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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of September, 2010
Commission File Number 1-14926
KT Corporation
(Translation of registrant’s name into English)
206 Jungja-dong
Bundang-gu, Sungnam
Kyunggi-do
463-711
Korea
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F x Form 40-F ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ¨ No x
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-
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SUMMARY OF INTERIM FIRST HALF BUSINESS REPORT
(From January 1, 2010 to June 30, 2010)
THIS IS A SUMMARY OF THE 2010 FIRST HALF REPORT ORIGINALLY PREPARED IN KOREAN AND IN SUCH FORM AS REQUIRED BY THE KOREAN FINANCIAL SUPERVISORY COMMISSION. IN THE TRANSLATION PROCESS, SOME PARTS OF THE REPORT WERE REFORMATTED, REARRANGED OR SUMMARIZED FOR THE CONVENIENCE OF READERS.
UNLESS EXPRESSLY STATED OTHERWISE, ALL INFORMATION CONTAINED HEREIN IS PRESENTED ON A NON-CONSOLIDATED BASIS IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN KOREA, OR KOREAN GAAP, WHICH DIFFER IN CERTAIN RESPECTS FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CERTAIN OTHER COUNTRIES, INCLUDING THE UNITED STATES. WE HAVE MADE NO ATTEMPT TO IDENTIFY OR QUANTIFY THE IMPACT OF THESE DIFFERENCES.
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3. Remuneration for Independent Non-Executive Auditors for the Past Three Fiscal Years | 20 | |
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1. Overview of the Board of Directors and Committees under the Board | 21 | |
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(EXHIBIT 99-1 : NON-CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 AND INDEPENDENT AUDITOR’S REPORT)
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1. Corporate Purpose of KT Corporation
Business Objectives
1. Information and communications business;
2. New media business;
3. Development and sale of software and contents;
4. Sale and distribution of information communication equipment;
5. Testing and inspection of information communication equipment, devices and facilities;
6. Advertisement business;
7. Telecommunications retail business;
8. Development of information and technology, and electrical infrastructure;
9. Real estate and housing business;
10. Electronic banking and finance business;
11. Education and learning services business;
12. Security services business (including machinery system surveillance services and facilities security services);
13. Research and technical development, education, training and promotion, overseas businesses, export and import trade, manufacturing and distribution related to the activities mentioned in items 1 through 12;
14. Telecommunications services business, including frequency-based telecommunications business;
15. Value-added telecommunications business;
16. Production, supply (screening) and distribution of music albums, music videos, movies, videos and games.
17. Electronic finance and electronic payment gateway services, including issuance and management of pre-paid electronic payment methods;
18. Sales and leasing of equipment and facilities related to the activities mentioned in items 14 through 17;
19. Overseas and export and import trade related to activities mentioned in items 14 through 18;
20. Travel agency business;
21. Insurance agency business;
22. Alternative energy generation business; and
23. Any and all other activities or businesses incidental to or necessary for the attainment of the foregoing.
A. Changes Since Incorporation
| (1) | Date of Incorporation: December 10, 1981 |
| (2) | Location of Headquarters: |
206 Jungja-dong
Bundang-gu, Sungnam
Kyunggi-do
463-711
Korea
| (3) | Major Changes in KT Corporation |
- On March 27, 2009, KT Corporation (“KT”) signed a merger agreement with its mobile subsidiary KTF, which KT held a 54.25% interest in, and on June 1, 2009, the merger was completed.
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- At the extraordinary shareholders’ meeting held on March 27, 2009, KT shareholders approved the addition of telecommunications services business, including frequency-based telecommunications business, to KT’s business objectives to reflect the adoption of KTF’s business. In order to demonstrate KT’s new goal of providing clients environmentally friendly solutions for higher productivity and lower costs, the shareholders also approved the addition of alternative energy generation business to its business objectives.
- Suk-Chae Lee was elected as President and CEO of KT on January 14, 2009.
3. Total Number of Shares and Related Matters
A. Total Number of Shares
(As of June 30, 2010) | (Unit: Shares) |
Category | Type of Shares | |||
| Common Shares | Total | |||
I. Total Number of Authorized Shares | 1,000,000,000 | 1,000,000,000 | ||
II. Total Number of Issued Shares | 312,899,767 | 312,899,767 | ||
III. Total Number of Shares Reduced | 51,787,959 | 51,787,959 | ||
1. Reduction of Capital | — | — | ||
2. Share Retirement | 51,787,959 | 51,787,959 | ||
3. Redemption of Redeemable Shares | — | — | ||
4. Other | — | — | ||
IV. Current Number of Issued Shares (II – III) | 261,111,808 | 261,111,808 | ||
V. Number of Treasury Shares | 17,901,665 | 17,901,665 | ||
VI. Current Number of Issued and Outstanding Shares | 243,210,143 | 243,210,143 | ||
B. Status of Capital Increase/Decrease
(Unit: Won, Shares)
Date of Shares Issued (Retired) | Type of | Details of Issued (Retired) Shares | ||||||||||||
Type | Number of Issued (Retired) Shares | Par Value per Share | Par Value of Issued per Share | Note | ||||||||||
June 2, 2009 | — | Common Shares | 700,108 | 5,000 | 5,000 | Issuance of new shares for merger | ||||||||
| * | In the merger with KTF, KT issued 700,108 new shares. As a result, the capital amount increased by approximately Won 3.5 billion as follows. |
(Unit: Won)
Category | Before Merger | Amount of Change | After Merger | |||
Capital Amount | 1,560,998,295,000 | 3,500,540,000 | 1,564,498,835,000 |
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C. Acquisition and Disposal of Treasury Shares
| (1) | Acquisition and Disposal of Treasury Shares |
(As of June 30, 2010) | (Unit: Shares) | |||||||||||||||
Method of Acquisition | Type | Beginning of Term | Acquisition (+) | Disposition (-) | Retirement (-) | End of Term | ||||||||
Direct Acquisition | Pursuant to Article 165-2 of Securities and Exchange Act Reasons other than Article 165-2 of Securities and Exchange Act | Common Shares | 16,155,938 | 1,259,170 | — | — | 17,415,108 | |||||||
| Preferred Shares | — | — | — | — | — | |||||||||
| Common Shares | 500,232 | 7,311 | 20,986 | — | 486,557 | |||||||||
| Preferred Shares | — | — | — | — | — | |||||||||
Subtotal | Common Shares | 16,656,170 | 1,266,481 | 20,986 | — | 17,901,665 | ||||||||
| Preferred Shares | — | — | — | — | — | |||||||||
Indirect Acquisition (e.g. Trust Contract) | Common Shares | 1,259,170 | — | 1,259,170 | — | 0 | ||||||||
| Preferred Shares | — | — | — | — | — | |||||||||
Total | Common Shares | 17,915,340 | 1,266,481 | 1,280,156 | — | 17,901,665 | ||||||||
| Preferred Shares | — | — | — | — | — | |||||||||
| * | The above “Beginning of Term” means as of January 1, 2010 and “End of Term” means as of June 30, 2010. |
| * | Details of share buyback and retirement of treasury shares from January 1, 2010 to June 30, 2010 are as follows. |
| 1) | Acquisition of Treasury Shares (1,266,481 shares) |
- March 9, 2010: Transfer of all treasury shares under trust account to KT’s own trust account due to the expiry of the treasury share trust agreement (1,259,170 shares).
- April 29, 2010: Retrieval of granted treasury shares (7,311 shares)
| 2) | Disposition of Treasury Shares (1,280,156 shares) |
- March 9, 2010: Transfer of all treasury shares under trust account to KT’s own trust account due to the expiry of the treasury share trust agreement (1,259,170 shares).
- May 3, 2010: Disposition of treasury shares to distribute long-term performance based bonus payment to non-independent directors (18,427 shares)
- June 30, 2010: Disposition of treasury shares in connection with the exercise of stock options (2,559 shares)
D. Share Ownership Status of the Employee Stock Ownership Association
| (1) | Transactions with the Employee Stock Ownership Association |
Not Applicable
| (2) | Guidelines for Exercising the Voting Rights of the Employee Stock Ownership Association |
Association Account: The Employee Stock Ownership Association exercises its voting right in a manner that is exactly in proportion to the number of association members who wish to exercise their voting rights.
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Association Member Account: Employee Stock Ownership Association may exercise its voting rights only if (i) the association receives a request by an association member to exercise his voting rights with a minimum notice period of seven days or (ii) the association member chooses to delegate his voting rights to the association.
| (3) | Shares Held by the Employee Stock Ownership Association |
(As of June 30, 2010) | (Unit: Shares) |
Type of Account | Type of Shares | Balance at Beginning of Term | Term-End Balance | |||
Association Account | Common Shares | 34,950 | 34,404 | |||
Association Member Account | Common Shares | 7,570,213 | 4,445,951 | |||
Total | 7,605,163 | 4,480,355 | ||||
(As of June 30, 2010) | (Unit: Shares) |
Category | Number of Shares | Note | ||||
Total Issued Shares (A) | Common Shares | 261,111,808 | — | |||
| Preferred Shares | — | |||||
Shares without Voting Rights (B) | Common Shares | 17,904,919 | Including Treasury Shares | |||
| Preferred Shares | — | |||||
Shares with Restricted Voting Rights under the Stock Exchange Act and Other Laws (C) | — | — | — | |||
Shares with Reestablished Voting Rights (D) | — | — | — | |||
Shares with Exercisable Voting Rights (E = A – B – C + D) | Common Shares | 243,206,889 | — | |||
| Preferred Shares | — | |||||
| (1) | Shares without voting rights under the Commercial Code of Korea: 17,901,665 treasury shares held through treasury stock funds and 3,254 cross-holding shares. |
5. Dividends and Related Matters
A. Dividends
The shareholder return policy of KT is to pay its shareholders at least 50% of the adjusted net profit of the current term, through cash dividends and acquisition of treasury stock of the Company.
B. Dividends Paid during the Past Three Fiscal Years
Category | 1st Half 2010 | 2009 | 2008 | |||||
Par Value per Share (Won) | 5,000 | 5,000 | 5,000 | |||||
Net Profit of the Current Term (in Millions of Won) | 716,204 | 516,533 | 449,810 | |||||
Net Profit per Share (Won) | 2,945 | 2,353 | 2,217 | |||||
Year-end Cash Dividend (in Millions of Won) | — | 486,393 | 226,280 | |||||
Year-end Share Dividend (in Millions of Won) | — | — | — | |||||
Cash Dividend Propensity (%) | — | 94.2 | 50.3 | |||||
Rate of Return on Cash Dividend (%) | Common Shares | — | 4.9 | 2.9 | ||||
| Preferred Shares | — | — | — | |||||
Rate of Return on Share Dividend (%) | Common Shares | — | — | — | ||||
| Preferred Shares | — | — | — | |||||
Cash Dividend per Share (Won) | Common Shares | �� | — | 2,000 | 1,120 | |||
| Preferred Shares | — | — | — | |||||
Share Dividend per Share (Share) | Common Shares | — | — | — | ||||
| Preferred Shares | — | — | — | |||||
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A. Present Conditions of the Industry
| (1) | Characteristics of the Industry |
The existing markets for fixed-line telephones, broadband Internet and mobile communications in Korea have reached their maturity. However, with technical advances and changes in customer demands, the communications industry has recently been moving towards a convergence with different technologies and industries, such as the convergence between fixed and mobile communications and the convergence between the telecommunications industry and the broadcasting industry. As shown by the development of IPTV, there is a high probability that the media industry will redefine the traditional boundaries of communications and broadcasting. As such, big changes are expected in both industries. In the mobile communications market, the transition to 3G technology has become a turning point in shaping the new competitive landscape by replacing the existing competition in the 2G market. In the saturated communications market, enhancing customer value has become increasingly important as both fixed and mobile communications carriers offer bundled services such as the Triple/Quadruple Play and Fixed-Mobile Convergence (“FMC”) services.
| (2) | Growth of the Industry |
(Unit: 1,000 Persons)
Category | December 31, 2005 | December 31, 2006 | December 31, 2007 | December 31, 2008 | December 31, 2009 | June 30, 2010 | ||||||
Broadband Internet Subscribers | 12,191 | 14,043 | 14,710 | 15,475 | 16,349 | — | ||||||
Local Telephone Subscribers | 22,920 | 23,119 | 23,130 | 22,132 | 20,090 | 19,622 | ||||||
Mobile Phone Subscribers | 38,342 | 40,197 | 43,498 | 45,607 | 47,944 | 49,609 |
| * | The 2005 to 2007 data was provided by the Ministry of Information and Communication (www.mic.go.kr). |
| * | The 2008 to June 30, 2010 data was provided by the Korea Communications Commission (“KCC”) (www.kcc.go.kr). |
| * | The number of broadband internet subscribers as of June 30, 2010 was not published by the KCC. |
| (3) | Characteristics of Market Fluctuations |
The demand for communications services does not fluctuate greatly as such services are regarded as a necessity in modern life. However, if the Korean economy slows in the future, it could have an adverse impact on KT’s business activities.
| (4) | Competition |
(a) Competing Companies
| • | Local calls: SK Broadband, LG U+, etc. |
| • | Long distance calls: LG U+, Onse Telecom, SK Broadband, SK Telink, etc. |
| • | International calls: LG U+, Onse Telecom, SK Broadband, SK Telink, etc. |
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| • | Broadband Internet: SK Broadband, LG U+, Service Operators (including cable television, relay wired broadcasting operators), etc. |
| • | Mobile communications: SK Telecom, LG U+, etc. |
| • | Internet telephones using Internet Protocol (“VoIP”): SK Broadband, SK Networks, SK Telink, Samsung Networks, LG U+, Korea Cable Telecom, etc. |
| • | IPTV: SK Broadband, LG U+ |
| • | Mobile Internet (WiBro service): SK Telecom |
- LG U+, or LG Uplus Corp, is the new company name of LG telecom that merged with LG Dacom and LG Powercom effective as of January 1, 2010.
(b) Market Entry Requirements
| • | Communication service providers: business operations must be approved by the Korea Communications Commission |
| • | Specific telecommunications service providers: registration is required |
| • | Value-added telecommunications service providers: reporting is required |
(c) Factors of Competition: service fees, product quality, marketing power, brand value and competitiveness of the distribution network, etc.
| (5) | Relevant Laws and Government Regulations |
(a) Relevant Laws
| • | Telecommunications policy-related laws |
Telecommunications Basic Act, Telecommunications Business Act (total 7)
| • | Radio and broadcasting policy-related laws |
Radio Regulation Law
| • | Information related laws |
Promotion of Information and Communication Basic Act (total 9)
| • | Broadcast related laws |
Broadcasting Law, Internet Multimedia Broadcasting Business Law (IP-TV related), etc.
(b) Government Regulations
The Korea Communications Commission is responsible for managing the convergence between broadcasting and communications, as well as assuring their independence and role of providing public services. The commission is also responsible for issuing relevant licenses, permits, approvals, policy enactments and other matters relating to the promotion of broadcasting and communications and the enhancement of their global competitiveness.
The statements included in the above sections are based on KT’s forecasts and are offered for the sole purpose of providing a better understanding of the company’s current state. Consequently, investors must not rely solely on KT’s forecasts when making their investment decisions.
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B. Current Status of KT
| (1) | Operations Outlook and Classification of Business |
(a) Operations Outlook
The Korean communications market is currently experiencing stagnant growth as major services, including fixed-line telephones, broadband Internet and mobile communications, have reached maturity, caused in part by intense competition in the industry. Despite the unfavorable environment, the convergence of the telecommunications and broadcasting industries, such as IPTV and VoIP, and the convergence of fixed and mobile services (FMC) are leading the growth of the telecommunications market.
On June 1, 2009, KT completed a merger with KTF, its mobile subsidiary, to overcome stagnant growth in the existing communications market, realize growth in new markets, and expand differentiated core capabilities. In addition, KT is also building a solid foundation for growth by introducing new services based on its group synergy, such as QOOK TV SkyLife (hybrid media service providing DMB channels from Skylife and Video on Demand or VOD from QOOK TV, KT’s IPTV) and FMC services. Furthermore, in November 2009, KT was first to introduce Apple’s iPhone to the Korean market to meet the smartphone needs of consumers.
Considering the highly saturated mobile phone market in Korea (99% in 2009 and 101% in 2010—estimate from KT’s Economy and Management Research), potential growth by adding new subscribers or raising voice service plans are limited. In such an environment, however, the mobile data business is considered as a new growth engine. At the end of 2009, KT successfully switched the paradigm of competition from voice to data centered services by introducing Apple’s iPhone as the sole provider in Korea. iPhone was successfully launched as the number of iPhone subscribers reached to 800,000 within seven months. In addition, average iPhone users use mobile data communication service approximately 30 to 40 times more than average non-iPhone users. Such data communication service usage pattern can be observed in all age groups, which in turn provides a platform for continuous growth in mobile data business. As approximately 30% of wireless data transmission out of total wireless data transmission is being used through WiFi networks, KT’s unique convergence network infrastructure will become KT’s competitive advantage in the wireless data business market. Going forward, KT will continue to reinforce its WiFi network competency by expanding WiFi zones and providing secured network to offer better customer experiences.
In the broadband Internet arena, KT will aim to improve customer value and marketing power by continuing to provide Fiber-To-The-Home (“FTTH”) services.
KT’s wireless broadband Internet service business, or SHOW WiBro, plans to further expand services to 84 major cities, including the Seoul metropolitan area, and will aim to be a leader in the Mobile 2.0 generation, the next generation of mobile communications.
Also, KT’s IPTV business will focus on actively catering to the TV portal market through its QOOK TV service and, in the long term, by pursuing a leadership position in the communication-broadcasting convergence market.
(b) Operations Subject to Disclosure
KT’s main area of business is the telecommunications sector as classified by the Korea Standard Industry Code.
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| (2) | Market Share |
Category | Operator | Market Share for Each Term (%) | ||||||
| 29th Fiscal Year (as of June 30, 2010) | 28th Fiscal Year (as of December 31, 2009) | 27th Fiscal Year (as of December 31, 2008) | ||||||
Local Telephone (On the Basis of the Number of Subscribers) | KT | 87.9 | 89.9 | 89.8 | ||||
| SK Broadband | 10.2 | 8.4 | 8.7 | |||||
| LGU+ | 1.8 | 1.7 | 1.5 | |||||
Mobile Telephone (On the Basis of the Number of Subscribers) | KT | 31.4 | 31.3 | 31.5 | ||||
| SK Telecom | 50.7 | 50.6 | 50.5 | |||||
| LGU+ | 17.9 | 18.1 | 18.0 | |||||
Broadband Internet (On the Basis of the Number of Subscribers) | KT | 42.9 | 42.5 | 43.4 | ||||
| SK Broadband | 23.3 | 23.5 | 22.9 | |||||
| LGU+ | 15.6 | 15.4 | 14.1 | |||||
| Service Operators | 18.2 | 18.6 | 19.6 | |||||
| * | Data was provided by the KCC. (www.kcc.go.kr). |
| * | The market share of broadband Internet service as of June 30, 2010 is the market share as of May 31, 2010, the latest available information. |
| * | The market share of SK Broadband calculated based on the subscriber number which is including resale By SK Telecom |
| (3) | Market Characteristics |
KT maintained approximately 87.9% of the Public Switched Telephone Network (“PSTN”) market share as of December 31, 2010 despite increased marketing efforts by its competitors. For instance, SK Broadband began offering aggressive sales promotions to increase its PSTN subscribers by introducing tariff based on household unit and offering discounts on basic monthly fees and airtime usage charges. LG U+ also competes with its new tariff plan based on household unit called “YO”.
Although PSTN sales and the number of PSTN subscribers are on a gradual decline due to the increased use of mobile phones and VoIP phone services over fixed phones and the paradigm shift from voice to data communications, KT is trying to mitigate the PSTN sales from further decrease by (i) increasing Average Revenue per User (“ARPU”) through sales of additional services, (ii) increasing customer satisfaction by offering optional calling plans and (iii) retaining existing customers through customer relationship management activities.
Competitions among mobile service providers over new subscribers continue to be intense, and overall revenue and subscriber growth have been slow. According to a report by KT Economics and Management Research Lab, penetration rates in terms of subscribers is showing signs of saturation, as it was 98% in 2009. We expected the penetration rate to be approximately 101% in 2010.
However, KT, as part of its growth strategy, plans to improve ARPU, particularly ARPU for data communication services, by providing innovative data services for smart phones utilizing Wi-Fi as well as WCDMA networks. As the sole iPhone provider in Korea, KT has successfully shifted the market competition from voice to data focused services. In addition to rapid iPhone sales, KT’s smartphone leadership is strengthened through the introduction of various handsets such as Andro One, an Android-based handset, as well as by offering competitive products such as one-month data roll-over program or one person data sharing plan (“OPMD”) tariff plan. As of June 30, 2010, KT had approximately 1.1 million smartphone subscribers.
To create marketing synergy with KT’s fixed services and to encourage loyal customers to churn-in and retain KT’s service, we introduced various services such as unlimited tariff plan among family members and ‘QOOK&SHOW Toong’ tariff plan, a bundled product for Internet, IPTV and PSTN services. Also, to provide differentiated services based on integration between fixed and mobile, “uCloud” service, a cloud computing service, and “Olleh KT club”, a fixed mobile integrated loyalty program, were introduced.
KT plans to maintain its leadership in smartphone market by continually improving its handset line-up, guaranteeing service quality, maintaining Wi-Fi leadership, and introducing new tariff to fulfill the customer needs.
As for broadband Internet, KT seeks to expand its subscriber base by offering high-quality services. In a market marked by intense price competition, KT aims to lead the market by supplying superior FTTH services to the competitor in terms of both speed and quality. KT’s ultimate goal is to be a market leader in offering the next generation of services, such as IPTV and VoIP, to its broadband subscribers by providing high Internet transmission speeds (100 Mbps) for common households.
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| (4) | Status and Forecast of New Businesses |
In order to overcome present market obstacles of limited growth in the voice service market and the sluggish growth in the broadband Internet service market, KT has been actively involved in developing a wide range of new businesses with growth prospects.
KT aims to create a digital entertainment world that will enrich its customers’ lives through a ubiquitous environment, which can be accessed through various terminals anytime, anywhere. Furthermore, KT aims to offer customers convenient solutions that they may freely use without time or location limitations and business solutions necessary to raise corporate efficiency and competitiveness. By excelling in these new business areas, KT strives to become a company that aids its clients in meeting their goals and enhancing their value.
SHOW WiBro enables portable broadband Internet access services, allowing universal Internet access with high transmission speeds through personal handsets or laptop computers. WiBro was first commercialized in the world using Korean technology, and KT successfully provided commercial WiBro services in limited areas in 2006. Since April of 2007, KT has actively been seeking to provide WiBro services in the Seoul metropolitan area, including various major buildings and university campuses. In October 2008, WiBro services in the Seoul metropolitan area was extended to 19 neighboring cities and the service speeds became twice as fast. Currently, anyone may utilize KT WiBro services with personal computers, WiBro-compatible laptop computers, WiBro phones, which combine CDMA mobile phones with WiBro service, Portable Media Players, navigation devices or Dongle, a USB device that can be connected to any laptop computer. In addition, Egg, which is a portable Access Point Device (“AP”) launched at the beginning of 2009, enables customers to enjoy WiBro service with various Wi-Fi embedded devices. KT will continuously try to expand its array of digital devices that are compatible with WiBro services. KT will promote a mobile culture for its customers through KT WiBro, which shall offer not only basic Internet access but also other individually tailored services, such as combined webmails, two-way visual communications, remote controlled home computers, information services linked with real-time search functions and mobile UCC to its users. As a fixed-mobile integrated company after the merger, KT will introduce new services through the convergence of WCDMA, Wi-Fi and WiBro (“3W”), and thus lead the Mobile 2.0 generation, the next generation of mobile communications.
In October 2009, KT introduced QOOK&SHOW, the first FMC service in Korea. QOOK&SHOW enables subscribers to enjoy both Wi-Fi as well as WCDMA on a single handset at a considerably low tariff. In addition, KT launched the world’s first 3W based smart phone. KT is vitalizing the mobile data market by enhancing customers’ convenience while reducing existing tariff levels. In the past, the telephone business was a growth engine for KT; however, wireless data is now considered as a new core engine for future growth. To boost the wireless data business, KT has implemented lower mobile data tariff, development of various devices and prevalence of mobile Internet software through the open market. Going forward, KT will continue to promote innovative convergence business, such as integration of services and contents for mobile, internet, IPTV, SoIP (collectively, “N-Screen”) and provide more home network services. In addition to VoIP handsets for voice and video calls, KT plans to introduce tablet-type media phone device with multimedia functions including VoIP calls in the fourth quarter 2010. Together with pad-style devices, KT plans to lead the tablet handset market.
QOOK TV is a service that integrates telecommunications and broadcasting services, brought about by accelerated development of high speed broadband Internet and fast conversion of contents into multimedia. QOOK TV is a service that provides traditional Internet services, such as information searches, games, message exchanges, and shopping with VOD services, which allow users to watch a variety of contents, such as movies, dramas and educational programs, at any time. From the second half of 2007 to October of 2008, only non-real time VOD services and interactive services were provided due to regulatory restrictions. However, after the enactment of the Korean Internet Multimedia Broadcasting Business Law by the National Assembly in December 2007 and the granting of the IPTV business license to KT on September 8, 2008, KT has been able to provide real-time broadcasting IPTV service starting November 17, 2008. KT provides 92 IPTV channels, 90,000 VOD programs and 84 two-way services as of June 2010. In February 2010, KT introduced the first Open IPTV, where KT broadcast channels and VODs produced by its subscribers.
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In order to maintain and expand its subscriber base and heighten competitive edge, KT’s Internet phone provides video communication, SMS and a variety of daily life related services (home ATM, traffic and local news information) in addition to its voice transmission services. As a result of continuous efforts to add new subscribers, KT had 1.7 million of VoIP subscribers as of December 31, 2009. Furthermore, the customer base for video services have gradually expanded due to the variety of terminal line-up from mid-end type (LCD 4’) to high-end type (LCD 7’). Meanwhile, to secure a stable revenue base, KT is trying to maintain PSTN subscribers through bundling and long-term contracts. By providing VoIP phones as a second phone to PSTN subscribers, KT anticipates more revenue being generated from the VoIP business. KT plans to solidify its customer base through the creation of a new market by offering convergent terminals with value added services and integrated applications.
KT believes that its new businesses will not only bring about new sources of revenue for the company, but also assist KT in maintaining its current fixed-line market share as well as promote its competitiveness in the broadband Internet service market. KT, leveraging on its past success, intends to continue developing new businesses so that it can become a pioneer in the areas of fixed line to mobile consolidation, convergence of telecommunications and broadcasting, and other cross-industry convergence.
The statements included in the above sections are based on KT’s forecasts and are offered for the sole purpose of providing a better understanding of the company’s current state. Consequently, investors must not rely solely on KT’s forecasts when making their investment decisions.
A. Performance in Terms of Revenue
(Unit: In Millions of Won)
Items | 1H of 29th Fiscal Year (2010) | 28th Fiscal Year (2009) | 27th Fiscal Year (2008) | |||
Internet Connection | 971,322 | 1,954,639 | 2,059,088 | |||
Internet Application | 253,394 | 431,909 | 359,462 | |||
Data | 662,068 | 1,450,217 | 1,650,121 | |||
Telephone | 1,704,214 | 3,603,155 | 3,938,712 | |||
LM | 494,774 | 1,154,094 | 1,393,605 | |||
Wireless | 3,429,519 | 4,266,371 | 1,006,638 | |||
System Integration | 142,289 | 232,546 | 248,425 | |||
Real Estate | 154,229 | 286,870 | 245,840 | |||
Handset | 1,982,259 | 2,498,845 | 855,145 | |||
Others | 14,625 | 27,528 | 27,799 | |||
Total | 9,808,693 | 15,906,174 | 11,784,835 |
| * | The revenue from KTF from June 2009 has been included as the result of the merger according to the K-GAAP. |
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B. Routes and Methods of Sales
| (1) | Marketing Organizational Structure |
| (2) | Sales Path |
| • | Customer center and branch offices offer sales of goods and customer services. |
| • | Subscription to goods and services through the Internet (www.qook.co.kr) and sales persons in branch offices |
| • | Attracting new subscribers through sales agencies |
| (3) | Methods and Conditions of Sales |
(a) Sales Methods
| • | Service fees are paid in cash (wire transfer, direct bank transfer and credit cards). Fixed and wireless telephone services are operated on a unit pricing system or a partial flat rate system, and broadband Internet access service is operated on a flat rate system. |
| • | Sale of terminals may involve installment payments. |
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| • | Rental of terminals is charged on a monthly basis, and a discounted rate is applied during the contract period. |
| • | Distribution fees are charged upon installation and additional periodic maintenance fees. |
(b) Conditions for Sales
| • | Discount of Service Fees in accordance with the Subscription Period |
Category | 1 Year | 2 Years | 3 Years | 4 Years | |||||
QOOK Internet | 5% | 10% | 15% | 20% (limited to Special | ) | ||||
KORNET (Express/Premium) | 5% | 10% | 15% | — | |||||
QOOK TV (Live/VOD) | 5% | 10% | 20% | — |
| • | Additional discounts available for subscribers who have used the following services for at least 3 years |
Category | After 3 Year | After 4 Years | After 5 Years | Note | |||||||
QOOK Internet | 2 | % | 3 | % | 5 | % | — | ||||
KORNET (Express/Premium) | 2 (When subscribers | % | 3 (When subscribers | % | 5 (When subscribers | % | When subscribers enter into an additional agreement |
| * | In the case of QOOK Internet, there are no additional discounts for subscribers who have used the service for more than 3 years if they renewed the long-term contract or signed for bundling after November 1, 2008. |
| • | Additional discounts available for QOOK Internet subscribers who renewed their contract |
Category | Renewal for 1 year | Renewal for 2 years | Renewal for 3 years | Renewal for 4 years | ||||||
Type A | KRW 1,000 | KRW 2,000 | KRW 3,000 | KRW 4,000 | ||||||
Type B | — | 5 | % | 10 | % | — |
| * | Additional discount rates for the subscribers who renewed their long-term contracts before November 1, 2008 are 3% for renewal for 2 years and 5% for renewal for 3 years. Renewal of the existing contract is required to receive the current discount rates. |
| * | Additional discount rate is not available for long-term subscribers who already receive the current discount rates. |
| • | Optional discount for SHOW in accordance with the Subscription Period (SHOW-king sponsor basic type) |
| Period of subscription | ||||||
Monthly fee | 12 months | 18 months | 24 months | |||
KRW 30,000 Up to KRW 40,000 | Discount up to KRW 3,000 | Discount up to KRW 5,000 | 100% discount (up to KRW 10,000) | |||
More than KRW 40,000 | 10% discount | |||||
| • | Discount for SHOW mobile Gold/i plan (SHOW-king sponsor for Cold/i type) |
(Unit: Won)
Gold type plan | SHOW free 150 | SHOW free 250 | SHOW free 350 | SHOW free 450 | SHOW free 650 | SHOW free 850 | SHOW free 2000 | |||||||
Amount of discount per month | 2,500 | 5,000 | 7,000 | 11,000 | 12,000 | 14,000 | 25,000 |
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i Type Plan | Slim | Lite/Talk | Medium | Special | Premium | |||||
Amount of discount per month | 5,000 | 8,000 | 13,000 | 16,000 | 22,000 |
| • | Major Bundling Discounts |
QOOK Internet plus SHOW | QOOK Internet | SHOW | ||
| 3% to 10% additional discount for service fees according to Agreement terms | 10% discount for monthly service fees (5% for QOOK Internet subscriptions without long-term discount agreements) | |||
QOOK Internet plus KT WIBRO | QOOK Internet | KT WIBRO | ||
| 3% to 10% additional discount for service fees according to Agreement terms | None (instead NESPOT family provided free of charge) | |||
QOOK Internet plus QOOKTV | QOOK Internet | QOOKTV | ||
| 3% to 10% additional discount for service fees according to Agreement terms | 3% to 10% additional discount for service fees according to Agreement terms |
| * | Please refer to the explanations for each service provided on their respective websites or the relevant terms and conditions for further details. |
| (4) | Sales Strategy |
Our main sale strategy is to provide differentiated experience for our customers by providing various bundled products at competitive prices.
(a) Mobile Service
| • | Enhancing leadership and competitiveness in smart phone & FMC service by introducing iPhone: Increasing the sales of smart phones and FMC phones |
| • | Strengthen competitiveness by utilizing Wi-Fi network: Providing free Wi-Fi access to those who subscribe special smart phone tariff plans |
| • | Controlling marketing expenses by introducing a new sales program which provides special tariff discount instead of handset subsidy |
| • | Strengthen customer retention policy targeting the long-term contract customers whose contract period is matured. |
| • | Promote 3G migration in order to change the rules of the game from 2G CDMA to 3G WCDMA |
| • | Promote specialized high-quality products and increase sales through up-selling and retention of existing customers |
(b) Broadband Internet Service
| • | Strengthen competitiveness in both quality and speed by offering FTTH |
| • | Satisfy a diverse range of customer needs and provide differentiated services through development and offering of additional services |
| • | Promote specialized high-quality and optimized products and increase sales through up-selling and retention of existing customers |
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(c) Telephone Service
| • | Minimize PSTN line loss by introducing new tariff scheme. |
| • | Provide more benefits to customers by bundling services. |
| • | Promote KT’s VoIP phones to existing PSTN subscribers as their second phones to increase PSTN+VoIP bundled subscribers. |
| • | Retain PSTN subscribers who wish to switch their PSTN phone to VoIP phone by offering our own VoIP solution. |
| • | Enhance ARPU by developing new business model. |
(d) WiBro Service
| • | Increase subscriber base by expanding distribution channels and terminal competitiveness. |
| • | Execute special marketing program (opening interactive stores, establishing WiBro U-Campus, launching a laptop rental businesses, target marketing toward securities companies) |
| • | Stimulate early market interest through promotional rate plans and package products |
(e) IPTV Service
| • | Promote QOOK TV products to our existing QOOK internet subscribers. |
| • | Expand client base by offering free set-top box rentals (with a 3-year subscription contract) and opportunities to experience KT services |
| • | Increase synergy with SkyLife, our satellite TV subsidiary, by providing hybrid product through which people can enjoy Satellite HD channels as well as VOD libraries. |
(f) Bundling Service
| • | Retain existing customers and acquire new 3G and Wibro subscribers by developing and promoting new bundling products |
| • | Promote customer retention through continued development and sale of package products of major services |
3. Research and Development Activities
A. Research and Development Costs
(Units: In Millions of Won)
Category | 1H 2010 | 2009 | 2008 | Note | |||||||||
Raw Materials | — | — | — | ||||||||||
Labor Costs | 27,165 | 59,490 | 69,256 | ||||||||||
Depreciation | 38,966 | 66,109 | 51,637 | — | |||||||||
Commissions | 12 | 6,692 | 14,027 | — | |||||||||
Others | 126,475 | 238,868 | 214,263 | — | |||||||||
Total R&D Costs | 192,618 | 371,159 | 349,183 | — | |||||||||
Accounting Treatment | Research and Ordinary Development Costs | 123,863 | 235,079 | 251,141 | |||||||||
| Development Costs (Intangible Assets) | 68,755 | 136,080 | 98,042 | ||||||||||
Percentage of R&D Costs over Revenue | 1.96 | % | 2.33 | % | 2.96 | % | — | ||||||
4. Other Matters Necessary for Making Investment Decisions
A. Intellectual Property Rights
| • | KT holds 5,293 domestic patents and 479 overseas patents as of June 30, 2010. |
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1. Summary of Financial Statements (Non-Consolidated)
(in Millions of Won)
Classification | 1H 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||
Current Assets | 6,613,350 | 6,474,579 | 3,778,105 | 3,310,412 | 3,239,188 | ||||||||||
• Quick Assets | 6,176,924 | 5,867,770 | 3,610,564 | 3,188,309 | 3,146,206 | ||||||||||
• Inventory | 436,626 | 606,809 | 167,541 | 122,103 | 92,982 | ||||||||||
Fixed Assets | 17,566,824 | 17,867,896 | 14,906,817 | 14,606,770 | 14,723,145 | ||||||||||
• Investments | 1,387,767 | 1,274,670 | 3,517,906 | 3,458,580 | 3,661,067 | ||||||||||
• Tangible Assets | 13,789,725 | 14,203,832 | 10,428,674 | 10,448,618 | 10,398,084 | ||||||||||
• Intangible Assets | 1,075,178 | 1,206,587 | 397,046 | 439,738 | 470,782 | ||||||||||
• Other Non-Current Assets | 1,314,154 | 1,182,807 | 563,191 | 259,834 | 193,212 | ||||||||||
Total Assets | 24,180,374 | 24,342,475 | 18,684,922 | 17,917,182 | 17,962,333 | ||||||||||
Current Liabilities | 5,926,362 | 5,684,276 | 2,585,875 | 2,991,341 | 3,270,249 | ||||||||||
Fixed Liabilities | 7,627,948 | 8,259,945 | 7,267,158 | 6,065,948 | 6,143,004 | ||||||||||
Total Liabilities | 13,554,310 | 13,944,221 | 9,853,033 | 9,057,289 | 9,413,253 | ||||||||||
Capital | 1,564,499 | 1,564,499 | 1,560,998 | 1,560,998 | 1,560,998 | ||||||||||
Capital Surplus | 1,449,575 | 1,448,569 | 1,440,633 | 1,440,777 | 1,440,910 | ||||||||||
Capital Adjustments | (1,262,253 | ) | (2,165,728 | ) | (3,994,736 | ) | (3,983,929 | ) | (3,817,717 | ) | |||||
Accumulated Comprehensive Income | (41,892 | ) | (44,542 | ) | 10,879 | (818 | ) | 10,978 | |||||||
Retained Earnings | 8,916,135 | 9,595,456 | 9,814,115 | 9,842,865 | 9,353,911 | ||||||||||
Total Capital | 10,626,064 | 10,398,254 | 8,831,889 | 8,859,893 | 8,549,080 |
(in Millions of Won)
Classification | 1H 2010 | 2009 | 2008 | 2007 | 2006 | |||||
Sales | 9,808,693 | 15,906,174 | 11,784,835 | 11,936,382 | 11,856,009 | |||||
Operating Income | 1,154,086 | 611,550 | 1,113,389 | 1,433,722 | 1,756,228 | |||||
Net Income | 716,204 | 516,533 | 449,810 | 981,967 | 1,233,449 |
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2. Summary of Financial Statements (Consolidated)
As of the end of December 31
(in Millions of Won)
Classification | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||
Current Assets | 7,971,849 | 7,073,826 | 5,642,799 | 5,981,420 | 6,131,744 | ||||||||||
• Quick Assets | 7,272,447 | 6,648,985 | 5,343,695 | 5,744,225 | 5,771,631 | ||||||||||
• Inventory | 699,402 | 424,841 | 299,104 | 237,195 | 360,113 | ||||||||||
Fixed Assets | 18,648,468 | 19,064,778 | 18,484,086 | 18,261,914 | 18,556,973 | ||||||||||
• Investments | 561,370 | 546,000 | 470,195 | 533,947 | 792,669 | ||||||||||
• Tangible Assets | 14,774,560 | 15,188,631 | 15,288,002 | 15,167,429 | 15,087,032 | ||||||||||
• Intangible Assets | 1,279,500 | 1,474,238 | 1,735,323 | 1,959,591 | 2,133,199 | ||||||||||
• Other Non-Current Assets | 2,033,038 | 1,855,909 | 990,566 | 600,947 | 544,073 | ||||||||||
Total Assets | 26,620,317 | 26,138,604 | 24,126,885 | 24,243,334 | 24,688,717 | ||||||||||
Current Liabilities | 6,941,223 | 5,241,028 | 5,078,621 | 5,423,115 | 4,822,341 | ||||||||||
Fixed Liabilities | 9,011,655 | 9,809,678 | 7,910,498 | 8,122,915 | 9,476,442 | ||||||||||
Total Liabilities | 15,952,878 | 15,050,706 | 12,989,119 | 13,546,030 | 14,298,783 | ||||||||||
Minority Interest | 290,872 | 2,256,009 | 2,276,003 | 2,267,252 | 2,518,213 | ||||||||||
Capital | 1,564,499 | 1,560,998 | 1,560,998 | 1,560,998 | 1,560,998 | ||||||||||
Capital Surplus | 1,448,569 | 1,440,633 | 1,440,777 | 1,292,475 | 1,389,222 | ||||||||||
Capital Adjustments | (2,165,728 | ) | (3,994,736 | ) | (3,983,929 | ) | (3,817,717 | ) | (3,868,078 | ) | |||||
Accumulated Comprehensive Income | (44,542 | ) | 10,879 | 142 | 5,772 | (3,166 | ) | ||||||||
Retained Earnings | 9,573,769 | 9,814,115 | 9,843,775 | 9,400,068 | 8,786,413 | ||||||||||
Total Capital | 10,667,439 | 11,087,898 | 11,137,766 | 10,697,304 | 10,389,934 |
For the years ended December 31 (in Millions of Won)
Classification | 2009 | 2008 | 2007 | 2006 | 2005 | |||||
Revenues | 19,649,120 | 19,592,949 | 18,660,082 | 17,824,880 | 17,191,845 | |||||
Operating Income | 966,459 | 1,440,280 | 1,745,341 | 2,383,376 | 2,411,095 | |||||
Income from Continuing Operations | 607,300 | 539,337 | 1,096,774 | 1,509,721 | 1,365,010 | |||||
Net Income | 609,695 | 513,290 | 1,170,978 | 1,509,717 | 1,360,036 | |||||
Consolidated Net Income | 494,846 | 449,810 | 1,056,227 | 1,291,863 | 1,085,450 | |||||
Number of Consolidated Companies | 36 | 33 | 28 | 23 | 21 |
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1H 2010 | 1H 2009 | 2009 | 2008 | |||
Samil PwC | Deloitte Anjin LLC | Deloitte Anjin LLC | Deloitte Anjin LLC |
Term | Audit (or Review) Opinion | Issues noted | ||
| 1st half, 2010 | — | Not Applicable | ||
| 1st half, 2009 | — | Not Applicable | ||
| 2009 | Unqualified | Not Applicable | ||
| 2008 | Unqualified | Not Applicable | ||
| 2007 | Unqualified | Not Applicable |
3. Remuneration for Independent Non-Executive Auditors for the Past Three Fiscal Years
A. Audit Contracts
(Units: In Millions of Won, Hours)
Term | Auditor | Contents | Fee | Total Hours | ||||
1st half, 2010 | Samil PwC | |||||||
2009 | Deloitte Anjin LLC | Quarterly and semi-annual review of financial statements Semi-annual review of consolidated financial statements Non-consolidated financial statements audit Consolidated financial statements audit US GAAP financial statements audit | 2,786 | 41,545 | ||||
2008 | Deloitte Anjin LLC | Quarterly and semi-annual review of financial statements Semi-annual review of consolidated financial statements Non-consolidated financial statements audit Consolidated financial statements audit Kaesong Branch Office audit US GAAP financial statements semi-annual review US GAAP financial statements audit | 2,319 | 33,858 | ||||
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V. Management and Affiliated Companies
1. Overview of the Board of Directors and Committees under the Board
A. Matters on the Board of Directors
| (1) | Organization |
As of June 30, 2010, Board of Directors of KT Corp. consists of 11 Directors. (3 Inside Directors and 8 Outsider Directors) Under the Board of Directors, KT has 6 different Committees as follows; Corporate Governance Committee , Audit Committee, Outside Director Candidate Recommendation Committee, Evaluation & Compensation Committee, Executive Committee, Related-Party Transaction Committee. Also, the Board of Directors may establish another committee if necessary.
| (2) | Major Activities of the Board of Directors |
Order | Date | Subject | Result of Discussion | |||
| First | Jan. 28, 2010 | Proposal on assurance for Ansan U-Complex Business | Original proposal approved | |||
| Approval of financial statements of the 28th term | Original proposal approved | |||||
| Business reports of the 28th Term | Original proposal approved | |||||
| Plan for issuance of bonds for 2010 | Original proposal received | |||||
| Proposal on the reformation of corporate governance | Original proposal approved | |||||
| Second | Feb. 11, 2010 | Proposal on the amendment to the articles of incorporation | Amended proposal approved | |||
| Agreement on the recommendation of non-independent Directors | Original proposal approved | |||||
| Proposal on the recommendation of members of audit committee | Original proposal approved | |||||
| Proposal on the limit on remuneration of Board of Directors | Original proposal approved | |||||
| Proposal on the compensation and payment system for Board of Directors | Original proposal approved | |||||
| Proposal on the amendment to the severance payment regulation for senior management | Original proposal approved | |||||
| Approval of financial statements of the 28th term | Original proposal approved | |||||
| Convocation of annual general meeting of shareholders of 28th term | Original proposal approved | |||||
| Report on operational condition of internal accounting management system | Original proposal received | |||||
| Proposal on the execution of call option on Skylife | Original proposal approved | |||||
| Report on ROA status and strategies for improvement of real estate business | Original proposal received | |||||
| Audit committee’s report on operational condition of internal accounting management system | Original proposal received | |||||
| Report on the validity of the audit committee | Original proposal received |
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Third | Mar. 12, 2010 | Appointment of the Chairman of the Board of Directors and the proposal on the organization of committees under the Board of Directors | Chairman of BOD and members of committees appointed | |||
| Amendment to the policies on the Board of Directors and committees | Original proposal approved | |||||
| Report on current status and plan for improvement of management performance of subsidiary companies | Original proposal received | |||||
| Report on acquisition of Keum-Ho Rent-A-Car and proposal on capital increase | Original proposal approved | |||||
| Report on transactions under 15 billion won with other entities for 2009 | Original proposal received | |||||
| Plan for building hot-line for chairman of audit committee | Original proposal received | |||||
Fourth | Mar. 17, 2010 | Approval on the payment for acquirement of new spectrum | Original proposal approved | |||
Fifth | Apr. 29, 2010 | Proposal on funding for Korea Mobile Internet Business Association | Original proposal approved | |||
| Proposal on renewal contract for KIF investment fund | Original proposal approved | |||||
| Proposal on disposition of treasury shares for long-term performance based incentive payment | Original proposal approved | |||||
| Proposal on plans for the payment of long-term incentive for 2010 | Conditionally approved | |||||
| Proposal on the method of payment for granted stock-options in the past | Original proposal approved | |||||
| Plan for postponed incentive payment | Original proposal approved | |||||
| Report on statement of accounts for the first quarter of 2010 fiscal year | Original proposal received | |||||
Sixth | May. 14, 2010 | Proposal on C project plan | Original proposal approved | |||
| Proposal on disposition of newly established non-car rental business unit of KT Rental | Original proposal approved |
| (3) | The Status of Committees under the Board of Directors |
(a) Organization of the Committees under the Board of Directors (As of June 30, 2010)
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Title | Organization | Name (after March 12, 2010) | Purpose of Establishment and | Note (Before March 12, 2010) | ||||
Corporate Governance Committee | 4 Outside Directors, & 1 non-independent Directors | Choon Ho Lee (Chairperson) E. Han Kim Jeung Soo Huh Chan-Jin Lee Hyun-Myung Pyo | Improvement of Corporate Governance | E. Han Kim (Chairman), Jeong-Suk Koh Si Chin Kang, Joon Park , Choon Ho Lee, Hyun Myung Pyo | ||||
| Evaluation & Compensation Committee | 4 Outside Directors | Jeung Soo Huh (Chairperson) Choon Ho Lee Jong-Hwan Song Chan-Jin Lee | Management Agreement with the CEO and Assessment | Jeong-Suk Koh (Chairperson) In-Man Song Choon Ho Lee, Jeung Soo Huh | ||||
| Executive Committee | 3 non-independent Directors | Suk Chae Lee (Chairperson) Sang Hoon Lee Hyun Myung Pyo | Management and financial matters authorized by the Board of Directors | Suk-Chae Lee (Chairperson) Sang Hoon LeeHyun Myung Pyo | ||||
| Related-party Transaction Committee | 4 Outside Directors | Jeong-Suk Koh (Chairperson) Joon Park Jong-Hwan Song Hae Bang Chung | Internal transactions that require resolution by the Board of Directors as stipulated by the ‘Antitrust Regulation and Fair Trade Law’ and ‘Securities and Exchange Act’ | Joon Park (Chairperson) Jeong Suk Koh Choon Ho Lee Jeung Soo Huh | ||||
| Outside Director Candidate Recommendation Committee | See V. Management and Affiliated Companies 1. Overview of the Board of Directors and Committees under the Board A. Matters on the Board of Directors (4) Independency of the Board of Directors | — | ||||||
| Audit Committee | See V. Management and Affiliated Companies B. Audit Committee | — | ||||||
(b) Activities of the Committees under the Board of Directors
Corporate Governance Committee
Meeting Date | Agenda | Results of discussion | Independent and Non-Executive Directors | Executive Directors | ||||||||||
| Choon Ho Lee | E. H Kim | Jeung Soo Huh | Chan Jin Lee | Hyun Myung Pyo | ||||||||||
| Attendance 100% | Attendance 100% | Attendance 100% | Attendance 100% | Attendance 100% | ||||||||||
| Voting Result | ||||||||||||||
| May. 26 | Proposal on management plan of Corporate Governance Committee for 2010 | Original proposal approved | For | For | For | For | For | |||||||
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Evaluation & Compensation Committee
Meeting Date | Agenda | Results of discussion | Independent and Non-Executive Directors | |||||||||
| Jeong Suk Koh | InMan Song | Choon Ho Lee | Jeung Soo Huh | |||||||||
| Attendance 100% | Attendance 86% | Attendance 40% | Attendance 100% | |||||||||
| Voting Result | ||||||||||||
| Jan. 27 | Result of CEO management assessment for 2009 | Original proposal approved | For | For | Absent | For | ||||||
| Proposal on payment system for CEO and standing directors | Original proposal approved | For | For | Absent | For | |||||||
| Feb. 10 | Proposal on the Limit on remuneration of Directors for 2010 | Original proposal approved | For | For | Absent | For | ||||||
| Proposal on remuneration standards and payment methods for Standing Directors | Original proposal approved | For | For | Absent | For | |||||||
| Original proposal approved | For | For | Absent | For | ||||||||
| Feb. 25 | CEO management goal for 2010 | Re-Proposition | Against | Against | Absent | Against | ||||||
| Mar. 5 | CEO management goal for 2010 | Original proposal approved | For | Absent | For | For | ||||||
| * | Members of the committee re-elected on March 12, 2010: (Jeong Soo Huh, Choon Ho Lee, Jong Hwan Song, and Chan Jin Lee) |
Meeting Date | Agenda | Results of discussion | Independent and Non-Executive Directors | |||||||||
| Jeong Soo Huh | Choon Ho Lee | Jong Hwan Song | Chan Jin Lee | |||||||||
| Attendance 100% | Attendance 40% | Attendance 100% | Attendance 100% | |||||||||
| Voting Result | ||||||||||||
| Apr. 28 | Proposal on Long-term incentive payment for 2009 | Original proposal approved | For | For | For | For | ||||||
| Proposal on Long-term incentive grant in 2010 | Original proposal approved | For | For | For | For | |||||||
| Proposal on the method of payment for granted stock-options in the past | Original proposal approved | For | For | For | For | |||||||
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Executive Committee
Meeting Date | Agenda | Results of discussion | Executive Directors | |||||||
| Suk-Chae Lee | Sasng Hoon Lee | Hyun Myung Pyo | ||||||||
| Attendance 100% | Attendance 100% | Attendance 100% | ||||||||
| Voting Result | ||||||||||
Jan. 18 | Establishment and, relocation of branches, Change in branch name, and closing of branches | Original proposal approved | For | For | For | |||||
Jan. 25 | Proposal on issuance of corporate bonds in 1Q and 2Q 2010. | Original proposal approved | For | For | For | |||||
Mar.8 | Proposal on branch name change and branch relocation | Original proposal approved | For | For | For | |||||
Mar. 22 | Proposal to donate certain facilities regarding the establishment of broadband mobile traffic information system | Original proposal approved | For | For | For | |||||
Mar. 23 | Proposal to award 2010 KT –IT Scholarship | Original proposal approved | For | For | For | |||||
Apr. 5 | Proposal to award KT Company-Labor Union Youth Scholarship | Original proposal approved | For | For | For | |||||
Apr. 8 | Relocation of Branches | Original proposal approved | For | For | For | |||||
Apr. 21 | Establishment of new branch | Original proposal approved | For | For | For | |||||
May 7 | Proposal on sponsorship for ‘Daegu FC’ | Original proposal approved | For | For | For | |||||
May 19 | Sponsoring Korea Digital Media Industry Association | Original proposal approved | For | For | For | |||||
May 27 | Relocation of Branches | Original proposal approved | For | For | For | |||||
| (4) | Independency of the Board of Directors |
(a) Independency of appointing BOD members
In order to secure the independency and transparency, all candidates to the Board of Directors should be selected and must get approvals from the general meeting of shareholders. Also, the outside research and advisory service can be done if necessary.
(b) Appointment of new Directors
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Name | Expertise | Recommendation | Committees | Inside trading, | ||||
| Choon Ho Lee | Media Business | Outside Director Candidate Recommendation Committee | Corporate Governance Committee(Chairman)/ Evaluation & Compensation Committee | No | ||||
| Jeung Soo Huh | New Energy Business | Outside Director Candidate Recommendation Committee | Corporate Governance Committee/ Evaluation & Compensation Committee(Chairman) | No | ||||
| Jong Hwan Song | Global Business | Outside Director Candidate Recommendation Committee | Evaluation & Compensation Committee / Related-party Transaction Committee | No | ||||
| Chan Jin Lee | Broadcasting/Telecommunication and Internet | Outside Director Candidate Recommendation Committee | Corporate Governance Committee/ Evaluation & Compensation Committee | No | ||||
| Jong Hwan Song | Global Business | Outside Director Candidate Recommendation Committee | Evaluation & Compensation Committee / Related-party Transaction Committee | No | ||||
| Chan Jin Lee | Broadcasting/Telecommunication and Internet | Outside Director Candidate Recommendation Committee | Corporate Governance Committee/ Evaluation & Compensation Committee | No | ||||
(c) Establishing separate committee to appoint new directors
Name | Outside Directors | Note | ||
| E. Han Kim | O |
The number of the outsider Directors should be more than 50% | ||
| Jeong Suk Koh | O | |||
| Joon Park | O | |||
| Choon Ho Lee | O | |||
| Jeung Soo Huh | O | |||
| Hyun Myung Pyo | X |
Outside Director Candidate Recommendation Committee
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Meeting Date | Agenda | Results of discussion | Independent and Non-Executive Directors | Executive Director | ||||||||||||
| E. Han Kim | Jeong-Suk Koh | Joon Park | Choon Ho Lee | Jeung Soo Huh | Hyun Myung Pyo | |||||||||||
| Attendance 100% | Attendance 100% | Attendance 100% | Attendance 100% | Attendance 100% | Attendance 100% | |||||||||||
| Voting Result | ||||||||||||||||
| Jan. 21 | Plan on supporting recommendation of outside director candidate | Original proposal approved | For | For | For | For | For | For | ||||||||
| Jan. 28 | Selecting outside director candidate | Original proposal approved | For | For | For | For | For | For | ||||||||
| Feb. 8 | Finalization of outside director candidates | Original proposal approved | For | For | For | For | For | For | ||||||||
B. Audit Committee
| (1) | Matters on Audit Institution |
(a) Establishment and Method of Organization of Audit Committee (Auditors)
| • | Purpose of operational regulations for Audit Committee |
| • | To regulate matters necessary for effective operation of Audit Committee |
| • | Rights and Duties |
| • | The Audit Committee may audit the Company’s accounting and business affairs, and demand, whenever necessary, Directors of the Company to report on the relevant matters thereof. The Committee may handle the matters provided for under the relevant statutes, the Articles of Incorporation or the operational rules of the Audit Committee and those matters authorized by the Board of Directors. |
| • | Members of the Audit Committee shall be appointed by a resolution of the general meeting of shareholders, and at least one financial expert must be appointed as a member. |
(b) The Audit Committee’s Internal Procedures for Access to Management Information Necessary for Audit
| • | Types of Meetings |
| • | The Committee shall hold a regular meeting in the first month of every quarter of each year and may hold an extraordinary meeting whenever necessary |
| • | Right of Convocation |
| • | The Audit Committee Meeting shall be convened by the Chairman of the Committee upon the request of the President or a member of the Committee. |
| • | Convocation Process |
| • | The Chairman shall send every member of the Committee a notice specifying date, location and agenda of the meeting through facsimile, telegram, registered mail or other electronic measures, at least 3 days prior to the date of the meeting |
| • | The Committee shall deliberate on or resolve the following matters: |
| • | Matters on the General Meeting of Shareholders |
| • | Request to the Board of Directors to convene an Extraordinary Meeting of Shareholders |
| • | Investigate and testify on agenda of, and documents provided at, the General Meeting of Shareholders |
| • | Matters on Directors and Board of Directors · Report to the Board of Directors on a Director’s activities that are in violation of relevant statutes or the Articles of Incorporation |
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| • | Preparation and submission of Audit Report on financial statements that are to be submitted to the General Meeting of Shareholders |
| • | Injunction on illegal activities of a Director |
| • | Request for a report on the performance of Directors |
| • | Assessment report of operational status of internal accounting management system |
| • | Assessment report on Audit Committee |
| • | Matters authorized by the Board of Directors |
| • | Matters on Audit |
| • | Request on performance of Directors or investigation on business and financial status of the Company |
| • | Investigation on subsidiaries under the Commercial Code |
| • | Receipt of report from a Director |
| • | Representation of the Company in a lawsuit between a Director and the Company |
| • | Decision on institution of a lawsuit upon a minority shareholder’s request for institution of a suit against Directors |
| • | Approval for appointment, change or dismissal of an external auditor (the “Auditor”) |
| • | Receipt of reports made by the Auditor on a Director’s misconduct in the course of performing his duties or a material fact that is in violation of relevant statutes or the Articles of Incorporation |
| • | Receipt of reports made by the Auditor on the Company’s violation of accounting standards, etc. |
| • | Assessment on audit of the Auditor |
| • | Assessment on independence of the Auditor |
| • | Pre-approval on services provided by the Auditor |
| • | Auditing plans for the year and the audit result |
| • | Assessment on the internal control system |
| • | Verification of corrective measures regarding audit results |
| • | Approval for appointment and proposal for dismissal of a person in charge of internal audit |
| • | Review of feasibility of material accounting policies and change in accounting estimates |
| • | Review on soundness and propriety of corporate financing and accuracy of financial reports |
| • | Establishment of whistle-blowing system |
| • | Other Matters Provided by the Relevant Statutes and the Articles of Incorporation |
| • | The Audit Committee may, whenever necessary, require internal audit organization to separately report on its audit activities. |
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(c) Personal Information of Members of the Audit Committee (As of June 30, 2010)
Name | Experience | Note | ||||
| Joon Park | • • • | Master of Laws(LL.M.), Harvard Law School Attorney-at-law, Kim & Chang, Seoul (Present) Professor, College of Law, Seoul National University | Outside director | |||
| E. Han Kim | • • • | Ph.D. in Finance, State University of New York Independent Director, POSCO Non-Executive Chairman of the Board of Directors (Present) Endowed Chair Professor and Director of Financial Research | Outside director | |||
| Jeong Suk Koh | • • • | Ph. D, Management, Sloan School of Management, MIT MS, Management, Korea Advanced Inst. Of Science and Technology (Present) CEO, Ilshin Investment Co., Ltd. | Outside director | |||
| Hae Bang Chung | • • • | M.A in Economics, Vanderbilt University 6th Deputy Minister, the Ministry of Strategy and Planning (Present) Professor, College of Law, Konkuk University | Outside director | |||
| (2) | Major Activities of the Audit Committee (Auditor) |
Order | Date | Subject | Result of Discussion | Note | ||||
| First | Jan.27 | Approval of financial statements for 28th term | Original proposal approved | — | ||||
| Report of business report for 28th term | Original proposal approved | |||||||
| Report of final audit for fiscal year 2009 | Conditional approved | |||||||
| Second | Feb. 11 | Appointment and remuneration of independent auditor for consolidated companies for fiscal year 2010 | Original proposal approved | — | ||||
| Report on operating result of internal accounting management system of fiscal year 2009 | Original proposal received | |||||||
| Report on operational condition of internal accounting management system of fiscal year 2009 (prepared by audit committee) | Original proposal received | |||||||
| Report on validity of the audit committee | Original proposal received | |||||||
| Third | Feb. 25 | Report on agenda of the annual general meeting of shareholders for 28th term and result on document investigation | Original proposal received | — | ||||
| Audit report for the annual general meeting of shareholders for 28th term | Original proposal received | |||||||
| Report on audit records of 2009 and audit plan for 2010 | Original proposal received | |||||||
| Written opinion on operational status of internal compliance device of the audit committee | Original proposal received | |||||||
| Fourth | Mar. 17 | Appointment of the chairman of Audit committee | Chairman appointed | — | ||||
| Approval of remuneration of independent auditor for consolidated companies for fiscal year 2010 | Original proposal approved | |||||||
| Report on the result of consolidated statement of account for fiscal year 2009 | Original proposal received | |||||||
| Fifth | Apr. 26 | Approval of remuneration of independent auditor for consolidated companies for fiscal year 2010 | Original proposal approved | — | ||||
| Report on statement of accounts for the first quarter of fiscal year 2010 | Original proposal received | |||||||
| Report of audit performance for the first quarter of 2010 and audit plan | Original proposal received | |||||||
| Sixth | June. 24 | Report on filing of Form 20-F for fiscal year 2009 | Original proposal received | — | ||||
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C. Matters on Shareholder’s Exercise of Voting Right
| (1) | Adoption of Cumulative Voting System |
Automatic introduction of the cumulative voting system following the completion of the privatization process in 2002.
| (2) | Adoption of the Written Voting System or Electronic Voting |
Adoption of the written voting system in accordance with the changes in the Articles of Incorporation at the 23rd General Meeting of Shareholders (March 11, 2005)
| (3) | Exercise of Minority Shareholders’ Rights |
The minority shareholders’ rights were exercised most recently at the 24th General Meeting of Shareholders in 2006.
24th General Meeting of Shareholders (March 10, 2006)
Shareholder | Contents of the | Purpose of Exercise | Result | Note | ||||
Jai Sik Ji and others | Shareholder proposal on the subject matter of the general meeting of shareholders | Recommendation of Outside Director candidates who will also be members of the Audit Committee | Candidates recommended through shareholder proposals failed to be appointed at the General Meeting of Shareholders (cumulative voting) | Article 191-14 of the Securities and Exchange Act | ||||
Jai Sik Ji and others | Request for cumulative voting | Request for cumulative voting for appointment of Outside Director candidates who will also be members of the Audit Committee | Candidates recommended through shareholder proposals failed to be appointed at the General Meeting of Shareholders (cumulative voting) | Article 191-18 of the Securities and Exchange Act |
D. Remuneration to Executive Officers
| (1) | Remuneration paid to Directors (including Outside Directors) and Members of the Audit Committee (Auditors) |
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(Unit: Hundred Million Won)
Category | Total Amount Paid | Amount Approved by the General Meeting of Shareholders | Average Amount Paid per Person | Fair Value of Stock Option | Weight | Reference | ||||||
3 Non-Independent Directors | 5.73 | 65 | 1.91 | — | — | — | ||||||
8 Outside Directors | 2.5 | 0.3 | — | — | — |
| * | Performance-based compensation made at year end. |
| (2) | Grant and Exercise of Stock Option |
| As of June 30, 2010 | (Unit: Won, Shares) |
| Holder | Position | Date of | Shares to be given upon | Type of | Changed Volume | Unexercised | Period for Exercise | Exercise Price | ||||||||||||
| Grant | exercise | Share | Granted | Exercised | Revoked | |||||||||||||||
| Jung Woong Kim | Outside Director | 9/8/2003 | Treasury Shares | Common Shares | 7,120 | 3,596 | 3,524 | 0 | 9/9/2005 to 9/8/2010 | 41,711 | ||||||||||
| Il Choing Nam | Outside Director | 9/8/2003 | Treasury Shares | Common Shares | 7,120 | — | 3,524 | 3,596 | Same as above | 41,711 | ||||||||||
| Sung Chul Chun | Outside Director | 9/8/2003 | Treasury Shares | Common Shares | 7,120 | — | 3,524 | 3,596 | Same as above | 41,711 | ||||||||||
| Young Ju Cho | Standing Director | 9/8/2003 | Treasury Shares | Common Shares | 43,154 | — | 2,345 | 40,809 | Same as above | 41,711 | ||||||||||
| In Moo Huh | Non-standing Director | 9/8/2003 | Treasury Shares | Common Shares | 28,769 | — | 25,533 | 3,236 | Same as above | 41,711 | ||||||||||
| Ju Young Song | Non-standing Director | 9/8/2003 | Treasury Shares | Common Shares | 28,769 | 27,245 | 1,524 | 0 | Same as above | 41,711 | ||||||||||
| Min Hee Lee | Non-standing Director | 9/8/2003 | Treasury Shares | Common Shares | 21,577 | — | 1,173 | 20,404 | Same as above | 41,711 | ||||||||||
| Soo Sung Jung | Non-standing Director | 9/8/2003 | Treasury Shares | Common Shares | 21,577 | — | 1,173 | 20,404 | Same as above | 41,711 | ||||||||||
| Seo Hwan Cho | Non-standing Director | 9/8/2003 | Treasury Shares | Common Shares | 21,577 | — | 1,173 | 20,404 | Same as above | 41,711 | ||||||||||
| Hyun Myung Pyo | Non-standing Director | 9/8/2003 | Treasury Shares | Common Shares | 21,577 | — | 1,173 | 20,404 | Same as above | 41,711 | ||||||||||
| Heon Chul Shin | Non-standing Director | 9/8/2003 | Treasury Shares | Common Shares | 21,577 | — | 19,779 | 1,798 | Same as above | 41,711 | ||||||||||
| Moon Ho Lee | Non-standing Director | 9/8/2003 | Treasury Shares | Common Shares | 21,577 | — | 1,173 | 20,404 | Same as above | 41,711 | ||||||||||
| Tae Bum Noh | Non-standing Director | 9/8/2003 | Treasury Shares | Common Shares | 21,577 | — | 7,975 | 13,602 | Same as above | 41,711 | ||||||||||
| Ki-Chul Kim | Non-standing Director | 9/8/2003 | Treasury Shares | Common Shares | 21,577 | — | 1,173 | 20,404 | Same as above | 41,711 | ||||||||||
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| Hyun Joon Kang | Standing Director | 9/16/2003 | Treasury Shares | Common Shares | 5,200 | — | 2,200 | 3,000 | 9/17/2005 to 9/16/2010 | 57,000 | ||||||||||
| Hee Chang Noh | Standing Director | 2/4/2005 | Treasury Shares | Common Shares | 60,000 | — | 16,847 | 43,153 | 2/5/2007 to 2/4/2012 | 54,600 | ||||||||||
| Hong Ki Kim | Outside Director | 3/4/2005 | Treasury Shares | Common Shares | 6,976 | — | — | 6,976 | 3/5/2007 to 3/4/2012 | 42,684 | ||||||||||
| Jae Chul Lee | Outside Director | 3/4/2005 | Treasury Shares | Common Shares | 6,976 | — | — | 6,976 | Same as above | 42,684 | ||||||||||
| Ki Kwon Do | Outside Director | 3/4/2005 | Treasury Shares | Common Shares | 6,976 | — | — | 6,976 | Same as above | 42,684 | ||||||||||
| Deok Nam Hwang | Outside Director | 3/4/2005 | Treasury Shares | Common Shares | 6,976 | — | — | 6,976 | Same as above | 42,684 | ||||||||||
| Hoon Han | Non-standing Director | 3/4/2005 | Treasury Shares | Common Shares | 21,577 | — | 5,967 | 15,610 | Same as above | 42,684 | ||||||||||
| Young Do Hong | Non-standing Director | 3/4/2005 | Treasury Shares | Common Shares | 21,577 | — | 3,736 | 17,841 | Same as above | 42,684 | ||||||||||
| Tae Keun Kim | Non-standing Director | 3/4/2005 | Treasury Shares | Common Shares | 21,577 | — | 3,736 | 17,841 | Same as above | 42,684 | ||||||||||
| Total | — | — | — | — | 452,503 | 30,841 | 107,252 | 314,410 | — | — |
The weighted-average of the non-exercise stock option: Won 43,871.
(1) In compliance with the Merger Agreement, the former KTF’s unexercised stocks were reflected in adjustment of numbers and exercise price according to the merger ratio (addition of total 319,665 stocks).
(2) Position is as of the date of the stock option grant.
(3) Difference between the number of shares granted and the number of shares with stock option unexercised is due to adjustment of number of granted shares that are dependent on management results and duration of continuous service.
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| [As of December 31, 2009] | (Unit : In Share, Millions of Won, %) |
Name of | Purpose | Beginning Balance | Increase (Decrease) | End Balance | Financial Facts (Latest fiscal year) | ||||||||||||||||||||||||
| Number of Shares | Equity Ratio | Book Value | Number of Shares | Acquisition (disposal) | P/L on Valuation | Number of Shares | Equity Ratio | Book Value | Total Asset | Net Profit | |||||||||||||||||||
KT Powertel Co. Ltd. | Business promotion | 7,771,418 | 44.9 | % | 37,419 | — | — | 4,859 | 7,771,418 | 44.9 | % | 42,278 | 162,395 | 10,833 | |||||||||||||||
KT Networks Corporation | Business promotion | 2,000,000 | 100.0 | % | 48,684 | — | — | (2,504 | ) | 2,000,000 | 100.0 | % | 46,180 | 136,257 | (2,811 | ) | |||||||||||||
KT Linkus co., Ltd. | Business promotion | 2,941,668 | 93.8 | % | 6,282 | — | — | 1,665 | 2,941,668 | 93.8 | % | 7,947 | 69,598 | 1,706 | |||||||||||||||
Telecop Service Co. Ltd. | Business promotion | 5,765,911 | 88.8 | % | 26,045 | 2,519 | 5,765,911 | 88.8 | % | 28,564 | 130,276 | 2,836 | |||||||||||||||||
KT Hitel | Active in management | 22,750,000 | 65.9 | % | 120,078 | — | — | (560 | ) | 22,750,000 | 65.9 | % | 119,518 | 213,976 | (1,545 | ) | |||||||||||||
KT Submarine Co., Ltd. | Active in management | 1,617,000 | 36.9 | % | 24,370 | — | — | 1,613 | 1,617,000 | 36.9 | % | 25,983 | 101,679 | 5,688 | |||||||||||||||
KT Commerce, Inc. | Business promotion | 266,000 | 19.0 | % | 1,782 | — | — | (175 | ) | 266,000 | 19.0 | % | 1,607 | 45,782 | (921 | ) | |||||||||||||
KT Technologies, Inc (Former. KTF Technologies, Inc.) | Business promotion | 1,146,962 | 78.8 | % | 0 | 4,000,000 | 20,000 | (20,000 | ) | 5,146,962 | 93.8 | % | 0 | 109,721 | (7,256 | ) | |||||||||||||
KT Rental Co., Ltd. | Business promotion | 6,800,000 | 100.0 | % | 69,074 | (181,954 | ) | 109,739 | (25,829 | ) | 6,618,046 | 58.0 | % | 152,984 | 1,023,062 | 7,972 | |||||||||||||
KT Capital Co., Ltd. | Business promotion | 20,200,000 | 73.7 | % | 126,092 | — | — | 9,249 | 20,200,000 | 73.7 | % | 135,341 | 1,967,673 | 12,282 | |||||||||||||||
Sidus FNH Co. | Business promotion | 2,297,000 | 51.0 | % | 3,522 | — | — | 314 | 2,297,000 | 51.0 | % | 3,836 | 25,386 | 611 | |||||||||||||||
Nasmedia Co., Ltd | Business promotion | 1,767,516 | 50.0 | % | 23,051 | (580 | ) | 1,767,516 | 50.0 | % | 22,471 | 66,281 | 1,787 | ||||||||||||||||
Softnix Co. Ltd. | Business promotion | 120,000 | 53.3 | % | 610 | (203 | ) | 120,000 | 53.3 | % | 407 | 876 | (381 | ) | |||||||||||||||
Information Premium Edu | Business promotion | 600,000 | 100 | % | 3,031 | — | — | (1,617 | ) | 600,000 | 100.0 | % | 1,414 | 1,678 | (1,344 | ) | |||||||||||||
KT new business investment fund No.1 | Business promotion | 100 | 90.9 | % | 10,112 | — | 10,000 | 89 | 100 | 90.9 | % | 20,201 | 22,512 | 59 | |||||||||||||||
KT Data System Co., Ltd. | Business promotion | 2,400,000 | 95.3 | % | 19,616 | — | — | 2,540 | 2,400,000 | 95.3 | % | 22,156 | 102,630 | 2,213 | |||||||||||||||
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KT mhows Co., Ltd. | Business promotion | 510,000- | 51.0 | % | 3,344 | — | — | (119 | ) | 510,000 | 51.0 | % | 3,225 | 18,003 | (228 | ) | ||||||||||||
KT M&S Co., Ltd. | Business promotion | 30,000,000- | 100 | % | 37,564 | — | — | (10,289 | ) | 30,000,000 | 100.0 | % | 27,275 | 233,627 | 16,140 | |||||||||||||
KT Music Co., Ltd. (Former KTF Music Co., Ltd.) | Business promotion | 14,494,258 | 48.7 | % | 17,417 | — | — | (1,184 | ) | 14,494,258 | 48.7 | % | 16,233 | 31,630 | (502 | ) | ||||||||||||
KT Innotz | Business promotion | 600,000 | 60.0 | % | 3,000 | — | — | (951 | ) | 600,000 | 60.0 | % | 2,049 | 3,468 | (1,585 | ) | ||||||||||||
KT Capital Media Contents Investment Fund No. 2 | Business promotion | — | 43.5 | % | 3,045 | — | — | 4 | — | 43.5 | % | 3,049 | 7,097 | 8 | ||||||||||||||
Gyeonggi-KT Green Growth Investment Association | Business promotion | — | 40.3 | % | 12,480 | — | — | 69 | — | 40.3 | % | 12,549 | 31,124 | 172 | ||||||||||||||
KeumHo Rent-a-Car Global | Business promotion | — | — | — | 1,924 | (7 | ) | 115,625 | 50.0 | % | 1,917 | 10,791 | (9,282 | ) | ||||||||||||||
Korea Digital Satellites Broadcasting | Business promotion | 9,028,000 | 22.8 | % | 12,857 | 3,680,000 | — | 8,342 | 12,708,000 | 32.1 | % | 21,199 | 507,440 | 21,606 | ||||||||||||||
Korea Telecom America, Inc.(USA) | Business promotion | 6,000 | 100.0 | % | 4,064 | — | — | 269 | 6,000 | 100.0 | % | 4,333 | 5,797 | 115 | ||||||||||||||
Korea Telecom Japan Co., Ltd.(Japan) | Business promotion | 12,856 | 100.0 | % | 3,995 | — | — | 461 | 12,856 | 100.0 | % | 4,456 | 16,685 | 130 | ||||||||||||||
Korea Telecom China Co., Ltd.(China) | Business promotion | — | 100.0 | % | 2,160 | — | — | (297 | ) | — | 100.0 | % | 1,863 | 1,879 | (365 | ) | ||||||||||||
New Telephone Company, Inc. (Russia) | Business promotion | 5,309,189 | 80.0 | % | 168,654 | — | — | 4,403 | 5,309,189 | 80.0 | % | 173,057 | 243,839 | 16,009 | ||||||||||||||
KTSC Investment Management B.V. | Business promotion | 82,614 | 60.0 | % | 36,275 | — | — | (1,140 | ) | 82,614 | 60.0 | % | 35,135 | 63,391 | (2,318 | ) | ||||||||||||
PT.KT Indonesia | Business promotion | 198,000 | 99.0 | % | 108 | — | — | (35 | ) | 198,000 | 99.0 | % | 73 | 74 | (42 | ) |
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1. Current Status of Employees
(Unit: Persons, Years, Millions of Won)
Type | Number of Employees | Average Years in Continuous | Total Payroll | Average Payroll per Person | Note | |||||||||
| General | Other | Total | Service | |||||||||||
Total | 30,658 | 192 | 30,800 | 18.5 | 912,450 | 29.57 | — | |||||||
| 1) | Number of employees: As of June 30, 2010 (excluding executive directors) |
| 2) | Average years in continuous services: Average number of years calculated by employees providing services as of June 30, 2010 (including former KTF) |
| 3) | Average payroll per person: Calculated by average number of employees (30,855) over the year, not end of year (30,800) |
| * | Average payroll per person = total payroll /average number of employees |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: September 13, 2010 | ||
| KT Corporation | ||
| By: | /S/ THOMAS BUM JOON KIM | |
| Name: | Thomas Bum Joon Kim | |
| Title: | Managing Director | |
| By: | /S/ YOUNG JIN KIM | |
| Name: | Young Jin Kim | |
| Title: | Director | |
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Exhibit 99.1
KT Corporation
Non-Consolidated Financial Statements
June 30, 2010
Table of Contents
KT Corporation
Index
June 30, 2010
| Page(s) | ||
Report of Independent Accountants | 1 – 2 | |
Non-Consolidated Financial Statements | ||
Statements of Financial Position | 3 – 5 | |
Statements of Income | 6 | |
Statements of Changes in Shareholders’ Equity | 7 – 8 | |
Statements of Cash Flows | 9 – 11 | |
Notes to Non-Consolidated Financial Statements | 12 – 42 | |
Table of Contents
Report of Independent Accountants
To the Board of Directors and Shareholders of
KT Corporation
We have reviewed the accompanying non-consolidated statement of financial position of KT Corporation (the “Company”) as of June 30, 2010, the related non-consolidated statements of income for the three-month and six-month periods ended June 30, 2010, and changes in shareholders’ equity and cash flows for the six-month period ended June 30, 2010, expressed in Korean won. These interim financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these interim financial statements based on our review. The Company’s non-consolidated statements of income for the three-month and six-month periods ended June 30, 2009, and changes in shareholders’ equity and cash flows for the six-month period ended June 30, 2009, presented herein for comparative purposes, were reviewed by other accountants whose report dated August 7, 2009, stated that nothing had come to their attention that caused them to believe that the June 30, 2009 financial statements were not presented fairly, in all material respects, in accordance with accounting principles for preparing quarterly and semi-annual financial statements in the Republic of Korea.
We conducted our review in accordance with the quarterly and semi-annual review standards established by the Securities and Futures Commission of the Republic of Korea. These standards require that we plan and perform our review to obtain moderate assurance as to whether the financial statements are free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data and thus, provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the non-consolidated interim financial statements referred to above are not presented fairly, in all material respects, in accordance with accounting principles generally accepted in the Republic of Korea.
Table of Contents
The non-consolidated statement of financial position of the Company as of December 31, 2009, and the related non-consolidated statements of income, appropriations of retained earnings and cash flows for the year then ended, were audited by other auditors, who expressed an unqualified opinion on those financial statements in their audit report dated February 23, 2010. These financial statements are not included in this review report. The non-consolidated statement of financial position as of December 31, 2009, presented herein for comparative purposes, is consistent, in all material respects, with the above audited statement of financial position as of December 31, 2009.
Without affecting our review results, as discussed in Note 24 to the non-consolidated financial statements, the Company merged with KT Freetel Co., Ltd. on June 1, 2009.
Accounting principles and review standards and their application in practice vary among countries. The accompanying financial statements are not intended to present the financial position, results of operations, changes in shareholders’ equity and cash flows in conformity with accounting principles and practices generally accepted in countries and jurisdictions other than the Republic of Korea. In addition, the procedures and practices used in the Republic of Korea to review such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying financial statements are for use by those who are informed about Korean accounting principles or review standards and their application in practice.
Seoul, Korea
August 9, 2010
This report is effective as of August 9, 2010, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying non-consolidated financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.
2
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KT Corporation
Non-Consolidated Statements of Financial Position
June 30, 2010 and December 31, 2009
(Unaudited)
| (in millions of Korean won) | 2010 | 2009 | ||||
Assets | ||||||
Current Assets | ||||||
Cash and cash equivalents, net (Notes 3 and 22) | (Won) | 1,515,961 | (Won) | 1,289,823 | ||
Short-term investment assets (Note 3) | 123,563 | 284,755 | ||||
Trade accounts receivable, net (Note 21) | 3,615,356 | 3,490,369 | ||||
Other receivables, net | 193,033 | 197,791 | ||||
Accrued revenues | 16,256 | 11,560 | ||||
Advance payments | 72,689 | 59,255 | ||||
Prepaid expenses | 137,841 | 88,141 | ||||
Prepaid income taxes | — | 24,494 | ||||
Current derivative instruments assets (Note 12) | 159,406 | — | ||||
Current deferred income tax assets | 341,749 | 421,212 | ||||
Inventories, net (Note 4) | 436,626 | 606,809 | ||||
Other current assets | 1,070 | 370 | ||||
Total current assets | 6,613,550 | 6,474,579 | ||||
Long-term financial instruments (Note 3) | 8 | 5 | ||||
Available-for-sale securities (Note 5) | 60,006 | 60,265 | ||||
Equity-method investments (Note 6) | 1,197,326 | 1,080,994 | ||||
Long-term loans receivable | 48,637 | 51,656 | ||||
Other investment assets (Note 3) | 81,790 | 81,750 | ||||
Property and equipment, net (Notes 7 and 23) | 13,789,725 | 14,203,832 | ||||
Intangible assets, net (Notes 8 and 23) | 1,075,178 | 1,206,587 | ||||
Long-term trade accounts and notes receivable, net | 548,204 | 391,289 | ||||
Leasehold rights and deposits | 252,622 | 271,614 | ||||
Non-current derivative instruments assets (Note 12) | 230,351 | 295,058 | ||||
Non-current deferred income tax assets | 176,124 | 106,624 | ||||
Exclusive memberships | 93,778 | 93,283 | ||||
Long-term other receivables, net | 47 | 10,500 | ||||
Long-term advance payments | 4,322 | 4,322 | ||||
Long-term prepaid expenses | 8,706 | 10,117 | ||||
Total non-current assets | 17,566,824 | 17,867,896 | ||||
Total assets | (Won) | 24,180,374 | (Won) | 24,342,475 | ||
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KT Corporation
Non-Consolidated Statements of Financial Position
June 30, 2010 and December 31, 2009
(Unaudited)
| (in millions of Korean won) | 2010 | 2009 | ||||
Liabilities and Shareholders’ Equity | ||||||
Current liabilities | ||||||
Trade accounts payable (Note 21) | (Won) | 1,236,111 | (Won) | 1,350,143 | ||
Short-term borrowings | 285,000 | — | ||||
Other accounts payable | 1,228,208 | 2,521,431 | ||||
Advances received | 158,572 | 135,203 | ||||
Withholdings | 95,036 | 78,353 | ||||
Accrued expenses (Note 21) | 633,539 | 428,338 | ||||
Income taxes payable | 209,096 | — | ||||
Current portion of bond and long-term borrowings, net (Note 9) | 1,920,088 | 1,024,681 | ||||
Unearned revenue | 6,747 | 2,854 | ||||
Deposits received | 103,582 | 105,842 | ||||
Current derivative instruments liabilities (Note 12) | 4,130 | 4,674 | ||||
Current portion of accrued provisions (Notes 10 and 11) | 46,253 | 32,757 | ||||
Total current liabilities | 5,926,362 | 5,684,276 | ||||
Bonds payable, net (Note 9) | 6,267,208 | 6,739,103 | ||||
Long-term borrowings, net (Note 9) | 33,561 | 63,144 | ||||
Provisions for severance benefits, net | 412,230 | 312,718 | ||||
Non-current accrued provisions (Note 10) | 116,276 | 98,700 | ||||
Refundable deposits for telephone installation | 654,561 | 696,689 | ||||
Long-term advances received | 3,582 | 3,942 | ||||
Long-term deposits received | 33,650 | 25,204 | ||||
Non-current derivative instruments liabilities (Note 12) | 1,468 | 3,782 | ||||
Long-term other accounts payable, net | 90,059 | 300,455 | ||||
Long-term trade accounts payable, net | 15,353 | 16,208 | ||||
Total non-current liabilities | 7,627,948 | 8,259,945 | ||||
Total liabilities | 13,554,310 | 13,944,221 | ||||
Commitments and contingencies (Note 11)
4
Table of Contents
KT Corporation
Non-Consolidated Statements of Financial Position
June 30, 2010 and December 31, 2009
(Unaudited)
| (in millions of Korean won) | 2010 | 2009 | ||||||
Shareholders’ equity | ||||||||
Capital stock | ||||||||
Common stock (Notes 1, 13 and 24) | (Won) | 1,564,499 | (Won) | 1,564,499 | ||||
Capital surplus | ||||||||
Paid-in capital in excess of par value | 1,440,258 | 1,440,258 | ||||||
Other capital surplus (Note 24) | 9,317 | 8,311 | ||||||
Capital adjustments | ||||||||
Treasury stock (Notes 14 and 24) | (955,388 | ) | (956,159 | ) | ||||
Loss on disposal of treasury stock (Note 24) | (336 | ) | (890,650 | ) | ||||
Stock options (Note 15) | 1,406 | 1,500 | ||||||
Other share-based payments (Note 15) | 3,397 | 2,120 | ||||||
Other capital adjustments (Note 24) | (311,332 | ) | (322,539 | ) | ||||
Accumulated other comprehensive income and expense (Note 19) | ||||||||
Unrealized gain on valuation of available-for-sale securities | 1,271 | 2,118 | ||||||
Unrealized loss on valuation of available-for-sale securities | (193 | ) | (36 | ) | ||||
Accumulated comprehensive income of equity method investees (Note 6) | 9,511 | 9,414 | ||||||
Accumulated comprehensive expense of equity method investees (Note 6) | (34,602 | ) | (32,759 | ) | ||||
Gain on valuation of derivatives for cash flow hedge (Note 12) | 4,977 | 11,468 | ||||||
Loss on valuation of derivatives for cash flow hedge (Note 12) | (22,856 | ) | (34,747 | ) | ||||
Retained earnings (Note 16) | ||||||||
Legal reserve | 780,499 | 780,499 | ||||||
Voluntary reserves | 4,651,363 | 4,758,013 | ||||||
Unappropriated retained earnings | 3,484,273 | 4,056,944 | ||||||
Total shareholders’ equity | 10,626,064 | 10,398,254 | ||||||
Total liabilities and shareholders’ equity | (Won) | 24,180,374 | (Won) | 24,342,475 | ||||
The accompanying notes are an integral part of these non-consolidated financial statements.
See Report of Independent Accountants.
5
Table of Contents
KT Corporation
Non-Consolidated Statements of Income
Three-Month and Six-Month Periods ended June 30, 2010 and 2009
(Unaudited)
| (in millions of Korean won, except per share amounts) | 2010 | 2009 | ||||||||||
| Three months | Six months | Three months | Six months | |||||||||
Operating revenue (Notes 17, 21 and 23) | (Won) | 4,986,447 | (Won) | 9,808,693 | (Won) | 3,564,260 | (Won) | 6,337,376 | ||||
Operating expenses (Notes 18, 21 and 23) | 4,385,048 | 8,654,607 | 3,200,790 | 5,589,427 | ||||||||
Operating income | 601,399 | 1,154,086 | 363,470 | 747,949 | ||||||||
Non-operating income | ||||||||||||
Interest income | 30,096 | 54,613 | 52,581 | 78,546 | ||||||||
Foreign currency transaction gain | 6,211 | 9,335 | 5,827 | 20,452 | ||||||||
Foreign currency translation gain | — | 6,935 | 176,038 | 12,856 | ||||||||
Gain on valuation of equity method investments (Note 6) | 29,594 | 52,999 | 57,172 | 114,409 | ||||||||
Gain on disposal of property and equipment | 521 | 11,083 | 5,166 | 5,607 | ||||||||
Reversal of accrued provisions (Note 10) | 1,123 | 3,961 | 1,361 | 1,419 | ||||||||
Gain on settlement of derivatives | 508 | 974 | — | 1,323 | ||||||||
Gain on valuation of derivatives (Note 12) | 164,097 | 99,835 | — | 54,409 | ||||||||
Other non-operating revenues | 41,198 | 106,465 | 112,524 | 141,076 | ||||||||
| 273,348 | 346,200 | 410,669 | 430,097 | |||||||||
Non-operating expenses | ||||||||||||
Interest expense | 121,121 | 256,236 | 87,618 | 185,712 | ||||||||
Other bad debts expense | 2,814 | 5,801 | — | 723 | ||||||||
Foreign currency transaction loss | 7,605 | 11,589 | 9,455 | 21,630 | ||||||||
Foreign currency translation loss | 208,716 | 127,158 | — | 61,086 | ||||||||
Loss on valuation of equity method investments (Note 6) | 9,468 | 25,395 | 18,758 | 42,574 | ||||||||
Donations | 23,076 | 41,062 | 250 | 15,343 | ||||||||
Loss on impairment of equity method investments (Note 6) | — | — | — | 3,463 | ||||||||
Loss on disposal of property and equipment | 24,889 | 46,694 | 13,968 | 18,844 | ||||||||
Loss on disposal of intangible assets | 7,283 | 8,497 | 149 | 415 | ||||||||
Loss on settlement of derivatives | 440 | 440 | 268 | 268 | ||||||||
Loss on valuation of derivatives (Note 12) | — | — | 80,171 | 86,592 | ||||||||
Other non-operating expenses | 17,586 | 47,624 | 5,018 | 7,367 | ||||||||
| 422,998 | 570,496 | 215,655 | 444,017 | |||||||||
Income before income taxes | 451,749 | 929,790 | 558,484 | 734,029 | ||||||||
Income tax expense | 108,088 | 213,586 | 102,403 | 138,379 | ||||||||
Net income | (Won) | 343,661 | (Won) | 716,204 | (Won) | 456,081 | (Won) | 595,650 | ||||
Earnings Per Share (Note 20) | ||||||||||||
Basic earnings per share | (Won) | 1,413 | (Won) | 2,945 | (Won) | 2,226 | (Won) | 2,932 | ||||
Diluted earnings per share | (Won) | 1,413 | (Won) | 2,944 | (Won) | 2,141 | (Won) | 2,817 | ||||
The accompanying notes are an integral part of these non-consolidated financial statements.
See Report of Independent Accountants.
6
Table of Contents
KT Corporation
Non-Consolidated Statements of Changes in Shareholders’ Equity
Six-Month Periods ended June 30, 2010 and 2009
(Unaudited)
| (in millions of Korean won) | Capital stock | Capital surplus | Capital adjustments | Accumulated other comprehensive income and expense | Retained earnings | Total | |||||||||||||||||
Balances as of January 1, 2009 (as reported) | (Won) | 1,560,998 | (Won) | 1,440,633 | (Won) | (3,994,736 | ) | (Won) | 10,879 | (Won) | 9,814,115 | (Won) | 8,831,889 | ||||||||||
Dividends | — | — | — | — | (226,280 | ) | (226,280 | ) | |||||||||||||||
Retained earnings after appropriations | — | — | — | — | 9,587,835 | 8,605,609 | |||||||||||||||||
Rights offering | 3,501 | — | — | — | — | 3,501 | |||||||||||||||||
Net income for the period | — | — | — | — | 595,650 | 595,650 | |||||||||||||||||
Consideration for exchange rights | — | 18,442 | — | — | — | 18,442 | |||||||||||||||||
Acquisition of treasury stock | — | — | (527,982 | ) | — | — | (527,982 | ) | |||||||||||||||
Disposal of treasury stock | — | — | 2,436,797 | — | — | 2,436,797 | |||||||||||||||||
Retirement of treasury stock | — | — | 508,912 | — | (508,912 | ) | — | ||||||||||||||||
Loss on disposal of treasury stock | — | (375 | ) | (791,337 | ) | — | — | (791,712 | ) | ||||||||||||||
Stock options | — | — | 931 | — | — | 931 | |||||||||||||||||
Other share-based payment | — | — | 149 | — | — | 149 | |||||||||||||||||
Other capital adjustments by merger | — | — | (89,375 | ) | — | — | (89,375 | ) | |||||||||||||||
Decrease in subsidiaries’ equity | — | — | (52,723 | ) | — | — | (52,723 | ) | |||||||||||||||
Unrealized gain on valuation of available-for-sale securities | — | — | — | 359 | — | 359 | |||||||||||||||||
Unrealized loss on valuation of available-for-sale securities | — | — | — | (73 | ) | — | (73 | ) | |||||||||||||||
Changes in equity method investees with accumulated comprehensive income | — | — | — | 7,847 | — | 7,847 | |||||||||||||||||
Changes in equity method investees with accumulated comprehensive expense | — | — | — | 261 | — | 261 | |||||||||||||||||
Gain on valuation of derivatives for cash flow hedge | — | — | — | (3,816 | ) | — | (3,816 | ) | |||||||||||||||
Loss on valuation of derivatives for cash flow hedge | — | — | — | (46,937 | ) | — | (46,937 | ) | |||||||||||||||
Balances as of June 30, 2009 | (Won) | 1,564,499 | (Won) | 1,458,700 | (Won) | (2,509,364 | ) | (Won) | (31,480 | ) | (Won) | 9,674,573 | (Won) | 10,156,928 | |||||||||
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Table of Contents
KT Corporation
Non-Consolidated Statements of Changes in Shareholders’ Equity
Six-Month Periods ended June 30, 2010 and 2009
(Unaudited)
| (in millions of Korean won) | Capital stock | Capital surplus | Capital adjustments | Accumulated other comprehensive income and expense | Retained earnings | Total | |||||||||||||||||
Balances as of January 1, 2010 (as reported) | (Won) | 1,564,499 | (Won) | 1,448,569 | (Won) | (2,165,728 | ) | (Won) | (44,542 | ) | (Won) | 9,595,456 | (Won) | 10,398,254 | |||||||||
Dividends | — | — | — | — | (486,393 | ) | (486,393 | ) | |||||||||||||||
Retained earnings after appropriations | — | — | — | — | 9,109,063 | 9,911,861 | |||||||||||||||||
Net income for the period | — | — | — | — | 716,204 | 716,204 | |||||||||||||||||
Increase in capital adjustment of associates | — | — | 8,937 | — | — | 8,937 | |||||||||||||||||
Changes in equity method investees with accumulated comprehensive income | — | — | — | 97 | — | 97 | |||||||||||||||||
Changes in equity method investees with accumulated comprehensive expense | — | — | — | (1,843 | ) | — | (1,843 | ) | |||||||||||||||
Decrease in retained earnings of associates | — | — | — | �� | — | (18,482 | ) | (18,482 | ) | ||||||||||||||
Appropriations of loss on disposal of treasury stock | — | — | 890,650 | — | (890,650 | ) | — | ||||||||||||||||
Loss on disposal of treasury stock | — | — | (336 | ) | — | — | (336 | ) | |||||||||||||||
Acquisition of treasury stock | — | — | (349 | ) | — | — | (349 | ) | |||||||||||||||
Other capital surplus | — | — | 2,269 | — | — | 2,269 | |||||||||||||||||
Stock options | — | (62 | ) | 3,440 | — | — | 3,378 | ||||||||||||||||
Other share-based payment | — | 1,068 | (1,136 | ) | — | — | (68 | ) | |||||||||||||||
Unrealized gain on valuation of available-for-sale securities | — | — | — | (847 | ) | — | (847 | ) | |||||||||||||||
Unrealized loss on valuation of available-for-sale securities | — | — | — | (157 | ) | — | (157 | ) | |||||||||||||||
Gain on valuation of derivatives for cash flow hedge | — | — | — | (6,491 | ) | — | (6,491 | ) | |||||||||||||||
Loss on valuation of derivatives for cash flow hedge | — | — | — | 11,891 | — | 11,891 | |||||||||||||||||
Balances as of June 30, 2010 | (Won) | 1,564,499 | (Won) | 1,449,575 | (Won) | (1,262,253 | ) | (Won) | (41,892 | ) | (Won) | 8,916,135 | (Won) | 10,626,064 | |||||||||
The accompanying notes are an integral part of these non-consolidated financial statements.
See Report of Independent Accountants.
8
Table of Contents
KT Corporation
Non-Consolidated Statements of Cash Flows
Six-Month Periods ended June 30, 2010 and 2009
(Unaudited)
| (in millions of Korean won) | 2010 | 2009 | ||||||
Cash flows from operating activities | ||||||||
Net income | (Won) | 716,204 | (Won) | 595,650 | ||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
Share-based payments | 3,397 | 501 | ||||||
Provision for severance benefits | 150,651 | 109,196 | ||||||
Depreciation | 1,243,875 | 961,212 | ||||||
Amortization of intangible assets | 208,849 | 100,118 | ||||||
Provision for doubtful accounts | 50,598 | 30,263 | ||||||
Interest expense | 20,643 | 8,040 | ||||||
Interest income | (19,837 | ) | (9,669 | ) | ||||
Other bad debts expense | 5,801 | 723 | ||||||
Loss on foreign currency translation, net | 120,464 | 48,218 | ||||||
Gain on valuation of equity-method investments, net | (27,604 | ) | (71,835 | ) | ||||
Gain on disposal of equity method investments | (711 | ) | — | |||||
Loss on impairment of equity method investments | — | 3,463 | ||||||
Loss on impairment of available-for sale securities | 2,792 | 1,800 | ||||||
Gain on disposal of available-for-sale securities | (27 | ) | (5 | ) | ||||
Loss on disposal of property and equipment, net | 35,611 | 13,237 | ||||||
Loss on disposal of intangible assets, net | 8,497 | 415 | ||||||
Loss(gain) on valuation of derivatives, net | (99,835 | ) | 32,183 | |||||
Other non-operating expenses | 63,895 | — | ||||||
Other non-operating revenues | (18,211 | ) | (727 | ) | ||||
| 1,748,848 | 1,227,133 | |||||||
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KT Corporation
Non-Consolidated Statements of Cash Flows
Six-Month Periods ended June 30, 2010 and 2009
(Unaudited)
| (in millions of Korean won) | 2010 | 2009 | ||||||
Changes in operating assets and liabilities | ||||||||
Decrease(increase) in trade accounts and notes receivable | (Won) | (153,396 | ) | (Won) | 240,776 | |||
Decrease in other accounts receivables | 9,932 | 18,213 | ||||||
Increase in accrued revenues | (4,696 | ) | (31,802 | ) | ||||
Increase in advance payments | (13,434 | ) | (11,803 | ) | ||||
Increase in prepaid expenses | (49,700 | ) | (11,505 | ) | ||||
Decrease in prepaid income taxes | 24,494 | — | ||||||
Increase in guarantee deposits | (794 | ) | (164 | ) | ||||
Decrease in other current assets | 91 | 70 | ||||||
Decrease(increase) in inventories | 159,356 | (24,393 | ) | |||||
Dividend income | 29,401 | — | ||||||
Increase in long-term trade accounts and notes receivable | (158,705 | ) | (71,522 | ) | ||||
Decrease in leasehold rights and deposits | 18,993 | 29,188 | ||||||
Decrease in derivative instruments assets | 6,949 | — | ||||||
Decrease in deferred income tax assets | 8,927 | 4,557 | ||||||
Increase in exclusive memberships | (478 | ) | — | |||||
Decrease in long-term other accounts receivables | 9,451 | 8,570 | ||||||
Increase in long-term advance payments | — | (102 | ) | |||||
Decrease(increase) in long-term prepaid expenses | 1,412 | (26,225 | ) | |||||
Decrease in trade accounts payable | (119,757 | ) | (267,296 | ) | ||||
Decrease in other accounts payable | (1,495,392 | ) | (344,620 | ) | ||||
Increase in advances received | 23,008 | 92,654 | ||||||
Increase(decrease) in withholdings | 16,151 | (85,307 | ) | |||||
Increase in accrued expenses | 205,201 | 318,318 | ||||||
Increase in income taxes payable | 209,096 | 47,545 | ||||||
Increase in unearned revenue | 3,892 | 4,712 | ||||||
Decrease in deposits received | (29,306 | ) | (21,783 | ) | ||||
Decrease in derivative instruments liabilities | (356 | ) | (3,018 | ) | ||||
Payment of severance benefits | (45,037 | ) | (63,895 | ) | ||||
Increase in deposits for severance benefits | (6,101 | ) | (129,690 | ) | ||||
Decrease in accrued provisions | (17,171 | ) | (8,334 | ) | ||||
Decrease in refundable deposits for telephone installation | (42,128 | ) | (38,879 | ) | ||||
Decrease in long-term advances received | — | (862 | ) | |||||
Increase(decrease) in long-term deposits received | 35,491 | (2,879 | ) | |||||
Decrease in long-term accounts payable | (46,000 | ) | — | |||||
| (1,420,606 | ) | (379,476 | ) | |||||
Net cash provided by operating activities | 1,044,446 | 1,443,307 | ||||||
10
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KT Corporation
Non-Consolidated Statements of Cash Flows
Six-Month Periods ended June 30, 2010 and 2009
(Unaudited)
| (in millions of Korean won) | 2010 | 2009 | ||||||
Cash flows from investing activities | ||||||||
Decrease in short-term investment assets | (Won) | 233,358 | (Won) | 126,669 | ||||
Disposal of available-for-sale securities | 2,416 | 66 | ||||||
Decrease in equity method investments | 39,147 | 11,350 | ||||||
Collection of long-term loans | 233 | 2,127 | ||||||
Disposal of property and equipment | 16,747 | 11,733 | ||||||
Increase in customers’ contribution to construction costs | 4,455 | 6,546 | ||||||
Disposal of intangible assets | 1,545 | 420 | ||||||
Disposal of other investment assets | 639 | — | ||||||
Increase in short-term investment assets | (44,775 | ) | (205,558 | ) | ||||
Acquisition of available-for-sale securities | (6,209 | ) | (2,396 | ) | ||||
Acquisition of equity method investments | (127,242 | ) | (16,611 | ) | ||||
Long-term loans granted | (24,605 | ) | — | |||||
Acquisition of property and equipment | (875,068 | ) | (379,697 | ) | ||||
Acquisition of intangible assets | (85,696 | ) | (18,009 | ) | ||||
Net cash used in investing activities | (865,055 | ) | (463,360 | ) | ||||
Cash flows from financing activities | ||||||||
Increase in short-term borrowings, net | 285,000 | (200,000 | ) | |||||
Issuance of bonds | 709,637 | 925,728 | ||||||
Increase in long-term borrowings, net | 9,237 | 8,575 | ||||||
Decrease in capital lease liabilities | (22,760 | ) | (19,349 | ) | ||||
Payment of current portion of bond and long-term borrowings | (447,974 | ) | (18,727 | ) | ||||
Payment of dividends | (486,393 | ) | (226,280 | ) | ||||
Acquisition of treasury stock | — | (527,982 | ) | |||||
Net cash provided by (used in) financing activities | 46,747 | (58,035 | ) | |||||
Cash flows from other activity | ||||||||
Increase in cash and cash equivalents due to merger | — | 415,548 | ||||||
Net increase in cash and cash equivalents | 226,138 | 1,337,460 | ||||||
Cash and cash equivalents (Note 22) | ||||||||
Beginning of the period | 1,289,823 | 1,292,800 | ||||||
End of the period | (Won) | 1,515,961 | (Won) | 2,630,260 | ||||
The accompanying notes are an integral part of these non-consolidated financial statements.
See Report of Independent Accountants.
11
Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
| 1. | The Company |
KT Corporation (“the Company”) commenced operations on January 1, 1982, when it spun off from the Korea Communications Commission (formerly the Korean Ministry of Information and Communications) to provide telephone services and to engage in the development of advanced communications services under the Act of Telecommunications of Korea.
On October 1, 1997, upon the announcement of the Government-Investment Enterprises Management Basic Act and the Privatization Law, the Company became a government-funded institution under the Commercial Code of Korea.
On December 23, 1998, the Company’s shares were listed on the Korea Exchange.
On May 29, 1999, the Company issued 24,282,195 additional shares and issued American Depository Shares (ADS), representing new shares and government-owned shares, at the New York Stock Exchange and the London Stock Exchange. On July 2, 2001, the ADS representing 55,502,161 government-shares were issued.
In 2002, the Company acquired 60,294,575 government-owned shares in accordance with the Korean government’s privatization plan. As of June 30, 2010, the Korean government did not own any share in the Company.
On June 1, 2009, the Company, as the surviving entity, merged with KT Freetel Co., Ltd. to have competitive advantages in the global trends of convergence between fixed and mobile communication.
| 2. | Summary of Significant Accounting Policies |
The Company maintains its accounting records in Korean won and prepares statutory financial statements in Korean language (Hangul) in conformity with the accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying financial statements have been condensed, restructured and translated into English from the Korean language financial statements.
See Report of Independent Accountants.
12
Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
| 3. | Restricted Deposits |
Restricted deposits as of June 30, 2010 and December 31, 2009, are as follows:
| (in millions of Korean won) | 2010.6.30 | 2009.12.31 | Description | |||||
Cash and cash equivalents | (Won) | 12,934 | (Won) | 10,241 | Restricted for research and development | |||
Short-term investment assets | 36,729 | 15 | Business Cooperation Contract specified deposits | |||||
| 5,564 | 5,564 | Restricted for investing in Media Contents | ||||||
Other investment assets | 8 | 3 | Checking account deposits | |||||
Total | (Won) | 55,235 | (Won) | 15,823 | ||||
| 4. | Inventory Valuation |
Inventory valuations as of June 30, 2010 and December 31, 2009, are as follows:
| 2010.6.30 | 2009.12.31 | |||||||||||||||||||
| (in millions of Korean won) | Acquisition cost | Valuation allowance | Book Value | Acquisition cost | Valuation allowance | Book Value | ||||||||||||||
Merchandise | (Won) | 459,928 | (Won) | (58,929 | ) | (Won) | 400,999 | (Won) | 540,937 | (Won) | (41,346 | ) | (Won) | 499,591 | ||||||
Supplies | 29,799 | (336 | ) | 29,463 | 30,315 | (662 | ) | 29,653 | ||||||||||||
Goods in transit | — | — | — | 69,250 | — | 69,250 | ||||||||||||||
Others | 6,164 | — | 6,164 | 8,315 | — | 8,315 | ||||||||||||||
Total | (Won) | 495,891 | (Won) | (59,265 | ) | (Won) | 436,626 | (Won) | 648,817 | (Won) | (42,008 | ) | (Won) | 606,809 | ||||||
See Report of Independent Accountants.
13
Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
| 5. | Available-for-sale securities |
Available-for-sale securities as of June 30, 2010 and December 31, 2009, are as follows:
| (In millions of Korean won) | 2010.6.30 | 2009.12.31 | ||||
Marketable equity securities | ||||||
Solitech Co., Ltd. | (Won) | 1,262 | (Won) | 2,348 | ||
Digital Ocean Co., Ltd. | 285 | 487 | ||||
Krtnet Corp. | 2,610 | 2,626 | ||||
PT. Mobile-8 | 2,705 | 2,504 | ||||
Show Mirae Asset PEF 1 | 2,901 | 2,168 | ||||
| 9,763 | 10,133 | |||||
Non-marketable equity securities | ||||||
K-3-I Co., Ltd. | 300 | 300 | ||||
Korea Information Certificate Authority, Inc. | 1,000 | 2,000 | ||||
Polytech Adventure Town, Inc. | 200 | 200 | ||||
Daegu Football Club | 300 | 300 | ||||
IMM Investment Corp. | 157 | 157 | ||||
Vacom Wireless, Inc. | 641 | 641 | ||||
Wiz Communication Co., Ltd. | 290 | 290 | ||||
Nets Co., Ltd. | 108 | 108 | ||||
DirectMedia Co., Ltd. | 248 | 248 | ||||
Ncerti Co., Ltd. | 328 | 328 | ||||
Neighbor Systems Co., Ltd. | 525 | 525 | ||||
Entaz Co., Ltd. | 1,000 | 1,000 | ||||
Freecoms | 204 | 204 | ||||
U Post Bank Co., Ltd. | 500 | 500 | ||||
AK Co., Ltd. | 200 | 200 | ||||
Mediapuff Plus | 500 | 500 | ||||
SBS KT SPC | 15,000 | 15,000 | ||||
IBK-Auctus Green Growth PEF | 4,340 | 100 | ||||
MBC KT SPC | 11,000 | 11,000 | ||||
Korea Software Financial Cooperative | 1,000 | 1,000 | ||||
Binext CT Financial Cooperative | 3,000 | 3,000 | ||||
Translink Capital Partners I, L.P.1 | 2,430 | 5,222 | ||||
Pacren Walden Ventures Parallel VI-KT, L.P. | 4,515 | 3,652 | ||||
Sovik Contents Investment Fund | 1,304 | 1,304 | ||||
Korea Telecommunications Operators Association | 689 | 689 | ||||
Others | 348 | 348 | ||||
| 50,127 | 48,816 | |||||
Debt securities | ||||||
Others | 116 | 1,316 | ||||
Total | (Won) | 60,006 | (Won) | 60,265 | ||
| 1 | The Company recognized impairment loss amounting to (Won)2,792 million for the six-month period ended June 30, 2010. |
See Report of Independent Accountants.
14
Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
| 6. | Equity method investments |
Equity method investments as of June 30, 2010 and 2009, are as follows:
| (In millions of Korean won) | 2010.6.30 | |||||||||||||||||||
| Investee | Percentage of as of 2010.6.30 | Acquisition cost | Book value as of 2009.12.31 | Valuation gain(loss) | others | Book value as of 2010.6.30 | ||||||||||||||
KT Powertel Co., Ltd | 44.85 | % | (Won) | 55,135 | (Won) | 37,419 | (Won) | 4,858 | (Won) | 1 | (Won) | 42,278 | ||||||||
KT Networks Corporation | 100.00 | % | 23,458 | 48,684 | (2,504 | ) | — | 46,180 | ||||||||||||
KT Linkus Co., Ltd. | 93.82 | % | 24,502 | 6,282 | 1,665 | — | 7,947 | |||||||||||||
Telecop Service Co., Ltd. | 88.82 | % | 40,378 | 26,045 | 2,519 | — | 28,564 | |||||||||||||
KT Hitel Co., Ltd. | 65.94 | % | 67,780 | 120,078 | (595 | ) | 35 | 119,518 | ||||||||||||
KT Submarine Co., Ltd. | 36.92 | % | 8,085 | 24,370 | 2,017 | (404 | ) | 25,983 | ||||||||||||
KT Commerce, Inc. | 19.00 | % | 1,330 | 1,782 | (175 | ) | — | 1,607 | ||||||||||||
KT Tech, Inc.1 | 93.76 | % | 37,587 | — | — | — | — | |||||||||||||
KT Rental Co., Ltd.2 | 58.00 | % | 144,158 | 69,074 | (753 | ) | 84,663 | 152,984 | ||||||||||||
KT Capital Co., Ltd. | 73.74 | % | 101,000 | 126,092 | 9,056 | 193 | 135,341 | |||||||||||||
Sidus FNH Co. | 51.00 | % | 27,999 | 3,522 | 312 | 2 | 3,836 | |||||||||||||
Sidus FNH Benex Cinema Investment Fund | 20.00 | % | 6,000 | 3,074 | 14 | — | 3,088 | |||||||||||||
Nasmedia, Inc. | 50.00 | % | 26,055 | 23,051 | (579 | ) | (1 | ) | 22,471 | |||||||||||
Sofnics Inc. | 53.33 | % | 600 | 610 | (203 | ) | — | 407 | ||||||||||||
KT Edui Co., Ltd. | 100.00 | % | 10,500 | 3,031 | (1,617 | ) | — | 1,414 | ||||||||||||
KT New Business Fund No. 1 | 90.91 | % | 20,000 | 10,112 | 89 | 10,000 | 20,201 | |||||||||||||
KT DataSystems Co., Ltd. | 95.31 | % | 12,000 | 19,616 | 2,591 | (51 | ) | 22,156 | ||||||||||||
KT M Hows Co., Ltd. | 51.00 | % | 2,550 | 3,344 | (116 | ) | (3 | ) | 3,225 | |||||||||||
KT M&S Co., Ltd. | 100.00 | % | 150,000 | 37,564 | (10,289 | ) | — | 27,275 | ||||||||||||
KT Music Corporation | 48.69 | % | 26,242 | 17,417 | (1,064 | ) | (120 | ) | 16,233 | |||||||||||
KT Innotz Inc. | 60.00 | % | 3,000 | 3,000 | (951 | ) | — | 2,049 | ||||||||||||
KTC Media Contents Fund No. 2 | 43.50 | % | 3,045 | 3,045 | 3 | 1 | 3,049 | |||||||||||||
Gyeonggi-KT Green Growth Fund | 40.32 | % | 12,500 | 12,480 | 69 | — | 12,549 | |||||||||||||
KT Internal Venture Fund No. 2 | 94.34 | % | 5,000 | 4,780 | — | — | 4,780 | |||||||||||||
Korea Digital Satellite Broadcasting Co., Ltd. | 37.41 | % | 195,228 | 12,857 | 8,084 | 258 | 21,199 | |||||||||||||
Kumho Rent-A-Car Global (formerly Kumho Rent-A-Car)2 | 50.00 | % | 1,924 | — | (431 | ) | 2,348 | 1,917 | ||||||||||||
Korea Telecom America, Inc. | 100.00 | % | 4,783 | 4,064 | 115 | 154 | 4,333 | |||||||||||||
Korea Telecom Japan Co., Ltd. | 100.00 | % | 6,586 | 3,995 | 130 | 331 | 4,456 | |||||||||||||
Korea Telecom China Co., Ltd. | 100.00 | % | 1,245 | 2,160 | (365 | ) | 68 | 1,863 | ||||||||||||
New Telephone Company, Inc. | 79.96 | % | 33,064 | 168,654 | 11,171 | (6,768 | ) | 173,057 | ||||||||||||
KTSC Investment Management B.V. | 60.00 | % | 40,970 | 36,275 | (1,391 | ) | 251 | 35,135 | ||||||||||||
PT.KT Indonesia | 99.00 | % | 234 | 108 | (41 | ) | 6 | 73 | ||||||||||||
Others | — | 188,048 | 248,409 | 5,985 | (2,236 | ) | 252,158 | |||||||||||||
Total | (Won) | 1,280,986 | (Won) | 1,080,994 | (Won) | 27,604 | (Won) | 88,728 | (Won) | 1,197,326 | ||||||||||
| 1 | The Company participated in uneven rights offering of KT Tech, amounting to (Won)20,000 million, increasing the Company’s percentage of ownership from 78.78% to 93.76%, reflected as decrease in equity of associates of (Won)1,518 million and decrease in retained earnings of associates of (Won)18,482 million. |
| 2 | On May 31, 2010, the non-auto rental division of KT Rental was spun off, while the auto rental division of Kumho Rent-A-Car was merged with KT Rental. Accordingly, the Company’s ownership in KT Rental decreased from 100% to 58%. |
See Report of Independent Accountants.
15
Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
| (In millions of Korean won) | 2009.6.30 | |||||||||||||||||||
| Investee | Percentage of as of 2009.6.30 | Acquisition cost | Book value as of 2008.12.31 | Valuation gain(loss) | others | Book value as of 2009.6.30 | ||||||||||||||
KT Powertel Co., Ltd. | 44.85 | % | (Won) | 55,135 | (Won) | 31,622 | (Won) | 2,829 | (Won) | — | (Won) | 34,451 | ||||||||
KT Networks Corporation | 100.00 | % | 23,458 | 57,158 | (4,688 | ) | 25 | 52,495 | ||||||||||||
KT Linkus Co., Ltd. | 93.82 | % | 24,502 | 568 | 3,501 | — | 4,069 | |||||||||||||
Telecop Service Co., Ltd. | 88.82 | % | 40,378 | 23,554 | 3,748 | — | 27,302 | |||||||||||||
KT Hitel Co., Ltd. | 65.94 | % | 67,780 | 118,479 | (1,409 | ) | 2,767 | 119,837 | ||||||||||||
KT Submarine Co., Ltd. | 36.92 | % | 8,085 | 20,667 | 2,408 | (131 | ) | 22,944 | ||||||||||||
KT Commerce, Inc. | 19.00 | % | 1,330 | 1,500 | (212 | ) | — | 1,288 | ||||||||||||
KT Tech, Inc. | 78.78 | % | 17,587 | 127 | (127 | ) | — | — | ||||||||||||
KT Rental Co., Ltd. | 100.00 | % | 34,419 | 54,734 | 5,110 | 1 | 59,845 | |||||||||||||
KT Capital Co., Ltd. | 100.00 | % | 101,000 | 103,199 | 2,604 | 1,786 | 107,589 | |||||||||||||
Sidus FNH Co. | 51.00 | % | 36,399 | 4,816 | (696 | ) | 1,878 | 5,998 | ||||||||||||
Sidus FNH Benex Cinema Investment Fund | 20.00 | % | 6,000 | 3,232 | (544 | ) | 1,612 | 4,300 | ||||||||||||
Nasmedia, Inc. | 50.00 | % | 26,055 | 24,851 | (1,245 | ) | — | 23,606 | ||||||||||||
Sofnics Inc. | 60.00 | % | 600 | 432 | (152 | ) | — | 280 | ||||||||||||
KT Edui Co., Ltd. | 54.55 | % | 7,500 | 4,077 | (1,976 | ) | 1,500 | 3,601 | ||||||||||||
KT New Business Fund No. 1 | 90.91 | % | 10,000 | 10,209 | 83 | — | 10,292 | |||||||||||||
KTDS | 100.00 | % | 12,000 | 10,022 | 3,134 | 3,140 | 16,296 | |||||||||||||
KT M Hows Co., Ltd. | 51.00 | % | 2,550 | — | (38 | ) | 3,068 | 3,030 | ||||||||||||
KT M&S Co., Ltd. | 100.00 | % | 150,000 | — | (4,502 | ) | 49,785 | 45,283 | ||||||||||||
KT Music Corporation | 48.69 | % | 26,242 | — | (248 | ) | 21,124 | 20,876 | ||||||||||||
KT Internal Venture Fund No. 2 | 94.34 | % | 5,000 | 5,203 | (477 | ) | — | 4,726 | ||||||||||||
Korea Digital Satellite Broadcasting Co., Ltd. | 37.41 | % | 195,307 | 31,167 | (3,151 | ) | 2,216 | 30,232 | ||||||||||||
KTF | — | — | 2,560,107 | 73,545 | (2,633,652 | ) | — | |||||||||||||
Olive Nine Co., Ltd | 19.48 | % | 23,155 | 2,769 | (1,448 | ) | (18 | ) | 1,303 | |||||||||||
Korea Telecom America, Inc. | 100.00 | % | 4,783 | 4,237 | (94 | ) | 96 | 4,239 | ||||||||||||
Korea Telecom Japan Co., Ltd. | 100.00 | % | 6,586 | 3,614 | 696 | (188 | ) | 4,122 | ||||||||||||
Korea Telecom China Co., Ltd. | 100.00 | % | 1,245 | 1,999 | (6 | ) | 43 | 2,036 | ||||||||||||
New Telephone Company, Inc. | 79.96 | % | 33,064 | 166,914 | 13,231 | (15,939 | ) | 164,206 | ||||||||||||
KTSC Investment Management B.V. | 60.00 | % | 37,274 | 35,787 | (4,955 | ) | 5,742 | 36,574 | ||||||||||||
PT.KT Indonesia | 99.00 | % | 234 | — | — | 124 | 124 | |||||||||||||
Others | — | 303,209 | 181,599 | (13,086 | ) | 124,339 | 292,852 | |||||||||||||
Total | (Won) | 1,260,877 | (Won) | 3,462,643 | (Won) | 71,835 | (Won) | (2,430,682 | ) | (Won) | 1,103,796 | |||||||||
See Report of Independent Accountants.
16
Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
The changes in the respective accumulated losses of the equity-method investees for which the application of the equity method of accounting has been suspended due to their accumulated losses, are as follows:
| (in millions of Korean won) | 2009.12.31 | Increase(Decrease) | 2010.6.30 | |||||||||
KT Tech | (Won) | (21,632 | ) | (Won) | 9,541 | (Won) | (12,091 | ) | ||||
Korea Telecom Directory Co., Ltd. | (2,283 | ) | (276 | ) | (2,559 | ) | ||||||
Mos Facilities | — | (5 | ) | (5 | ) | |||||||
Total | (Won) | (23,915 | ) | (Won) | 9,260 | (Won) | (14,655 | ) | ||||
| 7. | Property and Equipment |
Property and equipment as of June 30, 2010, and December 31, 2009, are as follows :
| (In millions of Korean won) | 2010.6.30 | 2009.12.31 | ||||||
Land | (Won) | 1,427,106 | (Won) | 1,434,336 | ||||
Buildings | 4,910,672 | 4,888,849 | ||||||
Structures | 334,177 | 334,954 | ||||||
Telecommunications equipment | 39,949,396 | 39,642,231 | ||||||
Vehicles | 40,154 | 41,539 | ||||||
Others | 1,578,491 | 1,675,652 | ||||||
Construction- in-progress | 776,749 | 583,149 | ||||||
Total | 49,016,745 | 48,600,710 | ||||||
Accumulated depreciation | (35,063,472 | ) | (34,219,174 | ) | ||||
Accumulated impairment loss | (20 | ) | (22 | ) | ||||
Customers’ contribution to construction costs | (163,528 | ) | (177,682 | ) | ||||
Book Value | (Won) | 13,789,725 | (Won) | 14,203,832 | ||||
| 8. | Intangible Assets |
Intangible assets as of June 30, 2010, and December 31, 2009, are as follows :
| (In millions of Korean won) | 2010.6.30 | 2009.12.31 | ||||
Goodwill | (Won) | — | (Won) | 65,057 | ||
Industrial rights | 8,999 | 9,480 | ||||
Development costs | 227,208 | 221,184 | ||||
Software | 137,533 | 145,600 | ||||
Frequency usage rights | 636,919 | 694,627 | ||||
Others | 64,519 | 70,639 | ||||
Total | (Won) | 1,075,178 | (Won) | 1,206,587 | ||
See Report of Independent Accountants.
17
Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
| 9. | Bonds payable and long-term borrowings |
Bonds Payable
| (in thousands of foreign currencies and millions of Korean won) | 2010.6.30 | 2009.12.31 | ||||||||||||||
| Type | Maturity | Annual Interest Rates | Foreign Currency | Korean Won | Foreign Currency | Korean Won | ||||||||||
MTNP notes1 | 2014.6.24 | 5.88% | USD | 600,000 | (Won) | 726,180 | USD | 600,000 | (Won) | 700,560 | ||||||
MTNP notes1 | 2034.9.7 | 6.50% | USD | 100,000 | 121,030 | USD | 100,000 | 116,760 | ||||||||
MTNP notes1 | 2015.7.15 | 4.88% | USD | 400,000 | 484,120 | USD | 400,000 | 467,040 | ||||||||
MTNP notes1 | 2016.5.3 | 5.88% | USD | 200,000 | 242,060 | USD | 200,000 | 233,520 | ||||||||
Euro bonds | 2012.4.11 | 5.13% | USD | 200,000 | 242,060 | USD | 200,000 | 233,520 | ||||||||
| Libor(3M) +1.5% | ||||||||||||||||
FR notes3 | 2013.9.11 | USD | 200,000 | 242,060 | USD | 200,000 | 233,520 | |||||||||
| Libor(3M) +0.47% | ||||||||||||||||
FR notes3 | 2013.4.9 | USD | 100,000 | 121,030 | — | — | ||||||||||
The 132nd Public bond | 2011.2.9 | 7.68% | — | 70,000 | — | 70,000 | ||||||||||
The 159th Public bond | 2013.10.27 | 5.39% | — | 300,000 | — | 300,000 | ||||||||||
The 160th Public bond | 2010.11.24 | 5.45% | — | 200,000 | — | 200,000 | ||||||||||
The 161st Public bond | 2010.12.23 | 5.61% | — | 230,000 | — | 230,000 | ||||||||||
The 162nd Public bond | 2011.2.27 | 5.52% | — | 320,000 | — | 320,000 | ||||||||||
The 163rd Public bond | 2014.3.30 | 5.51% | — | 170,000 | — | 170,000 | ||||||||||
The 164th Public bond | 2011.6.21 | 5.22% | — | 260,000 | — | 260,000 | ||||||||||
The 165-1st Public bond | 2011.8.26 | 4.22% | — | 130,000 | — | 130,000 | ||||||||||
The 165-2nd Public bond | 2014.8.26 | 4.44% | — | 140,000 | — | 140,000 | ||||||||||
The 166-1st Public bond | 2010.3.21 | 4.37% | — | — | — | 220,000 | ||||||||||
The 166-2nd Public bond | 2012.3.21 | 4.57% | — | 100,000 | — | 100,000 | ||||||||||
The 167-1st Public bond | 2012.4.20 | 4.59% | — | 100,000 | — | 100,000 | ||||||||||
The 167-2nd Public bond | 2015.4.20 | 4.84% | — | 100,000 | — | 100,000 | ||||||||||
The 168-1st Public bond | 2012.6.21 | 4.43% | — | 240,000 | — | 240,000 | ||||||||||
The 168-2nd Public bond | 2015.6.21 | 4.66% | — | 90,000 | — | 90,000 | ||||||||||
The 169th Public bond | 2012.4.3 | 5.01% | — | 140,000 | — | 140,000 | ||||||||||
| Tibor(3M) +0.6% | ||||||||||||||||
The 170th Public bond3 | 2011.1.11 | JPY | 12,500,000 | 170,570 | JPY | 12,500,000 | 157,853 | |||||||||
The 171st Public bond | 2013.2.28 | 5.41% | — | 100,000 | — | 100,000 | ||||||||||
| Libor(3M) +1.5% | ||||||||||||||||
The 172-1st Public bond3 | 2011.3.31 | USD | 50,000 | 60,515 | USD | 50,000 | 58,380 | |||||||||
| Libor(3M) +1.6% | ||||||||||||||||
The 172-2nd Public bond3 | 2012.3.31 | USD | 110,000 | 133,133 | USD | 110,000 | 128,436 | |||||||||
The 173-1st Public bond | 2013.8.6 | 6.49% | — | 100,000 | — | 100,000 | ||||||||||
The 173-2nd Public bond | 2018.8.6 | 6.62% | — | 100,000 | — | 100,000 | ||||||||||
The 174-1st Public bond | 2010.12.19 | 5.34% | — | 100,000 | — | 100,000 | ||||||||||
The 174-2nd Public bond | 2011.12.19 | 5.56% | — | 130,000 | — | 130,000 | ||||||||||
See Report of Independent Accountants.
18
Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
The 175-1st Public bond | 2012.2.27 | 4.80% | — | 40,000 | — | 40,000 | ||||||||||||
The 175-2nd Public bond | 2014.2.27 | 5.47% | — | 360,000 | — | 360,000 | ||||||||||||
The 176-1st Public bond | 2012.5.28 | 4.37% | — | 100,000 | — | 100,000 | ||||||||||||
The 176-2nd Public bond | 2014.5.28 | 5.06% | — | 170,000 | — | 170,000 | ||||||||||||
The 176-3rd Public bond | 2016.5.28 | 5.24% | — | 260,000 | — | 260,000 | ||||||||||||
The 177-1st Public bond | 2013.2.9 | 4.86% | — | 240,000 | — | — | ||||||||||||
The 177-2nd Public bond | 2015.2.9 | 5.26% | — | 190,000 | — | — | ||||||||||||
The 177-3rd Public bond | 2017.2.9 | 5.38% | — | 170,000 | — | — | ||||||||||||
The 47-2nd Public bond2 | 2011.7.12 | 5.32% | — | 70,000 | — | 70,000 | ||||||||||||
The 48th Public bond2 | 2010.2.15 | 5.31% | — | — | — | 200,000 | ||||||||||||
| Libor(3M) +1.5% | ||||||||||||||||||
The 49th Public bond2,3 | 2011.2.25 | USD | 175,000 | 211,803 | USD | 175,000 | 204,330 | |||||||||||
| Tibor(3M) +1.6% | ||||||||||||||||||
The 50th Public bond2,3 | 2011.4.28 | JPY | 7,000,000 | 95,519 | JPY | 7,000,000 | 88,397 | |||||||||||
| Libor(3M) +1.6% | ||||||||||||||||||
The 51-1st Public bond2,3 | 2011.6.20 | USD | 95,000 | 114,979 | USD | 95,000 | 110,922 | |||||||||||
The 51-2nd Public bond2 | 2013.6.20 | 6.41% | — | 70,000 | — | 70,000 | ||||||||||||
The 52-1st Private bond2 | 2011.8.4 | 6.20% | — | 100,000 | — | 100,000 | ||||||||||||
The 52-2nd Public bond2 | 2013.8.4 | 6.64% | — | 100,000 | — | 100,000 | ||||||||||||
The 53-1st Public bond2 | 2010.12.1 | 8.23% | — | 20,000 | — | 20,000 | ||||||||||||
The 53-2nd Public bond2 | 2011.12.1 | 8.36% | — | 177,697 | — | 180,023 | ||||||||||||
Total | 8,152,756 | 7,743,261 | ||||||||||||||||
Less: Current portion | (1,858,385 | ) | (970,000 | ) | ||||||||||||||
Less: Discount on bonds | (32,163 | ) | (34,158 | ) | ||||||||||||||
Net | (Won) | 6,267,208 | (Won) | 6,739,103 | ||||||||||||||
| 1 | As of June 30, 2010, the Company has issued notes in the amount of USD 1,300 million with fixed interest rates under Medium Term Note Program (“MTNP”) registered in the Singapore Stock Exchange, which allows issuance of notes of up to USD 2,000 million, with the unused balance under the program amounting to USD 700 million. |
| 2 | The bond is newly included due to the merger with KTF on June 1, 2009. |
| 3 | The Libor (3M) and Tibor (3M) are approximately 0.53% and 0.38%, respectively, as of June 30, 2010. |
See Report of Independent Accountants.
19
Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
Long-term Borrowings
| 2010.6.30 | 2009.12.31 | |||||||||||||||
| Type | Annual Interest Rates | Foreign Currency | Korean Won (in millions) | Foreign Currency | Korean Won (in millions) | |||||||||||
Informatization Promotion Fund1 | 4.73% | — | (Won) | 34,731 | — | (Won) | 30,218 | |||||||||
Inter-Korean Cooperation Fund1 | 2.00% | — | 6,415 | — | 6,415 | |||||||||||
Facility loans (Korea Development Bank)2,3 | Libor(3M) +2% | USD | 20,000 | 24,206 | USD | 40,000 | 46,704 | |||||||||
Facility loans (Bank of Communications)2,3 | Libor(3M) +2% | USD | 30,000 | 36,309 | USD | 30,000 | 35,028 | |||||||||
Total | 101,661 | 118,365 | ||||||||||||||
Less: Current portion | (68,100 | ) | (55,221 | ) | ||||||||||||
Net | (Won) | 33,561 | (Won) | 63,144 | ||||||||||||
| 1 | The above Informatization Promotion Funds are repayable in installments over three years after a two-year grace period, while Inter-Korean Cooperation Fund is repayable in installments over thirteen years after a seven-year grace period. |
| 2 | The borrowing is newly included due to the merger with KTF on June 1, 2009. |
| 3 | The Libor (3M) is approximately 0.53% as of June 30, 2010. |
Repayment Schedule
Repayment schedule of the Company’s bonds and long-term borrowings as of June 30, 2010, is as follows :
| Bonds | Borrowings | ||||||||||||||||||||
Year ending June 30, | In local currency | In foreign currency | Sub- total | Borrowings in local currency | Borrowings in foreign currency | Sub- total | Total | ||||||||||||||
2011 | (Won) | 1,200,000 | (Won) | 653,385 | (Won) | 1,853,385 | (Won) | 7,585 | (Won) | 60,515 | (Won) | 68,100 | (Won) | 1,921,485 | |||||||
2012 | 1,327,698 | 375,193 | 1,702,891 | 9,458 | — | 9,458 | 1,712,349 | ||||||||||||||
2013 | 410,000 | 121,030 | 531,030 | 8,671 | — | 8,671 | 539,701 | ||||||||||||||
2014 | 1,200,000 | 968,240 | 2,168,240 | 6,184 | — | 6,184 | 2,174,424 | ||||||||||||||
Thereafter | 1,050,000 | 847,210 | 1,897,210 | 9,248 | — | 9,248 | 1,906,458 | ||||||||||||||
Total | (Won) | 5,187,698 | (Won) | 2,965,058 | (Won) | 8,152,756 | (Won) | 41,146 | (Won) | 60,515 | (Won) | 101,661 | (Won) | 8,254,417 | |||||||
See Report of Independent Accountants.
20
Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
| 10. | Provisions |
Changes in provisions for the six-month period ended June 30, 2010, are as follows:
| Increase | Decrease | Other | |||||||||||||||||||
| (In millions of Korean won) | 2009.12.31 | 2010.6.30 | |||||||||||||||||||
| Contribution | Reversal | Usage | |||||||||||||||||||
Current portion | |||||||||||||||||||||
Litigation1 | (Won) | 17,010 | (Won) | 4,937 | (Won) | — | (Won) | (362 | ) | (Won) | (409 | ) | (Won) | 21,176 | |||||||
KT members points2 | 546 | — | — | — | — | 546 | |||||||||||||||
KT points3 | 3,591 | — | — | (2,048 | ) | — | 1,543 | ||||||||||||||
Call bonus points4 | 7,271 | — | 7,328 | (5,598 | ) | — | 9,001 | ||||||||||||||
Olleh club points5 | — | — | 829 | — | — | 829 | |||||||||||||||
Others | 4,339 | 15,200 | — | (6,381 | ) | — | 13,158 | ||||||||||||||
Sub-total | 32,757 | 20,137 | 8,157 | (14,389 | ) | (409 | ) | 46,253 | |||||||||||||
Non-current portion | |||||||||||||||||||||
KT points3 | 2,457 | — | — | — | (1,132 | ) | 1,325 | ||||||||||||||
Call bonus points4 | 6,438 | 12,428 | (7,328 | ) | — | — | 11,538 | ||||||||||||||
Olleh club points5 | — | 1,094 | (829 | ) | — | — | 265 | ||||||||||||||
Asset retirement obligation6 | 89,805 | 19,353 | — | (2,785 | ) | (3,225 | ) | 103,148 | |||||||||||||
Sub-total | 98,700 | 32,875 | (8,157 | ) | (2,785 | ) | (4,357 | ) | 116,276 | ||||||||||||
Total | (Won) | 131,457 | (Won) | 53,012 | (Won) | — | (Won) | (17,174 | ) | (Won) | (4,766 | ) | (Won) | 162,529 | |||||||
| 1 | The amount recognized as litigation provision represents the estimate of payments required to settle the obligation. |
| 2 | The Company recorded provisions for the KT members points with which VIP customers of the fixed-line or mobile telephone users are entitled to receive certain goods and other benefits up to (Won)25,000 per person. |
| 3 | The amount recognized as call bonus points represents the estimate of payments for call bonus points which are provided to fixed-line customers based on the usage of the services. Once certain criteria are met, customers are entitled to receive certain goods and other benefits from the Company. Such provision is reviewed at each reporting date and adjusted to reflect the current best estimates based on changes in circumstances, or an acquisition of new information or additional experience on the usage rate, expiration of points and others. |
| 4 | The Company recorded provision for the Let’s 010 (KT-PCS) call bonus points with which its PCS subscribers are entitled to receive certain goods and other benefits from the Company. |
| 5 | The Company recognized estimated expenses for the integrated mileage program of wireless membership, wired and wireless mileage, Show point service and Shocking package, which commenced in June 2010. |
| 6 | When the Company is responsible for restoration of leased facility after termination of the lease contract, the present value of expected future expenditure for the restoration is recorded as a liability. |
See Report of Independent Accountants.
21
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KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
| 11. | Commitments and Contingencies |
As of June 30, 2010, major commitments with local financial institutions, are as follows:
(In millions of Korean won, in thousands of foreign currencies) | Financial institution | Limit | |||
Bank overdraft | Kookmin Bank | (Won) | 700,000 | ||
| Shinhan Bank | 300,000 | ||||
| Woori Bank | 330,000 | ||||
| Hana Bank | 100,000 | ||||
| (Won) | 1,430,000 | ||||
Commercial papers | Korea Exchange Bank | (Won) | 100,000 | ||
Loan on information and communications fund | Shinhan Bank | (Won) | 8,575 | ||
| Kookmin Bank | 28,815 | ||||
| (Won) | 37,390 | ||||
Collateralized loan on accounts receivable –trade | Kookmin Bank | (Won) | 100,000 | ||
| Shinhan Bank | 26,900 | ||||
| Woori Bank | 60,000 | ||||
| NH bank | 3,000 | ||||
| (Won) | 189,900 | ||||
Letters of credit | Korea Exchange Bank | USD | 5,000 | ||
Collection for foreign currency denominated checks | Korea Exchange Bank | USD | 1,000 | ||
See Report of Independent Accountants.
22
Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
As of June 30, 2010, guarantees received from financial institutions, are as follows:
(In millions of Korean won, in thousands of foreign currencies) | Financial institution | Limit | |||
Performance guarantee for construction | Seoul Guarantee Insurance | (Won) | 81,025 | ||
Performance guarantee | Export-Import Bank of Korea | USD | 7,396 | ||
| SAR | 735 | ||||
| DZD | 25,863 | ||||
Korea Software Financial Cooperative and others | (Won) | 40,228 | |||
Bid guarantee | Korea Software Financial Cooperative and others | (Won) | 250 | ||
Bond payable in foreign currency guarantee | Kookmin Bank | USD | 96,957 | ||
Advances received guarantee | Export-Import Bank of Korea | USD | 6,782 | ||
| DZD | 77,589 | ||||
Advance payment guarantee | Korea Software Financial Cooperative and others | (Won) | 24,784 | ||
Construction warranty guarantee | Korea Software Financial Cooperative and others | (Won) | 3,143 | ||
General guarantee | Korea Software Financial Cooperative and others | (Won) | 1,085 | ||
Shinhan Bank | (Won) | 25,140 | |||
Korea Exchange Bank | (Won) | 300 | |||
| USD | 41,000 | ||||
As of June 30, 2010, guarantees provided by the Company for a third party, are as follows:
| (In millions of Korean won) | Creditor | Limit | Used amount | Period | ||||||
Eun-haeng 1-area urban environment Improving project union | Kookmin Bank | (Won) | 2,600 | (Won) | 2,600 | 2008.4.29~ 2011.3.31 | ||||
As of June 30, 2010, the Company has filed 73 lawsuits, with an aggregate amount of (Won)67,582 million. As of June 30, 2010, litigation provision in relation to the potential loss amounted to (Won)21,176 million and is recorded as liabilities. The final outcome of these cases cannot yet be determined as of the report date.
See Report of Independent Accountants.
23
Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
| 12. | Derivatives |
For the six-month period ended June 30, 2010 and the year ended December 31, 2009, the Company entered into various derivatives contracts with financial institutions. Details of these derivative contracts are as follows:
| Type of transaction | Financial institution | Description | ||
Interest rate swaps | Merrill Lynch and 1 other | Exchange fixed interest rate for variable interest rate for a specified period | ||
Currency swaps | Merrill Lynch and 3 others | Exchange foreign currency cash flow for local currency cash flow | ||
Combined interest rate currency swap | Merrill Lynch and 17 others | Exchange foreign currency variable swaps interest rate for local currency fixed interest | ||
The assets and liabilities relating to outstanding contracts as of June 30, 2010 and December 31, 2009, are as follows:
| 2010.6.30 | |||||||||||||||
(In millions of Korean won, in thousands of foreign currencies) | Contract amount | Assets (Current) | Assets (Non-current) | Liabilities (Current) | Liabilities (Non-current) | ||||||||||
Interest rate swap | (Won) USD | 180,000 100,000 | (Won) | — | (Won) | 2,302 | (Won) | 4,130 | (Won) | — | |||||
Currency swap | USD | 220,000 | — | 54,328 | — | 1,468 | |||||||||
Combined interest rate currency swap | USD JPY | 1,480,000 19,500,000 | 159,406 | 173,721 | — | — | |||||||||
Total | (Won) | 159,406 | (Won) | 230,351 | (Won) | 4,130 | (Won) | 1,468 | |||||||
| 2009.12.31 | |||||||||||||||
(In millions of Korean won, in thousands of foreign currencies) | Contract amount | Assets (Current) | Assets (Non-current) | Liabilities (Current) | Liabilities (Non-current) | ||||||||||
Interest rate swap | (Won) USD | 180,000 100,000 | (Won) | — | (Won) | 23 | (Won) | 4,674 | (Won) | — | |||||
Currency swap | USD | 220,000 | — | 47,547 | — | 3,782 | |||||||||
Combined interest rate currency swap | USD JPY | 1,410,000 19,500,000 | — | 247,488 | — | — | |||||||||
Total | (Won) | — | (Won) | 295,058 | (Won) | 4,674 | (Won) | 3,782 | |||||||
See Report of Independent Accountants.
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Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
Details of the currency swap and combined interest rate currency swap contracts to which hedge accounting is applied as of June 30, 2010 and December 31, 2009, are as follows:
(In millions of Korean won, in thousands of foreign currencies) | Assets (Current) | Assets (Non-current) | Liabilities (Non-current) | ||||||||||||||||||||||
| Contract date | Maturity date | Contract amount | 2010.6.30 | 2009.12.31 | 2010.6.30 | 2009.12.31 | 2010.6.30 | 2009.12.31 | |||||||||||||||||
Cash flow hedge | |||||||||||||||||||||||||
Currency swap 1 | 2007.4.4 | 2012.4.11 | USD | 150,000 | (Won) | — | (Won) | — | (Won) | 47,446 | (Won) | 42,839 | (Won) | — | (Won) | — | |||||||||
| 2008.10.6 | 2012.4.11 | USD | 50,000 | — | — | — | — | 1,468 | 3,782 | ||||||||||||||||
| 2009.6.20 | 2034.9.7 | USD | 20,000 | — | — | 6,882 | 4,708 | — | — | ||||||||||||||||
Combined interest rate currency swap 1 | 2008.1.4 | 2011.1.11 | JPY | 12,500,000 | 61,898 | — | — | 48,908 | — | — | |||||||||||||||
| 2008.3.20 | 2011.3.31 | USD | 50,000 | — | — | 10,139 | 7,751 | — | — | ||||||||||||||||
| 2008.3.20 | 2012.3.31 | USD | 110,000 | — | — | 20,612 | 18,233 | — | — | ||||||||||||||||
| 2008.9.2 | 2013.9.11 | USD | 200,000 | — | — | 9,228 | 5,988 | — | — | ||||||||||||||||
| 2010.4.9 | 2013.4.9 | USD | 100,000 | — | — | 4,318 | — | ||||||||||||||||||
| 2009.6.20 | 2014.6.24 | USD | 600,000 | — | — | 103,110 | 66,812 | — | — | ||||||||||||||||
| 2009.6.20 | 2015.7.15 | USD | 100,000 | — | — | 26,314 | 20,172 | — | — | ||||||||||||||||
| 2008.2.25 2 | 2011.2.25 | USD | 175,000 | 45,284 | — | — | 37,236 | — | — | ||||||||||||||||
| 2008.4.28 2 | 2011.4.28 | JPY | 7,000,000 | 26,925 | — | — | 20,098 | — | — | ||||||||||||||||
| 2008.6.20 2 | 2011.6.20 | USD | 95,000 | 15,502 | — | — | 10,522 | — | — | ||||||||||||||||
| 2008.3.12 2 | 2010.12.13 | USD | 20,000 | 5,234 | — | — | 8,785 | — | — | ||||||||||||||||
| 2008.7.2 2 | 2011.4.4 | USD | 30,000 | 4,563 | — | — | 2,983 | — | — | ||||||||||||||||
Sub-total | 159,406 | — | 228,049 | 295,035 | 1,468 | 3,782 | |||||||||||||||||||
Fair value hedge | |||||||||||||||||||||||||
Interest rate swap 3 | 2009.9.1 | 2011.12.1 | KRW | 180,000 | — | — | 2,302 | 23 | — | — | |||||||||||||||
Total | (Won) | 159,406 | (Won) | — | (Won) | 230,351 | (Won) | 295,058 | (Won) | 1,468 | (Won) | 3,782 | |||||||||||||
Current derivative instruments liabilities amounting to (Won)4,130 million are for trading, and are not under hedge accounting as of June 30, 2010.
��
| 1 | In applying the cash flow hedge accounting, the Company hedges its exposures to cash flow fluctuation until September 7, 2034. |
| 2 | Contract date of derivatives transferred from KTF represents the initial date mentioned on each contract. |
| 3 | Above interest rate swap contract is to hedge the risk of variability in future fair value from the bond and accordingly, the loss on valuation of the swap contract amounting to (Won)2,302 million is included in operations for the six-month period ended June 30, 2010. |
See Report of Independent Accountants.
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Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
The valuation gains and losses on the derivatives contracts for six-month periods ended June 30, 2010 and 2009, are as follows :
| 2010 | ||||||||||||||||||||||
| (In millions of Korean won) | Valuation gain | Valuation loss | Valuation gain (loss) 1 For hedging | |||||||||||||||||||
| Type of Transaction | For trading | For hedging | Total | For trading | For hedging | Total | ||||||||||||||||
Interest rate swap | (Won) | 544 | (Won) | 2,302 | (Won) | 2,846 | (Won) | — | (Won) | — | (Won) | — | (Won) | — | ||||||||
Currency swap | — | 9,394 | 9,394 | — | — | — | (300 | ) | ||||||||||||||
Combined interest rate currency swap | — | 87,595 | 87,595 | — | — | — | (2,999 | ) | ||||||||||||||
Total | (Won) | 544 | (Won) | 99,291 | (Won) | 99,835 | (Won) | — | (Won) | — | (Won) | — | (Won) | (3,299 | ) | |||||||
| 1 | The amounts directly reflected in equity before adjustments of deferred income tax. |
| 2009 | ||||||||||||||||||||||
| (In millions of Korean won) | Valuation gain | Valuation loss | Valuation gain (loss) 1 For hedging | |||||||||||||||||||
| Type of Transaction | For trading | For hedging | Total | For trading | For hedging | Total | ||||||||||||||||
Interest rate swap | (Won) | 3,571 | (Won) | — | (Won) | 3,571 | (Won) | — | (Won) | — | (Won) | — | (Won) | — | ||||||||
Currency swap | — | 6,266 | 6,266 | 9,574 | — | 9,574 | (3,570 | ) | ||||||||||||||
Combined interest rate currency swap | — | 44,349 | 44,349 | 69,816 | 7,202 | 77,018 | (35,253 | ) | ||||||||||||||
Put option | 223 | — | 223 | — | — | — | — | |||||||||||||||
Total | (Won) | 3,794 | (Won) | 50,615 | (Won) | 54,409 | (Won) | 79,390 | (Won) | 7,202 | (Won) | 86,592 | (Won) | (38,823 | ) | |||||||
| 1 | The amounts directly reflected in equity before adjustments of deferred income tax. |
See Report of Independent Accountants.
26
Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
| 13. | Common Stock |
As of June 30, 2010, the Company’s number of authorized shares is one billion.
| 2010.6.30 | 2009.12.31 | |||||||||||||||
| Number of outstanding shares | Par value per share (Korean won) | Common stock (In millions of Korean won) | Number of outstanding shares | Par value per share (Korean won) | Common stock (In millions of | |||||||||||
Common stock1 | 261,111,808 | (Won) | 5,000 | (Won) | 1,564,499 | 261,111,808 | (Won) | 5,000 | (Won) | 1,564,499 | ||||||
| 1 | The Company retired 51,787,959 treasury shares through retained earnings. Therefore, the common stock amount differs from the amount resulting from multiplying the number of shares issued by (Won)5,000 par value per share of common stock. |
| 14. | Treasury Stock |
The changes in treasury stock for the six-month period ended June 30, 2010 and the year ended December 31, 2009, are as follows:
| 2010.6.30 | 2009.12.31 | |||||||||
| Number of shares | Amount | Number of shares | Amount | |||||||
Direct purchase by the Capital Market and Financial Investment Business Act | 16,642,295 | (Won) | 862,677 | 16,656,170 | (Won) | 863,448 | ||||
Indirect purchase through trust agreement and other | 1,259,170 | 92,711 | 1,259,170 | 92,711 | ||||||
Total | 17,901,665 | (Won) | 955,388 | 17,915,340 | (Won) | 956,159 | ||||
Treasury stock is expected to be used for the stock compensation for the Company’s directors and employees and other purposes.
See Report of Independent Accountants.
27
Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
| 15. | Share-Based Payments |
The Company has granted stock options to its executive officers and directors as of June 30, 2010, in accordance with the stock option plan approved by its board of directors, details of which are as follows:
| 2nd grant | 4th grant | KTF-3rd1 | KTF-4th1 | |||||||||
Grant date | 2003.9.16 | 2005.2.4 | 2003.9.8 | 2005.3.4 | ||||||||
Grantee | Former outside directors | Former executives | | Former CEOs, executives and former outside directors | | Former executives and former outside directors | ||||||
Number of basic allocated shares upon grant | 36,400 | 50,800 | 452,757 | 92,637 | ||||||||
Number of additional shares related to business performance upon grant | — | 20,000 | — | — | ||||||||
Number of shares expected to be exercised upon grant | 36,400 | 60,792 | 452,757 | 92,637 | ||||||||
Number of settled or forfeited shares | 33,400 | 10,800 | 260,100 | 13,437 | ||||||||
Number of expired shares as of June 30, 2010 | — | — | — | — | ||||||||
Number of allocated shares as of June 30, 2010 | 3,000 | 40,000 | 192,657 | 79,200 | ||||||||
Number of additional shares related to business performance as of June 30, 2010 | — | 3,153 | — | — | ||||||||
Number of shares expected to be exercised | 3,000 | 43,153 | 192,657 | 79,200 | ||||||||
Fair value per share (in Korean won) | (Won) | 12,443 | (Won) | 12,322 | (Won) | 2,566 | (Won) | 4,328 | ||||
Total compensation cost (in millions of Korean won) | (Won) | 38 | (Won) | 531 | (Won) | 494 | (Won) | 343 | ||||
Exercise price per share (in Korean won) | (Won) | 57,000 | (Won) | 54,600 | (Won) | 41,711 | (Won) | 42,684 | ||||
Exercise period | | 2005.9.17 ~2010.9.16 | 2007.2.5 ~2012.2.4 | 2005.9.9 ~2010.9.8 | 2007.3.5 ~2012.3.4 | |||||||
Valuation method | Fair value method | Fair value method | Fair value method | Fair value method | ||||||||
| 1 | The stock options granted to the directors, officers or employees of KTF prior to the merger were converted into stock options on June 1, 2009, granting the rights to purchase the stock of KT based on the merger ratio. |
See Report of Independent Accountants.
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Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
Upon exercise, the Company can elect one of the following settlement methods: issuance of new shares, issuance of treasury stock or cash settlement (cash and issuance of treasury stock) subject to certain circumstances.
The Company adopted the fair value method to measure compensation costs based on the various valuation assumptions and methods, which are as follows:
| 2nd grant | 4th grant | KTF-3rd 1 | KTF-4th 1 | |||||
Risk free interest rate | 4.45% | 4.43% | 2.43% | 2.78% | ||||
Expected duration(year) | 4.5 | 4.5 ~ 5.5 | 0.6 | 1.5 | ||||
Expected volatility | 34.49% | 33.41%~42.13% | 41.85% | 35.03% | ||||
Expected dividend yield ratio | 1.57% | 5.86% | 3.54% | 3.54% | ||||
| 1 | The compensation costs for the stock options granted to the directors, officers or employees of KTF were recalculated considering risk-free rate, expected duration and other on the date of the merger. |
Of the total compensation costs calculated using the fair value method, the compensation costs recognized through June 30, 2010, are as follows:
| (In millions of Korean won) | 2nd grant | 4th grant | KTF-3rd | KTF-4th | Total | |||||||||||||||
Total compensation costs before adjustment | (Won) | 453 | (Won) | 749 | (Won) | 564 | (Won) | 343 | (Won) | 2,109 | ||||||||||
Total compensation costs cancelled | (415 | ) | (218 | ) | (70 | ) | — | (703 | ) | |||||||||||
Total compensation costs after adjustment | 38 | 531 | 494 | 343 | 1,406 | |||||||||||||||
Compensation costs recognized in prior periods | (38 | ) | (531 | ) | (494 | ) | (343 | ) | (1,406 | ) | ||||||||||
Other share-based payments as of June 30, 2010, are as follows:
| 4th grant | ||
Grant date | 2010.4.29 | |
Grantee | CEOs, inside directors, outside directors, executives | |
Estimated number of shares granted | 142,436 shares | |
Estimated number of shares granted | 142,436 shares | |
Vesting conditions | Service condition: 1 year | |
| Non-market performance condition: achievement of performance | ||
Fair value per option (in Korean won) | (Won)47,700 | |
Total compensation costs (in Korean won) | (Won)6,794 million | |
Estimated exercise date (exercise date) | During 2011 | |
Valuation method | Fair value method | |
See Report of Independent Accountants.
29
Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
Above compensation costs were calculated based on the fair value method and were charged to current operations, as follows:
| (In millions of Korean won) | 4th grant | |||
Total compensation costs | (Won) | 6,794 | ||
Compensation costs recognized in prior periods | — | |||
Compensation costs recognized in the current period | (3,397 | ) | ||
Compensation costs to be recognized after the current period | (3,397 | ) | ||
| 16. | Retained Earnings |
The Commercial Code of the Republic of Korea requires the Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued capital stock. The reserve is not available for the payment of cash dividends, but may be transferred to capital stock with the approval of the Company’s Board of Directors or used to reduce accumulated deficit, if any, with the ratification of the Company’s majority shareholders.
The Company appropriates a certain portion of retained earnings, pursuant to a shareholder resolution, as voluntary reserves. These reserves may be reversed and transferred to unappropriated retained earnings through a resolution of shareholders, and may be distributed as dividends after the reversal.
See Report of Independent Accountants.
30
Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
| 17. | Operating Revenues |
Operating revenues for the three-month and six-month periods ended June 30, 2010 and 2009, are as follows:
| (in millions of Korean won) | 2010 | 2009 | ||||||||||
| Three months | Six months | Three months | Six months | |||||||||
Internet connection | (Won) | 488,536 | (Won) | 971,322 | (Won) | 491,539 | (Won) | 984,292 | ||||
Internet application | 137,076 | 253,394 | 105,121 | 204,681 | ||||||||
Data communication | 332,880 | 662,068 | 390,338 | 807,608 | ||||||||
Fixed-line telephone | 858,023 | 1,704,214 | 926,125 | 1,861,805 | ||||||||
LM1 | 245,351 | 494,774 | 297,501 | 602,742 | ||||||||
PCS | 1,750,163 | 3,429,519 | 701,018 | 931,365 | ||||||||
System integration | 73,385 | 142,289 | 66,676 | 106,411 | ||||||||
Real estate | 98,972 | 154,229 | 69,961 | 135,270 | ||||||||
Goods sold2 | 995,159 | 1,982,259 | 509,062 | 688,276 | ||||||||
Other operating revenues | 6,902 | 14,625 | 6,919 | 14,926 | ||||||||
Operating revenues | (Won) | 4,986,447 | (Won) | 9,808,693 | (Won) | 3,564,260 | (Won) | 6,337,376 | ||||
| 1 | Represents revenue from the calls from fixed-line phone to mobile phone. |
| 2 | Represents revenue from the sale of handset and others. |
Details of construction contracts, related to the real estate revenue, as of June 30, 2010, are as follows:
| (in millions of Korean won) | Beginning contract balance | Increase | Recognized as revenue | Ending contract balance | |||||||||
Bugae-dong, Incheon | (Won) | 4,335 | (Won) | — | (Won) | (4,335 | ) | (Won) | — | ||||
Sungsu-dong, Seoul (Factory building) | 18,714 | — | (12,996 | ) | 5,718 | ||||||||
Garak-dong, Seoul (Office building) | 40,733 | — | (8,378 | ) | 32,355 | ||||||||
Total | (Won) | 63,782 | (Won) | — | (Won) | (25,709 | ) | (Won) | 38,073 | ||||
See Report of Independent Accountants.
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Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
| 18. | Operating Expenses |
Operating expenses for the three-month and six-month periods ended June 30, 2010 and 2009, are as follows:
| (in millions of Korean won) | 2010 | 2009 | ||||||||||||||
| Three months | Six months | Three months | Six months | |||||||||||||
Salaries and wages | (Won) | 475,164 | (Won) | 944,385 | (Won) | 452,413 | (Won) | 905,537 | ||||||||
Provision for severance benefits | 74,581 | 150,651 | 68,993 | 109,196 | ||||||||||||
Employee welfare | 78,465 | 152,862 | 156,993 | 270,463 | ||||||||||||
Utilities | 52,680 | 114,899 | 40,314 | 84,203 | ||||||||||||
Taxes and dues | 51,562 | 105,442 | 33,531 | 64,167 | ||||||||||||
Rent | 63,500 | 122,684 | 30,139 | 51,101 | ||||||||||||
Depreciation | 614,421 | 1,209,773 | 492,080 | 940,733 | ||||||||||||
Amortization | 99,109 | 199,643 | 51,383 | 87,921 | ||||||||||||
Repairs and maintenance | 125,097 | 237,005 | 102,268 | 192,663 | ||||||||||||
Commissions | 338,963 | 655,272 | 237,617 | 445,229 | ||||||||||||
Advertising | 43,547 | 84,459 | 32,804 | 41,228 | ||||||||||||
Research and development | 63,307 | 121,772 | 49,887 | 93,656 | ||||||||||||
Interconnection charges | 312,784 | 610,799 | 222,337 | 387,503 | ||||||||||||
Cost of services | 136,107 | 249,268 | 172,894 | 364,724 | ||||||||||||
Commissions for system integration service | 67,643 | 130,476 | 61,324 | 96,430 | ||||||||||||
International call settlement | 63,013 | 133,407 | 55,378 | 115,682 | ||||||||||||
Cost of goods sold | 952,680 | 1,908,287 | 403,868 | 531,027 | ||||||||||||
Promotion | 278,785 | 544,634 | 162,171 | 223,434 | ||||||||||||
Sales commission | 408,067 | 838,304 | 332,032 | 503,823 | ||||||||||||
Provision for doubtful accounts | 25,697 | 50,598 | 14,653 | 30,263 | ||||||||||||
Other | 73,590 | 115,066 | 37,012 | 69,393 | ||||||||||||
Total | 4,398,762 | 8,679,686 | 3,210,091 | 5,608,376 | ||||||||||||
Less : Transfer to other accounts | (13,714 | ) | (25,079 | ) | (9,301 | ) | (18,949 | ) | ||||||||
Net | (Won) | 4,385,048 | (Won) | 8,654,607 | (Won) | 3,200,790 | (Won) | 5,589,427 | ||||||||
See Report of Independent Accountants.
32
Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
| 19. | Comprehensive Income |
Comprehensive income for the three-month and six-month periods ended June 30, 2010 and 2009, consists of :
| (in millions of Korean won) | 2010 | 2009 | ||||||||||||||
| Three months | Six months | Three months | Six months | |||||||||||||
Net income | (Won) | 343,661 | (Won) | 716,204 | (Won) | 456,081 | (Won) | 595,650 | ||||||||
Gain on valuation of available-for-sale securities | (944 | ) | (847 | ) | 252 | 359 | ||||||||||
Loss on valuation of available-for-sale securities | (112 | ) | (157 | ) | (73 | ) | (73 | ) | ||||||||
Changes in equity method investees with accumulated comprehensive income | 1,870 | 97 | 4,986 | 7,847 | ||||||||||||
Changes in equity method investees with accumulated comprehensive expense | (2,214 | ) | (1,843 | ) | 14,579 | 261 | ||||||||||
Gain on valuation of financial derivatives | (3,194 | ) | (6,491 | ) | 2,866 | (3,816 | ) | |||||||||
Loss on valuation of financial derivatives | (2,909 | ) | 11,891 | (14,759 | ) | (46,937 | ) | |||||||||
Accumulated comprehensive income(expense) | (7,503 | ) | 2,650 | 7,851 | (42,359 | ) | ||||||||||
Comprehensive income | (Won) | 336,158 | (Won) | 718,854 | (Won) | 463,932 | (Won) | 553,291 | ||||||||
| 20. | Earnings Per Share |
Basic earnings per share
| (in millions of Korean won, | 2010 | 2009 | ||||||||||
| except for per share amounts) | Three months | Six months | Three months | Six months | ||||||||
Net income attributable to common stock | (Won) | 343,661 | (Won) | 716,204 | (Won) | 456,081 | (Won) | 595,650 | ||||
Weighted-average number of common stock outstanding | 243,203,232 | 243,199,868 | 204,848,208 | 203,185,205 | ||||||||
Basic earnings per share | (Won) | 1,413 | (Won) | 2,945 | (Won) | 2,226 | (Won) | 2,932 | ||||
Weighted-average number of treasury stock for the three-month and six-month periods ended June 30, 2010 and 2009, is adjusted to weighted-average number of common shares outstanding.
See Report of Independent Accountants.
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KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
Diluted earnings per share
| (in millions of Korean won, | 2010 | 2009 | ||||||||||
| except for per share amounts) | Three months | Six months | Three months | Six months | ||||||||
Net income attributable to common stock | (Won) | 343,661 | (Won) | 716,204 | (Won) | 456,081 | (Won) | 595,650 | ||||
Adjusted net income attributable to common stock | 343,661 | 716,204 | 456,651 | 596,220 | ||||||||
Dilutive potential common shares outstanding | 36,935 | 41,487 | 8,453,222 | 8,453,222 | ||||||||
Weighted-average number of common shares outstanding and dilutive common shares | 243,240,167 | 243,241,355 | 213,301,430 | 211,638,427 | ||||||||
Diluted earnings per share | (Won) | 1,413 | (Won) | 2,944 | (Won) | 2,141 | (Won) | 2,817 | ||||
Diluted net income per share is calculated by dividing adjusted net income by the weighted average number of common shares outstanding and dilutive common shares. Stock options and other share-based payments have no dilutive effect and are excluded from the calculation of diluted earnings per share.
Potential common shares as of June 30, 2010 and December 31, 2009, are as follows:
| Par | Common shares to be issued | |||||||||||
| value | Issue date | Maturity date | Exercisable Period | 2010.6.30 | 2009.12.31 | |||||||
Stock options | 1 | Sept. 16, 2003 | Sept. 16, 2010 | From 2 years after grant date till maturity date | 3,000 | 3,000 | ||||||
Stock options | 2 | Feb. 4, 2005 | Feb. 4, 2012 | Increase in the number of exercisable shares by 1/3 every year after two years from grant date | 43,153 | 43,153 | ||||||
Stock options | 3 | March 25, 2002 | March 25, 2010 | From 3 years after grant date till maturity date | — | 20,570 | ||||||
Stock options | 4 | Sept. 8, 2003 | Sept. 8, 2010 | From 2 years after grant date till maturity date | 192,657 | 219,909 | ||||||
Stock options | 5 | March 4, 2005 | March 4, 2012 | From 2 years after grant date till maturity date | 79,200 | 79,200 | ||||||
Other share-based payment | 6 | June 20, 2007 | Expected to be exercised in 2010 | On maturity date, subject to the resolution of board of directors | — | 11,790 | ||||||
Other share-based payment | 6 | March 27, 2008 | Expected to be exercised in 2010 | On maturity date, subject to the resolution of board of directors | — | 13,345 | ||||||
Other share-based payment | 6 | May 7, 2009 | Expected to be exercised in 2010 | On maturity date, subject to the resolution of board of directors | — | 29,055 | ||||||
Other share-based payment | 6 | April 29, 2010 | Expected to be exercised in 2010 | On maturity date, subject to the resolution of board of directors | 142,436 | — | ||||||
Total | 460,446 | 420,022 | ||||||||||
See Report of Independent Accountants.
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KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
| 1 | Exercise price of (Won)57,000 per common share. |
| 2 | Exercise price of (Won)54,600 per common share. |
| 3 | Exercise price of (Won)62,814 per common share. |
| 4 | Exercise price of (Won)41,711 per common share. |
| 5 | Exercise price of (Won)42,684 per common share. |
| 6 | Shares to be given subject to performance. |
The Company’s basic earnings per share and diluted earnings per share for the year ended December 31, 2009, are (Won)2,353 and (Won)2,324, respectively.
| 21. | Related Party Transactions |
The list of subsidiaries of the Company as of June 30, 2010, is as follows:
| Type of control | Subsidiaries | |
| Direct control | KT Hitel, KT Submarine Co., KT Networks Corporation, KT Powertel, KT Linkus Co., Telecop Service Co., KT Rental, KT Capital, Sidus FNH Co., Ltd., KT DataSystems, KT Commerce, Inc., Nasmedia, Inc., KT Edui Co., Ltd., (formerly “JB Edu”), Sofnics Inc., KT Tech (formerly “KTF Technologies, Inc.”), KT M Hows (formerly “KTF M Hows Co., Ltd.”), KT M&S (formerly “KTF M&S Co., Ltd.”), KT Music (formerly “KTF Music Corporation”), KT Innotz Inc., Kumho Rent-A-Car Global, Korea Digital Satellite Broadcasting Co., Ltd., KT Internal Venture Fund No.2, Sidus FNH Benex Cinema Investment Fund, KT New Business Fund No.1, KT Capital Media Contents Fund No.2, Gyeonggi-KT Green Growth Fund, Korea Telecom America, Inc., New Telephone Company, Korea Telecom Japan, Korea Telecom China Co., KTSC Investment Management B.V., PT. KT Indonesia (formerly “PT. KTF Indonesia) | |
| Indirect control through KT Music | Doremi Media | |
| Indirect control through KT Capital | Vanguard Private Equity Fund, KTC Media Contents Fund 1 | |
| Indirect control through KT Rental | KTR | |
| Indirect control through KTSC | East Telecom and Super iMax | |
| Investment Management B.V. | ||
| Indirect control through NTSC | Helios TV | |
See Report of Independent Accountants.
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Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
Significant transactions with related parties for the six-month periods ended June 30, 2010 and 2009, are as follows:
| (in millions of Korean won) | Operating Revenue | Operating Expense | ||||
Subsidiaries | (Won) | 427,790 | (Won) | 540,140 | ||
Equity-method investees | 47,259 | 405,511 | ||||
2010 Total | (Won) | 475,049 | (Won) | 945,651 | ||
2009 Total | (Won) | 316,123 | (Won) | 882,913 | ||
Significant balances with related parties as of June 30, 2010 and December 31, 2009, are as follows:
| (in millions of Korean won) | Receivables | Payables | ||||
Subsidiaries | (Won) | 93,866 | (Won) | 426,022 | ||
Equity-method investees | 8,481 | 72,462 | ||||
2010 Total | (Won) | 102,347 | (Won) | 498,484 | ||
2009 Total | (Won) | 74,260 | (Won) | 542,628 | ||
Key management compensation for the three-month and six-month periods ended June 30, 2010 and 2009, consists of :
| 2010 | 2009 | |||||||||||||
| (in millions of Korean won) | Three months | Six months | Three months | Six months | Description | |||||||||
Benefits | (Won) | 8,000 | (Won) | 19,564 | (Won) | 5,394 | (Won) | 7,585 | Salaries, bonuses, other allowances, retirement benefits, medical benefits and others Compensation expenses associated to stock options, stock grants | |||||
Compensation expenses | 3,397 | 3,397 | 501 | 501 | ||||||||||
Total | (Won) | 11,397 | (Won) | 22,961 | (Won) | 5,895 | (Won) | 8,086 | ||||||
See Report of Independent Accountants.
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Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
Key management consists of vice president or higher, who have the authority and responsibility for planning, operation and control and are in charge of business or division unit, and non-permanent directors.
| 22. | Supplemental Cash Flows Information |
Significant transactions not affecting cash flows for the six-month periods ended June 30, 2010 and 2009, are as follows:
| (in millions of Korean won) | Six-month period ended June 30, 2010 | Six-month period ended June 30, 2009 | ||||
Increase in accounts payable on equity method investment | (Won) | 35,832 | (Won) | — | ||
Reclassification of the current portion of bonds payable | 1,306,775 | 667,502 | ||||
Reclassification of construction-in-progress to property, plant and equipment | 668,301 | 291,920 | ||||
Acquired equity-method investments by issuance of exchangeable bond | — | 319,160 | ||||
Increase in capital by merger with KTF | — | 1,553,491 | ||||
| 23. | Segment Information |
The Company’s operating segments are as follows:
| Details | Business service | |
| Personal Customer Group (“Personal”) | Personal customers using PCS and WiBro | |
| Home Customer Group (“Home”) | Home customers using telephone, internet, data and others | |
| Enterprise Customer Group (“Enterprise”) | Enterprise customers using telephone, internet, data and others | |
| Others | Global, real estate, and others | |
See Report of Independent Accountants.
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Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
Details of each segment for the six-month period ended June 30, 2010, are as follows:
| (in millions of Korean won) | Personal | Home/Enterprise/Others | Total | ||||||
Operating revenues | (Won) | 4,963,664 | (Won) | 4,845,029 | (Won) | 9,808,693 | |||
Operating expenses | 4,171,283 | 4,483,324 | 8,654,607 | ||||||
Operating income | 792,381 | 361,705 | 1,154,086 | ||||||
Depreciation and amortization | 463,465 | 945,211 | 1,408,676 | ||||||
Property and equipment and Intangible assets | 4,571,370 | 10,293,533 | 14,864,903 | ||||||
| 24. | Merger with KTF |
On January 20, 2009, the Company entered into a merger agreement with KTF, which was subsequently approved by the shareholders meeting on March 27, 2009. On June 1, 2009, the Company, as a surviving company, merged with KTF.
The Company issued 0.7192335 share of KT common stock with a par value per share of (Won)5,000 for one share of KTF. However, the Company did not issue any new common stock for the shares of KTF common stock held by the Company or for the treasury shares of KTF as of the date of the merger.
See Report of Independent Accountants.
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Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
Details of merged companies :
| CEO | Business | Relationship | ||||
| KT Corporation (KT) | Lee Suk Chae | Telephone service, new media business, telecommunication products sales and other | Parent | |||
| KT Freetel Co., Ltd. (KTF) | Kwon Haing Min | Mobile telecommunication service and other | Subsidiary | |||
Accounting treatment
As this is a merger between parent and subsidiary, the Company accounted for the merger using the carrying amounts in its consolidated financial statements and accordingly, the excess of merger consideration given over carrying amount of net assets acquired was recognized as capital adjustment after offsetting capital surplus, if any, from the similar type of transaction.
| (In millions of Korean won) | ||||
Succession of assets and liabilities of KTF : | ||||
Assets (Including goodwill of (Won)140,956) | (Won) | 8,389,522 | ||
Liabilities | (3,940,069 | ) | ||
Net asset value | (Won) | 4,449,453 | ||
Decrease in equity method investments | (Won) | 2,895,962 | ||
Changes in equity : | ||||
Increase in common stock | 3,501 | |||
Decrease in treasury stock | 2,436,659 | |||
Decrease in gain on disposal of treasury stock | (375 | ) | ||
Decrease in accumulated other comprehensive income | (6,932 | ) | ||
Decrease in capital adjustments | (879,362 | ) | ||
| 1,553,491 | ||||
| (Won) | 4,449,453 | |||
Offsetting of receivables and payables between the Company and KTF | (Won) | 331,917 | ||
See Report of Independent Accountants.
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Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
Goodwill
Changes in goodwill for the six-month period ended June 30, 2010, are as follows
| (in millions of Korean won) | ||||
January 1, 20091 | (Won) | 195,170 | ||
Amortization1 | (54,214 | ) | ||
May 31, 20091 | (Won) | 140,956 | ||
June 1, 2009 (the date of the merger) | (Won) | 140,956 | ||
Amortization | (75,899 | ) | ||
December 31, 2009 | 65,057 | |||
Amortization | (65,057 | ) | ||
June 30, 2010 | (Won) | — | ||
| 1 | Represents investment difference and was reflected in equity method investment in KTF. |
Goodwill is amortized on a straight-line basis over ten years and, as of June 30, 2010, the goodwill has been fully amortized and there is no remaining balance.
Deferred income tax assets
The deferred income tax assets transferred from KTF due to the merger on June 1, 2009, are as follows:
| (in millions of Korean won) | ||||
Allowance for doubtful accounts | (Won) | 34,475 | ||
Accrued expenses | 30,618 | |||
Accrued provisions | 39,478 | |||
Property and equipment, others | (13,061 | ) | ||
Other | 18,506 | |||
Tax credit carryforwards | 93,055 | |||
Total | (Won) | 203,071 | ||
See Report of Independent Accountants.
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KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
Financial statements of the merged companies
Statements of financial position
| KT | KTF | |||||||||||
| (in millions of Korean won) | 2009.6.1 | 2008.12.31 | 2009.6.1 | 2008.12.31 | ||||||||
Current assets | (Won) | 4,926,684 | (Won) | 3,778,105 | (Won) | 2,716,833 | (Won) | 2,199,857 | ||||
Investment assets | 3,846,019 | 3,517,906 | 270,019 | 396,903 | ||||||||
Property and equipment | 9,932,337 | 10,428,674 | 3,919,107 | 4,165,339 | ||||||||
Intangible assets | 344,330 | 397,046 | 783,254 | 780,242 | ||||||||
Other non-current assets | 503,787 | 563,191 | 559,353 | 513,781 | ||||||||
Total assets | (Won) | 19,553,157 | (Won) | 18,684,922 | (Won) | 8,248,566 | (Won) | 8,056,122 | ||||
Current liabilities | (Won) | 2,871,186 | (Won) | 2,585,875 | (Won) | 2,657,350 | (Won) | 2,031,871 | ||||
Non-current liabilities | 8,274,862 | 7,267,158 | 1,282,719 | 1,658,402 | ||||||||
Total liabilities | 11,146,048 | 9,853,033 | 3,940,069 | 3,690,273 | ||||||||
Total equity | 8,407,109 | 8,831,889 | 4,308,497 | 4,365,849 | ||||||||
Total liabilities and equity | (Won) | 19,553,157 | (Won) | 18,684,922 | (Won) | 8,248,566 | (Won) | 8,056,122 | ||||
Statements of income
| KT | KTF | |||||||||||
| (in millions of Korean won) | For the period from Jan. 1, 2009 to the date of the merger | For the year Dec. 31, 2008 | For the period from Jan. 1, 2009 to the date of the merger | For the year Dec. 31, 2008 | ||||||||
Operating revenues | (Won) | 4,662,137 | (Won) | 11,784,835 | (Won) | 3,516,358 | (Won) | 8,346,220 | ||||
Operating expenses | 4,078,756 | 10,671,446 | 3,131,947 | 7,891,839 | ||||||||
Non-operating revenues | 329,587 | 855,289 | 43,656 | 201,470 | ||||||||
Non-operating expenses | 372,047 | 1,408,633 | 152,858 | 469,496 | ||||||||
Income tax expense | 105,765 | 110,235 | 45,833 | 21,776 | ||||||||
Net income | (Won) | 435,156 | (Won) | 449,810 | (Won) | 229,376 | (Won) | 164,579 | ||||
See Report of Independent Accountants.
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Table of Contents
KT Corporation
Notes to Non-Consolidated Financial Statements
June 30, 2010 (Unaudited)
| 25. | Adoption of K-IFRS |
The Company plans to prepare its financial statements in accordance with K-IFRS starting from the year ending December 31, 2011. Since “the Roadmap to K-IFRS Adoption” has been announced in March 2007, the Company organized a task force team, conducted training, and analyzed the impact of the adoption of K-IFRS. The Company is also analyzing the key differences and potential impact on financial statements, while formulating the proper accounting policies.
See Report of Independent Accountants.
42