1934 Act Registration No. 1-14418
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 MAY 2004
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SK TELECOM CO., LTD.
(Translation of registrant's name into English)
99, Seorin-dong
Jongro-gu
Seoul, Korea
(Address of principal executive offices)
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(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 whether the registrant by furnishing the
information contained in this Form 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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This report on Form 6-K shall be deemed to be incorporated by reference in
the prospectuses included in Registration Statements on Form F-3 (File Nos.
333-91034 and 333-99073) filed with the Securities and Exchange Commission and
to be a part thereof from the date on which this report is filed, to the extent
not superseded by documents or reports subsequently filed or furnished.
Included in this report on Form 6-K are our unaudited non-consolidated
financial statements as of December 31, 2003 and March 31, 2004 and for the
three months ended March 31, 2003 and 2004 prepared on the basis of financial
statements included in the reports we filed with the Financial Supervisory
Commission of Korea and the Korea Stock Exchange. Korean GAAP differs in
significant respects from U.S. GAAP.
These financial statements are non-consolidated, and therefore do not
reflect the results of operations or assets of our subsidiaries other than those
reflected under the equity method of accounting. While non-consolidated net
income reflects the results of our consolidated subsidiaries, our other
non-consolidated financial data, including operating revenue and operating
income, do not. Accordingly, we believe that while there should not be any
material differences between our net income on a non-consolidated basis and our
net income on a consolidated basis, our other financial data, including those
items noted above, may be materially different on a consolidated basis. As a
result, the financial information included in this report is not comparable with
our consolidated financial information presented in our annual reports filed on
Form 20-F.
Under Korean GAAP, our non-consolidated revenues accounted for
approximately 92.6% and 92.7% of our consolidated revenues in 2002 and 2003,
respectively, and at December 31, 2002 and 2003 our non-consolidated assets were
approximately 89.4% and 96.8% of our consolidated assets and our
non-consolidated current assets were approximated 66.8% and 85.0% of our
consolidated current assets. We can give no assurance as to what the actual
ratios will be for 2004. In addition, results of operations for the first three
months of 2004 may not be indicative of results of operations for the full year
2004.
Accounting principles and their application in practice very among
countries. The accompanying interim non-consolidated financial statements are
not intended to present the financial position, results of operations and cash
flows in accordance with accounting principles and practices generally accepted
in countries other than the Republic of Korea. Accordingly, this report and the
accompanying interim non-consolidated financial statements are for use by those
knowledgeable about Korean accounting principles and review standards and their
application in practice.
SK TELECOM CO., LTD.
NON-CONSOLIDATED BALANCE SHEETS
MARCH 31, 2004 AND DECEMBER 31, 2003
In millions of Korean won In thousands of U.S. dollars (Note 2)
------------------------- -------------------------------------
A S S E T S 2004 2003 2004 2003
----------- ----------- ----------- ----------- -----------
CURRENT ASSETS:
Cash and cash equivalents (Note 12) W 12,850 W 28,393 $ 11,206 $ 24,761
Short-term financial instruments (Note 12) 132,252 100,513 115,333 87,654
Trading securities (Notes 2 and 3) 620,642 858,739 541,242 748,879
Current portion of long-term investment securities
(Notes 2 and 3) 52,483 85,861 45,769 74,877
Accounts receivable - trade, net of allowance
for doubtful accounts of W55,877 million in
2004 and W56,805 million in 2003
(Notes 2, 12 and 21) 1,422,464 1,438,836 1,240,485 1,254,762
Short-term loans, net of allowance for doubtful
accounts of W609 million in 2004 and W516 million
in 2003 (Notes 2, 5 and 21) 60,271 51,102 52,560 44,564
Accounts receivable - other, net of allowance
for doubtful accounts of W15,775 million in 2004
and W15,979 million in 2003 (Notes 2, 12 and 21) 1,212,653 811,496 1,057,515 707,679
Inventories (Note 2) 8,308 8,024 7,245 6,997
Accrued income and other 104,100 77,742 90,783 67,797
----------- ----------- ----------- -----------
Total Current Assets 3,626,023 3,460,706 3,162,138 3,017,970
----------- ----------- ----------- -----------
NON-CURRENT ASSETS:
Property and equipment, net (Notes 2, 6, 19 and 20) 4,358,192 4,551,626 3,800,638 3,969,326
Intangible assets, net (Notes 2 and 7) 3,532,501 3,600,268 3,080,580 3,139,677
Long-term investment securities (Notes 2 and 3) 859,080 855,195 749,176 745,788
Equity securities accounted for using the equity method
(Notes 2 and 4) 693,446 563,539 604,732 491,444
Long-term loans, net of allowance for doubtful
accounts of W19,282 million in 2004 and
W19,502 million in 2003 (Notes 2, 5 and 21) 39,081 41,591 34,081 36,270
Guarantee deposits (Notes 12 and 21) 248,558 246,004 216,759 214,532
Long-term deposits and other (Notes 19 and 21) 57,674 57,030 50,296 49,734
----------- ----------- ----------- -----------
Total Non-Current Assets 9,788,532 9,915,253 8,536,262 8,646,771
----------- ----------- ----------- -----------
TOTAL ASSETS W13,414,555 W13,375,959 $11,698,400 $11,664,741
=========== =========== =========== ===========
(Continued)
SK TELECOM CO., LTD.
NON-CONSOLIDATED BALANCE SHEETS (CONTINUED)
MARCH 31, 2004 AND DECEMBER 31, 2003
In millions of Korean won In thousands of U.S. dollars (Note 2)
--------------------------- -------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 2004 2003 2004 2003
------------------------------------ ----------- ----------- ------------ -----------
CURRENT LIABILITIES:
Accounts payable (Notes 12 and 21) W 773,744 W 1,117,835 $ 674,757 $ 974,828
Short-term borrowings 575,676 728,669 502,029 635,449
Income taxes payable 405,869 399,852 353,945 348,698
Accrued expenses 366,703 401,245 319,790 349,913
Current portion of long-term debt, net
(Notes 2, 8, 9, 11 and 19) 1,134,013 1,364,264 988,936 1,189,731
Current portion of facility deposits 11,972 10,824 10,440 9,439
Currency forward contract (Notes 2 and 22) 22 - 19 -
Other (Note 21) 701,180 209,285 611,477 182,510
----------- ----------- ----------- -----------
Total Current Liabilities 3,969,179 4,231,974 3,461,393 3,690,568
----------- ----------- ----------- -----------
LONG-TERM LIABILITIES:
Bonds payable, net (Notes 2 and 8) 2,407,921 2,256,644 2,099,870 1,967,946
Long-term borrowings (Notes 9 and 19) - 1,633 - 1,424
Facility deposits (Note 10) 41,238 44,197 35,962 38,543
Long-term payables - other, net of present value
discount of W82,764 million in 2004 and
W85,881 million in 2003 (Note 2) 567,236 564,119 494,668 491,950
Accrued severance indemnities, net (Note 2) 73,867 63,663 64,417 55,518
Deferred income tax liabilities (Notes 2 and 17) 282,008 242,057 245,930 211,090
Currency swap contract (Notes 2 and 22) 4,931 - 4,300 -
Other (Note 21) 32,131 29,834 28,021 26,017
----------- ----------- ----------- -----------
Total Long-Term Liabilities 3,409,332 3,202,147 2,973,168 2,792,488
----------- ----------- ----------- -----------
Total Liabilities 7,378,511 7,434,121 6,434,561 6,483,056
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Capital stock (Notes 1 and 13) 44,639 44,639 38,928 38,928
Capital surplus (Note 13) 2,915,964 2,915,964 2,542,918 2,542,918
Retained earnings:
Appropriated (Note 14) 4,733,936 4,743,822 4,128,313 4,136,934
Unappropriated 454,049 396,527 395,961 345,798
Capital adjustments:
Treasury stock (Note 15) (2,047,105) (2,047,103) (1,785,214) (1,785,212)
Unrealized loss on valuation of long-term
investment securities (Notes 2 and 3) (160,048) (156,948) (139,573) (136,869)
Equity in capital adjustments of affiliates
(Notes 2 and 4) 90,585 41,196 78,996 35,926
Stock options (Notes 2 and 16) 4,024 3,741 3,510 3,262
----------- ----------- ----------- -----------
Total Stockholders' Equity 6,036,044 5,941,838 5,263,839 5,181,685
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY W13,414,555 W13,375,959 $11,698,400 $11,664,741
=========== =========== =========== ===========
See accompanying Notes to Non-Consolidated Financial Statements
SK TELECOM CO., LTD.
NON-CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
In millions of Korean won, In thousands of U.S. dollars,
except for per share data except for per share data (Note 2)
----------------------------- ----------------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
OPERATING REVENUE (Note 21) W 2,400,568 W 2,242,746 $ 2,093,458 $ 1,955,826
----------- ----------- ----------- -----------
OPERATING EXPENSES (Notes 2 and 21)
Labor cost (150,900) (114,660) (131,595) (99,991)
Commissions paid (651,940) (525,085) (568,536) (457,910)
Depreciation and amortization (343,203) (315,180) (299,296) (274,858)
Network interconnection (167,568) (181,112) (146,131) (157,942)
Leased line (82,001) (72,894) (71,510) (63,569)
Advertising (91,645) (92,696) (79,921) (80,837)
Cost of goods sold (322) (5,087) (281) (4,436)
Other (221,818) (185,094) (193,440) (161,414)
----------- ----------- ----------- -----------
Sub-total (1,709,397) (1,491,808) (1,490,710) (1,300,957)
----------- ----------- ----------- -----------
OPERATING INCOME 691,171 750,938 602,748 654,869
----------- ----------- ----------- -----------
OTHER INCOME:
Interest income 19,209 11,813 16,752 10,302
Dividends 17,529 85 15,286 74
Commissions (Note 21) 8,804 20,793 7,678 18,133
Foreign exchange and translation gains (Note 2) 9,479 2,453 8,266 2,139
Reversal of allowance for doubtful accounts 1,574 - 1,373 -
Gain on disposal of property, equipment
and intangible assets 57 281 50 245
Equity in earnings of affiliates (Notes 2 and 4) 23,765 - 20,725 -
Other 9,522 13,270 8,303 11,572
----------- ----------- ----------- -----------
Sub-total 89,939 48,695 78,433 42,465
----------- ----------- ----------- -----------
OTHER EXPENSES:
Interest and discounts (76,044) (86,734) (66,316) (75,638)
Donations (1,184) (3,984) (1,033) (3,474)
Foreign exchange and translation losses (Note 2) (1,900) (11,796) (1,657) (10,287)
Loss on disposal of property, equipment and
intangible assets (6,672) (2,194) (5,818) (1,913)
Loss on impairment of long-term investment
securities (Notes 2 and 3) - (16,417) - (14,317)
Loss on disposal of investment assets - (77) - (67)
Loss on disposal of equity securities
accounted for using the equity method (806) - (703) -
Equity in losses of affiliates (Notes 2 and 4) - (11,405) - (9,946)
Loss on valuation of derivative instruments
(Notes 2 and 22) (4,953) - (4,319) -
Other (19,279) (16,872) (16,812) (14,714)
----------- ----------- ----------- -----------
Sub-total (110,838) (149,479) (96,658) (130,356)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES W 670,272 W 650,154 $ 584,523 $ 566,978
----------- ----------- ----------- -----------
(Continued)
SK TELECOM CO., LTD.
NON-CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
In millions of Korean won, In thousands of U.S. dollars,
except for per share data except for per share data (Note 2)
--------------------------- ----------------------------------
2004 2003 2004 2003
--------- --------- --------- ---------
PROVISION FOR INCOME TAXES (Notes 2 and 17) (W217,757) (W201,480) ($189,899) ($175,704)
--------- --------- --------- ---------
NET INCOME W 452,515 W 448,674 $ 394,624 $ 391,274
========= ========= ========= =========
NET INCOME PER SHARE
(In Korean won and U.S. dollars) (Note 18) W 6,147 W 5,872 $ 5.36 $ 5.12
========= ========= ========= =========
See accompanying Notes to Non-Consolidated Financial Statements
SK TELECOM CO., LTD.
NON-CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
In millions of Korean won In thousands of U.S. dollars (Note 2)
------------------------- -------------------------------------
2004 2003 2004 2003
--------- --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income W 452,515 W 448,674 $ 394,624 $ 391,274
--------- --------- --------- ---------
Expenses not involving cash payments:
Depreciation and amortization 371,791 343,331 324,227 299,408
Provision for severance indemnities 16,565 11,565 14,446 10,085
Allowance for doubtful accounts 103 3,891 90 3,393
Foreign currency translation loss 1,679 11,540 1,464 10,064
Loss on disposal of property, equipment and
intangible assets 6,672 2,194 5,818 1,913
Loss on impairment of long-term investment
securities - 16,417 - 14,317
Loss on disposal of investment assets - 77 - 67
Loss on disposal of equity securities accounted for
using the equity method 806 - 703 -
Equity in losses of affiliates - 11,405 - 9,946
Loss on valuation of derivative instruments 4,953 - 4,319 -
Amortization of discounts on bonds and other 8,780 6,647 7,657 5,797
--------- --------- --------- ---------
Sub-total 411,349 407,067 358,724 354,990
--------- --------- --------- ---------
Income not involving cash receipts:
Foreign currency translation gain (9,165) (2,020) (7,993) (1,762)
Reversal of allowance for doubtful accounts (1,574) - (1,373) -
Gain on disposal of property, equipment
and intangible assets (57) (281) (50) (245)
Equity in earnings of affiliates (23,765) - (20,725) -
Other (2,546) (503) (2,219) (438)
--------- --------- --------- ---------
Sub-total (37,107) (2,804) (32,360) (2,445)
--------- --------- --------- ---------
Changes in assets and liabilities related
to operating activities:
Accounts receivable - trade 17,389 33,361 15,164 29,093
Accounts receivable - other (401,093) (294,145) (349,779) (256,514)
Inventories (285) 846 (249) 738
Deposits for group severance indemnities
and other deposits 2,412 2,523 2,103 2,200
Accrued income and other (15,981) (32,868) (13,936) (28,663)
Accounts payable (343,989) (684,235) (299,982) (596,699)
Income taxes payable 6,259 28,531 5,458 24,881
Accrued expenses (34,542) 5,258 (30,123) 4,585
Current portion of facility deposits 1,147 (19) 1,000 (17)
Other current liabilities 87,038 101,000 75,903 88,078
Deferred income taxes 39,709 4,152 34,629 3,621
Severance indemnity payments (9,290) (5,057) (8,102) (4,410)
--------- --------- --------- ---------
Sub-total (651,226) (840,653) (567,914) (733,107)
--------- --------- --------- ---------
Net Cash Provided by Operating Activities 175,531 12,284 153,074 10,712
--------- --------- --------- ---------
(Continued)
SK TELECOM CO., LTD.
NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
In millions of Korean won In thousands of U.S. dollars (Note 2)
------------------------- -------------------------------------
2004 2003 2004 2003
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash inflows from investing activities:
Decrease in trading securities W 240,628 W - $ 209,844 $ -
Decrease in current portion of long-term
investment securities 36,978 40,506 32,247 35,324
Decrease in short-term loans 20,782 12,441 18,123 10,849
Decrease in long-term financial instruments - 3 - 3
Proceeds from sales of long-term investment securities 511 730,602 446 637,134
Proceeds from sales of equity securities accounted
for using the equity method 868 1,107 757 965
Decrease in guarantee deposits 5,650 14,459 4,927 12,609
Decrease in other non-current assets 11,162 1,103 9,734 962
Proceeds from disposal of property and equipment 3,354 2,362 2,925 2,060
Proceeds from disposal of intangible assets 1 26 1 23
--------- --------- --------- ---------
Sub-total 319,934 802,609 279,004 699,929
--------- --------- --------- ---------
Cash outflows for investing activities:
Increase in short-term financial instruments (33,132) (207,877) (28,893) (181,283)
Increase of trading securities - (343,587) - (299,631)
Increase in short-term loans (2,579) (1,200) (2,249) (1,046)
Acquisition of long-term investment securities (11,096) (4,330) (9,676) (3,776)
Acquisition of equity securities accounted for using
the equity method (58,415) - (50,942) -
Increase in long-term loans (24,744) (5,430) (21,578) (4,735)
Increase in guarantee deposits and other non-current
assets (30,383) (36,038) (26,497) (31,428)
Acquisition of property and equipment (115,665) (143,324) (100,868) (124,988)
Increase in intangible assets (4,391) (4,992) (3,829) (4,353)
--------- --------- --------- ---------
Sub-total (280,405) (746,778) (244,532) (651,240)
--------- --------- --------- ---------
Net Cash Provided by Investing Activities 39,529 55,831 34,472 48,689
--------- --------- --------- ---------
(Continued)
SK TELECOM CO., LTD.
NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
In millions of Korean won In thousands of U.S. dollars (Note 2)
------------------------- -------------------------------------
2004 2003 2004 2003
--------- ---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash inflows from financing activities:
Increase in short-term borrowings, net W - W1,071,326 $ - $ 934,269
Issuance of bonds 147,510 295,829 128,639 257,983
Other 5,411 1,262 4,719 1,100
--------- ---------- --------- ----------
Sub-total 152,921 1,368,417 133,358 1,193,352
--------- ---------- --------- ----------
Cash outflows for financing activities:
Repayment of short-term borrowings - net (152,994) - (133,421) -
Repayment of current portion of long-term debt (224,435) (4,434) (195,723) (3,867)
Payment of dividends (20) - (17) -
Decrease in facility deposits (2,958) (1,602) (2,580) (1,397)
Redemption of bonds - (19,565) - (17,062)
Acquisition of treasury stock (2) (854,147) (2) (744,874)
Other (3,115) (4,398) (2,716) (3,835)
--------- ---------- --------- ----------
Sub-total (383,524) (884,146) (334,459) (771,035)
--------- ---------- --------- ----------
Net Cash Provided by (Used in) Financing Activities (230,603) 484,271 (201,101) 422,317
--------- ---------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (15,543) 552,386 (13,555) 481,718
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 28,393 6,228 24,761 5,431
--------- ---------- --------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD W 12,850 W 558,614 $ 11,206 $ 487,149
========= ========== ========= ==========
See accompanying Notes to Non-Consolidated Financial Statements
SK TELECOM CO., LTD.
NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
1. GENERAL
SK Telecom Co., Ltd. (the "Company") was incorporated in March 1984 under
the laws of Korea to engage in providing nationwide cellular telephone
communication services in the Republic of Korea. The Company's common
shares and depositary receipts (DRs) are listed on the Korea Stock Exchange
and the New York and London Stock Exchanges, respectively. As of March 31,
2004, the Company's total issued shares are held by the following :
Percentage of
Number of shares total shares issued (%)
---------------- -----------------------
SK Group 19,801,717 24.07
POSCO Corp. 4,098,496 4.98
Institutional investors and other minority shareholders 49,714,083 60.42
Treasury stock 8,662,415 10.53
---------- ------
82,276,711 100.00
========== ======
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying non-consolidated financial statements of the Company have
been prepared in accordance with Korean Financial Accounting Standards and
Statements of Korea Accounting Standards ("SKAS") No.1 through No.10, No.12
and No.13, using the same accounting policies which were adopted in
preparing the annual financial statements, and significant accounting
policies followed in preparing the accompanying non-consolidated financial
statements are summarized as follows.
a. Basis of Presentation
The accompanying non-consolidated financial statements have been
prepared in the Korean language (Hangul) in conformity with the
accounting principles generally accepted in the Republic of Korea
("Korean GAAP"). 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
non-consolidated financial statements have been condensed,
restructured and translated into English from the Korean language
financial statements. Certain information included in the Korean
language financial statements, but not required for a fair
presentation of the Company's financial position, results of
operations or cash flows, is not presented in the accompanying
non-consolidated financial statements.
The official accounting records of the Company are maintained and
expressed in Korean won, the currency of the country in which the
Company is incorporated and operates. The translations of Korean won
amounts into U.S. dollar amounts in the accompanying non-consolidated
financial statements are included solely for the convenience of
readers outside of Korea and have been made at the rate of W1,146.7 to
US$1, the Noon Buying Rate in the City of New York for cable transfers
in Korean won as certified for customs purposes by the Federal Reserve
Bank of New York on the last business day of the three months ended
March 31, 2004. Such translations into U.S. dollars should not be
construed as representations that the Korean won amounts could be
converted into U.S. dollars at the above or any other rate.
b. Allowance for Doubtful Accounts
An allowance for doubtful accounts is maintained based on the
estimated collectibility of individual accounts and historical bad
debt experience.
c. Inventories
Inventories, which consist mainly of replacement units for wireless
telecommunication facilities and supplies for sales promotion, are
stated at the lower of cost or market value, with cost determined
using the moving average method. During the year, perpetual inventory
systems are used to value inventories, which are adjusted to physical
inventory counts performed at the end of the year. When the market
value of inventories is less than the acquisition cost, carrying
amount shall be reduced to the market value and any difference is
changed to operation expenses. There was no such valuation loss for
the three months ended March 31, 2004 and 2003.
d. Securities (excluding securities accounted for using the equity method
of accounting)
Debt and equity securities are initially recorded at their acquisition
costs (fair value of considerations paid) including incidental cost
incurred in connection with acquisition of the related securities and
classified into trading, available-for-sale and held-to-maturity
securities depending on the acquisition purpose and nature.
Trading securities are stated at fair value with gains or losses on
valuation reflected in current operations.
Securities classified as available-for-sale are reported at fair
value. Unrealized gains or losses on valuation of available-for-sale
securities are included in capital adjustments and the unrealized
gains or losses are reflected in net income when the securities are
sold or if an impairment is other than temporary as discussed below.
Equity securities are stated at acquisition cost if fair value cannot
be reliably measured. If the declines in the fair value of individual
available-for-sale securities below their acquisition or amortized
cost are other than temporary and there is objective evidence of
impairment, write-downs of the individual securities are recorded to
reduce the carrying value to their fair value. The related write-downs
are recorded in current operations as a loss on impairment of
investment securities.
Held-to-maturity securities are presented at acquisition cost after
premiums or discounts for debt securities are amortized or accreted,
respectively. The Company recognizes write-downs resulting from the
other-than-temporary declines in the fair value below its book value
on the balance sheet date if there is objective evidence of
impairment. The related write-downs are recorded in current operations
as a loss on impairment of investment securities.
Trading securities are presented in the current asset section of the
balance sheet, and available-for-sales and held-to-maturity securities
are presented in the current and/or non-current asset section of the
balance sheet as long-term investment securities, based on their
maturities from the balance sheet date.
e. Investment Securities with 20% or More Ownership Interest
Investment securities of affiliated companies, in which the Company
has a 20% or more ownership interest, are carried using the equity
method of accounting, whereby the Company's initial investment is
recorded at cost and the carrying value is subsequently increased or
decreased to reflect the Company's portion of shareholders' equity of
the investee. Differences between the purchase cost and net asset
value of the investee are amortized over 20 years using the
straight-line method. When applying the equity method of accounting,
unrealized intercompany gains and losses are eliminated and the effect
of eliminations is reflected in the investment securities account.
f. Property and Equipment
Property and equipment are stated at cost. Major renewals and
betterments, which prolong the useful life or enhance the value of
assets, are capitalized; expenditures for maintenance and repairs are
charged to expense as incurred.
Depreciation is computed using the declining balance method (except
for buildings and structures acquired on or after January 1, 1995
which are depreciated using the straight-line method) over the
estimated useful lives (4-30 years) of the related assets.
Interest expense and other financing charges for borrowings related to
the manufacture or construction of property and equipment are charged
to current operations as incurred.
g. Intangible Assets
Intangible assets are recorded at cost, net of accumulated
amortization computed using the straight-line method over 5 to 20
years. The amortization for the three months ended March 31, 2004 and
2003 was W76,554 million and W45,915 million, respectively.
With its application for a license to provide IMT service, the Company
has a commitment to pay W1,300,000 million to the Ministry of
Information Communication ("MIC"). W650,000 million was paid in March
2001 by SK IMT Co., Ltd. (a former subsidiary of the Company), which
was merged into the Company on May 1, 2003, and the remainder is
required to be paid over 10 years with an annual interest rate equal
to the 3-year-maturity government bond rate minus 0.75% (3.80% as of
March 31, 2004). On December 4, 2001, SK IMT Co., Ltd. received the
IMT license from the MIC, and recorded the total license cost as an
intangible asset. As a result of the merger with SK IMT Co., Ltd., the
Company acquired such IMT license of W1,259,253 million and assumed
the related long-term payable with a principal amount of W650,000
million on May 1, 2003 (the date of merger). Amortization of the IMT
license commenced when the Company started its commercial IMT service
in December 2003, using the straight-line method over the estimated
useful life of the IMT license which expires in December 2016.
h. Discounts on Bonds and Long-term Payables
Discounts on bonds and long-term payables are amortized to interest
expense using the effective interest rate method over the redemption
period of the bonds and long-term payables.
i. Valuation of Long-term Payables
Long-term payables resulting from long-term installment transactions
are stated at the present value of the expected future cash flows.
Imputed interest amounts are recorded in present value discount
accounts which are deducted directly from the related nominal payable
balances. Such imputed interest is included in operations using the
effective interest rates method over the redemption period.
j. Accrued Severance Indemnities
In accordance with the Company's policy, all employees with more than
one year of service are entitled to receive severance indemnities,
based on length of service and rate of pay, at termination. Accruals
for severance indemnities are recorded to approximate the amount
required to be paid if all employees were to terminate at the balance
sheet date.
The Company has deposits with insurance companies to fund the portion
of the employees' severance indemnities which is in excess of the tax
deductible amount allowed under the Corporate Income Tax Law, in order
to take advantage of the additional tax deductibility for such
funding. Such funding of severance indemnities in outside insurance
companies, of which the beneficiary is its employees, totaling
W136,410 million and W138,839 million as of March 31, 2004 and
December 31, 2003 , respectively, is deducted from accrued severance
indemnities.
In accordance with the Korean National Pension Fund Law, the Company
transferred a portion of its accrued severance indemnities to the
Korean National Pension Fund through March 1999. Such transfers,
amounting to W6,037 million and W6,148 million as of March 31, 2004
and December 31, 2003, respectively, are deducted from accrued
severance indemnities.
Actual payment of severance indemnities amounted to W9,290 million and
W5,057 million for the three months ended March 31, 2004 and 2003,
respectively.
k. Accounting for Employee Stock Option Compensation Plan
The Company adopted the fair value based method of accounting for its
employee stock option compensation plan. Under the fair value based
method, compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period. For
stock options, fair value is determined using an option-pricing model
that takes into account the stock price at the grant date, the
exercise price, the expected life of the option, the volatility of the
underlying stock, expected dividends and the current risk-free
interest rate for the expected life of the option. However, as
permitted under Korean GAAP, the Company excludes the volatility
factor in estimating the value of its stock options, which results in
measurement at minimum value. The total compensation cost of an option
estimated at the grant date is not subsequently adjusted for changes
in the price of the underlying stock or its volatility, the actual
life of the option, dividends on the stock, or the risk-free interest
rate.
l. Accounting for Leases
Lease agreements that include a bargain purchase option, result in the
transfer of ownership at the end of the lease term, have a lease term
equal to 75% or more of the estimated economic life of the leased
property or where the present value of minimum lease payments equals
or exceeds 90% of the fair value of the leased property, are accounted
for as capital leases. All other leases are accounted for as operating
leases.
Assets and liabilities related to capital leases are recorded as
property and equipment and obligations under capital leases,
respectively, and the related interest is calculated using the
effective interest rate method and charged to expense. For operating
leases, the future minimum lease payments are expensed ratably over
the lease term while contingent rentals are expensed as incurred.
m. Research and Development Costs
The Company charges substantially all research and development costs
to expense as incurred. The Company incurred internal research and
development costs of W46,219 million and W47,784 million for the three
months ended March 31, 2004 and 2003, respectively, and external
research and development costs of W17,770 million and W16,119 million
for the three months ended March 31, 2004 and 2003, respectively.
n. Accounting for Foreign Currency Transactions and Translation
Transactions denominated in foreign currencies are recorded in Korean
won translated at the exchange rate prevailing on the transaction
date. Monetary assets and liabilities denominated in foreign currency
are translated into Korean won at the Base Rates announced by Seoul
Money Brokerage Services, Ltd. on the balance sheet date, which were,
for US dollars, W1,153.60=US$1 and W1,197.80=US$1 at March 31, 2004
and December 31, 2003, respectively. Gains or losses arising from the
settlement of foreign currency transactions and the translation of
foreign currency assets and liabilities are charged or credited to
current operations.
o. Derivative Instruments
The Company records rights and obligations arising from derivative
instruments as assets and liabilities, which are stated at fair value.
The gains and losses that are resulted from the change in the fair
value of derivative instruments are charged or credited to current
operations.
p. Deferred Income Taxes
Deferred tax assets and liabilities are recorded for future tax
consequences of operating loss carryforwards, tax credits and
temporary differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases.
Deferred tax assets are recognized to the extent that they are
expected to be realizable. Deferred tax assets and liabilities are
presented on the balance sheet as a single non-current net number.
q. Adoption of New Statements of Korea Accounting Standards ("SKAS")
On January 1, 2004, the Company adopted SKAS No.10, No.12 and No.13,
which are effective from the fiscal year starting after December 31,
2003. Such adoptions of new SKAS did not have an effect on the
financial position of the Company as of March 31, 2004 or ordinary
income and net income of the Company for the three months ended March
31, 2004.
r. Reclassification of Prior Period's Financial Statements
Certain reclassifications have been made in prior period's
non-consolidated financial statements to conform to classifications
used in the current period. Such reclassifications did not have an
effect on the financial positions of the Company as of December 31,
2003 or ordinary income and net income for the three months ended
March 31, 2003.
3. INVESTMENT SECURITIES
a. TRADING SECURITIES
Trading securities as of March 31, 2004 and December 31, 2003 are as
follows (in millions of Korean won) :
March 31, 2004 December 31, 2003
----------------------------------------------------- -----------------
Fair value and
Acquisition cost Fair value Carrying amount carrying amount
---------------- ---------- --------------- -----------------
Beneficiary certificates W620,642 W620,642 W620,642 W858,739
======== ======== ======== ========
b. LONG-TERM INVESTMENT SECURITIES
Long-term investment securities as of March 31, 2004 and December 31,
2003 are as follows (in millions of Korean won) :
March 31, 2004 December 31, 2003
-------------- -----------------
Available-for-sale securities :
Equity securities 797,178 800,790
Debt securities 15,502 13,919
------- -------
Sub-total 812,680 814,709
Held-to-maturity securities 98,883 126,347
------- -------
Total 911,563 941,056
Less current portion (52,483) (85,861)
------- -------
Long-term portion 859,080 855,195
======= =======
Available-for-sale equity securities as of March 31, 2004 and December
31, 2003 are as follows (in millions of Korean won, except for share
data) :
December 31,
March 31, 2004 2003
------------------------------------------------------------------ ------------
Number Ownership Acquisition Fair Carrying Carrying
of shares percentage (%) cost value amount amount
--------- -------------- ----------- --------------- -------- ------------
(INVESTMENTS IN LISTED COMPANIES)
Digital Chosunilbo Co., Ltd. 2,890,630 10.1 W 5,781 W 2,327 W 2,327 W 2,847
Hanaro Telecom Inc. 8,220,000 1.8 82,307 27,044 27,044 26,838
Korea Radio Wave Basestation
Management 234,150 4.5 1,171 2,365 2,365 2,669
POSCO Corporation 2,481,310 2.7 332,662 401,972 401,972 404,454
-------- --------
sub-total 433,708 436,808
-------- --------
(INVESTMENTS IN NON-LISTED COMPANIES)
Powercomm Co., Ltd. 7,500,000 5.0 240,243 68,407 68,407 68,407
Real Telecom Co., Ltd. 398,722 8.3 5,981 (note 1) 5,981 5,981
Japan MBCO 84,000 13.6 42,517 (note 1) 42,517 42,517
Enterprise Networks Co., Ltd. 423,244 4.0 14,438 (note 1) 14,438 14,438
Others 59,291 (notes 1 and 2) 35,722 35,722
-------- --------
sub-total 167,065 167,065
-------- --------
(INVESTMENTS IN FUNDS)
Korea IT Fund 190,000 (note 1) 190,000 190,000
Others 6,405 (note 1) 6,405 6,917
-------- --------
sub-total 196,405 196,917
-------- --------
Total W797,177 W800,790
======== ========
(note 1) As a reasonable estimate of fair value could not be made
without incurring excessive costs, it is stated at
acquisition cost.
(note 2) Due to the impairment of the Company's investments in common
stock of SK Group Japan Co., Ltd., CCK Van, Biznet Tech,
Hanse Telecom, Cybird Korea and Venture Korea, an impairment
loss of W20,343 million (W16,417 million, W2,300 million and
W1,626 million for the first, the second and the fourth
quarter of 2003, respectively) was recorded for the year
ended December 31, 2003.
The net unrealized gain on investments in common stock of Digital
Chosunilbo Co., Ltd., Hanaro Telecom Inc, Korea Radio Wave Basestation
Management and POSCO Corporation totaling W11,787 million and W14,888
million as of March 31, 2004 and December 31, 2003, respectively, were
recorded as a capital adjustment.
The Company recorded its investments in common stock of Powercomm Co.,
Ltd. at its fair value, which was estimated by an outside professional
valuation company using the present value of expected future cash
flows, and the unrealized loss on valuation of investments amounting
to W171,836 million as of December 31, 2003 was recorded as a capital
adjustment. Based on the advice of the outside professional valuation
company that there would not have been any significant change which
had an effect on the fair value of Powercomm Co., Ltd. for the three
months ended March 31, 2004, no additional unrealized loss (or gain)
on valuation of such investments was recorded.
Available-for-sale debt securities as of March 31, 2004 and December
31, 2003 are as follows (in millions of Korean won) :
December 31,
March 31, 2004 2003
---------------------------------------- ------------
Acquisition Carrying Carrying
Maturity cost amount amount
------------ ----------- -------- ------------
Public bonds (note 1) W 1,246 W 1,246 W 805
Convertible bonds of Real Telecom Co., Ltd.
(note 2) March 2007 10,656 10,656 9,514
Convertible bonds of Eonex Technologies,
Inc.(3rd) (note 3) January 2005 3,600 3,600 3,600
------- -------
Total 15,502 13,919
Less current portion of available-for-sale
debt securities (3,600) (9,514)
------- -------
Long-term available-for-sale debt securities W11,902 W 4,405
======= =======
(note 1) The maturities of public bonds as of March 31, 2004 and
December 31, 2003 are as follows (in millions of Korean won):
Maturity March 31, 2004 December 31, 2003
-------- -------------- -----------------
Within one year W - W -
Within five years 825 738
Within ten years 421 67
------ ----
W1,246 W805
====== ====
(note 2) The convertible bonds of Real Telecom Corp. with a principal
amount of W10,656 million can be converted into 371,018
shares of common stock of Real Telecom Corp. at W28,721
per share over the period from September 29, 2004 to March
29, 2005. If such bonds are converted, the Company's equity
interest in Real Telecom Corp. will increase to 14.8%.
(note 3) The convertible bonds of Eonex Technologies, Inc. (3rd) with
a principal amount of W3,600 million can be converted
into 48,000 shares of common stock of Eonex Technologies,
Inc. at W75,000 per share over the period from July 30, 2003
to January 29, 2005. If such bonds are converted, the
Company's equity interest in Eonex Technologies, Inc. will
increase to 20.4%.
Held-to-maturity securities as of March 31, 2004 and December 31, 2003
are as follows (in millions of Korean won) :
December 31,
March 31, 2004 2003
------------------------------------------ ------------
Acquisition Carrying Carrying
Maturity cost amount amount
-------------- -------------- -------- ------------
Subordinated bonds of
SK Life Insurance Co., Ltd. April 2006 W50,000 W 50,000 W 50,000
Subordinated bonds of Nate Third Special
Purpose Company (notes 1 and 2) May 2004 - - 27,464
Subordinated bonds of Nate Fourth Special
Purpose Company (note 2) September 2004 25,393 25,393 25,393
Subordinated bonds of Nate Fifth Special
Purpose Company (note 2) December 2004 23,490 23,490 23,490
------- -------
Total 98,883 126,347
Less current portion of held-to-maturity
securities (48,883) (76,347)
-------- --------
Long-term held-to-maturity securities W 50,000 W 50,000
======== ========
(note 1) Subordinated bonds of Nate Third Special Purpose Company were
early repaid in February 2004 as the Nate Third Special
Purpose Company was liquidated earlier.
(note 2) On May 2, 2003, September 4, 2003 and December 15, 2003, the
Company sold W577,253 million, W549,256 million and W498,426
million, respectively, of accounts receivable resulting from
its mobile phone dealer financing plan to Nate Third Special
Purpose Company, Nate Fourth Special Purpose Company and Nate
Fifth Special Purpose Company, respectively, in asset-backed
securitization transactions. In the course of these
transactions, the Company acquired subordinate bonds issued
by such special purpose companies, in order to enhance the
credit of bonds issued by them (See note 19.(b)).
4. EQUITY SECURITIES ACCOUNTED FOR USING THE EQUITY METHOD
Equity securities accounted for using the equity method as of March 31,
2004 and December 31, 2003 are as follows (in millions of Korean won,
except for share data):
March 31, 2004 Carrying Amount
--------------------------------------------------- --------------------------
Number of Ownership Acquisition Net asset March 31, December 31,
shares percentage (%) cost value 2004 2003
---------- -------------- ----------- --------- --------- ------------
SK Teletech Co., Ltd. 6,747,421 89.1 W 80,483 W 168,817 W177,141 W104,340
SK Capital Co., Ltd. 10,000,000 100.0 50,000 45,861 (note 1) 45,861 45,865
SK Communications Co., Ltd. 7,582,135 89.1 168,673 99,091 121,898 120,706
SK Telink Co., Ltd. 943,997 90.8 5,296 46,326 46,326 43,452
SK C&C Co., Ltd. 300,000 30.0 19,071 137,229 142,809 93,433
SK Wyverns Baseball Club Co., Ltd. 199,997 100.0 1,000 - (note 2) - -
STIC Ventures Co., Ltd. 1,600,000 24.1 8,000 7,087 (note 1) 7,087 7,098
Paxnet Co., Ltd. 5,590,452 67.1 26,563 5,603 25,718 25,712
VCASH Co., Ltd. 750,000 23.2 3,750 701 701 942
Global Credit & Information Corp. 300,000 50.0 2,410 2,061 (note 1) 2,773 2,773
WiderThan. Com Co., Ltd. 200,000 20.0 1,000 3,188 (note 1) 3,188 3,166
DSS Mobile Communications Ltd. 10,915,000 29.5 2,494 - (note 2) - -
SLD Telecom PTE. Ltd. 29,294,100 53.8 35,773 26,409 (note 1) 26,409 24,701
Skytel Co., Ltd. 1,756,000 28.6 2,159 3,401 (note 1) 3,401 3,053
SK China Company Ltd. 28,160 20.7 3,195 1,684 (note 1) 1,684 2,187
SK Telecom International, Inc. 1,099 100.0 17,467 19,883 (note 1) 19,883 18,963
TU Media Corp. 7,800,000 32.1 39,000 37,995 37,995 39,000
Centurion IT Investment association 37.5 3,000 3,126 (note 1) 3,126 3,126
SK-QC Wireless Development Fund 50.0 6,540 5,901 (note 1) 5,901 5,906
SKT-HP Ventures, LLC 50.0 6,415 5,960 (note 1) 5,960 5,964
Other investments in affiliates 16,085 (note 3) 15,585 13,152
-------- --------
Total W693,446 W563,539
======== ========
(note 1) Net asset value was calculated based on the financial statements as of
December 31, 2003, as the information as of March 31, 2004 was not
available and the change in the Company's portion of shareholders'
equity of the investee for the three months ended March 31, 2004 was
not expected to be material.
(note 2) DSS Mobile Communication, an Indian company, has had a deficiency in
assets since March 31, 1998. SK Wyverns Baseball Club Co., Ltd. has
had a deficiency in assets since December 31, 2001.
(note 3) As allowed under Korean financial accounting standards, investments in
equity securities of Aircross Co., Ltd. and certain others were not
accounted for using the equity method of accounting, as their total
assets at December 31, 2003 were less than W7 billion.
Details of the changes in investments in affiliates accounted for using the
equity method for the three months ended March 31, 2004 and 2003 are as follows
(in millions of Korean won):
For the three months ended March 31, 2004
------------------------------------------------------------------
Beginning
balance or Equity in Equity in
acquisition earnings capital Dividend Ending
cost (losses) adjustments received balance
----------- --------- ----------- -------- --------
SK Teletech Co., Ltd. W159,267 W17,874 W - W - W177,141
SK Capital Co., Ltd. 45,865 (4) - - 45,681
SK Communications Co., Ltd 120,718 (2,521) 3,701 - 121,898
SK Telink Co., Ltd. 43,452 2,874 - - 46,326
SK C&C Co., Ltd. 93,433 4,341 45,635 (600) 142,809
STIC Ventures Co., Ltd. (note 1) 7,098 (11) - - 7,087
Paxnet Co., Ltd. 25,712 (41) 47 - 25,718
VCASH Co., Ltd. 943 (242) - - 701
Global Credit & Information Corp. (note 1) 2,773 - - - 2,773
TU Media Corp. 39,000 (1,178) 173 - 37,995
WiderThan. Com Co., Ltd. (note 1) 3,166 49 (27) - 3,188
SLD Telecom PTE. Ltd. (note 1) 24,701 2,056 (348) - 26,409
Skytel Co., Ltd. (note 1) 3,053 195 172 (19) 3,401
SK China Co., Ltd. (note 1) 2,187 (568) 65 - 1,684
SK Telecom International Inc. (note 1) 18,963 915 5 - 19,883
Centurion IT investment association (note 1) 3,125 1 - - 3,126
SK-QC Wireless Development Fund (note 1) 5,906 (5) - - 5,901
SKT-HP Ventures, LLC (note 1) (note 1) 5,964 30 (34) - 5,960
-------- ------- ------- ----- --------
W605,326 W23,765 W49,389 (W619) W677,861
======== ======= ======= ===== ========
(note 1) Investments in equity securities are carried using the equity method
of accounting based on the financial statements as of December 31,
2003, as information as of March 31, 2004 was not available and the
change of the Company's portion of shareholders' equity of the
investee for the three months ended March 31, 2004 was not material.
For the three months ended March 31, 2003
-------------------------------------------------------------------
Beginning Equity in Equity in
balance or earnings capital Dividend Ending
acquisition cost (losses) adjustments received balance
---------------- --------- ----------- -------- ----------
SK IMT Co., Ltd. W1,014,647 W 3,018 W - W - W1,017,665
SK Teletech Co., Ltd. (note 1) 87,286 2,514 - - 89,800
SK Capital Co., Ltd. (note 1) 57,535 (3,644) - - 53,891
SK Communications Co., Ltd (note 1) 78,752 (2,539) (2,378) - 73,835
SK Telink Co., Ltd. (note 1) 36,395 (350) - - 36,045
SK C&C Co., Ltd. 53,971 (10,936) (18,637) (600) 23,798
STIC Ventures Co., Ltd. (note 1) 7,648 (717) 1 - 6,932
Paxnet Co., Ltd. (note 1) 26,563 (268) - - 26,295
VCASH Co., Ltd. 2,008 (273) - - 1,735
Eonex Technologies, Inc. (note 1) 4,618 (26) - - 4,592
Global Credit & Information Corp. (note 1) 2,477 211 - - 2,688
WiderThan. Com Co., Ltd. (note 1) 1,665 82 3 - 1,750
SLD Telecom PTE. Ltd. (note 1) 11,076 (1,056) (289) - 9,731
Skytel Co., Ltd. (note 1) 2,784 34 (242) - 2,576
SK China Co., Ltd. (note 1) 3,500 (22) 4 - 3,482
SK Telecom International Inc. (note 1) 13,693 2,559 (1,088) - 15,164
Centurion IT investment association (note 1) 3,064 4 - - 3,068
SKT-QC Wireless Development Fund (note 1) 5,979 16 (1) - 5,994
SKT-HP Ventures, LLC (note 1) 6,415 (12) (413) - 5,990
---------- -------- -------- ----- ----------
W1,420,076 (W11,405) (W23,040) (W600) W1,385,031
========== ======== ======== ===== ==========
(note 1) Investments in equity securities are carried using the equity method
of accounting based on the financial statements as of December 31,
2002, as the information as of March 31, 2003 was not available and
the change of the Company's portion of shareholders' equity of the
investee for the three months ended March 31, 2003 was not material.
5. LOANS TO EMPLOYEES
Short-term and long-term loans to employees as of March 31, 2004 and
December 31, 2003 are as follows (in millions of Korean won):
March 31, 2004
------------------------------------- December 31,
Short-term Long-term Total 2003
---------- --------- ------- ------------
Loans to employees' stock ownership association W4,616 W24,152 W28,768 W33,788
Loans to employees for housing and other 116 615 731 769
------ ------- ------- -------
W4,732 W24,767 W29,499 W34,557
====== ======= ======= =======
6. PROPERTY AND EQUIPMENT
Property and equipment as of March 31, 2004 and December 31, 2003 are as
follows (in millions of Korean won):
Useful lives
(years) March 31, 2004 December 31, 2003
------------ -------------- -----------------
Land - W 444,791 W 446,574
Buildings and structures 30,15 1,071,193 1,077,479
Machinery 6 8,381,696 8,348,633
Vehicles 4 21,005 18,860
Other 4 680,983 743,219
Construction in progress - 424,626 309,564
----------- -----------
11,024,294 10,944,329
Less accumulated depreciation (6,666,102) (6,392,703)
----------- -----------
Property and equipment, net W 4,358,192 W 4,551,626
=========== ===========
The government declared standard value of land owned for the purpose of
taxes and policy as of March 31, 2004 and December 31, 2003 is
W392,985 million and W393,683 million, respectively.
Details of change in property and equipment for the three months ended
March 31, 2004 and 2003 are as follows (in millions of Korean won):
For the three months ended March 31, 2004
-----------------------------------------------------------------------------
Beginning Ending
balance Acquisition Disposal Transfer Depreciation balance
---------- ----------- --------- ---------- ------------ ----------
Land W 446,574 W 33 (W 1,816) W - W - W 444,791
Buildings and structures 840,237 58 (5,852) 131 (10,349) 824,225
Machinery 2,625,306 4,178 (503) 46,858 (264,644) 2,411,195
Vehicles 3,836 2,274 (5) - (543) 5,562
Other 326,109 45,516 (1,789) (102,342) (19,701) 247,793
Construction in progress 309,564 63,606 - 51,456 - 424,626
---------- -------- -------- ---------- ---------- ----------
Total W4,551,626 W115,665 (W 9,965) (W 3,897) (W 295,237) W4,358,192
========== ========= ======== ========== ========== ==========
For the three months ended March 31, 2003
------------------------------------------------------------------------------
Beginning Ending
balance Acquisition Disposal Transfer Depreciation balance
---------- ----------- --------- ---------- ------------ ----------
Land W 439,915 W 15 (W 1,386) W 726 W - W 439,270
Buildings and structures 778,832 28 (1,411) 7,607 (9,503) 775,553
Machinery 2,432,552 17,801 (400) 316,657 (267,254) 2,499,356
Vehicles 6,095 502 (90) - (691) 5,816
Other 449,091 73,571 (848) (176,758) (19,969) 325,087
Construction in progress 345,063 51,407 - (162,512) - 233,958
---------- -------- -------- ---------- ---------- ----------
Total W4,451,548 W143,324 (W 4,135) (W 14,280) (W 297,417) W4,279,040
========== ======== ======== ========== ========== ==========
7. INTANGIBLE ASSETS
Intangible assets as of March 31, 2004 and December 31, 2003 are as follows
(in millions of Korean won):
March 31, 2004 December 31, 2003
-------------------------------------------- -----------------
Acquisition Accumulated Carrying Carrying
cost amortization amounts amounts
----------- ------------ ---------- -----------------
Goodwill W2,335,532 (W289,489) W2,046,043 W2,078,208
Software development costs 212,826 (89,309) 123,517 133,833
IMT license 1,259,253 (31,901) 1,227,352 1,251,278
Other 308,688 (173,099) 135,589 136,949
---------- --------- ---------- ----------
W4,116,299 (W583,798) W3,532,501 W3,600,268
========== ========= ========== ==========
Details of changes in intangible assets for the three months ended March
31, 2004 and 2003 are as follows (in millions of Korean won):
For the three months ended March 31, 2004
-------------------------------------------------------------------------
Beginning Ending
balance Increase Decrease Transfer Amortization balance
---------- -------- -------- -------- ------------ ----------
Goodwill W2,078,208 W - W - W - (W32,165) W2,046,043
Software development costs 133,833 258 - - (10,574) 123,517
IMT license 1,251,278 - - - (23,926) 1,227,352
Other 136,949 4,133 (4) 4,400 (9,889) 135,589
---------- ------ --- ------ -------- ----------
W3,600,268 W4,391 (W4) W4,400 (W76,554) W3,532,501
========== ====== === ====== ======== ==========
For the three months ended March 31, 2003
--------------------------------------------------------------------------
Beginning Ending
balance Increase Decrease Transfer Amortization balance
---------- -------- -------- -------- ------------ ----------
Goodwill W2,206,870 W - W - W - (W32,165) W2,174,705
Software development costs 88,303 3,766 - 14,442 (6,987) 99,524
Other 95,177 1,226 (167) 363 (6,762) 89,837
---------- ------ ----- ------- -------- ----------
W2,390,350 W4,992 (W167) W14,805 (W45,914) W2,364,066
========== ====== ===== ======= ======== ==========
The book value as of March 31, 2004 and residual useful lives of major
intangible assets are as follows (in millions of Korean won):
Residual useful
Amount Description lives
---------- --------------------------------------- ---------------
Goodwill W2,046,043 Goodwill related to acquisition
of Shinsegi Telecomm, Inc. 16 years
Development costs 123,517 Software for business use 1 ~ 5 years
IMT license 1,227,352 License successed from SK IMT Co., Ltd. (note)
(note) Amortization of the IMT license commenced when the Company started its
commercial IMT service in December 2003, using the straight-line
method over the estimated useful life (13 years) of the IMT license
which expires in December 2016.
8. BONDS PAYABLE
Bonds payable as of March 31, 2004 and December 31, 2003 are as follows (in
millions of Korean won and thousands of U.S. dollars):
Final Annual interest March 31, December 31,
Maturity year rate (%) 2004 2003
------------- --------------- ----------- ------------
Domestic general bonds 2004 5.0 - 6.0 W 900,000 W 1,120,000
" 2005 6.0 500,000 500,000
" 2006 5.0 - 6.0 800,000 800,000
" 2007 5.0 - 6.0 700,000 700,000
" 2008 5.0 300,000 300,000
" 2009 5.0 150,000 -
Dollar denominated bonds (US$200,078) 2004 7.75 230,810 239,653
----------- -----------
Total 3,580,810 3,659,653
Less: discounts on bonds (44,604) (47,495)
----------- -----------
Net 3,536,206 3,612,158
Less: portion due within one year (1,128,285) (1,355,514)
----------- -----------
Long-term portion W 2,407,921 W 2,256,644
=========== ===========
All of the above bonds will be paid in full at maturities.
9. LONG-TERM BORROWINGS
Long-term borrowings denominated in foreign currency as of March 31, 2004
and December 31, 2003 are as follows (in millions of Korean won and
thousands of U.S. dollars):
Final Annual interest March December
Lender maturity year rate (%) 31, 2004 31, 2003
-------------------------------- ------------- ------------------- -------- --------
Korea Development Bank 2004 3M Libor + 3.45 US$2,239 US$4,478
Woori Bank 2005 Floating rate + 0.2 2,726 4,089
-------- --------
Total in foreign currency US$4,965 US$8,567
-------- --------
Equivalent in Korean won W 5,728 W 10,262
Less portion due within one year (5,728) (8,629)
-------- --------
Long-term portion W - W 1,633
======== ========
At March 31, 2004, the London inter-bank offered rate (3M) and floating
rate of Woori Bank are 1.12% and 2.21%, respectively.
The future maturities of long-term borrowings at March 31, 2004 are as
follows (in millions of Korean won and thousands of U.S. dollars):
Long-term borrowings in foreign currency
Year ending -------------------------------------------
March 31, Foreign currency Korean won equivalent
----------- ---------------- ---------------------
2005 US$4,965 W5,728
======== ======
10. FACILITY DEPOSITS
The Company receives facility guarantee deposits from customers of cellular
services at the subscription date. The Company has no obligation to pay
interest on these deposits and returns all amounts to subscribers upon
termination of the subscription contract.
Long-term facility guarantee deposits by service type held as of March 31,
2004 and December 31, 2003 are as follows (in millions of Korean won except
deposit per subscriber amounts):
Deposit
Service type per subscriber March 31, 2004 December 31, 2003
-------------------- -------------- -------------- -----------------
Cellular W200,000 W41,238 W44,197
======= =======
The Company offers existing and new cellular subscribers the option of
obtaining facility insurance from Seoul Guarantee Insurance Company
("SGIC") in lieu of the facility deposit (The Company has been charged for
the facility insurance since August 1, 2002, for which subscribers had been
charged until then). Existing subscribers who elect this option are
refunded their facility deposits. As a result, the balance of facility
guarantee deposits has been decreasing.
11. LEASES
As the Company merged with Shinsegi Telecomm, Inc. in January 2002, certain
capital leases made by Shinsegi Telecomm, Inc. were transferred to the
Company. The Company has an option to acquire the leased machinery and
equipment, free of charge, upon termination of the lease period.
Depreciation expense for the three months ended March 31, 2004 and 2003
were W37 million and W63 million, respectively. For the three months ended
March 31, 2004, all capital leases were terminated and the Company acquired
the related leased machinery free of charge.
The obligation under capital leases that was recorded as current portion of
long-term debt as of December 31, 2003 was US$101,000 (Korean won
equivalent: W121 million).
As the Company merged with Shinsegi Telecomm, Inc., certain operating lease
made by Shinsegi Telecomm, Inc. was transferred to the Company and the
related lease expenses for the three months ended March 31, 2004 and 2003
were W261 million and W830 million, respectively. This operating lease was
terminated in the 1st quarter of 2004.
12. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES
The details of monetary assets and liabilities denominated in foreign
currencies (except for bonds payable and long-term borrowings denominated
in foreign currencies described in Notes 8 and 9) as of March 31, 2004 and
December 31, 2003 are as follows (in millions of Korean won, thousands of
U.S. dollars, thousands of HK dollars, thousands of Japanese yen, thousands
of Great Britain pounds, thousands of Chinese yuan, thousands of Singapore
dollars, thousands of Australian dollars, thousands of Swiss Franc,
thousands of Denmark Krone, thousands of Euros and thousands of Indonesian
Rupiah):
March 31, 2004 December 31, 2003
-------------------------- ---------------------------
Foreign Korean won Foreign Korean won
currencies equivalent currencies equivalent
---------- ---------- ---------- ----------
Cash and cash equivalents US$3,077 W 3,549 US$1,722 W 2,062
EUR11 15 EUR17 26
GBP3 7 GBP5 10
Short-term financial instruments US$31,596 36,450 US$31,492 37,721
Accounts receivable - trade US$1,105 1,275 US$2,552 3,057
SG$743 509 SG$743 522
Accounts receivable - other US$4,844 5,588 US$4,863 5,825
Guarantee deposits US$191 220 US$193 232
JPY16,337 178 JPY16,337 183
------- -------
W47,791 W49,638
======= =======
Accounts payable US$4,829 5,570 US$5,166 6,188
JPY8,106 88 JPY20,606 231
HK$231 34 HK$267 41
GBP66 138 GBP304 648
SG$4 3 SG$5 3
CNY53 7 CNY140 20
AU$1 1 AU$1 1
EUR5 8 EUR10 15
CHF2 2 CHF4 4
DKK1 1 DKK1 1
IDR240 3 IDR- -
Obligation under capital lease
including current portion US$- - US$101 121
------- -------
W 5,855 W 7,273
======= =======
13. CAPITAL STOCK AND CAPITAL SURPLUS
The Company's capital stock consists entirely of common stock with a par
value of W500. The number of authorized and issued shares as of March 31,
2004 and December 31, 2003 are as follows:
March 31, 2004 December 31, 2003
-------------- -----------------
Authorized shares 220,000,000 220,000,000
Issued shares 82,276,711 82,276,711
Significant changes in capital stock and capital surplus for the three
months ended March 31, 2004 and the year ended December 31, 2003 are as
follows (in millions of Korean won except for share data):
Number of shares
issued Capital stock Capital surplus
---------------- ------------- ---------------
At January 1, 2003 89,152,670 44,576 2,884,385
Excess unallocated purchase price (note 1) - - (230)
Retirement of treasury stock (note 2) (7,002,235) - -
Issuance of common stock for the merger with
SK IMT Co., Ltd. (note 3) 126,276 63 31,809
---------- ------- ----------
At December 31, 2003 and March 31, 2004 82,276,711 W44,639 W2,915,964
========== ======= ==========
(note 1) The excess unallocated purchase price of W864,161 million for the
acquisition of additional equity interest of Shinsegi Telecomm, Inc.
after acquiring a majority interest in such subsidiary, was deducted
from capital surplus upon the merger with Shinsegi Telecomm, Inc.
dated January 13, 2002, in accordance with Korean GAAP. In addition,
during the year ended December 31, 2003, the Company paid W230 million
to certain former shareholders of Shinsegi Telecomm, Inc. in
accordance with the ruling of the court and deducted it from capital
surplus in accordance with Korean GAAP.
(note 2) The Company retired 4,457,635 shares and 2,544,600 shares of treasury
stock on January 6, 2003 and August 20, 2003, respectively, and
reduced unappropriated retained earnings in accordance with the Korean
Commercial Laws.
(note 3) The excess of acquired net assets over the par value of W63 million
for the issuance of 126,276 shares of new common stock to minority
shareholders of SK IMT Co., Ltd. upon the merger dated May 1, 2003,
was added to additional paid-in capital in accordance with Korean
GAAP.
14. APPROPRIATED RETAINED EARNINGS
The details of appropriated retained earnings as of March 31, 2004 and
December 31, 2003 are as follows (in millions of Korean won):
March 31, 2004 December 31, 2003
-------------- -----------------
Legal reserve W 22,320 W 22,288
Reserve for improvement of financial structure 33,000 33,000
Reserve for loss on disposal of treasury stock 477,182 221,197
Reserve for research and manpower development 776,296 559,198
Reserve for business expansion 3,425,138 3,908,139
---------- ----------
Total W4,733,936 W4,743,822
========== ==========
a. Legal Reserve
The Korean Commercial Code requires the Company to appropriate as a
legal reserve at least 10% of cash dividends for each accounting
period until the reserve equals 50% of outstanding capital stock. The
legal reserve may not be utilized for cash dividends, but may only be
used to offset a future deficit, if any, or may be transferred to
capital stock.
b. Reserve for Improvement of Financial Structure
The Financial Control Regulation for listed companies in Korea
requires that at least 10% of net income (net of accumulated deficit),
and an amount equal to net gain (net of related income taxes, if any)
on the disposal of property and equipment be appropriated as a reserve
for improvement of financial structure until the ratio of
stockholders' equity to total assets reaches 30%. The reserve for
improvement of financial structure may not be utilized for cash
dividends, but may only be used to offset a future deficit, if any, or
may be transferred to capital stock.
c. Reserves for Loss on Disposal of Treasury Stock and Research and
Manpower Development
Reserves for loss on disposal of treasury stock and research and
manpower development were appropriated in order to recognize certain
tax deductible benefits through the early recognition of future
expenditures. These reserves will be unappropriated from appropriated
retained earnings in accordance with the relevant tax laws. Such
unappropriation will be included in taxable income in the year of
unappropriation.
d. Reserve for Business Expansion
The reserve for business expansion is voluntary and was approved by
the board of directors and shareholders.
15. TREASURY STOCK
Upon the issuances of stock dividends and new common stock and the mergers
with Shinsegi Telecomm, Inc. and SK IMT Co., Ltd., the Company acquired
fractional shares totaling 77,958 shares for W6,108 million through 2003.
In addition, the Company acquired 7,452,810 shares of treasury stock in the
market or through the trust funds for W1,771,507 million through 2003 in
order to stabilize the market price of its stock.
Under the Mutual Agreement on Stock Exchange between the Company and KT
Corporation, on December 30, 2002 and January 10, 2003, the Company
acquired 8,266,923 shares of the Company's common stock from KT Corporation
for W1,853,643 million. On January 13, 2002, the Company merged with
Shinsegi Telecomm, Inc. and distributed 2,677,653 shares of treasury stock
to minority shareholders of Shinsegi Telecomm, Inc. The cost of the
treasury stock distributed was W584,646 million.
On January 6, 2003 the Company retired 4,457,635 share of treasury stock
that were purchased from KT Corporation as mentioned above in accordance
with a resolution of the board of directors dated December 26, 2002 and
reduced unappropriated retained earnings by W1,008,882 million including
the tax effect of W9,373 million, in accordance with the Korean Commercial
Laws.
On June 30, 2003, in accordance with a resolution of the board of directors
dated June 24, 2003, the Company announced a stock repurchase program to
acquire 2,544,600 shares of common stock in the market in order to enhance
stockholders' interest and to stabilize the stock price. Pursuant to the
program, the Company acquired a total of 2,544,600 shares of Company's
outstanding common stock for a total purchase price of W525,174 million
during the period from June 30, 2003 to August 11, 2003, retired such
treasury shares on August 20, 2003 and reduced unappropriated retained
earnings by W537,138 million including the tax effect of W11,964 million,
in accordance with Korean Commercial Laws.
On February 20, 2004, the Company acquired fractional shares totaling 12
shares for W2 million which resulted from the merger with SK IMT Co., Ltd.
16. STOCK OPTIONS
On March 17, 2000, March 16, 2001 and March 8, 2002, in accordance with the
approval of its stockholders and its board of directors, the Company
granted stock options to its management, representing 17,800 shares at an
exercise price of W424,000 per share, 43,820 shares at an exercise price of
W211,000 per share and 65,730 shares at an exercise price of W267,000 per
share. The stock options will become exercisable after three years from the
date of grant and shall be exercisable within two years from the first
exercisable date. If the employees leave the Company within three years
after the grant of stock options, the Company may cancel the stock options
awarded. Upon exercise of stock options, the Company will issue its common
stock. There were no forfeited or expired stock options during the three
months ended March 31, 2004 and 2003.
The value of stock options granted is determined using the Black-Scholes
option-pricing model, without considering a volatility factor in estimating
the value of its stock options, as permitted under Korean GAAP. The
following assumptions are used to estimate the fair value of options
granted in 2000, 2001 and 2002; risk-free interest rate of 9.1% for 2000,
5.9% for 2001 and 6.2% for 2002; expected life of three years for 2000,
2001 and 2002; expected dividend of W500 for 2000, 2001 and 2002. Under
these assumptions, total compensation cost, the recognized compensation
cost for the three months ended March 31, 2004 and 2003, the compensation
cost to be recognized for the following period after March 31, 2004 and the
outstanding balance of stock option in capital adjustment as of March 31,
2004 and December 31, 2003 are as follows (in millions of Korean won):
Recognized
compensation cost Stock option in
for the three months capital adjustment
Total ended March 31, Compensation ----------------------
Compensation -------------------- cost to be March December
Grant date cost 2004 2003 recognized 31, 2004 31, 2003
---------- ------------ ---- ---- ------------ -------- --------
March 17, 2000 W1,533 W - W128 W - W1,533 W1,533
March 16, 2001 237 13 19 - 237 224
March 8, 2002 3,246 270 271 992 2,254 1,984
------ ---- ---- ---- ------ ------
W5,016 W283 W418 W992 W4,024 W3,741
====== ==== ==== ==== ====== ======
The pro forma ordinary income, net income ordinary income per common share
and net income per common share, if the Company had not excluded the
volatility factor (expected volatility of 66.8% for options granted in
2000, 67.5% for options granted in 2001 and 63.0% for options granted in
2002) in estimating the value of its stock options, for the three months
ended March 31, 2004, 2003 and 2002 are as follows :
For the three months ended March 31,
------------------------------------
2004 2003 2002
-------- -------- --------
Pro forma ordinary income (in millions of Korean won) W669,634 W649,238 W636,130
Pro forma ordinary income per common share (in Korean won) 6,138 5,860 5,260
Pro forma net income (in millions of Korean won) 451,877 447,758 443,229
Pro forma net income per common share (in Korean won) 6,138 5,860 5,260
17. INCOME TAXES
a. Details of income tax expense
Income tax expenses for the three months ended March 31, 2004 and 2003
consist of the following (in millions of Korean won):
2004 2003
-------- --------
Current W178,048 W197,328
Deferred (note 1) 39,709 4,152
-------- --------
Income tax expenses W217,757 W201,480
======== ========
(Note 1) Changes in deferred tax liabilities retained to temporary
difference for the three months ended March 31, 2004 and 2003
are as follows (in millions of Korean won):
2004 2003
--------- ---------
Beginning balance of deferred tax liabilities (W242,057) (W123,768)
Ending balance of deferred tax liabilities 282,008 117,856
Adjustment to the beginning deferred income
tax liabilities based on tax return filed (242) 20,187
Tax effect of temporary differences arising
from disposal and retirement of treasury stock - (10,123)
--------- ---------
W 39,709 W 4,152
========= =========
b. Reconciling items between accounting income and taxable income
Reconciling items between accounting income and taxable income
for the three months ended March 31, 2004 and 2003 are as follows
(in millions of Korean won):
2004 2003
---------- ---------
(TEMPORARY DIFFERENCES)
ADDITIONS:
Allowance for doubtful accounts W 62,328 W 77,282
Accrued interest income 5,978 4,733
Reserves for research and manpower development 21,059 15,725
Equity in losses of affiliates - 11,405
Foreign currency translation gain 2,802 2,159
Depreciation - 978
Loss on impairment of long-term investment securities - 16,417
Loss on impairment of other assets 16,387 8,086
Loss on valuation of derivative instruments 4,953 -
Accrued severance indemnities 8,002 536
Deposits for severance indemnities 2,429 -
Other 14,257 15,744
--------- ---------
Sub-total 138,195 153,065
--------- ---------
DEDUCTIONS:
Reserves for research and manpower development (70,000) (25,000)
Allowance for doubtful accounts (67,482) (65,843)
Depreciation (27,589) (2,246)
Accrued interest income (9,717) (7,589)
Foreign currency translation loss (5,617) (4,271)
Equity in earnings of affiliates (23,765) -
Accrued severance indemnities (2,428) -
Deposits for severance indemnities (8,002) (44,496)
Loss on impairment of other assets (14,009) (2,926)
Other (31,722) (17,691)
--------- ---------
Sub-total (260,331) (170,062)
--------- ---------
Total Temporary Differences (122,136) (16,997)
--------- ---------
(PERMANENT DIFFERENCES) 60,896 33,013
--------- ---------
Total W (61,240) W 16,016
========= =========
c. Change in cumulative temporary differences and deferred tax liabilities
Changes in cumulative temporary differences for the three months ended
March 31, 2004 and 2003 and deferred tax liabilities as of March 31, 2004
and 2003 are as follows (in Korean won):
For the three months ended March 31, 2004
January 1, March 31,
Description 2004 Increase Decrease 2004
----------------------------------------------- ---------- -------- -------- -----------
Property and equipment W 41,373 (W20,153) W 3,478 W 17,742
Allowance for doubtful accounts 66,833 62,978 67,482 62,329
Loss on impairment of long-term investment
securities 95,269 - 250 95,019
Foreign currency translation loss 5,617 - 5,617 -
Foreign currency translation gain (2,802) - (2,802) -
Reserves for research and manpower development (663,702) (70,000) (21,059) (712,643)
Reserves for loss on disposal of treasury stock (474,081) - - (474,081)
Accrued interest income (5,978) (9,717) (5,978) (9,717)
Equity in earnings (losses) of affiliates (35,616) (23,765) - (59,381)
Loss on impairment of other assets 22,459 16,386 14,009 24,836
Loss on valuation of derivative instruments - 4,953 - 4,953
Accrued severance indemnities 148,963 8,002 20,964 136,001
Deposits for severance indemnities (139,054) 624 (2,429) (136,001)
Other 57,547 15,487 42,419 30,615
--------- -------- -------- -----------
Total temporary differences (W883,172) (W15,205) W121,951 (W1,020,328)
========= ======== ======== ===========
Deferred tax liabilities-net (note 1) (W242,057) (W 282,008)
========= ===========
(note 1) The tax effects of temporary differences which are not realizable
and the net unrealized loss on valuation of long-term investment
securities are excluded in determining the above net deferred tax
liabilities as of March 31, 2004. Pursuant to a revision in the
Korean Corporate Income Tax Law, statutory corporate income tax
rate will be changed from current 29.5% to 27.5%, effective
January 1, 2005. As a result, 27.5% was used for measurement of a
deferred tax assets or liabilities, which are attributable to
temporary differences to be realized on and after January 1,
2005.
For the three months ended March 31, 2003
January 1, March 31,
Description 2003 Increase Decrease 2003
------------------------------------------- ---------- -------- -------- ---------
Property and equipment W 33,395 W 3,729 W 2,246 W 34,878
Loss on disposal of property and equipment - 50,842 - 50,842
Allowance for doubtful accounts 69,887 77,282 69,887 77,282
Loss on impairment of investment securities 131,196 16,417 44,496 103,117
Foreign currency translation loss 22,701 - 4,271 18,430
Foreign currency translation gain (11,437) - (2,159) (9,278)
Reserves for research and manpower
development (442,603) (29,000) (15,725) (455,878)
Reserves for loss on disposal of treasury
stock (218,097) - - (218,097)
Accrued interest income (4,718) (7,604) (4,733) (7,589)
Equity in earnings (losses) of affiliates (62,363) - (11,405) (50,958)
Loss on impairment of other assets 10,224 8,086 3,254 15,056
Accrued severance indemnities 115,765 1,816 - 117,581
Deposits for severance indemnities (115,765) (129) - (115,894)
Other 55,087 (6,230) 5,170 43,687
--------- -------- -------- ---------
Total temporary differences (W416,728) W115,209 W 95,302 (W396,821)
========= ======== ======== =========
Deferred tax liabilities-net (note 1) (W123,768) W 34,217 W 28,305 (W117,856)
========= ======== ======== =========
(note 1) The tax effects of temporary differences which are not realizable
and the net unrealizable loss on valuation of long-term
investment securities are excluded in determining the above net
deferred tax liabilities as of March 31, 2003.
d. Effective tax rate
Effective tax rates for the three months ended March 31, 2004 and 2003 are
as follows (in millions of Korean won):
2003 2002
-------- --------
Income before income tax expenses W670,272 W650,154
Income tax expenses 217,757 201,480
-------- --------
Effective tax rate 32.49% 30.99%
======== ========
e. Intra-period allocation of income tax expenses
Intra-period allocation of income tax expenses for the three months ended
March 31, 2004 and 2003 is as follows (in millions of Korean won):
2004 2003
-------- --------
Income tax expenses of ordinary income W217,757 W201,480
Income tax expenses of extraordinary gain - -
-------- --------
Income tax expenses W217,757 W201,480
======== ========
18. NET INCOME AND ORDINARY INCOME PER SHARE
The Company's net income and ordinary income per share amounts for the
three months ended March 31, 2004 and 2003 are computed as follows (in
millions of won, except for share data):
Net income and ordinary income per share
2004 2003
----------- -----------
Net income and ordinary income W 452,515 W 448,674
Weighted average number of common shares outstanding 76,614,303 76,413,671
----------- -----------
Net income and ordinary income per share (in Korean won) W 6,147 W 5,872
=========== ===========
The Company's ordinary income and net income per share amounts for the year
ended December 31, 2003 are W25,876, respectively.
The weighted average number of common shares outstanding for the three
months ended March 31, 2004 and 2003 is calculated as follows:
Number of Weighted Weighted
shares number of days number of shares
---------- -------------- ----------------
For the three months ended March 31, 2004
At January 1, 2004 82,276,711 91/91 82,276,711
Treasury stock, at the beginning (8,662,403) 91/91 (8,662,403)
Purchase of fractional share related to merger
with SK IMT Co., Ltd. (12) 41/91 (5)
---------- ----------
Total 73,614,296 73,614,303
========== ==========
For the three months ended March 31, 2003
At January 1, 2003 89,152,670 90/90 89,152,670
Treasury stock, at the beginning (9,310,607) 90/90 (9,310,607)
Purchase of treasury stock (3,809,288) 81/90 (3,428,359)
Purchase of fractional share related to merger
with Shinsegi Telecomm, Inc. (52) 57/90 (33)
---------- ----------
Total 76,032,723 76,413,671
========== ==========
Diluted net income and ordinary income per share amounts for the three
months ended March 31, 2004 and 2003 are computed as follows (in millions
of won, except for share data):
Diluted net income and ordinary income per share
2004 2003
----------- -----------
Adjusted net income and ordinary income (note 1) W 452,515 W 448,674
Adjusted weighted average number of
common shares outstanding (note 1) 76,614,303 76,413,671
----------- -----------
Diluted ordinary income/net income and ordinary income
per share (in Korean won) W 6,147 W 5,872
=========== ===========
(note 1) In the three months ended March 31, 2004 and 2003, the assumed
exercise of stock options was not reflected in diluted earnings
per share as there was no diluted effect of such stock options
The Company's diluted ordinary income and diluted net income per share
amounts for the year ended December 31, 2003 are W25,876, respectively.
19. COMMITMENTS AND CONTINGENCIES
a. At March 31, 2004, the Company's property and equipment (land,
buildings and machinery), amounting to W57,483 million in carrying
value, are pledged as collateral for borrowings from Korea Development
Bank.
b. On September 4, 2003 and December 15, 2003, the Company sold W549,256
million and W498,426 million of accounts receivable resulting from its
mobile phone dealer financing plan to Nate Fourth Special Purpose
Company and Nate Fifth Special Purpose Company, respectively, in
asset-backed securitization transactions and recorded a loss on
disposal of accounts receivable-other of W12,863 million and W9,936
million, respectively. Related to these asset-backed securitization
transactions, the Company has obligations to repurchase receivables up
to 13.27% and 13.19% for Nate Fourth Special Purpose Company and Nate
Fifth Special Purpose Company, respectively, if receivables become
past due for 3 months or the debtors become insolvent. At March 31,
2004, the uncollected balances of accounts receivable sold to Nate
Fourth Special Purpose Company and Nate Fifth Special Purpose Company
were W74,537 million and W237,924 million, respectively.
c. At March 31, 2004, the Company has guarantee deposits restricted for
its checking accounts totaling W23 million.
d. The Company's performance under a mobile network system development
service contract with Asia Pacific Broadband Wireless Communications
Inc., a Taipei company, and the Company's warranty obligations have
been guaranteed by Citi Corp., within the limit of US$2,100,000 and
SG$117,250, respectively.
e. The Company made a contract for joint ownership of a satellite with
Japan MBCO in order to enter the satellite digital multimedia
broadcasting business. In accordance with the contract, the Company
and Japan MBCO decided the sharing rate of joint ownership to be
34.66% for the Company and 65.34% for Japan MBCO based on a number of
relay stations and coverage. The details of the contract are as
follows (in millions of Japanese yen and in millions of U.S.
dollars):
Investment made
through March Investment to
Total The Company's 31, 2004 by the be made by the
investment portion Company Company
---------- ------------- --------------- --------------
Purchase of satellite, launching
and insurance US$ 202 US$ 70 US$ 62 US$8
Operation of the control center JPY4,934 JPY1,710 JPY1,710 JPY-
20. INSURANCE
At March 31, 2004, certain of the Company's assets are insured with local
insurance companies as follows (in millions of Korean won):
Insured Risk Carrying value Coverage
------------------------------------ -------------------------------- -------------- -----------
Property and equipment, directors' Fire and comprehensive liability
liabilities and general liabilities and other W5,773,492 W10,123,102
========== ===========
21. TRANSACTIONS WITH AFFILIATED AND RELATED COMPANIES
Significant related party transactions for the three months ended March 31,
2004 and 2003 and balances as of March 31, 2004 and December 31, 2003 were
as follows (in millions of Korean won):
For the three months ended March 31,
------------------------------------
Description 2004 2003
----------------------------------------- ------- --------
TRANSACTIONS
SK C&C Co., Ltd.:
Purchases of property and equipment W20,786 W26,280
Commissions paid and other expenses 63,860 57,367
Commission and other income 1,937 1,718
SK Engineering & Construction Co., Ltd.:
Construction 13,000 10,259
Commissions paid and other expenses 2 328
Commissions and other income 219 237
SK Networks Co., Ltd.:
Purchases of property and equipment 744 1,127
Commissions paid and other expenses 81,965 35,723
Commissions and other income 3,723 242
SK Corporation:
Purchases of property and equipment - 4,097
Commissions paid and other expenses 9,398 8,220
Commissions and other income 469 865
Innoace Co., Ltd.:
Purchases of property and equipment 1,772 905
Commissions paid and other expenses 127 4,242
Commissions and other income 78 52
SK Communications Co., Ltd.:
Purchases of property and equipment 35 6,484
Commissions paid and other expenses 10,705 2,226
Commissions and other income 4,142 1,436
SK Telesys Co., Ltd.:
Purchases of property and equipment 488 773
Commissions paid and other expenses 352 22
Commissions and other income 89 9
Widerthan.com Co., Ltd.:
Purchases of property and equipment 158 2,120
Commissions paid and other expenses 15,958 10,585
Commissions and other income 13 72
Description March 31, 2004 December 31, 2003
----------------------------------------- -------------- -----------------
BALANCES
SK C&C Co., Ltd.:
Accounts receivable W 219 W 112
Accounts payable 42,662 72,384
Guarantee deposits received 346 346
SK Engineering & Construction Co., Ltd.:
Accounts receivable 68 92
Accounts payable 14,300 63,442
Guarantee deposits received 408 90
SK Networks Co., Ltd.:
Accounts receivable 1,174 996
Guarantee deposits 113 113
Accounts payable 59,659 62,436
Guarantee deposits received 719 719
SK Corporation:
Accounts receivable 67 474
Guarantee deposits paid 103,720 103,720
Accounts payable 9,073 2,908
Guarantee deposits received 10,194 10,194
Innoace Co., Ltd.:
Accounts receivable 12,947 25,640
Guarantee deposits received 1,069 1,069
SK Communications Co., Ltd.:
Accounts receivable 1,797 4,838
Accounts payable 4,394 8,903
Guarantee deposits received 8,408 6,764
SK Telesys Co., Ltd.:
Accounts receivable 47 2
Accounts payable 18,404 33,904
SK Wyverns Baseball Club Co., Ltd.:
Long-term and short-term loans 13,532 13,532
SK Life Insurance Co., Ltd.:
Deposits for severance indemnities 58,139 59,613
Guarantee deposits paid 60 60
Accounts receivable 1,509 1,119
Guarantee deposits received 821 338
WiderThan.com Co., Ltd.:
Accounts receivable 14 30
Accounts payable 6,263 9,762
22. DERIVATIVE INSTRUMENTS
As of March 31, 2004, the Company made (1) currency swap contracts and (2)
currency forward contracts, with 3 banks including Citi Bank to reduce the
foreign currency exposure in unguaranteed US dollar denominated bond with
face value amounting to US$300 million issued on April 1, 2004. The Company
stated currency forward and currency swap contracts at their fair value and
charged gains/losses on valuation of the contracts to current operations.
Details for valuation of currency forward and currency swap contracts are
as follows (in millions of Korean won).
Gains (losses) reflected in
Fair value current operations
-------------------------------- ----------------------------------
Three months Three months
ended March 31, ended March 31,
Mar. 31, 2004 Dec. 31, 2003 2004 2003
------------- ------------- --------------- ---------------
(22) - (22) -
Currency forward
Currency swap (4,931) - (4,931) -
------ ------- ------ -------
Total (4,953) - (4,953) -
====== ======= ====== =======
23. MERGER WITH SK IMT CO., LTD.
On May 1, 2003, the Company merged with SK IMT Co., Ltd., in accordance
with a resolution of the Company's board of directors on December 20, 2002
and the approval of shareholders of SK IMT Co., Ltd. on February 21, 2003.
The exchange ratio of common stock between the Company and SK IMT Co., Ltd.
was 0.11276 share of the Company's common stock with a par value of W500 to
1 share of common stock of SK IMT Co., Ltd. with a par value of W5,000.
Using such exchange ratio, the Company distributed 126,276 shares of new
issued common stock to minority shareholders of SK IMT Co., Ltd. and the
Company retired all shares of SK IMT Co., Ltd. owned by the Company and SK
IMT Co., Ltd. upon the merger. The assets and liabilities transferred from
SK IMT Co., Ltd. were accounted for at the carrying amounts of SK IMT Co.,
Ltd.
The condensed balance sheet of SK IMT as of April 30, 2003 and December 31,
2002 and the condensed statements of operations for the period from January
1, 2003 to April 30, 2003 and for the year ended December 31, 2002 are as
follows (in millions of Korean won):
Apr. 30, 2003 Dec. 31, 2002
------------- -------------
CONDENSED BALANCE SHEETS
Current assets W 332,321 W 963,896
Fixed asset 1,274,185 1,274,630
---------- ----------
Total Assets W1,606,506 W2,238,526
========== ==========
Current liabilities W 7,808 W 26,164
Long-term liabilities 556,444 558,107
---------- ----------
Total Liabilities 564,252 584,271
---------- ----------
Capital stock 300,000 300,000
Capital surplus 1,300,020 1,300,020
Retained earnings 47,192 54,235
Capital adjustment (604,958) -
---------- ----------
Total Stockholders' Equity 1,042,254 1,654,255
---------- ----------
Total Liabilities and Stockholders' Equity W1,606,506 W2,238,526
========== ==========
Period from Jan. 1, Year ended
2003 to Apr. 30, 2003 Dec. 31, 2002
--------------------- -------------
CONDENSED STATEMENTS OF OPERATIONS
Operating revenue W - W -
Operating expenses (7,009) (7,737)
-------- -------
Operating loss (7,009) (7,737)
Non-operating income 12,032 47,794
Non-operating expenses (13,694) (1,265)
-------- -------
Ordinary income (loss) (8,671) 38,792
Extraordinary gain (loss) - -
-------- -------
Income before income taxes (8,671) 38,792
Income tax benefit (expenses) 2,961 (11,554)
-------- -------
Net income (loss) (W5,710) W27,238
======== =======
24. SUBSEQUENT EVENT
In accordance with the approval of its board of directors dated March 12,
2004, the Company issued unguaranteed US dollar denominated bonds with face
amounts totaling US$300 million (Korean won equivalent: W347,850 million)
for US$297.8 million on April 1, 2004. The bonds bear an annual rate of
4.25% and will be repaid in full at its maturity of April 1, 2011.
25. ECONOMIC UNCERTAINTIES
The economic environment in the Republic of Korea continues to be volatile.
In addition, the Korean government and the private sector continue to
implement structural reforms to historical business practices, including
corporate governance. The Company may be either directly or indirectly
affected by these economic conditions and the reform program described
above. The accompanying non-consolidated financial statements reflect
management's assessment of the impact to date of the economic environment
on the financial position and results of operations of the Company. Actual
results may differ materially from management's current assessment.
--------------------------------------------------------------------------------
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.
SK TELECOM CO., LTD.
By: /s/ Dong Hyun Jang
-------------------------------------
Name: Dong Hyun Jang
Title: Vice President
Date: May 24, 2004