Paul, Weiss, Rifkind, Wharton & Garrison LLP
Fukoku Seimei Building 2nd Floor
2-2 Uchisaiwaicho 2-chome
Chiyoda-ku, Tokyo 100-0011, Japan
Telephone +81-3-3597-8101
Facsimile +81-3-3597-8120
January 6, 2006
VIA EDGAR
U.S. Securities and Exchange Commission
100 F Street, NE
Washington D.C. 20549, U.S.A.
Attention: Kathleen Collins
Re: Korea Thrunet Co., Ltd.
Form 20-F for the fiscal year ended
December 31, 2004 filed July 15, 2005
File No. 000-30374
Dear Ms. Collins:
On behalf of Korea Thrunet Co., Ltd. (the "Company"), a
company incorporated in the Republic of Korea, we hereby electronically file via
EDGAR this letter in response to the comment letter of the staff of the U.S.
Securities and Exchange Commission received by the Company in December 2005
regarding the above-captioned Form 20-F.
This letter sets forth each comment of the staff in the
comment letter and, following each comment, the Company's response to such
comment. All references to page numbers in this letter refer to the page numbers
of the Form 20-F.
* * *
F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATION, PAGE 30
1. WE NOTE IN YOUR CONTRACTUAL OBLIGATIONS TABLE THAT YOU HAVE NOT
INCLUDED ANY OF YOUR LEASE COMMITMENTS DISCLOSED ON PAGES F-27, F-28
AND F-29 OF YOUR FINANCIAL STATEMENTS. TELL US HOW YOU CONSIDERED ITEM
5.F OF FORM 20-F IN YOUR
U.S. Securities and Exchange Commission 2
PRESENTATION OF CONTRACTUAL OBLIGATIONS, INCLUDING LEASE OBLIGATIONS
AND PROVIDE US WITH A SUMMARY OF YOUR LEASE OBLIGATIONS. PLEASE ADVISE.
RESPONSE: The Company's disclosure in Item 5.F of Form 20-F
includes the lease commitments disclosed on Page F-27, F-28 and F-29 of the
Company's financial statements. The lease commitments were reported as part of
"Secured Borrowings" and "Unsecured Borrowings" and reflected accordingly in the
table. Please see ANNEX A attached hereto which provides detailed information of
the Company's contractual obligations including the amounts of the lease
obligations at issue.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, PAGE F-2
2. WE NOTE YOUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM IS DELOITTE
HANAANJIN LLC LOCATED IN SEOUL, KOREA. TELL US IF YOU HAVE HAD YOUR
FILING REVIEWED BY A "FILING REVIEWER" DESIGNATED BY YOUR US-AFFILIATED
FIRM AS CONTEMPLATED BY RULE 3400T IN PCAOB RELEASE NO. 2003-006. IF
YOU HAVE, PROVIDE US WITH WRITTEN CONFIRMATION THAT THE FILING
REVIEWER'S PROCEDURES WERE APPLIED TO YOUR SUBMISSION. YOUR RESPONSE
SHOULD INCLUDE THE NAME OF THE DESIGNATED FILING REVIEWER.
RESPONSE: The Form 20-F was reviewed by Mr. Gary Schweitzer,
the filing reviewer designated by Deloitte & Touche LLP, the US-affiliated firm
of Deloitte HanaAnjin LLC, as contemplated by Rule 3400T in PCAOB Release No.
2003-006.
3. WE NOTE YOUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM HAS NOT
OPINED ON YOUR 2003 AND 2002 FINANCIAL STATEMENTS AND THAT THEY
REFERENCE OTHER AUDITORS IN THEIR OPINION. AMEND YOUR FILING TO INCLUDE
AN AUDITOR'S OPINION ON YOUR 2003 AND 2002 FINANCIAL STATEMENTS. WE
REFER YOU TO ITEM 8.A.3 AND INSTRUCTIONS TO ITEM 8.A.2 OF FORM 20-F.
RESPONSE: Subsequent to the initial filing of the Form 20-F,
the Company filed an amendment to the Form 20-F on November 1, 2005 to include
the audit report of Samil PricewaterhouseCoopers, an independent registered
public accounting firm, regarding the Company's consolidated financial
statements as of December 31, 2002 and 2003 and for the fiscal years ended
December 31, 2002 and 2003.
U.S. Securities and Exchange Commission 3
NOTE 1. GENERAL (2) REORGANIZATION PROCEEDINGS, PAGE F-13
4. WE NOTE THAT YOUR ORIGINAL AND MODIFIED REORGANIZATION PLANS WERE
APPROVED BY THE BANKRUPTCY COURT ON JANUARY 9, 2004 AND APRIL 29, 2005,
RESPECTIVELY. TELL US HOW YOU CONSIDERED APPLYING FRESH START REPORTING
UPON APPROVAL OF YOUR REORGANIZATION PLANS. IN ADDITION TELL US HOW YOU
CONSIDERED REPORTING TRANSACTIONS AND EVENTS THAT ARE DIRECTLY
ASSOCIATED WITH THE REORGANIZATION (E.G. PRE AND POST PETITION
LIABILITIES, CHARGES RELATING TO THE REORGANIZATION, ETC.) SEPARATELY
FROM ONGOING OPERATIONS IN YOUR FINANCIAL STATEMENTS. WE REFER YOU TO
SOP 90-7.
RESPONSE: The Company's understanding of Fresh Start Reporting
and the other requirements of SOP 90-7 is that they are applicable to companies
that are reorganized under US bankruptcy laws. The Company further understands
that the staff has not objected to the application of SOP 90-7 by companies that
reorganize under foreign (non U.S.) bankruptcy laws. Because of the differences
between US bankruptcy laws and Korean bankruptcy laws, the Company elected not
to apply the Fresh Start Accounting requirements of SOP 90-7. Because the
Company did not apply Fresh Start Accounting, pre- and post-petition liabilities
and charges relating to the reorganization were considered part of ongoing
operations in the Company's financial statements. Charges relating to the
reorganization have been expensed as incurred.
NOTE 7 - DEBTS, PAGE F-25
5. WE NOTE YOUR DISCLOSURE ON PAGE F-26 (LAST PARAGRAPH OF NOTE 7) THAT
ALL LONG-TERM DEBTS ARE TO BE REPAID IN 2005. CONSIDERING THIS, TELL US
WHY (WON) 11,127 MILLION OF LONG-TERM DEBT AS OF DECEMBER 31, 2004 IS
NOT CLASSIFIED AS A CURRENT LIABILITY.
RESPONSE: The Company's disclosure on Page F-26 relating to
the full repayment of long-term debts refers to the modified reorganization plan
approved on April 29, 2005. As disclosed, the modified reorganization plan
required repayment of all long-term debt in 2005. As of the end of 2004 (before
the approval of modified reorganization plan), however, long-term debts of
(pound)U11,127 million were to be repaid according to the original repayment
schedule. The Company believes its accounting analogous to scenario 1, 2 and 3
in EITF 86-30 "Classification of Obligations When a Violation Is Waived by the
Creditor". These scenarios allow for the debt to be classified as noncurrent, so
long as disclosure is made regarding any adverse consequences.
* * *
U.S. Securities and Exchange Commission 4
The Company acknowledges that it is responsible for the
adequacy and accuracy of the disclosure in its filings with the Commission. The
Company further acknowledges that staff comments or changes to the Company's
disclosure in response to staff comments do not foreclose the Commission from
taking any action with respect to the Company's filings with the Commission.
Finally, the Company acknowledges that it may not assert staff comments as a
defense in any proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
* * *
Please contact the undersigned at (+81-3) 3597-6306 (fax
number (+81-3) 3597-8120) if we may be of help in answering any questions that
may arise in connection with your review of this letter.
Sincerely,
/s/ Tong Yu
Tong Yu
cc: Patrick Gilmore
Thomaas Ferraro
U.S. SECURITIES AND EXCHANGE COMMISSION
Korea Thrunet Co., Ltd.
U.S. Securities and Exchange Commission 5
ANNEX A
Details of the disclosure pursuant to Item 5.F of Form 20-F,
including lease commitments, are as follows:
PAYMENTS DUE BY PERIOD
CONTRACTUAL OBLIGATIONS TOTAL LESS THAN 1 YEAR 1-3 YEARS 3-5 YEARS MORE THAN 5 YEARS
----- ---------------- --------- --------- -----------------
(IN MILLIONS OF WON)
SECURED BORROWINGS
Borrowings 328,969 16,459 76,418 101,224 134,868
Lease liabilities ((1)) 14,678 - - 4,892 9,786
Payables to Powercomm Inc. 22,770 5,092 8,839 8,839 -
TOTAL 366,417 21,551 85,257 114,955 144,654
UNSECURED BORROWINGS
Normal account payable 237,319 14,199 25,140 55,351 142,629
Lease liabilities (2) 5,845 - - - 5,845
Payables to Powercomm Inc. 23,646 - 1,500 5,000 17,146
Account payables to cable 20,361 7,794 10,483 2,084 -
operators
Account payables to 11,721 5,566 6,155 - -
distributors
TOTAL 298,892 27,559 43,278 62,435 165,620
SHORT-TERM BORROWINGS - - - - -
RETIREMENT AND SEVERANCE BENEFITS 3,408 - - - 3,408
TOTAL CONTRACTUAL CASH 668,717 49,110 128,535 177,390 313,682
OBLIGATIONS
(1) and (2) details of lease liabilities to LG Card Co., Ltd and HP Financial
Service in relation to transmission equipment such as servers, DWDM and etc. are
as follows:
PAYMENTS DUE BY PERIOD
CONTRACTUAL OBLIGATIONS TOTAL LESS THAN 1 YEAR 1-3 YEARS 3-5 YEARS MORE THAN 5 YEARS
----- ---------------- --------- --------- -----------------
(IN MILLIONS OF WON)
SECURED BORROWINGS 14,678 - - 4,892 9,786
LG Card 7,165 - - 2,388 4,777
HP Financial Service 7,513 - - 2,504 5,009
UNSECURED BORROWINGS 5,845 - - - 5,845
LG Card 656 - - - 656
HP Financial Service 5,189 - - - 5,189
U.S. Securities and Exchange Commission 6
The following explanations in bold outline show how the
commitments and contingencies disclosed on pages F-27, 28 and 29 are reported:
COMMITMENTS AND CONTINGENCIES:
A. The Company has entered into an Internet System License Agreement with
Microsoft to provide Microsoft Internet System License and technical
support to the Company, and renewed the contract on July 30, 2003.
Details of the contract are as follows:
(1) Total acquisition cost of the permanent license is W780
million and has been fully paid.
(2) The Company does not pay an e-mail access license fee to
Microsoft until the number of its e-mail users reaches
1,500,000. If it is over 1,500,000, the Company is obligated
to pay US$ 0.10 per every additional user.
CONDITIONS FOR THE PAYMENTS HAVE NOT BEEN MET YET. ACCORDINGLY, NO
LIABILITY WAS RECOGNIZED.
B. In June 1997, the Company entered a long-term agreement with Korea
Electric Power Corporation ("KEPCO") under which the Company utilizes
KEPCO's network infrastructure, including KEPCO's fiber optic network
and other ancillary facilities related to Powercomm Inc. to provide
leasing of network lines owned by KEPCO. The Company pays a usage-based
fee equal to a fixed percentage of the Company's monthly enterprise
network services revenue for the use of the fiber optic network and
certain other usage-based fees for the use of the ancillary facilities.
The agreements with KEPCO and Powercomm Inc. are automatically renewed
unless cancelled by the Company, KEPCO or Powercomm Inc. In January
2001, the Company entered into an agreement with Powercomm Inc., under
which the Company agreed to pay a monthly minimum usage fee for the
Company's use of Powercomm Inc.'s line facilities and dark fiber and to
pay part of the lease fees requested by Powercomm Inc. in settlement of
the disagreement. This agreement also supplements the Agreement
Concerning Provision of Facilities dated June 1997, an earlier
agreement with Powercomm Inc. concerning Powercomm Inc.'s provision of
line facilities and dark fiber. Under this supplemental agreement, the
Company agreed to lease Powercomm Inc.'s line facilities and dark fiber
for a minimum period of three years from the date on which the Company
commence using those line facilities or dark fiber. The Company must
pay `a monthly usage fee, which is determined based on the length and
the bandwidth of line facilities and the number of dark fibers used by
the Company during the relevant month. The fee and term
U.S. Securities and Exchange Commission 7
provisions became effective retroactively from July 2000.
AMOUNTS UNDER THESE LEASE OBLIGATIONS HAVE BEEN ACCOUNTED FOR AS
PAYABLES TO POWERCOMM INC (INCLUDED IN ITEM 5.F SHOWN ABOVE).
C. In March 1999, the Company entered into an agreement with KEPCO to
lease the HFC Network for 3 years for lease payments equal to a fixed
percentage of certain broadband internet services revenue. The
agreement was transferred to Powercomm Inc. in early 2000. Under
certain conditions, this agreement can be terminated by either party
prior to its expiration. In January 2001, the Company entered into an
agreement with Powercomm Inc. on the provision of HFC network, which
supplements an earlier agreement concerning cable television network
use dated March 1999. Under this supplemental agreement, Powercomm Inc.
agreed to provide the HFC network in those areas where the Company does
not have an exclusive marketing agreement with a system operator. The
Company has agreed that Powercomm Inc. will provide its cable
television transmission network to a number of internet service
providers using the other frequency range of the cable television
transmission network in an area where the Company provides value added
services using specific frequency range of Powercomm Inc.'s cable
television transmission network, and Powercomm Inc. must allow the
Company to participate in such project. With regard to the fees for the
use of the cable television transmission network, the Company
guaranteed to Powercomm Inc. the minimum monthly usage fees per
subscriber from January 1, 2001. In February 2001, the Company entered
into an agreement for the supply and use of network facilities of
Powercomm Inc. in its multi-ISP areas.
The network facilities include cable television electrical transmission
network, HFC network, cable modem termination system, dynamic host
configuration protocol servers and fiber optic gigabit switch. The
period of this agreement is three years from February 27, 2001 and
shall be extended for another three years unless a party demands to
terminate or amend this agreement in writing. Under this agreement, the
Company should pay a fixed amount of basic fees depending on the area,
and monthly fees per subscribers. During 2002, 2003 and 2004, the
Company paid W53,215 million, W58,408 million and W53,112 million,
respectively, under this agreement. There have been disagreements
between Thrunet and Powercomm Inc. in regards to the interpretations of
these contracts. Depending on the final resolutions, the Company may
have to make additional payments to Powercomm Inc.
AMOUNTS UNDER THESE LEASE OBLIGATIONS HAVE BEEN ACCOUNTED FOR AS
PAYABLES TO POWERCOMM INC (INCLUDED IN ITEM 5.F SHOWN ABOVE).
U.S. Securities and Exchange Commission 8
D. In January 2001, the Company entered into another agreement with
Powercomm Inc., which supplements the Agreement Concerning Provision of
Facilities dated June 1997 and the Agreement on Provision of Line
Facilities and Dark Fiber dated January 2001. Under this agreement,
Powercomm Inc. and the Company agreed that the period applicable for
the minimum usage fees guaranteed to Powercomm Inc. under the agreement
on the provision of line facilities and dark fiber shall be from July
1, 2000 to June 30, 2002. The minimum usage fees applicable thereafter
shall be determined by the parties by June 30, 2002. During 2002, 2003
and 2004, the Company paid W29,640 million, W2,241 million and W2,152
million, respectively, under this agreement.
AMOUNTS UNDER THESE LEASE OBLIGATIONS HAVE BEEN ACCOUNTED FOR AS
PAYABLES TO POWERCOMM INC (INCLUDED IN ITEM 5.F SHOWN ABOVE).
E. On August 6, 2002, the Company sold HFC lease-lines to Powercomm Inc.
According to the sales contract, if the Company leases back the lines,
it must exclusively lease lines only from Powercomm Inc. for the next
ten years.
AMOUNTS UNDER THESE LEASE OBLIGATIONS HAVE BEEN ACCOUNTED FOR AS
PAYABLES TO POWERCOMM INC (INCLUDED IN ITEM 5.F SHOWN ABOVE).
F. On October 28, 2002, the Company disposed of its enterprise network
service business to SK Networks. According to the contract, the Company
is liable for any lawsuit or claims for damages related to period prior
up to the final contract date. Also, in relation to the usage of
transmission and communications equipment of KEPCO without permission,
the Company is jointly responsible with SK Networks for repair and
maintenance expenses upon request from KEPCO until December 31, 2003.
The Company must exclusively lease lines from SK Networks for the next
five years. If the Company leases back the lines, it must exclusively
lease lines from SK Networks and its affiliates.
THE LEASES ARE ON A MONTH-TO-MONTH BASIS.
G. In October 1999 and January 2000, the Company entered into agreements
with GNG Networks and SK Telecom Co., Ltd., respectively, to lease dark
fiber for lease payments based on usage. During 2000 and 2001, the
Company paid W3,421 million and W2,455 million, respectively, under
such leases, In 2003, the agreement with GNG Networks were terminated.
The Company paid W2,454 million and W2,266 million to SK Telecom co.,
Ltd in 2003 and 2004, respectively.
THE COMPANY HAS PAID ALL OF ITS LIABILITIES.
U.S. Securities and Exchange Commission 9
H. In 1998, the Company entered into an agreement with Dacom Corporation
and in 2000, the Company entered into agreements with Onse Telecom and
MCI Com to lease international private leased circuit for fixed monthly
payments. In 2001, the Company entered into an agreement with Naray
Telecom to lease international private leased circuit for fixed monthly
payments. During 2002, 2003 and 2004, the Company paid a total of
W28,626 million, W12,708 million and W680 million, respectively, under
such leases.
AS OF JANUARY 9, 2004, W665 MILLION AND W154 MILLION WERE RECOGNIZED
AS PAYABLES TO ONSE TELECOM AND DACOM CORPORATION, RESPECTIVELY, AND
INCLUDED IN "NORMAL ACCOUNT PAYABLE" IN ITEM 5.F ABOVE.
I. The Company has entered into mutual cooperation agreements with cable
television operators and distributors in relation to internet access
service marketing and paid fees by the agreements, amounting to W66,584
million, W60,076 million and W57,368 million for the years ended
December 31, 2002, 2003 and 2004, respectively.
AS OF JANUARY 9, 2004, W20,361 MILLION AND W11,721 MILLION WERE
RECOGNIZED AS THE PAYABLES TO CABLE OPERATORS AND DISTRIBUTORS,
RESPECTIVELY, AND INCLUDED IN ITEM 5.F ABOVE.
J. On December 30, 2003, the Company entered into an agreement with On
Media to dispose of its HFC Network and transferred those assets on
June 30, 2004. According to the contract, the Company is liable for any
claims for damages related to the period prior up to the final contract
date. Also, the Company must exclusively lease the HFC Network from On
Media for the next ten years. With proceeds from the sales, the Company
has repaid its borrowings from Korea Development Bank, prior to its
maturity. The Company had provided the HFC Network to Korea Development
Bank as collateral before the disposal.
AS OF JANUARY 9, 2004, W45 MILLION IS RECOGNIZED AS PAYABLES TO ON
MEDIA AND INCLUDED IN "NORMAL ACCOUNT PAYABLE" IN ITEM 5.F TABLE
ABOVE.
K. As of December 31, 2004, the Company is a defendant in 11 lawsuits
seeking approximately W420 million of damages in Korea and one class
action lawsuit along with other defendants in the United States of
America. These lawsuits are currently pending and the final outcome
cannot be determined.
THE FINAL RESULTS OF THE LAWSUITS WERE UNPREDICTABLE AT DECEMBER 31,
2004.
L. As of December 31, 2004, the Company has provided 5 blank promissory
notes
U.S. Securities and Exchange Commission 10
and 1 blank check as collateral to financial institutions in relation
to the borrowings.
THIS IS A CONTINGENT LIABILITY.
M. The Fair Trade Commission has been investigating the violation of the
Fair Trade Act by communication companies including the Company and
based on the final results of the investigation, the Fair Trade
Commission may fine the Company. The amount of the fine cannot be
determined as of December 31, 2004. The Company will pay the fine, if
any, with the reserved money financed by hanarotelecom incorporated as
explained in Note 1.
THIS IS A CONTINGENT LIABILITY.
N. Debt repayment guarantees by third parties amounting to W289,472
million are provided to the Company as of December 31, 2004.
THIS IS NOT APPLICABLE AS THE DISCLOSURE RELATES TO DEBT REPAYMENT
GUARANTEES PROVIDED BY THIRD PARTIES.
O. The Company does not provide any debt repayment guarantees for third
parties as of December 31, 2004.
THIS IS NOT APPLICABLE AS THE DISCLOSURE RELATES TO THE ABSENCE OF
ANY RELATED CONTINGENT LIABILITY.