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(Mark One) | ||
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
OR | ||
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 31, 2006 | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
OR | ||
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
Date of event requiring this shall company report | ||
For the transition period from to |
(Jurisdiction of incorporation or organization)
11, EULJIRO 2-GA, JUNG-GU
SEOUL, KOREA
(Address of principal executive offices)
Title of Each Class | Name of Each Exchange on Which Registered | |
American Depositary Shares, each representing one-ninth of one share of Common Stock Common Stock, par value | New York Stock Exchange, Inc. New York Stock Exchange, Inc.* |
* | Not for trading, but only in connection with the registration of the American Depositary Shares. |
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
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• | our ability to anticipate and respond to various competitive factors affecting the wireless telecommunications industry, including new services that may be introduced, changes in consumer preferences, economic conditions and discount pricing strategies by competitors; | |
• | our implementation of high-speed download packet access, or HSDPA, technology, high-speed upload packet access, or HSUPA, technology and wireless broadband internet, or WiBro, technology; | |
• | our plans to spend approximately Won 1.55 trillion for capital expenditures in 2007 for a range of projects, including investments in our backbone networks (and our WCDMA and WiBro networks in particular),investments in our wireless Internet-related and convergence businesses and funding for mid-to long-term research and development projects, as well as other initiatives, primarily related to our ongoing businesses and in the ordinary course; | |
• | 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 regulations of the Ministry of Information and Communication, or the MIC, related to telecommunications providers, rules related to our status as a “market-dominating business entity” under the Korean Monopoly Regulation and Fair Trade Act, or the Fair Trade Act, 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 our competitors; regulatory fees; operating costs and expenditures; working capital requirements; principal repayment obligations with respect to long-term borrowings, bonds and obligations under capital leases; and research and development expenditures and other financial estimates; | |
• | the success of our various joint ventures and investments in other telecommunications service providers; and | |
• | the growth of the telecommunications industry in Korea and other markets in which we do business and the effect that economic, political or social conditions have on our number of subscribers, call volumes and results of operations. |
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Item 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Item 1.A. | Directors and Senior Management |
Item 1.B. | Advisers |
Item 1.C. | Auditors |
Item 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Item 3. | KEY INFORMATION |
Item 3.A. | Selected Financial Data |
As of or for the Year Ended December 31, | ||||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | 2006 | |||||||||||||||||||
(In billions of Won and millions of dollars, except per share and percentage data) | ||||||||||||||||||||||||
INCOME STATEMENT DATA | ||||||||||||||||||||||||
Korean GAAP: | ||||||||||||||||||||||||
Total Operating Revenue(1) | 9,324 | .0 | 10,272 | .1 | 10,570 | .6 | 10,721 | .8 | 11,028 | .0 | US$ | 11,858 | .0 | |||||||||||
Cellular Service(1) | 9,156 | .8 | 10,091 | .8 | 10,297 | .6 | 10,361 | .9 | 10,515 | .6 | 11,307 | .0 | ||||||||||||
Other(2) | 167 | .2 | 180 | .3 | 273 | .0 | 359 | .9 | 512 | .4 | 551 | .0 | ||||||||||||
Operating Expenses | 6,526 | .4 | 7,167 | .0 | 8,130 | .9 | 8,051 | .2 | 8,406 | .9 | 9,039 | .6 | ||||||||||||
Operating Income | 2,797 | .6 | 3,105 | .1 | 2,439 | .7 | 2,670 | .6 | 2,621 | .1 | 2,818 | .4 | ||||||||||||
Income before Income Taxes and Minority Interest | 2,218 | .8 | 2,754 | .3 | 2,123 | .2 | 2,561 | .6 | 2,021 | .6 | 2,173 | .7 | ||||||||||||
Income before Minority Interest | 1,520 | .3 | 1,965 | .3 | 1,493 | .4 | 1,868 | .3 | 1,449 | .6 | 1,558 | .7 | ||||||||||||
Net Income | 1,487 | .2 | 1,966 | .1 | 1,491 | .5 | 1,873 | .0 | 1,451 | .5 | 1,560 | .7 | ||||||||||||
Net Income per Share of Common Stock(3) | 17,647 | 26,187 | 20,261 | 25,443 | 19,801 | 21 | .29 | |||||||||||||||||
Diluted Net Income per Share of Common Stock(3) | 17,647 | 26,187 | 20,092 | 25,036 | 19,523 | 20 | .99 | |||||||||||||||||
Dividends Declared per Share of Common Stock | 1,800 | 5,500 | 10,300 | 9,000 | 8,000 | 8 | .60 | |||||||||||||||||
Weighted Average Number of Shares | 84,270,450 | 75,078,219 | 73,614,297 | 73,614,296 | 73,305,026 | 73,305,026 |
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As of or for the Year Ended December 31, | ||||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | 2006 | |||||||||||||||||||
(In billions of Won and millions of dollars, except per share and percentage data) | ||||||||||||||||||||||||
U.S. GAAP: | ||||||||||||||||||||||||
Total Operating Revenue | 9,219 | .7 | 10,225 | .1 | 10,534 | .6 | 10,701 | .4 | 10,541 | .8 | US$ | 11,335 | .3 | |||||||||||
Operating Expenses | 6,643 | .4 | 7,044 | .5 | 8,137 | .6 | 7,847 | .7 | 7,720 | .0 | 8,301 | .1 | ||||||||||||
Operating Income | 2,576 | .3 | 3,180 | .6 | 2,397 | .0 | 2,853 | .7 | 2,821 | .8 | 3,034 | .2 | ||||||||||||
Net Income | 1,301 | .1 | 2,062 | .7 | 1,553 | .1 | 2,027 | .6 | 1,880 | .5 | 2,022 | .0 | ||||||||||||
Net Income per Share of Common Stock(3) | 15,440 | 27,475 | 21,097 | 27,543 | 25,653 | 27 | .58 | |||||||||||||||||
Diluted Net Income per Share of Common Stock(3) | 15,439 | 27,475 | 20,918 | 27,089 | 25,236 | 27 | .14 | |||||||||||||||||
BALANCE SHEET DATA | ||||||||||||||||||||||||
Korean GAAP: | ||||||||||||||||||||||||
Working Capital (Deficiency)(4) | (189 | .7) | (461 | .4) | 1,323 | .8 | 1,735 | .2 | 1,455 | .5 | US$ | 1,565 | .1 | |||||||||||
Property and Equipment, Net | 4,569 | .4 | 4,641 | .5 | 4,703 | .9 | 4,663 | .4 | 4,507 | .3 | 4,846 | .6 | ||||||||||||
Total Assets | 14,228 | .7 | 13,818 | .2 | 14,283 | .4 | 14,704 | .8 | 16,240 | .0 | 17,462 | .3 | ||||||||||||
Long-term Liabilities(5) | 3,693 | .4 | 3,193 | .5 | 4,010 | .7 | 3,513 | .9 | 3,548 | .5 | 3,815 | .6 | ||||||||||||
Capital Stock | 44 | .6 | 44 | .6 | 44 | .6 | 44 | .6 | 44 | .6 | 48 | .0 | ||||||||||||
Total Shareholders’ Equity | 6,231 | .9 | 6,093 | .8 | 7,205 | .7 | 8,327 | .5 | 9,483 | .1 | 10,196 | .9 | ||||||||||||
U.S. GAAP: | ||||||||||||||||||||||||
Working Capital (Deficiency) | (108 | .2) | (445 | .5) | 1,311 | .3 | 1,587 | .2 | 1,286 | .2 | 1,383 | .0 | ||||||||||||
Total Assets | 15,720 | .7 | 15,586 | .2 | 15,576 | .8 | 16,351 | .2 | 17,929 | .5 | 19,279 | .1 | ||||||||||||
Total Shareholders’ Equity | 6,356 | .2 | 7,014 | .7 | 8,237 | .0 | 9,472 | .4 | 10,738 | .5 | 11,546 | .8 | ||||||||||||
OTHER FINANCIAL DATA | ||||||||||||||||||||||||
Korean GAAP: | ||||||||||||||||||||||||
EBITDA(6) | 3,954 | .1 | 4,706 | .4 | 4,085 | .8 | 4,434 | .2 | 3,881 | .0 | US$ | 4,173 | .1 | |||||||||||
Capital Expenditures(7) | 2,024 | .7 | 1,647 | .6 | 1,631 | .9 | 1,416 | .6 | 1,498 | .1 | 1,610 | .9 | ||||||||||||
R&D Expenses(8) | 253 | .3 | 300 | .7 | 336 | .1 | 321 | .1 | 279 | .0 | 300 | .0 | ||||||||||||
Internal R&D | 194 | .3 | 235 | .8 | 267 | .1 | 252 | .0 | 212 | .0 | 228 | .0 | ||||||||||||
External R&D | 59 | .0 | 64 | .9 | 69 | .0 | 69 | .1 | 67 | .0 | 72 | .0 | ||||||||||||
Depreciation and Amortization | 1,543 | .3 | 1,646 | .3 | 1,752 | .5 | 1,675 | .5 | 1,698 | .4 | 1,826 | .2 | ||||||||||||
Cash Flow from Operating Activities | 4,268 | .4 | 3,329 | .4 | 2,527 | .9 | 3,407 | .1 | 3,589 | .8 | 3,860 | .0 | ||||||||||||
Cash Flow from Investing Activities | (3,064 | .0) | (1,415 | .1) | (1,470 | .3) | (1,938 | .2) | (2,535 | .2) | (2,726 | .0) | ||||||||||||
Cash Flow from Financing Activities | (1,418 | .2) | (2,261 | .0) | (968 | .6) | (1,429 | .0) | (952 | .4) | (1,024 | .1) | ||||||||||||
Margins (% of total sales): | ||||||||||||||||||||||||
EBITDA Margin(6) | 42 | .4% | 45 | .8% | 38 | .7% | 41 | .4% | 35 | .2% | 35 | .2% | ||||||||||||
Operating Margin | 30 | .0 | 30 | .2 | 23 | .1 | 24 | .9 | 23 | .8 | 23 | .8 | ||||||||||||
Net Margin | 15 | .9 | 19 | .1 | 14 | .1 | 17 | .5 | 13 | .2 | 13 | .2 | ||||||||||||
U.S. GAAP: | ||||||||||||||||||||||||
EBITDA(6) | 3,620 | .7 | 4,679 | .1 | 3,970 | .4 | 4,412 | .2 | 4,529 | .6 | 4,870 | .5 | ||||||||||||
Capital Expenditures(7) | 2,024 | .7 | 1,668 | .0 | 1,656 | .9 | 1,429 | .3 | 1,538 | .0 | 1,653 | .8 | ||||||||||||
Cash Flow from Operating Activities | 3,606 | .2 | 3,144 | .3 | 3,237 | .9 | 3,296 | .8 | 3,614 | .8 | 3,886 | .9 | ||||||||||||
Cash Flow from Investing Activities | (2,892 | .5) | (1,285 | .5) | (1,634 | .1) | (1,816 | .5) | (2,560 | .6) | (2,753 | .3) | ||||||||||||
Cash Flow from Financing Activities | (927 | .5) | (2,205 | .5) | (1,514 | .8) | (1,439 | .3) | (940 | .6) | (1,011 | .4) |
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As of or for the Year Ended December 31, | ||||||||||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | 2006 | |||||||||||||||||||||||||
SELECTED OPERATING DATA | ||||||||||||||||||||||||||||||
Population of Korea (millions)(9) | 47 | .6 | 47 | .9 | 48 | .2 | 48 | .3 | 48 | .3 | 48 | .3 | ||||||||||||||||||
Our Wireless Penetration(10) | 36 | .1 | 38 | .2 | 39 | .0 | 40 | .4 | 42 | .0 | 42 | .0 | ||||||||||||||||||
Number of Employees(11) | 6,241 | 6,286 | 7,353 | 6,646 | 7,676 | 7,676 | ||||||||||||||||||||||||
Total Sales per Employee (millions) | .0 | .1 | .6 | .3 | .7 | US$ | 1,544 | .8 | ||||||||||||||||||||||
Wireless Subscribers(12) | 17,219,562 | 18,313,135 | 18,783,338 | 19,530,117 | 20,271,133 | 20,271,133 | ||||||||||||||||||||||||
Average Monthly Outgoing Voice Minutes per Subscriber(13) | 191 | 197 | 194 | 197 | 201 | 201 | ||||||||||||||||||||||||
Average Monthly Revenue per Subscriber(14) | US$ | 43,247 | .3 | |||||||||||||||||||||||||||
Average Monthly Churn Rate(15) | 1 | .4 | % | 1 | .2 | % | 1 | .7 | % | 1 | .8 | % | 2 | .0 | % | 2 | .0 | % | ||||||||||||
Digital Cell Sites | 7,384 | 8,310 | 9,458 | 10,142 | 12,359 | 12,359 |
* | The conversion into Dollars was made at the rate of Won 930.0 to US$1.00. See note 2(a) of the notes to our consolidated financial statements. | |
(1) | Includes revenues from SK Teletech Co., Ltd. of Won 534.0 billion for 2002, Won 612.0 billion for 2003, Won 649.8 billion for 2004 and Won 294.6 billion for 2005 from the sale of digital handsets and Won 1,043.2 billion for 2002, Won 1,017.1 billion for 2003, Won 849.4 billion for 2004, Won 898.6 billion for 2005 and Won 1,033.4 billion for 2006 of interconnection revenue. Following our sale of a 60% equity interest in SK Teletech to Pantech & Curitel in July 2005, our equity interest in the company was reduced to 29.1% (which subsequently became a 22.7% interest in Pantech following the merger of SK Teletech into Pantech in December 2005) and SK Teletech ceased to be our consolidated subsidiary. Following the exclusion of SK Teletech from consolidation, we no longer derive revenues from digital handset sales. See “Item 4.B. Business Overview — Interconnection”. | |
(2) | For more information about our other revenue, see “Item 5. Operating and Financial Review and Prospects” and “Item 4.B. Business Overview”. | |
(3) | Income per share of common stock is calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted net income per share of common stock is calculated by dividing adjusted net income by adjusted weighted average number of shares outstanding during the period, taking into account the dilutive effect of stock options in 2002 and issuance of convertible bonds in 2004, 2005 and 2006. | |
(4) | Working capital means current assets minus current liabilities. | |
(5) | Our monetary assets and liabilities denominated in foreign currencies are valued at the exchange rate of Won 1,200 to US$1.00 as of December 31, 2002, Won 1,198 to US$1.00 as of December 31, 2003, Won 1,044 to US$1.00 as of December 31, 2004, Won 1,013 to US$1.00 as of December 31, 2005 and Won 930 to US$1.00 as of December 31, 2006, the rates of exchange permitted under Korean GAAP as of those dates. See note 2(w) of the notes to our consolidated financial statements. | |
(6) | 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 intense 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. | |
(7) | Consists of investments in property, plant and equipment. Under U.S. GAAP, interest costs incurred during the period required to complete an asset or ready an asset for its intended use are capitalized based on the interest rates a company pays on its outstanding borrowings. Under Korean GAAP, beginning January 1, 2003, such interest costs are expensed as incurred. Through the end of 2002, the accounting treatment for capitalizing interest costs under Korean GAAP was consistent with that under U.S. GAAP. | |
(8) | Includes donations to Korean research institutes and educational organizations. See “Item 5.C. Research and Development”. | |
(9) | Population estimates based on historical data published by the National Statistical Office of Korea. | |
(10) | Wireless penetration is determined by dividing our subscribers by total estimated population, as of the end of the period. | |
(11) | Includes regular employees and temporary employees. See “Item 6.D. Employees”. | |
(12) | 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. |
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(13) | The average monthly outgoing voice minutes per subscriber is derived by dividing the total minutes of outgoing voice usage for the period by the monthly weighted average number of subscribers for the period, then dividing that number by the number of months in the period. The monthly weighted average number of subscribers is derived by dividing (i) the sum of the average number of subscribers for each month in the period, calculated as the average of the number of subscribers on the first and last days of the relevant month, by (ii) the number of months in the period. | |
(14) | The average monthly revenue per subscriber excludes interconnection revenue and is derived by dividing the sum of total initial subscription fees, monthly plan-based fees, usage charges for outgoing voice calls, usage charges for wireless data services, value-added service fees and other miscellaneous revenues for the period by the monthly weighted average number of subscribers for the period, then dividing that number by the number of months in the period. Including interconnection revenue, average monthly revenue per subscriber was Won 43,958 for 2002, Won 44,546 for 2003, Won 43,542 for 2004, Won 44,167 for 2005 and Won 44,599 for 2006. | |
(15) | 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, then dividing that number 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. |
As of or for the Year Ended December 31, | ||||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | 2006(1) | |||||||||||||||||||
(In billions of Won and millions of dollars) | ||||||||||||||||||||||||
Net Income | 1,301.1 | 2,062.7 | 1,553.1 | 2,027.6 | 1,880.5 | US$ | 2,022.0 | |||||||||||||||||
ADD: Interest income | (90.8 | ) | (93.9 | ) | (86.7 | ) | (62.6 | ) | (86.8 | ) | (93.3 | ) | ||||||||||||
Interest expense | 396.6 | 387.1 | 291.0 | 226.8 | 241.7 | 259.9 | ||||||||||||||||||
Taxes | 585.0 | 811.5 | 611.1 | 667.1 | 686.8 | 738.5 | ||||||||||||||||||
Depreciation and Amortization | 1,428.8 | 1,511.7 | 1,601.9 | 1,553.3 | 1,807.4 | 1,943.4 | ||||||||||||||||||
EBITDA | 3,620.7 | 4,679.1 | 3,970.4 | 4,412.2 | 4,529.6 | US$ | 4,870.5 | |||||||||||||||||
(1) | The conversion into Dollars was made at the rate of Won 930.0 to US$1.00. See note 2(a) of the notes to our consolidated financial statements. |
As of or for the Year Ended December 31, | ||||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | 2006(1) | |||||||||||||||||||
(In billions of Won and millions of dollars) | ||||||||||||||||||||||||
Net Income | 1,487.2 | 1,966.1 | 1,491.5 | 1,873.0 | 1,451.5 | US$ | 1,560.7 | |||||||||||||||||
ADD: Interest income | (86.0 | ) | (86.5 | ) | (80.5 | ) | (61.1 | ) | (80.0 | ) | (86.0 | ) | ||||||||||||
Interest expense | 311.1 | 391.5 | 303.4 | 253.5 | 239.1 | 257.1 | ||||||||||||||||||
Taxes | 698.5 | 789.0 | 629.8 | 693.3 | 572.0 | 615.1 | ||||||||||||||||||
Depreciation and Amortization | 1,543.3 | 1,646.3 | 1,741.6 | 1,675.5 | 1,698.4 | 1,826.2 | ||||||||||||||||||
EBITDA | 3,954.1 | 4,706.4 | 4,085.8 | 4,434.2 | 3,881.0 | US$ | 4,173.1 | |||||||||||||||||
(1) | The conversion into Dollars was made at the rate of Won 930.0 to US$1.00. See note 2(a) of the notes to our consolidated financial statements. |
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At End of | ||||||||||||||||
Year Ended December 31, | Period | Average Rate(1) | High | Low | ||||||||||||
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 | ||||||||||||
2005 | 1,010 | 1,023 | 1,060 | 997 | ||||||||||||
2006 | 930 | 951 | 1,003 | 914 |
Past Six Months | High | Low | ||||||
(Won per US$1.00) | ||||||||
January 2007 | 942.2 | 925.4 | ||||||
February 2007 | 942.3 | 932.5 | ||||||
March 2007 | 949.1 | 937.2 | ||||||
April 2007 | 937.0 | 926.1 | ||||||
May 2007 | 934.0 | 922.3 | ||||||
June 2007 (through June 28, 2007) | 932.3 | 926.1 |
(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). |
Item 3.B. | Capitalization and Indebtedness |
Item 3.C. | Reasons for the Offer and Use of Proceeds |
Item 3.D. | Risk Factors |
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• | a deterioration of the Korean consumer or corporate sector; | |
• | a failure of the restructuring of large troubledchaebolsor companies; | |
• | adverse changes or volatility in commodity prices (including an increase in oil prices), exchange rates, interest rates, stock markets or foreign currency reserves; |
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• | adverse developments in the economies of countries such as the United States and Japan to which Korea exports, or in emerging market economies in Asia or elsewhere that result in a loss of confidence in the Korean economy; | |
• | an increase in lay-offs or unemployment rates or a reduction in income levels, which could adversely affect consumer spending or lead to social or labor unrest; | |
• | a decrease in tax revenues and a substantial increase in the 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 and within political parties in Korea, particularly in thelead-up to the presidential elections in late 2007; | |
• | a deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including as a result of trade disputes or disagreements in foreign policy; and | |
• | an increase in the level of tensions or an outbreak of hostilities between Korea and North Korea. |
• | 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 24.0% of our total consolidated long-term debt, including current portion, as of December 31, 2006; 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. |
• | the amounts a registered holder or beneficial owner of ADSs will receive from the ADR depositary in respect of 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. |
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• | revoke our business license; | |
• | suspend all or part of our business; or | |
• | if the suspension of business is deemed to result in significant inconvenience to our customers or to be detrimental to the public interest, impose a one-time administrative penalty of up to 3% of the average of our annual revenue for the preceding three fiscal years. |
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• | 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. |
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Item 4. | INFORMATION ON THE COMPANY |
Item 4.A. | History and Development of the Company |
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As of or for the Year Ended December 31, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||
(In thousands, accept for per population amounts) | ||||||||||||||||||||
Population of Korea(1) | 47,615 | 47,849 | 48,082 | 48,294 | 48,297 | |||||||||||||||
Wireless Subscribers(2) | 32,342 | 33,592 | 36,586 | 38,342 | 40,197 | |||||||||||||||
Wireless Subscribers per 100 Population | 67 | .9 | 70 | .2 | 76 | .1 | 79 | .4 | 83 | .2 | ||||||||||
Telephone Lines in Service(2) | 23,490 | 22,877 | 22,871 | 22,920 | 23,119 | |||||||||||||||
Telephone Lines per 100 Population | 49 | .3 | 47 | .8 | 47 | .6 | 47 | .5 | 47 | .9 |
(1) | Source: National Statistical Office of Korea | |
(2) | Source: MIC |
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(1) | Percentages may differ depending on method selected for determining population. |
As of December 31, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Number of Wireless Internet Enabled Handsets | 29,085 | 31,431 | 35,017 | 37,202 | 38,894 | |||||||||||||||
Total Number of Wireless Subscribers | 32,342 | 33,592 | 36,586 | 38,342 | 40,197 | |||||||||||||||
Penetration of Wireless Internet Enabled Handsets | 89 | .9% | 93 | .6% | 95 | .7% | 97 | .0% | 96 | .8% |
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As of December 31, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||
Number of Internet Users(1) | 26,270 | 29,220 | 31,580 | 33,010 | 34,120 | |||||||||||||||
Number of Broadband Subscribers(2) | 10,405 | 11,172 | 11,921 | 12,191 | 14,043 |
(1) | Source: KRNIC. | |
(2) | Source: MIC. Includes subscribers accessing Internet service using digital subscriber line, or xDSL, connections; cable modem connections; local area network, or LAN, connections; and satellite connections. |
Item 4.B. | Business Overview |
• | Cellular voice services. We provide wireless voice transmission services to our subscribers through our backbone cellular networks and also offer wireless global roaming services though service agreements with various foreign wireless telecommunications service providers. (Accordingly, while “cellular voice services” principally refer to our core wireless voice transmission services, they also comprise our wireless global voice and data roaming services.) | |
• | Wireless data services. We also provide wireless data transmission services, including wireless Internet access services, which allow subscribers to access a wide range of online digital contents and services, as well as to send and receive text and multimedia messages, using their mobile phones. | |
• | Digital convergence and new businesses. We have pioneered new services that reflect the growing convergence between the telecommunications sector and other industries, including satellite DMB service, which enables satellite broadcasting to mobile devices, “Telematics” service, which makes use of global positioning system, or GPS, technology and “Digital Home” service, which brings home maintenance and security into the mobile digital era. |
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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, including in connection with our development of new and advanced wireless technologies. We believe we have the most extensive and advanced wireless telecommunications network in Korea and we are committed to ensuring that our delivery platforms keep pace with the latest technological advancements. In March 2007, we completed the nationwide build-out of our HSDPA-capable WCDMA network and are currently expanding the coverage area of our WiBro service. In June 2007, we also began HSUPA upgrades to our WCDMA network. We plan to continue upgrading and expanding our backbone network infrastructure in line with new developments in wireless telecommunications technology. We believe that ensuring the quality and technical sophistication of our wireless networks will, among other things, allow us to provide our subscribers with top quality service, enable us to more quickly introduce the latest wireless telecommunications products and services and allow us to efficiently implement new wireless technologies as market opportunities arise. |
• | Offer a broad range of new and innovative wireless data contents and services. We plan to improve the service quality and expand the range of our wireless data contents and services, principally through our integrated wireless and fixed-line Internet portal, NATE, with a view to increasing revenues from these services to complement our core cellular revenues. In particular, we believe demand for wireless access to entertainment-related digital contents and services, as well as wireless access to financial-related contents and services, or “m-commerce” services, will continue to grow. We continue to actively seek partnerships with, as well as strategic investments in, digital media content providers, financial services providers and wireless application developers to improve the breadth and quality of the wireless data contents and services we offer to our subscribers. |
• | Leverage our extensive network infrastructure, technical know-how and leading market position to create new opportunities that arise from an increasingly convergent and ubiquitous era in mobile communications and to pioneer new businesses. We believe we are a leader in the development and implementation of wireless technologies in Korea and that convergence among communications technologies, as well as between telecommunications and other industries, creates growth opportunities for incumbent telecommunications service providers, like us, whose existing infrastructure, know-how and extensive subscriber base will provide a competitive advantage. We further believe that digital convergence will support demand for increasingly integrated products and services. We plan to leverage our competitive strengths in the wireless telecommunications sector to ensure we continue to maintain a leading market position in the increasingly integrated digital media space, including by improving our existing “convergent” services, such as Telematics and Digital Home, as well as the DMB satellite broadcasting service operated by our subsidiary, TU Media, and by developing new products and services. |
• | Continue global expansion by seeking opportunities in overseas markets. We continue to seek opportunities to expand into various overseas markets. In light of the high saturation of the Korean wireless market, we believe that strategic expansion into overseas markets offers important opportunities for future growth. We plan to leverage our homegrown technical expertise and operational know-how to gain entry into foreign markets — particularly those with less matureand/or rapidly growing wireless telecommunications sectors. To this end, we have made selective majority and minority investments in mobile telecommunications companies operating in key foreign markets and formed strategic alliances with many leading international telecommunications service providers. We have also actively participated in regional and international cooperative organizations to reinforce our global competencies and keep pace with advancements in overseas telecommunications markets. In addition, we believe that our continued expansion into international markets will better position us to ensure that our network technologies and wireless applications remain compatible with emerging global standards. We believe this will provide us with a competitive advantage as the wireless telecommunications paradigm moves toward increasingly interconnected regional networks responsive to growing consumer demands for seamless universal access to wireless products and services. |
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• | Wireless Entertainment Services: We offer our subscribers a wide range of wireless entertainment-related contents and services, primarily through content-specific portal sites that we operate, including: |
Ø | MelOn, a music portal that provides wireless access to a wide range of digital music contents. To aggregate and manage our digital music contents offerings, we also operate an integrated wireless and fixed-line MelOn website, which subscribers can access using wireless devices, such as their mobile phones, as well as fixed-line devices, such as personal computers. As of December 31, 2006, we had approximately 7.3 million subscribers to our MelOn service; | |
Ø | GXG, a 3D mobile game, which allows subscribers to download advanced 3D games to mobile phones and other wireless devices equipped with a mobile gaming-specific chip. We currently offer more than 78 3D mobile games; and |
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Ø | Cizle, a movie portal, which provides subscribers access to a broad range of movie-related contents. As with our MelOn service, we operate an integrated wireless and fixed-line Cizle website, which subscribers can access using both wireless and fixed-line devices. Subscribers can also purchase movie tickets through our Cizle portal. We had approximately 73,000 subscribers to our Cizle service as of December 31, 2006. | |
Ø | Mobile Cyworld, a wireless web community portal site, which is a mobile version of the Cyworld community site operated by our subsidiary SK Communications. For a more detailed description of the fixed-line Cyworld portal, see “— Other Products and Services — Other Portal Services — Community Portal Service”. |
• | Wireless Financial Services: We also offer our subscribers a range of wireless finance-related contents and m-commerce services. Our wireless financial businesses include: |
Ø | Moneta, a financial portal that allows subscribers to use their mobile phones to access an array of financial contents and services relating to securities trading, insurance, real estate and personal asset management; | |
Ø | Mobile T-moneyservice, a mobile payment technology that allows subscribers to use their mobile phones to pay for public transportation fares in lieu of cash payment or pre-paid transportation cards. Mobile T-money service requires a WCDMA-capable handset with a built-in universal subscriber identity module, or USIM, card; | |
Ø | M-Bank, a banking portal, which provides access to certain electronic banking services operated by participating commercial banks, and, accordingly, enables subscribers to perform certain banking transactions, such as wire transfers and account inquiries, through their mobile phones; and | |
Ø | NATE Auction, a real-time auction platform that allows subscribers to sell or bid on items using their mobile phones and other wireless devices. |
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• | Fixed-line NATE portal service. Our subsidiary, SK Communications, offers a fixed-line portal service under our “NATE” brand name and at the websitewww.NATE.com. NATE.com includes information and content formerly offered under our Netsgo brand as well as the content and services formerly available on Lycos Korea, which our subsidiary, SK Communications Co., Ltd., acquired in 2002. NATE.com offers a wide variety of content and services, including an Internet search engine as well as access to freee-mail accounts. SK Communications also operates NATE-ON, an instant messaging service available to NATE users. NATE-ON allows users to chat online using a variety of wireless, as well as wired, devices, such as mobile phones, personal digital assistants and portable computers. | |
• | Community Portal Service. “Cyworld”, also operated by SK Communications, is one of the most popular online community portal services in Korea. Cyworld is a social networking site that encompasses an ever-expanding virtual forum where subscribers can meet to exchange information and ideas and share multimedia contents, including through the publication of personal homepages and blog sites. As of December 31, 2006, our Cyworld portal service had approximately 20 million subscribers. We have also sought to expand our global reach by launching Cyworld service in overseas markets, including the United States, Japan, China and Taiwan. While retaining many aspects of the original Korean version that make Cyworld unique among social networking sites, we have redesigned foreign versions of Cyworld to make it more appealing to local audiences. We plan to continue expanding our “Global Cyworld” community, including to other countries in Asia and Europe. |
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As of or for the Year Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
(In billions of Won) | ||||||||||||
Initial Subscription Fees | 198.4 | 232.3 | 252.4 | |||||||||
Monthly Fees | 3,266.1 | 3,365.1 | 3,629.5 | |||||||||
Usage Charges(1) | 5,300.7 | 5,538.8 | 5,565.9 | |||||||||
Interconnection Revenue | 849.4 | 898.6 | 1,033.4 | |||||||||
Revenue from Sales of Digital Handsets(2) | 649.8 | 294.6 | — | |||||||||
Other Cellular Revenue(3) | 33.2 | 32.5 | 34.4 | |||||||||
Total | 10,297.6 | 10,361.9 | 10,515.6 | |||||||||
Additional Facility Deposits | 31.8 | 3.4 | 9.0 | |||||||||
Refunded Facility Deposits | 44.6 | 11.0 | 11.7 | |||||||||
Facility Deposits at Period End | 31.4 | 23.8 | 21.1 |
(1) | Usage charges principally include revenues from initial subscription fees, monthly plan-based fees, usage charges for outgoing voice calls, usage charges for wireless data services, value-added-service fees, as well as international charges and interest on overdue subscriber accounts (net of telephone tax). | |
(2) | Until its sale to Pantech & Curitel in July 2005, our revenue from handset sales consisted of sales by our former subsidiary, SK Teletech. | |
(3) | Other cellular revenue includes revenue from the sale and licensing of Internet platform solutions. |
• | Standard Rate Plans, for subscribers to our 2G services, which we provide primarily using our CDMA 1xRTT and CDMA 1xEV/DO networks. We offer a variety of differentiated Standard Rate Plans that are designed to meet a wide range of subscriber needs and interests. Popular Standard Rate Plans include our couples discount plan, region discount plan, family discount plan, and travel- and cinema-lover discount plans. The basic monthly fee for our Standard Rate Plans ranges from Won 12,500 to Won 51,000. | |
• | Videoconferencing Plans, for subscribers to our 3G services, which we provide primarily using our WCDMA network. The basic monthly fee for our Videoconference Service Plans ranges between Won 10,000 and Won 30,000. |
• | Data Plans, which target subscribers with high usage patterns for wireless data transmission and wireless Internet services. We offer four Data Plans that provide unlimited wireless data services for fixed monthly fees ranging from Won 14,000 to Won 26,000. Our Data Plans include “NATE only” plans, as well as “NATE + June” plans. We also offer a Data Plan that allows subscribers to use up to Won 50,000 of wireless data services each month for a fixed monthly fee of Won 10,000. |
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• | “Free” Plans, which target subscribers who either make long calls during weekdays or make long calls during weekends. Subscribers of our “Free” plans purchase 11 extra hours of weekend-only or weekday-only voice call time for a flat monthly charge of Won 15,000. | |
• | Convergence Service Plans, which target subscribers of our Satellite DMB and Telematics services. Monthly fees for these plans generally range from Won 5,000 to Won 41,000. |
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• | our expansion and technical enhancement of our digital networks, including with high-speed data capabilities; | |
• | increasing consumer awareness of the benefits of wireless telecommunications; | |
• | an effective marketing strategy; | |
• | our focus on customer service; | |
• | the introduction of new, value-added services, such as voicemail services, call-forwarding, Caller ID, three-way calling and wireless Internet services provided by NATE; and | |
• | our acquisition of Shinsegi in January 2002. |
As of or for the Year Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
Subscribers | 18,783,338 | 19,530,117 | 20,271,133 | |||||||||
Subscribers Growth Rate | 2 | .6% | 4 | .0% | 3 | .8% | ||||||
Activations | 4,407,087 | 5,057,176 | 5,573,799 | |||||||||
Deactivations | 3,936,884 | 4,310,397 | 4,832,783 | |||||||||
Average Monthly Churn Rate(1) | 1 | .7% | 1 | .8% | 2 | .0% |
(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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Rate per Minute | ||||||||||||
Applicable Year | SK Telecom | KTF | LGT | |||||||||
2004 | 31.81 | 47.66 | 58.55 | |||||||||
2005 | 31.19 | 46.70 | 54.98 | |||||||||
2006 | 32.13 | 40.06 | 47.01 | |||||||||
2007 | 32.78 | 39.60 | 45.13 |
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• | 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); | |
• | Switching stations, which switch voice and data transmissions to their proper destinations, which may be, for instance, a mobile phone of one of our subscribers (for which transmissions would originate and terminate on our wireless networks), a mobile phone of a KTF or LGT subscriber (for which transmissions would be routed to KTF’s or LGT’s wireless networks, as applicable), a fixed-line telephone number (for which calls would be routed to the public switched telephone network of a fixed-line network operator), an international number (for which calls would be routed to the network of a long distance service provider) or an Internet site (for which transmissions may be routed through our NATE portal); and | |
• | Transmission lines, which link cell sites to switching stations and switching stations with other switching stations. |
Switching | ||||||||
Cell Sites | Stations | |||||||
CDMA Network (excluding CDMA lxRTT and CDMA 1xEV/DO) | 4.794 | 55 | ||||||
CDMA 1xRTT Network and CDMA 1xEV/DO | 3.797 | 60 | ||||||
WCDMA | 3.768 | 6 | ||||||
WiBro(1) | 156 | 6 |
(1) | We first launched WiBro service in May 2006. |
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• | POSCO. We currently own a 2.8% interest in the outstanding capital stock of POSCO, with a book value as of December 31, 2006 of Won 766.7 billion. POSCO is the largest fully integrated steel producer in Korea, and one of the largest steel producers in the world. | |
• | hanarotelecom. We currently own a 4.8% interest in the outstanding capital stock of hanarotelecom, with a book value as of December 31, 2006 of Won 88.6 billion. hanarotelecom is one of Korea’s largest fixed-line telephone and high-speed broadband Internet access service providers. | |
• | LG Powercomm. We currently own a 5.0% interest in LG Powercomm (formerly Powercomm Corporation), with a book value as of December 31, 2006 of Won 80.4 billion. 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, with a book value as of December 31, 2006 of Won 268.3 billion. SKC&C is an information technologies services provider. We are party to several service contracts with SKC&C related to development and maintenance of our information technologies systems. See “Item 7.B. Related Party Transactions”. |
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• | 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; | |
• | disputes between telecommunications service providers; | |
• | research and development budgeting and objectives of telecommunications service providers; and | |
• | competition among telecommunications service providers. |
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• | a telecommunications service provider may provide subsidies to subscribers who have maintained their subscription with the same telecommunications service provider for at least 18 months,provided that no separate subsidy is provided to the same subscriber for two years thereafter; or | |
• | a telecommunications service provider that has provided a particular telecommunications service for less than six years may provide subsidies to subscribers of such service. |
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• | revoke our business license; | |
• | suspend all or part of our business; or | |
• | if the suspension of business is deemed to result in significant inconvenience to our customers or to be detrimental to the public interest, impose a one-time administrative penalty of up to 3% of the average of our annual revenue for the preceding three fiscal years. |
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• | the acquisition by an entity (and its related parties) of 15% or more of the equity of a network services provider; | |
• | a change in the largest shareholder of a network services provider; | |
• | agreements by a network service provider or its shareholders with foreign governments or parties regarding important business matters of such network services provider, such as the appointment of officers and directors and transfer of businesses; and | |
• | a change in the shareholder that actually controls a network services provider. |
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Item 4.C. | Organizational Structure |
Item 4.D. | Property, Plants And Equipment |
Approximate Area | ||||||
Location | Primary Use | in Square Feet | ||||
Seoul Metropolitan Area | Corporate Headquarters | 988,455 | ||||
Regional Headquarters | 1,095,992 | |||||
Customer Service Centers | 384,223 | |||||
Training Centers | 397,574 | |||||
Central Research and Development Center | 482,725 | |||||
Others | 639,791 | |||||
Busan | Regional Headquarters | 363,272 | ||||
Others | 245,811 | |||||
Daegu | Regional Headquarters | 153,578 | ||||
Others | 317,440 | |||||
Cholla and Jeju Provinces | Regional Headquarters | 265,595 | ||||
Others | 359,784 | |||||
Choongchung Province | Regional Headquarters | 565,421 | ||||
Others | 481,978 |
Item 4A. | UNRESOLVED STAFF COMMENTS |
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Item 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
Item 5.A. | Operating Results |
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Year Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
Outgoing voice minutes (in thousands)(1) | 43,184,944 | 45,241,348 | 48,670,674 | |||||||||
Average monthly outgoing voice minutes per subscriber(2) | 194 | 197 | 201 | |||||||||
Average monthly revenue per subscriber, excluding interconnection revenue(3) | 39,689 | 40,205 | 40,220 | |||||||||
Average monthly revenue per subscriber, including interconnection revenue(4) | 43,542 | 44,167 | 44,599 |
(1) | Does not include minutes of incoming calls or minutes of use relating the use of SMS, MMS and other wireless data services. | |
(2) | The average monthly outgoing voice minutes per subscriber is derived by dividing the total minutes of outgoing voice usage for the period by the monthly weighted average number of subscribers for the period, then dividing that number by the number of months in the period. The monthly weighted average number of subscribers is derived by dividing (i) the sum of the average number of subscribers for each month in the period, calculated as the average of the number of subscribers on the first and last days of the relevant month, by (ii) the number of months in the period. | |
(3) | The average monthly revenue per subscriber, excluding interconnection revenue, is derived by dividing the sum of total initial subscription fees, monthly plan-based fees, usage charges for outgoing voice calls, usage charges for wireless data services, value-added service fees and other miscellaneous revenues for the period by the monthly weighted average number of subscribers for the period, then dividing that number by the number of months in the period. | |
(4) | The average monthly revenue per subscriber, including interconnection revenue, is derived by dividing the sum of total initial subscription fees, monthly plan-based fees, usage charges for outgoing voice and wireless data transmissions, charges for purchases of digital contents, value-added service fees, other miscellaneous revenues and interconnection revenue for the period by the monthly weighted average number of subscribers for the period, then dividing that number by the number of months in the period. |
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For the Year Ended December 31, | ||||||||||||||||||||||||
2004 | 2005 | 2006 | ||||||||||||||||||||||
(In billions of Won, except percentage data) | ||||||||||||||||||||||||
Operating Revenue | 10,570.6 | 100.00 | % | 10,721.8 | 100.00 | % | 11,028.0 | 100.00 | % | |||||||||||||||
Operating Expenses | 8,130.9 | 76.92 | 8,051.2 | 75.09 | 8,406.9 | 76.23 | ||||||||||||||||||
Operating Income | 2,439.7 | 23.08 | 2,670.6 | 24.91 | 2,621.1 | 23.77 | ||||||||||||||||||
Other Income | 199.4 | 1.89 | 392.6 | 3.66 | 284.9 | 2.58 | ||||||||||||||||||
Other Expenses | 516.0 | 4.88 | 501.6 | 4.68 | 884.4 | 8.02 | ||||||||||||||||||
Income Before Income Taxes and Minority Interest | 2,123.1 | 20.09 | 2,561.6 | 23.89 | 2,021.6 | 18.33 | ||||||||||||||||||
Income Taxes | 629.7 | 5.96 | 693.3 | 6.47 | 572.0 | 5.19 | ||||||||||||||||||
Minority Interest | (1.9 | ) | (0.02 | ) | 4.7 | 0.04 | 1.9 | 0.02 | ||||||||||||||||
Net Income | 1,491.5 | 14.10 | % | 1,873.0 | 17.47 | % | 1,451.5 | 13.16 | ||||||||||||||||
Depreciation and Amortization(1) | 1,607.5 | 15.20 | % | 1,546.3 | 14.42 | % | 1,553.6 | 14.09 | % |
(1) | Excludes the depreciation and amortization allocated to internal research and development costs and manufacturing costs of Won 134.1 billion, Won 126.9 billion and Won 144.8 billion for the years ended December 31, 2004, 2005 and 2006, respectively. |
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Year Ended December 31, | ||||||||||||||||||||||||
2004 | 2005 | 2006 | ||||||||||||||||||||||
Percentage | Percentage | Percentage | ||||||||||||||||||||||
of Total | of Total | of Total | ||||||||||||||||||||||
Revenue | Revenue | Revenue | Revenue | Revenue | Revenue | |||||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||||||
Cellular Revenue: | ||||||||||||||||||||||||
Wireless Services(1) | 8,798.4 | 83.2 | % | 9,168.7 | 85.5 | % | 9,482.2 | 86.0 | % | |||||||||||||||
Interconnection | 849.4 | 8.0 | 898.6 | 8.4 | 1,033.4 | 9.4 | ||||||||||||||||||
Digital Handset Sales(2) | 649.8 | 6.2 | 294.6 | 2.7 | — | 0.0 | ||||||||||||||||||
Total Cellular Revenue | 10,297.6 | 97.4 | 10,361.9 | 96.6 | 10,515.6 | 95.4 | ||||||||||||||||||
Other Revenue: | ||||||||||||||||||||||||
International Calling Service(3) | 126.3 | 1.2 | 138.7 | 1.3 | 176.4 | 1.6 | ||||||||||||||||||
Portal Service(4) | 85.0 | 0.8 | 126.9 | 1.2 | 165.6 | 1.5 | ||||||||||||||||||
Miscellaneous | 61.7 | 0.6 | 94.3 | 0.9 | 170.4 | 1.5 | ||||||||||||||||||
Total Other Revenue | 273.0 | 2.6 | 359.9 | 3.4 | 512.4 | 4.6 | ||||||||||||||||||
Total Operating Revenue | 10,570.6 | 100.0 | % | 10,721.8 | 100.0 | % | 11,028.0 | 100.0 | % | |||||||||||||||
Total Operating Revenue Growth | 2.9 | % | 1.4 | % | 2.9 | % |
(1) | Wireless services revenue includes initial subscription fees, monthly plan-based fees, usage charges for outgoing voice calls, usage charges for wireless data services, value-added-service fees and other miscellaneous cellular revenues, including international interconnection charges, interest on overdue subscriber accounts (net of telephone tax) and revenue from the sale and licensing of Internet platform solutions. | |
(2) | Until July 2005, we consolidated revenues derived from sales of digital handsets made through our former subsidiary, SK Teletech. In July 2005, we sold 4,542,000 shares of SK Teletech owned by us to Pantech & Curitel, Inc., a Korean mobile handset manufacturer, reducing our equity interest in SK Teletech from 89.1% to 29.1%, which became a 22.7% equity interest in Pantech following the merger of SK Teletech (renamed SKY Teletech following our sale of the company to Pantech & Curitel) into Pantech in December 2005. | |
(3) | Provided by SK Telink Co. See “Item 4.B. Business Overview — Our Services — Other Products and Services — International Calling Services”. | |
(4) | Portal service revenue attributable to our subsidiaries (including SK Communications and Paxnet Co., Ltd., which operates a financial portal site, in 2004, and since 2005, SK Communications, Paxnet Co., Ltd. andU-Land Company Limited, the Hong Kong-incorporated holding company through which we hold our interest in ViaTech). |
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Item 5.B. | Liquidity and Capital Resources |
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Year Ended December 31, | Change | |||||||||||||||||||||||||||
Cash Flow Analysis | 2004 | 2005 | 2006 | 2004 to 2005 | 2005 to 2006 | |||||||||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||||||||||
Net Cash Flow from Operating Activities | 2,527.9 | 3,407.1 | 3,589.8 | 879.2 | 34.8 | % | 182.7 | 5.4 | % | |||||||||||||||||||
Net Cash Used in Investing Activities | (1,470.3 | ) | (1,938.2 | ) | (2,535.1 | ) | (467.9 | ) | (31.8 | ) | (596.9 | ) | (30.8 | ) | ||||||||||||||
Net Cash Used in Financing Activities | (968.6 | ) | (1,429.0 | ) | (952.4 | ) | (460.4 | ) | (47.5 | ) | 476.6 | 33.4 | ||||||||||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents Held in Foreign Currencies | (11.1 | ) | (3.0 | ) | (9.3 | ) | 8.1 | (73.0 | ) | (6.3 | ) | 210.0 | ||||||||||||||||
Net Cash Flow due to Changes in Consolidated Subsidiaries | (24.8 | ) | (29.1 | ) | 14.6 | (4.3 | ) | (17.3 | ) | 43.7 | 150.1 | |||||||||||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 53.1 | 7.8 | 107.6 | (45.3 | ) | (85.3 | ) | 99.8 | 1,279.5 | |||||||||||||||||||
Cash and Cash Equivalents at Beginning of Period | 317.5 | 370.6 | 378.4 | 53.1 | 16.7 | 7.8 | 2.1 | |||||||||||||||||||||
Cash and Cash Equivalents at End of Period | 370.6 | 378.4 | 486.0 | 7.8 | 2.1 | % | 107.6 | 28.4 | % | |||||||||||||||||||
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Year Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
(In billions of Won) | ||||||||||||
CDMA Networks(1) | 728 | 376 | 280 | |||||||||
WCDMANetwork | 220 | 575 | 781 | |||||||||
WiBro(2) | — | — | 53 | |||||||||
Others(3) | 684 | 466 | 384 | |||||||||
Total(4) | 1,632 | 1,417 | 1,498 | |||||||||
(1) | Includes our basic CDMA, CDMA 1xRTT and CMDA EV/DO networks. | |
(2) | We commenced WiBro service in May 2006. | |
(3) | Includes investments in infrastructure consisting of equipment necessary for the provision of data services and marketing. | |
(4) | Also, see note 7 of the notes to our consolidated financial statements. |
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Year Ending December 31, | Total | |||
(In billions of Won) | ||||
2007 | 711.0 | |||
2008 | 320.3 | |||
2009 | 656.4 | |||
After 2009 | 1,371.8 |
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Payments Due by Period(1) | ||||||||||||||||||||
Less Than | After | |||||||||||||||||||
Total | 1 Year | 1-3 Years | 4-5 Years | 5 Years | ||||||||||||||||
(In billions of Won) | ||||||||||||||||||||
Bonds | ||||||||||||||||||||
Principal | 2,756.0 | 702.4 | 974.7 | 678.9 | 400.0 | |||||||||||||||
Interest | 350.3 | 106.9 | 112.1 | 67.8 | 63.5 | |||||||||||||||
Long-term borrowings | ||||||||||||||||||||
Principal | 293.2 | 0.1 | 0.1 | 200.0 | 93.0 | |||||||||||||||
Interest | 72.6 | 15.5 | 31.0 | 15.6 | 10.5 | |||||||||||||||
Capital lease obligations | 10.5 | 8.6 | 1.9 | — | — | |||||||||||||||
Operating leases | — | — | — | — | — | |||||||||||||||
Purchase obligations | — | — | — | — | — | |||||||||||||||
Facility deposits | 38.7 | 17.6 | — | — | 21.1 | |||||||||||||||
Derivatives | 113.4 | — | 22.5 | 90.2 | 0.7 | |||||||||||||||
Investment commitment to HELIO | 18.1 | 18.1 | — | — | — | |||||||||||||||
Other long-term payables(2) | ||||||||||||||||||||
Principal | 650.0 | 90.0 | 240.0 | 320.0 | — | |||||||||||||||
Interest | 86.9 | 26.3 | 40.8 | 19.8 | — | |||||||||||||||
Total contractual cash obligations(3) | 4,389.7 | 985.5 | 1,423.1 | 1,392.3 | 588.8 | |||||||||||||||
(1) | We are contractually obligated to make severance payments to eligible employees we have employed for more than one year, upon termination of their employment, regardless of whether such termination is voluntary or involuntary. Accruals for severance indemnities are recorded based on the amount we would be required to pay in the event the employment of all our employees were to terminate at the balance date. However, we have not yet estimated cash flows for future periods. Accordingly, payments due in connection with severance indemnities have been excluded from this table. | |
(2) | Related to acquisition of IMT-2000 license. See note 2(i) and note 8 of the notes to our consolidated financial statements. | |
(3) | This amount does not include our future investments in the CDMA market in Vietnam, which we expect to make through our overseas subsidiary SLD Telecom under a business cooperation contract with Saigon Post & Telecommunication Service Corporation. See “Item 4.B. Business Overview — Global Business — Overseas Operations” and “— Critical Accounting Policies, Estimates And Judgments — Off-Balance Sheet Arrangements”. |
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• | Through 2004, when our equity interests in the equity method investees were diluted as a result of the equity method investees’ direct sales of their unissued shares to third parties, the changes in the our proportionate equity of investees were accounted for as capital transactions. Effective January 1, 2005, such transactions are accounted for as income statement treatment, pursuant to adoption of SKAS No. 15, “Investments: Equity Method”. As a result of adopting SKAS No. 15, net income for the year ended December 31, 2005 increased by Won 6.3 billion (net of tax effect of Won 2.4 billion). | |
• | Through 2004, tax effects of temporary differences related to capital surplus or capital adjustments were excluded in determining the deferred tax assets or liabilities. Effective January 1, 2005, such tax effects of temporary differences are included in determining the deferred tax assets or liabilities, pursuant to adoption of SKAS No. 16 “Income Taxes”. Accordingly, adjustments made directly to capital surplus or capital adjustments, which result in temporary differences, are recorded net of related tax effects. In addition, effective January 1, 2005, deferred income tax assets and liabilities which were presented on the balance sheet as a single non-current net number through 2004, are separated into current and non-current portions. As a result of adopting SKAS No. 16, total assets and total liabilities as of December 31, 2005 increased by Won 67.6 billion and Won 97.8 billion, respectively, and total stockholders’ equity as of December 31, 2005 decreased by Won 30.2 billion, which was directly reflected in capital surplus or capital adjustments. See note 18 of the notes to our consolidated financial statements. | |
• | Through 2004, provisions were recorded at nominal value. Effective January 1, 2005, provisions are recorded at the present value when the effect of the time value of money is material, pursuant to adoption of SKAS No. 17 “Provisions, Contingent Liabilities and Contingent Assets”. SKAS No. 17 is prospectively applied and as a result of adopting such accounting standard, total liabilities as of December 31, 2005 decreased by Won 7.4 billion and ordinary income and net income for the year ended December 31, 2005 increased by Won 5.4 billion. See note 25 of the notes to our consolidated financial statements. |
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Item 5.C. | Research and Development |
As of and for the Year Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
(In billions of Won) | ||||||||||||
Internal R&D Expenses | 267.1 | 252.0 | 212.0 | |||||||||
External R&D Expenses | 69.0 | 69.1 | 67.0 | |||||||||
Total R&D Expenses | 336.1 | 321.1 | 279.0 | |||||||||
• | Theaccess technology R&D center, which has pioneered the development of 3G and 3.5G technologies. This center is developing next-generation technologies, including with a view toward leading global standardization of mobile telecommunications technologies. Current projects include the development of multimedia handsets and location-based services, as well as development of network technologies, including with respect to WiBro, personal area network, ubiquitous sensor and broadband convergence networks, The access technology R&D center is also spearheading our joint development of TD-SCDMA technology with the Chinese government. | |
• | Theservice technology R&D center, which focuses on improving the quality and operation of our core networks; building a flexible service infrastructure that will support the introduction of new products and services and enable easy maintenance; and developing new services based on customer needs. Specifically, this center has been developing an array of value-added services, including COLORing services and developing new wireless data and convergent products and services. |
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• | Theinformation technology R&D center, which is responsible for developing and maintaining our overall management and information technology infrastructure, including billing and subscriber information security systems. The information technology R&D center is also currently upgrading our customer relationship management system. |
Item 5.D. | Trend Information |
Item 5.E. | Off-Balance Sheet Arrangements |
Item 5.F. | Tabular Disclosure of Contractual Obligations |
Item 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
Item 6.A. | Directors and Senior Management |
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Other Principal | ||||||||||||||||
Director | Expiration | Directorships and | ||||||||||||||
Name | Date of Birth | Since | of Term | Position | Positions | Business Experience | ||||||||||
Jung Nam Cho | Nov. 20, 1941 | 1995 | 2010 | Vice-chairman, Chief Executive Officer & Joint Representative Director | President & COO (SK Telecom) | |||||||||||
Shin Bae Kim | Oct. 15, 1954 | 2002 | 2008 | President, Chief Executive Officer, Chief Growth Officer & Joint Representative Director | Chairman, Korea Association of RFID/USN | Senior Vice President and Head of Strategic Planning Group (SK Telecom); Director, KORMS | ||||||||||
Bang Hyung Lee | Aug. 20, 1955 | 2005 | 2008 | Executive Vice-President, Chief Operating Officer & Head of Mobile Network Operations Business | Chief Marketing Officer, Head of Business Center, Head of Business Group, Head of Internet Business Group, Head of Marketing Group (SK Telecom); Senior Accountant, Deloitte Haskin & Sells, USA | |||||||||||
Sung Min Ha | Mar. 24, 1957 | 2004 | 2010 | Senior Vice President, Chief Financial Officer & Head of Corporate Center | Representative Director, SK Capital | Head of Strategic Planning Group, SK Telecom; Director, SK Telin; Auditor, SK C&C; Chairman and Representative Director, SLD Telecom; Auditor, SK Teletech |
Other Principal | ||||||||||||||||
Director | Expiration | Directorships and | ||||||||||||||
Name | Date of Birth | Since | of Term | Position | Positions | Business Experience | ||||||||||
Dae Sik Kim | Jan. 11, 1955 | 2005 | 2008 | Independent Non-executive Director | Professor, Hanyang University; Auditor, Korean Finance Association; Auditor, Korea Money and Finance Association; Member of Public Funds Oversight Committee; outside director of Shinhan Bank and Daehan Life Insurance | University of Pennsylvania, MBA (1981), Ph.D. (1987) | ||||||||||
Yong Woon Kim | Oct. 4, 1943 | 2003 | 2009 | IndependentNon-executive Director | Auditor, Pohang University of Science and Technology Foundation; | Senior Executive Vice President (Legal Department, Seoul Office, Investment and Finance) and Director, POSCO; Standing Advisor, POSCO Research Institute |
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Other Principal | ||||||||||||||||
Director | Expiration | Directorships and | ||||||||||||||
Name | Date of Birth | Since | of Term | Position | Positions | Business Experience | ||||||||||
Dae Kyu Byun | Mar. 8, 1960 | 2005 | 2008 | IndependentNon-executive Director | Chief Executive Officer & Representative Director, Humax Co., Ltd. | Director, the Federation of Korea Information Industries; Representative Director, Guin Co.; President andco-founder, Venture Leaders Club | ||||||||||
Seung Taik Yang | Oct. 24, 1939 | 2005 | 2008 | IndependentNon-executive Director | President, Tong-Myung University of Information Technology | Polytechnic Institute of Brooklyn, Ph.D.; 7th Minister, Ministry of Information and Communication; President, Electronics and Telecommunications Research Institute | ||||||||||
Jae Seung Yoon | Nov. 9, 1962 | 2002 | 2008 | IndependentNon-executive Director | Vice-chairman & 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. | ||||||||||
Sang Chin Lee | Jan. 24, 1941 | 1999 | 2008 | IndependentNon-executive Director | IT Consultant | Chairman, Communication Network Interface, Inc.; Chairman and Chief Executive Officer, Spectron Corp.; President, Scovill Fasteners, Inc.; Director of Organization, ITT Worldwide Corp.; Vice President, ITT Asia Pacific Corp. | ||||||||||
Hyun Chin Lim | Apr. 26, 1949 | 2006 | 2009 | IndependentNon-executive Director | Dean, College of Social Science, Seoul National University | President, Korea Sociological Association; Dean, Faculty of Liberal Education, Seoul National University; President, Korean Association of NGO Studies | ||||||||||
Dal Sup Shim | Jun. 27, 1950 | 2007 | 2010 | IndependentNon-executive Director | Research Member, Institute for Global Economics | Auditor, Korea Credit Guarantee Fund; Financial Attaché, Korean Embassy in the United States; Audit Officer, Korea Customs Service; Tax & Customs Office, Ministry of Finance and Economy |
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Item 6.B. | Compensation |
Item 6.C. | Board Practices |
• | examine the agenda for the general meeting of shareholders; |
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• | 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 | Our Corporate Governance Practice | |
Director Independence | ||
Listed companies must have a majority of independent directors. | Of the 12 members of our board of directors, 8 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, which is comprised solely of four 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 satisfies the requirements ofRule 10A-3 under the Exchange Act. | We maintain an Audit Committee comprised solely of four 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 four 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”). We manage such compensation plans in compliance with the applicable laws and our articles of association, provided that, under certain limited circumstances, the grant of stock options or matters relating to ESOP are not subject to shareholders’ 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 Code in connection with such matters, including the governance of the board of directors. | |
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 atwww.sktelecom.com. |
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Item 6.D. | Employees |
Regular Employees(1) | Temporary Employees | Total | ||||||||||
December 31, 2004 | 6,421 | 932 | 7,353 | |||||||||
December 31, 2005 | 5,727 | 919 | 6,646 | |||||||||
December 31, 2006 | 6,178 | 1,498 | 7,676 |
(1) | The number of our regular employees decreased in 2005 due to our divestiture of SK Teletech. |
Marketing | Production | Research | Support | New Business | Total | |||||||||||||||||||
Regular Employees | 1,779 | 2,075 | 559 | 959 | 806 | 6,178 | ||||||||||||||||||
Temporary Employees | 813 | 433 | 32 | 190 | 30 | 1,498 | ||||||||||||||||||
Total | 2,592 | 2,508 | 591 | 1,149 | 836 | 7,676 | ||||||||||||||||||
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Item 6.E. | Share Ownership |
Number of | Percentage of | Special | ||||||||||||
Shares | Total Shares | Voting | ||||||||||||
Name | Position | Owned | Outstanding | Rights | Options | |||||||||
Standing Directors: | ||||||||||||||
Jung Nam Cho | Vice-Chairman, Chief Executive Officer, and Representative Director | 0 | 0 | None | None | |||||||||
Shin Bae Kim | President, Chief Executive Officer, Chief Growth Officer and Representative Director | 1,270 | 0 | None | None | |||||||||
Bang Hyung Lee | Executive Vice-President, Chief Operating Officer and Head of Mobile Network Operations Business | 400 | 0 | None | None | |||||||||
Sung Min Ha | Senior Vice President, Chief Financial Officer and Head of Corporate Center | 738 | 0 | None | None | |||||||||
Non-Standing Directors: | ||||||||||||||
Dae Sik Kim | Independent Non-executive Director | 0 | 0 | None | None | |||||||||
Yong Woon Kim | Independent Non-executive Director | 0 | 0 | None | None | |||||||||
Dae Kyu Byun | Independent Non-executive Director | 50 | 0 | None | None | |||||||||
Seung Taik Yang | Independent Non-executive Director | 0 | 0 | None | None | |||||||||
Jae Seung Yoon | Independent Non-executive Director | 200 | 0 | None | None | |||||||||
Sang C. Lee | Independent Non-executive Director | 0 | 0 | None | None | |||||||||
Hyun Chin Lim | Independent Non-executive Director | 0 | 0 | None | None | |||||||||
Dal Sup Shim | Independent Non-executive Director | 0 | 0 | None | None |
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Item 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
Item 7.A. | Major Shareholders |
Percentage | ||||||||||||
Number of | Percentage Total | Total Shares | ||||||||||
Shareholder/Category | Shares | Shares Issued | Outstanding | |||||||||
Domestic Shareholders | ||||||||||||
SK Group(1) | 18,748,452 | 23.09 | % | 25.80 | % | |||||||
POSCO | 2,341,569 | 2.88 | 3.22 | |||||||||
Employees(2) | 197,291 | 0.24 | 0.27 | |||||||||
Treasury shares(3) | 8,526,252 | 10.50 | N/A | |||||||||
Officers and Directors | 3,528 | 0.00 | 0.00 | |||||||||
Other Domestic Shareholders | 12,807,563 | 15.77 | 17.62 | |||||||||
Foreign Shareholders(4) | 38,569,056 | 47.50 | 53.08 | |||||||||
Total Issued Shares | 81,193,711 | 100.00 | % | 100.00 | % | |||||||
(1) | The SK Group’s ownership interest consists of the following as of December 31, 2006: |
Percentage | Percentage | |||||||||||
Number of | Total Shares | Total Shares | ||||||||||
SK Group Member(a) | Shares | Issued | Outstanding | |||||||||
SK Corporation | 17,663,127 | 21.75 | % | 24.31 | % | |||||||
SK Networks | 1,085,325 | 1.34 | 1.49 | |||||||||
18,748,452 | 23.09 | % | 25.80 | % | ||||||||
(a) | The SK Group is a group of affiliated entities. As of December 31, 2006, the ownership interests among the SK Group included, among others: |
• | SK Corporation owned: 21.75% of SK Telecom, 40.59% of SK Networks, 44.19% of SKC and 72.13% of SK Shipping Co., Ltd. | |
• | SK Networks owned 1.34% of SK Telecom, 17.71% of SK Shipping, 15.00% of SK Computer & Communications Co., Ltd., and 22.71% of SK Securities Co., Ltd. | |
• | SK Chemicals owned 58.03% of SK Engineering and Construction. |
• | SKC owned 2.90% of SK Chemicals, 10.16% of SK Shipping Co., Ltd. and 12.41% of SK Securities Co., Ltd. |
• | SK Securities owned 0.17% of SK Corporation and 0.06% of SKC. | |
• | SK Computer & Communications Co., Ltd. owned 11.16% of SK Corporation. | |
• | We owned 30.00% of SK Computer & Communications Co., Ltd. |
(2) | Represents shares owned by our employee stock ownership association. See “Item 6.D. Employees”. | |
(3) | Treasury shares do not have any voting rights; includes 1,688,842 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) | We understand that in April 2007, Brandes Investment Partners L.P., an investment advisory firm based in the United States, increased its shareholding in us to 5.003%. |
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As of December 31, | ||||||||||||
Shareholder | 2004 | 2005 | 2006 | |||||||||
(As a percentage of total issued shares)(1) | ||||||||||||
SK Group | 24.03 | % | 22.79 | % | 23.09 | % | ||||||
SK Corporation | 21.47 | 21.47 | 21.75 | |||||||||
SK Networks(2) | 2.55 | 1.32 | 1.34 | |||||||||
POSCO(3) | 4.98 | 3.64 | 2.88 |
(1) | Includes 8,662,415, 8,662,415 and 8,526,252 shares held in treasury as of December 31, 2004, 2005 and 2006, respectively. | |
(2) | SK Networks sold 418,000 shares in January 2004 and currently owns 1,085,325 shares. | |
(3) | POSCO acquired these shares in connection with our acquisition of a 27.7% equity interest in Shinsegi. |
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• | revoke our business license; | |
• | suspend all or part of our business; or | |
• | if the suspension of business is deemed to result in significant inconvenience to our customers or to be detrimental to the public interest, impose a one-time administrative penalty of up to 3% of the average of our annual revenue for the preceding three fiscal years. |
Item 7.B. | Related Party Transactions |
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Item 7.C. | Interests of Experts and Counsel |
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Item 8. | FINANCIAL INFORMATION |
Item 8.A. | Consolidated Statements and Other Financial Information |
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Number of Shares | ||||||||||||
Total Amount of | Entitled to | |||||||||||
Year Ended December 31, | Dividend per Share | Dividends | Dividend | |||||||||
(In Won)(1) | (In billions of Won) | |||||||||||
1997 | 90 | 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 | |||||||||
2005 | 9,000 | 662.5 | 73,614,296 | |||||||||
2006 | 8,000 | 582.4 | 72,667,459 |
(1) | Dividend per share and amount of shares entitled to dividend have been adjusted to give effect to the10-for-1 stock split of our common shares which became effective on April 21, 2000. |
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Item 8.B. | Significant Changes |
Item 9. | THE OFFER AND LISTING |
Item 9.A. | Offering and Listing Details |
Item 9.B. | Plan of Distribution |
Item 9.C. | Markets |
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Average Daily | ||||||||||||||||
Trading Volume | ||||||||||||||||
Calendar Year | High(1) | Low(1) | Close | (Number of Shares) | ||||||||||||
(Won per share) | ||||||||||||||||
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 | 216,500 | 163,500 | 181,000 | 187,053 | ||||||||||||
First Quarter | 200,500 | 171,000 | 171,000 | 203,869 | ||||||||||||
Second Quarter | 192,500 | 163,500 | 182,000 | 137,021 | ||||||||||||
Third Quarter | 216,500 | 178,500 | 202,500 | 156,019 | ||||||||||||
Fourth Quarter | 209,500 | 181,000 | 181,000 | 249,550 | ||||||||||||
2006 | 235,000 | 177,000 | 222,500 | 190,565 | ||||||||||||
First Quarter | 203,500 | 177,000 | 192,500 | 177,491 | ||||||||||||
Second Quarter | 235,000 | 190,000 | 204,000 | 216,607 | ||||||||||||
Third Quarter | 204,500 | 181,000 | 201,500 | 204,167 | ||||||||||||
Fourth Quarter | 233,000 | 195,000 | 222,500 | 163,534 | ||||||||||||
2007 (through June 29) | 223,000 | 188,500 | 213,000 | 213,115 | ||||||||||||
First Quarter | 223,000 | 190,500 | 191,500 | 206,155 | ||||||||||||
January | 223,000 | 196,500 | 200,000 | 181,997 | ||||||||||||
February | 205,500 | 193,500 | 196,500 | 243,110 | ||||||||||||
March | 196,500 | 190,500 | 191,500 | 198,027 | ||||||||||||
Second Quarter (through June 29) | 215,000 | 188,500 | 213,000 | 220,075 | ||||||||||||
April | 197,000 | 188,500 | 196,500 | 233,355 | ||||||||||||
May | 215,000 | 200,500 | 202,000 | 213,992 | ||||||||||||
June 29 | 213,000 | 200,000 | 213,000 | 212,518 |
(1) | Both high and low prices are based on the daily closing prices for the period. |
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Prices(1) | ||||||||||||||||
Average Daily | ||||||||||||||||
Trading Volume | ||||||||||||||||
Calendar Year | High(1) | Low(1) | Close | (Number of Shares) | ||||||||||||
(US$ per ADS) | (Number of ADSs) | |||||||||||||||
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 | 23.14 | 18.96 | 20.29 | 882,342 | ||||||||||||
First Quarter | 22.19 | 19.41 | 19.72 | 798,390 | ||||||||||||
Second Quarter | 21.84 | 18.96 | 20.40 | 618,870 | ||||||||||||
Third Quarter | 23.14 | 20.06 | 21.84 | 1,071,227 | ||||||||||||
Fourth Quarter | 21.95 | 19.74 | 20.29 | 1,039,398 | ||||||||||||
2006 | 27.70 | 20.62 | 26.48 | 866,527 | ||||||||||||
First Quarter | 24.56 | 20.62 | 23.59 | 952,819 | ||||||||||||
Second Quarter | 27.70 | 22.54 | 23.42 | 1,045,503 | ||||||||||||
Third Quarter | 24.16 | 21.14 | 23.63 | 789,033 | ||||||||||||
Fourth Quarter | 27.42 | 22.89 | 26.48 | 680,124 | ||||||||||||
2007 (through June 28) | 28.02 | 22.46 | 27.36 | 1,280,777 | ||||||||||||
First Quarter | 26.41 | 22.46 | 23.42 | 1,046,780 | ||||||||||||
January | 26.41 | 23.03 | 23.75 | 847,110 | ||||||||||||
February | 24.14 | 22.46 | 22.81 | 1,170,862 | ||||||||||||
March | 23.70 | 22.51 | 23.42 | 1,121,137 | ||||||||||||
Second Quarter (through June 28) | 28.02 | 23.41 | 27.36 | 1,511,000 | ||||||||||||
April | 24.83 | 23.41 | 24.83 | 1,579,377 | ||||||||||||
May | 27.76 | 25.46 | 26.86 | 1,785,642 | ||||||||||||
June 28 | 28.02 | 26.11 | 27.36 | 1,140,517 |
(1) | Both high and low prices are based on the daily closing prices for the period. |
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Period Average | ||||||||||||||||||||||||
Dividend | Price 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 | 2.1 | 12.9 | ||||||||||||||||||
2001 | 520.95 | 704.50 | 468.76 | 693.70 | 1.7 | 16.4 | ||||||||||||||||||
2002 | 724.95 | 937.61 | 584.04 | 829.44 | 1.6 | 15.2 | ||||||||||||||||||
2003 | 635.17 | 822.16 | 515.24 | 810.71 | 2.0 | 11.8 | ||||||||||||||||||
2004 | 821.26 | 936.06 | 719.59 | 895.92 | 2.0 | 13.8 | ||||||||||||||||||
2005 | 893.71 | 1,379.37 | 870.84 | 1,379.37 | 1.8 | 10.6 | ||||||||||||||||||
2006 | 1,389.27 | 1,464.70 | 1,192.09 | 1,434.46 | 1.7 | 11.4 | ||||||||||||||||||
2007 (through June 29) | 1,438.89 | 1,807.85 | 1,355.79 | 1,743.60 | 1.6 | 14.5 |
(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 that did not submit annual reports to the KRX, and companies which received disqualified opinion from external auditors. |
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Previous Day’s Closing Price | Rounded Down to | |||
Less than 5,000 | 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 Trading Volume & Value | |||||||||||||||||||||||
Number of | ||||||||||||||||||||||||
Listed | (Millions of | (Thousands of | Thousands of | (Millions of | (Thousands of | |||||||||||||||||||
Year | Companies | Won) | Dollars)(1) | Shares | Won) | Dollars)(1) | ||||||||||||||||||
1980 | 352 | 2,526,553 | US $ | 3,828,691 | 5,654 | 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 | 702 | 655,074,595 | 648,588,707 | 467,629 | 3,157,662 | 3,126,398 | ||||||||||||||||||
2006 | 731 | 704,587,508 | 757,620,976 | 279,096 | 3,435,180 | 3,693,742 | ||||||||||||||||||
2007 (through June 28) | 733 | 867,495,474 | 936,213,548 | 331,571 | 4,291,101 | 4,631,018 |
(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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Item 9.D. | Selling Shareholders |
Item 9.E. | Dilution |
Item 9.F. | Expenses of the Issue |
Item 10. | ADDITIONAL INFORMATION |
Item 10.A. | Share Capital |
Item 10.B. | Memorandum and Articles of Association |
• | 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; | |
• | tourism; and |
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• | any business or undertaking incidental or conducive to the attainment of the objectives stated above. |
• | 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 association; |
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• | 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 | |
• | 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 ADSs 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 association, which provisions, if any, will be summarized in the notice to the extent that they are material; and | |
• | 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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Item 10.C. | Material Contracts |
Item 10.D. | Exchange Controls |
• | 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 | |
• | 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 |
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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. |
• | Under current Korean laws and regulations, the depositary is required to obtain our prior consent for any proposed deposit of common shares if the number of shares to be deposited in such proposed deposit exceeds the number of common shares initially deposited by us for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to the ADSs). | |
• | 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 “Item 10.B. Memorandum and Articles of Association — 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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• | a dealer in securities or currencies; | |
• | a trader in securities that elects to use a mark-to-market method of accounting for securities holdings; | |
• | a bank; | |
• | a life insurance company; | |
• | a tax-exempt organization; | |
• | a person that holds common shares or ADSs that are a hedge or that are hedged against interest rate or currency risks; | |
• | a person that holds common shares or ADSs as part of a straddle or conversion transaction for tax purposes; |
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• | a person whose functional currency for tax purposes is not the U.S. dollar; or | |
• | a person that owns or is deemed to own 10% or more of any class of our stock. |
• | a citizen or resident of the United States; ) a U.S. domestic corporation; or | |
• | otherwise subject to U.S. federal income tax on a net income basis with respect to income from the common share or ADS. |
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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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Item 10.F. | Dividends and Paying Agents |
Item 10.G. | Statements by Experts |
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Item 10.H. | Documents on Display |
Item 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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Maturities | ||||||||||||||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | 2011 | There-after | Total | FairValue | |||||||||||||||||||||||||
(In billions of Won, except for percentage data) | ||||||||||||||||||||||||||||||||
Local currency: | ||||||||||||||||||||||||||||||||
Fixed rate | 754.8 | 298.7 | 298.4 | 195.8 | 191.0 | 385.2 | 2,123.9 | 1,745.5 | ||||||||||||||||||||||||
Average weighted rate(1) | 5.56 | % | 5.00 | % | 5.00 | % | 4.00 | % | 3.00 | % | 4.50 | % | ||||||||||||||||||||
Variable rate | — | — | — | 200.0 | — | — | 200.0 | 200.0 | ||||||||||||||||||||||||
Average weighted rate(1) | — | — | — | 5.11 | % | — | — | — | — | |||||||||||||||||||||||
Sub-total | 754.8 | 298.7 | 298.4 | 395.8 | 191.0 | 385.2 | 2,323.9 | 1,945.5 | ||||||||||||||||||||||||
Foreign currency: | ||||||||||||||||||||||||||||||||
Fixed rate | 1.6 | 16.5�� | 333.1 | — | 276.7 | — | 627.9 | 610.6 | ||||||||||||||||||||||||
Average weighted rate(1) | 5.11 | % | 0.01 | % | 0.00 | % | N/A | 4.25 | % | N/A | ||||||||||||||||||||||
Variable rate | 0.9 | — | — | — | — | 93.0 | 93.9 | 93.9 | ||||||||||||||||||||||||
Average weighted rate(1) | 6.86 | % | N/A | N/A | N/A | — | 5.66 | % | ||||||||||||||||||||||||
Sub-total | 2.5 | 16.5 | 333.1 | — | 276.7 | 93.0 | 721.8 | 704.5 | ||||||||||||||||||||||||
Total | 757.3 | 315.2 | 631.5 | 395.8 | 467.7 | 478.2 | 3,045.7 | 2,650.0 | ||||||||||||||||||||||||
(1) | Weighted average rates of the portfolio at the period end. |
Item 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
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Item 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
Item 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
Item 15. | CONTROLS AND PROCEDURES |
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Item 16B. | CODE OF ETHICS |
Item 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Years Ended December 31, | ||||||||
2005 | 2006 | |||||||
Audit | 838.9 | 1,220.5 | ||||||
Audit Related | 86.7 | 81.1 | ||||||
Tax | 139.4 | 277.0 | ||||||
All Other Fees | 900.0 | — | ||||||
Total | 1,965.0 | 1,578.6 |
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Item 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
Item 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
Total Number of | Maximum Number of | |||||||||||||||
Shares Purchased as | Shares That May yet | |||||||||||||||
Average | Part of Publicly | be Purchased Under | ||||||||||||||
Period | Total Number of | Price Paid | Announced Plans or | the Plans or | ||||||||||||
2006 | Shares Purchased | per Share | Program | Program | ||||||||||||
January | — | — | — | — | ||||||||||||
February | — | — | — | — | ||||||||||||
March | — | — | — | — | ||||||||||||
April | — | — | — | — | ||||||||||||
May | — | — | — | — | ||||||||||||
June | — | — | — | — | ||||||||||||
July | — | — | — | — | ||||||||||||
August | 491,000 | 188,428 | — | — | ||||||||||||
September | 592,000 | 196,890 | — | — | ||||||||||||
October | — | — | — | — | ||||||||||||
November | — | — | — | — | ||||||||||||
December | — | — | — | — | ||||||||||||
Total | 1,083,000 | 193,054 | — | — |
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Item 17. | FINANCIAL STATEMENTS |
Item 18. | FINANCIAL STATEMENTS |
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-6 | ||||
F-7 | ||||
F-9 | ||||
F-11 |
Item 19. | EXHIBITS |
Number | Description | |||
1 | .1* | Memorandum and Articles of Association | ||
2 | .1* | Deposit Agreement dated as of May 31, 1996, as amended by Amendment No. 1 dated as of March 15, 1999, Amendment No. 2 dated as of April 24, 2000 and Amendment No. 3 dated as of July 24, 2002, entered into among SK Telecom Co., Ltd., Citibank, N.A., as Depositary, and all Holders and Beneficial Owners of American Depositary Shares | ||
8 | .1 | List of Subsidiaries 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 | ||
15 | .1 | Telecommunications Basic Act of 1983, as amended (English translation) | ||
15 | .2 | Enforcement Decree of the Telecommunications Basic Act, as amended (English translation) | ||
15 | .3 | Telecommunications Business Act of 1983, as amended (English translation) | ||
15 | .4 | Enforcement Decree of the Telecommunications Business Act (English translation) | ||
99 | .1 | Consent of Deloitte Anjin LLC |
* | Filed previously as exhibits to ourForm 20-F filed on June 30, 2006. |
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(Registrant)
Title: | President, Chief Executive Officer, |
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F-2 | ||||
F-3 | ||||
F-4 | ||||
F-6 | ||||
F-7 | ||||
F-9 | ||||
F-11 |
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ON CONSOLIDATED FINANCIAL STATEMENTS
F-2
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ON INTERNAL CONTROL OVER FINANCIAL REPORTING
F-3
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In Thousands | ||||||||||||||||
of U.S. dollars | ||||||||||||||||
In Millions of Korean Won | (Note 2 a) | |||||||||||||||
2004 | 2005 | 2006 | 2006 | |||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||
Cash and cash equivalents (Notes 2 and 13) | 370,630 | 378,426 | 485,972 | $ | 522,551 | |||||||||||
Short-term financial instruments (Notes 13, 21 and 22) | 12,730 | 106,592 | 98,085 | 105,468 | ||||||||||||
Trading securities (Notes 2 and 4) | 654,779 | 777,472 | 665,312 | 715,389 | ||||||||||||
Current portion of long-term investment securities (Notes 2 and 4) | 3,709 | 1 | 335 | 360 | ||||||||||||
Accounts receivable — trade, net of allowance for doubtful accounts of | 1,720,201 | 1,684,119 | 1,800,606 | 1,936,135 | ||||||||||||
Short-term loans, net of allowance for doubtful accounts of | 55,355 | 65,539 | 69,745 | 74,995 | ||||||||||||
Accounts receivable — other, net of allowance for doubtful accounts of | 1,406,553 | 1,369,691 | 1,305,284 | 1,403,531 | ||||||||||||
Inventories, net (Notes 2, 3, 23 and 24) | 52,321 | 7,784 | 19,778 | 21,267 | ||||||||||||
Prepaid expenses | 84,933 | 104,124 | 116,727 | 125,513 | ||||||||||||
Current deferred income tax assets, net (Notes 2 and 18) | — | 66,117 | 49,940 | 53,699 | ||||||||||||
Currency swap (Notes 2 and 27) | — | — | 16,660 | 17,914 | ||||||||||||
Accrued income and other | 29,482 | 38,715 | 35,518 | 38,191 | ||||||||||||
Total Current Assets | 4,390,693 | 4,598,580 | 4,663,962 | 5,015,013 | ||||||||||||
NON-CURRENT ASSETS: | ||||||||||||||||
Property and equipment, net (Notes 2, 7, 12, 22, 23 and 24) | 4,703,922 | 4,663,369 | 4,507,335 | 4,846,597 | ||||||||||||
Intangible assets, net (Notes 2 and 8) | 3,522,903 | 3,452,889 | 3,518,411 | 3,783,238 | ||||||||||||
Long-term investment securities (Notes 2 and 4) | 948,101 | 1,220,208 | 2,475,418 | 2,661,740 | ||||||||||||
Equity securities accounted for using the equity method (Notes 2 and 5) | 304,028 | 471,879 | 750,921 | 807,442 | ||||||||||||
Long-term bank deposits (Note 21) | 10,351 | 1,479 | 10,445 | 11,231 | ||||||||||||
Long-term loans, net of allowance for doubtful accounts of | 30,442 | 18,430 | 18,569 | 19,967 | ||||||||||||
Guarantee deposits (Notes 13 and 24) | 289,015 | 168,559 | 139,619 | 150,128 | ||||||||||||
Non-current deferred income tax assets (Notes 2 and 18) | — | 1,495 | 2,655 | 2,855 | ||||||||||||
Other | 83,903 | 107,884 | 152,633 | 164,120 | ||||||||||||
Total Non-Current Assets | 9,892,665 | 10,106,192 | 11,576,006 | 12,447,318 | ||||||||||||
TOTAL ASSETS | 14,283,358 | 14,704,772 | 16,239,968 | $ | 17,462,331 | |||||||||||
F-4
Table of Contents
In Thousands | ||||||||||||||||
of U.S. Dollars | ||||||||||||||||
In Millions of Korean Won | (Note 2 a) | |||||||||||||||
2004 | 2005 | 2006 | 2006 | |||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||
Accounts payable (Notes 13, 22 and 24) | 1,205,682 | 1,047,779 | 1,221,704 | $ | 1,313,660 | |||||||||||
Short-term borrowings (Notes 13 and 22) | 425,496 | 972 | 58,344 | 62,735 | ||||||||||||
Income taxes payable | 273,495 | 370,822 | 336,536 | 361,867 | ||||||||||||
Accrued expenses (Notes 2, 13 and 26) | 394,354 | 364,830 | 375,063 | 403,294 | ||||||||||||
Dividend payable | 263 | 298 | 268 | 288 | ||||||||||||
Withholdings | 196,534 | 216,622 | 339,144 | 364,671 | ||||||||||||
Current portion of long-term debt, net (Notes 8, 9, 10 and 12) | 498,278 | 809,573 | 797,042 | 857,034 | ||||||||||||
Current portion of subscription deposits (Note 11) | 13,405 | 14,875 | 17,576 | 18,899 | ||||||||||||
Current deferred income tax liabilities (Notes 2 and 18) | — | 44 | — | — | ||||||||||||
Advanced receipts and other | 59,386 | 37,558 | 62,739 | 67,461 | ||||||||||||
Total Current Liabilities | 3,066,893 | 2,863,373 | 3,208,416 | 3,449,909 | ||||||||||||
LONG-TERM LIABILITIES: | ||||||||||||||||
Bonds payable, net (Notes 2 and 9) | 2,891,843 | 2,314,208 | 1,995,323 | 2,145,509 | ||||||||||||
Long-term borrowings (Notes 10 and 22) | — | 155 | 293,026 | 315,082 | ||||||||||||
Subscription deposits (Note 11) | 31,440 | 23,770 | 21,140 | 22,731 | ||||||||||||
Long-term payables — other, net of present value discount of 72,663 million, 58,413 million and 42,461 million at December 31, 2004, 2005 and 2006, respectively (Notes 2 and 8) | 577,337 | 591,587 | 517,539 | 556,494 | ||||||||||||
Obligations under capital leases (Notes 2, 12 and 13) | — | 10,204 | 1,860 | 2,000 | ||||||||||||
Accrued severance indemnities, net (Note 2) | 80,984 | 71,284 | 22,284 | 23,961 | ||||||||||||
Non-current deferred income tax liabilities (Notes 2 and 18) | 306,052 | 401,156 | 532,639 | 572,730 | ||||||||||||
Long-term currency swap (Notes 2 and 27) | 96,743 | 73,450 | 112,970 | 121,473 | ||||||||||||
Long-term interest rate swap (Notes 2 and 27) | — | — | 454 | 488 | ||||||||||||
Guarantee deposits received and other (Notes 22, 24 and 26) | 26,322 | 28,045 | 51,229 | 55,085 | ||||||||||||
Total Long-Term Liabilities | 4,010,721 | 3,513,859 | 3,548,464 | 3,815,553 | ||||||||||||
Total Liabilities | 7,077,614 | 6,377,232 | 6,756,880 | 7,265,462 | ||||||||||||
COMMITMENTS AND CONTINGENCIES (Note 22) | ||||||||||||||||
SHAREHOLDERS’ EQUITY: | ||||||||||||||||
Common stock — Issued and outstanding — 73,614,296 shares, 73,614,296 shares and 72,667,459 shares at December 31, 2004, 2005 and 2006, respectively (Notes 1 and 14) | 44,639 | 44,639 | 44,639 | 47,999 | ||||||||||||
Capital surplus (Note 14) | 2,968,301 | 2,954,840 | 2,950,327 | 3,172,395 | ||||||||||||
Retained earnings (Note 15) | 6,152,898 | 7,267,649 | 7,847,434 | 8,438,101 | ||||||||||||
Capital adjustments : | ||||||||||||||||
Treasury stock (Note 16) | (2,047,105 | ) | (2,047,105 | ) | (2,014,927 | ) | (2,166,588 | ) | ||||||||
Unrealized gains (loss) on valuation of long-term investment securities, net (Notes 2 and 4) | (92,975 | ) | (42,093 | ) | 429,228 | 461,536 | ||||||||||
Equity in capital adjustment of affiliates, net (Notes 2 and 5) | 134,376 | 61,368 | 107,324 | 115,402 | ||||||||||||
Loss on valuation of currency swap, net (Notes 2 and 27) | (49,452 | ) | (14,177 | ) | (16,487 | ) | (17,728 | ) | ||||||||
Loss on valuation of interest swap, net (Notes 2 and 27) | — | — | (329 | ) | (354 | ) | ||||||||||
Loss on disposal of treasury stock (Notes 16 and 18) | — | — | (7,887 | ) | (8,481 | ) | ||||||||||
Stock options (Notes 2 and 17) | 4,833 | 3,480 | 3,246 | 3,490 | ||||||||||||
Foreign-based operations’ translation adjustment (Note 2) | (7,969 | ) | (9,988 | ) | (29,726 | ) | (31,963 | ) | ||||||||
Minority interest in equity of consolidated subsidiaries (Note 2) | 98,198 | 108,927 | 170,246 | 183,060 | ||||||||||||
Total Shareholders’ Equity | 7,205,744 | 8,327,540 | 9,483,088 | 10,196,869 | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 14,283,358 | 14,704,772 | 16,239,968 | $ | 17,462,331 | |||||||||||
F-5
Table of Contents
In Thousands | ||||||||||||||||
of U.S. Dollars, | ||||||||||||||||
Except for | ||||||||||||||||
In Millions of Korean Won, | Income per | |||||||||||||||
Except for Income per Share | Share (Note 2 a) | |||||||||||||||
2004 | 2005 | 2006 | 2006 | |||||||||||||
OPERATING REVENUE (Notes 2, 24 and 29) | 10,570,615 | 10,721,820 | 11,027,977 | $ | 11,858,040 | |||||||||||
OPERATING EXPENSES (Notes 2, 22 and 24) | ||||||||||||||||
Labor cost | (464,778 | ) | (464,764 | ) | (491,839 | ) | (528,859 | ) | ||||||||
Commissions paid | (2,812,318 | ) | (2,859,638 | ) | (3,293,197 | ) | (3,541,072 | ) | ||||||||
Depreciation and amortization (Notes 7 and 8) | (1,607,478 | ) | (1,546,285 | ) | (1,553,635 | ) | (1,670,575 | ) | ||||||||
Network interconnection (Note 29) | (913,688 | ) | (989,417 | ) | (1,014,913 | ) | (1,091,304 | ) | ||||||||
Leased line | (375,227 | ) | (407,043 | ) | (412,902 | ) | (443,981 | ) | ||||||||
Advertising | (352,877 | ) | (279,390 | ) | (307,190 | ) | (330,312 | ) | ||||||||
Research and development (Note 2) | (267,107 | ) | (252,046 | ) | (211,961 | ) | (227,915 | ) | ||||||||
Rent | (178,310 | ) | (190,134 | ) | (206,708 | ) | (222,267 | ) | ||||||||
Frequency usage | (143,047 | ) | (156,098 | ) | (158,958 | ) | (170,923 | ) | ||||||||
Repair | (112,094 | ) | (131,719 | ) | (150,848 | ) | (162,202 | ) | ||||||||
Provision for bad debts | (29,181 | ) | (112,792 | ) | (61,457 | ) | (66,083 | ) | ||||||||
Cost of goods sold | (479,257 | ) | (240,746 | ) | (121,381 | ) | (130,517 | ) | ||||||||
Other | (395,504 | ) | (421,132 | ) | (421,856 | ) | (453,608 | ) | ||||||||
Sub-total | (8,130,866 | ) | (8,051,204 | ) | (8,406,845 | ) | (9,039,618 | ) | ||||||||
OPERATING INCOME | 2,439,749 | 2,670,616 | 2,621,132 | 2,818,422 | ||||||||||||
OTHER INCOME : | ||||||||||||||||
Interest income (Note 4) | 80,459 | 61,143 | 79,969 | 85,988 | ||||||||||||
Dividends | 23,843 | 26,515 | 20,351 | 21,883 | ||||||||||||
Commissions | 26,891 | 32,738 | 33,226 | 35,727 | ||||||||||||
Equity in earnings of affiliates (Notes 2 and 5) | — | 20,949 | 45,787 | 49,233 | ||||||||||||
Foreign exchange and translation gains (Note 2) | 20,559 | 4,167 | 4,412 | 4,744 | ||||||||||||
Reversal of allowance for doubtful accounts | 759 | 450 | 789 | 848 | ||||||||||||
Gain on disposal and valuation of trading securities (Note 2) | 2,548 | 1 | — | — | ||||||||||||
Gain on disposal of investment assets (Notes 4 and 5) | 2,004 | 24,613 | 27,490 | 29,559 | ||||||||||||
Gain on disposal of consolidated subsidiary | — | 178,689 | 1,556 | 1,673 | ||||||||||||
Gain on disposal of property, equipment and intangible assets | 2,067 | 4,693 | 4,507 | 4,846 | ||||||||||||
Gain on transactions and valuation of currency forward and swap (Notes 2 and 27) | 2,850 | 2,578 | 16,660 | 17,914 | ||||||||||||
Other | 37,439 | 36,016 | 50,111 | 53,884 | ||||||||||||
Sub-total | 199,419 | 392,552 | 284,858 | 306,299 | ||||||||||||
OTHER EXPENSES : | ||||||||||||||||
Interest and discounts | (303,410 | ) | (253,472 | ) | (239,138 | ) | (257,138 | ) | ||||||||
Donations | (20,216 | ) | (76,185 | ) | (103,348 | ) | (111,127 | ) | ||||||||
Equity in losses of affiliates (Notes 2 and 5) | (11,954 | ) | (71,825 | ) | (211,464 | ) | (227,381 | ) | ||||||||
Foreign exchange and translation losses (Note 2) | (9,074 | ) | (4,178 | ) | (4,139 | ) | (4,451 | ) | ||||||||
Loss on disposal and valuation of trading securities (Note 2) | (232 | ) | (16 | ) | — | — | ||||||||||
Loss on disposal of investment assets | (1,539 | ) | (4,017 | ) | (6,096 | ) | (6,555 | ) | ||||||||
Loss on disposal and impairment of property, equipment and intangible assets (Note 2) | (19,208 | ) | (6,783 | ) | (24,178 | ) | (25,998 | ) | ||||||||
Loss on impairment of long-term investment securities (Notes 2 and 4) | (33,654 | ) | (3,422 | ) | (27,696 | ) | (29,781 | ) | ||||||||
Loss on transactions and valuation of currency forward and swap (Notes 2 and 27) | (15,818 | ) | — | (9,258 | ) | (9,955 | ) | |||||||||
Special severance indemnities (Note 2) | — | — | (144,021 | ) | (154,861 | ) | ||||||||||
External research and development costs | (69,016 | ) | (69,140 | ) | (67,021 | ) | (72,066 | ) | ||||||||
Other | (31,872 | ) | (12,564 | ) | (48,053 | ) | (51,668 | ) | ||||||||
Sub-total | (515,993 | ) | (501,602 | ) | (884,412 | ) | (950,981 | ) | ||||||||
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST | 2,123,175 | 2,561,566 | 2,021,578 | $ | 2,173,740 | |||||||||||
INCOME TAXES (Notes 2 and 18) | (629,761 | ) | (693,259 | ) | (572,026 | ) | (615,082 | ) | ||||||||
INCOME BEFORE MINORITY INTEREST | 1,493,414 | 1,868,307 | 1,449,552 | 1,558,658 | ||||||||||||
MINORITY INTEREST IN NET LOSS (GAIN) OF CONSOLIDATED SUBSIDIARIES | (1,935 | ) | 4,671 | 1,939 | 2,085 | |||||||||||
NET INCOME | 1,491,479 | 1,872,978 | 1,451,491 | $ | 1,560,743 | |||||||||||
NET INCOME PER SHARE (Notes 2 and 19) (In Korean Won and U.S. dollars) | 20,261 | 25,443 | 19,801 | $ | 21.29 | |||||||||||
DILUTED NET INCOME PER SHARE (Notes 2 and 19) (In Korean Won and U.S. dollars) | 20,092 | 25,036 | 19,523 | $ | 20.99 | |||||||||||
F-6
Table of Contents
Total | ||||||||||||||||||||||||
Common | Capital | Retained | Capital | Minority | Shareholders’ | |||||||||||||||||||
Stock | Surplus | Earnings | Adjustments | Interest | Equity | |||||||||||||||||||
(In millons 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 | — | 1,935 | 1,493,414 | ||||||||||||||||||
Cash dividends paid (Note 20) | — | — | (404,878 | ) | — | — | (404,878 | ) | ||||||||||||||||
Interim cash dividends paid (Note 20) | — | — | (73,614 | ) | — | — | (73,614 | ) | ||||||||||||||||
Excess unallocated purchase price (Note 14) | — | (77 | ) | — | — | — | (77 | ) | ||||||||||||||||
Consideration for conversion rights (Notes 2 and 14) | — | 67,279 | — | — | — | 67,279 | ||||||||||||||||||
Acquisition of treasury stock (Note 16) | — | — | — | (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 4) | — | — | — | 67,647 | — | 67,647 | ||||||||||||||||||
Loss on valuation of currency swap (Note 2) | — | — | — | (49,452 | ) | — | (49,452 | ) | ||||||||||||||||
Stock compensation plans (Notes 2 and 17) | — | — | — | 1,092 | — | 1,092 | ||||||||||||||||||
Foreign-based operations’ translation adjustment (Note 2) | — | — | — | (11,128 | ) | — | (11,128 | ) | ||||||||||||||||
Decrease in minority interest in equity of consolidated subsidiaries | — | — | — | — | (59,722 | ) | (59,722 | ) | ||||||||||||||||
Balance, December 31, 2004 | 44,639 | 2,968,301 | 6,152,898 | (2,058,292 | ) | 98,198 | 7,205,744 | |||||||||||||||||
Net income | — | — | 1,872,978 | — | (4,671 | ) | 1,868,307 | |||||||||||||||||
Cash dividends paid (Note 20) | — | — | (684,613 | ) | — | — | (684,613 | ) | ||||||||||||||||
Interim cash dividends paid (Note 20) | — | — | (73,614 | ) | — | — | (73,614 | ) | ||||||||||||||||
Deferred tax effect of temporary differences related to conversion rights (Note 14) | — | (18,502 | ) | — | — | — | (18,502 | ) | ||||||||||||||||
Transfer of stock option from capital adjustments to capital surplus (Notes 14 and 17) | — | 1,533 | — | (1,533 | ) | — | — | |||||||||||||||||
Equity in capital surplus and capital adjustment changes of affiliates (Notes 2 and 5) | — | 3,508 | — | (73,008 | ) | — | (69,500 | ) | ||||||||||||||||
Unrealized gain on valuation of long-term investment securities (Notes 2 and 4) | — | — | — | 50,882 | — | 50,882 | ||||||||||||||||||
Gain on valuation of currency swap (Note 2) | — | — | — | 35,276 | — | 35,276 | ||||||||||||||||||
Stock compensation plans (Notes 2 and 17) | — | — | — | 180 | — | 180 | ||||||||||||||||||
Foreign-based operations’ translation adjustment (Note 2) | — | — | — | (2,020 | ) | — | (2,020 | ) | ||||||||||||||||
Increase in minority interest in equity of consolidated subsidiaries | — | — | — | — | 15,400 | 15,400 | ||||||||||||||||||
Balance, December 31, 2005 | 44,639 | 2,954,840 | 7,267,649 | (2,048,515 | ) | 108,927 | 8,327,540 | |||||||||||||||||
F-7
Table of Contents
Total | ||||||||||||||||||||||||
Common | Capital | Retained | Capital | Minority | Shareholders’ | |||||||||||||||||||
Stock | Surplus | Earnings | Adjustments | Interest | Equity | |||||||||||||||||||
Balance, January 1, 2006 | 44,639 | 2,954,840 | 7,267,649 | (2,048,515 | ) | 108,927 | 8,327,540 | |||||||||||||||||
Net income | — | — | 1,451,491 | — | (1,939 | ) | 1,449,552 | |||||||||||||||||
Cash dividends paid (Note 20) | — | — | (588,914 | ) | — | — | (588,914 | ) | ||||||||||||||||
Interim cash dividends paid (Note 20) | — | — | (73,714 | ) | — | — | (73,714 | ) | ||||||||||||||||
Transfer of stock option from capital adjustments to capital surplus (Notes 14 and 17) | — | 234 | — | (234 | ) | — | — | |||||||||||||||||
Equity in capital surplus and capital adjustment changes of affiliates (Notes 2 and 5) | — | (1,014 | ) | — | 45,956 | — | 44,942 | |||||||||||||||||
Conversion of convertible bonds (Note 9) | — | (3,733 | ) | — | 24,291 | — | 20,558 | |||||||||||||||||
Acquisition and retirement of treasury stock (Note 16) | — | — | (209,078 | ) | — | — | (209,078 | ) | ||||||||||||||||
Unrealized gain on valuation of long-term investment securities (Notes 2 and 4) | — | — | — | 471,321 | — | 471,321 | ||||||||||||||||||
Loss on valuation of currency swap (Note 2) | — | — | — | (2,640 | ) | — | (2,640 | ) | ||||||||||||||||
Foreign-based operations’ translation adjustment (Note 2) | — | — | — | (19,737 | ) | — | (19,737 | ) | ||||||||||||||||
Increase in minority interest in equity of consolidated subsidiaries | — | — | — | — | 63,258 | 63,258 | ||||||||||||||||||
Balance, December 31, 2006 | 44,639 | 2,950,327 | 7,847,434 | (1,529,558 | ) | 170,246 | 9,483,088 | |||||||||||||||||
(In thousands of U.S. dollars) (Note 2 a) | ||||||||||||||||||||||||
Balance, January 1, 2006 | $ | 47,999 | $ | 3,177,247 | $ | 7,814,676 | $ | (2,202,704 | ) | $ | 117,126 | $ | 8,954,344 | |||||||||||
Net income | — | — | 1,560,743 | — | (2,085 | ) | 1,558,658 | |||||||||||||||||
Cash dividends paid (Note 20) | — | — | (633,241 | ) | — | — | (633,241 | ) | ||||||||||||||||
Interim cash dividends paid (Note 20) | — | — | (79,262 | ) | — | — | (79,262 | ) | ||||||||||||||||
Transfer of stock option from capital adjustments to capital surplus (Notes 14 and 17) | — | 252 | — | (252 | ) | — | — | |||||||||||||||||
Equity in capital surplus and capital adjustment changes of affiliates (Notes 2 and 5) | — | (1,090 | ) | — | 49,415 | — | 48,325 | |||||||||||||||||
Conversion of convertible bonds (Note 9) | — | (4,014 | ) | — | 26,119 | — | 22,105 | |||||||||||||||||
Acquisition and retirement of treasury stock (Note 16) | — | — | (224,815 | ) | — | — | (224,815 | ) | ||||||||||||||||
Unrealized gain on valuation of long-term investment securities (Notes 2 and 4) | — | — | — | 506,797 | — | 506,797 | ||||||||||||||||||
Loss on valuation of currency swap (Note 2) | — | — | — | (2,839 | ) | — | (2,839 | ) | ||||||||||||||||
Foreign-based operations’ translation adjustment (Note 2) | — | — | — | (21,222 | ) | — | (21,222 | ) | ||||||||||||||||
Increase in minority interest in equity of consolidated subsidiaries | — | — | — | — | 68,019 | 68,019 | ||||||||||||||||||
Balance, December 31, 2006 | $ | 47,999 | $ | 3,172,395 | $ | 8,438,101 | ($ | 1,644,686 | ) | $ | 183,060 | $ | 10,196,869 | |||||||||||
F-8
Table of Contents
In Thousands | ||||||||||||||||
of U.S. Dollars | ||||||||||||||||
In Millions of Korean Won | (Note 2 a) | |||||||||||||||
2004 | 2005 | 2006 | 2006 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net income | 1,491,479 | 1,872,978 | 1,451,491 | $ | 1,560,743 | |||||||||||
Expenses not involving cash payments : | ||||||||||||||||
Provision for severance indemnities | 58,151 | 47,073 | 47,370 | 50,935 | ||||||||||||
Depreciation and amortization | 1,752,530 | 1,675,528 | 1,698,364 | 1,826,198 | ||||||||||||
Provision for bad debts | 43,144 | 115,731 | 86,321 | 92,818 | ||||||||||||
Foreign currency translation loss | 2,179 | 981 | 1,106 | 1,189 | ||||||||||||
Loss on disposal and valuation of trading securities | 232 | 16 | — | — | ||||||||||||
Loss on transactions and valuation of currency forward and swap | 15,818 | — | 9,258 | 9,955 | ||||||||||||
Equity in losses of affiliates | 11,954 | 71,825 | 211,464 | 227,381 | ||||||||||||
Loss on impairment of long-term investment securities | 33,654 | 3,422 | 27,696 | 29,781 | ||||||||||||
Loss on disposal of investment assets | 1,539 | 4,017 | 6,096 | 6,555 | ||||||||||||
Loss on disposal and impairment of property, equipment and intangible assets | 19,208 | 6,783 | 24,178 | 25,998 | ||||||||||||
Minority interest in net gain of consolidated subsidiaries | 1,935 | — | — | — | ||||||||||||
Amortization of discounts on bonds and other | 46,274 | 51,846 | 51,077 | 54,921 | ||||||||||||
Sub-total | 1,986,618 | 1,977,222 | 2,162,930 | 2,325,731 | ||||||||||||
Income not involving cash receipts : | ||||||||||||||||
Reversal of allowance for doubtful accounts | (759 | ) | (450 | ) | (789 | ) | (848 | ) | ||||||||
Foreign currency translation gain | (3,367 | ) | (658 | ) | (924 | ) | (994 | ) | ||||||||
Gain on disposal and valuation of trading securities | (2,548 | ) | (1 | ) | — | — | ||||||||||
Gain on disposal of investment assets | (2,004 | ) | (24,613 | ) | (27,490 | ) | (29,559 | ) | ||||||||
Gain on disposal of consolidated subsidiary | — | (178,689 | ) | (1,556 | ) | (1,673 | ) | |||||||||
Gain on disposal of property, equipment and intangible assets | (2,067 | ) | (4,693 | ) | (4,507 | ) | (4,846 | ) | ||||||||
Gain on transactions and valuation of currency forward and swap | (2,850 | ) | (2,545 | ) | (16,660 | ) | (17,914 | ) | ||||||||
Equity in earnings of affiliates | — | (20,949 | ) | (45,787 | ) | (49,233 | ) | |||||||||
Minority interest in net loss of consolidated subsidiaries | — | (4,671 | ) | (1,939 | ) | (2,086 | ) | |||||||||
Other | (1,074 | ) | (765 | ) | (3,075 | ) | (3,306 | ) | ||||||||
Sub-total | (14,669 | ) | (238,034 | ) | (102,727 | ) | (110,459 | ) | ||||||||
Changes in assets and liabilities related to operating activities: | ||||||||||||||||
Accounts receivable — trade | (170,891 | ) | (210,957 | ) | (161,914 | ) | (174,101 | ) | ||||||||
Accounts receivable — other | (552,343 | ) | 22,284 | 57,253 | 61,562 | |||||||||||
Inventories | (20,982 | ) | 8,297 | (9,145 | ) | (9,833 | ) | |||||||||
Prepaid expenses | 638 | 9,016 | 61,148 | 65,751 | ||||||||||||
Accrued income and other | (6,187 | ) | (24,938 | ) | 5,865 | 6,306 | ||||||||||
Accounts payable | (90,977 | ) | (34,441 | ) | 161,611 | 173,775 | ||||||||||
Income taxes payable | (125,430 | ) | 88,477 | (44,637 | ) | (47,997 | ) | |||||||||
Accrued expenses | (26,622 | ) | (12,944 | ) | 37,985 | 40,844 | ||||||||||
Withholdings | 11,828 | 19,717 | 123,003 | 132,261 | ||||||||||||
Current portion of subscription deposits | 2,580 | 1,495 | 885 | 952 | ||||||||||||
Advance receipts and other | 10,780 | (22,221 | ) | 21,585 | 23,210 | |||||||||||
Deferred income taxes | 78,356 | 7,640 | (76,423 | ) | (82,175 | ) | ||||||||||
Severance indemnity payments | (27,582 | ) | (24,365 | ) | (262,948 | ) | (282,740 | ) | ||||||||
Dividends received from affiliates | 755 | 785 | 1,318 | 1,417 | ||||||||||||
Deposits for group severance indemnities and other deposits | (19,489 | ) | (32,869 | ) | 162,545 | 174,780 | ||||||||||
Sub-total | (935,566 | ) | (205,024 | ) | 78,131 | 84,012 | ||||||||||
Net Cash Provided by Operating Activities | 2,527,862 | 3,407,142 | 3,589,825 | 3,860,027 | ||||||||||||
F-9
Table of Contents
In Thousands | ||||||||||||||||
of U.S. Dollars | ||||||||||||||||
In Millions of Korean Won | (Note 2 a) | |||||||||||||||
2004 | 2005 | 2006 | 2006 | |||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Decrease (increase) in short-term financial instruments | 90,034 | (75,261 | ) | 4,470 | $ | 4,806 | ||||||||||
Decrease in long-term financial instruments | 50,006 | 2 | 2 | 2 | ||||||||||||
Decrease (increase) in trading securities | 240,204 | (122,710 | ) | 80,060 | 86,086 | |||||||||||
Decrease in current portion of long-term investment securities | 85,861 | 53,608 | — | — | ||||||||||||
Collection of short-term loans | 89,447 | 60,530 | 96,892 | 104,185 | ||||||||||||
Collection of long-term loans | 4,746 | 57 | 654 | 703 | ||||||||||||
Proceeds from disposal of long-term investment securities | 17,658 | 40,889 | 305,953 | 328,982 | ||||||||||||
Proceeds from disposal of equity securities accounted for using the equity method | 268 | 7,539 | 80,014 | 86,037 | ||||||||||||
Proceeds from disposal of consolidated subsidiary | — | 290,966 | 39,062 | 42,002 | ||||||||||||
Decrease in guarantee deposits | 22,096 | 142,131 | 71,164 | 76,520 | ||||||||||||
Decrease in other non-current assets | 36,287 | 36,110 | 19,940 | 21,441 | ||||||||||||
Proceeds from disposal of property and equipment | 10,116 | 34,179 | 14,353 | 15,433 | ||||||||||||
Proceeds from disposal of intangible assets | 2,291 | 107 | 1,630 | 1,753 | ||||||||||||
Increase in short-term loans | (56,428 | ) | (59,008 | ) | (92,753 | ) | (99,734 | ) | ||||||||
Increase in long-term loans | (35,291 | ) | (5,766 | ) | (12,623 | ) | (13,573 | ) | ||||||||
Increase in long-term financial instruments | (60,005 | ) | (1,140 | ) | (10,091 | ) | (10,851 | ) | ||||||||
Acquisition of long-term investment securities | (54,132 | ) | (319,061 | ) | (1,127,396 | ) | (1,212,254 | ) | ||||||||
Acquisition of equity securities accounted for using the equity method | (21,086 | ) | (231,793 | ) | (244,333 | ) | (262,724 | ) | ||||||||
Increase in guarantee deposits | (40,957 | ) | (75,295 | ) | (30,290 | ) | (32,570 | ) | ||||||||
Increase in other non-current assets | (82,843 | ) | (86,803 | ) | (132,349 | ) | (142,310 | ) | ||||||||
Acquisition of property and equipment | (1,631,941 | ) | (1,416,622 | ) | (1,498,142 | ) | (1,610,905 | ) | ||||||||
Acquisition of intangible assets | (72,376 | ) | (199,494 | ) | (73,964 | ) | (79,531 | ) | ||||||||
Acquisition of minority interest | (64,247 | ) | (11,352 | ) | (27,406 | ) | (29,469 | ) | ||||||||
Net Cash Used in Investing Activities | (1,470,292 | ) | (1,938,187 | ) | (2,535,153 | ) | (2,725,971 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Increase in short-term borrowings | — | — | 51,230 | $ | 55,086 | |||||||||||
Issuance of bonds payable | 1,205,727 | 193,683 | 384,990 | 413,968 | ||||||||||||
Proceeds from long-term borrowings | — | — | 294,800 | 316,989 | ||||||||||||
Repayment of short-term borrowings | (359,133 | ) | (376,929 | ) | — | — | ||||||||||
Repayment of current portion of long-term debt | (1,370,611 | ) | (500,033 | ) | (815,287 | ) | (876,653 | ) | ||||||||
Repayment of bonds payable | (5,068 | ) | — | (1,230 | ) | (1,323 | ) | |||||||||
Payment of dividends | (478,318 | ) | (758,192 | ) | (662,815 | ) | (712,704 | ) | ||||||||
Decrease in facility deposits | (12,757 | ) | (7,670 | ) | (2,630 | ) | (2,828 | ) | ||||||||
Transaction of currency forward and swap | 2,821 | — | — | — | ||||||||||||
Acquisition and retirement of treasury stock | (2 | ) | — | (209,078 | ) | (224,815 | ) | |||||||||
Increase in minority interest in equity of consolidated subsidiaries | 45,065 | 21,243 | 19,050 | 20,484 | ||||||||||||
Other | 3,706 | (1,140 | ) | (11,407 | ) | (12,266 | ) | |||||||||
Net Cash Used in Financing Activities | (968,570 | ) | (1,429,038 | ) | (952,377 | ) | (1,024,062 | ) | ||||||||
THE EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS HELD IN FOREIGN CURRENCIES (Note 2) | (11,055 | ) | (3,036 | ) | (9,317 | ) | (10,018 | ) | ||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DUE TO CHANGES IN CONSOLIDATED SUBSIDIARIES | (24,803 | ) | (29,085 | ) | 14,568 | 15,665 | ||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 53,142 | 7,796 | 107,546 | 115,641 | ||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR | 317,488 | 370,630 | 378,426 | 406,910 | ||||||||||||
CASH AND CASH EQUIVALENTS AT END OF THE YEAR | 370,630 | 378,426 | 485,972 | $ | 522,551 | |||||||||||
F-10
Table of Contents
1. | GENERAL |
Percentage of | ||||||||
Number of | Total Shares | |||||||
Shares | Issued (%) | |||||||
SK Group | 18,748,452 | 23.09 | ||||||
POSCO | 2,341,569 | 2.88 | ||||||
Institutional investors and other minority shareholders | 51,577,438 | 63.53 | ||||||
Treasury stock | 8,526,252 | 10.50 | ||||||
81,193,711 | 100.00 | |||||||
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
a. | Basis of Presentation |
F-11
Table of Contents
b. | Principles of Consolidation |
Year of | Ownership Percentage (%) | |||||||||||||||||
Subsidiary | Establishment | Primary Business | 2004 | 2005 | 2006 | |||||||||||||
SK Capital Co., Ltd. | 1995 | Finance | 100.00 | 100.00 | — | |||||||||||||
SK Telink Co., Ltd. | 1998 | Telecommunication services | 90.77 | 90.77 | 90.77 | |||||||||||||
SK Communications Co., Ltd. | 1999 | Internet website services | 93.44 | 92.37 | 87.08 | |||||||||||||
SK Wyverns Baseball Club Co., Ltd. | 2000 | Business related sports | 99.99 | 99.99 | 99.99 | |||||||||||||
Centurion IT Investment Association | 2001 | Investment association | 37.50 | 37.50 | 37.50 | |||||||||||||
Global Credit & information Corp. | 1998 | Credit and collection Services | 50.00 | 50.00 | 50.00 | |||||||||||||
PAXNet Co., Ltd. | 1999 | Internet website services | 67.10 | 67.10 | 59.74 | |||||||||||||
Seoul Records, Inc. | 1982 | Release of music disc | — | 60.00 | 60.00 | |||||||||||||
IHQ, Inc. | 1962 | Business related Entertainment | — | 21.60 | 34.08 | |||||||||||||
YTN Media, Inc | 2000 | Broadcasting services | — | — | 51.42 | |||||||||||||
SK Telecom International Inc. | 1995 | Internet website services | 100.00 | 100.00 | 100.00 | |||||||||||||
SLD Telecom PTE Ltd. | 2000 | Telecommunication services | 55.10 | 55.10 | 73.32 | |||||||||||||
SK Telecom China Co., Ltd. | 2002 | Telecommunication services | 100.00 | 100.00 | 100.00 | |||||||||||||
ULand Company Limited | 2004 | Telecommunication services | 100.00 | 100.00 | 100.00 | |||||||||||||
SK Telecom USA Holdings, Inc. | 2005 | Telecommunication services | — | 100.00 | 100.00 | |||||||||||||
The First Music Investment Fund of SK-PVC | 2005 | Investment association | — | 99.00 | 99.00 | |||||||||||||
The Second Music Investment Fund of SK-PVC | 2005 | Investment association | — | 99.00 | 99.00 | |||||||||||||
SK-KTB Music Investment Fund | 2005 | Investment association | — | 99.00 | 99.00 | |||||||||||||
IMM Cinema Fund | 2005 | Investment association | — | 48.39 | 60.84 | |||||||||||||
SK Teletech Co., Ltd. | 1995 | Handset manufacturing | 89.13 | — | — |
F-12
Table of Contents
c. | Use of Estimates |
d. | Cash Equivalents |
e. | Allowance for Doubtful Accounts |
2004 | 2005 | 2006 | ||||||||||
Beginning balance | 65,327 | 71,090 | 133,499 | |||||||||
Write-offs | (23,418 | ) | (49,181 | ) | (90,780 | ) | ||||||
41,909 | 21,909 | 42,719 | ||||||||||
Provision for doubtful accounts receivable-trade | 29,181 | 112,792 | 61,457 | |||||||||
Increase (decrease) due to the changes in consolidated subsidiaries | — | (1,202 | ) | 2,561 | ||||||||
End of year | 71,090 | 133,499 | 106,737 | |||||||||
f. | Inventories |
g. | Securities (excluding securities accounted for using the equity method of accounting) |
F-13
Table of Contents
h. | Equity Securities Accounted for Using the Equity Method of Accounting |
i. | Property and Equipment |
F-14
Table of Contents
j. | Intangible Assets |
k. | Convertible Bonds and Bonds with Stock Purchase Warrants |
l. | Discounts on Bonds |
m. | Valuation of Long-Term Payables |
n. | Provisions, Contingent Liabilities and Contingent Assets |
• | Possible obligations related to past events, for which the existence of a liability can only be confirmed upon occurrence of uncertain future event or events outside the control of the Company. | |
• | Present obligations arising out of past events or transactions, for which i) a disbursement of economic resources to fulfill such obligations is not probable or ii) a disbursement of economic resources is probable, but the related amount cannot be reasonably estimated. |
F-15
Table of Contents
o. | Accrued Severance Indemnities |
F-16
Table of Contents
2004 | 2005 | 2006 | ||||||||||
Beginning net balance | 67,824 | 80,984 | 71,284 | |||||||||
Provision | 58,151 | 47,073 | 47,370 | |||||||||
Payments to employees | (27,582 | ) | (24,365 | ) | (262,948 | ) | ||||||
Net increase due to the changes in consolidated subsidiaries | 2,372 | 594 | 4,010 | |||||||||
Changes in deposits for severance indemnities | (19,781 | ) | (33,002 | ) | 162,568 | |||||||
Ending net balance | 80,984 | 71,284 | 22,284 | |||||||||
Ending balance: | ||||||||||||
Accrued severance indemnities | 251,314 | 267,855 | 51,243 | |||||||||
Deposits with insurance companies | (164,643 | ) | (191,354 | ) | (28,868 | ) | ||||||
National Pension Fund | (5,687 | ) | (5,217 | ) | (91 | ) | ||||||
Net balance | 80,984 | 71,284 | 22,284 | |||||||||
p. | Accounting fort Leases |
q. | Research and Development Costs |
r. | Derivative Instruments |
s. | Revenue Recognition |
F-17
Table of Contents
t. | Income Taxes |
u. | Net Income Per Share |
v. | Foreign-Based Operations’ Translation Adjustment |
w. | Accounting for Foreign Currency Transactions and Translation |
x. | Accounting for Employee Stock Option Compensation Plan |
F-18
Table of Contents
y. | Handset Subsidies to Long-term Mobile Subscribers |
z. | Adoption of New Statements of Korea Accounting Standards (“SKAS”) |
• | Through 2004, when the Company’s equity interests in the equity method investees were diluted as a result of the equity method investees’ new issuance of their common stocks to third parties, the changes in the Company’s proportionate equity of investees were accounted for as capital transactions. Effective January 1, 2005, such transactions are accounted for as income statement treatment, pursuant to adoption of SKAS No. 15, “Investments : Equity Method”. As a result of adopting SKAS No. 15, net income for the year ended December 31, 2005 increased by | |
• | Through 2004, tax effects of temporary differences related to capital surplus or capital adjustments were excluded in determining the deferred tax assets or liabilities. Effective January 1, 2005, such tax effects of temporary differences are included in determining the deferred tax assets or liabilities, pursuant to adoption of SKAS No. 16 “Income Taxes”. Accordingly, adjustments made directly to capital surplus or capital adjustments, which result in temporary differences, are recorded net of related tax effects. In addition, effective January 1, 2005, deferred income tax assets and liabilities which were presented on the balance sheet as a single non-current net number through 2004, are separated into current and non-current portions. As a result of adopting SKAS No. 16, total assets and total liabilities as of December 31, 2005 increased by | |
• | Through 2004, provisions were recorded at nominal value. Effective January 1, 2005, provisions are recorded at the present value when the effect of the time value of money is material, pursuant to adoption of SKAS No. 17 “Provisions, Contingent Liabilities and Contingent Assets”. SKAS No. 17 is prospectively applied and as a result of adopting such accounting standard, total liabilities as of December 31, 2005 decreased by |
F-19
Table of Contents
aa. | Reclassifications |
2004 | 2005 | |||||||
Cash flows from operating activities, as previously reported | 2,516,807 | 3,404,106 | ||||||
Revision | 11,055 | 3,036 | ||||||
Cash flows from operating activities, as revised | 2,527,862 | 3,407,142 | ||||||
The effect of exchange rate changes on cash and cash equivalents held in foreign currencies, as previously reported | — | — | ||||||
Revision | (11,055 | ) | (3,036 | ) | ||||
The effect of exchange rate changes on cash and cash equivalents held in foreign currencies, as revised | (11,055 | ) | (3,036 | ) | ||||
F-20
Table of Contents
3. | INVENTORIES |
2004 | 2005 | 2006 | ||||||||||
Merchandise | 164 | 863 | 1,167 | |||||||||
Finished goods | 19,286 | 766 | 2,282 | |||||||||
Semi-finished goods | 7,019 | — | 41 | |||||||||
Raw materials | 14,791 | 493 | 313 | |||||||||
Supplies | 11,061 | 6,301 | 16,782 | |||||||||
Total | 52,321 | 8,423 | 20,585 | |||||||||
Less allowance for valuation loss | — | (639 | ) | (807 | ) | |||||||
Net | 52,321 | 7,784 | 19,778 | |||||||||
4. | INVESTMENT SECURITIES |
a. | Trading Securities |
Acquisition Cost | Fair Value | |||||||||||||||||||
at December 31, | at December 31, | Carrying Amount | ||||||||||||||||||
2006 | 2006 | 2004 | 2005 | 2006 | ||||||||||||||||
Stocks | 12 | 12 | 368 | 12 | 12 | |||||||||||||||
Beneficiary certificates | 665,300 | 665,300 | 654,411 | 777,460 | 665,300 | |||||||||||||||
Total | 665,312 | 665,312 | 654,779 | 777,472 | 665,312 | |||||||||||||||
b. | Long-term Investment Securities |
2004 | 2005 | 2006 | ||||||||||
Available-for-sale equity securities | 896,508 | 923,821 | 1,011,971 | |||||||||
Available-for-sale debt securities | 5,158 | 296,273 | 1,463,636 | |||||||||
Held-to-maturity securities | 50,144 | 115 | 146 | |||||||||
Total | 951,810 | 1,220,209 | 2,475,753 | |||||||||
Less current portion | (3,709 | ) | (1 | ) | (335 | ) | ||||||
Long-term portion | 948,101 | 1,220,208 | 2,475,418 | |||||||||
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Table of Contents
b-(1). | Available-for-sale Equity Securities |
Ownership | Acquisition | |||||||||||||||||||||||||||
Number | Percentage (%) | Cost | Fair Value | Carrying Amount | ||||||||||||||||||||||||
of Shares | at Dec. 31, 2006 | at Dec. 31, 2006 | at Dec. 31, 2006 | 2004 | 2005 | 2006 | ||||||||||||||||||||||
(Investments in listed companies) | ||||||||||||||||||||||||||||
Digital Chosunilbo Co., Ltd. | 2,890,630 | 7.8 | 5,781 | 5,897 | 2,023 | 5,796 | 5,897 | |||||||||||||||||||||
hanarotelecom incorporated | 11,045,000 | 4.8 | 121,677 | 88,581 | 71,019 | 56,440 | 88,581 | |||||||||||||||||||||
KRTnet Corporation | 234,150 | 4.4 | 1,171 | 2,517 | 2,178 | 2,646 | 2,517 | |||||||||||||||||||||
POSCO | 2,481,310 | 2.8 | 332,662 | 766,725 | 464,005 | 501,225 | 766,725 | |||||||||||||||||||||
Comas Interactive Co., Ltd. (Formerly INNOTG Co., Ltd.) | 59,473 | 0.4 | 1,695 | 83 | 152 | 83 | 83 | |||||||||||||||||||||
eXtended Computing Environment Co., Ltd. (note a) | 133,333 | 3.3 | 10 | 876 | — | 10 | 876 | |||||||||||||||||||||
ZeroOne Interactive Co., Ltd. | 2,472,999 | 7.2 | 4,500 | 3,845 | — | — | 3,845 | |||||||||||||||||||||
HB Entertainment Co., Ltd. | 752,692 | 3.8 | 2,258 | 1,137 | — | 2,408 | 1,137 | |||||||||||||||||||||
SK SECURITIES CO., Ltd. | — | — | — | (note b | ) | 2,418 | — | — | ||||||||||||||||||||
SINJISOFT Corporation | — | — | — | (note b | ) | 590 | — | — | ||||||||||||||||||||
CoWon System, Inc. | — | — | — | (note b | ) | 1,600 | — | — | ||||||||||||||||||||
sub-total | 469,754 | 543,985 | 568,608 | 869,661 | ||||||||||||||||||||||||
(Investments in non-listed companies) | ||||||||||||||||||||||||||||
LG Powercomm Co., Ltd. (note c) (Formerly Powercomm Co., Ltd.) | 7,500,000 | 5.0 | 240,243 | 80,370 | 71,565 | 77,130 | 80,370 | |||||||||||||||||||||
Japan MBCO | 54,000 | 7.3 | 27,332 | (note d | ) | 27,332 | 27,332 | — | ||||||||||||||||||||
Eonex Technologies Inc. | 144,000 | 12.3 | 3,600 | (note e | ) | 4,593 | 4,593 | 4,593 | ||||||||||||||||||||
The Korea Economic Daily | 2,792,759 | 13.8 | 13,964 | (note e | ) | 2,077 | 13,964 | 13,964 | ||||||||||||||||||||
Cheongsol | 4,328 | 7.7 | 5,000 | (note e | ) | — | — | 5,000 | ||||||||||||||||||||
Mirae Asset Life Insurance Co., Ltd. | — | — | — | (note b | ) | 14,890 | — | — | ||||||||||||||||||||
WiderThan Co., Ltd. | — | — | — | (note f | ) | 3,188 | — | — | ||||||||||||||||||||
Other | 143,394 | (notes e and g | ) | 32,472 | 32,202 | 34,367 | ||||||||||||||||||||||
sub-total | 433,533 | 156,117 | 155,221 | 138,294 | ||||||||||||||||||||||||
(Investments in funds) | ||||||||||||||||||||||||||||
Korea IT Fund | (note h | ) | 190,000 | 190,000 | — | |||||||||||||||||||||||
Others | (notes e and i | ) | 6,406 | 9,992 | 4,016 | |||||||||||||||||||||||
sub-total | 196,406 | 199,992 | 4,016 | |||||||||||||||||||||||||
Total | 896,508 | 923,821 | 1,011,971 | |||||||||||||||||||||||||
(note a) | The common stocks of eXtended Computing Environment Co., Ltd. were listed on the Korea Securities Dealers Automated Quotation in the Korea Stock Exchange for the year ended December 31, 2006. | |
(note b) | The investments in common stock of SK Securities Co., Ltd., SINJISOFT Corporation, CoWon Systems, Inc. and Mirae Asset Life Insurance Co., Ltd. were all sold during the year ended December 31, 2005. | |
(note c) | The Company recorded its investments in common stock of LG Powercomm Co., Ltd. at its fair value, which was estimated by an outside professional valuation company using the present value of expected future cash flows and the unrealized loss on valuation of investments amounting to | |
(note d) | Due to the impairment of the Company’s investments in common stock of Japan MBCO, the Company recorded impairment loss on such investments of | |
(note e) | As a reasonable estimate of fair value could not be made, the investment is stated at acquisition cost. The investment in common stock of Eonex Technologies Inc. was reclassified to available-for-sale securities from equity securities accounted for using the equity method during the year ended December 31, 2003, as the Company’s ownership in such investees decreased to less than 20% and the Company no longer exercises significant influence. Such securities were transferred to available-for-sale securities at the carrying amount valued using the equity method of accounting prior to the reclassification. |
F-22
Table of Contents
(note f) | The investment in common stock of WiderThan Co., Ltd. was reclassified to equity securities accounted for using the equity method during 2005. Although the Company’s ownership in WiderThan Co., Ltd. is less than 20%, the Company exercises significant influence on the selection of directors and the investee has significant transactions with the Company. | |
(note g) | Due to the impairment of their investments in common stock of Mobilewelcom Co., Ltd., CXP Inc., LoveHunt Inc. and others in 2004, TeleMerc.com, Fibernett Co., Ltd. and others in 2005 and Astro Nest Inc., D&D Media Inc. and others in 2006, the Company recorded impairment losses of | |
(note h) | The investment in Korea IT Fund was reclassified to equity securities accounted for using the equity method for the year ended December 31, 2006 as the Company has the ability to exercise significant influence on the investee. | |
(note i) | Due to the impairment of their investments in cinema projects, the Company and certain subsidiaries recorded impairment losses of |
b-(2). | Available-for-sale Debt Securities |
Acquisition Cost | ||||||||||||||||||
at December 31, | Carrying Amount | |||||||||||||||||
Maturity | 2006 | 2004 | 2005 | 2006 | ||||||||||||||
Public bonds | (note a) | 51,317 | 1,328 | 1,599 | 51,313 | |||||||||||||
Currency stabilization bonds | (note b) | 49,882 | — | 294,674 | 49,894 | |||||||||||||
Convertible bonds of Real Telecom Co., Ltd. (note c) | Mar. 29, 2007 | 10,656 | — | — | — | |||||||||||||
Convertible bonds of China Unicom Ltd. (note d) | Jul. 5, 2007 | 957,055 | — | — | 1,276,703 | |||||||||||||
Convertible bonds of Empas Corp. (note e) | Oct. 18, 2009 | 44,850 | — | — | 78,670 | |||||||||||||
Others | 6,984 | 3,830 | — | 7,056 | ||||||||||||||
Total | 5,158 | 296,273 | 1,463,636 | |||||||||||||||
Less current portion of available-for-sale debt securities | (3,700 | ) | — | (256 | ) | |||||||||||||
Long-term available-for-sale debt securities | 1,458 | 296,273 | 1,463,380 | |||||||||||||||
(note a) | The maturities of public bonds as of December 31, 2006 are within 5 years for | |
(note b) | The maturities of currency stabilization bonds as of December 31, 2006 are within 5 years. | |
(note c) | The convertible bonds of Real Telecom Co., Ltd. with a principal amount of | |
(note d) | On July 5, 2006, the Company purchased zero coupon convertible bonds of China Unicom Ltd. with maturity of three years and principal amount of US$1,000,000,000 for US$1,000,000,000. Such convertible bonds have initial conversion price of US$1.111426 per share of common stock of China Unicom Ltd. The bond holders may redeem their notes at 102.82% of the principal amount on July 5, 2008 (2 years from the issuance date). The conversion right may be exercised during the period from July 5, 2007 to June 29, 2009 and the number of common shares to be converted as of December 31, 2006 is 899,745,075 shares. Unless either previously redeemed or converted, the notes are redeemable at 104.26% of the principal amount at maturity. The Company recorded the convertible bonds of China Unicom Ltd. at its fair value, which was estimated by an outside professional valuation company using Cox, Ross & Rubinstein Model (1979) and discount rate of 5.9138%. If all such bonds are converted, the Company’s equity interest in China Unicom Ltd. will be 6.67%. The Company is not allowed to, at any time after the date of issuance of the conversion shares, sell or otherwise transfer or dispose of any conversion shares that represents more than 2 percent of the share capital of China Unicom Ltd. in any calendar quarter, except for any placing of shares outside of Hong Kong Stock Exchange. | |
(note e) | On October 19, 2006, SK Communications Co., Ltd., a subsidiary of the Company, purchased convertible bonds of Empas Corporation. Such convertible bonds can be converted into 3,450,000 shares of common stock of Empas Corporation at |
F-23
Table of Contents
b-(3). | Held-to-maturity Securities |
Acquisition Cost | ||||||||||||||||||||
at December 31, | Carrying Amount | |||||||||||||||||||
Maturity | 2006 | 2004 | 2005 | 2006 | ||||||||||||||||
Public bonds | (note a | ) | 146 | 144 | 115 | 146 | ||||||||||||||
Subordinated bonds of Mirae Asset Life Insurance Co., Ltd. | (note b | ) | — | 50,000 | — | — | ||||||||||||||
Total | 50,144 | 115 | 146 | |||||||||||||||||
Less current portion of held-to-maturity securities | (9 | ) | (1 | ) | (79 | ) | ||||||||||||||
Long-term held-to-maturity securities | 50,135 | 114 | 67 | |||||||||||||||||
(note a) | The maturities of public bonds as of December 31, 2006 are within 1 year for | |
(note b) | The Subordinated bonds of Mirae Asset Life Insurance Co., Ltd. were all early paid during 2005. |
b-(4). | Changes in Unrealized Gains (Losses) on Valuation on Long-term Investment Securities |
For the Year Ended December 31, 2004 | ||||||||||||||||
Beginning | Increase/ | Transferred to | Ending | |||||||||||||
Balance | (Decrease) | Realized Gain (Loss) | Balance | |||||||||||||
Digital Chosunilbo Co., Ltd. | (2,934 | ) | (824 | ) | — | (3,758 | ) | |||||||||
hanarotelecom incorporated | (55,468 | ) | 4,811 | — | (50,657 | ) | ||||||||||
KRTnet Corporation | 1,498 | (491 | ) | — | 1,007 | |||||||||||
POSCO | 71,792 | 59,551 | — | 131,343 | ||||||||||||
Comas Interactive Co., Ltd. (Formerly INNOTG Co., Ltd.) | — | (1,543 | ) | — | (1,543 | ) | ||||||||||
SINJISOFT Corporation | — | 460 | — | 460 | ||||||||||||
LG Powercomm Co., Ltd. (Formerly Powercomm Co., LTd.) | (171,836 | ) | 3,158 | — | (168,678 | ) | ||||||||||
Eonex Technologies Inc. | — | 2,011 | — | 2,011 | ||||||||||||
WiderThan Co., Ltd. | — | (27 | ) | — | (27 | ) | ||||||||||
SK Securities Co., Ltd. | (3,674 | ) | 541 | — | (3,133 | ) | ||||||||||
Total | (160,622 | ) | 67,647 | — | (92,975 | ) | ||||||||||
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For the Year Ended December 31, 2005 | ||||||||||||||||||||
Minority Interest | ||||||||||||||||||||
�� | Transferred | in Equity of | ||||||||||||||||||
Beginning | Increase/ | to Realized | Consolidated | Ending | ||||||||||||||||
Balance | (Decrease) | Gain (Loss) | Subsidiaries | Balance | ||||||||||||||||
Digital Chosunilbo Co., Ltd. | (3,758 | ) | 3,772 | — | — | 14 | ||||||||||||||
hanarotelecom incorporated | (50,657 | ) | (14,580 | ) | — | — | (65,237 | ) | ||||||||||||
KRTnet Corporation | 1,007 | 468 | — | — | 1,475 | |||||||||||||||
POSCO | 131,343 | 37,220 | — | — | 168,563 | |||||||||||||||
Comas Interactive Co., Ltd. (Formerly INNOTG Co., Ltd.) | (1,543 | ) | (68 | ) | — | — | (1,611 | ) | ||||||||||||
HB Entertainment Co., Ltd. | — | 150 | — | (94 | ) | 56 | ||||||||||||||
SK Securities Co., Ltd. | (3,133 | ) | 3,610 | (477 | ) | — | — | |||||||||||||
SINJISOFT Corporation | 460 | — | (460 | ) | — | — | ||||||||||||||
CoWon Systems, Inc. | — | 585 | (585 | ) | — | — | ||||||||||||||
LG Powercomm Co., Ltd. (Formerly Powercomm Co., LTd.) | (168,678 | ) | 5,565 | — | — | (163,113 | ) | |||||||||||||
Eonex Technologies Inc. | 2,011 | — | — | — | 2,011 | |||||||||||||||
WiderThan Co., Ltd. | (27 | ) | 27 | — | — | — | ||||||||||||||
Currency stabilization bonds | — | (217 | ) | — | — | (217 | ) | |||||||||||||
Sub-total | (92,975 | ) | 36,532 | (1,522 | ) | (94 | ) | (58,059 | ) | |||||||||||
Less tax effect (note a) | 25,568 | (10,046 | ) | 418 | 26 | 15,966 | ||||||||||||||
Total | (67,407 | ) | 26,486 | (1,104 | ) | (68 | ) | (42,093 | ) | |||||||||||
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For the Year Ended December 31, 2006 | ||||||||||||||||||||
Minority Interest | ||||||||||||||||||||
Transferred | in Equity of | |||||||||||||||||||
Beginning | Increase/ | to Realized | Consolidated | Ending | ||||||||||||||||
Balance | (Decrease) | Gain (Loss) | Subsidiaries | Balance | ||||||||||||||||
Digital Chosunilbo Co., Ltd. | 14 | 102 | — | — | 116 | |||||||||||||||
hanarotelecom incorporated | (65,237 | ) | 32,141 | — | — | (33,096 | ) | |||||||||||||
KRTnet Corporation | 1,475 | (129 | ) | — | — | 1,346 | ||||||||||||||
POSCO | 168,563 | 265,500 | — | — | 434,063 | |||||||||||||||
Comas Interactive Co., Ltd. (Formerly INNOTG Co., Ltd.) | (1,611 | ) | — | — | — | (1,611 | ) | |||||||||||||
eXtended Computing Environment Co., Ltd. | — | 866 | — | — | 866 | |||||||||||||||
ZeroOne Interactive Co.,Ltd. | — | (655 | ) | — | 71 | (584 | ) | |||||||||||||
HB Entertainment Co., Ltd. | 56 | (1,272 | ) | — | 795 | (421 | ) | |||||||||||||
LG Powercomm Co., Ltd. (Formerly Powercomm Co., Ltd.) | (163,113 | ) | 3,240 | — | — | (159,873 | ) | |||||||||||||
Eonex Technologies Inc. | 2,011 | — | — | — | 2,011 | |||||||||||||||
Public bonds | — | (4 | ) | — | — | (4 | ) | |||||||||||||
Currency stabilization bonds | (217 | ) | 906 | (677 | ) | — | 12 | |||||||||||||
Convertible bonds of China Unicom Ltd. | — | 319,648 | — | — | 319,648 | |||||||||||||||
Convertible bonds of Empas Corp. | — | 33,820 | — | (4,218 | ) | 29,602 | ||||||||||||||
Sub-total | (58,059 | ) | 654,163 | (677 | ) | (3,352 | ) | 592,075 | ||||||||||||
Less tax effect(note a) | 15,966 | (179,894 | ) | 186 | 895 | (162,847 | ) | |||||||||||||
Total | (42,093 | ) | 474,269 | (491 | ) | (2,457 | ) | 429,228 | ||||||||||||
(note a) | Represents adjustments to reflect the tax effect of temporary differences directly charged or credited to unrealized gains (losses) on valuation of long-term investment securities, which are capital adjustment items, in accordance with SKAS No. 16 “Income Taxes”, which is effective form January 1, 2005. |
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5. | EQUITY SECURITIES ACCOUNTED FOR USING THE EQUITY METHOD |
Number | Ownership | Acquisition | Net Asset | |||||||||||||||||||||||||
of Shares | Percentage (%) at | Cost at | Value at | |||||||||||||||||||||||||
at December 31, | December 31, | December 31, | December 31, | Carrying Amount | ||||||||||||||||||||||||
2006 | 2006 | 2006 | 2006 | 2004 | 2005 | 2006 | ||||||||||||||||||||||
Pantech Co., Ltd. (formerly SK Teletech Co., Ltd.) | 25,570,306 | 22.7 | 26,309 | — | (note a) | — | 55,732 | — | ||||||||||||||||||||
SK C&C Co., Ltd. | 300,000 | 30.0 | 19,071 | 263,814 | 201,484 | 168,244 | 268,278 | |||||||||||||||||||||
STIC Ventures Co., Ltd. | 1,600,000 | 21.9 | 8,000 | 8,611 | 7,477 | 8,379 | 8,611 | |||||||||||||||||||||
TU Media Corp. | 12,922,266 | 29.6 | 64,611 | 6,430 | 34,592 | 32,343 | 7,214 | |||||||||||||||||||||
Aircross Co., Ltd. | 600,000 | 38.1 | 300 | 1,477 | 940 | 966 | 1,477 | |||||||||||||||||||||
WiderThan Co., Ltd. | — | — | — | — | — | 11,503 | — | |||||||||||||||||||||
IHQ, Inc. | — | — | — | — | (note b) | — | 14,755 | — | ||||||||||||||||||||
Harex Info Tech, Inc. | 225,000 | 21.2 | 3,375 | 753 | (note c) | 3,375 | 2,530 | 1,805 | ||||||||||||||||||||
SK Mobile | 42.5 | 10,322 | 4,666 | (note d) | 1,151 | — | 4,666 | |||||||||||||||||||||
Skytel Co., Ltd. | 1,756,400 | 28.6 | 2,159 | 5,823 | 3,713 | 4,786 | 5,823 | |||||||||||||||||||||
SK China Company Ltd. | 28,160 | 20.7 | 3,195 | 1,076 | 830 | 485 | — | |||||||||||||||||||||
Helio, LLC | 50,650,001 | 48.1 | 200,147 | 80,130 | (note e) | — | 102,272 | 80,130 | ||||||||||||||||||||
SK USA, Inc. | 49 | 49.0 | 3,184 | 3,016 | 3,056 | 3,279 | 3,016 | |||||||||||||||||||||
Korea IT Fund | 14.3 | 190,000 | 193,061 | (note f) | — | — | 193,061 | |||||||||||||||||||||
Michigan Global Cinema Fund | 36.4 | 4,000 | 3,773 | — | 4,000 | 3,773 | ||||||||||||||||||||||
3rd Fund of Isu Entertainment | 31.3 | 2,500 | 2,419 | — | 2,500 | 2,419 | ||||||||||||||||||||||
SKT-QC Wireless Development Fund | — | — | — | 5,146 | — | — | ||||||||||||||||||||||
SKT-HP Ventures, LLC | — | — | — | 5,281 | 5,290 | — | ||||||||||||||||||||||
CDMA Mobile Phone Center | 50.0 | 146,261 | 84,689 | 25,117 | 40,810 | 84,689 | ||||||||||||||||||||||
Empas Corporation | 2,592,402 | 24.4 | 37,092 | 13,523 | — | — | 36,474 | |||||||||||||||||||||
SK i-media Co., Ltd. | 24,000,000 | 60.0 | 12,000 | 11,312 | (note g) | — | — | 11,312 | ||||||||||||||||||||
Cyworld Japan Co., Ltd. | 1,250,000 | 100.0 | 10,584 | 6,999 | (note h) | — | 726 | 4,362 | ||||||||||||||||||||
Etoos Group Inc. | — | — | — | — | — | 2,586 | — | |||||||||||||||||||||
Cyworld Incorporated | 9,500,000 | 100.0 | 9,071 | 5,386 | (note h) | — | 524 | 3,592 | ||||||||||||||||||||
Other investments in affiliates | 32,001 | 11,866 | 10,169 | 30,219 | ||||||||||||||||||||||||
Total | 784,182 | 304,028 | 471,879 | 750,921 | ||||||||||||||||||||||||
(note a) | 60% equity interests in SK Teletech Co., Ltd. were sold to Curitel Communications, Inc. and the Company recorded a gain of | |
(note b) | As the Company’s ownership in IHQ, Inc increased from 21.3% to 34.1% in the second half of 2006, IHQ, Inc was consolidated effective July 1, 2006, in accordance with Korean GAAP. | |
(note c) | Effective January 1, 2005, the Company recorded its investments in Harex Info Tech, Inc. using the equity method of accounting as changes in the Company’s portion of such investees’ equity amounts resulting from applying the equity method of accounting is material. | |
(note d) | On March 31, 2006, the Company acquired 42.5% interests of common stock of SK Mobile from Pantech Co., Ltd. and others. | |
(note e) | In the first quarter of 2005, the Company incorporated SK Telecom USA Holdings, Inc. with an initial investment of US$83 million in order to invest in and manage Helio, LLC, a joint venture company in the Untied States of America, which was established in order to provide wireless telecommunication services in the United States of America. |
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(note f) | The investment in Korea IT Fund was reclassified to equity securities accounted for using the equity method for the year ended December 31, 2006 as the Company has ability to exercise significant influence on the investee. In accordance with the Agreement of Korea IT Fund, the Company has voting rights of 14.3%, while the Company invested 63.3% of total capital contribution and has profit sharing rights of 63.3% | |
(note g) | Even though the Company’s ownership interest is 60%, SK i-media Co., Ltd. is excluded from the consolidation and accounted for using the equity method as its initial capital at its inception date were less than | |
(note h) | Even though the Company’s ownership interest is 100%, Cyworld Japan Co., Ltd. and Cyworld Incorporated are excluded from the consolidation and accounted for using the equity method as its total assets at the beginning of the fiscal year were less than |
For the Year Ended December 31, 2004 | ||||||||||||||||||||||||||||||||
Equity in | ||||||||||||||||||||||||||||||||
Equity in | Capital Surplus | |||||||||||||||||||||||||||||||
Beginning | Earnings | and Capital | Dividend | Other | Ending | |||||||||||||||||||||||||||
Balance | Acquisition | (Losses) | Adjustments | Received | Decrease | Balance | ||||||||||||||||||||||||||
SK C&C Co., Ltd. | (note a | ) | 92,844 | - | 13,322 | 95,918 | (600 | ) | — | 201,484 | ||||||||||||||||||||||
STIC Ventures Co., Ltd. | 7,086 | — | (123 | ) | 514 | — | — | 7,477 | ||||||||||||||||||||||||
TU Media Corp. | (note b | ) | — | — | (4,213 | ) | 124 | — | 38,681 | 34,592 | ||||||||||||||||||||||
VCASH Co., Ltd. | 1,048 | — | (657 | ) | — | — | (391 | ) | — | |||||||||||||||||||||||
Aircross Co., Ltd. | (note c | ) | 300 | — | 659 | (19 | ) | — | — | 940 | ||||||||||||||||||||||
WiderThan Co., Ltd. | (note d | ) | 3,188 | — | — | — | — | (3,188 | ) | — | ||||||||||||||||||||||
Skytel Co., Ltd. | (note a | ) | 3,401 | — | 1,070 | (603 | ) | (155 | ) | — | 3,713 | |||||||||||||||||||||
SK China Co., Ltd. | 1,683 | — | (595 | ) | (258 | ) | — | — | 830 | |||||||||||||||||||||||
SK USA, Inc. | (note c | ) | 3,184 | — | 168 | (296 | ) | — | — | 3,056 | ||||||||||||||||||||||
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 | (note e | ) | 49,444 | 5,979 | (21,651 | ) | — | — | (8,655 | ) | 25,117 | |||||||||||||||||||||
Other investment in affiliates | 9,670 | 15,107 | — | — | — | (8,385 | ) | 16,392 | ||||||||||||||||||||||||
183,709 | 21,086 | (11,954 | ) | 93,880 | (755 | ) | 18,062 | 304,028 | ||||||||||||||||||||||||
(note a) | The Company received dividends from SK C&C Co., Ltd. and Skytel Co., Ltd. and the corresponding amount was deducted from its equity method securities. | |
(note b) | Effective January 1, 2004, TU Media Corp. that was consolidated for the year ended December 31, 2003 is excluded from the consolidation due to the decrease in ownership interest. Other increase in investments in equity securities of TU Media Corp. represents the carrying amount of the investment in TU Media Corp. as of December 31, 2003. | |
(note c) | As their total assets at the beginning of 2004 were over | |
(note d) | 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 e) | 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. For the year ended December 31, 2004, SLD received a reimbursement related to depreciation in accordance with related joint venture agreement of |
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For the Year Ended December 31, 2005 | ||||||||||||||||||||||||||||||||
Equity in | ||||||||||||||||||||||||||||||||
Equity in | Capital Surplus | Other | ||||||||||||||||||||||||||||||
Beginning | Earnings | and Capital | Dividend | Increase | Ending | |||||||||||||||||||||||||||
Balance | Acquisition | (Losses) | Adjustments | Received | (Decrease) | Balance | ||||||||||||||||||||||||||
Pantech Co., Ltd. | (note a | ) | — | — | 93 | (183 | ) | — | 55,822 | 55,732 | ||||||||||||||||||||||
SK C&C Co., Ltd. | (note b | ) | 201,484 | — | 18,102 | (50,742 | ) | (600 | ) | — | 168,244 | |||||||||||||||||||||
STIC Ventures Co., Ltd. | (note c | ) | 7,477 | — | (779 | ) | 317 | — | 1,364 | 8,379 | ||||||||||||||||||||||
TU Media Corp. | 34,592 | 25,611 | (27,852 | ) | (8 | ) | — | — | 32,343 | |||||||||||||||||||||||
Aircross Co., Ltd. | 940 | — | 26 | — | — | — | 966 | |||||||||||||||||||||||||
WiderThan Co., Ltd. | (note d | ) | — | — | 868 | 7 | — | 10,628 | 11,503 | |||||||||||||||||||||||
IHQ, Inc. | (note c | ) | — | 14,440 | (197 | ) | 410 | — | 102 | 14,755 | ||||||||||||||||||||||
Harex Info Tech, Inc. | (note e | ) | 3,375 | — | (845 | ) | — | — | — | 2,530 | ||||||||||||||||||||||
Skytel Co., Ltd. | (note b | ) | 3,713 | — | 1,377 | (120 | ) | (184 | ) | — | 4,786 | |||||||||||||||||||||
SK China Company Ltd. | 830 | — | (295 | ) | (50 | ) | — | — | 485 | |||||||||||||||||||||||
Helio, LLC | (note f | ) | — | 123,586 | (21,550 | ) | — | — | 236 | 102,272 | ||||||||||||||||||||||
SK USA, Inc. | 3,056 | — | 316 | (93 | ) | — | — | 3,279 | ||||||||||||||||||||||||
SKT-QC Wireless Development Fund | (note g | ) | 5,146 | — | — | — | — | (5,146 | ) | — | ||||||||||||||||||||||
SKT-HP Ventures, LLC | 5,281 | — | 167 | (158 | ) | — | — | 5,290 | ||||||||||||||||||||||||
CDMA Mobile Phone Center | (note h | ) | 25,116 | 33,950 | (13,376 | ) | — | — | (4,880 | ) | 40,810 | |||||||||||||||||||||
SK Mobile | (note i | ) | 1,151 | 14,213 | (2,566 | ) | (22 | ) | — | (12,776 | ) | — | ||||||||||||||||||||
Cyworld Japan Co., Ltd. | — | 4,466 | (3,867 | ) | 127 | — | — | 726 | ||||||||||||||||||||||||
Etoos Group Inc. | — | 3,095 | (498 | ) | (11 | ) | — | — | 2,586 | |||||||||||||||||||||||
Other investment in affiliates | 11,867 | 12,432 | — | — | — | (7,106 | ) | 17,193 | ||||||||||||||||||||||||
304,028 | 231,793 | (50,876 | ) | (50,526 | ) | (784 | ) | 38,244 | 471,879 | |||||||||||||||||||||||
(note a) | Other increase in investments in equity securities of Pantech Co., Ltd. is net of the carrying amount of the investment in equity securities of SK Teletech Co., Ltd. amounting to | |
(note b) | The Company received dividends from SK C&C Co., Ltd. and Skytel Co., Ltd. and the corresponding amount was deducted from its equity method securities. | |
(note c) | Other increases in investments in equity securities of STIC Ventures Co., Ltd. and IHQ, Inc. represent gains on disposal of investments in equity securities resulting from the dilution of the Company’s ownership as a result of the fact that investees sold its unissued shares to third parties directly. | |
(note d) | Other increase in investments in equity securities of WiderThan Co., Ltd. represents the carrying amount of the investment in equity securities of WiderThan Co., Ltd. amounting to | |
(note e) | Effective January 1, 2005, the Company recorded its investments in Harex Info Tech, Inc. using the equity method of accounting as changes in the Company’s portion of such investees’ equity amounts resulting from applying the equity method of accounting is material. | |
(note f) | The increase in investments in equity securities of Helio, LLC represents a translation gain incurred from translating the financial statements of SK Telecom USA Holdings, Inc. denominated in foreign currency, which makes investments in Helio, LLC, into Korean Won. | |
(note g) | Investment was fully liquidated due to dissolution of SKT-QC Wireless Development Fund during the year ended December 31, 2005. | |
(note h) | For the year ended December 31, 2005, SLD received a reimbursement related to depreciation in accordance with related joint venture agreement of | |
(note i) | Effective January 1, 2005, SK Mobile became an equity method investee of SK Teletech Co., Ltd., a former subsidiary of the Company as changes in SK Teletech Co., Ltd.’s portion of such investee’s equity amounts resulting from applying the equity method of accounting was material. Effective July 1, 2005, the investment in equity securities of SK Teletech Co., Ltd. was reclassified to equity securities |
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accounted for using the equity method, which resulted in the exclusion of SK Mobile from equity securities accounted for using the equity method. |
For the Year Ended December 31, 2006 | ||||||||||||||||||||||||||||||||
Equity in | ||||||||||||||||||||||||||||||||
Capital | ||||||||||||||||||||||||||||||||
Equity in | Surplus and | Balance | ||||||||||||||||||||||||||||||
Beginning | Earnings | Capital | Dividend | Other | Ending | |||||||||||||||||||||||||||
Balance | Acquisition | (Losses) | Adjustments | Received | Increase | (Decrease) | ||||||||||||||||||||||||||
Pantech Co., Ltd. | (note a | ) | 55,732 | - | (55,902 | ) | 170 | - | - | - | ||||||||||||||||||||||
SK C&C Co., Ltd. | (note b | ) | 168,244 | — | 37,825 | 63,199 | (990 | ) | — | 268,278 | ||||||||||||||||||||||
STIC Ventures Co., Ltd. | 8,379 | — | 845 | (613 | ) | — | — | 8,611 | ||||||||||||||||||||||||
TU Media Corp. | 32,343 | — | (25,129 | ) | — | — | — | 7,214 | ||||||||||||||||||||||||
Aircross Co., Ltd. | 966 | — | 511 | — | — | — | 1,477 | |||||||||||||||||||||||||
WiderThan Co., Ltd. | (note c | ) | 11,503 | — | — | — | — | (11,503 | ) | — | ||||||||||||||||||||||
IHQ, Inc. | 14,755 | — | (1,346 | ) | 84 | — | (13,493 | ) | — | |||||||||||||||||||||||
Harex Info Tech, Inc. | 2,530 | — | (725 | ) | — | — | — | 1,805 | ||||||||||||||||||||||||
SK Mobile | — | 10,322 | (5,520 | ) | (136 | ) | — | — | 4,666 | |||||||||||||||||||||||
Skytel Co., Ltd. | (note b | ) | 4,786 | — | 1,970 | (605 | ) | (328 | ) | — | 5,823 | |||||||||||||||||||||
SK China Company Ltd. | 485 | — | (380 | ) | (105 | ) | — | — | — | |||||||||||||||||||||||
Helio, LLC | (note d | ) | 102,272 | 76,933 | (88,309 | ) | — | — | (10,766 | ) | 80,130 | |||||||||||||||||||||
SK USA, Inc. | 3,279 | — | 7 | (270 | ) | — | — | 3,016 | ||||||||||||||||||||||||
Korea IT Fund | (note e | ) | — | — | 2,339 | 722 | — | 190,000 | 193,061 | |||||||||||||||||||||||
Michigan Global Cinema Fund | 4,000 | — | (227 | ) | — | — | — | 3,773 | ||||||||||||||||||||||||
3rd Fund of Isu Entertainment | 2,500 | — | (81 | ) | — | — | — | 2,419 | ||||||||||||||||||||||||
SKT-HP Ventures, LLC | (note f | ) | 5,290 | — | — | — | — | (5,290 | ) | — | ||||||||||||||||||||||
CDMA Mobile Phone Center | (note g | ) | 40,810 | 76,039 | (21,474 | ) | — | — | (10,686 | ) | 84,689 | |||||||||||||||||||||
Empas Corporation | — | 37,092 | (1,369 | ) | 751 | — | — | 36,474 | ||||||||||||||||||||||||
SK i-media Co., Ltd. | — | 12,000 | (636 | ) | (52 | ) | — | — | 11,312 | |||||||||||||||||||||||
Cyworld Japan Co., Ltd. | 726 | 6,118 | (2,549 | ) | 67 | — | — | 4,362 | ||||||||||||||||||||||||
Etoos Group Inc. | (note h | ) | 2,586 | ��� | (259 | ) | — | — | (2,327 | ) | — | |||||||||||||||||||||
Cyworld Incorporated | 524 | 8,547 | (5,358 | ) | (121 | ) | — | — | 3,592 | |||||||||||||||||||||||
Other investments in affiliates | 10,169 | 17,282 | 90 | (640 | ) | — | 3,318 | 30,219 | ||||||||||||||||||||||||
471,879 | 244,333 | (165,677 | ) | 62,451 | (1,318 | ) | 139,253 | 750,921 | ||||||||||||||||||||||||
(note a) | Pantech Co., Ltd. suffered a significant loss due to deterioration of its liquidity for the three months ended December 31, 2006, which resulted in the Company’s investments in Pantech Co., Ltd. to be reduced to zero. Equity in losses of affiliates that exceeded the carrying amount was | |
(note b) | The Company received dividends from SK C&C Co., Ltd. and Skytel Co., Ltd. and the corresponding amount was deducted from its equity method securities. | |
(note c) | The Company sold all of investments in equity securities of WiderThan Co., Ltd. for the year ended December 31, 2006 and recognized gains on disposal of investment in equity securities of | |
(note d) | Other decrease in investments in equity securities of Helio, LLC. represents losses from disposal of investments in equity securities of Helio, LLC. amounting to | |
(note e) | Other increase in investments in Korea IT Fund is the carrying amount transferred from available-for-sale equity securities. | |
(note f) | Investment was fully liquidated due to dissolution of SKT-HP Ventures, LLC for the year ended December 31, 2006. | |
(note g) | For the year ended December 31, 2006, SLD received a reimbursement related to depreciation in accordance with related joint venture agreement of |
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currency financial statement of SLD Telecom PTE Ltd. into Korean Won and such translation loss was accounted for as a decrease in the investment in CDMA Mobile Phone Center. | ||
(note h) | For the year ended December 31, 2006, Etoos Group Inc. was merged into SK Communications Co., Ltd., the Company’s subsidiary. |
For the Year Ended December 31, 2004 | ||||||||||||||||
Beginning | Ending | |||||||||||||||
Balance | Increase | Amortization | Balance | |||||||||||||
SK C&C Co., Ltd. | 5,682 | - | (406 | ) | 5,276 | |||||||||||
For the Year Ended December 31, 2005 | ||||||||||||||||
Beginning | Ending | |||||||||||||||
Balance | Increase | Amortization | Balance | |||||||||||||
Pantech Co., Ltd. | — | 820 | (27 | ) | 793 | |||||||||||
SK C&C Co., Ltd. | 5,276 | — | (406 | ) | 4,870 | |||||||||||
TU Media Corp. | — | 1,045 | (52 | ) | 993 | |||||||||||
IHQ, Inc. | — | 7,377 | (1,110 | ) | 6,267 | |||||||||||
Harex Info Tech, Inc. | — | 1,752 | (350 | ) | 1,402 | |||||||||||
Etoos Group Inc. | — | 1,914 | (333 | ) | 1,581 | |||||||||||
Total | 5,276 | 12,908 | (2,278 | ) | 15,906 | |||||||||||
For the Year Ended December 31, 2006 | ||||||||||||||||
Beginning | Ending | |||||||||||||||
Balance | Increase | Amortization | Balance | |||||||||||||
Pantech Co., Ltd. | 793 | — | (793 | ) | — | |||||||||||
SK C&C Co., Ltd. | 4,870 | — | (406 | ) | 4,464 | |||||||||||
TU Media Corp. | 993 | — | (209 | ) | 784 | |||||||||||
IHQ, Inc. | 6,267 | (5,533 | ) | (734 | ) | — | ||||||||||
Harex Info Tech, Inc. | 1,402 | — | (351 | ) | 1,051 | |||||||||||
SK Mobile | — | 3,192 | (3,192 | ) | — | |||||||||||
Helio, LLC | — | 38 | — | 38 | ||||||||||||
Empas Corporation | — | 24,159 | (1,208 | ) | 22,951 | |||||||||||
Etoos Group Inc. | 1,581 | (1,553 | ) | (28 | ) | — | ||||||||||
Other investments in affiliates | — | 12,531 | (1,086 | ) | 11,445 | |||||||||||
Total | 15,906 | 32,834 | (8,007 | ) | 40,733 | |||||||||||
For the Year Ended December 31, 2004 | ||||||||||||||||
Beginning | Ending | |||||||||||||||
Balance | Increase | Decrease | Balance | |||||||||||||
SK China Company Ltd. | — | 1,086 | — | 1,086 | ||||||||||||
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For the Year Ended December 31, 2005 | ||||||||||||||||
Beginning | Ending | |||||||||||||||
Balance | Increase | Decrease | Balance | |||||||||||||
SK China Company Ltd. | 1,086 | — | — | 1,086 | ||||||||||||
Cyworld Japan Co., Ltd. | — | 2,569 | (43 | ) | 2,526 | |||||||||||
Total | 1,086 | 2,569 | (43 | ) | 3,612 | |||||||||||
For the Year Ended December 31, 2006 | ||||||||||||||||
Beginning | Ending | |||||||||||||||
Balance | Increase | Decrease | Balance | |||||||||||||
Pantech Co., Ltd. | — | 271 | (271 | ) | — | |||||||||||
SK China Company Ltd. | 1,086 | — | — | 1,086 | ||||||||||||
Cyworld Japan Co., Ltd. | 2,526 | 681 | (570 | ) | 2,637 | |||||||||||
Cyworld Incorporated | — | 1,888 | (94 | ) | 1,794 | |||||||||||
Other investments in affiliates | — | 892 | (104 | ) | 788 | |||||||||||
Total | 3,612 | 3,732 | (1,039 | ) | 6,305 | |||||||||||
Market Price | Shares | |||||||||||
per Share | Owned by the | |||||||||||
(In Korean Won) | Company | Market Price | ||||||||||
Pantech Co., Ltd. | 930 | 25,570,306 | 23,780 | |||||||||
Empas Corporation | 18,000 | 2,592,402 | 46,663 |
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Total | Total | Net | ||||||||||||||
Assets | Liabilities | Revenue | Income (Loss) | |||||||||||||
Pantech Co., Ltd. | 705,516 | 893,400 | 1,269,215 | (432,390 | ) | |||||||||||
SK C&C Co., Ltd. | 1,906,231 | 1,026,851 | 1,107,910 | 87,324 | ||||||||||||
STIC Ventures Co., Ltd. | 53,066 | 13,719 | 12,355 | 3,863 | ||||||||||||
TU Media Corp. | 343,078 | 321,340 | 88,756 | (84,240 | ) | |||||||||||
Aircross Co., Ltd. | 13,898 | 10,020 | 21,446 | 1,341 | ||||||||||||
Harex Info Tech, Inc. | 4,654 | 1,095 | 4,831 | (1,770 | ) | |||||||||||
SK Mobile | 12,234 | 1,256 | 1,157 | (6,421 | ) | |||||||||||
Skytel Co., Ltd. | 6,268 | 1,072 | 3,967 | (1,883 | ) | |||||||||||
SK China Company Ltd. | 246,316 | 77,847 | 44,536 | (183,341 | ) | |||||||||||
Helio, LLC | 7,262 | 1,108 | 6,589 | 14 | ||||||||||||
SK USA, Inc. | 304,833 | — | 9,125 | 1,376 | ||||||||||||
Korea IT Fund | 10,376 | — | 438 | (624 | ) | |||||||||||
Michigan Global Cinema Fund | 7,740 | — | 223 | (268 | ) | |||||||||||
3rd Fund of Isu Entertainment | 281,753 | 112,374 | 43,490 | (42,946 | ) | |||||||||||
CDMA Mobile Phone Center | 107,443 | 52,091 | 42,561 | 4,553 | ||||||||||||
Empas Corporation | 19,018 | 165 | — | (1,060 | ) | |||||||||||
SK i-media Co., Ltd. | 5,753 | 241 | 81 | (3,018 | ) | |||||||||||
Cyworld Japan Co., Ltd. | 3,891 | 15 | 11 | (4,943 | ) | |||||||||||
Cyworld Incorporated | 705,516 | 893,400 | 1,269,215 | (432,390 | ) |
6. | LOANS TO EMPLOYEES |
2004 | 2005 | 2006 | ||||||||||
Loans to employees’ stock ownership association | 22,546 | 14,586 | 7,526 | |||||||||
Loans to employees for housing and other | 8,859 | 4,799 | 4,580 | |||||||||
31,405 | 19,385 | 12,106 | ||||||||||
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7. | PROPERTY AND EQUIPMENT |
Useful Lives | ||||||||||||||||
(Years) | 2004 | 2005 | 2006 | |||||||||||||
Land | 466,459 | 466,562 | 473,109 | |||||||||||||
Buildings and structures | 15, 30 | 1,445,593 | 1,484,360 | 1,502,755 | ||||||||||||
Machinery | 3-6 | 9,584,526 | 10,510,486 | 11,380,257 | ||||||||||||
Vehicles | 3-4 | 21,710 | 21,680 | 25,695 | ||||||||||||
Other | 3-4 | 791,829 | 825,133 | 978,501 | ||||||||||||
Construction in progress | 138,002 | 264,309 | 132,831 | |||||||||||||
Total | 12,448,119 | 13,572,530 | 14,493,148 | |||||||||||||
Less accumulated depreciation | (7,744,197 | ) | (8,909,161 | ) | (9,985,813 | ) | ||||||||||
Property and equipment, net | 4,703,922 | 4,663,369 | 4,507,335 | |||||||||||||
For the Year Ended December 31, 2004 | ||||||||||||||||||||||||
Beginning | Ending | |||||||||||||||||||||||
Balance | Acquisition | Disposal | Transfer | Depreciation | Balance | |||||||||||||||||||
Land | 449,377 | 3,395 | (2,684 | ) | 16,372 | — | 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 | 4,641,547 | 1,631,941 | (25,293 | ) | (123,763 | ) | (1,420,510 | ) | 4,703,922 | |||||||||||||||
For the Year Ended December 31, 2005 | ||||||||||||||||||||||||
Beginning | Ending | |||||||||||||||||||||||
Balance | Acquisition | Disposal | Transfer | Depreciation | Balance | |||||||||||||||||||
Land | 466,460 | 723 | (4,698 | ) | 4,077 | — | 466,562 | |||||||||||||||||
Buildings and structures | 1,166,542 | 12,581 | (8,095 | ) | 35,472 | (55,406 | ) | 1,151,094 | ||||||||||||||||
Machinery | 2,643,107 | 54,681 | (18,990 | ) | 983,489 | (1,182,664 | ) | 2,479,623 | ||||||||||||||||
Vehicles | 4,791 | 1,620 | (250 | ) | (232 | ) | (2,530 | ) | 3,399 | |||||||||||||||
Other | 285,020 | 766,708 | (3,741 | ) | (657,328 | ) | (92,277 | ) | 298,382 | |||||||||||||||
Construction in progress | 138,002 | 580,309 | — | (454,002 | ) | — | 264,309 | |||||||||||||||||
Total | 4,703,922 | 1,416,622 | (35,774 | ) | (88,524 | ) | (1,332,877 | ) | 4,663,369 | |||||||||||||||
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For the Year Ended December 31, 2006 | ||||||||||||||||||||||||
Beginning | Ending | |||||||||||||||||||||||
Balance | Acquisition | Disposal | Transfer | Depreciation | Balance | |||||||||||||||||||
Land | 466,562 | 115 | (645 | ) | 7,077 | — | 473,109 | |||||||||||||||||
Buildings and structures | 1,151,094 | 4,664 | (849 | ) | 14,262 | (55,947 | ) | 1,113,224 | ||||||||||||||||
Machinery | 2,479,623 | 65,819 | (8,571 | ) | 1,014,646 | (1,152,632 | ) | 2,398,885 | ||||||||||||||||
Vehicles | 3,399 | 2,320 | (273 | ) | 1,472 | (2,504 | ) | 4,414 | ||||||||||||||||
Other | 298,382 | 836,964 | (17,035 | ) | (638,338 | ) | (95,101 | ) | 384,872 | |||||||||||||||
Construction in progress | 264,309 | 588,260 | — | (719,738 | ) | — | 132,831 | |||||||||||||||||
Total | 4,663,369 | 1,498,142 | (27,373 | ) | (320,619 | ) | (1,306,184 | ) | 4,507,335 | |||||||||||||||
8. | INTANGIBLE ASSETS |
Accumulated | ||||||||||||||||||||||||
Acquisition | Amortization | Accumulated | ||||||||||||||||||||||
Cost at | at | Impairment at | ||||||||||||||||||||||
December 31, | December 31, | December 31, | Carrying Amounts | |||||||||||||||||||||
2006 | 2006 | 2006 | 2004 | 2005 | 2006 | |||||||||||||||||||
Goodwill | 2,455,254 | (679,509 | ) | (50 | ) | 1,994,339 | 1,868,932 | 1,775,695 | ||||||||||||||||
Frequency use rights | 1,385,120 | (308,287 | ) | — | 1,163,319 | 1,184,292 | 1,076,833 | |||||||||||||||||
Software development costs | 242,163 | (196,009 | ) | (501 | ) | 105,955 | 65,991 | 45,653 | ||||||||||||||||
Other | 1,022,787 | (401,016 | ) | (1,541 | ) | 259,290 | 333,674 | 620,230 | ||||||||||||||||
5,105,324 | (1,584,821 | ) | (2,092 | ) | 3,522,903 | 3,452,889 | 3,518,411 | |||||||||||||||||
For the Year Ended December 31, 2004 | ||||||||||||||||||||||||||||
Beginning | Ending | |||||||||||||||||||||||||||
Balance | Acquisition | Disposal | Transfer | Amortization | Impairment | Balance | ||||||||||||||||||||||
Goodwill | 2,129,980 | 647 | — | — | (136,288 | ) | — | 1,994,339 | ||||||||||||||||||||
Frequency use rights | 1,251,278 | — | — | 7,800 | (95,759 | ) | — | 1,163,319 | ||||||||||||||||||||
Software development costs | 137,810 | 6,235 | (3,349 | ) | 10,545 | (45,244 | ) | (42 | ) | 105,955 | ||||||||||||||||||
Other | 155,876 | 65,494 | (865 | ) | 93,514 | (54,729 | ) | — | 259,290 | |||||||||||||||||||
3,674,944 | 72,376 | (4,214 | ) | 111,859 | (332,020 | ) | (42 | ) | 3,522,903 | |||||||||||||||||||
For the Year Ended December 31, 2005 | ||||||||||||||||||||||||||||
Beginning | Ending | |||||||||||||||||||||||||||
Balance | Acquisition | Disposal | Transfer | Amortization | Impairment | Balance | ||||||||||||||||||||||
Goodwill | 1,994,339 | — | — | 9,223 | (134,630 | ) | — | 1,868,932 | ||||||||||||||||||||
Frequency use rights | 1,163,319 | 117,380 | — | — | (96,407 | ) | — | 1,184,292 | ||||||||||||||||||||
Software development costs | 105,955 | 1,472 | — | — | (41,436 | ) | — | 65,991 | ||||||||||||||||||||
Other | 259,290 | 80,642 | (342 | ) | 64,522 | (70,178 | ) | (260 | ) | 333,674 | ||||||||||||||||||
3,522,903 | 199,494 | (342 | ) | 73,745 | (342,651 | ) | (260 | ) | 3,452,889 | |||||||||||||||||||
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For the Year Ended December 31, 2006 | ||||||||||||||||||||||||||||
Beginning | Ending | |||||||||||||||||||||||||||
Balance | Acquisition | Disposal | Transfer | Amortization | Impairment | Balance | ||||||||||||||||||||||
Goodwill | 1,868,932 | 1,672 | — | 44,947 | (139,806 | ) | (50 | ) | 1,775,695 | |||||||||||||||||||
Frequency use rights | 1,184,292 | 687 | — | — | (108,146 | ) | — | 1,076,833 | ||||||||||||||||||||
Software development costs | 65,991 | 1,946 | — | 9,340 | (31,624 | ) | — | 45,653 | ||||||||||||||||||||
Other | 333,674 | 69,659 | (1,250 | ) | 330,866 | (112,604 | ) | (115 | ) | 620,230 | ||||||||||||||||||
3,452,889 | 73,964 | (1,250 | ) | 385,153 | (392,180 | ) | (165 | ) | 3,518,411 | |||||||||||||||||||
Amount | Description | Residual Useful Lives | ||||||
Goodwill | 1,692,222 | Goodwill related to acquisition of Shinsegi Telecomm, Inc. | 13 years and 3 months | |||||
IMT license | 964,168 | Frequency use rights relating to W-CDMA Service | (note a) | |||||
WiBro license | 105,948 | WiBro Service | (note b) | |||||
DMB license | 6,717 | DMB Service | 9 years and 6 months | |||||
Software development costs | 45,653 | Software for business use | 15 years |
(note a) | With its application for a license to provide IMT services, the Company has a commitment to pay | |
(note b) | The Company purchased the WiBro license from MIC on March 30, 2005. The license period is seven years from that date. Amortization of the WiBro license will be on a straight line basis over the remaining useful life from the commencement date of the Company’s commercial WiBro services. |
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9. | BONDS PAYABLE |
Annual | ||||||||||||||||||
Maturity | Interest | |||||||||||||||||
Year | Rate (%) | 2004 | 2005 | 2006 | ||||||||||||||
Domestic general bonds | 2005 | 6.0 | 500,000 | — | — | |||||||||||||
² | 2006 | 5.0-6.0 | 800,000 | 800,000 | — | |||||||||||||
² | 2007 | 5.0-6.0 | 700,000 | 700,000 | 700,000 | |||||||||||||
² | 2008 | 5.0 | 300,000 | 300,000 | 300,000 | |||||||||||||
² | 2009 | 5.0 | 300,000 | 300,000 | 300,000 | |||||||||||||
² | 2010 | 4.0 | — | 200,000 | 200,000 | |||||||||||||
² | 2011 | 3.0 | 200,000 | 200,000 | 200,000 | |||||||||||||
² | 2013 | 4.0 | — | — | 200,000 | |||||||||||||
² | 2016 | 5.0 | — | — | 200,000 | |||||||||||||
Dollar denominated bonds (US$300,000) | 2011 | 4.25 | 313,140 | 303,900 | 278,880 | |||||||||||||
Private bonds (¥125,000) | 2007 | 4.65 | — | — | 684 | |||||||||||||
Convertible bonds (SK Telecom) (note a) | 2009 | — | 385,885 | 385,885 | 356,356 | |||||||||||||
Convertible bonds (IHQ, Inc.) | 2008 | — | — | — | 18,356 | |||||||||||||
Convertible bonds (YTN Media, Inc.) | 2007 | 1.0 | — | — | 1,000 | |||||||||||||
Bond with stock purchase warrant (SK Communication Co., Ltd.) | 2007 | 4.65 | — | — | 684 | |||||||||||||
3,499,025 | 3,189,785 | 2,755,960 | ||||||||||||||||
Less discounts on bonds | (51,467 | ) | (40,016 | ) | (39,422 | ) | ||||||||||||
Less conversion right adjustments | (82,245 | ) | (65,218 | ) | (46,079 | ) | ||||||||||||
Less warrant right adjustments | — | — | (23 | ) | ||||||||||||||
Add long-term accrued interest | 24,808 | 24,808 | 23,854 | |||||||||||||||
Net | 3,390,121 | 3,109,359 | 2,694,290 | |||||||||||||||
Less portion due within one year | (498,278 | ) | (795,151 | ) | (698,967 | ) | ||||||||||||
Long-term portion | 2,891,843 | 2,314,208 | 1,995,323 | |||||||||||||||
(note a) | The principal amount of these convertible bonds denominated in U.S. Dollars as of December 31, 2004, 2005 and 2006 are US$329,450,000, US$329,450,000 and US$304,240,000, respectively. |
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Table of Contents
10. | LONG-TERM BORROWINGS |
Final | Annual Interest | |||||||||||||||
Lender | Maturity Year | Rate (%)(Note a) | 2004 | 2005 | 2006 | |||||||||||
Shinhan Bank | 2011 | 91 days CD yield + 0.25 | — | — | 200,000 | |||||||||||
Calyon Bank | 2013 | 6M Libor + 0.29 | US$ | — | US$ | — | US$ | 50,000 | ||||||||
DBS Bank | ² | ² | — | — | US$ | 25,000 | ||||||||||
SMBC | ² | ² | — | — | US$ | 25,000 | ||||||||||
Industrial Bank of Korea | 2008 | 3.503.90 | ¥ | — | ¥14,802 | ¥8,880 | ||||||||||
² | 2009 | 3.11 | — | ¥12,800 | ¥9,100 | |||||||||||
Total | — | — | 200,000 | |||||||||||||
US$ | — | US$ | — | US$ | 100,000 | |||||||||||
¥ | — | ¥27,602 | ¥17,980 | |||||||||||||
Equivalent in Korean Won | — | 237 | 293,101 | |||||||||||||
Less portion due within one year | — | (82 | ) | (75 | ) | |||||||||||
Long-term portion | — | 155 | 293,026 | |||||||||||||
(note a) | At December 31, 2006, the 91 days CD yield and the 6M LIBOR rate are 4.86% and 5.37%, respectively. |
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Table of Contents
Long-Term Borrowing | ||||||||||||||||
Long-Term | in Foreign Currencies | |||||||||||||||
Borrowing in | Foreign | Korean Won | ||||||||||||||
Year Ending December 31, | Korean Won | Currencies | Equivalent | Total | ||||||||||||
2007 | — | ¥ | 9,562 | 75 | 75 | |||||||||||
2008 | — | ¥ | 6,598 | 52 | 52 | |||||||||||
2009 | — | ¥ | 1,820 | 14 | 14 | |||||||||||
2010 | — | — | — | — | ||||||||||||
2011 and thereafter | 200,000 | US$ | 100,000 | 92,960 | 292,960 | |||||||||||
¥ | 17,980 | |||||||||||||||
Total | 200,000 | US$ | 100,000 | 93,101 | 293,101 | |||||||||||
Deposit per | ||||||||||||||||
Service Type | Subscriber | 2004 | �� | 2005 | 2006 | |||||||||||
Cellular | 200,000 | 31,440 | 23,770 | 21,140 |
12. | LEASES |
F-39
Table of Contents
Annual Lease | ||||||||||||
Year Ending December 31, | Payments | Interest | Principal | |||||||||
2007 | 8,918 | 362 | 8,556 | |||||||||
2008 | 1,884 | 27 | 1,857 | |||||||||
2009 | 3 | — | 3 | |||||||||
Total | 10,805 | 389 | 10,416 | |||||||||
Less portion due within one year | (8,556 | ) | ||||||||||
Capital lease liabilities | 1,860 | |||||||||||
13. | ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES |
Foreign Currencies | Korean Won Equivalent | |||||||||||||||||||||||
2004 | 2005 | 2006 | 2004 | 2005 | 2006 | |||||||||||||||||||
Cash and cash equivalents | US$ | 4,875 | US$ | 11,826 | US$ | 1,330 | 5,088 | 11,980 | 1,236 | |||||||||||||||
² | — | EUR3 | EUR2 | — | 3 | 2 | ||||||||||||||||||
² | — | VND902,819 | — | — | 58 | — | ||||||||||||||||||
² | — | SG$30 | — | — | 18 | — | ||||||||||||||||||
² | ¥ | 6 | — | — | — | — | — | |||||||||||||||||
Accounts receivable — trade | US$ | 19,284 | US$ | 31,334 | US$ | 30,849 | 20,129 | 31,741 | 28,677 | |||||||||||||||
² | — | — | ¥ | 800 | — | — | 6 | |||||||||||||||||
² | — | EUR248 | EUR248 | — | 298 | 303 | ||||||||||||||||||
Accounts receivable — other | US$ | 2,989 | US$ | 3,364 | US$ | 1,657 | 3,120 | 3,408 | 1,541 | |||||||||||||||
² | — | VND6,173,479 | — | — | 394 | — | ||||||||||||||||||
Guarantee deposits | US$ | 142 | — | US$ | 17 | 149 | — | 16 | ||||||||||||||||
² | ¥ | 15,756 | ¥ | 16,156 | ¥ | 21,536 | 159 | 139 | 168 | |||||||||||||||
Total assets | 28,645 | 48,039 | 31,949 | |||||||||||||||||||||
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Table of Contents
Foreign Currencies | Korean Won Equivalent | |||||||||||||||||||||||
2004 | 2005 | 2006 | 2004 | 2005 | 2006 | |||||||||||||||||||
Accounts payable — trade | US$ | 17,406 | US$ | 28,360 | — | 18,169 | 28,728 | — | ||||||||||||||||
² | ¥ | 26,240 | — | — | 266 | — | — | |||||||||||||||||
Short-term borrowings | US$ | 19,392 | — | — | 20,241 | — | — | |||||||||||||||||
² | ¥ | 438,499 | — | — | 4,438 | — | — | |||||||||||||||||
² | EUR207 | — | — | 294 | — | — | ||||||||||||||||||
² | GBP260 | — | — | 522 | — | — | ||||||||||||||||||
Accounts payable — other | US$ | 13,539 | US$ | 15,737 | US$ | 36,373 | 14,132 | 15,942 | 33,812 | |||||||||||||||
² | ¥ | 60,678 | ¥ | 8,498 | ¥ | 19,956 | 614 | 73 | 156 | |||||||||||||||
² | HK$217 | HK$254 | HK$190 | 29 | 33 | 23 | ||||||||||||||||||
² | CNY1 | — | CNY 2 | — | — | — | ||||||||||||||||||
² | GBP 118 | GBP453 | GBP 48 | 237 | 791 | 88 | ||||||||||||||||||
² | SG$5 | SG$22 | SG$6 | 3 | 13 | 4 | ||||||||||||||||||
² | EUR348 | EUR504 | EUR 813 | 495 | 604 | 993 | ||||||||||||||||||
² | — | CHF19 | CHF250 | — | 15 | 190 | ||||||||||||||||||
² | — | CAD2 | CAD2 | — | 2 | 1 | ||||||||||||||||||
² | — | VND11,823,640 | — | — | 755 | — | ||||||||||||||||||
² | — | — | FRF11 | — | — | 2 | ||||||||||||||||||
Accrued expenses | US$ | 84 | — | — | 88 | — | — | |||||||||||||||||
Total liabilities | 59,528 | 46,956 | 35,269 | |||||||||||||||||||||
14. | CAPITAL STOCK AND CAPITAL SURPLUS |
2004 | 2005 | 2006 | ||||||||||
Authorized shares | 220,000,000 | 220,000,000 | 220,000,000 | |||||||||
Issued shares | 82,276,711 | 82,276,711 | 81,193,711 | |||||||||
Outstanding shares, net of treasury stock | 73,614,296 | 73,614,296 | 72,667,459 |
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Number of | Capital | |||||||||||
Shares Issued | Common Stock | Surplus | ||||||||||
At January 1, 2004 | 82,276,711 | 44,639 | 2,911,556 | |||||||||
Excess unallocated purchase price(note a) | — | — | (77 | ) | ||||||||
Considerations for conversion right(note b) | — | — | 67,279 | |||||||||
Equity in capital surplus changes of affiliates | — | — | (10,457 | ) | ||||||||
At December 31, 2004 | 82,276,711 | 44,639 | 2,968,301 | |||||||||
Deferred tax effect of temporary difference related to conversion rights(note c) | — | — | (18,502 | ) | ||||||||
Transfer of stock option from capital adjustment(note d) | — | — | 1,533 | |||||||||
Equity in capital surplus changes of affiliates | — | — | 3,508 | |||||||||
At December 31, 2005 | 82,276,711 | 44,639 | 2,954,840 | |||||||||
Retirement of treasury stock(note e) | (1,083,000 | ) | — | — | ||||||||
Conversion of convertible bonds(note f) | — | — | (3,733 | ) | ||||||||
Transfer of stock options from capital adjustment(note g) | — | — | 234 | |||||||||
Equity in capital surplus changes of affiliates | — | — | (1,014 | ) | ||||||||
At December 31, 2006 | 81,193,711 | 44,639 | 2,950,327 | |||||||||
(note a) | For the year ended December 31, 2004, the Company paid | |
(note b) | 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 | |
(note c) | The tax effect of temporary difference related to consideration for conversion rights was deducted directly from related components of stockholders’ equity, pursuant to adoption of SKAS No. 16 for the year ended December 31, 2005. | |
(note d) | For the year ended December 31, 2005, the exercisable period for the stock options representing 17,800 shares, of which recognized compensation costs was | |
(note e) | The Company retired 491,000 shares and 592,000 shares of treasury stock on August 17, 2006 and September 29, 2006, respectively, and reduced retained earnings before appropriation in accordance with Korean Commercial laws. | |
(note f) | For the year ended December 31, 2006, the convertible bonds with a face value of US$25,210,000 were converted into 136,163 shares of the Company’s common stock. Such conversion was settled by the Company by using its treasury stocks (See Note 16). Related to this conversion transaction, the capital surplus amount decreased by | |
(note g) | For the year ended December 31, 2006, the exercisable period for the stock options representing 43,390 shares, of which recognized compensation costs were |
15. | RETAINED EARNINGS |
2004 | 2005 | 2006 | ||||||||||
Appropriated | 4,733,936 | 5,470,701 | 6,679,235 | |||||||||
Unappropriated | 1,418,962 | 1,796,948 | 1,168,199 | |||||||||
6,152,898 | 7,267,649 | 7,847,434 | ||||||||||
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2004 | 2005 | 2006 | ||||||||||
Legal reserve | 22,320 | 22,320 | 22,320 | |||||||||
Reserve for improvement of financial structure | 33,000 | 33,000 | 33,000 | |||||||||
Reserve for loss on disposal of treasury stock | 477,182 | 477,182 | 477,182 | |||||||||
Reserve for research and manpower development | 776,296 | 822,061 | 880,595 | |||||||||
Reserve for business expansion | 3,425,138 | 4,116,138 | 5,266,138 | |||||||||
4,733,936 | 5,470,701 | 6,679,235 | ||||||||||
a. | Legal Reserve |
b. | Reserve for Improvement of Financial Structure |
c. | Reserves for Loss on Disposal of Treasury Stock and Research and Manpower Development |
d. | Reserve for Business Expansion |
16. | TREASURY STOCK |
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17. | STOCK OPTIONS |
Total | Recognized | Compensation | Stock Option in | |||||||||||||||||||||||||||||
Compensation | Compensation Cost | Cost to be | Capital Adjustment | |||||||||||||||||||||||||||||
Grant date | Cost | 2004 | 2005 | 2006 | Recognized | 2004 | 2005 | 2006 | ||||||||||||||||||||||||
March 17, 2000 (note a) | 1,533 | — | — | — | — | 1,533 | — | — | ||||||||||||||||||||||||
March 16, 2001 (note b) | 234 | 10 | — | — | — | 234 | 234 | — | ||||||||||||||||||||||||
March 8, 2002 | 3,246 | 1,082 | 180 | — | — | 3,066 | 3,246 | 3,246 | ||||||||||||||||||||||||
5,013 | 1,092 | 180 | — | — | 4,833 | 3,480 | 3,246 | |||||||||||||||||||||||||
(note a) | For the year ended December 31, 2005, the exercisable period for stock options representing 17,800 shares, for which the Company had recognized compensation cost of | |
(note b) | For the year ended December 31, 2006, the exercisable period for stock options representing 43,820 shares, for which the Company had recognized compensation cost of |
2004 | 2005 | |||||||
Pro forma ordinary income (in millions of Koran Won) | 2,121,238 | 2,561,268 | ||||||
Pro forma ordinary income per common shares | 20,234 | 25,439 | ||||||
Pro forma net income (in millions of Korean Won) | 1,489,542 | 1,872,680 | ||||||
Pro forma net income per common shares | 20,234 | 25,439 |
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(note) | There is no effect on the net income and net income per common share for the year ended December 31, 2006 in connection with the volatility factor discussed above. |
18. | INCOME TAXES |
2004 | 2005 | 2006 | ||||||||||
Currently | 551,405 | 685,541 | 615,959 | |||||||||
Changes in net deferred tax liabilities | 78,356 | 7,718 | (43,933 | ) | ||||||||
Income tax expenses | 629,761 | 693,259 | 572,026 | |||||||||
2004 | 2005 | 2006 | ||||||||||
Income taxes at statutory income tax rate of 27% in 2004 and 25% in 2005 and 2006 | 573,257 | 640,391 | 505,394 | |||||||||
Resident surtax payable | 57,326 | 64,039 | 50,539 | |||||||||
Tax credit for investments, technology and human resource development and others | (89,080 | ) | (100,160 | ) | (110,785 | ) | ||||||
Special surtax for agriculture and fishery industries and other | 13,736 | 18,838 | 20,183 | |||||||||
Goodwill amortization not deductible for tax purpose | 37,479 | 37,023 | 38,447 | |||||||||
Undistributed earnings (unrecognized deficit) of subsidiaries | 11,011 | 4,846 | 1,496 | |||||||||
Other permanent differences | 26,484 | 11,332 | 24,717 | |||||||||
Increase (decrease) in valuation allowance | (452 | ) | 16,950 | 42,035 | ||||||||
Recorded income taxes | 629,761 | 693,259 | 572,026 | |||||||||
Effective tax rate | 29.66 | % | 27.06 | % | 28.30 | % | ||||||
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2004 | 2005 | 2006 | ||||||||||
Current(note a): | ||||||||||||
Allowance for doubtful accounts | — | 39,334 | 21,701 | |||||||||
Write-off of doubtful accounts | — | 9,239 | — | |||||||||
Accrued interest income | — | (1,229 | ) | (1,605 | ) | |||||||
Net operating loss carryforwards | — | 17 | 1,121 | |||||||||
Tax credit carryforwards | — | 89 | 19 | |||||||||
Other | — | 18,623 | 28,704 | |||||||||
Net deferred tax assets — current | — | 66,073 | 49,940 | |||||||||
Non-Current(note a): | ||||||||||||
Allowance for doubtful accounts | 19,649 | — | — | |||||||||
Write-off doubtful accounts | 9,764 | — | — | |||||||||
Accrued interest income | (2,463 | ) | — | — | ||||||||
Trading securities | (561 | ) | — | — | ||||||||
Depreciation | (40,220 | ) | (47,472 | ) | (51,437 | ) | ||||||
Loss on impairment of investment securities | 32,851 | 32,959 | 33,269 | |||||||||
Loss on disposition of properties | 11,480 | — | — | |||||||||
Equity in losses of affiliates | (12,671 | ) | (10,244 | ) | 3,968 | |||||||
Unrecognized deficit (undistributed earnings) of subsidiaries | (9,434 | ) | 13,732 | 34,005 | ||||||||
Tax free reserve for research and manpower development | (195,103 | ) | (211,208 | ) | (211,215 | ) | ||||||
Tax free reserve for loss on disposal of treasury stock | (130,372 | ) | (130,372 | ) | (70,395 | ) | ||||||
Loss on valuation of foreign currency swap | — | 3,642 | 6,188 | |||||||||
Loss on valuation of derivatives (capital adjustment) | — | 5,377 | 6,668 | |||||||||
Considerations for conversion right | — | (18,502 | ) | (17,086 | ) | |||||||
Equity in capital adjustments of affiliates | — | (21,967 | ) | (34,077 | ) | |||||||
Unrealized gains (loss) on valuation of long-term investment securities(capital adjustment) | 842 | 15,966 | (163,992 | ) | ||||||||
Net operating loss carryforwards | 25,371 | 24,108 | 66,319 | |||||||||
Tax credit carryforwards | 5,003 | — | 48 | |||||||||
Other | 17,668 | (875 | ) | 8,926 | ||||||||
Total deferred tax liabilities | (268,196 | ) | (344,856 | ) | (388,811 | ) | ||||||
Valuation allowance for: | ||||||||||||
Depreciation | (5,321 | ) | (6,022 | ) | 183 | |||||||
Net operating loss carryforwards | (24,980 | ) | (23,523 | ) | (60,142 | ) | ||||||
Other | (7,555 | ) | (25,260 | ) | (81,214 | ) | ||||||
Net deferred tax assets liabilities — non-current | (306,052 | ) | (399,661 | ) | (529,984 | ) | ||||||
(note a) | Effective January 1, 2005, deferred income tax assets and liabilities which were presented on the balance sheet as a single non-current net number through 2004, are separated into current and non-current portions, pursuant to adoption of SKAS No. 16 “Income Taxes”. Such newly adopted accounting standards are prospectively applied as allowed by SKAS No. 16. As a result, the deferred income tax liabilities at December 31, 2004 were not separated into current and non-current portions to reflect the effect of such new adoption of SKAS No. 16. |
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Net Operating Loss | Tax Credit | |||||||
Year Ending December 31, | Carryforwards | Carryforwards | ||||||
2007 | 3,096 | 24 | ||||||
2008 | 38,440 | — | ||||||
2009 | 45,194 | — | ||||||
2010 | 13,674 | 20 | ||||||
2011 | 107,912 | 23 | ||||||
Total | 208,316 | 67 | ||||||
2005 | 2006 | |||||||
Considerations for conversion right | (18,502 | ) | (17,086 | ) | ||||
Unrealized loss (gain) on valuation of long-term investment securities, net | 15,966 | (164,007 | ) | |||||
Equity in capital adjustment of affiliates, net | (24,119 | ) | (41,403 | ) | ||||
Loss on valuation of currency swap | 5,377 | 6,668 | ||||||
Loss on valuation of interest rate swap | — | 125 | ||||||
Loss on disposal of treasury stock | — | (7,764 | ) | |||||
Foreign-based operations’ translation adjustment | 2 | (22 | ) | |||||
Total | (21,276 | ) | (223,489 | ) | ||||
2004 | 2005 | 2006 | ||||||||||
Net income | 1,491,479 | 1,872,978 | 1,451,491 | |||||||||
Weighted average number of common shares outstanding | 73,614,297 | 73,614,296 | 73,305,026 | |||||||||
Net income per share | 20,261 | 25,443 | 19,801 | |||||||||
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Weighted | Weighted | |||||||||||||||
Number of | Number of | Number | ||||||||||||||
Date | Shares | Days | of Shares | |||||||||||||
For 2004: | ||||||||||||||||
At January 1, 2004 | — | 82,276,711 | 366/366 | 82,276,711 | ||||||||||||
Treasury stock, at the beginning of the year | — | (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 | ||||||||||||||
For 2005: | ||||||||||||||||
At January 1, 2005 | — | 82,276,711 | 365/365 | 82,276,711 | ||||||||||||
Treasury stock, at the beginning of the year | — | (8,662,415 | ) | 365/365 | (8,662,415 | ) | ||||||||||
Total | 73,614,296 | 73,614,296 | ||||||||||||||
For 2006: | ||||||||||||||||
At January 1, 2006 | — | 82,276,711 | 365/365 | 82,276,711 | ||||||||||||
Treasury stock, at the beginning of the year | — | (8,662,415 | ) | 365/365 | (8,662,415 | ) | ||||||||||
Retirement of treasury stock | (note a | ) | (1,083,000 | ) | — | (373,546 | ) | |||||||||
Conversion of convertible bonds | (note b | ) | 136,163 | — | 64,276 | |||||||||||
Total | 72,667,459 | 73,305,026 | ||||||||||||||
(note a) | Such treasury stock was acquired and retired on two different dates in 2006 and weighted number of shares was calculated considering each transaction date. | |
(note b) | The convertible bonds were converted into its common stocks by using treasury stocks on several times in 2006 and the weighted number of shares was calculated considering each transaction date. |
2004 | 2005 | 2006 | ||||||||||
Adjusted net income | 1,498,797 | 1,886,033 | 1,464,768 | |||||||||
Adjusted weighted average number of common shares outstanding | 74,596,777 | 75,332,996 | 75,025,926 | |||||||||
Diluted net income per share | 20,092 | 25,036 | 19,523 | |||||||||
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Net Income | ||||||||||||
(In millions of | Average Weighted | Per-Share Amount | ||||||||||
Korean Won) | Number of Shares | (In Korean Won) | ||||||||||
For 2004 | ||||||||||||
Basic net income per share | 1,491,479 | 73,614,297 | 20,261 | |||||||||
Effect of stock option(note a) | — | — | ||||||||||
Effect of convertible bonds(note b) | 7,318 | 982,480 | ||||||||||
Diluted net income per share | 1,498,797 | 74,596,777 | 20,092 | |||||||||
For 2005 | ||||||||||||
Basic net income per share | 1,872,978 | 73,614,296 | 25,443 | |||||||||
Effect of stock option(note a) | — | — | ||||||||||
Effect of convertible bonds(note b) | 13,055 | 1,718,700 | ||||||||||
Diluted net income per share | 1,886,033 | 75,332,996 | 25,036 | |||||||||
For 2006 | ||||||||||||
Basic net income per share | 1,451,491 | 73,305,026 | 19,801 | |||||||||
Effect of stock option(note a) | — | — | ||||||||||
Effect of convertible bonds(note b) | 13,277 | 1,720,900 | ||||||||||
Diluted net income per share | 1,464,768 | 75,025,926 | 19,523 | |||||||||
(note a) | For the years ended December 31, 2004, 2005 and 2006, the outstanding stock options did not have a dilutive effect because the exercise price exceeded the average market price of common stock for the years ended December 31, 2004, 2005 and 2006, respectively. | |
(note b) | The effect of convertible bonds is increase in net income related to interest expenses that would not have incurred, and increase in the weighted average number of common shares outstanding related to common shares that would have been issued, assuming that the conversion of convertible bonds were made at the beginning of the period. |
20. | DIVIDEND DISCLOSURE |
Fiscal | Number of Shares | Face | Dividend | |||||||||||||||||
Year | Dividend Type | Outstanding | Value | Ratio | Dividends | |||||||||||||||
2004 | Cash dividends (interim) | 73,614,308 | 500 | 200 | % | 73,614 | ||||||||||||||
Cash dividends (year-end) | 73,614,296 | 500 | 1,860 | % | 684,613 | |||||||||||||||
Total | 758,227 | |||||||||||||||||||
2005 | Cash dividends (interim) | 73,614,296 | 500 | 200 | % | 73,614 | ||||||||||||||
Cash dividends (year-end) | 73,614,296 | 500 | 1,600 | % | 588,914 | |||||||||||||||
Total | 662,528 | |||||||||||||||||||
2006 | Cash dividends (interim) | 73,713,657 | 500 | 200 | % | 73,714 | ||||||||||||||
Cash dividends (year-end) | 72,667,459 | 500 | 1,400 | % | 508,672 | |||||||||||||||
Total | 582,386 | |||||||||||||||||||
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2004 | 2005 | 2006 | ||||||||||
Dividends | 758,227 | 662,528 | 582,386 | |||||||||
Net income | 1,491,479 | 1,872,978 | 1,451,491 | |||||||||
Dividends payout ratio | 50.84 | % | 35.37 | % | 40.12 | % | ||||||
2004 | 2005 | 2006 | ||||||||||
Dividend per share | 10,300 | 9,000 | 8,000 | |||||||||
Stock price at the year-end | 197,000 | 181,000 | 222,500 | |||||||||
Dividends yield ratio | 5.23 | % | 4.97 | % | 3.60 | % | ||||||
21. | RESTRICTED DEPOSITS |
22. | COMMITMENTS AND CONTINGENCIES |
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23. | INSURANCE |
Asset | Risk | Book Value | Coverage | |||||||||
US$ | 62,115 | |||||||||||
Inventories and property and equipment | Fire and comprehensive liability | 3,711,019 | 7,786,924 | |||||||||
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24. | TRANSACTIONS WITH AFFILIATED COMPANIES |
Description | 2004 | 2005 | 2006 | |||||||||
Transactions | ||||||||||||
SK Corporation: | ||||||||||||
Purchases of property and equipment | 4,071 | 1,302 | 2,158 | |||||||||
Commissions paid and other expense | 55,921 | 48,266 | 40,694 | |||||||||
Commission income and other income | 8,826 | 9,243 | 13,877 | |||||||||
SK Engineering & Construction Co., Ltd.: | ||||||||||||
Construction | 419,871 | 257,823 | 235,872 | |||||||||
Commissions paid and other expense | 6,148 | 6,593 | 7,086 | |||||||||
Commission income and other income | 1,348 | 2,580 | 2,385 | |||||||||
SK Networks Co., Ltd.(formerly known as SK Global): | ||||||||||||
Purchases of property and equipment | 3,144 | 10,020 | 9,249 | |||||||||
Commissions paid, leased line and other expense | 411,053 | 432,967 | 490,437 | |||||||||
Sales of handsets and other income | 1,177,249 | 279,197 | 11,897 | |||||||||
SK Telesys Co., Ltd.: | ||||||||||||
Purchases of property and equipment | 188,822 | 294,829 | 231,233 | |||||||||
Commissions paid and other expenses | 3,102 | 7,410 | 6,567 | |||||||||
Commission income and other income | 879 | 575 | 2,170 | |||||||||
SKC: | ||||||||||||
Purchases of property and equipment | 899,260 | 219,767 | — | |||||||||
Commissions paid and other expenses | 2,192 | 13,316 | 21 | |||||||||
Commission income and other income | 584 | 32 | 1,155 | |||||||||
Innoace Co., Ltd.: | ||||||||||||
Purchases of property and equipment | 23,776 | 13,652 | 23,986 | |||||||||
Commissions paid and other expenses | 4,337 | 2,109 | 7,447 | |||||||||
Commission income and other income | 296 | 218 | 218 | |||||||||
SK C&C Co., Ltd.: | ||||||||||||
Purchases of property and equipment | 130,243 | 249,633 | 215,820 | |||||||||
Commissions paid and other expenses | 295,562 | 322,856 | 287,647 | |||||||||
Commission income and other income | 7,918 | 7,853 | 7,732 | |||||||||
TU Media Corp.: | ||||||||||||
Purchases of property and equipment | — | — | 573 | |||||||||
Commissions paid and other expenses | — | 1,950 | 1,798 | |||||||||
Commission income and other income | — | 22,381 | 57,866 | |||||||||
Aircross Co., Ltd.: | ||||||||||||
Commissions paid and other expenses | — | 13,062 | 19,494 | |||||||||
Commission income and other income | — | 165 | 616 | |||||||||
Pantech Co., Ltd.: | ||||||||||||
Purchases of property and equipment | 91 | — | — | |||||||||
Commissions paid and other expenses | 2,623 | 737 | 400 | |||||||||
Commission income and other income | 3,131 | — | 16,605 | |||||||||
Helio, LLC: | ||||||||||||
Commissions paid and other expenses | — | 876 | 1,087 | |||||||||
Commission income and other income | — | 11,914 | 18,243 |
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Description | 2004 | 2005 | 2006 | |||||||||
Balances | ||||||||||||
SK Engineering & Construction Co., Ltd.: | ||||||||||||
Accounts receivable | 76 | 97 | 258 | |||||||||
Accounts payable | 135,213 | 21,326 | 1,635 | |||||||||
Guarantee deposits received | 408 | 942 | 942 | |||||||||
SK Networks Co., Ltd. (formerly known as SK Global): | ||||||||||||
Accounts receivable | 216,412 | 1,787 | 780 | |||||||||
Guarantee deposits | 113 | 113 | 113 | |||||||||
Accounts payable | 20,047 | 22,237 | 71,160 | |||||||||
Guarantee deposits received | 955 | 2,700 | 3,123 | |||||||||
SK Corporation: | ||||||||||||
Accounts receivable | 4,843 | 1,643 | 5,058 | |||||||||
Guarantee deposits | 103,720 | 37,703 | 291 | |||||||||
Accounts payable | 20,165 | 6,914 | 7,999 | |||||||||
Guarantee deposits received | 10,194 | 6,174 | 6,465 | |||||||||
SK Telesys Co., Ltd.: | ||||||||||||
Accounts receivable | 53 | 3 | 34 | |||||||||
Accounts payable | 51,954 | 65,819 | 51,663 | |||||||||
SKC: | ||||||||||||
Accounts receivable | 15,549 | — | 121 | |||||||||
Guarantee deposits | 10,266 | — | — | |||||||||
Accounts payable | 115,839 | — | — | |||||||||
Innoace Co., Ltd.: | ||||||||||||
Accounts payable | 15,199 | 6,100 | 13,574 | |||||||||
Guarantee deposits received | 2,138 | 2,138 | 2,291 | |||||||||
SK C&C Co., Ltd.: | ||||||||||||
Accounts receivable | 480 | 91 | — | |||||||||
Accounts payable | 77,871 | 174,884 | 88,056 | |||||||||
Guarantee deposits received | 346 | 346 | 346 | |||||||||
TU Media Corp.: | ||||||||||||
Accounts payable | — | 5,299 | 886 | |||||||||
Guarantee deposits received | — | 3,016 | 3,016 | |||||||||
Aircross Co., Ltd.: | ||||||||||||
Accounts receivable | — | 3,497 | — | |||||||||
Accounts payable | — | 3,866 | 3,513 | |||||||||
Guarantee deposits received | — | 226 | 226 | |||||||||
Pantech Co., Ltd.: | ||||||||||||
Accounts payable | 422 | — | 440 |
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25. | COMPENSATION FOR THE KEY MANAGEMENT |
For the Year Ended December 31, 2006 | ||||||||||||
Severance | ||||||||||||
Payee | Payroll | Indemnities | Total | |||||||||
12 registered directors (including outside directors) | 4,472 | 935 | 5,407 | |||||||||
(note) | Compensation for an ex-outside director who resigned during the year ended December 31, 2006 is included. |
26. | PROVISION FOR MILEAGE POINTS |
2004 | 2005 | 2006 | ||||||||||
Beginning balance | 103,679 | 61,596 | 52,172 | |||||||||
Present value discount (note a) | — | (7,415 | ) | — | ||||||||
Increase | 34,283 | 7,265 | 10,757 | |||||||||
Decrease | (76,366 | ) | (9,274 | ) | (10,336 | ) | ||||||
Ending Balance | 61,596 | 52,172 | 52,593 | |||||||||
(note a) | Effective January 1, 2005, pursuant to adoption of SKAS No. 17 (see Note 2(z)), Rainbow Points provision is recorded at the present value, which was recorded at nominal value through 2004. |
Estimated Amount | ||||||||
Expected Usage for the | to be Paid in | Present Value | ||||||
Year Ended December 31, | Nominal Value (Note b) | (Note b) | ||||||
2007 | 26,786 | 25,457 | ||||||
2008 | 16,022 | 14,471 | ||||||
2009 | 8,534 | 7,326 | ||||||
2010 | 4,406 | 3,595 | ||||||
2011 | 2,249 | 1,744 | ||||||
Ending balance | 57,997 | 52,593 | ||||||
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(note b) | The above expected year of the usage and the present value of the estimated amount to be paid are estimated based on historical usage experience. |
27. | DERIVATIVE INSTRUMENTS |
a. | Currency Swap Contract to which the Cash Flow Hedge Accounting Is Applied |
b. | Currency Swap Contract to which the Cash Flow hedge Accounting Is Not Applied |
c. | Interest Rate Swap |
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Fair Value | ||||||||||||||||||
Designated | ||||||||||||||||||
Face | Duration | as Cash | Not | |||||||||||||||
Type | Hedged Item | Amount | of Contract | Flow Hedge | Designated | Total | ||||||||||||
Current assets: | ||||||||||||||||||
Fix-to-fixed cross currency swap | U.S. dollar denominated convertible bond issued by China Unicom | US$1,000,000 | July 5, 2006 July 5, 2007 | — | 16,660 | 16,660 | ||||||||||||
— | 16,660 | 16,660 | ||||||||||||||||
Non-current liabilities: | ||||||||||||||||||
Fix-to-fixed cross currency swap | U.S. dollar denominated bonds | US$300,000 | March 23, 2004 April 1, 2011 | 89,721 | — | 89,721 | ||||||||||||
Fix-to-fixed cross currency swap | U.S. dollar denominated convertible bond | US$100,000 | May 27, 2004 May 27, 2009 | — | 22,503 | 22,503 | ||||||||||||
Floating-to-fixed cross currency interest rate swap | U.S. dollar denominated long-term borrowings | US$100,000 | October 10, 2006 October 10, 2013 | 746 | — | 746 | ||||||||||||
90,467 | 22,503 | 112,970 | ||||||||||||||||
Floating-to-fixed interest rate swap | Long-term floating rate discounted bill | June 29, 2006 June 29, 2010 | 454 | — | 454 | |||||||||||||
90,921 | 22,503 | 113,424 | ||||||||||||||||
28. | MERGERS AND ACQUISITIONS |
a. | Acquisition of Seoul Records, Inc. |
In Millions of | ||||
Korean Won | ||||
Fair value of net assets acquired | 23,796 | |||
Goodwill | 4,078 | |||
Acquisition cost | 27,874 | |||
b. | Merger with Etoos Group, Inc |
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In Millions of | ||||
Description | Korean Won | |||
Fair value of acquired assets | 10,196 | |||
Fair value of assumed liabilities | (9,851 | ) | ||
Fair value of net assets | 345 | |||
Consideration for merger | ||||
Fair value of delivered stock | 11,586 | |||
Incidental cost | 1 | |||
Total | 11,587 | |||
Goodwill | 11,242 | |||
In Millions of | ||||
Accounts | Korean Won | |||
Fair value of net assets acquired | 29 | |||
Goodwill | 1,642 | |||
Acquisition cost | 1,671 | |||
29. | NETWORK INTERCONNECTION CHARGES |
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30. | SUBSEQUENT EVENT |
31. | RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES |
a. | Deferred Income Taxes |
b. | Deferred Charges |
c. | Leases |
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d. | Marketable Securities and Investments Securities |
e. | Impairment of Investment Securities and Recoveries |
f. | Comprehensive Income |
g. | Business Combinations and Intangible Assets |
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h. | Determination of Acquisition Cost of Equity Interest in Subsidiary |
i. | Additional Equity Investment in Subsidiaries |
j. | Capitalization of Foreign Exchange Losses (or Gains) and Interest Expenses |
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k. | Nonrefundable Activation Fees |
l. | Employee Stock Option Compensation Plan |
m. | Loans Receivable for Stock Issued to Employee |
n. | Discount on Leasehold Deposits |
o. | Asset Securitization Transactions |
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• | 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; |
p. | Convertible Bonds Payable |
q. | Currency and Interest Rate Swap |
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r. | Foreign Currency Translation |
s. | Sale of Stock by Equity Method Investee |
t. | Subscription Payable |
u. | Equity Instrument to Be Received in Conjunction with Providing Services |
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v. | Consolidation of Variable Interest Entities |
w. | Remeasurement of Stock Option |
x. | Convertible Notes Receivable |
y. | Presentation of Minority Interest as a Component of Shareholders’ Equity |
z. | Scope of Consolidations |
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aa. | Handset Subsidies to Long-time Mobile Subscribers |
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Year Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
Net income based on Korean GAAP | 1,491,479 | 1,872,978 | 1,451,491 | |||||||||
Adjustments: | ||||||||||||
Deferred income tax adjustments due to difference in accounting principles | (3,827 | ) | 30,857 | — | ||||||||
Deferred charges | (60 | ) | (2,037 | ) | 2,037 | |||||||
Capital leases | 1,534 | (925 | ) | (847 | ) | |||||||
Intangible assets | (18,546 | ) | (16,046 | ) | (260 | ) | ||||||
Reversal of amortization of goodwill | 136,694 | 137,389 | 128,327 | |||||||||
Capitalization of foreign exchange losses and interest expenses related to tangible assets | 24,454 | 3,231 | 9,266 | |||||||||
Capitalization of interest expenses related to purchases of intangible assets | 5,285 | 5,272 | 5,272 | |||||||||
Nonrefundable activation fees | (36,048 | ) | (34,681 | ) | (16,139 | ) | ||||||
Discount on leasehold deposits | 422 | 230 | — | |||||||||
Loss on sale of accounts receivable and other in asset securitization | (14,476 | ) | — | — | ||||||||
Loss on impairment of investment securities | (8,434 | ) | 3,065 | (421 | ) | |||||||
Loss on valuation of currency and interest rate swap | (49,452 | ) | 29,898 | (4,056 | ) | |||||||
Convertible bonds payable | 1,016 | 14,044 | 48,118 | |||||||||
Foreign currency translation | 2,458 | (2,458 | ) | — | ||||||||
Sales of stock by the equity method investee | — | (8,637 | ) | 7,440 | ||||||||
Consolidation of variable interest entity | — | 38 | (38 | ) | ||||||||
Stock option compensation plan | (1,938 | ) | 49 | (144 | ) | |||||||
Convertible notes receivable | — | — | 365,751 | |||||||||
Tax effect of the reconciling items | 22,515 | (4,717 | ) | (115,268 | ) | |||||||
Net income based on U.S. GAAP | 1,553,076 | 2,027,550 | 1,880,529 | |||||||||
Weighted average number of common shares outstanding | 73,614,297 | 73,614,296 | 73,305,026 | |||||||||
Earnings per share based on U.S. GAAP: | ||||||||||||
Basic earnings per share | 21,097 | 27,543 | 25,653 | |||||||||
Diluted earnings per share | 20,918 | 27,089 | 25,236 | |||||||||
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December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
Shareholders’ equity based on Korean GAAP Adjustments: | 7,205,744 | 8,327,540 | 9,483,088 | |||||||||
Deferred income tax adjustments due to difference In accounting principles | (70,067 | ) | — | — | ||||||||
Deferred charges | — | (2,037 | ) | — | ||||||||
Capital leases | 1,773 | 847 | — | |||||||||
Intangible assets | 1,009,591 | 993,547 | 993,802 | |||||||||
Reversal of amortization of goodwill | 410,292 | 547,681 | 676,008 | |||||||||
Capitalization of foreign exchange losses and interest expenses related to tangible assets | 44,294 | 47,522 | 56,788 | |||||||||
Capitalization of interest expenses related to purchase of intangible assets | (63,660 | ) | (58,388 | ) | (53,116 | ) | ||||||
Nonrefundable activation fees | (275,222 | ) | (309,903 | ) | (326,042 | ) | ||||||
Loans receivable for stock issued to employees’ investor association | (22,546 | ) | (14,586 | ) | (7,526 | ) | ||||||
Discount on leasehold deposits | (231 | ) | — | — | ||||||||
Convertible bonds payable | (66,263 | ) | (52,220 | ) | (1,347 | ) | ||||||
Foreign currency translation | 2,458 | — | — | |||||||||
Consolidation of variable interest entity | — | 228 | 1,396 | |||||||||
Minority interest in equity of consolidated affiliates | (98,198 | ) | (108,927 | ) | (170,246 | ) | ||||||
Tax effect of the reconciling items | 159,032 | 101,130 | 85,674 | |||||||||
Shareholders’ equity based on U.S. GAAP | 8,236,997 | 9,472,434 | 10,738,479 | |||||||||
Year Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
Balance, beginning of the year | 7,014,668 | 8,236,997 | 9,472,434 | |||||||||
Net income for the year | 1,553,076 | 2,027,550 | 1,880,529 | |||||||||
Dividends | (478,492 | ) | (758,227 | ) | (662,628 | ) | ||||||
Unrealized gains on valuation of securities, net of tax | 55,156 | 23,042 | 206,457 | |||||||||
Equity in capital surplus, retained earnings and capital adjustments of affiliates (note a) | 89,448 | (63,370 | ) | 38,651 | ||||||||
Conversion of convertible bonds payable | — | — | 23,624 | |||||||||
Treasury stock transactions | (2 | ) | — | (209,078 | ) | |||||||
Foreign-based operations’ translation adjustments | (11,128 | ) | (1,792 | ) | (18,570 | ) | ||||||
Stock compensation plan | 3,030 | 274 | — | |||||||||
Decrease in loans receivable for stock issued to employees’ investor association | 11,241 | 7,960 | 7,060 | |||||||||
Balance, end of the year | 8,236,997 | 9,472,434 | 10,738,479 | |||||||||
(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 |
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unrealized gains or losses on valuation of available-for-sale securities, foreign-based operations’ translation adjustments in affiliates and stock transactions by affiliates. |
December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
Current assets: | ||||||||||||
As reported | 4,390,693 | 4,598,580 | 4,663,962 | |||||||||
U.S. GAAP adjustments : | ||||||||||||
— loans receivable for stock issued to employees investor association | (4,123 | ) | (3,249 | ) | (2,208 | ) | ||||||
— deferred tax adjustments due to difference in accounting principles | 51,344 | — | — | |||||||||
— tax effect of the reconciling items | 25,234 | 31,381 | 39,241 | |||||||||
— discount on leasehold deposits | 1,119 | — | — | |||||||||
— consolidation of variable interest entity | — | (4,889 | ) | (8,809 | ) | |||||||
— scope of consolidation | — | — | (40,189 | ) | ||||||||
Current assets based on U.S. GAAP | 4,464,267 | 4,621,823 | 4,651,997 | |||||||||
Non-current assets: | ||||||||||||
As reported | 9,892,665 | 10,106,192 | 11,576,006 | |||||||||
U.S. GAAP adjustments : | ||||||||||||
— loans receivable for stock issued to employees’ investor association | (18,423 | ) | (11,337 | ) | (5,318 | ) | ||||||
— intangible assets | 1,004,808 | 988,763 | 989,595 | |||||||||
— reverse of amortization of goodwill | 410,292 | 547,681 | 677,371 | |||||||||
— discount on leasehold deposits | (1,349 | ) | — | — | ||||||||
— nonrefundable activation fees | 9,129 | 8,571 | 8,108 | |||||||||
— capital lease | 1,773 | 847 | (576 | ) | ||||||||
— capitalization of foreign exchange losses and interest expense related to tangible assets | 44,294 | 47,522 | 56,788 | |||||||||
— capitalization of interest expenses related to purchase of intangible assets | (63,660 | ) | (58,388 | ) | (53,116 | ) | ||||||
— deferred charges | 12,969 | 7,933 | 7,812 | |||||||||
— subscription payable | — | 40,014 | — | |||||||||
— equity instrument to be received in conjunction with providing services | — | (2,055 | ) | — | ||||||||
— consolidation of variable interest entity | — | 53,626 | 54,731 | |||||||||
— convertible bonds payable | — | — | (1,133 | ) | ||||||||
— scope of consolidation | — | — | (32,735 | ) | ||||||||
Non-current assets based on U.S. GAAP | 11,292,498 | 11,729,369 | 13,277,533 | |||||||||
Total assets based on U.S. GAAP | 15,756,765 | 16,351,192 | 17,929,530 | |||||||||
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December, 31 | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
Current liabilities: | ||||||||||||
As reported | 3,066,893 | 2,863,373 | 3,208,416 | |||||||||
U.S. GAAP adjustments: | ||||||||||||
— nonrefundable activation fees | 86,082 | 114,111 | 142,697 | |||||||||
— foreign currency translation | (26 | ) | — | |||||||||
— subscription payable | — | 40,014 | — | |||||||||
— equity instrument to be received in conjunction with providing services | — | (525 | ) | — | ||||||||
— consolidation of variable interest entity | — | 17,671 | 32,078 | |||||||||
— scope of consolidation | — | — | (17,389 | ) | ||||||||
Current liabilities based on U.S. GAAP | 3,152,949 | 3,034,644 | 3,365,802 | |||||||||
Long-term liabilities: | ||||||||||||
As reported | 4,010,721 | 3,513,859 | 3,548,464 | |||||||||
U.S. GAAP adjustments: | ||||||||||||
— deferred charges | 12,969 | 9,970 | 7,812 | |||||||||
— nonrefundable activation fees | 198,269 | 204,363 | 191,453 | |||||||||
— deferred tax adjustments due to difference in accounting principles | 123,911 | — | — | |||||||||
— tax effect of the reconciling items | (141,080 | ) | (74,532 | ) | (51,216 | ) | ||||||
— convertible bonds payable | 66,263 | 52,220 | 214 | |||||||||
— foreign currency translation | (2,432 | ) | — | — | ||||||||
— equity instrument to be received in conjunction with providing services | — | (1,530 | ) | — | ||||||||
— consolidation of variable interest entity | — | 631 | 227 | |||||||||
— scope of consolidation | — | — | (19,563 | ) | ||||||||
Long-term liabilities based on U.S. GAAP | 4,268,621 | 3,704,981 | 3,677,391 | |||||||||
Total liabilities based on U.S. GAAP | 7,421,570 | 6,739,625 | 7,043,193 | |||||||||
Minority interests: | ||||||||||||
As reported | 98,198 | 108,927 | 170,246 | |||||||||
U.S. GAAP adjustments : | ||||||||||||
— consolidation of variable interest entity | — | 30,206 | 12,221 | |||||||||
— reverse of amortization of goodwill | — | — | 1,363 | |||||||||
— scope of consolidation | — | — | (35,972 | ) | ||||||||
Total minority interests based on U.S. GAAP | 98,198 | 139,133 | 147,858 | |||||||||
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2004 | 2005 | 2006 | ||||||||||
Cash flows from operating activities based on Korean GAAP | 2,527,862 | 3,407,142 | 3,589,825 | |||||||||
Adjustments: | ||||||||||||
Asset securitization transactions | 469,883 | — | — | |||||||||
Trading security cash flows | 240,204 | (122,710 | ) | 80,061 | ||||||||
Consolidation of variable interest entity | — | 12,444 | (48,721 | ) | ||||||||
Scope of consolidation | — | — | (6,384 | ) | ||||||||
Cash flows from operating activities based on US GAAP | 3,237,949 | 3,296,876 | 3,614,781 | |||||||||
Cash flows from investing activities based on Korean GAAP | (1,470,292 | ) | (1,938,187 | ) | (2,535,153 | ) | ||||||
Adjustments: | ||||||||||||
Asset securitization transactions | 76,347 | — | — | |||||||||
Trading security cash flows | (240,204 | ) | 122,710 | (80,061 | ) | |||||||
Consolidation of variable interest entity | — | (1,004 | ) | 37,611 | ||||||||
Scope of consolidation | — | — | 17,035 | |||||||||
Cash flows from investing activities based on US GAAP | (1,634,149 | ) | (1,816,481 | ) | (2,560,568 | ) | ||||||
Cash flows from financing activities based on Korean GAAP | (968,570 | ) | (1,429,038 | ) | (952,377 | ) | ||||||
Adjustments: | ||||||||||||
Asset securitization transactions | (546,230 | ) | — | — | ||||||||
Consolidation of variable interest entity | — | (10,243 | ) | 17,716 | ||||||||
Scope of consolidation | ��� | — | (5,946 | ) | ||||||||
Cash flows from financing activities based on US GAAP | (1,514,800 | ) | (1,439,281 | ) | (940,607 | ) | ||||||
The effect of exchange rate changes on cash and cash equivalents held in foreign currencies based on Korean GAAP | (11,055 | ) | (3,036 | ) | (9,317 | ) | ||||||
Adjustments: | ||||||||||||
Consolidation of variable interest entity | — | — | (5,302 | ) | ||||||||
The effect of exchange rate changes on cash and cash equivalents held in foreign currencies based on US GAAP | (11,055 | ) | (3,036 | ) | (14,619 | ) | ||||||
Net increase(decrease) in cash and cash equivalents due to changes in consolidated subsidiaries based on Korean GAAP | (24,803 | ) | (29,085 | ) | 14,568 | |||||||
Adjustments: | ||||||||||||
Scope of consolidation | — | — | (14,246 | ) | ||||||||
Net increase(decrease) in cash and cash equivalents due to changes in consolidated subsidiaries based on US GAAP | (24,803 | ) | (29,085 | ) | 322 | |||||||
Cash and cash equivalents at beginning of the year based on Korean GAAP | 317,488 | 370,630 | 378,426 | |||||||||
Adjustments: | ||||||||||||
Consolidation of variable interest entity | — | — | 1,197 | |||||||||
Cash and cash equivalents at beginning of the year based on US GAAP | 317,488 | 370,630 | 379,623 | |||||||||
Cash and cash equivalents at end of the year based on Korean GAAP | 370,630 | 378,426 | 485,972 | |||||||||
Adjustments: | ||||||||||||
Consolidation of variable interest entity | — | 1,197 | 2,501 | |||||||||
Scope of consolidation | — | — | (9,541 | ) | ||||||||
Cash and cash equivalents at end of the year based on US GAAP | 370,630 | 379,623 | 478,932 | |||||||||
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Year Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
Currently payable | 551,405 | 685,541 | 615,959 | |||||||||
Deferred | 59,669 | (18,422 | ) | 70,871 | ||||||||
611,074 | 667,119 | 686,830 | ||||||||||
Year Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
Income taxes at statutory income tax rate of 27% in 2004 and 25% in 2005 and 2006 | 584,843 | 670,776 | 641,840 | |||||||||
Resident surtax payable | 58,484 | 67,078 | 64,184 | |||||||||
Tax credit for investments, technology, human resource development and others | (89,080 | ) | (100,160 | ) | (110,785 | ) | ||||||
Special surtax for agriculture and fishery industries and other | 13,736 | 18,850 | 20,183 | |||||||||
Undistributed earnings of subsidiaries | 11,011 | 4,846 | 1,777 | |||||||||
Other permanent differences | 28,705 | 19,637 | 27,602 | |||||||||
Change in valuation allowance | 3,375 | (13,908 | ) | 42,029 | ||||||||
Recorded income taxes | 611,074 | 667,119 | 686,830 | |||||||||
Effective tax rate | 28.21 | % | 24.86 | % | 26.75 | % | ||||||
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December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
Current: | ||||||||||||
Allowance for doubtful accounts | 19,649 | 39,334 | 21,251 | |||||||||
Write-off of doubtful accounts | 9,764 | 9,239 | — | |||||||||
Marketable trading securities | (561 | ) | — | — | ||||||||
Accrued income | (2,463 | ) | (1,229 | ) | (1,544 | ) | ||||||
Net operating loss carryforwards | — | 17 | 1,121 | |||||||||
Tax credit carryforwards | — | 89 | 19 | |||||||||
Accrued expenses and other | 50,189 | 50,004 | 68,264 | |||||||||
76,578 | 97,454 | 89,111 | ||||||||||
Non-current: | ||||||||||||
Depreciation | (34,371 | ) | (58,745 | ) | (65,098 | ) | ||||||
Loss on disposition of properties | 11,480 | — | — | |||||||||
Loss on impairment and valuation of investment securities | 58,419 | 32,959 | 33,269 | |||||||||
Equity in losses (earnings) of affiliates | (12,671 | ) | (7,471 | ) | 4,593 | |||||||
Undistributed earnings of subsidiaries | (9,434 | ) | 13,732 | 34,289 | ||||||||
Tax free reserve for technology development | (195,103 | ) | (211,208 | ) | (211,215 | ) | ||||||
Tax free reserve for loss on disposal of treasury stock | (130,372 | ) | (130,372 | ) | (70,396 | ) | ||||||
Tax credit carryforwards | 5,003 | — | 24 | |||||||||
Net operating loss carryforwards | 25,371 | 24,108 | 64,306 | |||||||||
Deferred charges and other | (7,205 | ) | 11,867 | (269,334 | ) | |||||||
(288,883 | ) | (325,130 | ) | (479,562 | ) | |||||||
Total deferred tax assets (liabilities) | (212,305 | ) | (227,676 | ) | (390,451 | ) | ||||||
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Gross | Gross | |||||||||||||||||||
Cost | Unrealized | Unrealized | Impairment | Fair | ||||||||||||||||
(Amortized Cost) | Gains | Losses | Losses | Value | ||||||||||||||||
At December 31, 2004: | ||||||||||||||||||||
Available-for-sale | ||||||||||||||||||||
Equity securities | 470,266 | 137,621 | — | (63,902 | ) | 543,985 | ||||||||||||||
Debt securities | 15,813 | — | — | (10,655 | ) | 5,158 | ||||||||||||||
Held-to-maturity Securities | 50,144 | — | — | — | 50,144 | |||||||||||||||
536,223 | 137,621 | — | (74,557 | ) | 599,287 | |||||||||||||||
At December 31, 2005: | ||||||||||||||||||||
Available-for-sale | ||||||||||||||||||||
Equity securities | 465,244 | 173,960 | (9,768 | ) | (60,838 | ) | 568,598 | |||||||||||||
Debt securities | 307,375 | — | (217 | ) | (10,885 | ) | 296,273 | |||||||||||||
Held-to-maturity Securities | 115 | — | — | — | 115 | |||||||||||||||
772,734 | 173,960 | (9,985 | ) | (71,723 | ) | 864,986 | ||||||||||||||
At December 31, 2006: | ||||||||||||||||||||
Available-for-sale | ||||||||||||||||||||
Equity securities | 469,754 | 462,521 | — | (62,614 | ) | 869,661 | ||||||||||||||
Debt securities | 1,083,914 | 33,903 | (46,107 | ) | (10,656 | ) | 1,061,054 | |||||||||||||
Held-to-maturity Securities | 134 | — | — | — | 134 | |||||||||||||||
1,553,802 | 496,424 | (46,107 | ) | (73,270 | ) | 1,930,849 | ||||||||||||||
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2004 | 2005 | 2006 | ||||||||||||||||||||||||||
Carrying | Carrying | Carrying | ||||||||||||||||||||||||||
Amount | Fair | Amount | Fair | Amount | Fair | |||||||||||||||||||||||
(Note a) | Value | (Note a) | Value | (Note a) | Value | |||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||||
Cash and cash equivalents andshort-term financial instruments | 383,360 | 383,360 | 486,215 | 486,215 | 576,017 | 576,017 | ||||||||||||||||||||||
Trading securities | 654,779 | 654,779 | 777,472 | 777,472 | 665,312 | 665,312 | ||||||||||||||||||||||
Accounts receivable (trade and other) | 3,126,754 | 3,126,754 | 3,038,936 | 3,038,936 | 3,065,481 | 3,065,481 | ||||||||||||||||||||||
Short-term loans | 51,232 | 51,232 | 62,290 | 62,290 | 60,440 | 60,440 | ||||||||||||||||||||||
Investment securities: | ||||||||||||||||||||||||||||
Listed equity and debts | 599,287 | 599,287 | 864,986 | 864,986 | 1,930,849 | 1,930,849 | ||||||||||||||||||||||
Non- listed equity(note b) | 352,523 | N/A | 353,168 | N/A | 141,138 | N/A | ||||||||||||||||||||||
Long-term bank deposits | 10,351 | 10,351 | 1,479 | 1,479 | 10,430 | 10,430 | ||||||||||||||||||||||
Long-term loans | 12,019 | 9,014 | 7,093 | 5,320 | 13,250 | 9,938 | ||||||||||||||||||||||
5,190,305 | 5,591,639 | 6,462,917 | ||||||||||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||||||
Accounts payable | 1,205,682 | 1,205,682 | 1,094,855 | 1,094,855 | 1,224,536 | 1,224,536 | ||||||||||||||||||||||
Short-term borrowings | 425,496 | 425,496 | 4,614 | 4,614 | 63,612 | 63,612 | ||||||||||||||||||||||
Bonds payable, long-term borrowings, convertible bonds, long-term payables — other and obligation under capital leases, including current portion | 4,044,258 | 4,211,926 | 3,763,135 | 3,825,813 | 3,595,880 | 3,667,748 | ||||||||||||||||||||||
9,234,563 | 4,862,604 | 4,884,028 | ||||||||||||||||||||||||||
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(note a) | These carrying amounts represent the amounts determined under U.S. GAAP. | |
(note b) | Fair value of investments in non — listed equity securities are not readily determinable with the exception of the investments in the common stock of LG Powercomm Co., Ltd. (“LG Powercomm”). The fair value of common stock of LG Powercomm as of December 31, 2004, 2005 and 2006 was estimated by an outside professional valuation company using the present value of expected future cash flows. As of December 31, 2004, 2005 and 2006, the fair value of the investment in the common stock of LG Powercomm is |
2004 | 2005 | 2006 | ||||||||||
Net income | 1,553,076 | 2,027,550 | 1,880,529 | |||||||||
Other comprehensive income: | ||||||||||||
Available-for-sale securities | ||||||||||||
Unrealized gain on investment securities | 67,645 | 34,915 | 284,359 | |||||||||
Less impact of realized losses(gains) | 8,434 | (3,065 | ) | 446 | ||||||||
Tax effect | (20,923 | ) | (8,808 | ) | (78,348 | ) | ||||||
Net change from available-for-sale securities | 55,156 | 23,042 | 206,457 | |||||||||
Foreign-based operations’ translation adjustments | (11,128 | ) | (1,792 | ) | (18,570 | ) | ||||||
Total other comprehensive income | 44,028 | 21,250 | 187,887 | |||||||||
Comprehensive income | 1,597,104 | 2,048,800 | 2,068,416 | |||||||||
2004 | 2005 | 2006 | ||||||||||
Beginning of period | 3,400,155 | 3,408,989 | 3,418,212 | |||||||||
Goodwill acquired during the period | 8,834 | 9,223 | 13,426 | |||||||||
Goodwill impairment losses | — | — | (12,524 | ) | ||||||||
Ending of period | 3,408,989 | 3,418,212 | 3,419,114 | |||||||||
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December 31, 2004 | December 31, 2005 | December 31, 2006 | ||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||
Gross | Gross | Amortization | Gross | Amortization | ||||||||||||||||||||
Carrying | Accumulated | Carrying | and | Carrying | and | |||||||||||||||||||
Amount | Amortization | Amount | Impairment | Amount | Impairment | |||||||||||||||||||
Amortized intangible assets: | ||||||||||||||||||||||||
IMT license (13 years) | 1,188,547 | (98,183 | ) | 1,188,547 | (188,193 | ) | 1,188,547 | (278,521 | ) | |||||||||||||||
Customer lists (4 years) | 99,783 | (83,686 | ) | 99,783 | (99,783 | ) | 99,783 | (99,783 | ) | |||||||||||||||
Other (2 to 20 years) | 718,291 | (354,021 | ) | 1,036,165 | (455,505 | ) | 1,433,915 | (604,729 | ) | |||||||||||||||
Total | 2,066,621 | (535,890 | ) | 2,324,495 | (743,481 | ) | 2,722,245 | (983,033 | ) | |||||||||||||||
2004 | 2005 | 2006 | ||||||||||
Operating revenue: | ||||||||||||
Wireless services | 8,762,376 | 9,148,363 | 9,025,209 | |||||||||
Interconnection | 849,407 | 898,621 | 1,033,390 | |||||||||
Digital handset sales | 649,809 | 294,557 | — | |||||||||
Other | 272,974 | 359,911 | 483,203 | |||||||||
Total operating revenue | 10,534,566 | 10,701,452 | 10,541,802 | |||||||||
Total operating expenses | (8,137,570 | ) | (7,847,705 | ) | (7,720,028 | ) | ||||||
Operating income | 2,396,996 | 2,853,747 | 2,821,774 | |||||||||
Equity in earnings of unconsolidated businesses | (11,550 | ) | (44,289 | ) | (140,441 | ) | ||||||
Other income(expenses), net | (219,361 | ) | (125,898 | ) | (135,726 | ) | ||||||
Income before income taxes and minority interests | 2,166,085 | 2,683,560 | 2,545,607 | |||||||||
Provision for income taxes | (611,074 | ) | (667,119 | ) | (686,830 | ) | ||||||
Income before minority interests | 1,555,011 | 2,016,441 | 1,858,777 | |||||||||
Minority interests in losses (earnings) of consolidated subsidiaries | (1,935 | ) | 11,109 | 21,752 | ||||||||
Net income | 1,553,076 | 2,027,550 | 1,880,529 | |||||||||
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2004 | 2005 | 2006 | ||||||||||
Cash paid for interest (net of amounts capitalized) | 264,224 | 203,259 | 226,442 | |||||||||
Cash paid for income taxes | 679,262 | 588,296 | 660,188 |
Year Ending December 31, | ||||
2007 | 2,831 | |||
2008 | 34 | |||
2009 | 18 | |||
2010 | 910 | |||
2011 | 832 | |||
20122016 | 17,617 | |||
Total | 22,242 | |||
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F-79