ||||||||||
Seoul | 988,654 | Corporate Headquarters | Ownership | |||||||||
Seoul | 607,246 | Regional Headquarters | Ownership | |||||||||
Seoul | 162,406 | Customer Service Center | Ownership | |||||||||
Taegu | 153,623 | Regional Headquarters | Ownership | |||||||||
Taejon | 565,773 | Regional Headquarters | �� | Ownership | ||||||||
Kwangju | 265,610 | Regional Headquarters | Ownership | |||||||||
Pusan | 363,422 | Regional Headquarters | Ownership | |||||||||
Sungnam | 482,783 | Central Research and | Ownership | |||||||||
Development Laboratory | ||||||||||||
Ichon | 279,550 | Training Center | Ownership | |||||||||
Wonju | 116,562 | Regional Headquarters | Ownership | |||||||||
Yongin | 589,625 | Training Center | Ownership |
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Year Ended December 31, | ||||||||||||||
2002 | 2003 | 2004 | ||||||||||||
(In billions of Won, except percentages) | ||||||||||||||
Cellular Revenue: | ||||||||||||||
Wireless Services(1) | W | 7,579.6 | W | 8,462.7 | W | 8,798.4 | ||||||||
Interconnection | 1,043.2 | 1,017.1 | 849.4 | |||||||||||
Digital Handset Sales | 534.0 | 612.0 | 649.8 | |||||||||||
Total Cellular Revenue | 9,156.8 | 10,091.8 | 10,297.6 | |||||||||||
Other Revenue: | ||||||||||||||
Paging Revenue(2) | — | — | — | |||||||||||
International Calling Service(3) | 101.6 | 97.4 | 126.3 | |||||||||||
Portal Service(4) | 22.8 | 42.0 | 85.0 | |||||||||||
Miscellaneous | 42.8 | 40.9 | 61.7 | |||||||||||
Total Other Revenue | 167.2 | 180.3 | 273.0 | |||||||||||
Total Operating Revenue: | W | 9,324.0 | W | 10,272.1 | W | 10,570.6 | ||||||||
Cellular Revenue as a percent of Total Revenue | 98.2 | % | 98.2 | % | 97.4 | % | ||||||||
Total Operating Revenue Growth | 11.4 | % | 10.2 | % | 2.9 | % |
(1) | Wireless service revenue includes initial connection fees, monthly access fees, usage charges, international charges, wireless Internet service fees, value-added-service fees and interest on overdue subscriber accounts (net of telephone tax). |
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(2) | Prior to March 2001, we also earned revenue from initial connection fees and monthly access fees, usage charges and value-added service fees paid by our subscribers for our paging services. In March 2001, we sold our entire paging business to Real Telecom in exchange for 9.9% of Real Telecom’s newly issued shares and bonds with a principal amount of Won 9.5 billion that can be converted into an additional 7.8% interest in Real Telecom. Consequently, the results of the paging business are no longer included in the revenue from March 2001. Our paging revenue for the year ended December 31, 2001 was negligible. |
(3) | Provided by our 90.8%-owned subsidiary, SK Telink Co., Ltd. |
(4) | Portal service revenue attributable to SK Communications Co., Ltd. and since 2003, Paxnet Co., Ltd. |
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Year Ended December 31, | |||||||||||||
2002(1) | 2003 | 2004 | |||||||||||
Outgoing Voice Minutes (In Thousands):(2) | |||||||||||||
SK Telecom | 37,629,656 | 42,175,874 | 43,184,944 | ||||||||||
Shinsegi | — | — | — | ||||||||||
Combined SK Telecom and Shinsegi | 37,629,656 | 42,175,874 | 43,184,944 | ||||||||||
Average Monthly Outgoing Voice Minutes Per Subscriber:(3) | |||||||||||||
SK Telecom | 191 | 197 | 194 | ||||||||||
Shinsegi | — | — | — | ||||||||||
Combined SK Telecom and Shinsegi | 191 | 197 | 194 | ||||||||||
Average Monthly Revenue Per Subscriber:(4) | |||||||||||||
SK Telecom | W | 38,383 | W | 39,739 | W | 39,689 | |||||||
Shinsegi | — | — | — | ||||||||||
Consolidated SK Telecom and Shinsegi(4)(5) | 38,383 | 39,739 | 39,689 |
(1) | Excludes information relating to Shinsegi for a period of 12 days, from January 1, 2002 to January 12, 2002. Shinsegi merged into SK Telecom on January 13, 2002. |
(2) | Does not include minutes of incoming calls or minutes of use relating the use of text messaging and data services. |
(3) | The average monthly outgoing voice minutes per subscriber is computed by dividing the total minutes of outgoing voice usage for the period by the monthly weighted average number of subscribers for the period and dividing the quotient by the number of months in the period. The monthly weighted average number of subscribers is the sum of the average number of subscribers for the months calculated by taking the simple average number of subscribers at the beginning of the month and at the end of the month, divided by the number of months in the period. |
(4) | The average monthly revenue per subscriber excludes interconnection revenue and is computed by dividing total initial connection fees, monthly access fees, usage charges for voice and data, international charges, value-added service fees and interest on overdue subscriber accounts (net of telephone tax) for the period by the monthly weighted average number of subscribers for the period and dividing the quotient by the number of months in the period. |
(5) | Including interconnection revenue, consolidated average monthly revenue per subscriber was Won 43,958 for 2002, Won 44,546 for 2003 and Won 43,542 for 2004. |
• | reduction of overall tariff by 3.7% in September 2004; | |
• | decrease in minutes of use; and |
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• | decrease in caller ID rates by 50% that took effect in October 2003. |
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For the Year Ended December 31, | ||||||||||||||||||||||||
2002 | 2003 | 2004 | ||||||||||||||||||||||
(In billions of Won, except percentage data) | ||||||||||||||||||||||||
Operating Revenue | W | 9,324.0 | 100.00 | % | W | 10,272.1 | 100.00 | % | W | 10,570.6 | 100.00 | % | ||||||||||||
Operating Expenses | 6,526.4 | 70.00 | 7,167.0 | 69.77 | 8,130.9 | 76.92 | ||||||||||||||||||
Operating Income | 2,797.6 | 30.00 | 3,105.1 | 30.23 | 2,439.7 | 23.08 | ||||||||||||||||||
Other Income | 259.7 | 2.79 | 261.4 | 2.54 | 199.4 | 1.89 | ||||||||||||||||||
Other Expenses | 838.5 | 8.99 | 612.2 | 5.96 | 516.0 | 4.88 | ||||||||||||||||||
Income Before Income Taxes and Minority Interest | 2,218.8 | 23.80 | 2,754.3 | 26.81 | 2,123.1 | 20.09 | ||||||||||||||||||
Income Taxes | 698.5 | 7.49 | 789.0 | 7.68 | 629.7 | 5.96 | ||||||||||||||||||
Minority Interest | (33.1 | ) | (0.35 | ) | 0.8 | 0.01 | (1.9 | ) | (0.02 | ) | ||||||||||||||
Net Income | 1,487.2 | 15.96 | % | 1,966.1 | 19.14 | % | 1,491.5 | 14.10 | % | |||||||||||||||
Depreciation and Amortization(2) | W | 1,435.0 | 15.39 | % | W | 1,510.5 | 14.70 | % | 1,607.5 | 15.20 | % | |||||||||||||
(1) | Information for the year ended December 31, 2001 includes information for the year ended December 31, 2001 for Shinsegi. |
(2) | Excludes the depreciation and amortization allocated to internal research and development costs of Won 108.3 billion, Won 135.8 billion and Won 134.1 billion for the years ended December 31, 2002, 2003 and 2004, respectively. |
2004 Compared to 2003 |
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2003 Compared to 2002 |
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Liquidity |
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Cash Flow Analysis |
Year Ended December 31, | Change | |||||||||||||||||||||||||||
2002 | 2003 | 2004 | 2002 to 2003 | 2003 to 2004 | ||||||||||||||||||||||||
(In billions Won except percentages) | ||||||||||||||||||||||||||||
Net Cash Flow from Operating Activities | W | 4,267.8 | W | 3,328.8 | W | 2,516.0 | W | (939.0 | ) | (22.0 | )% | W | (812.8 | ) | (24.4 | )% | ||||||||||||
Net Cash Used in Investing Activities | (3,063.4 | ) | (1,414.4 | ) | (1,469.5 | ) | 1,649.0 | (53.8 | )% | (55.1 | ) | (3.9 | )% | |||||||||||||||
Net Cash Used in Financing Activities | (1,418.2 | ) | (2,261.0 | ) | (968.6 | ) | (842.8 | ) | 59.4 | % | 1,292.4 | 57.2 | % | |||||||||||||||
Net Cash Flow due to Changes in Consolidated Subsidiaries | 10.7 | 0.1 | (24.8 | ) | (10.6 | ) | (99.1 | )% | (24.9 | ) | (249.0 | )% | ||||||||||||||||
Increase (Decrease) in Cash and Cash Equivalents | W | (203.2 | ) | W | (346.6 | ) | W | 53.1 | W | 143.4 | 70.6 | % | W | 399.7 | 115.3 | % | ||||||||||||
Cash and Cash Equivalents at Beginning of Period | 867.3 | 664.1 | 317.5 | (203.2 | ) | (23.4 | )% | (346.6 | ) | (52.2 | )% | |||||||||||||||||
Cash and Cash Equivalents at End of Period | W | 664.1 | W | 317.5 | W | 370.6 | W | (346.6 | ) | (52.2 | )% | W | 53.1 | 16.7 | % | |||||||||||||
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Capital Requirements and Resources |
Year Ended (Ending) December 31, | |||||||||||||||||
2002 | 2003 | 2004 | 2005 | ||||||||||||||
(In billions of Won) | |||||||||||||||||
CDMA Network | W | 175 | W | 96 | W | — | W | — | |||||||||
CDMA 1xRTT Network(2) | 1,186 | 641 | 728 | (1) | 500 | (1) | |||||||||||
Wireless Data(3) | 221 | 175 | 92 | 500 | |||||||||||||
W-CDMA(4) | 15 | 204 | 220 | 600 | |||||||||||||
Other(3)(5) | 428 | 532 | 592 | — | |||||||||||||
Total | W | 2,025 | W | 1,648 | W | 1,632 | W | 1,600 | |||||||||
(1) | Our capital expenditures for our CDMA network in 2004 and 2005 are included in our actual and estimated capital expenditures, respectively, for our CDMA 1xRTT network. |
(2) | Includes upgrades to CDMA 1xEV/DO Network technology which were Won 200 billion for 2002 and Won 36 billion for 2003. |
(3) | Consists principally of equipment necessary for the provision of data services. Our estimated wireless data capital expenditures in 2005 include “other” miscellaneous capital expenditures referred to in note (5) below. |
(4) | Provision of W-CDMA services commenced on a limited basis in Seoul at the end of 2003. |
(5) | “Other” capital expenditure amount includes investments in new process and application infrastructure consisting of a new customer relationship management system, real estate for our headquarters and information technology systems. “Other” capital expenditure amount also includes actual capital expenditures of our consolidated subsidiaries which were Won 61 billion, Won 37 billion and Won 25 billion for 2002, 2003 and 2004, respectively. See note (3) above. |
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Year Ending December 31, | Total | |||
(In billions of Won) | ||||
2005 | 500.0 | |||
2006 | 800.0 | |||
2007 | 700.0 | |||
After 2007 | 1,499.0 |
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Payments Due by Period | ||||||||||||||||||||
Less Than | After | |||||||||||||||||||
Total | 1 Year | 1-3 Years | 4-5 Years | 5 Years | ||||||||||||||||
(In billions of Won) | ||||||||||||||||||||
Bonds(1) | W | 3,499.0 | W | 500.0 | W | 1,500.0 | W | 985.9 | W | 513.1 | ||||||||||
Long-term Borrowings | — | — | — | — | — | |||||||||||||||
Capital lease Obligations | — | — | — | — | — | |||||||||||||||
Operating Leases | — | — | — | — | — | |||||||||||||||
Purchase Obligations | — | — | — | — | — | |||||||||||||||
Other Long-term Payables(2) | 650.0 | — | 90.0 | 240.0 | 320.0 | |||||||||||||||
Total Contractual Cash Obligations(3) | W | 4,149.0 | W | 500.0 | W | 1,590.0 | W | 1,225.9 | W | 833.1 | ||||||||||
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(1) | In March 2004, we issued Won-denominated notes in the principal amount of Won 150.0 billion with a maturity of five years and an interest rate of 5.0%. In April 2004, we issued notes in the principal amount of US$300,000,000 with a maturity of seven years and an interest rate of 4.25%. In May 2004, we issued Won-denominated notes in the principal amount of Won 150.0 billion with a maturity of five years and an interest rate of 5.0%. The proceeds of the offerings in March and April 2004 were used to pay maturing debt. The proceeds of the offering in May 2004 were used for our operations. In late May 2004, we sold US$329.5 million in zero coupon convertible notes due 2009. We intend to use the proceeds of the zero coupon convertible notes for general corporate purposes, including for measures to improve shareholders’ return in their investment in our common stock through payment of dividends or share repurchase programs. |
(2) | Related to acquisition of IMT license. See note 2(i) of the notes to our consolidated financial statements. |
(3) | This amount does not include our future investments in the CDMA market in Vietnam through our subsidiary SLD Telecom Pte. Ltd. under a business cooperation contract with Saigon Post & Telecommunication Service Corporation. See “Information on the Company — Business Overview — Other Investments and Relationships” and “Operating and Financial Review and Prospects — Off Balance Sheet Arrangements”. |
(4) | See note 2[m] of the notes to our consolidated financial statements for the expected payments of severance indemnity obligations. |
Unguaranteed Domestic Bonds due March 18, 2010 |
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Revenue Recognition |
Allowances for Doubtful Accounts |
Inventories |
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Estimated Useful Lives and Impairment of Long-lived Assets |
Impairment of Investment Securities |
Employee Stock Option Compensation Plan |
Income Taxes |
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Overview |
As of and For the Year Ended | ||||||||||||
December 31, | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
(In billions of Won) | ||||||||||||
Internal R&D Expenses | W | 194.3 | W | 235.8 | W | 267.1 | ||||||
External R&D Expenses | 59.0 | 64.4 | 69.0 | |||||||||
Total R&D Expenses | W | 253.3 | W | 300.2 | W | 336.1 | ||||||
Internal Research and Development |
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External Research and Development |
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Other Principal | ||||||||||||||||
Director | Expiration | Directorships | ||||||||||||||
Name | Date of Birth | Since | of Term | Position | and Positions | Business Experience | ||||||||||
Jung Nam Cho | Nov. 20, 1941 | 1995 | 2007 | Vice-Chairman and Representative Director | President & COO, SK Telecom | |||||||||||
Shin Bae Kim | Oct. 15, 1954 | 2002 | 2008 | CEO and Representative Director | Chairman, Korea Association of RFID/USN | Head of Strategic Planning Group, Shinsegi Telecomm; Director, SK Telecom; Senior Vice President, SK Telecom; Director, KORMS | ||||||||||
Bang Hyung Lee | Aug. 20, 1955 | 2005 | 2008 | Executive Vice- President, Chief Marketing Officer and Head of Business Center | Head of Internet Business Group, SK Telecom; Head of Marketing Group, SK Telecom; Senior Accountant, Deloitte Haskin & Sells, USA | |||||||||||
Sung Min Ha | Mar. 24, 1957 | 2004 | 2007 | Senior Vice President and Chief Financial Officer | Representative Director, SK Capital | Head of Strategic Planning Group, SK Telecom; Director, SK Telink; Auditor, SK C&C; Chairman and Representative Director, SLD Telecom; Auditor, SK Teletech | ||||||||||
Our current non-standing directors are: | ||||||||||||||||
Sang Koo Nam | Aug. 20, 1946 | 1998 | 2007 | Outside Director | Professor, Korea University | University of Pennsylvania, MBA (1975), Ph.D. (1981); President, Korean Financial Association | ||||||||||
Sang C. Lee | Jan. 24, 1941 | 1999 | 2008 | Outside Director | IT Consultant | Chairman, Communication Network Interface, Inc.; Chairman and CEO, Spectron Corp., President, Scovill Fasteners, Inc.; Director of Organization, ITT Worldwide Corp.; Vice President, ITT Asia Pacific Corp. |
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Other Principal | ||||||||||||||||
Director | Expiration | Directorships | ||||||||||||||
Name | Date of Birth | Since | of Term | Position | and Positions | Business Experience | ||||||||||
Jae Seung Yoon | Nov. 9, 1962 | 2002 | 2008 | Outside Director | CEO & Representative Director; Daewoong Pharmaceutical Co., Ltd.; Vice-president, Insung Information Co., Ltd. | Public Prosecutor, The Seoul/Busan District Public Prosecutors’ Office; Auditor and Vice President, Daewoong Pharmaceutical Co., Ltd. | ||||||||||
Yong Woon Kim | Oct. 4, 1943 | 2003 | 2006 | Outside Director | Non-Standing Auditor, Pohang University of Science and Technology | Senior Executive Vice President (Legal Department, Seoul Office, Investment and Finance) and Director, POSCO; Standing Advisor, POSCO Research Institute | ||||||||||
Dae Sik Kim | Jan. 11, 1955 | 2005 | 2008 | Outside Director | Professor, Hanyang University; Committee Member, MOFE Advisory Committee on Financial Development | University of Pennsylvania, MBA (1981), Ph.D. (1987) | ||||||||||
Dae Kyu Byun | Mar. 8, 1960 | 2005 | 2008 | Outside Director | CEO & Representative Director, Humax Co., Ltd.; Head Vice- President, Korea Venture Business Association | Director, the Federation of Korea Information Industries; Representative Director, Guin Co.; Co-founder, Venture Leaders Club | ||||||||||
Seung Taik Yang | Oct. 24, 1939 | 2005 | 2008 | Outside Director | President, Tong-Myung University of Information Technology | Polytechnic Institute of Brooklyn, Ph.D.; 7th Minister, Ministry of Information and Communication |
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Number of Shares | |||||||||||||||||||||
Allotted | Number of | ||||||||||||||||||||
Options | |||||||||||||||||||||
Name | Position | 2002 | 2003 | 2004 | Exercised | ||||||||||||||||
Jung Nam Cho | Director | 6,150 | 0 | 0 | 0 | ||||||||||||||||
Shin Bae Kim | Director | 1,650 | 0 | 0 | 0 | ||||||||||||||||
Bang Hyung Lee | Director | 1,620 | 0 | 0 | 0 | ||||||||||||||||
Sung Min Ha | Director | 690 | 0 | 0 | 0 | ||||||||||||||||
Sang Koo Nam | Outside Director | 1,000 | 0 | 0 | 0 | ||||||||||||||||
Sang C. Lee | Outside Director | 1,000 | 0 | 0 | 0 | ||||||||||||||||
Jae Seung Yoon | Outside Director | 1,000 | 0 | 0 | 0 | ||||||||||||||||
Dae Kyu Byun | Outside Director | 1,000 | 0 | 0 | 0 | ||||||||||||||||
Seung Taik Yang | Outside Director | 0 | 0 | 0 | 0 | ||||||||||||||||
Dae Sik Kim | Outside Director | 1,000 | 0 | 0 | 0 | ||||||||||||||||
Yong Woon Kim | Outside Director | 0 | 0 | 0 | 0 | ||||||||||||||||
Other Officers | 49,620 | 0 | 0 | 0 | |||||||||||||||||
Total | 65,730 | 0 | 0 | 0 | |||||||||||||||||
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• | examine the agenda for the general meeting of shareholders; | |
• | examine financial statements and other reports to be submitted by the board of directors to the general meeting of shareholders; | |
• | review the administration by the board of directors of our affairs; and | |
• | examine the operations and asset status of us and our subsidiaries. |
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NYSE Corporate Governance Standards | SK Telecom Corporate Governance Practice | |
Director Independence | ||
Listed companies must have a majority of independent directors. | Of the 11 members of our board of directors, 7 of them are independent directors. | |
Executive Session | ||
Listed companies must hold meetings solely attended by non-management directors to more effectively check and balance management directors. | Our Audit Committee comprising solely of three members of our independent directors holds meetings whenever there are matters related to management directors, and such meetings are generally held once every month. | |
Nomination/ Corporate Governance Committee | ||
Listed companies must have a nomination/corporate governance committee composed entirely of independent directors. | Although we do not have a separate nomination/ corporate governance committee, we maintain an Independent Director Recommendation Committee composed of independent directors and management directors. | |
Audit Committee | ||
Listed companies must have an audit committee that satisfied the requirements of Rule 10A-3 under the Exchange Act. | We maintain an Audit Committee comprised solely of three independent directors. | |
Audit committee additional requirements | ||
Listed companies must have an audit committee that is composed of more than three directors. | Our Audit Committee has three independent directors. | |
Shareholder Approval of Equity Compensation Plan | ||
Listed companies must allow its 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. A stock option plan for officers and directors and employee stock ownership plan for employees (“ESOP”). Our Articles of Incorporation provides for all the relevant matters relating to such compensation scheme, amendment of which is subject to shareholder’s approval while the matters relating to ESOP are not subject to such approval under Korean law. | |
Corporate Governance Guidelines | ||
Listed companies must adopt and disclose corporate governance guidelines. | Although we do not maintain separate corporate governance guidelines, we are in compliance with the Korean Commercial Law in connection with such matter, including the governance of the board of directors. |
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NYSE Corporate Governance Standards | SK Telecom Corporate Governance Practice | |
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 directors or executive officers. | We have adopted a Code of Business Conduct and Ethics for all of our directors, officers and employees and such code is also available on our website at www.sktelecom.com. |
Regular | Temporary | |||||||||||
Employees | Employees | Total | ||||||||||
December 31, 2002 | 4,641 | 1,600 | 6,241 | |||||||||
December 31, 2003 | 5,447 | 1,474 | 6,921 | |||||||||
December 31, 2004 | 6,421 | 932 | 7,353 | |||||||||
As of April 30, 2005 | 7,111 | 951 | 8,062 |
Marketing | Production | Research | Support | New Business | Total | |||||||||||||||||||
Regular Employees | 2,282 | 1,873 | 1,135 | 1,105 | 716 | 7,111 | ||||||||||||||||||
Temporary Employees | 623 | 139 | 29 | 146 | 14 | 951 | ||||||||||||||||||
Total | 2,905 | 2,012 | 1,164 | 1,251 | 730 | 8,062 | ||||||||||||||||||
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Number of | Percentage of | Special | ||||||||||||||||
Shares | Total Shares | Voting | ||||||||||||||||
Name | Position | Owned | Outstanding | Rights | Options | |||||||||||||
Standing Directors | ||||||||||||||||||
Jung Nam Cho | Vice-Chairman and Representative Director | — | — | None | 16,500 | |||||||||||||
Shin Bae Kim | CEO and Representative Director | 1,270 | — | None | 1,650 | |||||||||||||
Bang Hyung Lee | Executive Vice-President | 1,630 | — | None | 3,390 | |||||||||||||
Sung Min Ha | Chief Financial Officer and Head of Strategic Planning Divisional Group | 738 | — | None | 690 | |||||||||||||
Non-Standing Directors | ||||||||||||||||||
Sang Koo Nam | Outside Director | — | — | None | 2,500 | |||||||||||||
Sang C. Lee | Outside Director | — | — | None | 2,500 | |||||||||||||
Jae Seung Yoon | Outside Director | 200 | — | * | None | 1,000 | ||||||||||||
Dae Sik Kim | Outside Director | — | — | None | 2,000 | |||||||||||||
Dae Kyu Byun | Outside Director | — | — | None | 2,000 | |||||||||||||
Seung Taik Yang | Outside Director | — | — | None | — | |||||||||||||
Yong Woon Kim | Outside Director | — | — | None | 0 |
* | Less than 1.0% |
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Percentage | Percentage | ||||||||||||
Number of | Total Shares | Total Shares | |||||||||||
Shareholder/Category | Shares | Issued | Outstanding | ||||||||||
Domestic Shareholders | |||||||||||||
SK Group(1) | 19,772,914 | 24.03 | % | 26,86 | % | ||||||||
POSCO | 4,098,496 | 4.98 | 5.57 | ||||||||||
Employees(2) | 480,586 | 0.58 | 0.65 | ||||||||||
Treasury shares(3) | 8,662,415 | 10.53 | N/A | ||||||||||
Officers and Directors(4) | 2,608 | — | — | ||||||||||
Other Domestic Shareholders | 9,467,103 | 11.52 | 13.76 | ||||||||||
Foreign Shareholders(5) | 39,792,589 | 48.36 | % | 54.06 | % | ||||||||
Total Issued Shares | 82,276,711 | 100.00 | % | 100.00 | % | ||||||||
(1) | The SK Group’s ownership interest consists of the following as of December 31, 2004: |
Percentage | Percentage | |||||||||||
Number of | Total Shares | Total Shares | ||||||||||
SK Group Member | Shares | Issued | Outstanding | |||||||||
SK Corporation | 17,663,127 | 21.47 | % | 23.99 | % | |||||||
SK Securities Co., Ltd. | 7 | 0.00 | 0.00 | |||||||||
SK Networks* | 2,097,740 | 2.55 | 2.85 | |||||||||
SK Life Insurance Co., Ltd. | 12,040 | 0.01 | 0.02 | |||||||||
19,772,914 | 24.03 | % | 26.86 | % | ||||||||
* | SK Networks sold 418,000 shares in January 2004 and currently owns 2,097,740 shares. |
The SK Group is a group of affiliated entities. As of December 31, 2004, the ownership interest among the SK Group were, among others: SK Corporation owned 21.47% of SK Telecom Co., Ltd., 41.32% of SK Networks, 47.27% of SKC and 72.13% of SK Shipping Co., Ltd. SK Networks owned 2.55% of SK Telecom Co., Ltd., 17.71% of SK Shipping, 15% of SK Computer & Communications Co., Ltd., and 28.95% of SK Securities Co., Ltd. SK Chemicals owned 2.39% of SK Corporation, 39.40% of SK Engineering and Construction. SKC owns 6.2% of SK Chemicals and 10.16% of SK Shipping Co., Ltd. SK Shipping Co., Ltd. owns 30.94% of SK Engineering and Construction. SK Computer & Communications Co., Ltd. owns 11.22% of SK Corporation. We own 30.0% of SK Computer & Communications Co., Ltd. |
(2) | Represents shares owned by our employee stock ownership association. See “Information on the Company — Employees”. |
(3) | Treasury shares do not have any voting rights; Includes 1,710,750 treasury shares that were deposited with Korea Securities Depository to be reserved and used to satisfy the conversion rights of the holders of US$329.5 million in zero coupon convertible notes that were sold in May 2004. |
(4) | Less than 0.01%. |
(5) | Includes 5,445,282 shares of our common stock or approximately 6.62% of our issued common stock, represented by American Depositary Shares (ADSs) held by Momenta (Cayman), a special purpose vehicle incorporated in the Cayman Islands. |
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As of December 31, | |||||||||||||
Shareholder | 2002 | 2003 | 2004 | ||||||||||
(As a percentage of total | |||||||||||||
issued shares)(1) | |||||||||||||
SK Group | 24.43 | % | 24.60 | % | 24.03 | % | |||||||
SK Corporation(2) | 19.81 | 21.47 | 21.47 | ||||||||||
SK Life Insurance | 0.00 | 0.01 | 0.01 | ||||||||||
SK Investment Trust Management | 0.07 | 0.06 | — | ||||||||||
SK Networks(3) | 4.53 | 3.06 | 2.55 | ||||||||||
KT Corporation(4) | 9.27 | 0.00 | 0.00 | ||||||||||
POSCO(5) | 6.50 | 4.98 | 4.98 |
(1) | Includes shares held in treasury of 4,852,972, 8,662,403 and 8,662,415 as of December 31, 2002, 2003 and 2004, respectively. The treasury share amount as of December 31, 2002 excludes 4,465,635 shares of the Company’s common stock acquired from KT Corporation pursuant to a stock swap on December 30, 2002. |
(2) | On July 25, 2002, SK Corporation sold our ADSs representing 5,117,500 shares of our common stock to Momenta (Cayman), which in turn sold bonds exchangeable initially into such ADSs. On the same day, SK Corporation sold 1,122,223 shares of our common stock represented by ADRs to foreign investors. |
(3) | On January 4, 2002, SK Networks issued bonds exchangeable into an aggregate of 1,730,104 shares of our common stock. On January 31, 2002, bank trust funds controlled by us purchased from SK Networks an aggregate of 1,367,180 shares of our common stock, or approximately 1.5% of our outstanding common stock. On July 25, 2002, SK Networks sold 1,100,000 shares of our common stock represented by ADRs to foreign investors. SK Networks sold 418,000 shares in January 2004 and currently owns 2,097,740 shares. |
(4) | On April 15, 2002, KT Corporation sold an aggregate of 1,000,000 shares, or approximately 1.1%, of our outstanding common stock to investors. On December 30, 2002, KT Corporation sold an aggregate of 4,457,635 shares, on approximately 5.0%, of our outstanding common stock to us. On January 10, 2003, KT Corporation sold its remaining stake in us, an aggregate of 3,809,288 shares, or approximately 4.3%, of our outstanding common stock to us. On May 23, 2002, we acquired a 9.6% equity interest (29,808,333 shares of common stock) in KT Corporation for Won 1,609 billion. Pursuant to the terms of an agreement between us and KT Corporation dated November 14, 2002, we sold all of our shares of KT Corporation. Under the terms of the agreement, we exchanged 29,808,333 shares of KT Corporation’s common stock for 8,266,923 shares of our common stock and settled the difference in the price in cash on December 30, 2002 and January 10, 2003. The exchange was made at Won 50,900 per share of KT Corporation’s common stock and Won 224,000 per share of our common stock. |
(5) | POSCO acquired these shares in connection with our acquisition of a 27.7% equity interest in Shinsegi. |
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• | A series of real property sale and purchase contracts in November 2000 pursuant to which we purchased from SK Networks the building and land where our new corporate headquarters is located. The aggregate purchase price was Won 114.4 billion; and | |
• | A series of sale and purchase agreements pursuant to which we and our subsidiary, SK Teletech, sell handsets to SK Networks. The aggregate sales to SK Networks pursuant to these contracts were Won 381.9 billion in 2002, Won 481.2 billion in 2003 and Won 581.6 billion in 2004. |
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Number of Shares | ||||||||||||
Dividend | Total Amount of | Entitled to | ||||||||||
Year Ended December 31, | Per Share | Dividends | Dividend | |||||||||
(In Won) | (In billions of Won) | |||||||||||
1997 | W | 90 | W | 5.6 | 62,169,720 | |||||||
1998 | 118 | 7.6 | 64,258,670 | |||||||||
1999 | 185 | 15.4 | 83,284,110 | |||||||||
2000 | 540 | 48.1 | 89,079,034 | |||||||||
2001 | 690 | 57.3 | 82,993,404 | |||||||||
2002 | 1,800 | 151.7 | 84,299,698 | |||||||||
2003 | 5,500 | 404.9 | 73,614,308 | |||||||||
2004 | 10,300 | 758.2 | 73,614,296 |
(1) | Dividend per share and amount of shares entitled to dividend have been adjusted to give effect to the 10-for-1 stock split of our common shares which became effective on April 21, 2000. |
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Prices(1) | ||||||||||||||||||
Average Daily | ||||||||||||||||||
Calendar Year | High(2) | Low(2) | Close | Trading Volume | ||||||||||||||
(Number of shares) | ||||||||||||||||||
(Won per share) | ||||||||||||||||||
2000 | 481,000 | 216,000 | 253,000 | 262,660 | ||||||||||||||
First Quarter | 481,000 | 323,000 | 360,000 | 238,762 | ||||||||||||||
Second Quarter | 406,000 | 263,500 | 365,000 | 311,828 | ||||||||||||||
Third Quarter | 379,000 | 216,000 | 272,000 | 239,913 | ||||||||||||||
Fourth Quarter | 288,000 | 230,000 | 253,000 | 261,753 | ||||||||||||||
2001 | 295,000 | 165,000 | 268,000 | 242,254 | ||||||||||||||
First Quarter | 293,500 | 182,000 | 183,000 | 253,393 | ||||||||||||||
Second Quarter | 235,500 | 165,000 | 191,500 | 312,070 | ||||||||||||||
Third Quarter | 233,000 | 184,500 | 208,000 | 154,785 | ||||||||||||||
Fourth Quarter | 295,000 | 220,000 | 268,000 | 250,676 | ||||||||||||||
2002 | 299,000 | 209,500 | 229,000 | 261,482 | ||||||||||||||
First Quarter | 299,000 | 242,000 | 290,000 | 263,168 | ||||||||||||||
Second Quarter | 292,000 | 239,000 | 269,500 | 227,115 | ||||||||||||||
Third Quarter | 279,500 | 209.500 | 237,000 | 241,154 | ||||||||||||||
Fourth Quarter | 252,500 | 220,000 | 229,000 | 314,019 | ||||||||||||||
2003 | 235,000 | 142,000 | 199,000 | 327,689 | ||||||||||||||
First Quarter | 235,000 | 142,000 | 153,000 | 497,115 | ||||||||||||||
Second Quarter | 210,000 | 157,500 | 204,000 | 298,346 | ||||||||||||||
Third Quarter | 216,000 | 183,000 | 184,000 | 267,821 | ||||||||||||||
Fourth Quarter | 212,500 | 185,000 | 199,000 | 247,332 | ||||||||||||||
2004 | 238,500 | 154,500 | 197,000 | 179,712 | ||||||||||||||
First Quarter | 238,500 | 207,500 | 214,500 | 243,681 | ||||||||||||||
Second Quarter | 213,000 | 179,000 | 190,000 | 188,095 | ||||||||||||||
Third Quarter | 186,000 | 154,500 | 175,500 | 137,559 | ||||||||||||||
Fourth Quarter | 205,000 | 174,500 | 197,000 | 151,903 | ||||||||||||||
2005 (through May 24) | 200,500 | 163,500 | 176,000 | 173,530 | ||||||||||||||
First Quarter | 200,500 | 171,000 | 171,000 | 202,857 | ||||||||||||||
January | 200,500 | 179,000 | 179,000 | 175,817 | ||||||||||||||
February | 184,000 | 176,500 | 181,000 | 266,888 | ||||||||||||||
March | 184,500 | 171,000 | 171,000 | 179,188 | ||||||||||||||
Second Quarter (through May 24) | 176,500 | 163,500 | 176,000 | 124,651 | ||||||||||||||
April | 172,000 | 163,500 | 163,500 | 148,913 | ||||||||||||||
May (through May 24) | 176,500 | 168,000 | 176,000 | 94,324 |
(1) | The price give effect to the 10-for-1 stock split of our common shares which became effective on April 21, 2000 and resulted in the par value of each share being reduced from Won 5,000 to Won 500. |
(2) | Both high and low prices are based on the daily closing prices for the period. |
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Prices(1) | ||||||||||||||||||
Average Daily | ||||||||||||||||||
High(2) | Low(2) | Close | Trading Volume | |||||||||||||||
(US$ per ADS) | (Number of ADSs) | |||||||||||||||||
2000 | 50.69 | 20.56 | 23.56 | 832,301 | ||||||||||||||
First Quarter | 50.69 | 33.50 | 39.00 | 964,229 | ||||||||||||||
Second Quarter | 43.31 | 28.25 | 36.31 | 781,578 | ||||||||||||||
Third Quarter | 43.44 | 20.56 | 25.63 | 810,021 | ||||||||||||||
Fourth Quarter | 28.19 | 21.31 | 23.56 | 773,376 | ||||||||||||||
2001 | 28.94 | 13.50 | 21.62 | 710,410 | ||||||||||||||
First Quarter | 28.94 | 15.18 | 15.18 | 743,602 | ||||||||||||||
Second Quarter | 21.05 | 13.50 | 16.90 | 817,532 | ||||||||||||||
Third Quarter | 20.21 | 16.15 | 18.44 | 655,302 | ||||||||||||||
Fourth Quarter | 25.29 | 18.26 | 21.62 | 623,611 | ||||||||||||||
2002 | 26.75 | 19.25 | 21.35 | 684,421 | ||||||||||||||
First Quarter | 24.70 | 20.30 | 24.60 | 488,958 | ||||||||||||||
Second Quarter | 26.75 | 20.20 | 24.40 | 555,865 | ||||||||||||||
Third Quarter | 26.36 | 19.25 | 21.23 | 963,578 | ||||||||||||||
Fourth Quarter | 22.81 | 19.30 | 21.35 | 717,859 | ||||||||||||||
2003 | 21.85 | 12.83 | 18.65 | 743,316 | ||||||||||||||
First Quarter | 21.85 | 12.83 | 13.62 | 971,259 | ||||||||||||||
Second Quarter | 19.40 | 14.07 | 18.86 | 723,959 | ||||||||||||||
Third Quarter | 20.83 | 17.71 | 17.84 | 724,406 | ||||||||||||||
Fourth Quarter | 19.90 | 17.46 | 18.65 | 564,023 | ||||||||||||||
2004 | 25.01 | 17.28 | 22.25 | 911.823 | ||||||||||||||
First Quarter | 25.01 | 19.43 | 21.30 | 1,331,177 | ||||||||||||||
Second Quarter | 21.83 | 19.15 | 20.99 | 832,175 | ||||||||||||||
Third Quarter | 20.76 | 17.28 | 19.45 | 768,117 | ||||||||||||||
Fourth Quarter | 23.10 | 19.30 | 22.25 | 727,683 | ||||||||||||||
2005 (through May 24) | 22.19 | 18.96 | 20.11 | 748,222 | ||||||||||||||
First Quarter | 22.19 | 19.41 | 19.72 | 798,390 | ||||||||||||||
January | 22.19 | 19.96 | 19.96 | 767,815 | ||||||||||||||
February | 21.30 | 19.74 | 21.30 | 931,705 | ||||||||||||||
March | 21.62 | 19.41 | 19.72 | 711,050 | ||||||||||||||
Second Quarter (through May 24) | 20.22 | 18.96 | 20.11 | 667,689 | ||||||||||||||
April | 19.60 | 18.96 | 19.46 | 699,167 | ||||||||||||||
May (through May 24) | 20.22 | 19.42 | 20.11 | 628,806 |
(1) | The price give effect to the 10-for-1 stock split of our common shares which became effective on April 21, 2000 and resulted in the par value of each share being reduced from Won 5,000 to Won 500. |
(2) | Both high and low prices are based on the daily closing prices for the period. |
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Period Average | ||||||||||||||||||||||||
Price | ||||||||||||||||||||||||
Dividend | Earnings | |||||||||||||||||||||||
Year | Opening | High | Low | Closing | Yield(1)(%) | Ratio(2) | ||||||||||||||||||
1980 | 100.00 | 119.36 | 100.00 | 106.87 | 20.9 | 2.6 | ||||||||||||||||||
1981 | 97.95 | 165.95 | 93.14 | 131.37 | 13.2 | 3.1 | ||||||||||||||||||
1982 | 123.60 | 134.49 | 106.00 | 127.31 | 10.5 | 3.4 | ||||||||||||||||||
1983 | 122.52 | 134.46 | 115.59 | 121.21 | 6.9 | 3.8 | ||||||||||||||||||
1984 | 116.73 | 142.46 | 114.37 | 142.46 | 5.1 | 4.5 | ||||||||||||||||||
1985 | 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 | ||||||||||||||||||
1987 | 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 | ||||||||||||||||||
1989 | 919.61 | 1,007.77 | 844.75 | 909.72 | 2.0 | 13.9 | ||||||||||||||||||
1990 | 908.59 | 928.77 | 566.27 | 696.11 | 2.2 | 12.8 | ||||||||||||||||||
1991 | 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 | ||||||||||||||||||
1993 | 697.41 | 874.10 | 605.93 | 866.18 | 1.6 | 12.7 | ||||||||||||||||||
1994 | 879.32 | 1,138.75 | 860.47 | 1,027.37 | 1.2 | 16.2 | ||||||||||||||||||
1995 | 1,013.57 | 1,016.77 | 847.09 | 882.94 | 1.2 | 16.4 | ||||||||||||||||||
1996 | 888.85 | 986.84 | 651.22 | 651.22 | 1.3 | 17.8 | ||||||||||||||||||
1997 | 653.79 | 792.29 | 350.68 | 376.31 | 1.5 | 17.0 | ||||||||||||||||||
1998 | 385.49 | 579.86 | 280.00 | 562.46 | 1.9 | 10.8 | ||||||||||||||||||
1999 | 587.57 | 1,028.07 | 498.42 | 1,028.07 | 1.1 | 13.5 | ||||||||||||||||||
2000 | 1,059.04 | 1,059.04 | 500.60 | 504.62 | 1.6 | (3) | 18.6 | (3) | ||||||||||||||||
2001 | 520.95 | 704.50 | 468.76 | 693.70 | 2.0 | (3) | 14.2 | (3) | ||||||||||||||||
2002 | 724.95 | 937.61 | 584.04 | 829.44 | 1.4 | (3) | 17.9 | (3) | ||||||||||||||||
2003 | 653.17 | 822.16 | 515.24 | 810.71 | 2.1 | (3) | 11.7 | (3) | ||||||||||||||||
2004 | 821.26 | 936.06 | 719.59 | 895.92 | 2.6 | (3) | 7.1 | (3) | ||||||||||||||||
2005 (through May 20) | 893.71 | 1,022.79 | 870.84 | 952.19 | N/A | N/A |
(1) | Dividend yields are based on daily figures. Before 1983, dividend yields were calculated at the end of each month. Dividend yields after January 3, 1984 include cash dividends only. |
(2) | The price to earnings ratio is based on figures for companies that record a profit in the preceding year. |
(3) | Starting in April 2000, dividend yield and price earnings ratio of KOSPI 200, an index of 200 equity securities listed on the KRX Stock Market. Starting in April 2000, excludes classified companies, companies which did not submit annual reports to the KRX, and companies which received disqualified opinion from external auditors. |
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Rounded Down | ||||
Previous Day’s Closing Price (Won) | to (Won) | |||
Less than 5,000 | W | 5 | ||
5,000 to less than 10,000 | 10 | |||
10,000 to less than 50,000 | 50 | |||
50,000 to less than 100,000 | 100 | |||
100,000 to less than 500,000 | 500 | |||
500,000 or more | 1,000 |
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Market Capitalization | ||||||||||||||||||||||||
on the Last Day of Each Period | ||||||||||||||||||||||||
Average Daily Trading Volume & Value | ||||||||||||||||||||||||
Number of | ||||||||||||||||||||||||
Listed | (Millions of | (Thousands of | Thousands | (Millions of | (Thousands of | |||||||||||||||||||
Year | Companies | Won) | Dollars)(1) | of Shares | Won) | Dollars)(1) | ||||||||||||||||||
1980 | 352 | W | 2,526,553 | US$ | 3,828,691 | 5,654 | W | 3,897 | US$ | 5,905 | ||||||||||||||
1981 | 343 | 2,959,057 | 4,224,207 | 10,565 | 8,708 | 12,433 | ||||||||||||||||||
1982 | 334 | 3,000,494 | 4,407,711 | 9,704 | 6,667 | 8,904 | ||||||||||||||||||
1983 | 328 | 3,489,654 | 4,386,743 | 9,325 | 5,941 | 7,468 | ||||||||||||||||||
1984 | 336 | 5,148,460 | 6,222,456 | 14,847 | 10,642 | 12,862 | ||||||||||||||||||
1985 | 342 | 6,570,404 | 7,380,818 | 18,925 | 12,315 | 13,834 | ||||||||||||||||||
1986 | 355 | 11,994,233 | 13,924,115 | 31,755 | 32,870 | 38,159 | ||||||||||||||||||
1987 | 389 | 26,172,174 | 33,033,162 | 20,353 | 70,185 | 88,584 | ||||||||||||||||||
1988 | 502 | 64,543,685 | 94,348,318 | 10,367 | 198,364 | 289,963 | ||||||||||||||||||
1989 | 626 | 95,476,774 | 140,489,660 | 11,757 | 280,967 | 414,431 | ||||||||||||||||||
1990 | 669 | 79,019,676 | 110,301,055 | 10,866 | 183,692 | 256,500 | ||||||||||||||||||
1991 | 686 | 73,117,833 | 96,182,364 | 14,022 | 214,263 | 281,850 | ||||||||||||||||||
1992 | 688 | 84,711,982 | 107,502,515 | 24,028 | 308,246 | 391,175 | ||||||||||||||||||
1993 | 693 | 112,665,260 | 139,419,948 | 35,130 | 574,048 | 676,954 | ||||||||||||||||||
1994 | 699 | 151,217,231 | 191,729,721 | 36,862 | 776,257 | 984,223 | ||||||||||||||||||
1995 | 721 | 141,151,399 | 182,201,367 | 26,130 | 487,762 | 629,614 | ||||||||||||||||||
1996 | 760 | 117,369,988 | 139,031,021 | 26,571 | 486,834 | 575,733 | ||||||||||||||||||
1997 | 776 | 70,988,897 | 50,161,742 | 41,525 | 555,759 | 392,707 | ||||||||||||||||||
1998 | 748 | 137,798,451 | 114,090,455 | 97,716 | 660,429 | 471,432 | ||||||||||||||||||
1999 | 725 | 349,503,966 | 305,137,040 | 278,551 | 3,481,620 | 3,039,654 | ||||||||||||||||||
2000 | 704 | 188,041,490 | 150,162,898 | 306,163 | 2,602,211 | 2,078,028 | ||||||||||||||||||
2001 | 689 | 225,850,076 | 194,784,979 | 473,241 | 1,997,420 | 1,520,685 | ||||||||||||||||||
2002 | 683 | 258,680,756 | 218,167,122 | 851,242 | 3,041,592 | 2,414,362 | ||||||||||||||||||
2003 | 684 | 355,362,626 | 297,960,530 | 542,010 | 2,216,636 | 1,858,580 | ||||||||||||||||||
2004 | 683 | 412,588,138 | 427,069,982 | 372,894 | 2,232,108 | 2,310,455 | ||||||||||||||||||
2005 (through May 24) | 655 | 442,054,261 | 445,148,641 | 458,023 | 2,515,201 | 2,532,808 |
(1) | Converted at the noon buying rate in The City of New York for cable transfers in Won per US$1.00 as certified for customs purposes by the Federal Reserve Bank of New York. |
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• | information and communication business; | |
• | sale and lease of subscriber handsets; | |
• | new media business; | |
• | advertising business; | |
• | mail order business; | |
• | business of leasing available and real estate property; | |
• | research and technology development relating to the first four items above; | |
• | overseas and import/ export business relating to the first four items above; | |
• | manufacture and distribution business relating to the first four items above; and | |
• | any business or undertaking incidental or conducive to the attainment of the objectives stated above. |
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• | investment by us or any of our subsidiaries in a foreign company or equity or other overseas assets in an amount equal to 5.0% or more of our shareholders’ equity under our most recent balance sheet; and | |
• | contribution of capital, loans or guarantees, acquisition of our subsidiaries’ assets or similar transactions with our affiliated companies in excess of Won 10 billion through one or a series of transactions. |
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• | as necessary; | |
• | at the request of holders of an aggregate of 3.0% or more of our outstanding common shares; | |
• | at the request of shareholders holding an aggregate of 3.0% or more of our outstanding shares for at least six months; or | |
• | at the request of our audit committee. |
• | amending our articles of incorporation; | |
• | removing a director; | |
• | 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 a part of the business of any other company having a material effect on our business; | |
• | reducing our capital; or |
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• | issuing any new shares at a price lower than their par value. |
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• | before or at the time of the pre-release, the person to whom the pre-release is being made must represent to the ADR depositary in writing that it or its customer owns the shares of common stock or ADRs to be deposited and show evidence of the ownership to the ADR depositary’s satisfaction; | |
• | before or at the time of such pre-release, the person to whom the pre-release is being made must agree in writing that he will hold the shares of common stock or ADSs in trust for the ADR depositary until their delivery to the ADR depositary or custodian, reflect on his records the ADR depositary as owner of such shares of common stock or ADSs and deliver such shares of common stock upon the ADR depositary’s request; | |
• | the pre-release must be fully collateralized with cash or U.S. government securities; | |
• | the ADR depositary must be able to terminate the pre-release on not more than five business day’s notice; and | |
• | the pre-release is subject to further indemnities and credit regulations as the ADR depositary deems appropriate. |
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• | any cash dividend or other cash distribution becomes payable; | |
• | any distribution other than cash is made; | |
• | rights are issued with respect to deposited shares of common stock; | |
• | the ADR depositary causes a change in the number of shares of common stock that are represented by each ADS; or | |
• | the ADR depositary receives notice of any shareholders’ meeting. |
• | the information contained in our notice to the ADR depositary including an English translation, or, if requested by us, a summary of the information provided by us; | |
• | a statement that the ADR holders as of the close of business on a specified record date will be entitled to instruct the ADR depositary as to how to exercise their voting rights for the number of shares of deposited shares of common stock, subject to the provisions of applicable Korean law and our articles of incorporation, which provisions, if any, will be summarized in the notice to the extent that they are material; and |
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• | a statement as to the manner in which the ADR holders may give their instructions. |
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• | to collect dividends and other distributions pertaining to the deposited shares of common stock; | |
• | to sell property and rights and the conversion of deposited shares of common stock into cash as provided in the deposit agreement; and | |
• | to deliver deposited shares of common stock, together with any dividends or other distributions received with respect to the deposited shares of common stock and the net proceeds of the sale of any rights or other property represented by those ADSs in exchange for surrendered ADRs. |
• | taxes and other governmental charges; | |
• | registration fees applicable to transfers of shares of common stock on our shareholders’ register, or that of any entity acting as registrar for the shares, to the name of the ADR depositary or its nominee, or the Custodian or its nominee, when making deposits or withdrawals under the deposit agreement; | |
• | cable, telex and facsimile transmission expenses that are expressly provided in the deposit agreement; | |
• | expenses incurred by the ADR depositary in the conversion of foreign currency into Dollars under the deposit agreement; | |
• | a fee of up to US$5.00 per 100 ADSs, or portion thereof, for execution and delivery of ADSs and the surrender of ADRs under the deposit agreement; and | |
• | a fee of up to US$0.02 per ADS held for cash distributions, a sale or exercise of rights or the taking of any other corporate action involving distributions to shareholders. |
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• | if the Government deems it necessary on account of war, armed conflict, natural disaster or grave and sudden and significant changes in domestic or foreign economic circumstances or similar events or circumstances, the MOFE may temporarily suspend performance under any or all foreign exchange transactions, in whole or in part, to which the Foreign Exchange Transaction Laws apply (including suspension of payment and receipt of foreign exchange) or impose an obligation to deposit, safe-keep or |
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sell any means of payment to The Bank of Korea or certain other governmental agencies or financial institutions; and | ||
• | if the Government concludes that the international balance of payments and international financial markets are experiencing or are likely to experience significant disruption or that the movement of capital between Korea and other countries are likely to adversely affect the Won, exchange rate or other macroeconomic policies, the MOFE may take action to require any person who intends to effect or effects a capital transaction to deposit all or a portion of the means of payment acquired in such transactions with The Bank of Korea or certain other governmental agencies or financial institutions. |
• | the aggregate number of common shares deposited by us or with our consent 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 | |
• | the number of common shares on deposit with the ADR depositary at the time of such proposed deposit. We can give no assurance that we would grant our consent, if our consent is required. In addition to such restrictions under Korean laws and regulations, there are also restrictions on the deposits of our common shares for issuance of ADSs. See “Additional Information — Description of American Depositary Shares”. Therefore, a holder of ADRs who surrenders ADRs and withdraws shares may not be permitted subsequently to deposit those shares and obtain ADRs. |
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• | odd-lot trading of shares; | |
• | acquisition of shares by a foreign company as a result of a merger; | |
• | acquisition or disposal of shares in connection with a tender offer; | |
• | acquisition of shares by exercise of warrant, conversion right under convertible bonds, exchange right under exchangeable bonds or withdrawal right under depositary receipts issued outside of Korea by a Korean company (“Converted Shares”); | |
• | acquisition of shares through exercise of rights under securities issued outside of Korea; | |
• | 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; and | |
• | acquisition of shares by direct investment under the Foreign Investment Promotion Law. |
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Authorities |
U.S. Holders |
Non-U.S. Holders |
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U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed |
Tax Consequences Other than U.S. Federal Income Tax Consequences Not Addressed |
Treatment of ADSs |
Distributions |
General Taxation of Distributions |
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Reduced Tax Rates for Certain Dividends |
Distributions Paid in Foreign Currency |
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Dividends Received Deduction |
Disposition |
Foreign Tax Credit |
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Information Reporting; Backup Withholding Tax |
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• | a resident of Korea; | |
• | a corporation organized under Korean law; or | |
• | engaged in a trade or business in Korea through a permanent establishment or a fixed base to which the relevant income is attributable or with which the relevant income is effectively connected. |
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Exchange Rate and Interest Rate Risks |
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Exchange Rate Risk |
Interest Rate Risk |
Maturities | |||||||||||||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | Thereafter | Total | Fair Value | ||||||||||||||||||||||||||||
(In billions of Won, except for percentage data) | |||||||||||||||||||||||||||||||||||
Local currency: | |||||||||||||||||||||||||||||||||||
Fixed rate | W | 898.3 | W | 788.8 | W | 687.7 | W | 297.0 | W | 297.2 | W | 187.8 | W | 3,156.8 | W | 3,277.0 | |||||||||||||||||||
Average weighted rate(1) | 4.90 | % | 5.50 | % | 5.57 | % | 5.00 | % | 5.00 | % | 3.00 | % | |||||||||||||||||||||||
Variable rate | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Average weighted rate(1) | |||||||||||||||||||||||||||||||||||
Sub-total | W | 898.3 | W | 788.8 | W | 687.7 | W | 297.0 | W | 297.2 | 187.8 | W | 3,156.8 | W | 3,277.0 | ||||||||||||||||||||
Foreign currency: | |||||||||||||||||||||||||||||||||||
Fixed rate | W | 25.5 | — | — | — | 323.7 | 309.6 | W | 658.8 | W | 696.0 | ||||||||||||||||||||||||
Average weighted rate(1) | 2.51 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 4.25 | % | |||||||||||||||||||||||
Variable rate | W | — | W | — | W | — | — | — | — | W | — | W | — | ||||||||||||||||||||||
Average weighted rate(1) | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | |||||||||||||||||||||||
Sub-total | W | 25.5 | W | — | W | — | — | W | 323.7 | W | 309.6 | W | 658.8 | W | 696.0 | ||||||||||||||||||||
Total | W | 923.8 | W | 788.8 | W | 687.7 | W | 297.0 | W | 620.9 | W | 497.4 | W | 3,815.6 | W | 3,973.0 | |||||||||||||||||||
(1) | Weighted average rates of the portfolio at the period end. |
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Years Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(In millions of Won) | ||||||||||||
Audit | W | 841.3 million | W | 727.7 million | W | 913.9 million | ||||||
Audit Related | W | 127.7 million | W | 13.7 million | W | 122.0 million | ||||||
Tax | W | 110.1 million | W | 143.0 million | W | 74.7 million | ||||||
All Other Fees | W | 2,418.0 million | W | 12,006.2 million | W | 11,058.4 million | ||||||
Total | W | 3,497.1 million | W | 12,890.6 million | W | 12,169.0 million | ||||||
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Total Number of | Maximum Number | ||||||||||||||||
Total | Shares Purchased as | of Shares that May | |||||||||||||||
Number of | Average | Part of Publicly | Yet be Purchased | ||||||||||||||
Shares | Price Paid | Announced Plans | Under the Plans | ||||||||||||||
Period | Purchased | Per Share | or Programs | or Programs | |||||||||||||
January | — | W | — | — | — | ||||||||||||
February | 12 | W | 173,500 | — | — | ||||||||||||
March | — | W | — | — | — | ||||||||||||
April | — | W | — | — | — | ||||||||||||
May | — | W | — | — | — | ||||||||||||
June | — | W | — | — | — | ||||||||||||
July | — | W | — | — | — | ||||||||||||
August | — | W | — | — | — | ||||||||||||
September | — | W | — | — | — | ||||||||||||
October | — | W | — | — | — | ||||||||||||
November | — | W | — | — | — | ||||||||||||
December | — | W | — | — | — | ||||||||||||
Total | 12 | W | — | — | — | ||||||||||||
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Page | ||||
Report of Independent Registered Public Accounting Firm of Deloitte HanaAnjin LLC for the years ended December 31, 2002, 2003 and 2004 | F-3 | |||
Consolidated Balance Sheets as of December 31, 2002, 2003 and 2004 | F-5 | |||
Consolidated Statements of Income for the Years Ended December 31, 2002, 2003 and 2004 | F-7 | |||
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2003 and 2004 | F-11 | |||
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2002, 2003 and 2004 | F-9 | |||
Notes to Consolidated Financial Statements | F-15 |
F-1
Table of Contents
F-2
Table of Contents
F-3
Table of Contents
F-4
Table of Contents
2002 | 2003 | 2004 | 2004 | |||||||||||||||
In millions of Korean won | In thousands of | |||||||||||||||||
U.S. dollars | ||||||||||||||||||
(Note 2) | ||||||||||||||||||
ASSETS | ||||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||||
Cash and cash equivalents (Note 12) | W | 664,117 | W | 317,488 | W | 370,630 | $ | 358,062 | ||||||||||
Short-term financial instruments (Notes 12 and 20) | 202,905 | 154,922 | 12,730 | 12,298 | ||||||||||||||
Trading securities (Notes 2 and 3) | 754,219 | 893,217 | 654,779 | 632,576 | ||||||||||||||
Current portion of long-term investment securities (Notes 2 and 3) | 70,267 | 85,861 | 3,709 | 3,583 | ||||||||||||||
Accounts receivable — trade, net of allowance for doubtful accounts of W60,542 million, W65,327 million and W71,090 million at December 31, 2002, 2003 and 2004, respectively (Notes 2 ,12 and 22) | 1,442,135 | 1,579,153 | 1,720,201 | 1,661,869 | ||||||||||||||
Accounts receivable — other, net of allowance for doubtful accounts of W23,355 million, W16,768 million and W15,622 million at December 31, 2002, 2003 and 2004, respectively (Notes 2, 12 and 22) | 852,873 | 867,120 | 1,406,553 | 1,358,857 | ||||||||||||||
Inventories (Notes 2 and 21) | 27,460 | 31,516 | 52,321 | 50,547 | ||||||||||||||
Short-term loans and other (Note 5) | 99,748 | 140,248 | 169,770 | 164,014 | ||||||||||||||
Total Current Assets | 4,113,724 | 4,069,525 | 4,390,693 | 4,241,806 | ||||||||||||||
NON-CURRENT ASSETS: | ||||||||||||||||||
Property and equipment, net (Notes 2, 6, 11, 20 and 21) | 4,569,417 | 4,641,547 | 4,703,922 | 4,544,413 | ||||||||||||||
Intangible assets (Notes 2 and 7) | 3,721,235 | 3,674,944 | 3,522,903 | 3,403,442 | ||||||||||||||
Long-term investment securities (Notes 2 and 3) | 1,394,697 | 879,193 | 948,101 | 915,951 | ||||||||||||||
Equity securities accounted for using the equity method (Notes 2 and 4) | 81,247 | 183,709 | 304,028 | 293,718 | ||||||||||||||
Long-term bank deposits (Note 20) | 177 | 352 | 10,351 | 10,000 | ||||||||||||||
Long-term loans, net of allowance for doubtful accounts of W19,486 million, W19,552 million and W19,273 million at December 31, 2002, 2003 and 2004, respectively (Notes 2 and 5) | 52,688 | 40,819 | 30,442 | 29,410 | ||||||||||||||
Guarantee deposits (Notes 12 and 22) | 249,331 | 270,255 | 289,015 | 279,215 | ||||||||||||||
Other | 46,194 | 57,873 | 83,903 | 81,058 | ||||||||||||||
Total Non-Current Assets | 10,114,986 | 9,748,692 | 9,892,665 | 9,557,207 | ||||||||||||||
TOTAL ASSETS | W | 14,228,710 | W | 13,818,217 | W | 14,283,358 | $ | 13,799,013 | ||||||||||
F-5
Table of Contents
2002 | 2003 | 2004 | 2004 | |||||||||||||||
In millions of Korean won | In thousands of | |||||||||||||||||
U.S. dollars | ||||||||||||||||||
(Note 2) | ||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||||
Accounts payable (Notes 12 and 22) | W | 1,697,502 | W | 1,317,162 | W | 1,205,682 | $ | 1,164,798 | ||||||||||
Short-term borrowings (Note 12) | 687,296 | 786,096 | 425,496 | 411,068 | ||||||||||||||
Income taxes payable | 383,900 | 402,559 | 273,495 | 264,221 | ||||||||||||||
Accrued expenses (Note 12) | 408,521 | 420,995 | 394,354 | 380,982 | ||||||||||||||
Current portion of long-term debt (Notes 8, 9 and 11) | 922,209 | 1,364,264 | 498,278 | 481,382 | ||||||||||||||
Current portion of facility deposits | 18,415 | 12,881 | 13,405 | 12,950 | ||||||||||||||
Other | 185,543 | 226,953 | 256,183 | 247,495 | ||||||||||||||
Total Current Liabilities | 4,303,386 | 4,530,910 | 3,066,893 | 2,962,896 | ||||||||||||||
LONG-TERM LIABILITIES: | ||||||||||||||||||
Bonds payable, net (Notes 2 and 8) | 2,908,496 | 2,261,868 | 2,891,843 | 2,793,781 | ||||||||||||||
Long-term borrowings (Note 9) | 10,284 | 1,633 | — | — | ||||||||||||||
Facility deposits (Note 10) | 46,850 | 44,197 | 31,440 | 30,374 | ||||||||||||||
Long-term payables — other, net of present value discount of W98,017 million, W85,881 million and W72,663 million at December 31, 2002, 2003 and 2004, respectively (Note 2) | 551,983 | 564,119 | 577,337 | 557,760 | ||||||||||||||
Obligations under capital leases (Notes 2, 11 and 12) | 121 | — | — | — | ||||||||||||||
Accrued severance indemnities, net (Note 2) | 48,519 | 67,824 | 80,984 | 78,238 | ||||||||||||||
Deferred income tax liabilities (Notes 2 and 17) | 104,770 | 226,029 | 306,052 | 295,674 | ||||||||||||||
Long-term currency swap (Notes 2 and 23) | — | — | 96,743 | 93,462 | ||||||||||||||
Guarantee deposits received and other (Note 22) | 22,401 | 27,790 | 26,322 | 25,429 | ||||||||||||||
Total Long-Term Liabilities | 3,693,424 | 3,193,460 | 4,010,721 | 3,874,718 | ||||||||||||||
Total Liabilities | 7,996,810 | 7,724,370 | 7,077,614 | 6,837,614 | ||||||||||||||
COMMITMENTS AND CONTINGENCIES (Note 20) | ||||||||||||||||||
SHAREHOLDERS’ EQUITY: | ||||||||||||||||||
Capital stock (Notes 1 and 13) | 44,576 | 44,639 | 44,639 | 43,125 | ||||||||||||||
Capital surplus (Note 13) | 2,884,382 | 2,911,556 | 2,968,301 | 2,867,647 | ||||||||||||||
Retained earnings (Note 14) | 4,873,205 | 5,139,911 | 6,152,898 | 5,944,255 | ||||||||||||||
Capital adjustments: | ||||||||||||||||||
Treasury stock (Note 15) | (2,192,449 | ) | (2,047,103 | ) | (2,047,105 | ) | (1,977,688 | ) | ||||||||||
Unrealized loss on valuation of long-term investment securities (Notes 2 and 3) | (104,117 | ) | (160,622 | ) | (92,975 | ) | (89,822 | ) | ||||||||||
Equity in capital adjustment of affiliates (Notes 2 and 4) | (5,171 | ) | 42,581 | 134,376 | 129,819 | |||||||||||||
Loss on valuation of currency swap (Notes 2 and 23) | — | — | (49,452 | ) | (47,775 | ) | ||||||||||||
Stock options (Notes 2 and 16) | 2,452 | 3,741 | 4,833 | 4,669 | ||||||||||||||
Foreign-based operations’ translation adjustment (Note 2) | 3,515 | 3,159 | (7,969 | ) | (7,699 | ) | ||||||||||||
Minority interest in equity of consolidated subsidiaries (Note 2) | 725,507 | 155,985 | 98,198 | 94,868 | ||||||||||||||
Total Shareholders’ Equity | 6,231,900 | 6,093,847 | 7,205,744 | 6,961,399 | ||||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | W | 14,228,710 | W | 13,818,217 | W | 14,283,358 | $ | 13,799,013 | ||||||||||
F-6
Table of Contents
2002 | 2003 | 2004 | 2004 | ||||||||||||||
In millions of Korean won, except for | In thousands of | ||||||||||||||||
income per share | U.S. dollars, | ||||||||||||||||
except for | |||||||||||||||||
income per | |||||||||||||||||
share | |||||||||||||||||
(Note 2) | |||||||||||||||||
OPERATING REVENUE (Notes 2, 22 and 28) | W | 9,323,993 | W | 10,272,081 | W | 10,570,615 | $ | 10,212,168 | |||||||||
OPERATING EXPENSES (Notes 2, 20 and 22) | |||||||||||||||||
Labor cost | (318,346 | ) | (407,243 | ) | (464,778 | ) | (449,017 | ) | |||||||||
Commissions paid (Note 22) | (1,964,797 | ) | (2,314,558 | ) | (2,812,318 | ) | (2,716,953 | ) | |||||||||
Depreciation and amortization (Notes 6 and 7) | (1,435,041 | ) | (1,510,545 | ) | (1,607,478 | ) | (1,552,969 | ) | |||||||||
Network interconnection (Note 28) | (752,144 | ) | (771,553 | ) | (913,688 | ) | (882,705 | ) | |||||||||
Leased line | (280,113 | ) | (306,527 | ) | (375,227 | ) | (362,503 | ) | |||||||||
Advertising | (448,784 | ) | (376,424 | ) | (352,877 | ) | (340,911 | ) | |||||||||
Cost of goods sold | (509,055 | ) | (560,859 | ) | (479,257 | ) | (463,006 | ) | |||||||||
Other | (818,070 | ) | (919,265 | ) | (1,125,243 | ) | (1,087,086 | ) | |||||||||
Sub-total | (6,526,350 | ) | (7,166,974 | ) | (8,130,866 | ) | (7,855,150 | ) | |||||||||
OPERATING INCOME | 2,797,643 | 3,105,107 | 2,439,749 | 2,357,018 | |||||||||||||
OTHER INCOME: | |||||||||||||||||
Interest | 86,013 | 86,485 | 80,459 | 77,731 | |||||||||||||
Dividends | 207 | 25,923 | 23,843 | 23,034 | |||||||||||||
Commissions | 73,515 | 80,180 | 26,891 | 25,979 | |||||||||||||
Foreign exchange and translation gains (Note 2) | 41,439 | 6,131 | 20,559 | 19,862 | |||||||||||||
Gain on disposal and valuation of trading securities (Note 2) | 11,893 | 188 | 2,548 | 2,462 | |||||||||||||
Gain on disposal of property, equipment and intangible assets | 1,206 | 2,750 | 2,067 | 1,997 | |||||||||||||
Gain on transaction of currency swap (Notes 2 and 23) | — | — | 2,850 | 2,753 | |||||||||||||
Equity in earnings of affiliates (Notes 2 and 4) | 813 | — | — | — | |||||||||||||
Other | 44,070 | 59,787 | 40,202 | 38,839 | |||||||||||||
259,156 | 261,444 | 199,419 | 192,657 | ||||||||||||||
F-7
Table of Contents
2002 | 2003 | 2004 | 2004 | ||||||||||||||
In millions of Korean won, except for | In thousands of | ||||||||||||||||
income per share | U.S. dollars, | ||||||||||||||||
except for | |||||||||||||||||
income per | |||||||||||||||||
share | |||||||||||||||||
(Note 2) | |||||||||||||||||
OTHER EXPENSES: | |||||||||||||||||
Interest and discounts | (311,132 | ) | (391,482 | ) | (303,410 | ) | (293,121 | ) | |||||||||
Donations | (127,517 | ) | (91,487 | ) | (89,232 | ) | (86,206 | ) | |||||||||
Foreign exchange and translation losses (Note 2) | (13,547 | ) | (10,230 | ) | (9,074 | ) | (8,766 | ) | |||||||||
Loss on disposal and valuation of trading securities (Note 2) | — | (3,974 | ) | (232 | ) | (224 | ) | ||||||||||
Loss on disposal and impairment of property, equipment and intangible assets (Notes 2 and 3) | (221,681 | ) | (13,784 | ) | (19,208 | ) | (18,557 | ) | |||||||||
Loss on impairment of long-term investment securities (Notes 2, 3 and 27) | (68,882 | ) | (5,749 | ) | (33,654 | ) | (32,513 | ) | |||||||||
Loss on disposal of investment assets | (51,618 | ) | (45,403 | ) | (1,539 | ) | (1,487 | ) | |||||||||
Loss on transaction and valuation of currency swap (Notes 2 and 23) | — | — | (15,818 | ) | (15,282 | ) | |||||||||||
Equity in losses of affiliates (Notes 2 and 4) | — | (6,975 | ) | (11,954 | ) | (11,549 | ) | ||||||||||
Other | (44,158 | ) | (43,131 | ) | (31,872 | ) | (30,792 | ) | |||||||||
(838,535 | ) | (612,215 | ) | (515,993 | ) | (498,497 | ) | ||||||||||
ORDINARY INCOME | 2,218,264 | 2,754,336 | 2,123,175 | 2,051,178 | |||||||||||||
EXTRAORDINARY GAIN | 504 | — | — | — | |||||||||||||
. | |||||||||||||||||
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST | 2,218,768 | 2,754,336 | 2,123,175 | 2,051,178 | |||||||||||||
INCOME TAXES (Notes 2 and 17) | (698,507 | ) | (789,059 | ) | (629,761 | ) | (608,406 | ) | |||||||||
INCOME BEFORE MINORITY INTEREST | 1,520,261 | 1,965,277 | 1,493,414 | 1,442,772 | |||||||||||||
MINORITY INTEREST IN NET LOSS (GAIN) OF CONSOLIDATED SUBSIDIARIES | (33,110 | ) | 823 | (1,935 | ) | (1,869 | ) | ||||||||||
NET INCOME | W | 1,487,151 | W | 1,966,100 | W | 1,491,479 | $ | 1,440,903 | |||||||||
NET INCOME PER SHARE (Notes 2 and 18) (In Korean won and U.S. dollars) | W | 17,647 | W | 26,187 | W | 20,261 | $ | 19.57 | |||||||||
F-8
Table of Contents
Common | Capital | Retained | Capital | Minority | Shareholders’ | ||||||||||||||||||||
Stock | Surplus | Earnings | Adjustments | Interest | Equity | ||||||||||||||||||||
(In millions of Korean won) | |||||||||||||||||||||||||
Balance, January 1, 2002 | W | 44,576 | W | 3,449,698 | W | 3,443,319 | W | (1,492,634 | ) | W | 704,345 | W | 6,149,304 | ||||||||||||
Net income | — | — | 1,487,151 | — | — | 1,487,151 | |||||||||||||||||||
Treasury stock transactions (Notes 13 and 15) | — | 81,984 | — | (766,597 | ) | — | (684,613 | ) | |||||||||||||||||
Cash dividends paid (Note 19) | — | — | (57,265 | ) | — | — | (57,265 | ) | |||||||||||||||||
Excess unallocated purchase price (Note 13) | — | (647,025 | ) | — | — | — | (647,025 | ) | |||||||||||||||||
Unrealized loss on valuation of long-term investment securities (Notes 2 and 3) | — | — | — | (28,327 | ) | — | (28,327 | ) | |||||||||||||||||
Equity in capital surplus and capital adjustment changes of affiliates (Note 2) | — | (275 | ) | — | (12,513 | ) | — | (12,788 | ) | ||||||||||||||||
Stock compensation plans (Notes 2 and 16) | — | — | — | 1,492 | — | 1,492 | |||||||||||||||||||
Foreign-based operations’ translation adjustment (Note 2) | — | — | — | 2,809 | — | 2,809 | |||||||||||||||||||
Increase in minority interest in equity of consolidated subsidiaries | — | — | — | — | 21,162 | 21,162 | |||||||||||||||||||
Balance, December 31, 2002 | 44,576 | 2,884,382 | 4,873,205 | (2,295,770 | ) | 725,507 | 6,231,900 | ||||||||||||||||||
Net income | — | — | 1,966,100 | — | — | 1,966,100 | |||||||||||||||||||
Acquisition of treasury stock (Note 15) | — | — | — | (1,379,337 | ) | — | (1,379,337 | ) | |||||||||||||||||
Retirement of treasury stock (Note 15) | — | — | (1,545,281 | ) | 1,524,683 | — | (20,598 | ) | |||||||||||||||||
Cash dividends paid (Note 19) | — | — | (151,739 | ) | — | — | (151,739 | ) | |||||||||||||||||
Excess unallocated purchase price (Note 13) | — | (230 | ) | — | — | — | (230 | ) | |||||||||||||||||
Issuance of common stock for the merger with SK IMT Co., Ltd. (Note 13) | 63 | 31,809 | — | — | — | 31,872 | |||||||||||||||||||
Gain on disposal of investments in common stock of subsidiary | — | 58 | — | — | — | 58 | |||||||||||||||||||
Equity in beginning retained earnings change of affiliates (Notes 2 and 4) | — | — | (33 | ) | — | — | (33 | ) | |||||||||||||||||
Cumulative effect of an accounting change (Note��2) | — | — | (2,341 | ) | — | (515 | ) | (2,856 | ) | ||||||||||||||||
Unrealized loss on valuation of long-term investment securities (Notes 2 and 3) | — | — | — | (56,505 | ) | — | (56,505 | ) | |||||||||||||||||
Equity in capital surplus and capital adjustment changes of affiliates (Note 2) | — | (4,463 | ) | — | 47,752 | — | 43,289 | ||||||||||||||||||
Stock compensation plans (Notes 2 and 16) | — | — | — | 1,289 | — | 1,289 | |||||||||||||||||||
Foreign-based operations’ translation adjustment (Note 2) | — | — | — | (356 | ) | — | (356 | ) | |||||||||||||||||
Decrease in minority interest in equity of consolidated subsidiaries | — | — | — | — | (569,007 | ) | (569,007 | ) | |||||||||||||||||
Balance, December 31, 2003 | 44,639 | 2,911,556 | 5,139,911 | (2,158,244 | ) | 155,985 | 6,093,847 | ||||||||||||||||||
F-9
Table of Contents
Common | Capital | Retained | Capital | Minority | Shareholders’ | ||||||||||||||||||||
Stock | Surplus | Earnings | Adjustments | Interest | Equity | ||||||||||||||||||||
(In millions of Korean won) | |||||||||||||||||||||||||
Balance, January 1, 2004 | 44,639 | 2,911,556 | 5,139,911 | (2,158,244 | ) | 155,985 | 6,093,847 | ||||||||||||||||||
Net income | — | 1,491,479 | — | — | 1,491,479 | ||||||||||||||||||||
Cash dividends paid (Note 19) | — | — | (404,878 | ) | — | — | (404,878 | ) | |||||||||||||||||
Cash dividends paid (interim) (Note 19) | — | — | (73,614 | ) | — | — | (73,614 | ) | |||||||||||||||||
Excess unallocated purchase price (Note 13) | — | (77 | ) | — | — | — | (77 | ) | |||||||||||||||||
Consideration for conversion rights (Notes 2 and 13) | — | 67,279 | — | — | — | 67,279 | |||||||||||||||||||
Acquisition of treasury stock (Note 15) | — | — | — | (2 | ) | — | (2 | ) | |||||||||||||||||
Equity in capital surplus and capital adjustment changes of affiliates (Note 2) | — | (10,457 | ) | — | 91,795 | — | 81,338 | ||||||||||||||||||
Unrealized gain on valuation of long-term investment securities (Notes 2 and 3) | — | — | — | 67,647 | — | 67,647 | |||||||||||||||||||
Loss on valuation of currency swap | — | — | — | (49,452 | ) | — | (49,452 | ) | |||||||||||||||||
Stock compensation plans (Notes 2 and 16) | — | — | — | 1,092 | — | 1,092 | |||||||||||||||||||
Foreign-based operations’ translation adjustment (Note 2) | — | — | — | (11,128 | ) | — | (11,128 | ) | |||||||||||||||||
Decrease in minority interest in equity of consolidated subsidiaries | — | — | — | — | (57,787 | ) | (57,787 | ) | |||||||||||||||||
Balance, December 31, 2004 | W | 44,639 | W | 2,968,301 | W | 6,152,898 | W | (2,058,292 | ) | W | 98,198 | W | 7,205,744 | ||||||||||||
(In thousands of U.S. dollars) (Note 2) | |||||||||||||||||||||||||
Balance, January 1, 2004 | $ | 43,125 | $ | 2,812,826 | $ | 4,965,618 | $ | (2,085,058 | ) | $ | 150,696 | $ | 5,887,207 | ||||||||||||
Net income | — | — | 1,440,903 | ��� | — | 1,440,903 | |||||||||||||||||||
Cash dividends paid | — | — | (391,149 | ) | — | — | (391,149 | ) | |||||||||||||||||
Cash dividends paid (interim) | — | — | (71,117 | ) | — | — | (71,117 | ) | |||||||||||||||||
Excess unallocated purchase price | — | (74 | ) | — | — | — | (74 | ) | |||||||||||||||||
Consideration for conversion rights | — | 64,998 | — | — | — | 64,998 | |||||||||||||||||||
Acquisition of treasury stock | — | — | — | (2 | ) | — | (2 | ) | |||||||||||||||||
Equity in capital surplus and capital adjustment changes of affiliates | — | (10,103 | ) | — | 88,682 | — | 78,579 | ||||||||||||||||||
Unrealized gain on valuation of long-term investment securities | — | — | — | 65,353 | — | 65,353 | |||||||||||||||||||
Loss on valuation of currency swap | — | — | — | (47,775 | ) | — | (47,775 | ) | |||||||||||||||||
Stock compensation plans | — | — | — | 1,055 | — | 1,055 | |||||||||||||||||||
Foreign-based operations’ translation adjustment | — | — | — | (10,751 | ) | — | (10,751 | ) | |||||||||||||||||
Decrease in minority interest in equity of consolidated subsidiaries | — | — | — | — | (55,828 | ) | (55,828 | ) | |||||||||||||||||
Balance, December 31, 2004 | $ | 43,125 | $ | 2,867,647 | $ | 5,944,255 | $ | (1,988,496 | ) | $ | 94,868 | $ | 6,961,399 | ||||||||||||
F-10
Table of Contents
2002 | 2003 | 2004 | 2004 | |||||||||||||||
In millions of Korean won | In thousands | |||||||||||||||||
of U.S. dollars | ||||||||||||||||||
(Note 2) | ||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||
Net income | W | 1,487,151 | W | 1,966,100 | W | 1,491,479 | $ | 1,440,903 | ||||||||||
Expenses not involving cash payments: | ||||||||||||||||||
Depreciation and amortization | 1,543,335 | 1,649,902 | 1,752,530 | 1,693,102 | ||||||||||||||
Provision for severance indemnities | 45,509 | 65,375 | 58,151 | 56,179 | ||||||||||||||
Provision for bad debts | 20,981 | 23,304 | 43,144 | 41,681 | ||||||||||||||
Foreign currency translation loss | 5,397 | 2,546 | 2,179 | 2,105 | ||||||||||||||
Loss on disposal and valuation of trading securities | — | 3,974 | 232 | 224 | ||||||||||||||
Loss on disposal and impairment of property, equipment and intangible assets | 221,681 | 13,784 | 19,208 | 18,557 | ||||||||||||||
Loss on impairment of long-term investment securities | 68,882 | 5,749 | 33,654 | 32,513 | ||||||||||||||
Loss on disposal of investment assets | 51,618 | 45,403 | 1,539 | 1,487 | ||||||||||||||
Loss on transaction and valuation of currency swap | — | — | 15,818 | 15,282 | ||||||||||||||
Equity in losses of affiliates | — | 6,975 | 11,954 | 11,549 | ||||||||||||||
Minority interest in net gain of consolidated subsidiaries | 33,110 | — | 1,935 | 1,869 | ||||||||||||||
Amortization of discounts on bonds and other | 51,630 | 73,655 | 46,274 | 44,704 | ||||||||||||||
Sub-total | 2,042,143 | 1,890,667 | 1,986,618 | 1,919,252 | ||||||||||||||
Income not involving cash receipts: | ||||||||||||||||||
Reversal of allowance for doubtful accounts | (6,365 | ) | (1,555 | ) | (759 | ) | (733 | ) | ||||||||||
Foreign currency translation gain | (30,282 | ) | (668 | ) | (3,367 | ) | (3,253 | ) | ||||||||||
Gain on disposal and valuation of trading securities | (11,893 | ) | (188 | ) | (2,548 | ) | (2,462 | ) | ||||||||||
Gain on disposal of property, equipment and intangible assets | (1,206 | ) | (2,750 | ) | (2,067 | ) | (1,997 | ) | ||||||||||
Gain on transaction of currency swap | — | — | (2,850 | ) | (2,753 | ) | ||||||||||||
Equity in earnings of affiliates | (813 | ) | — | — | — | |||||||||||||
Minority interest in net loss of consolidated subsidiaries | — | (823 | ) | — | — | |||||||||||||
Other | (7,812 | ) | (14,046 | ) | (14,133 | ) | (13,654 | ) | ||||||||||
Sub-total | (58,371 | ) | (20,030 | ) | (25,724 | ) | (24,852 | ) | ||||||||||
F-11
Table of Contents
2002 | 2003 | 2004 | 2004 | ||||||||||||||
In millions of Korean won | In thousands | ||||||||||||||||
of U.S. dollars | |||||||||||||||||
(Note 2) | |||||||||||||||||
Changes in assets and liabilities related to operating activities: | |||||||||||||||||
Accounts receivable — trade | (277,685 | ) | (159,160 | ) | (170,891 | ) | (165,096 | ) | |||||||||
Accounts receivable — other | 224,640 | (48,789 | ) | (552,343 | ) | (533,613 | ) | ||||||||||
Inventories | 39,092 | (4,056 | ) | (20,982 | ) | (20,271 | ) | ||||||||||
Other current assets | (30,764 | ) | (30,417 | ) | (5,549 | ) | (5,360 | ) | |||||||||
Accounts payable | 614,005 | (396,700 | ) | (90,977 | ) | (87,892 | ) | ||||||||||
Income taxes payable | 12,946 | (11,597 | ) | (125,430 | ) | (121,177 | ) | ||||||||||
Accrued expenses | 67,026 | 24,385 | (26,622 | ) | (25,719 | ) | |||||||||||
Current portion of facility deposits | 3,801 | (3,418 | ) | 2,580 | 2,493 | ||||||||||||
Other current liabilities | 125,767 | 49,194 | 22,608 | 21,841 | |||||||||||||
Deferred income taxes | 81,963 | 120,879 | 78,356 | 75,699 | |||||||||||||
Severance indemnity payments | (20,378 | ) | (24,516 | ) | (27,582 | ) | (26,647 | ) | |||||||||
Deposits for group severance indemnities and other deposits | (43,521 | ) | (24,727 | ) | (19,489 | ) | (18,828 | ) | |||||||||
Transfer of accrued severance indemnities from affiliates and related companies | — | 955 | — | — | |||||||||||||
Sub-total | 796,892 | (507,967 | ) | (936,321 | ) | (904,570 | ) | ||||||||||
Net Cash Provided by Operating Activities | 4,267,815 | 3,328,770 | 2,516,052 | 2,430,733 | |||||||||||||
F-12
Table of Contents
2002 | 2003 | 2004 | 2004 | ||||||||||||||
In millions of Korean won | In thousands | ||||||||||||||||
of U.S. dollars | |||||||||||||||||
(Note 2) | |||||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||
Decrease in short-term financial instruments | W | 231,219 | W | 95,123 | W | 90,034 | $ | 86,981 | |||||||||
Decrease (increase) in trading securities | (103,256 | ) | (137,618 | ) | 240,204 | 232,059 | |||||||||||
Decrease (increase) in short-term loans | 24,474 | (8,533 | ) | 33,019 | 31,899 | ||||||||||||
Decrease (increase) in long-term bank deposits | 21 | (350 | ) | (9,999 | ) | (9,660 | ) | ||||||||||
Proceeds from sale of current portion of long-term investment securities | — | 70,267 | 85,861 | 82,949 | |||||||||||||
Proceeds from sale of long-term investment securities | 1,084,945 | 762,896 | 17,658 | 17,059 | |||||||||||||
Proceeds from sale of equity securities accounted for using the equity method | 53,230 | 3,510 | 1,023 | 988 | |||||||||||||
Decrease in long-term loans | 19,920 | 9,980 | 4,746 | 4,585 | |||||||||||||
Decrease in guarantee deposits | 77,490 | 67,410 | 22,096 | 21,347 | |||||||||||||
Proceeds from disposal of property and equipment | 23,211 | 12,828 | 10,116 | 9,773 | |||||||||||||
Proceeds from disposal of intangible assets | 1,198 | 2,248 | 2,291 | 2,213 | |||||||||||||
Acquisition of long-term investment securities | (2,062,355 | ) | (437,076 | ) | (54,132 | ) | (52,296 | ) | |||||||||
Acquisition of equity securities accounted for using the equity method | (208,913 | ) | (7,158 | ) | (21,086 | ) | (20,371 | ) | |||||||||
Increase in long-term loans | (24,376 | ) | (15,578 | ) | (35,291 | ) | (34,094 | ) | |||||||||
Increase in guarantee deposits | (55,986 | ) | (88,223 | ) | (40,957 | ) | (39,568 | ) | |||||||||
Increase in other non-current assets | (22,022 | ) | (3,332 | ) | (46,556 | ) | (44,976 | ) | |||||||||
Acquisition of property and equipment | (2,024,655 | ) | (1,647,639 | ) | (1,631,941 | ) | (1,576,602 | ) | |||||||||
Acquisition of intangible assets | (77,580 | ) | (56,745 | ) | (72,376 | ) | (69,922 | ) | |||||||||
Acquisition of minority interest | — | (36,442 | ) | (64,247 | ) | (62,068 | ) | ||||||||||
Net Cash Used in Investing Activities | (3,063,435 | ) | (1,414,432 | ) | (1,469,537 | ) | (1,419,704 | ) | |||||||||
F-13
Table of Contents
2002 | 2003 | 2004 | 2004 | ||||||||||||||
In millions of Korean won | In thousands | ||||||||||||||||
of U.S. dollars | |||||||||||||||||
(Note 2) | |||||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||
Increase in short-term borrowings | W | 91,942 | W | 108,669 | W | — | $ | — | |||||||||
Issuance of bonds payable | 1,166,451 | 688,737 | 1,205,727 | 1,164,841 | |||||||||||||
Increase in long-term borrowings | 24,682 | 13,532 | — | — | |||||||||||||
Payment of short-term borrowings | (578,696 | ) | (12,087 | ) | (359,133 | ) | (346,955 | ) | |||||||||
Payment of current portion of long-term debt | (719,779 | ) | (939,176 | ) | (1,370,611 | ) | (1,324,134 | ) | |||||||||
Repayment of bonds payable | — | — | (5,068 | ) | (4,896 | ) | |||||||||||
Payment of dividends | (58,716 | ) | (151,739 | ) | (478,318 | ) | (462,098 | ) | |||||||||
Decrease in facility deposits | (25,278 | ) | (2,654 | ) | (12,757 | ) | (12,324 | ) | |||||||||
Transaction of currency swap and currency forward | — | — | 2,821 | 2,725 | |||||||||||||
Net increase in treasury stock | (1,351,243 | ) | (1,379,337 | ) | (2 | ) | (2 | ) | |||||||||
Increase in minority interest in equity of consolidated subsidiaries | 17,405 | 22,278 | 45,065 | 43,537 | |||||||||||||
Other | 15,035 | (609,262 | ) | 3,706 | 3,579 | ||||||||||||
Net Cash Used in Financing Activities | (1,418,197 | ) | (2,261,039 | ) | (968,570 | ) | (935,727 | ) | |||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DUE TO CHANGES IN CONSOLIDATED SUBSIDIARIES | 10,654 | 72 | (24,803 | ) | (23,962 | ) | |||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (203,163 | ) | (346,629 | ) | 53,142 | 51,340 | |||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR | 867,280 | 664,117 | 317,488 | 306,722 | |||||||||||||
CASH AND CASH EQUIVALENTS AT END OF THE YEAR | W | 664,117 | W | 317,488 | W | 370,630 | $ | 358,062 | |||||||||
Cash paid for interest (net of amounts capitalized) | W | 248,234 | W | 328,890 | W | 264,224 | $ | 255,264 | |||||||||
Cash paid for income taxes | W | 693,999 | W | 675,122 | W | 679,262 | $ | 656,228 | |||||||||
F-14
Table of Contents
1. | GENERAL |
Percentage of | ||||||||
Number of | Total Shares | |||||||
Shares | Issued (%) | |||||||
SK Group | 19,772,914 | 24.03 | ||||||
POSCO Corp. | 4,098,496 | 4.98 | ||||||
Institutional investors and other minority shareholders | 49,742,886 | 60.46 | ||||||
Treasury stock | 8,662,415 | 10.53 | ||||||
82,276,711 | 100.00 | |||||||
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
a. | Basis of Presentation |
b. | Principles of Consolidation |
F-15
Table of Contents
Year of | Ownership | |||||||||||
Subsidiary | Establishment | Primary business | Percentage (%) | |||||||||
SK Teletech Co., Ltd. | 1995 | Engineering and maintenance | 89.13 | |||||||||
SK Capital Co., Ltd. | 1995 | Finance | 100.00 | |||||||||
SK Telink Co., Ltd. | 1998 | Telecommunication services | 90.77 | |||||||||
SK Communications Co., Ltd. | 1999 | Internet website services | 93.44 | |||||||||
SK Wyverns Baseball Club Co., Ltd. | 2000 | Business related sports | 99.99 | |||||||||
Centurion IT Investment Association | 2001 | Investment association | 37.50 | |||||||||
Global Credit & information Corp. | 1998 | Credit and collection services | 50.00 | |||||||||
PAXNet Co., Ltd. | 1999 | Internet website services | 67.10 | |||||||||
SK Telecom International Inc. | 1995 | Internet website services | 100.00 | |||||||||
SLD Telecom PTE Ltd. | 2000 | Telecommunication services | 55.10 | |||||||||
SK Telecom China Co., Ltd. | 2002 | Telecommunication services | 100.00 |
c. | Use of Estimates |
d. | Allowance for Doubtful Accounts |
F-16
Table of Contents
2002 | 2003 | 2004 | ||||||||||
Beginning balance | W | 81,681 | W | 60,542 | W | 65,327 | ||||||
Increase in allowance from newly consolidated subsidiaries | 2,056 | — | — | |||||||||
Additions | 22,281 | 22,378 | 29,181 | |||||||||
Reductions | (45,476 | ) | (17,593 | ) | (23,418 | ) | ||||||
Ending balance | W | 60,542 | W | 65,327 | W | 71,090 | ||||||
e. | Inventories |
f. | Securities (excluding securities accounted for using the equity method of accounting) |
g. | Investment Securities with 20% or More Ownership Interest |
F-17
Table of Contents
h. | Property and Equipment |
i. | Intangible Assets |
F-18
Table of Contents
2002 | 2003 | 2004 | |||||||||||
Beginning balance | W | 3,816,373 | W | 3,721,235 | W | 3,674,944 | |||||||
Additions: | |||||||||||||
IMT license | (40,393 | ) | — | — | |||||||||
Other | 144,180 | 175,793 | 184,235 | ||||||||||
Reductions: | |||||||||||||
Amortization | (187,218 | ) | (214,809 | ) | (332,020 | ) | |||||||
Write-off | (6,669 | ) | — | (42 | ) | ||||||||
Disposal | (5,038 | ) | (7,275 | ) | (4,214 | ) | |||||||
Ending balance | W | 3,721,235 | W | 3,674,944 | W | 3,522,903 | |||||||
j. | Convertible Bonds |
k. | Discounts on Bonds |
l. | Valuation of Long-Term Payables |
m. | Accrued Severance Indemnities |
F-19
Table of Contents
2002 | 2003 | 2004 | ||||||||||
Beginning balance | W | 61,620 | W | 48,519 | W | 67,824 | ||||||
Provision | 49,599 | 67,693 | 60,523 | |||||||||
Payments to employees | (20,378 | ) | (24,516 | ) | (27,582 | ) | ||||||
Transfer from affiliated and related companies | — | 955 | — | |||||||||
Increase in accrued severance indemnities from newly consolidated subsidiaries | 1,673 | 77 | — | |||||||||
Deposits for severance indemnities | (43,995 | ) | (24,904 | ) | (19,781 | ) | ||||||
Ending balance | W | 48,519 | W | 67,824 | W | 80,984 | ||||||
Year ending December 31, | |||||
2005 | W2,225 | ||||
2006 | — | ||||
2007 | 976 | ||||
2008 | 166 | ||||
2009 | 951 | ||||
2010Y2014 | 7,612 | ||||
Total | W11,930 | ||||
n. | Accounting for Leases |
o. | Research and Development Costs |
F-20
Table of Contents
p. | Derivative Instruments |
q. | Revenue Recognition |
r. | Income Taxes |
s. | Net Income Per Share |
t. | Foreign-Based Operations’ Translation Adjustment |
u. | Accounting for Foreign Currency Transactions and Translation |
F-21
Table of Contents
v. | Accounting for Employee Stock Option Compensation Plan |
w. | Adoption of New Statements of Korea Accounting Standards (“SKAS”) |
3. | INVESTMENT SECURITIES |
a. | Trading Securities |
Acquisition Cost | Fair Value at | Carrying Amount | ||||||||||||||||||
at December 31, | December 31, | |||||||||||||||||||
2004 | 2004 | 2002 | 2003 | 2004 | ||||||||||||||||
Stocks | W | 450 | W | 368 | W | — | W | — | W | 368 | ||||||||||
Public bonds | — | — | 37 | 18,499 | — | |||||||||||||||
Corporate bonds | — | — | — | 4,383 | — | |||||||||||||||
Beneficiary certificates | 652,372 | 654,411 | 754,182 | 870,335 | 654,411 | |||||||||||||||
Total | W | 652,822 | W | 654,779 | W | 754,219 | W | 893,217 | W | 654,779 | ||||||||||
F-22
Table of Contents
b. | Long-term Investment Securities |
2002 | 2003 | 2004 | ||||||||||
Available-for-sale equity securities | W | 1,334,197 | W | 824,392 | W | 896,508 | ||||||
Available-for-sale debt securities | 12,500 | 14,315 | 5,158 | |||||||||
Held-to-maturity securities | 118,267 | 126,347 | 50,144 | |||||||||
Total | 1,464,964 | 965,054 | 951,810 | |||||||||
Less current portion | (70,267 | ) | (85,861 | ) | (3,709 | ) | ||||||
Long-term portion | W | 1,394,697 | W | 879,193 | W | 948,101 | ||||||
F-23
Table of Contents
Ownership | Acquisition | Unrealized | |||||||||||||||||||||||||||||||
Percentage (%) | Cost at | Fair Value | Gain (Loss) | Carrying Amount | |||||||||||||||||||||||||||||
Number of | at Dec. 31, | Dec. 31, | at Dec. 31, | at Dec. 31, | |||||||||||||||||||||||||||||
Shares | 2004 | 2004 | 2004 | 2004 | 2002 | 2003 | 2004 | ||||||||||||||||||||||||||
(Investments in listed companies) | |||||||||||||||||||||||||||||||||
Digital Chosunilbo Co., Ltd. | 2,890,630 | 7.8 | W | 5,781 | W 2,023 | W | (3,758 | ) | W | 2,428 | W | 2,847 | 2,023 | ||||||||||||||||||||
Hanaro Telecom Inc. | 22,090,000 | 4.8 | 121,676 | 71,019 | (50,657 | ) | 49,586 | 26,838 | 71,019 | ||||||||||||||||||||||||
Korea Radio Wave Basestation Management | 234,150 | 4.5 | 1,171 | 2,178 | 1,007 | 2,693 | 2,669 | 2,178 | |||||||||||||||||||||||||
POSCO Corporation | 2,481,310 | 2.7 | 332,662 | 464,005 | 131,343 | — | 404,454 | 464,005 | |||||||||||||||||||||||||
KT Corporation | — | — | — | — | — | 730,602 | — | — | |||||||||||||||||||||||||
INNOTG Co., Ltd. | 594,737 | 3.9 | 1,695 | 152 | (1,543 | ) | — | — | 152 | ||||||||||||||||||||||||
SINJISOFT Corporation | 78,000 | 2.3 | 130 | 590 | 460 | — | — | 590 | |||||||||||||||||||||||||
SK Securities Co., Ltd. | 3,608,856 | 1.1 | 5,551 | 2,418 | (3,133 | ) | 5,052 | 1,877 | 2,418 | ||||||||||||||||||||||||
sub-total | 468,666 | 73,719 | 790,361 | 438,685 | 542,385 | ||||||||||||||||||||||||||||
(Investments in non-listed companies) | |||||||||||||||||||||||||||||||||
Powercomm Co., Ltd. | 7,500,000 | 5.0 | 240,243 | 71,565 | (168,678 | ) | 240,243 | 68,407 | 71,565 | ||||||||||||||||||||||||
Real Telecom Co., Ltd. | 398,722 | 8.3 | 5,981 | (note c | ) | — | 5,981 | 5,981 | — | ||||||||||||||||||||||||
Japan MBCO | 54,000 | 7.3 | 27,332 | (note a | ) | — | 27,209 | 42,517 | 27,332 | ||||||||||||||||||||||||
Enterprise Networks Co., Ltd. | 423,244 | 4.0 | 14,438 | (note c | ) | — | 14,438 | 14,438 | — | ||||||||||||||||||||||||
SK Life Insurance Co., Ltd. | 4,702,000 | 8.7 | 14,890 | (note a | ) | — | 14,890 | 14,890 | 14,890 | ||||||||||||||||||||||||
Eonex Technologies Inc. | 144,000 | 14.1 | 3,600 | (note a | ) | 2,011 | 4,593 | 4,593 | 4,593 | ||||||||||||||||||||||||
WideThan Co., Ltd. | 2,000,000 | 14.3 | 1,000 | (note a | ) | (27 | ) | — | 3,188 | 3,188 | |||||||||||||||||||||||
Other | 123,396 | (notes a and b | ) | — | 43,971 | 38,475 | 36,149 | ||||||||||||||||||||||||||
sub-total | 430,879 | (166,694 | ) | 346,732 | 189,301 | 157,717 | |||||||||||||||||||||||||||
(Investments in funds) | |||||||||||||||||||||||||||||||||
Korea IT Fund | (note a | ) | — | 190,000 | 190,000 | 190,000 | |||||||||||||||||||||||||||
Others | (notes a and b | ) | — | 7,104 | 6,406 | 6,406 | |||||||||||||||||||||||||||
sub-total | — | 197,104 | 196,406 | 196,406 | |||||||||||||||||||||||||||||
Total | W | 92,975 | W | 1,334,197 | W | 824,392 | W | 896,508 | |||||||||||||||||||||||||
(note a) | As a reasonable estimate of fair value could not be made, the investment is stated at acquisition cost. The investments in common stock of Eonex Technologies Inc. and WiderThan Co., Ltd. were reclassified to available-for-sale securities from equity securities accounted for using the equity method during 2003 and 2004, respectively, as the Company’s ownership in such investees decreased to less than 20%. Such securities were transferred to available-for-sale securities at the carrying amount valued using the equity method of accounting prior to the reclassification. |
(note b) | Due to the impairment of their investments in common stock of CCK Van, Biznet Tech, Hanse Telecom, Cybird Korea and Venture Korea in 2003 and Mobilewelcom Co., Ltd., CXP Inc., LoveHunt Inc. and others in 2004, the Company and certain subsidiaries recorded impairment losses of W5,749 million and W2,580 million for the years ended December 31, 2003 and 2004, respectively. |
F-24
Table of Contents
(note c) | Due to the impairment of the Company’s investments in common stock of Real Telecom Co., Ltd. and Enterprise Networks Co., Ltd., the Company recorded impairment losses of W20,419 million for the year ended December 31, 2004. |
Acquisition | ||||||||||||||||||||
Cost at | Carrying Amount | |||||||||||||||||||
December 31, | ||||||||||||||||||||
Maturity | 2004 | 2002 | 2003 | 2004 | ||||||||||||||||
Public bonds | (note a | ) | W | 1,328 | W | 586 | W | 971 | W | 1,328 | ||||||||||
Convertible bonds of Real Telecom Co., Ltd. | March 2004 | 10,655 | 9,514 | 9,514 | — | |||||||||||||||
Convertible bonds of Eonex Technologies, Inc.(1st) | May 2003 | — | 2,000 | — | — | |||||||||||||||
Convertible bonds of Eonex Technologies, Inc.(3rd) | January 2005 | 3,600 | — | 3,600 | 3,600 | |||||||||||||||
Other | 230 | 400 | 230 | 230 | ||||||||||||||||
Total | 12,500 | 14,315 | 5,158 | |||||||||||||||||
Less current portion of available-for-sale debt securities | (2,000 | ) | (9,514 | ) | (3,700 | ) | ||||||||||||||
Long-term available-for-sale debt securities | W | 10,500 | W | 4,801 | W | 1,458 | ||||||||||||||
F-25
Table of Contents
(note a) | The maturities of public bonds as of December 31, 2002, 2003 and 2004 are as follows (in millions of Korean won): |
Maturity | 2002 | 2003 | 2004 | |||||||||
Within five years | W | 583 | W | 857 | W | 904 | ||||||
Within ten years | 3 | 114 | 424 | |||||||||
W | 586 | W | 971 | W | 1,328 | |||||||
Acquisition | ||||||||||||||||||||
Cost at | Carrying Amount | |||||||||||||||||||
December 31, | ||||||||||||||||||||
Maturity | 2004 | 2002 | 2003 | 2004 | ||||||||||||||||
Public bonds | (note a | ) | W | 144 | W | — | W | — | W | 144 | ||||||||||
Subordinated bonds of SK Life Insurance Co., Ltd. | April 2006 | 50,000 | 50,000 | 50,000 | 50,000 | |||||||||||||||
Subordinated bonds of Nate First Special Purpose Company | June 2003 | — | 40,506 | — | — | |||||||||||||||
Subordinated bonds of Nate Second Special Purpose Company | December 2003 | — | 27,761 | — | — | |||||||||||||||
Subordinated bonds of Nate Third Special Purpose Company | May 2004 | — | — | 27,464 | — | |||||||||||||||
Subordinated bonds of Nate Fourth Special Purpose Company | September 2004 | — | — | 25,393 | — | |||||||||||||||
Subordinated bonds of Nate Fifth Special Purpose Company | December 2004 | — | — | 23,490 | — | |||||||||||||||
Total | 118,267 | 126,347 | 50,144 | |||||||||||||||||
Less current portion of held-to-maturity securities | (68,267 | ) | (76,347 | ) | (9 | ) | ||||||||||||||
Long-term held-to-maturity securities | W | 50,000 | W | 50,000 | W | 50,135 | ||||||||||||||
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Maturity | 2004 | |||
Within one year | W | 9 | ||
Within five years | 105 | |||
Within ten years | 30 | |||
W | 144 | |||
4. | EQUITY SECURITIES ACCOUNTED FOR USING THE EQUITY METHOD |
Ownership | ||||||||||||||||||||||||||||||||
Number of | Percentage | Acquisition | Net Asset | |||||||||||||||||||||||||||||
Shares at | (%) at | Cost at | Value at | Carrying Amount | ||||||||||||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||||||||||||||||||
2004 | 2004 | 2004 | 2004 | 2002 | 2003 | 2004 | ||||||||||||||||||||||||||
SK C&C Co., Ltd. | 300,000 | 30.0 | W19,071 | W196,208 | W | 39,687 | W | 92,844 | W | 201,484 | ||||||||||||||||||||||
STIC Ventures Co., Ltd. | 1,600,000 | 24.1 | 8,000 | 7,477 | 6,885 | 7,086 | 7,477 | |||||||||||||||||||||||||
Eonex Technologies, Inc. | — | — | — | — | (note a | ) | 4,615 | — | — | |||||||||||||||||||||||
WiderThan Co., Ltd. | — | — | — | — | (note b | ) | 1,750 | 3,188 | — | |||||||||||||||||||||||
VCASH Co., Ltd. | — | — | — | — | (note c | ) | 2,232 | 1,048 | — | |||||||||||||||||||||||
Skytel Co., Ltd. | 1,756,000 | 28.6 | 2,159 | 3,713 | 2,576 | 3,401 | 3,713 | |||||||||||||||||||||||||
SK China Company Ltd. | 28,160 | 20.7 | 3,195 | 1,915 | 3,482 | 1,683 | 830 | |||||||||||||||||||||||||
SKT-QC Wireless Development Fund | 50.0 | 6,540 | 5,146 | 5,993 | 5,901 | 5,146 | ||||||||||||||||||||||||||
SKT-HP Ventures, LLC | 50.0 | 6,415 | 5,281 | 5,990 | 5,960 | 5,281 | ||||||||||||||||||||||||||
CDMA Mobile Phone Center | 50.0 | 45,687 | 25,117 | — | 49,444 | 25,117 | ||||||||||||||||||||||||||
TU Media Corp. | 7,800,000 | 28.5 | 39,000 | 34,592 | (note d | ) | — | — | 34,592 | |||||||||||||||||||||||
SK USA, Inc. | 49 | 49.0 | 3,184 | 3,056 | (note e | ) | 3,184 | 3,184 | 3,056 | |||||||||||||||||||||||
Aircross Co., Ltd. | 600,000 | 38.1 | 300 | 940 | (note e | ) | 300 | 300 | 940 | |||||||||||||||||||||||
DSS Mobile Communications Ltd. | — | — | — | — | (note f | ) | — | — | — | |||||||||||||||||||||||
Other investments in affiliates | 16,893 | (note g | ) | 4,553 | 9,670 | 16,392 | ||||||||||||||||||||||||||
Total | W | 81,247 | W | 183,709 | W | 304,028 | ||||||||||||||||||||||||||
(note a) | As the Company’s ownership in Eonex Technologies, Inc. decreased to 16.1% from 22.5%, during the first quarter of 2003, investments in common stock of Eonex Technologies, Inc. were reclassified to available-for-sale securities at the end of the first quarter of 2003. |
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(note b) | As the Company’s ownership in WiderThan Co., Ltd. decreased to 14.3% from 20% in 2004, investments in common stock of WiderThan Co., Ltd. are reclassified to available-for-sale securities in 2004. |
(note c) | The investments in common stock of VCASH Co., Ltd. were sold to Korea Railway Transportation Promotion Foundation in 2004. |
(note d) | As the Company’s ownership in TU Media Corp. decreased from 100% to 28.5% in 2004, TU Media Corp. was excluded from the consolidation, effective January 1, 2004. And, the investment in common stock of TU Media Corp. are accounted for using the equity method of accounting. |
(note e) | As their total assets at the beginning of 2004 were over W7 billion, effective January 1, 2004, investments in equity securities of SK USA, Inc. and Aircross Co., Ltd. are accounted for using the equity method of accounting. |
(note f) | DSS Mobile Communication Ltd., an Indian company, has a negative capital since March 31, 1998 and the investment in common stock of DSS Mobile Communication Ltd. were sold in 2004. |
(note g) | As allowed under Korean GAAP, investments in equity securities of SK Telecom Europe Limited, UNISK Information Technology Co., Ltd. and certain others were not accounted for using the equity method of accounting, as their total assets at the beginning of 2004 were less than W7 billion. |
For the Year Ended December 31, 2002 | ||||||||||||||||||||||||||||||||
Equity in | ||||||||||||||||||||||||||||||||
Equity in | Equity in | Capital Surplus | ||||||||||||||||||||||||||||||
Beginning | Earnings | Retained | and Capital | Dividends | Ending | |||||||||||||||||||||||||||
Balance | Acquisition | (Losses) | Earnings | Adjustments | Received | Decrease | Balance | |||||||||||||||||||||||||
SK C&C Co., Ltd. | W | 43,475 | W | — | W | 3,401 | W | — | W | (6,589 | ) | W | (600 | ) | W | — | W | 39,687 | ||||||||||||||
STIC IT Venture Capital | 8,038 | — | (1,137 | ) | — | (16 | ) | — | — | 6,885 | ||||||||||||||||||||||
Eonex Technologies, Inc. (note a) | 3,600 | — | (996 | ) | — | 2,011 | — | — | 4,615 | |||||||||||||||||||||||
WiderThan Co., Ltd. (note a) | 1,000 | — | 750 | — | — | — | — | 1,750 | ||||||||||||||||||||||||
VCASH | 3,417 | — | (1,192 | ) | — | 7 | — | — | 2,232 | |||||||||||||||||||||||
Skytel Co., Ltd. | 2,352 | 675 | 29 | — | (480 | ) | — | — | 2,576 | |||||||||||||||||||||||
SK China Co., Ltd. | 3,869 | — | (21 | ) | — | (366 | ) | — | — | 3,482 | ||||||||||||||||||||||
SKT QC Wireless Development Fund, LLC | 6,540 | — | (9 | ) | — | (538 | ) | — | — | 5,993 | ||||||||||||||||||||||
SKT-HP Ventures, LLC | 6,415 | — | (12 | ) | — | (413 | ) | — | — | 5,990 | ||||||||||||||||||||||
W | 78,706 | W | 675 | W | 813 | W | — | W | (6,384 | ) | W | (600 | ) | W | — | W | 73,210 | |||||||||||||||
(note a) | As their total assets at the beginning of 2002 were over W7 billion, effective January 1, 2002, investments in equity securities of Eonex Technologies, Inc. and WiderThan Co., Ltd. are accounted for using the equity method of accounting. |
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For the Year Ended December 31, 2003 | ||||||||||||||||||||||||||||||||
Equity in | Equity in | |||||||||||||||||||||||||||||||
Equity in | Retained | Capital Surplus | Decrease | |||||||||||||||||||||||||||||
Beginning | Earnings | Earning | and Capital | Dividend | (Notes c | Ending | ||||||||||||||||||||||||||
Balance | Acquisition | (Losses) | (Note b) | Adjustments | Received | and d) | Balance | |||||||||||||||||||||||||
SK C&C Co., Ltd. | W | 39,687 | W | — | W | 7,962 | W | — | W | 45,795 | W | (600 | ) | W | — | W | 92,844 | |||||||||||||||
STIC Ventures Co., Ltd. | 6,884 | — | 44 | (3 | ) | 161 | — | — | 7,086 | |||||||||||||||||||||||
Eonex Technologies, Inc. | 4,615 | — | (22 | ) | — | — | — | (4,593 | ) | — | ||||||||||||||||||||||
WiderThan Co., Ltd. | 1,750 | — | 1,465 | — | (27 | ) | — | — | 3,188 | |||||||||||||||||||||||
VCASH Co., Ltd. | 2,232 | — | (1,353 | ) | (30 | ) | 199 | — | — | 1,048 | ||||||||||||||||||||||
Skytel Co., Ltd. | 2,576 | — | 694 | — | 152 | (21 | ) | — | 3,401 | |||||||||||||||||||||||
SK China Co., Ltd. | 3,482 | — | (1,864 | ) | — | 65 | — | — | 1,683 | |||||||||||||||||||||||
SK-QC Wireless Development Fund | 5,993 | — | (79 | ) | — | (13 | ) | — | — | 5,901 | ||||||||||||||||||||||
SKT-HP Ventures, LLC | 5,990 | — | 17 | — | (47 | ) | — | — | 5,960 | |||||||||||||||||||||||
CDMA Mobile Phone Center (note a) | 63,354 | — | (13,839 | ) | — | — | — | (71 | ) | 49,444 | ||||||||||||||||||||||
W | 136,563 | W | — | W | (6,975 | ) | W | (33 | ) | W | 46,285 | W | (621 | ) | W | (4,664 | ) | W | 170,555 | |||||||||||||
(note a) | As its total assets at the beginning of 2003 were over W7 billion, effective January 1, 2003, investment in equity securities of CDMA Mobile Phone Center held by SLD Telecom PTE Ltd., a overseas subsidiary of the Company, is accounted for using the (note a) equity method of accounting. |
(note b) | Effective January 1, 2003, the Company’s investees including STIC Ventures Co., Ltd. and VCASH Co., Ltd., adopted SKAS No. 3, “Intangible Assets”. This statement requires that organization cost be charged to expenses as incurred and the unamortized organization costs at January 1, 2003 be offset against the beginning retained earnings. To reflect the Company’s portion of the decrease in the beginning retained earnings of the investees, the Company reduced its beginning retained earnings of 2003. |
(note c) | Investments in common stock of Eonex Technologies, Inc. were reclassified to available-for-sale securities as the Company’s ownership in Eonex Technologies, Inc. decreased to 16.1% from 22.5% during the first quarter of 2003. |
(note d) | The decrease in investments in equity securities of CDMA Mobile Phone Center represents a translation loss incurred from translating the foreign currency financial statements of SLD Telecom PTE Ltd., a overseas subsidiary of the Company, which makes investments in CDMA Mobile Phone Center, into Korean won. |
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For the Year Ended December 31, 2004 | ||||||||||||||||||||||||||||
Equity in | ||||||||||||||||||||||||||||
Equity in | Capital Surplus | Decrease | ||||||||||||||||||||||||||
Beginning | Earnings | and Capital | Dividend | (Notes b | Ending | |||||||||||||||||||||||
Balance | Acquisition | (Losses) | Adjustments | Received | and c) | Balance | ||||||||||||||||||||||
SK C&C Co., Ltd. | W | 92,844 | W | - | W | 13,322 | W | 95,918 | (W | 600 | ) | W | - | W | 201,484 | |||||||||||||
STIC Ventures Co., Ltd. | 7,086 | — | (123 | ) | 514 | — | — | 7,477 | ||||||||||||||||||||
WiderThan Co., Ltd. | 3,188 | — | — | — | — | (3,188 | ) | — | ||||||||||||||||||||
VCASH Co., Ltd. | 1,048 | — | (657 | ) | — | — | (391 | ) | — | |||||||||||||||||||
Skytel Co., Ltd. | 3,401 | — | 1,070 | (603 | ) | (155 | ) | — | 3,713 | |||||||||||||||||||
SK China Co., Ltd. | 1,683 | — | (595 | ) | (258 | ) | — | — | 830 | |||||||||||||||||||
SK-QC Wireless Development Fund | 5,901 | — | 4 | (759 | ) | — | — | 5,146 | ||||||||||||||||||||
SKT-HP Ventures, LLC | 5,960 | — | 62 | (741 | ) | — | — | 5,281 | ||||||||||||||||||||
CDMA Mobile Phone Center | 49,444 | 5,979 | (21,651 | ) | — | — | (8,655 | ) | 25,117 | |||||||||||||||||||
TU Media Corp. | 38,681 | — | (4,213 | ) | 124 | — | — | 34,592 | ||||||||||||||||||||
SK USA, Inc. (note a) | 3,184 | — | 168 | (296 | ) | — | — | 3,056 | ||||||||||||||||||||
Aircross Co., Ltd. (note a) | 300 | — | 659 | (19 | ) | — | — | 940 | ||||||||||||||||||||
W | 212,720 | W | 5,979 | (W | 11,954 | ) | W | 93,880 | (W | 755 | ) | (W | 12,234 | ) | W | 287,636 | ||||||||||||
(note a) | As their total assets at the beginning of 2004 were over W7 billion, effective January 1, 2004, investments in equity securities of SK USA, Inc. and Aircross Co., Ltd. are accounted for using the equity method of accounting. |
(note b) | As the Company’s ownership in WiderThan Co., Ltd. decreased to 14.3% from 20% in 2004, investments in common stock of WiderThan Co., Ltd. are reclassified to available-for-sale securities in 2004. |
(note c) | SLD Telecom PTE Ltd. (“SLD”), an oversea subsidiary of the Company, accounted for the in-kind contribution of network equipment to CDMA Mobile Phone Center as an increase in the investment securities and the reimbursement in the amount equal to depreciation of such network equipment in accordance with the Business Co-Operation Contract between SLD and Saigon Post and Telecommunication Service Corp., a Vietnamese counterparty, was accounted for as a decrease in the investment. During the year ended December 31, 2004, SLD got such reimbursement of W4,046 million from CDMA Mobile Phone Center and decreased the investment in CDMA Mobile Phone Center by the same amount. In addition, translation loss of W4,609 million incurred from translating the foreign currency financial statement of SLD Telecom PTE Ltd. into Korean won was accounted for as a decrease in the investment in CDMA Mobile Phone Center. |
5. | LOANS TO EMPLOYEES |
2002 | 2003 | 2004 | ||||||||||
Loans to employees’ stock ownership association | W | 45,906 | W | 33,788 | W | 22,546 | ||||||
Loans to employees for housing and other (3 - 4%) | 10,556 | 8,587 | 8,859 | |||||||||
W | 56,462 | W | 42,375 | W | 31,405 | |||||||
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6. | PROPERTY AND EQUIPMENT |
Useful | ||||||||||||||||
Lives | ||||||||||||||||
(Years) | 2002 | 2003 | 2004 | |||||||||||||
Land | W | 439,915 | W | 449,377 | W | 466,459 | ||||||||||
Buildings and structures | 15, 30 | 977,045 | 1,081,134 | 1,445,593 | ||||||||||||
Machinery | 3-6 | 6,998,088 | 8,440,624 | 9,584,526 | ||||||||||||
Vehicles | 3-4 | 19,368 | 19,741 | 21,710 | ||||||||||||
Other | 3-4 | 878,006 | 794,495 | 791,829 | ||||||||||||
Construction in progress | 352,932 | 323,490 | 138,002 | |||||||||||||
Total | 9,665,354 | 11,108,861 | 12,448,119 | |||||||||||||
Less accumulated depreciation | (5,095,937 | ) | (6,467,314 | ) | (7,744,197 | ) | ||||||||||
Property and equipment, net | W | 4,569,417 | W | 4,641,547 | W | 4,703,922 | ||||||||||
For the Year Ended December 31, 2003 | |||||||||||||||||||||||||
Beginning | Ending | ||||||||||||||||||||||||
Balance | Acquisition | Disposal | Transfer | Depreciation | Balance | ||||||||||||||||||||
Land | W | 439,915 | W | 6,381 | W | (4,793 | ) | W | 7,874 | W | — | W | 449,377 | ||||||||||||
Buildings and structures | 778,832 | 9,393 | (4,599 | ) | 100,341 | (40,166 | ) | 843,801 | |||||||||||||||||
Machinery | 2,475,663 | 125,332 | (4,996 | ) | 1,360,240 | (1,285,271 | ) | 2,670,968 | |||||||||||||||||
Vehicles | 6,353 | 1,012 | (123 | ) | 63 | (3,137 | ) | 4,168 | |||||||||||||||||
Other | 515,722 | 861,333 | (4,329 | ) | (916,464 | ) | (106,519 | ) | 349,743 | ||||||||||||||||
Construction in progress | 352,932 | 644,188 | — | (673,630 | ) | — | 323,490 | ||||||||||||||||||
Total | W | 4,569,417 | W | 1,647,639 | W | (18,840 | ) | W | (121,576 | ) | W | (1,435,093 | ) | W | 4,641,547 | ||||||||||
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For the Year Ended December 31, 2004 | |||||||||||||||||||||||||
Beginning | Ending | ||||||||||||||||||||||||
Balance | Acquisition | Disposal | Transfer | Depreciation | Balance | ||||||||||||||||||||
Land | W | 449,377 | W | 3,395 | W | (2,684 | ) | W | 16,372 | W | — | W | 466,460 | ||||||||||||
Buildings and structures | 843,801 | 7,239 | (7,849 | ) | 366,296 | (42,945 | ) | 1,166,542 | |||||||||||||||||
Machinery | 2,670,968 | 108,238 | (8,098 | ) | 1,143,335 | (1,271,336 | ) | 2,643,107 | |||||||||||||||||
Vehicles | 4,168 | 3,744 | (425 | ) | 674 | (3,370 | ) | 4,791 | |||||||||||||||||
Other | 349,743 | 740,752 | (5,481 | ) | (697,135 | ) | (102,859 | ) | 285,020 | ||||||||||||||||
Construction in progress | 323,490 | 768,573 | (756 | ) | (953,305 | ) | — | 138,002 | |||||||||||||||||
Total | W | 4,641,547 | W | 1,631,941 | W | (25,293 | ) | W | (123,763 | ) | W | (1,420,510 | ) | W | 4,703,922 | ||||||||||
7. | INTANGIBLE ASSETS |
Acquisition | Accumulated | Accumulated | ||||||||||||||||||||||
Cost at | Amortization at | Impairment at | Carrying Amounts | |||||||||||||||||||||
December 31, | December 31, | December 31, | ||||||||||||||||||||||
2004 | 2004 | 2004 | 2002 | 2003 | 2004 | |||||||||||||||||||
Goodwill | W | 2,401,306 | W | (406,897 | ) | W | (70 | ) | W | 2,255,868 | W | 2,129,980 | W | 1,994,339 | ||||||||||
Frequency use rights | 1,267,053 | (103,734 | ) | — | 1,259,253 | 1,251,278 | 1,163,319 | |||||||||||||||||
Software development costs | 228,757 | (122,301 | ) | (501 | ) | 91,337 | 137,810 | 105,955 | ||||||||||||||||
Other | 490,625 | (229,909 | ) | (1,426 | ) | 114,777 | 155,876 | 259,290 | ||||||||||||||||
W | 4,387,741 | W | (862,841 | ) | W | (1,997 | ) | W | 3,721,235 | W | 3,674,944 | W | 3,522,903 | |||||||||||
For the Year Ended December 31, 2003 | ||||||||||||||||||||||||
Beginning | Ending | |||||||||||||||||||||||
Balance | Acquisition | Disposal | Transfer | Amortization | Balance | |||||||||||||||||||
Goodwill | W | 2,255,868 | W | 9,374 | W | — | W | (111 | ) | W | (135,151 | ) | W | 2,129,980 | ||||||||||
Software development costs | 91,337 | 26,665 | — | 56,512 | (36,704 | ) | 137,810 | |||||||||||||||||
Frequency use rights | 1,259,253 | — | — | — | (7,975 | ) | 1,251,278 | |||||||||||||||||
Other | 114,777 | 28,982 | (7,275 | ) | 54,371 | (34,979 | ) | 155,876 | ||||||||||||||||
W | 3,721,235 | W | 65,021 | W | (7,275 | ) | W | 110,772 | W | (214,809 | ) | W | 3,674,944 | |||||||||||
For the Year Ended December 31, 2004 | ||||||||||||||||||||||||||||
Beginning | Ending | |||||||||||||||||||||||||||
Balance | Acquisition | Disposal | Transfer | Amortization | Impairment | Balance | ||||||||||||||||||||||
Goodwill | W | 2,129,980 | W | 647 | W | — | W | — | W | (136,288 | ) | W | — | W | 1,994,339 | |||||||||||||
Software development costs | 137,810 | 6,235 | (3,349 | ) | 10,545 | (45,244 | ) | (42 | ) | 105,955 | ||||||||||||||||||
Frequency use rights | 1,251,278 | — | — | 7,800 | (95,759 | ) | — | 1,163,319 | ||||||||||||||||||||
Other | 155,876 | 65,494 | (865 | ) | 93,514 | (54,729 | ) | — | 259,290 | |||||||||||||||||||
W | 3,674,944 | W | 72,376 | W | (4,214 | ) | W | 111,859 | W | (332,020 | ) | W | (42 | ) | W | 3,522,903 | ||||||||||||
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Residual | ||||||||||
Amount | Description | Useful Lives | ||||||||
Goodwill | W | 1,949,546 | Goodwill related to acquisition of Shinsegi Telecomm, Inc. | 16 years | ||||||
Frequency use rights | 1,155,575 | IMT license received on December 4, 2001 | (note | ) | ||||||
Software development costs | 105,955 | Software for business use | 1-5 years |
(note) | Amortization of the IMT license commenced when the Company started its commercial IMT service in December 2003, using the straight-line method over the estimated useful life of the IMT license which expires in December 2016. |
8. | BONDS PAYABLE |
Maturity | Annual Interest | ||||||||||||||||||||||
Year | Rate (%) | 2002 | 2003 | 2004 | |||||||||||||||||||
Domestic general bonds | 2003 | 5.0-9.9 | W | 910,000 | W | — | W | — | |||||||||||||||
” | 2004 | 5.0-7.0 | 1,120,000 | 1,120,000 | — | ||||||||||||||||||
” | 2005 | 6.0 | 500,000 | 500,000 | 500,000 | ||||||||||||||||||
” | 2006 | 5.0-6.0 | 400,000 | 800,000 | 800,000 | ||||||||||||||||||
” | 2007 | 5.0-6.0 | 700,000 | 700,000 | 700,000 | ||||||||||||||||||
” | 2008 | 5.0 | — | 300,000 | 300,000 | ||||||||||||||||||
” | 2009 | 5.0 | — | — | 300,000 | ||||||||||||||||||
” | 2011 | 3.0 | — | — | 200,000 | ||||||||||||||||||
Dollar denominated bonds | |||||||||||||||||||||||
(US$200,078) | 2004 | 7.75 | 240,173 | 239,653 | — | ||||||||||||||||||
(US$300,000) | 2011 | 4.25 | — | — | 313,140 | ||||||||||||||||||
Convertible bonds (US $329,450) | 2009 | — | — | — | 385,885 | ||||||||||||||||||
Bonds with stock purchase | |||||||||||||||||||||||
warrants (US $4,000) | 2006 | 6M Libor-0.3 | 4,802 | 4,791 | — | ||||||||||||||||||
3,874,975 | 3,664,444 | 3,499,025 | |||||||||||||||||||||
Less discounts on bonds | (60,467 | ) | (47,553 | ) | (51,467 | ) | |||||||||||||||||
Less conversion right adjustments | — | — | (82,245 | ) | |||||||||||||||||||
Add long-term accrued interest | 252 | 491 | 24,808 | ||||||||||||||||||||
Net | 3,814,760 | 3,617,382 | 3,390,121 | ||||||||||||||||||||
Less portion due within one year | (906,264 | ) | (1,355,514 | ) | (498,278 | ) | |||||||||||||||||
Long-term portion | W | 2,908,496 | W | 2,261,868 | W | 2,891,843 | |||||||||||||||||
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9. | LONG-TERM BORROWINGS |
Final | Annual Interest | |||||||||||||||||||
Lender | Maturity Year | Rate (%) | 2002 | 2003 | 2004 | |||||||||||||||
Korea Development Bank | 2004 | 3M Libor + 3.45 | US$ | 13,434 | US$ | 4,478 | US$ | — | ||||||||||||
Woori Bank | 2005 | Floating rate + 0.2 | 6,815 | 4,089 | — | |||||||||||||||
Total in foreign currency | US$ | 20,249 | US$ | 8,567 | US$ | — | ||||||||||||||
Equivalent in Korean won | W | 24,307 | W | 10,262 | W | — | ||||||||||||||
Less portion due within one year | (14,023 | ) | (8,629 | ) | — | |||||||||||||||
Long-term portion | W | 10,284 | W | 1,633 | W | — | ||||||||||||||
10. | SUBSCRIPTION DEPOSITS |
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Deposit per | ||||||||||||||||
Service type | Subscriber | 2002 | 2003 | 2004 | ||||||||||||
Cellular | W200,000 | W46,850 | W44,197 | W31,440 |
11. | LEASES |
12. | ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES |
Foreign Currencies | Korean won Equivalent | |||||||||||||||||||||||
2002 | 2003 | 2004 | 2002 | 2003 | 2004 | |||||||||||||||||||
Cash and cash equivalents | US$46,025 | US$24,407 | US$4,875 | W55,247 | W29,234 | W5,088 | ||||||||||||||||||
¥12 | ¥8 | ¥6 | — | — | — | |||||||||||||||||||
EUR2 | EUR17 | — | 3 | 26 | — | |||||||||||||||||||
— | GBP5 | — | — | 10 | — | |||||||||||||||||||
Short-term financial instruments | US$35,281 | US$31,492 | — | 42,351 | 37,721 | — | ||||||||||||||||||
Accounts receivable — trade | US$19,477 | US$8,627 | US$19,284 | 23,382 | 10,333 | 20,129 | ||||||||||||||||||
¥240 | SG$743 | — | 2 | 522 | — | |||||||||||||||||||
Accounts receivable — other | US$9,639 | US$12,844 | US$2,989 | 11,571 | 15,385 | 3,120 | ||||||||||||||||||
Guarantee deposits | US$187 | US$193 | US$142 | 225 | 232 | 149 | ||||||||||||||||||
— | ¥16,337 | ¥15,756 | — | 183 | 159 | |||||||||||||||||||
Total assets | W132,781 | W93,646 | W28,645 | |||||||||||||||||||||
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Foreign Currencies | Korean won Equivalent | |||||||||||||||||||||||
2002 | 2003 | 2004 | 2002 | 2003 | 2004 | |||||||||||||||||||
Accounts payable — trade | US$23,975 | US$15,432 | US$17,406 | W28,779 | W18,485 | W18,169 | ||||||||||||||||||
¥1,198,724 | ¥555,277 | ¥26,240 | 12,141 | 6,217 | 266 | |||||||||||||||||||
EUR180 | — | — | 227 | — | — | |||||||||||||||||||
Short-term borrowings | US$32,928 | US$26,853 | US$19,392 | 39,526 | 32,164 | 20,241 | ||||||||||||||||||
¥2,603,467 | ¥2,255,431 | ¥438,499 | 26,370 | 25,252 | 4,438 | |||||||||||||||||||
— | EUR7 | EUR207 | — | 10 | 294 | |||||||||||||||||||
— | — | GBP260 | — | — | 522 | |||||||||||||||||||
Accounts payable — other | US$37,228 | US$35,759 | US$13,539 | 44,689 | 42,832 | 14,132 | ||||||||||||||||||
¥229,641 | ¥20,606 | ¥60,678 | 2,326 | 231 | 614 | |||||||||||||||||||
HK$825 | HK$267 | HK$217 | 127 | 41 | 29 | |||||||||||||||||||
CNY61 | CNY140 | CNY1 | 9 | 20 | — | |||||||||||||||||||
GBP1 | GBP304 | GBP118 | 1 | 648 | 237 | |||||||||||||||||||
SG$24 | SG$5 | SG$5 | 17 | 3 | 3 | |||||||||||||||||||
EUR8 | EUR10 | EUR348 | 11 | 15 | 495 | |||||||||||||||||||
AU$1 | AU$1 | — | 1 | 1 | — | |||||||||||||||||||
— | CHF4 | — | — | 4 | — | |||||||||||||||||||
Accrued expenses | — | US$71 | US$84 | — | 86 | 88 | ||||||||||||||||||
— | ¥1,300 | — | — | 15 | — | |||||||||||||||||||
— | EUR 23 | — | — | 1 | — | |||||||||||||||||||
Obligation under capital leases including current portion | US$482 | US$101 | — | 578 | 121 | — | ||||||||||||||||||
Total liabilities | W154,802 | W126,146 | W59,528 | |||||||||||||||||||||
13. | CAPITAL STOCK AND CAPITAL SURPLUS |
2002 | 2003 | 2004 | ||||||||||
Authorized shares | 220,000,000 | 220,000,000 | 220,000,000 | |||||||||
Issued shares | 89,152,670 | 82,276,711 | 82,276,711 | |||||||||
Outstanding shares, net of treasury stock | 79,842,063 | 73,614,308 | 73,614,296 |
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Number of | Capital | ||||||||||||
Shares Issued | Common Stock | Surplus | |||||||||||
At January 1, 2002 | 89,152,670 | W | 44,576 | W | 3,449,698 | ||||||||
Excess unallocated purchase price (note a) | — | — | (647,025 | ) | |||||||||
Gain on disposal of treasury stock (note b) | — | — | 81,984 | ||||||||||
Equity in capital surplus changes of affiliates | — | — | (275 | ) | |||||||||
At December 31, 2002 | 89,152,670 | 44,576 | 2,884,382 | ||||||||||
Excess unallocated purchase price (note a) | — | — | (230 | ) | |||||||||
Retirement of treasury stock (note c) | (7,002,235 | ) | — | — | |||||||||
Issuance of common stock for the merger with SK IMT Co., Ltd. (note d) | 126,276 | 63 | 31,809 | ||||||||||
Gain on disposal of investments in common stock of subsidiary | — | — | 58 | ||||||||||
Equity in capital surplus changes of affiliates | — | — | (4,463 | ) | |||||||||
At December 31, 2003 | 82,276,711 | 44,639 | 2,911,556 | ||||||||||
Excess unallocated purchase price (note a) | — | — | (77 | ) | |||||||||
Considerations for conversion right (note e) | — | — | 67,279 | ||||||||||
Equity in capital surplus changes of affiliates | — | — | (10,457 | ) | |||||||||
At December 31, 2004 | 82,276,711 | W | 44,639 | W | 2,968,301 | ||||||||
(note a) | The excess unallocated purchase price of W299,121 million for the additional 19.2% equity interest acquired in 2001 and W647,025 million for the distribution of 2,677,653 shares of treasury stock to minority shareholders of Shinsegi Telecomm, Inc. upon the merger dated January 13, 2002, were deducted from capital surplus, in accordance with Korean GAAP. In addition, during the years ended December 31, 2003 and 2004, the Company paid W230 million and W77 million, respectively, to certain former shareholders of Shinsegi Telecomm, Inc. in accordance with the ruling of the court and deducted it from capital surplus in accordance with Korean GAAP. |
(note b) | The gain on disposal of treasury stock of W81,984 million resulting from the distribution of treasury stock to minority shareholders of Shinsegi Telecomm, Inc. upon the merger dated January 13, 2002 was recorded as an increase in other capital surplus. |
(note c) | The Company retired 4,457,635 shares and 2,544,600 shares of treasury stock on January 3, 2003 and August 20, 2003, respectively, and reduced unappropriated retained earnings in accordance with the Korean Commercial Laws. |
(note d) | The excess of acquired net assets over the par value of W63 million for the issuance of 126,276 shares of new common stock to minority shareholders of SK IMT Co., Ltd. upon the merger dated May 1, 2003, was added to capital surplus in accordance with Korean GAAP. |
(note e) | The Company issued zero coupon convertible bonds in the principal amount of US$329,450,000 at US$324,923,469 with an initial conversion price of W235,625 per share of the Company’s common stock on May 27, 2004 and the considerations for conversion right of W67,279 million was added to capital surplus in accordance with Korean GAAP (See Note 2(j)). |
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14. | RETAINED EARNINGS |
2002 | 2003 | 2004 | ||||||||||
Appropriated | W | 3,379,922 | W | 4,743,822 | W | 4,733,936 | ||||||
Unappropriated | 1,493,283 | 396,089 | 1,418,962 | |||||||||
W | 4,873,205 | W | 5,139,911 | W | 6,152,898 | |||||||
2002 | 2003 | 2004 | ||||||||||
Legal reserve | W | 17,200 | W | 22,288 | W | 22,320 | ||||||
Reserve for improvement of financial structure | 33,000 | 33,000 | 33,000 | |||||||||
Reserve for business rationalization | 169,493 | — | — | |||||||||
Reserve for loss on foreign investment | 29,192 | — | — | |||||||||
Reserve for loss on disposal of treasury stock | 240,000 | 221,197 | 477,182 | |||||||||
Reserve for research and manpower development | 365,300 | 559,198 | 776,296 | |||||||||
Reserve for business expansion | 2,525,737 | 3,908,139 | 3,425,138 | |||||||||
W | 3,379,922 | W | 4,743,822 | W | 4,733,936 | |||||||
a. | Legal Reserve |
b. | Reserve for Improvement of Financial Structure |
c. | Reserve for Business Rationalization |
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d. | Reserves for Loss on Foreign Investment, Loss on Disposal of Treasury Stock and Research and Manpower Development |
e. | Reserve for Business Expansion |
15. | TREASURY STOCK |
16. | STOCK OPTIONS |
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Recognized | Stock Option in Capital | |||||||||||||||||||||||||||||||
Total | Compensation Cost | Compensation | Adjustment | |||||||||||||||||||||||||||||
Compensation | Cost to be | |||||||||||||||||||||||||||||||
Grant Date | Cost | 2002 | 2003 | 2004 | Recognized | 2002 | 2003 | 2004 | ||||||||||||||||||||||||
March 17, 2000 | W | 1,533 | W | 511 | W | 128 | W | — | W | — | W | 1,405 | W | 1,533 | W | 1,533 | ||||||||||||||||
March 16, 2001 | 234 | 79 | 79 | 10 | — | 145 | 224 | 234 | ||||||||||||||||||||||||
March 8, 2002 | 3,246 | 902 | 1,082 | 1,082 | 180 | 902 | 1,984 | 3,066 | ||||||||||||||||||||||||
W | 5,013 | W | 1,492 | W | 1,289 | W | 1,092 | W | 180 | W | 2,452 | W | 3,741 | W | 4,833 | |||||||||||||||||
2002 | 2003 | 2004 | ||||||||||
Pro forma ordinary income (in millions of Koran won) | W | 2,215,401 | W | 2,751,221 | W | 2,121,238 | ||||||
Pro forma ordinary income per common shares | 17,603 | 26,145 | 20,234 | |||||||||
Pro forma net income (in millions of Korean won) | 1,483,784 | 1,962,986 | 1,489,542 | |||||||||
Pro forma net income per common shares | 17,607 | 26,145 | 20,234 |
17. | INCOME TAXES |
2002 | 2003 | 2004 | ||||||||||
Currently payable | W | 616,544 | W | 668,180 | W | 551,405 | ||||||
Deferred | 81,963 | 120,879 | 78,356 | |||||||||
Recorded income taxes | W | 698,507 | W | 789,059 | W | 629,761 | ||||||
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2002 | 2003 | 2004 | |||||||||||
Income before income taxes | W | 2,218,768 | W | 2,754,336 | W | 2,123,175 | |||||||
Additions (deductions): | |||||||||||||
Allowance for bad debts | (66,940 | ) | 2,081 | (3,406 | ) | ||||||||
Loss on impairment of investment securities | 68,882 | (53,161 | ) | 7,866 | |||||||||
Accrued interest income | (2,107 | ) | (3,096 | ) | (2,133 | ) | |||||||
Foreign exchange loss | (8,211 | ) | (8,449 | ) | (2,815 | ) | |||||||
Depreciation | (3,803 | ) | (34,070 | ) | (162,670 | ) | |||||||
Equity in losses (earnings) of affiliates | (813 | ) | 6,975 | 11,954 | |||||||||
Amortization of goodwill | 128,662 | 128,662 | 128,662 | ||||||||||
Loss on impairment of tangible assets and intangible assets | 8,212 | 22,459 | — | ||||||||||
Tax-free reserves | (175,096 | ) | (468,775 | ) | (45,765 | ) | |||||||
Net operating loss carryforwards | (7,060 | ) | — | (14,750 | ) | ||||||||
Other | 101,950 | 135,324 | 54,373 | ||||||||||
Net taxable income | W | 2,262,444 | W | 2,482,286 | W | 2,094,493 | |||||||
Corporate income taxes at statutory Korean corporate income tax rates of 27% | W | 612,890 | W | 670,144 | W | 566,280 | |||||||
Tax credit for investments, technology and human resource development and others | (62,974 | ) | (75,149 | ) | (77,490 | ) | |||||||
Corporate income taxes payable | 549,916 | 594,995 | 488,790 | ||||||||||
Resident surtax payable | 54,992 | 59,500 | 48,879 | ||||||||||
Special surtax for agriculture and fishery industries and other | 11,636 | 13,685 | 13,736 | ||||||||||
Total income taxes currently payable | W | 616,544 | W | 668,180 | W | 551,405 | |||||||
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2002 | 2003 | 2004 | ||||||||||
Income taxes at statutory income tax rate of 27% | W | 599,067 | W | 743,671 | W | 573,257 | ||||||
Resident surtax payable | 59,907 | 74,367 | 57,326 | |||||||||
Tax credit for investments, technology and human resource development and others | (37,309 | ) | (83,826 | ) | (89,080 | ) | ||||||
Special surtax for agriculture and fishery industries and other | 11,636 | 13,685 | 13,736 | |||||||||
Goodwill amortization not deductible for tax purpose | 38,213 | 38,213 | 35,382 | |||||||||
Undistributed earnings (unrecognized deficit) of subsidiaries | 12,295 | (5,909 | ) | 11,011 | ||||||||
Effect of the change in income tax rate (note a) | — | (20,204 | ) | — | ||||||||
Other permanent differences | 1,520 | 15,327 | 28,581 | |||||||||
Increase (decrease) in valuation allowance | 13,178 | 13,735 | (452 | ) | ||||||||
Recorded income taxes | W | 698,507 | W | 789,059 | W | 629,761 | ||||||
Effective tax rate | 31.48 | % | 28.65 | % | 29.66 | % | ||||||
(note a) | Pursuant to a revision in the Korean Corporate Income Tax Law during 2003, statutory corporate income tax rate including resident surtax is changed from 29.5% to 27.5%, effective January 1, 2005. Such change in statutory corporate income tax rate resulted in a decrease in deferred tax liabilities as of December 31, 2003 by W20,204 million. |
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2002 | 2003 | 2004 | |||||||||||
Allowance for doubtful accounts | W | 23,251 | W | 22,039 | W | 19,649 | |||||||
Write-off of doubtful accounts | 9,715 | 9,587 | 9,764 | ||||||||||
Trading securities | — | 1 | (561 | ) | |||||||||
Accrued interest income | (2,902 | ) | (2,026 | ) | (2,463 | ) | |||||||
Depreciation | 12,609 | 3,712 | (40,220 | ) | |||||||||
Loss on disposition of properties | — | 11,480 | |||||||||||
Loss on impairment of investment securities | 48,588 | 30,757 | 32,851 | ||||||||||
Foreign currency translation loss | 3,345 | 774 | — | ||||||||||
Equity in losses of affiliates | (5,090 | ) | (6,593 | ) | (12,671 | ) | |||||||
Unrecognized deficit (undistributed earnings) of subsidiaries | (9,012 | ) | (3,364 | ) | (9,434 | ) | |||||||
Tax free reserve for research and manpower development | (133,920 | ) | (182,518 | ) | (195,103 | ) | |||||||
Tax free reserve for loss on disposal of treasury stock | (64,775 | ) | (130,373 | ) | (130,372 | ) | |||||||
Tax credit carryforwards | — | 1,162 | 5,003 | ||||||||||
Net operating loss carryforwards | 17,290 | 29,575 | 25,371 | ||||||||||
Other | 20,851 | 39,693 | 18,510 | ||||||||||
Total deferred tax assets (liabilities) | (80,050 | ) | (187,574 | ) | (268,196 | ) | |||||||
Valuation allowance for: | |||||||||||||
Depreciation | (1,081 | ) | — | (5,321 | ) | ||||||||
Net operating loss carryforwards | (17,290 | ) | (29,575 | ) | (24,980 | ) | |||||||
Other | (6,349 | ) | (8,880 | ) | (7,555 | ) | |||||||
Net deferred tax assets (liabilities) | W | (104,770 | ) | W | (226,029 | ) | W | (306,052 | ) | ||||
Net Operating Loss | Tax Credit | |||||||
Year Ending December 31, | Carryforwards | Carryforwards | ||||||
2005 | W | 753 | W | — | ||||
2006 | 18,567 | — | ||||||
2007 | 24,611 | — | ||||||
2008 | 45,373 | — | ||||||
2009 | 2,953 | 5,003 | ||||||
Total | W | 92,257 | W | 5,003 | ||||
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18. | INCOME PER SHARE |
2002 | 2003 | 2004 | ||||||||||
Net income | W | 1,487,151 | W | 1,966,100 | W | 1,491,479 | ||||||
Weighted average number of common shares outstanding | 84,270,450 | 75,078,219 | 73,614,297 | |||||||||
Net income per share | W | 17,647 | W | 26,187 | W | 20,261 | ||||||
2002 | 2003 | 2004 | ||||||||||
Net income | W | 1,487,151 | W | 1,966,100 | W | 1,491,479 | ||||||
Extraordinary gain | (504 | ) | — | — | ||||||||
Income tax effect of extraordinary gain | 149 | — | — | |||||||||
Ordinary income | 1,486,796 | 1,966,100 | 1,491,479 | |||||||||
Weighted average number of common shares outstanding | 84,270,450 | 75,078,219 | 73,614,297 | |||||||||
Ordinary income per share | W | 17,643 | W | 26,187 | W | 20,261 | ||||||
Weighted | Weighted | ||||||||||||||||
Number of | Number of | Number of | |||||||||||||||
Date | Shares | Days | Shares | ||||||||||||||
For 2002: | |||||||||||||||||
At January 1, 2002 | — | 89,152,670 | 365/ 365 | 89,152,670 | |||||||||||||
Treasury stock, at the beginning | — | (6,159,266 | ) | 365/ 365 | (6,159,266 | ) | |||||||||||
Distribution of treasury stock for merger with Shinsegi | Jan. 13 | 2,673,474 | 349/ 365 | 2,556,280 | |||||||||||||
Treasury stock | (note a) | (5,824,815 | ) | — | (1,279,234 | ) | |||||||||||
Total | 79,842,063 | 84,270,450 | |||||||||||||||
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Table of Contents
Weighted | Weighted | |||||||||||||||||
Number of | Number of | Number of | ||||||||||||||||
Date | Shares | Days | Shares | |||||||||||||||
For 2003: | ||||||||||||||||||
At January 1, 2003 | — | 89,152,670 | 365/365 | 89,152,670 | ||||||||||||||
Treasury stock, at the beginning | — | (9,310,607 | ) | 365/365 | (9,310,607 | ) | ||||||||||||
Purchase of treasury stock | Jan. 10 | (3,809,288 | ) | 356/365 | (3,715,360 | ) | ||||||||||||
Purchase of fractional shares | Feb. 3 | (52 | ) | 332/365 | (47 | ) | ||||||||||||
Purchase of fractional shares | May 1 | (91 | ) | 233/365 | (58 | ) | ||||||||||||
Issuance of common stock | May 1 | 126,276 | 233/365 | 80,609 | ||||||||||||||
Treasury stock | (note a | ) | (2,544,600 | ) | — | (1,128,988 | ) | |||||||||||
Total | 73,614,308 | 75,078,219 | ||||||||||||||||
For 2004: | ||||||||||||||||||
At January 1, 2004 | — | 82,276,711 | 366/366 | 82,276,711 | ||||||||||||||
Treasury stock, at the beginning | — | (8,662,403 | ) | 366/366 | (8,662,403 | ) | ||||||||||||
Purchase of fractional shares | Feb. 20 | (12 | ) | 316/366 | (11 | ) | ||||||||||||
Total | 73,614,296 | 73,614,297 | ||||||||||||||||
(note a) | Such treasury stock was acquired or disposed of on several different dates in 2002 and 2003, and the weighted number of shares was calculated according to each transaction date. |
2002 | 2003 | 2004 | ||||||||||
Adjusted net income | W | 1,487,230 | W | 1,966,100 | W | 1,499,026 | ||||||
Adjusted weighted average number of common shares outstanding (note b) | 84,277,598 | 75,078,219 | 74,596,777 | |||||||||
Diluted net income per share | W | 17,647 | W | 26,187 | W | 20,095 | ||||||
2002 | 2003 | 2004 | ||||||||||
Adjusted ordinary income | W | 1,486,875 | W | 1,966,100 | W | 1,499,026 | ||||||
Adjusted weighted average number of common shares outstanding (note b) | 84,277,598 | 75,078,219 | 74,596,777 | |||||||||
Diluted ordinary income per share | W | 17,643 | W | 26,187 | W | 20,095 | ||||||
(note b) | In 2002 and 2004, for the calculation of diluted income per share, the weighted average number of common shares outstanding is adjusted for dilutive effects of assuming the exercise of stock options on January 1, 2002 and the conversion of and convertible bonds on May 27, 2004 (see Note 8), respectively. The weighted average number of common shares outstanding for basic and diluted earnings per share calculations are the same for the year ended December 31, 2003 as there is no item that dilutes the earnings per share for that year. |
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Average Weighted | |||||||||||||
Net Income | Number of Shares | Per-share Amount | |||||||||||
(In Millions of | (In Korean Won) | ||||||||||||
Korean Won) | |||||||||||||
For 2002 | |||||||||||||
Basic net income per share | W1,487,151 | 84,270,450 | W17,647 | ||||||||||
Effect of stock option | 79 | 7,148 | |||||||||||
Diluted net income per share | W1,487,230 | 84,277,598 | W17,647 | ||||||||||
For 2004 | |||||||||||||
Basic net income per share | W1,491,479 | 73,614,297 | W20,261 | ||||||||||
Effect of convertible bonds | 7,547 | 982,480 | |||||||||||
Diluted net income per share | W1,499,026 | 74,596,777 | W20,095 | ||||||||||
Diluted ordinary income per share |
Average Weighted | |||||||||||||
Net Income | Number of Shares | Per-share Amount | |||||||||||
(In Millions of | (In Korean Won) | ||||||||||||
Korean Won) | |||||||||||||
For 2002 | |||||||||||||
Basic ordinary income per share | W | 1,486,796 | 84,270,450 | W | 17,643 | ||||||||
Effect of stock option | 79 | 7,148 | |||||||||||
Diluted ordinary income per share | W | 1,486,875 | 84,277,598 | W | 17,643 | ||||||||
For 2004 | |||||||||||||
Basic ordinary income per share | W | 1,491,479 | 73,614,297 | W | 20,261 | ||||||||
Effect of convertible bonds | 7,547 | 982,480 | |||||||||||
Diluted ordinary income per share | W | 1,499,026 | 74,596,777 | W | 20,095 | ||||||||
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Table of Contents
19. | DIVIDEND DISCLOSURE |
Fiscal | Number of | Face | Dividend | |||||||||||||||
Year | Dividend Type | Shares Outstanding | Value | Ratio | Dividends | |||||||||||||
2002 | Cash dividends | 84,299,698 | (note) | W | 500 | 360% | W | 151,739 | ||||||||||
2003 | Cash dividends | 73,614,308 | W | 500 | 1,100% | W | 404,878 | |||||||||||
2004 | Cash dividends (interim) | 73,614,308 | W | 500 | 200% | W | 73,614 | |||||||||||
Cash dividends (year-end) | 73,614,296 | W | 500 | 1,860% | W | 684,613 | ||||||||||||
Total | W | 758,227 | ||||||||||||||||
(note) | 4,457,635 shares of the Company’s common stock acquired through the stock exchange with KT Corporation on December 30, 2002 were included in the number of shares outstanding, as the dividend right date was December 27, 2002. |
2002 | 2003 | 2004 | ||||||||||
Dividends | W | 151,739 | W | 404,878 | W | 758,227 | ||||||
Net income | 1,487,151 | 1,966,100 | 1,491,479 | |||||||||
Dividends payout ratio | 10.20 | % | 20.59 | % | 50.84 | % | ||||||
2002 | 2003 | 2004 | ||||||||||
Dividend per share | W | 1,800 | W | 5,500 | W | 10,300 | ||||||
Stock price at the year-end | 229,000 | 199,000 | 197,000 | |||||||||
Dividends yield ratio | 0.79 | % | 2.76 | % | 5.23 | % | ||||||
20. | COMMITMENTS AND CONTINGENCIES |
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21. | INSURANCE |
Asset | Risk | Book Value | Coverage | ||||||||||
Inventories and property and | US$74,815 | ||||||||||||
equipment | Fire and comprehensive liability | W | 6,606,428 | W | 12,425,032 | ||||||||
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22. | TRANSACTIONS WITH AFFILIATED COMPANIES |
Description | 2002 | 2003 | 2004 | ||||||||||
Transactions | |||||||||||||
SK Engineering & Construction Co., Ltd.: | |||||||||||||
Construction (note a) | 289,311 | 324,260 | 419,871 | ||||||||||
Commissions paid and other expense | 23,981 | 7,662 | 6,148 | ||||||||||
Commission income and other income | 678 | 776 | 1,348 | ||||||||||
SK Networks (formerly known as SK Global): | |||||||||||||
Purchases of property and equipment | 11,055 | 3,853 | 3,144 | ||||||||||
Commissions paid, leased line and other expense | 83,234 | 214,101 | 411,053 | ||||||||||
Sales of handsets and other income | 383,138 | 491,978 | 1,177,249 | ||||||||||
SK Corporation: | |||||||||||||
Purchases of property and equipment | 52 | 3,831 | 4,071 | ||||||||||
Commissions paid and other expense | 37,249 | 35,612 | 55,921 | ||||||||||
Commission income and other income | 3,201 | 5,370 | 8,826 | ||||||||||
SK Life Insurance Co., Ltd.: | |||||||||||||
Purchases of property and equipment | — | 1,570 | 29,959 | ||||||||||
Commissions paid and other expenses | — | 1,637 | 1,630 | ||||||||||
Commission income and other income | — | 761 | 8,833 | ||||||||||
Kyocera Corp.: | |||||||||||||
Purchase of raw materials and other | 2,807 | 7,143 | 344 | ||||||||||
Commissions paid and other expenses | — | 59 | — | ||||||||||
Commission income and other income | 66,088 | 14,075 | — | ||||||||||
SK Group Japan: | |||||||||||||
Purchase of raw materials for handsets and other expenses | 9,784 | 5,292 | — | ||||||||||
SK Telesys: | |||||||||||||
Purchases of property and equipment | 187,205 | 188,111 | 188,822 | ||||||||||
Commissions paid and other expenses | 1,519 | 1,717 | 3,102 | ||||||||||
Commission income and other income | 290 | 385 | 879 | ||||||||||
SKC: | |||||||||||||
Purchases of inventories | 17,260 | 204,694 | 899,260 | ||||||||||
Disposal of inventories and other | 50,341 | 18 | — | ||||||||||
Commissions paid and other expenses | — | 3,120 | 2,192 | ||||||||||
Commission income and other income | — | 747 | 584 | ||||||||||
Innoace: | |||||||||||||
Purchases of property and equipment | 40,884 | 35,225 | 23,776 | ||||||||||
Commissions paid and other expenses | 9,454 | 314 | 4,337 | ||||||||||
Commission income and other income | 217 | 8,969 | 296 |
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Description | 2002 | 2003 | 2004 | ||||||||||
WiderThan Co., Ltd.: | |||||||||||||
Purchases of property and equipment | 9,124 | 22,643 | 3,780 | ||||||||||
Commissions paid and other expenses | 24,218 | 49,939 | 82,380 | ||||||||||
Commission income and other income | — | 665 | 2,216 | ||||||||||
SK C&C Co., Ltd.: | |||||||||||||
Purchases of property and equipment | 197,250 | 182,774 | 130,243 | ||||||||||
Commissions paid and other expenses (note b) | 231,472 | 284,319 | 295,562 | ||||||||||
Commission income and other income | 6,691 | 8,200 | 7,918 |
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Description | 2002 | 2003 | 2004 | ||||||||||
Balances | |||||||||||||
SK Engineering & Construction Co., Ltd.: | |||||||||||||
Accounts receivable | 241 | 92 | 76 | ||||||||||
Accounts payable | 65,773 | 63,442 | 135,213 | ||||||||||
Guarantee deposits received | 130 | 90 | 408 | ||||||||||
SK Networks (formerly known as SK Global): | |||||||||||||
Accounts receivable | 84,970 | 107,782 | 216,412 | ||||||||||
Guarantee deposits | 113 | 113 | 113 | ||||||||||
Accounts payable | 14,792 | 63,641 | 20,047 | ||||||||||
Guarantee deposits received | 255 | 719 | 955 | ||||||||||
SK Corporation: | |||||||||||||
Accounts receivable | 985 | 1,571 | 4,843 | ||||||||||
Guarantee deposits (note c) | 79,611 | 103,720 | 103,720 | ||||||||||
Accounts payable | 11,654 | 2,911 | 20,165 | ||||||||||
Guarantee deposits received | 9,885 | 10,194 | 10,194 | ||||||||||
SK Life Insurance Co., Ltd.: | |||||||||||||
Deposits for severance indemnities | 58,057 | 63,992 | 73,558 | ||||||||||
Accounts receivable | 117 | 1,119 | 1,100 | ||||||||||
Guarantee deposits | 60 | 60 | 60 | ||||||||||
Guarantee deposits received | 767 | 338 | 821 | ||||||||||
Kyocera Corp.: | |||||||||||||
Accounts receivable | 12,094 | — | — | ||||||||||
Accounts payable | 63 | — | — | ||||||||||
SK Group Japan: | |||||||||||||
Accounts payable | 1,557 | — | — | ||||||||||
SK Telesys: | |||||||||||||
Accounts receivable | 5 | 50 | 53 | ||||||||||
Accounts payable | 60,834 | 33,904 | 51,954 | ||||||||||
SKC: | |||||||||||||
Accounts receivable | 70,464 | 53,680 | 15,549 | ||||||||||
Guarantee deposits | — | — | 10,266 | ||||||||||
Accounts payable | 2,928 | 93,383 | 115,839 | ||||||||||
Innoace: | |||||||||||||
Accounts payable | 26,806 | 25,640 | 15,199 | ||||||||||
Guarantee deposits received | 2,138 | 1,069 | 2,138 | ||||||||||
WiderThan Co., Ltd. | |||||||||||||
Accounts receivable | — | 30 | 102 | ||||||||||
Accounts payable | 8,296 | 9,762 | 9,847 |
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Description | 2002 | 2003 | 2004 | ||||||||||
SK C&C Co., Ltd.: | |||||||||||||
Accounts receivable | 287 | 245 | 480 | ||||||||||
Accounts payable | 116,235 | 72,715 | 77,871 | ||||||||||
Guarantee deposits received | 284 | 346 | 346 |
(note a) | The Company is a party to several contracts with SK Engineering and Construction Co., Ltd. related to the construction of its new corporate headquarters in Ulchiro 2-ga, Chongro-gu, Seoul. Construction of its new headquarters was completed at the end of 2004. The total payment to SK Engineering & Construction Co., Ltd. for the demolition of existing buildings on the site and construction of the new building was W209 billion. |
(note b) | The Company and certain subsidiaries are party to an agreement with SK C&C Co., Ltd., pursuant to which SK C&C Co., Ltd. provides them with information technology services, dated as of December 28, 1998 and amended as of November 1, 1999. This agreement will expire on December 31, 2009, but may be terminated by the Company and certain subsidiaries without cause on a six months notice. The agreement provides that the parties will agree annually on the specific services to be provided and the monthly fees to be paid by the Company and certain subsidiaries. The Company and certain subsidiaries also enter into agreements with SK C&C Co., Ltd. from time to time for specific information technology-related projects. |
(note c) | On December 19, 2000, the Company entered into an agreement with SK Corporation for the sale and leaseback of the Company’s head office with the lease period from December 19, 2000 to March 31, 2004. Under the lease agreement, in January 2001 the Company deposited refundable leasehold key money of W80,113 million and, as a result there will be no rent payment for the remaining lease period. On January 30, 2003, the Company prolonged the lease term to February 28, 2005 and deposited additional refundable leasehold key money of W20,027 million. In addition, in December 2003, the Company deposited additional refundable leasehold key money of W3,580 million. As a result, the refundable leasehold key money to SK Corporation as of December 31, 2004 totaled W103,720 million. |
23. | DERIVATIVE INSTRUMENTS |
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Fair Value | |||||||||||||||||
Designated | |||||||||||||||||
Duration of | as Cash | Not | |||||||||||||||
Type | Hedged Item | Face Amount | Contract | Flow Hedge | Designated | ||||||||||||
Fix-to-fixed cross currency | |||||||||||||||||
swap | Unguaranteed US dollar | US$ | 300,000 | March 23, 2004- | W | 80,953 | W | — | |||||||||
denominated bonds | April 1, 2011 | ||||||||||||||||
Fix-to-fixed cross currency | |||||||||||||||||
swap | Unguaranteed US dollar | US$ | 100,000 | May 27, 2004- | — | 15,790 | |||||||||||
denominated convertible bonds | May 27, 2009 |
24. | MERGER WITH SK IMT CO., LTD. |
25. | MERGER WITH CYWORLD CO., LTD. |
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Aug. 1, 2003 | Dec. 31, 2002 | ||||||||
(Condensed balance sheets) | |||||||||
Current assets | W | 1,200 | W | 129 | |||||
Non-current assets | 615 | 1,175 | |||||||
Total assets | W | 1,815 | W | 1,304 | |||||
Current liabilities | W | 1,586 | W | 850 | |||||
Long-term liabilities | 77 | 432 | |||||||
Total liabilities | 1,663 | 1,282 | |||||||
Common stock | 1,160 | 1,160 | |||||||
Capital surplus | 4,208 | 4,208 | |||||||
Deficit | (5,216 | ) | (5,346 | ) | |||||
Total equity | 152 | 22 | |||||||
Total liabilities and stockholders’ equity | W | 1,815 | W | 1,304 | |||||
Period from | |||||||||
Jan. 1, 2003 to | Year ended | ||||||||
Jul. 31, 2003 | Dec. 31, 2002 | ||||||||
(Condensed statements of operations) | |||||||||
Operating revenue | W | 1,930 | W | 1,823 | |||||
Operating expenses | (2,244 | ) | (2,694 | ) | |||||
Operating loss | (314 | ) | (871 | ) | |||||
Other income | 606 | 37 | |||||||
Other expenses | (163 | ) | (721 | ) | |||||
Net income (loss) | W | 129 | W | (1,555 | ) | ||||
Fair value of net assets merged | W | 152 | |||||||
Merger cost | |||||||||
Fair value of common stock issued | W | 8,429 | |||||||
Direct costs related to the merger (note) | 1,097 | 9,526 | |||||||
Goodwill | W | 9,374 | |||||||
(note) | The direct costs related to the merger are the liquidation income tax of W1,067 million paid for Cyworld Co., Ltd., and service fees of W30 million related to the merger. |
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26. | ACQUISITION OF AND MERGER WITH SHINSEGI TELECOMM, INC. |
In Millions of | ||||
Korean Won | ||||
Fair value of assets acquired | W | 1,183,633 | ||
Goodwill | 2,560,690 | |||
Elimination of investment in unconsolidated affiliate | (1,067,180 | ) | ||
Assumed liabilities | (1,018,710 | ) | ||
Acquisition cost after adding incidental costs of W1,085 million | W | 1,658,433 | ||
27. | LOSS ON IMPAIRMENT OF IDLE NETWORK EQUIPMENT OF SHINSEGI TELECOMM, INC. |
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28. | NETWORK INTERCONNECTION CHARGES |
29. | SUBSEQUENT EVENT |
a. | Acquisition of WiBro License |
b. | Agreement for Establishing SK-EarthLink, a Joint Venture Company in the U.S. |
c. | Issuance of unguaranteed domestic bonds |
d. | Resolution to dispose of the Company’s investments in SK Teletech Co., Ltd. |
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e. | Fine for Providing Handset subsidies |
30. | RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES |
a. | Deferred Income Taxes (see Note 2) |
b. | Deferred Charges (see Note 2) |
c. | Leases |
d. | Marketable Securities and Investments Securities (see Note 2) |
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• | Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. | |
• | Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in income. | |
• | Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from income and reported in other comprehensive income. |
Gross | Gross | ||||||||||||||||
Cost | Unrealized | Unrealized | |||||||||||||||
(Amortized Cost) | Gains | Losses | Fair Value | ||||||||||||||
At December 31, 2002: | |||||||||||||||||
Debt securities | W | 754,219 | W | — | W | — | W | 754,219 | |||||||||
At December 31, 2003: | |||||||||||||||||
Debt securities | W | 895,401 | W | — | W | 2,184 | W | 893,217 | |||||||||
At December 31, 2004: | |||||||||||||||||
Equity securities | W | 450 | W | — | W | 82 | W | 368 | |||||||||
Debt securities | 652,372 | 2,039 | — | 654,411 | |||||||||||||
Total | W | 652,822 | W | 2,039 | W | 82 | W | 654,779 | |||||||||
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Gross | Gross | ||||||||||||||||||||
Cost | Unrealized | Unrealized | Impairment | ||||||||||||||||||
(Amortized Cost) | Gains | Losses | Losses | Fair Value | |||||||||||||||||
At December 31, 2002: | |||||||||||||||||||||
Equity securities | W | 938,975 | W | 1,522 | W | 3,852 | W | 146,284 | W | 790,361 | |||||||||||
Debt securities | 62,500 | — | — | — | 62,500 | ||||||||||||||||
W | 1,001,475 | W | 1,522 | W | 3,852 | W | 146,284 | W | 852,861 | ||||||||||||
At December 31, 2003: | |||||||||||||||||||||
Equity securities | W | 427,472 | W | 73,290 | W | 6,608 | W | 55,469 | W | 438,685 | |||||||||||
Debt securities | 64,315 | — | — | — | 64,315 | ||||||||||||||||
W | 491,787 | W | 73,290 | W | 6,608 | W | 55,469 | W | 503,000 | ||||||||||||
At December 31, 2004: | |||||||||||||||||||||
Equity securities | W | 468,666 | W | 137,621 | W | — | W | 63,902 | W | 542,385 | |||||||||||
Debt securities | 65,957 | — | — | 10,655 | 55,302 | ||||||||||||||||
W | 534,623 | W | 137,621 | W | — | W | 74,557 | W | 597,687 | ||||||||||||
e. | Impairment of Investment Securities and Recoveries |
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f. | Comprehensive Income |
g. | Business Combinations and Intangible Assets |
h. | Determination of Acquisition Cost of Equity Interest in Subsidiary |
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i. | Additional Equity Investment in Subsidiaries |
j. | Capitalization of Foreign Exchange Losses (or Gains) and Interest Expenses |
k. | Nonrefundable Activation Fees |
l. | Gain or Loss on Disposal of Subsidiary’s Stock |
m. | Employee Stock Option Compensation Plan |
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n. | Loans Receivable for Stock Issued to Employee |
o. | Discount on Leasehold Deposits |
p. | Asset Securitization Transactions |
• | The transferred assets have been isolated from the transferor and put beyond the reach of the transferor, or any consolidated affiliated of the transferor, and their creditors even in the event of bankruptcy or receivership of the transferor or any consolidated affiliate. | |
• | The transferee is a qualifying special-purpose entity (“QSPE”) and each holder of its beneficial interests (including both debt and equity securities) has the right to pledge, or the right to exchange its interests. If the issuing vehicle is not a QSPE, then sale accounting is only permitted if the issuing vehicle itself has the right to pledge or the right to exchange the transferred assets. | |
• | The transferor does not effectively maintain control over the transferred assets either through; |
(a) an agreement that calls for the transferor to repurchase the transferred assets (or to buy back securities of a QSPE held by third-party investors) before their maturity or | |
(b) the ability to unilaterally cause the SPE or QSPE to return specific assets; other than through a cleanup call. |
q. | Considerations for conversion right |
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r. | Currency Swap |
s. | Foreign Currency Translation |
t. | Presentation of Minority Interest as a Component of Shareholders’ Equity |
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Year Ended December 31, | |||||||||||||
2002 | 2003 | 2004 | |||||||||||
Net income based on Korean GAAP | W | 1,487,151 | W | 1,966,100 | W | 1,491,479 | |||||||
Adjustments: | |||||||||||||
Deferred income tax adjustments due to difference in accounting principles | (8,481 | ) | (7,342 | ) | (3,827 | ) | |||||||
Tax effect of the reconciling items | 121,976 | (15,036 | ) | 22,515 | |||||||||
Deferred charges | 1,318 | 2,660 | (60 | ) | |||||||||
Capital leases | 454 | (906 | ) | 1,534 | |||||||||
Intangible assets | (23,507 | ) | (22,303 | ) | (18,546 | ) | |||||||
Reversal of amortization of goodwill | 138,041 | 135,557 | 136,694 | ||||||||||
Capitalization of foreign exchange losses and interest expenses related to tangible assets | 6,213 | 21,617 | 24,454 | ||||||||||
Capitalization of interest expenses related to purchases of intangible assets | (69,372 | ) | 427 | 5,285 | |||||||||
Nonrefundable activation fees | (104,263 | ) | (46,962 | ) | (36,048 | ) | |||||||
Loss (gain) on disposal of subsidiary shares | — | 58 | — | ||||||||||
Stock option compensation plan | (3,367 | ) | (3,114 | ) | (1,938 | ) | |||||||
Loss on sale of accounts receivable and other in asset securitization | 7,039 | 7,437 | (14,476 | ) | |||||||||
Loss on impairment of investment securities | (252,031 | ) | 24,727 | (8,434 | ) | ||||||||
Loss on valuation of currency swap | — | — | (49,452 | ) | |||||||||
Discount on leasehold deposits | (45 | ) | (286 | ) | 422 | ||||||||
Considerations for conversion right | — | — | 1,016 | ||||||||||
Foreign currency translation | — | — | 2,458 | ||||||||||
Recovery of impaired investment securities | — | 115 | — | ||||||||||
Net income based on U.S. GAAP | W | 1,301,126 | W | 2,062,749 | W | 1,553,076 | |||||||
Weighted average number of common shares outstanding | 84,270,450 | 75,078,219 | 73,614,297 | ||||||||||
Earnings per share based on U.S.GAAP: | |||||||||||||
Basic earnings per share | W | 15,440 | W | 27,475 | W | 21,097 | |||||||
Diluted earnings per share | W | 15,439 | W | 27,475 | W | 20,921 | |||||||
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December 31, | |||||||||||||
2002 | 2003 | 2004 | |||||||||||
Shareholders’ equity based on Korean GAAP | W | 6,231,900 | W | 6,093,847 | W | 7,205,744 | |||||||
Adjustments: | |||||||||||||
Deferred income tax adjustments due to difference in accounting principles | (18,997 | ) | (45,317 | ) | (70,067 | ) | |||||||
Tax effect of the reconciling items | 151,554 | 136,517 | 159,032 | ||||||||||
Deferred charges | (2,600 | ) | 60 | — | |||||||||
Capital leases | 1,144 | 239 | 1,773 | ||||||||||
Intangible assets | 1,033,558 | 1,019,917 | 1,009,557 | ||||||||||
Reversal of amortization of goodwill | 138,041 | 273,598 | 410,292 | ||||||||||
Capitalization of foreign exchange losses and interest expenses related to tangible assets | (1,775 | ) | 19,842 | 44,294 | |||||||||
Capitalization of interest expenses related to purchase of intangible assets | (69,372 | ) | (68,945 | ) | (63,660 | ) | |||||||
Nonrefundable activation fees | (192,212 | ) | (239,174 | ) | (275,222 | ) | |||||||
Loans receivable for stock issued to employees’ investor association | (45,906 | ) | (33,788 | ) | (22,546 | ) | |||||||
Minority interest in equity of consolidated affiliates | (725,507 | ) | (155,985 | ) | (98,198 | ) | |||||||
Loss on sale of accounts receivable and other in asset securitization | 7,039 | 14,476 | — | ||||||||||
Loss on impairment of investment securities | (150,243 | ) | — | — | |||||||||
Discount on leasehold deposits | (367 | ) | (653 | ) | (231 | ) | |||||||
Considerations for conversion right | — | — | (66,263 | ) | |||||||||
Foreign currency translation | — | — | 2,458 | ||||||||||
Recovery of impaired investment securities | (81 | ) | 34 | 34 | |||||||||
Shareholders’ equity based on U.S. GAAP | W | 6,356,176 | W | 7,014,668 | W | 8,236,997 | |||||||
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Year Ended December 31, | |||||||||||||
2002 | 2003 | 2004 | |||||||||||
Balance, beginning of the year | W | 5,820,051 | W | 6,356,176 | W | 7,014,668 | |||||||
Net income for the year | 1,301,126 | 2,062,749 | 1,553,076 | ||||||||||
Dividends | (57,265 | ) | (151,739 | ) | (478,492 | ) | |||||||
Issuance of common stock | — | 31,053 | — | ||||||||||
Unrealized gains on valuation of securities, net of tax | 51,644 | 50,033 | 55,156 | ||||||||||
Equity in capital surplus, retained earnings and capital adjustments of affiliates (note a) | (12,789 | ) | 50,166 | 89,448 | |||||||||
Retirement of treasury stock | — | (20,598 | ) | — | |||||||||
Treasury stock transactions | (779,290 | ) | (1,379,337 | ) | (2 | ) | |||||||
Foreign-based operations’ translation adjustments | 2,809 | (356 | ) | (11,128 | ) | ||||||||
Stock compensation plan | 4,859 | 4,403 | 3,030 | ||||||||||
Decrease in loans receivable for stock issued to employees’ investor association | 25,031 | 12,118 | 11,241 | ||||||||||
Balance, end of the year | W | 6,356,176 | W | 7,014,668 | W | 8,236,997 | |||||||
(note a) | This line item consists of the adjustments to the carrying amount of equity method investments based on the Company’s proportionate pickup in affiliates using the equity method of accounting, which are directly adjusted to stockholders’ equity of affiliates, such as unrealized gains or losses on valuation of available-for-sale securities, foreign-based operations’ translation adjustments in affiliates and stock transactions by affiliates. |
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December 31, | ||||||||||||||
2002 | 2003 | 2004 | ||||||||||||
Current assets: | ||||||||||||||
As reported | W | 4,113,724 | W | 4,069,525 | W | 4,390,693 | ||||||||
U.S. GAAP adjustments: | ||||||||||||||
— loans receivable for stock issued to employees investor association | — | — | (4,123 | ) | ||||||||||
— deferred tax adjustments due to difference in accounting principles | 60,619 | 73,500 | 51,344 | |||||||||||
— tax effect of the reconciling items | (9,927 | ) | (8,297 | ) | 25,234 | |||||||||
— discount on leasehold deposits | 4,843 | 5,777 | 1,119 | |||||||||||
— asset securitization transactions | 582,742 | 478,298 | — | |||||||||||
Current assets based on U.S. GAAP | 4,752,001 | 4,618,823 | 4,464,267 | |||||||||||
Non-current assets: | ||||||||||||||
As reported | 10,114,986 | 9,748,692 | 9,892,665 | |||||||||||
U.S. GAAP adjustments: | ||||||||||||||
— loans receivable for stock issued to employees’ investor association | (45,906 | ) | (33,788 | ) | (18,423 | ) | ||||||||
— intangible assets | 1,034,972 | 1,015,801 | 1,004,774 | |||||||||||
— cancellation of amortization of goodwill | 138,041 | 273,598 | 410,292 | |||||||||||
— discount on leasehold deposits | (5,210 | ) | (6,430 | ) | (1,349 | ) | ||||||||
— loss on sale of accounts receivable and other in asset securitization | (68,267 | ) | — | — | ||||||||||
— recovery of impaired investment securities | (81 | ) | 34 | 34 | ||||||||||
— loss on impairment of investment securities | (150,243 | ) | — | — | ||||||||||
— nonrefundable activation fees | 9,129 | 9,129 | 9,129 | |||||||||||
— capital lease | 5,820 | 3,301 | 1,773 | |||||||||||
— capitalization of foreign exchange losses and interest expense related to tangible assets | (1,775 | ) | 19,842 | 44,294 | ||||||||||
— capitalization of interest expenses related to purchase of intangible assets | (69,372 | ) | (68,945 | ) | (63,660 | ) | ||||||||
— deferred charges | 6,564 | 6,154 | 12,969 | |||||||||||
Non-current assets based on U.S. GAAP | 10,968,658 | 10,967,388 | 11,292,498 | |||||||||||
Total assets based on U.S. GAAP | W | 15,720,659 | W | 15,586,211 | W | 15,756,765 | ||||||||
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December, 31 | ||||||||||||||
2002 | 2003 | 2004 | ||||||||||||
Current liabilities: | ||||||||||||||
As reported | W | 4,303,386 | W | 4,530,910 | W | 3,066,893 | ||||||||
U.S. GAAP adjustments: | ||||||||||||||
— deferred charges | 222 | 31 | — | |||||||||||
— nonrefundable activation fees | 46,723 | 68,665 | 86,082 | |||||||||||
— asset securitization transactions | 507,436 | 463,822 | — | |||||||||||
— acquisition cost of equity interest in subsidiary | 2,449 | 886 | — | |||||||||||
— foreign currency translation | — | — | (26 | ) | ||||||||||
Current liabilities based on U.S. GAAP | 4,860,216 | 5,064,314 | 3,152,949 | |||||||||||
Long-term liabilities: | ||||||||||||||
As reported | 3,693,424 | 3,193,460 | 4,010,721 | |||||||||||
U.S. GAAP adjustments: | ||||||||||||||
— deferred charges | 8,942 | 5,844 | 12,969 | |||||||||||
— Intangible assets | 3,748 | — | — | |||||||||||
— nonrefundable activation fees | 154,618 | 179,638 | 198,269 | |||||||||||
— capital leases | 4,676 | 3,062 | — | |||||||||||
— deferred tax adjustments due to difference in accounting principles | 79,616 | 118,837 | 123,911 | |||||||||||
— tax effect of the reconciling items | (166,264 | ) | (149,597 | ) | (141,080 | ) | ||||||||
— considerations for conversion right | — | — | 66,263 | |||||||||||
— foreign currency translation | — | — | (2,432 | ) | ||||||||||
Long-term liabilities based on U.S. GAAP | 3,778,760 | 3,351,244 | 4,268,621 | |||||||||||
Total liabilities based on U.S. GAAP | W | 8,638,976 | W | 8,415,558 | W | 7,421,570 | ||||||||
Minority interests: | ||||||||||||||
As reported | W | 725,507 | W | 155,985 | W | 98,198 | ||||||||
U.S. GAAP adjustments: | — | — | — | |||||||||||
Total minority interests based on U.S. GAAP | W | 725,507 | W | 155,985 | W | 98,198 | ||||||||
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2002 | 2003 | 2004 | |||||||||||
Cash flows from operating activities based on Korean GAAP | W | 4,267,815 | W | 3,328,770 | W | 2,516,052 | |||||||
Adjustments: | |||||||||||||
Asset securitization transactions | (558,921 | ) | (47,496 | ) | 469,883 | ||||||||
Cash flows from operating activities based on US GAAP | W | 3,708,894 | W | 3,281,274 | W | 2,985,935 | |||||||
Cash flows from investing activities based on Korean GAAP | W | (3,063,435 | ) | W | (1,414,432 | ) | W | (1,469,537 | ) | ||||
Adjustments: | |||||||||||||
Asset securitization transactions | 68,267 | (8,080 | ) | 76,347 | |||||||||
Cash flows from investing activities based on US GAAP | W | (2,995,168 | ) | W | (1,422,512 | ) | W | (1,393,190 | ) | ||||
Cash flows from financing activities based on Korean GAAP | W | (1,418,197 | ) | W | (2,261,039 | ) | W | (968,570 | ) | ||||
Adjustments: | |||||||||||||
Asset securitization transactions | 490,654 | 55,576 | (546,230 | ) | |||||||||
Cash flows from financing activities based on US GAAP | W | (927,543 | ) | W | (2,205,463 | ) | W | (1,514,800 | ) | ||||
a. | Income Taxes |
Year Ended December 31, | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
Currently payable | W | 616,544 | W | 668,180 | W | 551,405 | ||||||
Deferred | (31,532 | ) | 143,257 | 59,669 | ||||||||
W | 585,012 | W | 811,437 | W | 611,074 | |||||||
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Year Ended December 31, | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
Income taxes at statutory income tax rate of 27% | W | 518,197 | W | 776,030 | W | 584,843 | ||||||
Resident surtax payable | 51,820 | 77,603 | 58,484 | |||||||||
Tax credit for investments, technology, human resource development and others | (37,309 | ) | (83,826 | ) | (89,080 | ) | ||||||
Special surtax for agriculture and fishery industries and other | 11,636 | 13,685 | 13,736 | |||||||||
Undistributed earnings of subsidiaries | 12,295 | (5,909 | ) | 11,011 | ||||||||
Effect of change in income tax rate | — | (7,943 | ) | — | ||||||||
Other permanent differences | 6,714 | 20,719 | 28,705 | |||||||||
Change in valuation allowance | 21,659 | 21,078 | 3,375 | |||||||||
Recorded income taxes | W | 585,012 | W | 808,892 | W | 611,074 | ||||||
Effective tax rate | 30.48 | % | 28.23 | % | 28.21 | % | ||||||
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December 31, | |||||||||||||
2002 | 2003 | 2004 | |||||||||||
Current: | |||||||||||||
Allowance for doubtful accounts | W | 21,885 | W | 22,039 | W | 19,649 | |||||||
Write-off of doubtful accounts | 9,715 | 9,587 | 9,764 | ||||||||||
Marketable trading securities | — | 1 | (561 | ) | |||||||||
Accrued income | (2,844 | ) | (2,026 | ) | (2,463 | ) | |||||||
Accrued expenses and other | 21,936 | 35,622 | 50,189 | ||||||||||
50,692 | 65,223 | 76,578 | |||||||||||
Non-current: | |||||||||||||
Depreciation | 11,732 | 3,935 | (34,371 | ) | |||||||||
Loss on disposition of properties | — | — | 11,480 | ||||||||||
Loss on impairment and valuation of investment securities (note) | 119,940 | 74,928 | 58,419 | ||||||||||
Foreign exchange losses | 3,345 | 774 | — | ||||||||||
Equity in losses (earnings) of affiliates | (5,090 | ) | (6,593 | ) | (12,671 | ) | |||||||
Undistributed earnings of subsidiaries | (28,700 | ) | (3,364 | ) | (9,434 | ) | |||||||
Tax free reserve for technology development | (133,920 | ) | (182,518 | ) | (195,103 | ) | |||||||
Tax free reserve for loss on disposal of treasury stock | (64,775 | ) | (130,373 | ) | (130,372 | ) | |||||||
Tax credit carryforwards | — | 1,162 | 5,003 | ||||||||||
Net operating loss carryforwards | — | — | 25,371 | ||||||||||
Deferred charges and other | 79,346 | 46,780 | (7,205 | ) | |||||||||
(18,122 | ) | (195,269 | ) | (288,883 | ) | ||||||||
Total deferred tax assets (liabilities) | W | 32,570 | W | (130,046 | ) | W | (212,305 | ) | |||||
(note) | As of December 31, 2002, unrealized loss on valuation of investment securities has been recorded as a separate component of shareholders’ equity, net of tax effect of W691 million, and unrealized gain on valuation of investment securities as of December 31, 2003 and 2004 was recorded as a separate component of shareholders’ equity, net of tax effect of W18,287 million and W39,210 million, respectively. |
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2002 | 2003 | 2004 | ||||||||||||||||||||||||
Carrying | Carrying | Carrying | ||||||||||||||||||||||||
Amount | Amount | Amount | ||||||||||||||||||||||||
(Note a) | Fair Value | (Note a) | Fair Value | (Note a) | Fair Value | |||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||
Cash and cash equivalents and short-term financial instruments | W | 867,022 | W | 867,022 | W | 472,410 | W | 472,410 | W | 383,360 | W | 383,360 | ||||||||||||||
Trading securities | 754,219 | 754,219 | 893,217 | 893,217 | 654,779 | 654,779 | ||||||||||||||||||||
Accounts receivable (trade and other) | 2,877,750 | 2,877,750 | 3,000,918 | 3,000,918 | 3,126,754 | 3,126,754 | ||||||||||||||||||||
Short-term loans | 18,296 | 18,296 | 41,933 | 41,933 | 51,232 | 51,232 | ||||||||||||||||||||
Investment securities: | ||||||||||||||||||||||||||
Listed equity and debts (note b) | 852,861 | 852,861 | 503,000 | 503,000 | 597,687 | 597,687 | ||||||||||||||||||||
Non- listed equity | 543,836 | N/A | 385,707 | N/A | 354,123 | N/A | ||||||||||||||||||||
Long-term bank deposits | 177 | 177 | 352 | 352 | 10,351 | 10,351 | ||||||||||||||||||||
Long-term loans | 12,905 | 9,679 | 13,947 | 10,460 | 12,019 | 9,014 | ||||||||||||||||||||
W | 5,927,066 | W | 5,311,484 | W | 5,190,305 | |||||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||||
Accounts payable | W | 1,697,502 | W | 1,697,502 | W | 1,317,162 | W | 1,317,162 | W | 1,205,682 | W | 1,205,682 | ||||||||||||||
Short-term borrowings | 1,177,950 | 1,177,950 | 1,236,197 | 1,236,197 | 425,496 | 425,496 | ||||||||||||||||||||
Bonds payable, long-term borrowings, convertible bonds, long-term payables — other and obligation under capital leases, including current portion | 4,413,130 | 4,704,752 | 4,201,707 | 4,283,402 | 4,044,258 | 4,211,926 | ||||||||||||||||||||
W | 7,288,582 | W | 6,755,066 | W | 9,234,563 | |||||||||||||||||||||
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(note b) | Investments in non — listed equity include the investments in the common stock of Powercomm Co., Ltd. (“Powercomm”). Korea Electric Power Corp. (“KEPCO”), the parent company of Powercomm, sold to Dacom Corporation 45.5% interest in Powercomm at W12,000 per share in 2002. Based on this transaction, the fair value of the Company’s investments in the common stock of Powercomm was determinable and the impairment loss on the investment of W150,243 million was recognized in 2002. The fair value of common stock of Powercomm as of December 31, 2003 and 2004 was estimated by an outside professional valuation company using the present value of expected future cash flows; and the additional impairment loss of W21,593 million was recognized in 2003. As of December 31, 2004, unrealized gain on valuation of investment in Powercomm of W3,158 million has been recorded as other comprehensive income. |
c. | Comprehensive Income |
2002 | 2003 | 2004 | ||||||||||||
Net income | W | 1,301,126 | W | 2,062,749 | W | 1,553,076 | ||||||||
Other comprehensive income: | ||||||||||||||
Available-for-sale securities | ||||||||||||||
Unrealized gain on investment securities | 325,494 | 90,727 | 84,513 | |||||||||||
Less impact of realized losses | (252,031 | ) | (21,716 | ) | (8,434 | ) | ||||||||
Tax effect | (21,819 | ) | (18,978 | ) | (20,923 | ) | ||||||||
Net change from available-for-sale securities | 51,644 | 50,033 | 55,156 | |||||||||||
Foreign-based operations translation adjustments | 2,809 | (356 | ) | (11,128 | ) | |||||||||
Total other comprehensive income | 54,453 | 49,677 | 44,028 | |||||||||||
Comprehensive income | W | 1,355,579 | W | 2,112,426 | W | 1,597,104 | ||||||||
d. | Goodwill and other intangible assets |
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2002 | 2003 | 2004 | |||||||||||
Beginning of period | W | 2,833,752 | W | 3,400,110 | W | 3,400,155 | |||||||
Goodwill reclassifications to other intangibles assets | — | (16,437 | ) | — | |||||||||
Goodwill acquired during the period | 566,358 | 16,482 | 8,834 | ||||||||||
Goodwill impairment losses | — | — | — | ||||||||||
Ending of period | W | 3,400,110 | W | 3,400,155 | W | 3,408,989 | |||||||
December 31, 2002 | December 31, 2003 | December 31, 2004 | |||||||||||||||||||||||
Gross | Gross | Gross | |||||||||||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | Carrying | Accumulated | ||||||||||||||||||||
Amount | Amortization | Amount | Amortization | Amount | Amortization | ||||||||||||||||||||
Amortized intangible assets: | |||||||||||||||||||||||||
IMT license (13 years) | W | 1,189,881 | W | — | W | 1,188,547 | W | (7,548 | ) | W | 1,188,547 | W | (98,183 | ) | |||||||||||
Customer lists (4 years) | 99,783 | (39,142 | ) | 99,783 | (64,088 | ) | 99,783 | (83,686 | ) | ||||||||||||||||
Other (5 to 20 years) | 344,708 | (158,248 | ) | 552,279 | (258,802 | ) | 718,291 | (354,021 | ) | ||||||||||||||||
Total | W | 1,634,372 | W | (197,390 | ) | W | 1,840,609 | W | (330,438 | ) | W | 2,066,621 | W | (535,890 | ) | ||||||||||
e. | Other SK Group Companies |
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f. | Operating Revenue |
2002 | 2003 | 2004 | ||||||||||
Wireless services | W | 7,475,371 | W | 8,401,021 | W | 8,762,376 | ||||||
Interconnection | 1,043,174 | 1,017,056 | 849,407 | |||||||||
Digital handset sales | 534,038 | 611,981 | 649,809 | |||||||||
Other | 167,147 | 180,306 | 272,974 | |||||||||
Total operating revenue | W | 9,219,730 | W | 10,210,364 | W | 10,534,566 | ||||||
g. | Segment |
h. | New Accounting Pronouncements |
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Item. 19 | Exhibits |
Exhibit | Description | |||
1 | .1 | Articles of Incorporation, as amended and restated (English translation)* | ||
4 | .1 | Telecommunications Basic Law of 1983, as amended (English translation)** | ||
4 | .2 | Enforcement Decree of the Telecommunications Basic Law, as amended (English translation)* | ||
4 | .3 | Telecommunications Business Law of 1983, as amended (English translation)** | ||
4 | .4 | Enforcement Decree of the Telecommunications Business Law (English translation)* | ||
4 | .5 | Amendment to Telecommunications Business Law of 1983 dated February 9, 2004 (English translation)* | ||
4 | .6 | Korean Commercial Code (together with English translation) (Incorporated by reference herein from our Form 20-F filed on June 30, 2000) | ||
4 | .7 | Amendment to Korean Commercial Code dated December 29, 2001 (together with English translation) (Incorporated by reference herein from our Form 20-F filed on June 28, 2002) | ||
4 | .8 | Korean Securities and Exchange Act, as amended (English translation)* | ||
11 | .1 | Code of Ethics of SK Telecom Co., Ltd.* | ||
12 | .1 | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | ||
12 | .2 | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | ||
13 | .1 | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | ||
13 | .2 | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | ||
99 | .1 | Consent of Deloitte HanaAnjin LLC* |
* | Filed herewith. |
** | Filed previously as exhibits to our Form 20-F filed on June 3, 2003. |
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SK Telecom Co., Ltd. |
By: | /s/Shin Bae Kim |
Name: Shin Bae Kim | |
Title: Chief Executive Officer |