SK TELECOM CO., LTD.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE MONTH OF APRIL 2008
 
SK Telecom Co., Ltd.
(Translation of registrant’s name into English)
11, Euljiro2-ga, Jung-gu
Seoul 100-999, Korea
(Address of principal executive offices)
 
     (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 þ Form 40-F o
     Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o
     Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
     Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
     Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submission to furnish a report or other document that the registration foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
     Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes o No þ
     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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ANNUAL REPORT
(From January 1, 2007 to Decomber 31, 2007)
THIS IS A SUMMARY OF THE ANNUAL REPORT ORIGINALLY PREPARED IN KOREAN AND IS IN SUCH FORM AS REQUIRED BY THE KOREAN FINANCIAL SUPERVISORY COMMISSION.
IN THE TRANSLATION PROCESS, SOME PARTS OF THE REPORT WERE REFORMATTED, REARRANGED OR SUMMARIZED FOR THE CONVENIENCE OF READERS.
UNLESS EXPRESSLY STATED OTHERWISE, ALL INFORMATION CONTAINED HEREIN IS PRESENTED ON A NON-CONSOLIDATED BASIS IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN KOREA, OR KOREAN GAAP, WHICH DIFFER IN CERTAIN RESPECTS FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CERTAIN OTHER COUNTRIES, INCLUDING THE UNITED STATES. WE HAVE MADE NO ATTEMPT TO IDENTIFY OR QUANTIFY THE IMPACT OF THESE DIFFERENCES.

 


 

Contents
     
   
 
I.  
   
 
II.  
   
 
III.  
   
 
IV.  
   
 
V.  
   
 
VI.  
   
 
VII.  
   
 
VIII.  
   
 
IX.  
     Attachment: Korean GAAP Non-consolidated Financial Statements

 


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I. OVERVIEW
1. Corporate Purpose of SK Telecom Co., Ltd. (the “Company”)

Business Objectives
 
1. Information and communication business
2. Handset sales and lease business
3. New media business
4. Advertisement business
5. Communication sales business
6. Personal property and real property lease business
7. Research and technology development related to Clause 1 through 4
8. Overseas business and trading business related to Clause 1 through 4
9. Manufacturing and distribution business related to Clause 1 through 4
10. Tourism
11. Electronic financial business
12. Motion picture business(Production, Importation, Distribution, Screening)
13. Any business or undertaking incidental or conducive to the attainment of the objects above
2. Company History
A.   Changes Since Incorporation
  (1)   Date of Incorporation
    March 29, 1984 (date of shareholders’ meeting for the incorporation): Incorporated as Korea Mobile Communications Service Co., Ltd.
(Authorized capital: Won 500 million / Paid-in capital: Won 250 million)
  (2)   Location of Headquarters
    22 Dohwa-dong, Mapo-gu, Seoul (July 11, 1988)
 
    16-49 Hangang-ro 3-ga, Yongsan-gu, Seoul (November 19, 1991)
 
    267 Namdaemun-ro 5-ga, Jung-gu, Seoul (June 14, 1995)
 
    99 Seorin-dong, Jongro-gu, Seoul (December 20, 1999)
 
    11, Euljiro 2-ga, Jung-gu, Seoul (December 13, 2004)
B.   Mergers
  (1)   Target: Shinsegi Communication Co., Ltd.
    Date: January 13, 2002
 
    Registration: January 16, 2002
  (2)   Target: SK IMT Co., Ltd.
    Date: May 1, 2003
 
    Registration: May 7, 2003
C.   Significant Recent Business Events
  (1)   Agreement to acquire equity interests of Hanaro telecom Incorporated
On December 3, 2007, the Company entered into the agreement to acquire 91,406,249 shares of Hanaro telecom Incorporated’s common stock from AIG- Newbridge Capital Limited and others, at the price of W11,900 per share (total acquisition cost of 1,087,734 million won) in accordance with the resolution of the Company’s board of directors on November 30, 2007. However, if the government approval is

 


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not made or the preceding conditions are not fulfilled in connection with the agreement, theis agreement might not be executed. If the agreement is completed, the Company’s ownership interest in Hanaro telecom Incorporated will increase to 43.6% from 4.8%
3. Information Regarding Shares
A. Total number of shares
         
(As of December 31, 2007)       (Unit: shares)
                                 
    Share type    
Classification   Common shares     Total   Remarks
I. Total number of issuable shares
    220,000,000             220,000,000        
II. Total number of shares issued to date
    89,278,946             89,278,946        
III. Total number of shares retired to date
    8,085,235             8,085,235        
1. Capital reduction
                       
2. Share cancellation
    8,085,235             8,085,235        
3. Redeemed shares
                       
4. Others
                       
IV. Total number of shares (II-III)
    81,193,711             81,193,711        
V. Number of treasury shares
    8,609,034             8,609,034        
VI. Number of shares outstanding (IV-V)
    72,584,677             72,584,677        
 
*   The Company disposed Treasury Stock to E.S.O.P. on January 23, 2008 (208,326 shares)
B. Capital Stock and Price per Share
         
(As of December 31, 2007)       (Unit: Won, shares)
                                                         
            Capital (total face value)   Price per share
            Capital amount           Total amount           Capital/   Capital/
            in financial   Total number of   of distributed   Par value   Total number of   Number of
            statements   issued shares   shares   per share   issued shares   distributed shares
Classification   Type   (a)   (IV of A×b)   (VI of A×b )   (b)   (a / IV of A.)   (a / VI of A.)
Registered
  Common shares     44,639,473,000       40,596,855,500       36,292,338,500       500       549.8       615.0  
Total
            44,639,473,000       40,596,855,500       36,292,338,500       500       549.8       615.0  

 


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C. Acquisition and Disposition of Treasury Shares
(1) Status of Acquisition and Disposition of Treasury Shares
                                                 
            Amount at the                   Retirement   Amount at the end
Acquisition method   Type of share   beginning of period   Acquisition (+)   Disposition (-)   (-)   of period
Direct acquisition
  Common share     4,561,572       471,000       388,218             4,644,354  
pursuant to Article 189-2 (1) of the relevant Act
  Preferred share                              
 
                                               
Direct acquisition
  Common share     77,970                         77,970  
based on causes other than those stipulated in Article 189-2 (1) of the relevant Act
  Preferred share                              
 
                                               
Sub-total
  Common share     4,639,542       471,000       388,218             4,722,324  
 
  Preferred share                              
 
                                               
Indirect
  Common share     3,886,710                         3,886,710  
acquisition through trust and other agreements
  Preferred share                              
 
                                               
Total
  Common share     8,526,252       471,000       388,218             8,609,034  
 
  Preferred share                              
 
Notes:    
 
*   Of the 4,722,324 shares of treasury stocks directly acquired based on causes other than those provided in Article 189-2 (1) of the relevant Act, 1,277,164 shares were deposited with the Korea Securities Depository as of December 31, 2007 for any exchange of the Company’s overseas exchangeable bonds.
 
*   The Company disposed Treasury Stock to E.S.O.P. on January 23, 2008 (208,326 shares)
 
*   Of the 4,513,998 shares of treasury stocks directly acquired based on causes other than those provided in Article 189-2 (1) of the relevant Act, 1,277,164 shares were deposited with the Korea Securities Depository as of January 25, 2008 for any exchange of the Company’s overseas exchangeable bonds.

 


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D. Employee Stock Ownership Program
(1) Transactions with the Employee Stock Ownership Program
  a)   The Company lent purchase funds for employee stock ownership to the Employee Stock Ownership Program, and the Employee Stock Ownership Program re-lent the amount to the Company’s employees in accordance with its internal allotment standards.
         
        (Unit: in thousand Won)
                                 
Classification   Loan Date   Amount   Repayment Condition   Reamrks
 
                     
5th
    1999.08.23       118,577,755     8-year installment repayment plan following a three-year grace period      
 
                               
8th(1)
    2007.12.23       31,017,043     5-year installment repayment plan following a two-year grace period      
    The loan is deducted from wages for each individual to repay the Employee Stock Ownership Program, and is subsequently repaid to the company.
         
(As of December 31, 2007)       (Unit: in thousand Won)
                                 
            Amount    
            2007   Accumulated Repayment Amount    
Classification   Initial Loan   Repayment Amount   (Including 2007 Repayment)   Balance
5th
    118,577,754       3,727,309       114,775,510       3,802,244  
8th(1)
    31,017,043                   31,017,043  
Total
    148,594,797       3,727,309       114,775,510       34,819,287  
(2) Voting Rights of the Employee Stock Ownership Program
During a designated period, to be 7 days or longer, each individual member of the Program may exercise his voting rights by expressing his intention on the shareholders’ meeting agenda through a written power of attorney to a designated proxy.
(3) Shareholdings of the Employee Stock Ownership Program
         
        (Unit: shares)
                                 
    Account           Balance at the   Balance at the end
Classification   classification   Types of share   beginning of period   of period
5th
  Member Account   Common share     197,240       139,338  
8th(1)
                          171,871  
Total   197,240       311,209  
 
*   As the relevant law requires an immediate transfer of the shares directly purchased by the employees to the account of the individual purchasers, the Company transfers and holds the employees’ stocks in separate individual accounts within the program once the number of shares for each individual member is determined.

 


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4. Status of Voting Rights
     
(As of December 31, 2007)   (Unit: shares)
                 
        Number of      
Classification   shares     Remarks
Total outstanding shares (A)
  Common share     81,193,711    
 
  Preferred share          
Number of shares without voting right (B)
  Common share     8,609,034     Treasury shares
 
  Preferred share          
Shares with restricted voting right under the Stock Exchange Act and other laws (C)
  Common share        
Shares with reestablished voting right (D)
         
The number of shares with exercisable voting right
(E = A - B - C + D)
  Common share     72,584,677    
 
  Preferred share          
 
*   The Company disposed Treasury Stock to E.S.O.P. on January 23, 2008 (208,326 shares)
5. Dividends and Others
(Unit: in million Won except per share value)
                             
Classification   2007     2006     2005  
Par value per share     500       500       500  
Current net income     1,642,451       1,446,598       1,871,380  
Net income per share     22,607       19,734       25,421  
Income available for distribution as dividend     1,603,828       1,574,716       1,930,626  
Total cash dividend     682,379       582,386       662,529  
Total stock dividend                  
Percentage of cash dividend to available income (%)     41.6       40.3       35.4  
Cash dividend yield ratio(%)
  Common share     3.6       3.5       4.8  
 
  Preferred share                  
Stock dividend yield ratio (%)
  Common share                  
 
  Preferred share                  
Cash dividend per share
  Common share     9,400       8,000       9,000  
 
  Preferred share                  
Stock dividend per share
  Common share                  
 
  Preferred share                  


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II. BUSINESS
1. Business Summary
A. Industry Status
(1) Characteristics of the Industry
     As of December 31, 2007, the number of domestic mobile phone subscribers reached 43.5 million and with a 89.8% penetration rate, and the Korean mobile communication market can be considered to have reached its maturation stage. However, considering the number of European countries with penetration rates exceeding 90%, additional future growth of the domestic market may be possible.
     The Korean mobile communications market continues to improve with the help of advances in network-related technology evidenced by the world’s first commercialization of CDMA2000 1x, CDMA 1x EV-DO, and the development of highly advanced handsets that enables the provision of convergence services for multimedia contents, mobile commerce, telematics, satellite DMB, digital home services and other related contents.
(2) Industry Growth
(Unit: 1,000 persons)
                                             
Classification   End of 2007     End of 2006     End of 2005     End of 2004     End of 2003  
Penetration rate (%)     89.8       83.2       79.4       75.9       70.1  
Number of subscribers
  SK Telecom     21,968       20,271       19,530       18,783       18,313  
 
  Others (KTF, LGT)     21,530       19,926       18,812       17,803       15,279  
 
  Total     43,498       40,197       38,342       36,586       33,592  
(Data: Ministry of Information and Communication website)
(3) Market Characteristics
The Korean mobile communication market includes the entire population of Korea with mobile communication service needs, and almost every Korean is considered a potential user. Although demand has primarily been in the domestic market, as the business territory expands to overseas market, the size of overseas sales is expected to grow in the near future. Seasonal and economic fluctuations have much less impact on the Korean mobile communication market compared to other industries.
B. Company Status
(1) Market Share
* Historical market share of the Company
(Unit: %)
                         
Classification   2007   2006   2005
Mobile phone
    50.5       50.4       50.9  


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*   Comparative market share
     
(As of December 31, 2007)   (Unit: %)
                         
Classification   SK Telecom   KTF   LG Telecom
Market share
    50.5       31.5       18.0  
(Data: Ministry of Information and Communication website)
(2) New Business Contents and Prospects
N/A
2. Major Products
A. Status of Major Products as of December 31, 2007
(Unit: in million Won, %)
                     
Business field   Sales type   Item   Major trademarks   Sales amount (ratio)  
Information and communication
  Services   Mobile phone   June, NATE and others     11,083,820(98.2 %)
 
      Others   Others     202,080(1.8 %)
B. Price Trend of Major Products
                             
Item   During 2007   During 2006   During 2005
Mobile phone
  Basic fee (per month)     13,000       13,000       13,000  
(Based on standard call charge)
  Service fee (per 10 seconds)     20       20       20  
 
*   Caller ID service became free of charge beginning January 2006.
3. Investment Status
A. Investments in Progress
(Unit: Won 100 million)
                             
        Investment   Subject of   Investment   Total   Amount already   Future
Business field   Classification   period   investment   effect   investments   invested   investment
Network/Common
  Upgrade/ New installation   2007   Network, systems and others   Capacity increase and quality improvement; systems improvement   17.500   18,554  
 
*   Amount already invested is the cumulative amount expended through the first to the fourth quarter of 2007


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B. Future Investment Plan
(Unit: Won 100 million)
                                         
    Expected   Expected investment for    
    investment amount   each year    
Business field   Asset type   Amount   2008   2009   Investment effect
Network/Common
  Network, systems and others     17,500       17,500       N/A     Upgrades to the existing services and provision of new services
Total
            17,500       17,500       N/A        
 
*   The expected investment amount of Won 1,750.0 billion is the planned investment amount for 2008.
4. Derivative Products and Others
A. Derivatives Contracts
(1) FX Swap
  a)   Purpose of Contracts: Currency Exchange or Interest Rate Risk Hedging
 
  b)   Contract Terms
 
  -   Cross Currency Swap
     
(As of December 31, 2007)   (Unit: in million Won)
                                 
                            Income/loss on
Contract amount   Contract party   Contract date   Proceeds payment method   valuation
 
                  Exchange on the date        
 
                  immediately preceding        
 
                  the principal and        
US$125 million
  Citibank   March 23, 2004   interest payment date     (35,024 )
US$125 million
  Credit Suisse   March 23, 2004   Same as above     (35,818 )
US$50 million
  BNP Paribas   March 23, 2004   Same as above     (14,397 )
US$100 million
  Calyon   October 10, 2006   Exchange on the date of the principal and interest payment date     (2,547 )
JPY 9,100 million
  SMBC   November 13, 2007   Same as above     5,311  
JPY 3,400 million
  HSBC   November 13, 2007   Same as above     430  
 
*   Income/loss on valuation was appropriated for capital adjustment.
 
-   Cross Currency Swap


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(As of December 31, 2007)   (Unit: in million Won)
                                 
                            Income/loss on
Contract amount   Contract party   Contract date   Proceeds payment method   valuation
US$150 million
  Morgan Stanley   July 20, 2007   Exchange on the date immediately preceding the principal and interest payment date     1,995  
US$150 million
  Merrill Lynch   July 20, 2007   Same as above     3,197  
US$150 million
  Barclays Capitals   July 20, 2007   Same as above     2,124  
 
*   Income/loss on valuation was appropriated for Income Statement.
 
-   FX Swap
     
(As of December 31, 2007)   (Unit: in million Won)
                                 
                    Proceeds payment    
Contract amount   Contract party   Contract date   method   Income on valuation
US$100 million
  Credit Suisse   May 27, 2004   Exchange before principal payment date     (23,125 )
HKD 10,941 million
  8 Banks including Hana Bank   September 16, 2007   Payment of HK Dollars and receipt of Korean Won on September 16, 2008     (12,646 )
 
*   Income/loss on valuation was appropriated for Income Statement.
(2) Interest Rate Swap
a) Purpose of Contracts: Interest Rate Risk Hedging
b) Contract Terms
     
(As of December 31, 2007)   (Unit: in million Won)
                     
                Income/loss on  
Contract amount   Contract party   Contract date   Proceeds payment method   valuation  
 
          Fixing of interest        
200 Billion Won 
  Shinhan Bank    June 28, 2006    payment date /     3,170   
 
          exchange of floating interest rate        
 
*   Income/loss on valuation was appropriated for capital adjustment.
5. R&D Investments
(Unit: in thousand Won)
                                 
Category   2007   2006   2005   Remarks
Raw material
    96,217       184,969       234,889        
Labor
    39,388,760       33,986,701       35,191,759        
Depreciation
    129,208,262       134,461,257       121,335,301        
Commissioned service
    90,363,645       83,751,223       86,536,635        
Others
    37,609,969       35,680,197       41,730,732        
Total R&D costs
    296,666,853       288,064,347       285,029,316        


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(Unit: in thousand Won)
                                     
Category   2007     2006     2005     Remarks  
Accounting
  Sales and administrative expenses     288,519,863       277,807,352       273,223,885        
 
  Development expenses (Intangible assets)     8,146,990       10,256,995       11,805,431        
R&D cost / sales amount ratio                                
(Total R&D costs / Current sales amount×100)     2.63 %     2.70 %     2.81 %      
6. Other Matters
A. External Fund Procurement Summary
 
*   Domestic procurement
(Unit: in million Won)
                                         
    Beginning   New   Reduction from        
Source of procurement   balance   procurement   repayment   Ending balance   Remarks
Bank
    200,000                   200,000        
Insurance company
                             
Merchant banking
                             
Loan specialty financial company
                             
Mutual savings bank
                             
Other financial institutions
    9,839             8,197       1,642        
Total procurement from financial institutions
    209,839             8,197       201,642        
Corporate bond (public offering)
    2,100,000       304,166       700,000       1,704,166        
Corporate bond (private offering)
                             
Paid-in capital increase (public offering)
                             
Paid-in capital increase (private offering)
                             
Asset—backed securitization (public offering)
                             
Asset—backed securitization (private offering)
                             


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    Beginning   New   Reduction from        
Source of procurement   balance   procurement   repayment   Ending balance   Remarks
Others
                             
Total procurement from capital market
    2,100,000       304,166       700,000       1,704,166        
Borrowings from shareholder, officer and affiliated company
                             
Others
                             
Total
    2,309,839       304,166       708,197       1,905,808        
 
*   Overseas procurement
(Unit: in million Won)
                                         
                    Reduction in        
    Beginning   New   repayment and   Ending    
Procurement source   balance   procurement   others   balance   Remarks
Financial institutions
    92,960       860             93,820     Exchange rate adjustment
Overseas securities (Corporate bonds)
    278,880       377,860             656,740     Exchange rate adjustment
Overseas securities (shares and others)
    356,356             87,941       268,415     Exchange requirement
Asset —backed securitization
                             
Others
                             
Total
    728,196       378,720       87,941       1,018,975        
B. Credit Ratings
(1) Corporate Bonds
                 
    Subject       Credit rating entity   Evaluation
Credit rating date   of valuation   Credit rating   (Credit rating range)   classification
March 11, 2005
  Corporate bond   AAA   Korea Investors Service, Inc.   Current valuation
March 11, 2005
  Corporate bond   AAA   Korea Ratings   Current valuation
March 14, 2005
  Corporate bond   AAA   Korea Ratings   Regular valuation
June 13, 2006
  Corporate bond   AAA   National Information on Credit Evaluation, Inc.   Regular valuation
June 21, 2006
  Corporate bond   AAA   Korea Ratings   Regular valuation


Table of Contents

                 
    Subject       Credit rating entity   Evaluation
Credit rating date   of valuation   Credit rating   (Credit rating range)   classification
June 22, 2006
  Corporate bond   AAA   Korea Investors Service, Inc.   Regular valuation
September 1, 2006
  Corporate bond   AAA   National Information on Credit Evaluation, Inc.   Current valuation
September 1, 2006
  Corporate bond   AAA   Korea Ratings   Current valuation
September 1, 2006
  Corporate bond   AAA   Korea Investors Service, Inc.   Current valuation
October 27, 2006
  Corporate bond   AAA   National Information on Credit Evaluation, Inc.   Current valuation
October 27, 2006
  Corporate bond   AAA   Korea Ratings   Current valuation
May 29, 2007
  Corporate bond   AAA   Korea Ratings   Regular valuation
June 14, 2007
  Corporate bond   AAA   National Information on Credit Evaluation, Inc.   Regular valuation
June 27, 2007
  Corporate bond   AAA   Korea Investors Service, Inc.   Regular valuation
November 5, 2007
  Corporate bond   AAA   Korea Ratings   Current valuation
November 5, 2007
  Corporate bond   AAA   National Information on Credit Evaluation, Inc.   Current valuation
November 5, 2007
  Corporate bond   AAA   Korea Investors Service, Inc.   Current valuation
 
*   Rating definition: “AAA” — The certainty of principal and interest payment is at the highest level with extremely low investment risk, and is stable in that there is no influence of any environmental change under reasonable expectation conditions.
(2) Commercial Paper (“CP”)
                 
    Subject of       Credit rating entity   Evaluation
Credit rating date   valuation   Credit rating   (Credit rating range)   classification
January 12, 2005
  CP   A1   Korea Ratings   Regular valuation
June 13, 2005
  CP   A1   Korea Investors Service, Inc.   Current valuation
June 14, 2005
  CP   A1   National Information on Credit Evaluation, Inc.   Current valuation
June 16, 2005
  CP   A1   Korea Ratings   Current valuation
December 23, 2005
  CP   A1   Korea Investors Service, Inc.   Regular valuation
January 3, 2006
  CP   A1   National Information on Credit Evaluation, Inc.   Regular valuation
January 4, 2006
  CP   A1   Korea Ratings   Regular valuation
June 13, 2006
  CP   A1   National Information on Credit Evaluation, Inc.   Current valuation
June 21, 2006
  CP   A1   Korea Ratings   Current valuation
June 22, 2006
  CP   A1   Korea Investors Service, Inc.   Current valuation
September 1, 2006
  CP   A1   Korea Ratings   Regular valuation
December 27, 2006
  CP   A1   National Information on Credit Evaluation, Inc.   Regular valuation
December 27, 2006
  CP   A1   Korea Investors Service, Inc.   Regular valuation
May 29, 2007
  CP   A1   Korea Ratings   Current valuation


Table of Contents

                 
    Subject of       Credit rating entity   Evaluation
Credit rating date   valuation   Credit rating   (Credit rating range)   classification
June 14, 2007
  CP   A1   National Information on Credit Evaluation, Inc.   Current valuation
June 27, 2007
  CP   A1   Korea Investors Service, Inc.   Current valuation
November 5, 2007
  CP   A1   Korea Ratings   Regular valuation
November 5, 2007
  CP   A1   National Information on Credit Evaluation, Inc.   Regular valuation
November 5, 2007
  CP   A1   Korea Investors Service, Inc.   Regular valuation
 
*   Rating definition: “A1” — Timely repayment capability is at the highest level with extremely low investment risk, and is stable in that there is no influence of any environmental change under reasonable expectation conditions.


Table of Contents

(3) International Credit Ratings
                 
        Credit rating   Credit rating company    
Date of credit rating   Subject of valuation   of securities   (Credit rating range)   Evaluation type
June 14, 2005
  Issuer Rating   A   Fitch (England)   Current valuation
July 14, 2005
  Global Bonds   A2   Moody’s (U.S.A.)   Current valuation
July 14, 2005
  Exchangeable Bonds   A2   Moody’s (U.S.A.)   Current valuation
July 27, 2005
  Global Bonds   A   S&P (U.S.A.)   Current valuation
July 27, 2005
  Exchangeable Bonds   A   S&P (U.S.A.)   Current valuation
July 9, 2007
  Global Bonds   A   Fitch (England)   Current valuation
July 9, 2007
  Global Bonds   A2   Moody’s (U.S.A.)   Current valuation
July 9, 2007
  Global Bonds   A   S&P (U.S.A.)   Current valuation
III. FINANCIAL INFORMATION
1. Summary Financial Statements (Consolidated)
                                         
(Unit: in million Won)
    Year ended December 31,
Classification   2007   2006   2005   2004   2003
Current assets
    4,813,072       4,663,962       4,598,580       4,390,692       4,069,525  
Quick assets
    4,766,020       4,644,184       4,590,796       4,338,371       4,038,009  
Inventory
    47,052       19,778       7,784       52,321       31,516  
Fixed assets
    14,235,863       11,576,006       10,106,193       9,892,665       9,748,692  
Investments
    5,446,711       3,236,783       1,989,934       1,665,841       1,432,200  
Tangible assets
    4,969,354       4,507,335       4,663,369       4,703,922       4,641,547  
Intangible assets
    3,433,962       3,518,411       3,452,889       3,522,903       3,674,944  
Other non-current assets
    385,836       313,477                    
Total assets
    19,048,935       16,239,968       14,704,772       14,283,358       13,818,217  
Current liabilities
    3,016,874       3,208,416       2,863,373       3,066,893       4,530,910  
Fixed liabilities
    4,344,428       3,548,464       3,513,860       4,010,721       3,193,460  
Total liabilities
    7,361,302       6,756,880       6,377,233       7,077,614       7,724,370  
Capital
    44,639       44,639       44,639       44,639       44,639  
Capital surplus
    2,924,960       2,950,327       2,954,840       2,968,301       2,911,556  
Capital adjustment
    (-)2,041,577       (-)2,019,567       (-)2,048,515       (-)2,058,292       (-)2,158,244  
Accumulated comprehensive income
    1,591,258       490,010                    
Retained earnings
    8,914,970       7,847,434       7,267,649       6,152,898       5,139,911  

 


Table of Contents

                                         
(Unit: in million Won)
    Year ended December 31,
Classification   2007   2006   2005   2004   2003
Minority Interest
    253,383       170,245                    
Total capital
    11,687,633       9,483,088       8,327,540       7,205,743       6,093,847  
Sales
    12,018,163       11,027,977       10,721,820       10,570,615       10,272,081  
Operation income
    1,810,412       2,621,132       2,670,616       2,439,749       3,105,107  
Ordinary income
    1,985,292       2,021,578       2,561,567       2,123,176       2,754,335  
Current net income
    1,562,265       1,449,552       1,868,307       1,493,414       1,965,277  
Consolidated Current net income
    1,648,876       1,451,491       1,872,978       1,491,479       1,966,100  
Numbers of Consolidated Companies
    26       18       17       11       11  
2. Summary Financial Statements (Non Consolidated)
                                         
(Unit: in million Won)
    Year ended December 31,
Classification   2007   2006   2005   2004   2003
Current assets
    4,094,059       4,189,325       4,172,485       3,854,345       3,460,706  
Quick assets
    4,075,378       4,172,887       4,166,500       3,843,384       3,452,682  
Inventory
    18,681       16,438       5,985       10,961       8,024  
Fixed assets
    14,048,990       11,624,728       10,349,191       10,166,360       9,915,253  
Investments
    5,950,585       3,547,942       2,366,760       2,112,488       1,763,359  
Tangible assets
    4,594,413       4,418,112       4,595,884       4,605,253       4,551,626  
Intangible assets
    3,174,942       3,405,158       3,386,547       3,448,619       3,600,268  
Other non-current assets
    329,051       253,516                    
Total assets
    18,143,049       15,814,053       14,521,676       14,020,705       13,375,959  
Current liabilities
    2,484,548       2,985,620       2,747,268       2,859,711       4,231,974  
Fixed liabilities
    4,221,016       3,522,006       3,516,528       4,033,902       3,202,147  
Total liabilities
    6,705,564       6,507,626       6,263,796       6,893,613       7,434,121  
Capital
    44,639       44,639       44,639       44,639       44,639  
Capital surplus
    2,939,353       2,962,699       2,966,198       2,983,166       2,915,964  
Capital adjustment
    (-)2,041,578       (-)2,019,568       (-)2,022,817       (-)2,057,422       (-)2,159,114  
Accumulated comprehensive income
    1,589,206       473,904                    
Retained earnings
    8,905,865       7,844,753       7,269,861       6,156,708       5,140,349  
Total capital
    11,437,485       9,306,427       8,257,881       7,127,091       5,941,838  

 


Table of Contents

                                         
(Unit: in million Won)
    Year ended December 31,
Classification   2007   2006   2005   2004   2003
Sales
    11,285,900       10,650,952       10,161,129       9,703,681       9,520,244  
Operation income
    2,171,543       2,584,370       2,653,570       2,359,581       3,080,660  
Ordinary income
    2,307,785       2,021,643       2,554,613       2,115,778       2,714,194  
Current net income
    1,642,451       1,446,598       1,871,380       1,494,852       1,942,750  
 
*   See the attached Korean GAAP Non-consolidated Financial Statements.
IV. AUDITOR’S OPINION
1. Auditor
         
2007   2006   2005
Deloitte Anjin LLC
  Deloitte Anjin LLC   Deloitte Anjin LLC
2. Audit Opinion
         
Term   Auditor’s opinion   Issues noted
Year ended December 31, 2007   Appropriate  
Year ended December 31, 2006   Appropriate  
Year ended December 31, 2005   Appropriate  
3. Remuneration for Independent non-executive Auditors for the Past Three Fiscal Years
A. Audit Contracts
                         
(Unit: in thousand Won)
Term   Auditors   Contents   Fee   Total hours
Year ended December 31, 2007
  Deloitte Anjin
LLC
  Semi-annual review
Quarterly review
Non-consolidated financial statements audit
Consolidated financial statements audit
    1,066,318       11,468  
 
                       
Year ended December 31, 2006
  Deloitte Anjin
LLC
  Semi-annual review
Quarterly review
Quarterly review
Non-consolidated financial statements audit
Consolidated financial statements audit
    656,000       7,637  
 
                       
Year ended December 31, 2005
  Deloitte Anjin
LLC
  Semi-annual review
Quarterly review
Non-consolidated financial statements audit
Consolidated financial statements audit
    447,000       5,177  
 
Year ended December 31, 2007
  Deloitte Anjin
LLC
  Semi-annual review
Quarterly review
Non-consolidated financial statements audit
Consolidated financial statements audit
    1,066,318       11,468  

 


Table of Contents

V. MANAGEMENT STRUCTURE
1. Summary of Management Structure
A. Board of Directors
(1) Authority of the Board of Directors
     a) Authority of the board of directors under Article 7 of the Regulations of the Board of Directors
    Convocation of shareholders’ meeting and submission of agenda
 
    Prior approval of financial statements
 
    Decisions on issuance of new shares
 
    Long-term borrowings, issuance of corporate bonds and redemptions
 
    Capital transfer of reserves
 
    Election of CEO and representatives
 
    Appointment of executive directors
 
    Establishment, transfer or closure of branches
 
    Enactment of and revision to the Regulations for the Board of Directors
 
    Annual business plan and budgeting
 
    Approval of investments of Won 15 billion or above
 
    Planned budget increases and changes for investments or Won 15 billion or above
 
    Diversification into new businesses
 
    Investments and joint ventures of Won 15 billion or above (excluding matters subject to prior approval by independent non-executive directors)
 
    Establishment of subsidiaries
 
    Guarantees of Won 15 billion or above (excluding matters subject to prior approval by independent non-executive directors)

 


Table of Contents

    Transactions undertaken with related parties equal to or above the lesser of an amount equivalent to 10% of capital or Won 10 billion, and any material changes to such transactions in accordance with the Anti-trust Law and Fair Trade Act
 
    Enactment of and amendment to the Internal Trading Procedures
 
    Other matters considered necessary by the Board of Directors and those requiring Board of Directors’ approval under applicable laws
  b)   Reporting items under Article 7.2 of the Regulations of the Board of Directors
    The representative director must report the following to the Board of Directors within two months after the date of occurrence:
    Results for the six months ended June 30 of each year
 
    Execution of investments between Won 5 billion and Won 15 billion
 
    New investments and joint ventures under Won 15 billion
 
    Acquisition of non-operational fixed assets
 
    Disposition of fixed assets of Won 15 billion or above
 
    Matters related to guarantees of under Won 15 billion
 
    Internal trading not subject to approval by the Board of Directors
 
    Matters delegated to the representative director that the Board of Directors requires to be reported
(2) Publication of Information on Director Candidates Prior to the Shareholders’ Meeting for the Election of Directors and Shareholders’ Nomination
  a)   On February 22, 2008, in the notice of the annual general meeting of shareholders, information on Shin Bae Kim, Young Ho Park, Rak Yong Uhm, Jay Young Chung, Jae Ho Cho, candidates for the Board of Directors, was publicly disclosed.
 
  b)   There was no nomination by the shareholders.
(3) Significant Activities of the Board of Directors
             
Meeting   Date   Agenda   Approval
276th
(the first meeting of 2007)
  January 25, 2007  
-    Financial statements for the year ended December 31, 2006
-    Annual business report for the year ended December 31, 2006
  Approved as proposed
Approved as proposed
277th
(the second meeting of 2007)
  February 13, 2007  
-    Organization of Independent Non-executive Director Nomination Committee
  Approved as proposed
278th
(the third meeting of 2007)
  February 13, 2007   -    Convocation of the 23rd General Meeting of Shareholders
-    Change in the Fair Trade Voluntary Compliance Program manager
  Approved as proposed
Approved as proposed

 


Table of Contents

             
Meeting   Date   Agenda   Approval
279th
(the fourth meeting of 2007)
  March 9, 2007  
-    Election of the representative director and appointments of executive directors
-    Election of committee members
  Approved as proposed
Approved as proposed
280th
(the fifth meeting of 2007)
  April 27, 2007   -    Entry into UN Global Compact   Approved as proposed
281th
(the sixth meeting of 2007)
  May 29, 2007   -    WCDMA Investment Plan   Approved as proposed
282th
(the seventh meeting of 2007)
  June 29, 2007  
-    Capital Investment in AD Chips & Acquisition of Convertible Bond
-    Capital Investment in iHQ
-    Capital Investment in NTREEV
-    Issuance of Global Bond
-    Capital Injection into USA Holdings Inc.
  Disapproval
Approved as proposed
Approved as proposed
Approved as proposed
Approved as proposed
283th
(the eighth meeting of 2007)
  July 27, 2007   -    Interim Dividend   Approved as proposed
284th
(the ninth meeting of 2007)
  September 20, 2007   -    Capital Increase Review on SK Telecom USA Holdings
-    New Corporate Establishment and Equity Participation in the USA
-    Transactions with SK C&C during 4Q 2007
  Approved
Approved as proposed
Approved as proposed
285th
(the tenth meeting of 2007)
  October 16, 2007   -    Extension of Stock Buyback Trust Contract   Approved as proposed
286th
(the 11th meeting of 2007)
  November 2, 2007  
-    Organization of Independent Non-executive Director Nomination Committee
-    Issuance of Corporate Bond
-    Treasury Stock Buyback
-    Change in WCDMA Investment Plan
  Approved as proposed
Approved as proposed
Approved as proposed
Approved as proposed
287th
(the 12th meeting of 2007)
  November 30, 2007   -    Stock Acquisition of Hanaro Telecom
-    Plan for Cooperation among Affiliates
-    Enter into Global LBS Business by Acquiring Foreign LBS Solution Business
  Approved as proposed
Approved as proposed
Approved as proposed

 


Table of Contents

             
Meeting   Date   Agenda   Approval
288th
(the 13th meeting of 2007)
  December 21, 2007   -    Management Plan of 2008
-    Treasury Stock Sales to E.S.O.P.
  Approved as proposed
Approved as proposed
289th
(the first meeting of 2008)
  January 31, 2008  
-    Financial statements for the year ended December 31, 2007
-    Annual business report for the year ended December 31, 2007
-    Establishment of Corporate for Convergence Business in USA
  Approved as proposed
Approved as proposed
Approved as proposed
290th
(the second meeting of 2008)
  February 19, 2008  
-    Convocation of the 24rd General Meeting of Shareholders
-    Issuance of Corporate Bond
  Approved as proposed
Approved as proposed
291th
(the third meeting of 2008)
  March 14, 2008  
-    Election of the representative director
-    Election of committee members
  Approved as proposed
Approved as proposed
(4) Committee Structure and Activities of the Board of Directors
  a)   Independent non-executive Director Nomination Committee
    Organization
(As of March 14, 2008)
         
    Members
Number of Persons   Company Directors   Independent non-executive Directors
4
  Shin Bae Kim, Sung Min Ha   Yong Woon Kim , Hyun Chin Lim
 
*   The Independent Non-executive Director Nomination Committee is a committee established under the provisions of the Articles of Incorporation.
    Activities

 


Table of Contents

                         
            D.S. Shim   S.T. Yang   S.C. Lee   H.J. Lim
Date   Details   Approval   (100%)*   (92%)*   (100%)*   (100%)*
            Vote
Feb. 13, 2007
  - Election of the Chairman: Seung Taik Yang
- 23nd General Meeting of Shareholders: Nomination of Independent non-executive director candidates : Dal Sup Shim
  Approved   Before
Election
  For   For  
 
Nov. 30 2007
  - Appointment of Representative Director of the Committee   Approved   For       For
 
Feb. 19 2008
  - 24nd General Meeting of Shareholders: Nomination of Independent non-executive director candidates : Rak Yong Uhm, Jay Young Chung, Jae Ho Cho   Approved   For       For
 
*   Participation Rate to the Board of Directors’ Meetings
  b)   Compensation Review Committee
    Organization
(As of March 14, 2008)
         
    Members
Number of Persons   Company Directors   Independent non-executive Directors
6 persons
    Yong Woon Kim, Dal Sup Shim, Rak Yong Uhm, Hyun Chin Lim , Jay Young Chung, Jae Ho Cho
 
*   The Compensation Review Committee is a committee established by the resolution of the Board of Directors.
    Activities
                                         
            D.S. Kim   Y.W. Kim   D.K. Byen   D.S. Shim   S.T. Yang   J.S. Yoon   S.C. Lee   H.J. Lim
Date   Details   Approval   (100%)   (100%)   (100%)   (100%)   (92%)   (50%)   (100%)   (100%)
                        Vote            
Apr. 26,
2007
  - Appointment of Representative Director of the Committee   Approved   For   For   For   For   For   Absent   For   For
Jul. 27, 2007
  - CEO Evaluation and Remuneration Scheme                  
 
*   Participation Rate to the Board of Directors’ Meetings
  c)   Capex Review Committee
    Organization
(As of March 14 , 2008))
         
    Members
Number of Persons   Company Directors   Independent non-executive Directors
5 persons
  Young Ho Park, Sung Min Ha   Rak Yong Uhm, Dal Sup Shim, Jay Young Chung

 


Table of Contents

 
*   The Capex Review Committee is a committee established by the resolution of the Board of Directors.
    Activities
                         
            D.K. Byun   S.T. Yang   J.S. Yoon   S.C. Lee
            (83%)*   (100%)*   (67%)*   (83%)*
Date   Details   Approval   Vote
Apr. 26, 2007
  - Appointment of Representative Director of the Committee   Approved   For   For   Absent   For
June 28, 2007
  - Acquisition of AD Chips
- IHQ Capital Increase
- Stock Acquisition and Capital Increase in Ntreev Soft
         
Sep. 19, 2007
  - New Corporate Establishment and Equity Participation in the USA          
Nov. 1, 2007
  - Change in WCDMA Investment Plan          
Nov. 29, 2007
  - Entering into Global LBS
Business by Acquiring Foreign
LBS Solution Business
    Absent     Absent  
Dec. 20, 2007
  - 2008 Investment Plan           Absent
 
*   Participation Rate to the Board of Directors’ Meetings
  d)   Audit Committee: See “B. Audit System” below.
 
*   The Audit Committee is a committee established under the provisions of the Articles of Incorporation.
B. Audit System
(1) Establishment and Organization of the Audit Committee
  a)   The Audit Committee is composed of three or more directors. However, independent non-executive directors must account for 2/3 or more, and the members are elected by the resolution of the Board of Directors each year.
 
  b)   The Audit Committee is convened when deemed necessary by the chairman or is requested by two or more of the committee members.
 
  c)   The quorum for resolution is majority attendance with majority consent of the attending members.
(2) Authority of the Audit Committee

 


Table of Contents

Includes authority to inquire on the subsidiary companies, right to investigate the business operations and asset conditions, and right to request for a business status report pursuant to the Audit Committee Regulations.
(3)   Members of the Audit Committee
Audit Committee Members are directors Yong Woon Kim, Dal Sup Shim, Hyun Chin Lim and Jae Ho Cho.
 
*   Yong Woon Kim resigned on March 27, 2008 (Disclosed on March 28, 2008)
(4)   Major Activities of the Audit Committee
                 
Meeting   Date   Agenda   Approval   Remarks
 
      -   Financial statements for 23rd Fiscal Year        
The first meeting
  January 24, 2007   -   Business report for 23rd Fiscal Year    
of 2007
      -   Report on operation of internal accounting controls        
 
               
 
      -   Report on K GAAP audit of the financial statements for the year ended December 31, 2006      
 
              
 
      -   Report on the review of internal accounting controls for the year ended December 31, 2006      
 
              
The second meeting
  February 12, 2007   -   Report on the 2006 second-half management audit and the 2007 plan      
of 2007
            
 
      -   Auditor's opinion on internal controls   Approved as proposed    
 
      -   Audit report for the year ended December 31, 2005   Approved as proposed    
 
      -   Evaluation of internal accounting controls   Approved as proposed    
 
               
 
      -   Election of committee chairman   Approved as proposed    
 
      -   Reaffirmation of services to be provided by external auditors for fiscal year 2007   To be re-proposed at subsequent meeting    
The third meeting
  April 26, 2007    -   Report on internal audit regarding the    
of 2007
        appropriateness of imposition of certain fines      
 
               
 
      -   Accounting audit schedule for 2007      
 
      -   Remuneration for outside auditor for 2007   Approved as proposed    
The fourth meeting
  May 28, 2007    -   Collective re-approval of outside auditor’s service schedule for 2007   Approved as proposed  
of 2007
              
 
               
 
      -   Issuance of Global Bond plan      
The fifth meeting of 2007
  June 28, 2007    -   Report on US-GAAP audit of the financial statements for the year ended December 31, 2007    


Table of Contents

                 
Meeting   Date   Agenda   Approval   Remarks
The sixth
  July 26, 2007   -   Interim dividend plan      
meeting of 2007
      -   Financial results for the first half of 2007      
 
     
-   Report on K-GAAP audit of the financial statements for the first half of 2007
   
 
      -   Management audit results for the first half of 2007      
 
               
The seventh meeting of 2007
  September 19, 2007   -   Evaluation of internal accounting controls    
 
               
The eighth meeting
  November 1, 2007   -   Issuance of Corporate Bond      
of 2007
      -   Treasury Stock Buyback    
 
               
The ninth meeting of 2007
  November 29, 2007   -   2008 Shareholder Return Policy    
 
               
The tenth meeting
  December 20, 2007   -   Transactions with SK C&C during 4Q 2007   Approved as proposed  
of 2007
    -   Raise of 200 Service Fee for Outside Auditors   Approved as proposed  
      -   2008 Shareholder Return Policy        
 
               
The first meeting
  January 31, 2008   -   Audit Report on Internal Monitoring System   Approved as proposed  
of 2008
      -   2007 Management Audit Results and 2008      
 
        Management Audit Plan        
 
      -   Financial statements for 24rd Fiscal Year      
 
      -   Business Report for 24rd Fiscal Year      
      -   2008 Transactions Plan with SK C&C      
    -   Evaluation of internal accounting controls    
 
               
The second meeting
  February 19, 2008   -   Results Reports on Review of Internal Accounting      
of 2008
        Management System        
 
      -   Reports on 2007 K-GAAP Audit      
 
      -   Auditor’s Report for Fiscal Year 2007      
 
      -   Evaluation of Internal Accounting   Approved as proposed    
      Management System Operation   Approved as proposed    
    -   Issuance of Corporate Bond      
C.   Exercise of Voting Rights by the Shareholders
(1)   Use of the Cumulative Voting System
  a)   Pursuant to the Articles of Incorporation, the cumulative voting system was first introduced in the General Meeting of Shareholders in 2003.
 
  b)   Articles of Incorporation
    Article 32 (3) (Election of Directors): Cumulative voting under Article 382-2 of the Commercial Code will not be applied for the election of directors.


Table of Contents

    Article 4 of the 12th Supplement to the Articles of Incorporation (Interim Regulation): Article 32 (3) of the Articles of Incorporation shall remain effective until the day immediately preceding the date of the general shareholders’ meeting of 2003.


Table of Contents

D. Compensation of Officers and Others
(1) Compensation of Directors (including Independent non-executive Directors) and Members of the Audit Committee
(Unit: in million Won)
                                 
            Total amount        
            approved by the        
            Meeting of   Average payment    
Classification   Total payment   Shareholders   per person   Remarks
Company directors
    4,892               1,223        
Independent non-executive directors
    617       12,000       77     Including members of the Audit Committee
(2) Granting and Exercise of Stock Options
N/A\
2. Affiliated Companies
(1) Summary of Corporate Group
      Name: SK Group
(2) Capital Investments between Affiliated Companies

(As of January 22, 2008)   * Based on common shares
                                                                 
    Invested companies
    SK   SK   SK   SK   SK           SK   SK
Investing company   Corporation   Energy   Networks   Telecom   Chemicals   SKC   E&C   Shipping
SK Corporation
            31.18 %     40.475       21.75 %             42.50 %             72.13 %
SK Energy
                                                               
SK Networks
                            1.34 %                     0.02 %     17.71 %
SK Telecom
                                                               
SK Chemicals
                                                    58.03 %        
SKC
                                                            10.16 %
SK E&C
                                                               
SK Shipping
                                                               
SK Securities
                                                               
Walkerhill
                                                               
SK C&C
    25.42 %                                                        
SK incheon oil
                                                               
Daehan City Gas
                                                               
SK Telink
                                                               


Table of Contents

                                                                 
Investing company   Invested companies
    SK   SK   SK   SK   SK           SK   SK
    Corporation   Energy   Networks   Telecom   Chemicals   SKC   E&C   Shipping
SK E&S
                                                               
iHQ
                                                               
SK D&D
                                                               
SK Communications
                                                               
Total affiliated companies
    25.42 %     31.18 %     40.47 %     23.09 %             42.50 %     58.05 %     100.00 %
                                                                 
    Invested companies
    SK           SK   SK   SK   SK        
Investing companies   Securities   Walkerhill   E&S   Gas   C&C   Incheon oil   K-Pover   DOPCO
SK Corporation
                    51.00 %                             65.00 %        
SK Energy
                                            90.63 %             32.38 %
SK Networks
    22.71 %     50.37 %                     15.00 %                     4.61 %
SK Telecom
                                    30.00 %                        
SK Chemicals
            0.25 %                                                
SKC
    12.41 %     7.50 %                                                
SK E&C
                                                               
SK Shipping
                                                               
SK Securities
                                                               
Walkerhill
                                                               
SK C&C
                                                               
SK Incheon oil
                                                            5.23 %
Daehan City Gas
                                                               
SK Telink
                                                               
SK E&S
                            45.53 %                                
iHQ
                                                               
SK D&D
                                                               
SK Communications
                                                               
Total affiliated companies
    35.21 %     58.12 %     51.00 %     45.53 %     45.00 %     90.63 %     65.00 %     42.22 %
                                                                 
    Invested companies
            YN   Pohang                   SK   SK   SK
Investing companies   CCES   Energy   City Gas   Daehan City Gas   Daehan Engineering   Scitech   NJC   Telink
SK Corporation
                                                               
SK Energy
                                                               
SK Networks
                                                               
SK Telecom
                                                            90.77 %
SK Chemicals
                                            50.00 %     60.00 %        


Table of Contents

                                                                 
    Invested companies
            YN   Pohang                   SK   SK   SK
Investing companies   CCES   Energy   City Gas   Daehan City Gas   Daehan Engineering   Scitech   NJC   Telink
SKC
                                                               
SK E&C
                                                               
SK Shipping
                                                               
SK Securities
                                                               
Walkerhill
                                                               
SK C&C
                                                               
SK Incheon oil
                                                               
Daehan City Gas
                                    100.00 %                        
SK Telink
                                                               
SK E&S
    100.00 %     100.00 %     100.00 %     40.00 %                                
iHQ
                                                               
SK D&D
                                                               
SK Communications
                                                               
Total affiliated companies
    100.00 %     100.00 %     100.00 %     40.00 %     100.00 %     50.00 %     60.00 %     90.77 %
                                                                 
    Invested companies
    Busan   Jeonnam   Gangwon           OK Cashbag   Chungnam   SK    
Investing companies   City Gas   City Gas   City Gas   GBES   Service   City Gas   Wyverns   Infosec
SK Corporation
                                                               
SK Energy
                                    96.67 %                        
SK Networks
                                                               
SK Telecom
                                    1.19 %             99.99 %        
SK Chemicals
                                                               
SKC
                                                            20.63 %
SK E&C
                                                               
SK Shipping
                                                               
SK Securities
                                                               
Walkerhill
                                                               
SK C&C
                                                            48.14 %
SK Incheon oil
                                                               
Daehan City Gas
                                                               
SK Telink
                                                               
SK E&S
    40.00 %     100.00 %     100.00 %     100.00 %             100.00 %                
iHQ
                                                               
SK D&D
                                                               
SK Communications
                                                               
Total affiliated companies
    40.00 %     100.00 %     100.00 %     100.00 %     97.86 %     100.00 %     99.99 %     68.77 %


Table of Contents

                                                                 
    Invested companies
    MRO   SK                   Encar            
Investing companies   Korea   Telesys   Innoace   AirCROSS   network   Global C&I   Paxnet   TU Media
SK Corporation
                                                               
SK Energy
                                    50.00 %                        
SK Networks
    51.00 %             43.08 %                                        
SK Telecom
                    14.25 %     100.00 %             50.00 %     59.74 %     32.70 %
SK Chemicals
                                                               
SKC
            77.13 %                                                
SK E&C
                                                               
SK Shipping
                                                               
SK Securities
                                            40.00 %                
Walkerhill
                                                               
SK C&C
                                                               
SK Incheon oil
                                                               
Daehan City Gas
                                                               
SK Telink
                                                               
SK E&S
                                                               
iHQ
                                                               
SK D&D
                                                               
SK Communications
                                                               
Total affiliated companies
    51.00 %     77.13 %     57.33 %     100.00 %     50.00 %     90.00 %     59.74 %     32.70 %
                                                                 
    Invested companies
    SK   SK   SK   Seoul           SK   SK Mobile    
Investing companies   D&D   Utis   CTA   Records   Independence   Petrochemical   Energy   SKC Media
SK Corporation
                                                               
SK Energy
                    33.67 %                             88.34 %        
SK Networks
                                                               
SK Telecom
                            60.00 %                                
SK Chemicals
            60.00 %                             100.00 %                
SKC
                                                    11.66 %     100.00 %
SK E&C
    44.98 %                                                        
SK Shipping
                                                               
SK Securities
                                                               
Walkerhill
                                                               
SK C&C
                                    67.78 %                        

 


Table of Contents

                                                                 
    Invested companies
    SK   SK   SK   Seoul           SK   SK Mobile    
Investing companies   D&D   Utis   CTA   Records   Independence   Petrochemical   Energy   SKC Media
SK Incheon oil
                                                               
Daehan City Gas
                                                               
SK Telink
                                                               
SK E&S
                                                               
iHQ
                                                               
SK D&D
                                                               
SK Communications
                                                               
Total affiliated companies
    44.98 %     60.00 %     33.67 %     60.00 %     67.78 %     100.00 %     100.00 %     100.00 %
                                                                 
    Invested companies
            YTN           NTREEV   SK   SK        
Investing companies   iHQ   Media   I Film Co.   Soft   I-Media   Communications   Ecolgreen   Pullbbang
SK Corporation
                                                               
SK Energy
                                                               
SK Networks
                                                    55.00 %     66.67 %
SK Telecom
    37.09 %                     66.69 %             64.82 %                
SK Chemicals
                                                               
SKC
                                                               
SK E&C
                                                               
SK Shipping
                                                               
SK Securities
                                                               
Walkerhill
                                                               
SK C&C
                                    40.00 %                        
SK Incheon oil
                                                               
Daehan City Gas
                                                               
SK Telink
                                                               
SK E&S
                                                               
iHQ
            51.42 %     45.00 %                                        
SK D&D
                                                               
SK Communications
                                    60.00 %                        
Total affiliated companies
    37.09 %     51.42 %     45.00 %     66.69 %     100.00 %     64.82 %     55.00 %     66.67 %
                                                                 
    Invested companies
            SKC Air   SKN   Nuri   Commerce   Reviden        
Investing companies   Island   Gas   Service   Solution   Planet   Asset    
SK Corporation
                                                               
SK Energy
                                                               

 


Table of Contents

                                                                 
    Invested companies
            SKC Air   SKN   Nuri   Commerce   Reviden        
Investing companies   Island   Gas   Service   Solution   Planet   Asset    
SK Networks
                    100.00 %                                        
SK Telecom
                                    100.00 %                        
SK Chemicals
                                                               
SKC
            80.00 %                                                
SK E&C
                                            99.00 %                
SK Shipping
                                                               
SK Securities
                                                               
Walkerhill
                                                               
SK C&C
                            45.55 %                                
SK Incheon oil
    50.00 %                                                        
Daehan City Gas
                                                               
SK Telink
                                                               
SK E&S
                                                               
iHQ
                                                               
SK D&D
                                            1.00 %                
SK Communications
                                                               
Total affiliated companies
    50.00 %     80.00 %     100.00 %     45.55 %     100.00 %     100.00 %                
VI. SHARES
1. Distribution of Shares
A. Shareholdings of Major Shareholders and other Related Parties
     
(As of December 31, 2007)   (Unit: share, %)
                                                                         
                    Number of shares owned (equity rate)        
                    Beginning   Increase   Decrease   Ending   Cause
            Types of   Number   Ownership   Number   Number   Number of   Ownership   of
Name   Relationship   shares   of shares   ratio   of shares   of shares   shares   ratio   change
SK Corporation
  Parent company   Common stock     17,663,127       21.75                   17,663,127       21.75        
SK Networks
  Affiliated company   Common stock     1,085,325       1.34                   1,085,325       1.34        
Tae Won Choi
  Officer of affiliated company   Common stock     100       0.00                   100       0.00        
Shin Won Choi
  Officer of affiliated company   Common stock     770       0.00             770             0.00        

 


Table of Contents

     
(As of December 31, 2007)   (Unit: share, %)
                                                                         
                    Number of shares owned (equity rate)        
                    Beginning   Increase   Decrease   Ending   Cause
            Types of   Number   Ownership   Number   Number   Number of   Ownership   of
Name   Relationship   shares   of shares   ratio   of shares   of shares   shares   ratio   change
Shin Bae Kim
  Director   Common stock     1,270       0.00                   1,270       0.00        
Dae Kyu Byun
  Director   Common stock     50       0.00                   50       0.00        
Jae Seung Yoon
  Director   Common stock     200       0.00                   200       0.00        
Bang Hyung Lee
  Director   Common stock     400       0.00                   400       0.00        
Sung Min Ha
  Director   Common stock     738       0.00                   738       0.00        
Total
  Common stock     18,751,980       23.10             770       18,751,210       23.09        
 
          Preferred stock     0       0                   0       0          
 
          Total     18,751,980       23.10             770       18,751,210       23.09          
     
Largest shareholder:   SK Corporation   Number of related parties: 8 persons
 
*   SK Corporation purchased SK Telecom’s shares (1,085,325 shares) from SK Networks on February 25, 2008
B. Shareholders with More than 5% Shareholding
     
(As of December 31, 2007)   (Unit: share, %)
                                                         
            Common share   Preferred share   Sub-total
            Number of   Ownership   Number of   Ownership   Number of   Ownership
Rank   Name (title)   shares   ratio   shares   ratio   shares   ratio
1
  Citibank ADR     24,321,893       29.96                   24,321,893       29.96  
2
  SK Corporation     17,663,127       21.75                   17,663,127       21.75  
3
  SK Telecom     8,609,034       10.60                   8,609,034       10.60  
Total     50,594,054       62.31                   50,594,054       62.31  
C. Shareholder Distribution
(As of December 31, 2007)
 

 


Table of Contents

                                         
    Number of           Number of        
Classification   shareholders   Ratio (%)   shares   Ratio (%)   Remarks
Total minority shareholders
    23,320       99.93       25,811,059       31.79        
Minority shareholders (corporate)
    1,186       5.08       11,674,791       14.37        
Minority shareholders (individual)
    22,134       94.85       14,136,268       17.41        
Largest shareholder
    8       0.03       18,751,210       23.09        
Major shareholders
                             
Other shareholders
    8       0.03       36,631,442       45.12        
Other shareholders (corporate)
    6       0.03       11,493,465       14.16        
Other shareholders (individual)
    2       0.00       25,137,977       30.96        
Total
    23,336       100.00       81,193,711       100.00        

 


Table of Contents

2. Share Price and Trading Volume in the Last Six Months
A. Domestic Securities Market
(Unit: Won, shares)
                                                 
    December   November   October   September   August   July
Types   2007   2007   2007   2007   2007   2007
Common share            Highest
    274,000       256,000       240,000       212,000       206,500       221,000  
           Lowest
    249,000       204,500       209,000       206,000       192,000       200,000  
Monthly transaction volume
    5,847,036       10,755,565       5,675,597       2,494,024       4,408,098       5,311,253  
B. Overseas Securities Market
 
New York Stock Exchange   (Unit: US$, ADR)
                                                 
    December   November   October   September   August   July
Types   2007   2007   2007   2007   2007   2007
Depository receipt            Highest
    32.83       33.03       33.33       29.70       29.33       30.30  
Lowest
    29.84       29.00       30.02       28.05       26.15       27.41  
Monthly transaction volume
    26,024,900       38,418,408       29,156,341       20,339,291       42,018,148       32,018,574  
VII. EMPLOYEES
 
(As of December 31, 2007)   (Unit: persons, in million Won)
                                                                 
    Number of employees                    
    Office                           Average           Average    
    managerial   Production                   service   Total half   wage per    
Classification   positions   positions   Others   Total   year   year wage   person   Remarks
Male
    3,956                   3,956       9.9       237,698       60.1        
Female
    586                   586       8.1       28,450       48.6        
Total
    4,542                   4,542       9.6       266,148       58.6        

 


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VIII. TRANSACTIONS WITH RELATED PARTIES
1. Transactions with the Largest Shareholder
A. Provisional Payment and Loans (including loans on marketable securities)

(As of December 31, 2007)   (Unit: in million Won)
                                                                 
                    Change details              
            Account                                     Accrued        
Name (Corporate name)   Relationship     category     Beginning     Increase     Decrease     Ending     interest     Remarks  
SK Wyverns
  Affiliated company   Long-term and short-term loans     5,282       575       1,725       4,132              
B. Equity Investments

(As of December 31, 2007)   (Unit: in million Won)
                                                         
                    Details    
            Types of                    
Name (Corporate name)   Relationship   Investment   Beginning   Increase   Decrease   Ending   Note
SKT U.S.A. Holdings
  Affiliated company   Common share     199,047       137,578             336,625        
AirCROSS
  Affiliated company   Common share     300       2,140             2,440        
TU Media
  Affiliated company   Common share     64,611       32,368             96,979          
China STC
  Affiliated company   Common share     1,343       5,646             6,989          
SK Telecom(CHINA) Holding Co.,Ltd.
  Affiliated company   Common share           19,070             19,070          
iHQ
  Affiliated company   Common share     41,846       10,000             51,846          
Commerce Planet
  Affiliated company   Common share           6,276             6,276          
Baba.com
  Affiliated company   Common share           1,975             1,975          
ENTREEV
  Affiliated company   Common share           17,720             17,720          

 


Table of Contents

                                                         
                    Details    
            Types of                    
Name (Corporate name)   Relationship   Investment   Beginning   Increase   Decrease   Ending   Note
Helio Inc.
  Affiliated company   Common share     1,100       242             1,342          
SKT Holdings America Inc.
  Affiliated company   Common share           4,050             4,050          
 
  Total
            308,247       237,065             545,312        
2. Transactions with Shareholders (excluding the largest shareholder and others), Officers, Employees and other Interested Parties
A. Provisional Payment and Loans (including loans on marketable securities)
* Agents
(Unit: in million Won)
                                                                 
                    Change details              
            Account                                     Accrued        
Name (Corporate name)   Relationship     category     Beginning     Increase     Decrease     Ending     interest     Remarks  
Hong Eun and others
  Agency   Long-term and short-term loans     64,984       207,772       157,797       114,959              
* Overseas investment companies
(Unit: in million Won)
                                                                 
                    Change details        
            Account                                   Accrued    
Name (Corporate name)   Relationship   category   Beginning   Increase   Decrease   Ending   interest   Remarks
DSS Mobile Com. (India)
  Overseas Investment company   Long-term loans     18,887                   18,887           Payment guarantee
B. Equity Investments
(Unit: in million Won)
                                                         
            Details    
            Types of                    
Name (Corporate name)   Relationship   Investment   Beginning   Increase   Decrease   Ending   Remarks
Nayio Media, Inc.
        Common share     248             248              
DCM V.L.P.
                      4,692             4,692        
Sky Lake Fund
                      1,172             1,172        
Centurion IT Investment Group
                3,000             1,070       1,930        

 


Table of Contents

                                                         
            Details    
            Types of                    
Name (Corporate name)   Relationship   Investment   Beginning   Increase   Decrease   Ending   Remarks
KTB Investment Group
                1,060             371       689        
Bridge Mobile Alliance
                      2,475             2,475        
KINX
        Common share     54             54              
NTS Company
        Common share     95             95              
JS Tech
        Common share     95             95              
P&T Telecom
        Common share     95             95              
GN Solitech
        Common share     95             95              
RF Solution
        Common share     95             95              
Kyoungseo Telecom
        Common share     95             95              
PWNT
        Common share     95             95              
WithNet
        Common share     95             95              
NS Tech
        Common share     95             95              
Hangil Telecom
        Common share     95             95              
M-Cube works
        Common share     188             188              
Stic Investment
        Common share     8,651             8,611       40        
China Unicom
        Common share           1,333,009             1,333,009        
Translink Capital L.L.C.
        Common share           798             798        
Total             14,246       1,342,146       11,587       1,344,805        
IX. OTHER RELEVANT MATTERS
1. Developments in the Items mentioned in prior Reports on Important Business Matters
A. Status and Progress of Major Management Events
             
Date of Disclosure   Title   Report   Reports status
October 26, 2001
  Resolution on trust agreement for the acquisition of treasury shares and others   1. Signatories: Shinhan Bank, Hana Bank,
Cho Hung Bank,
Korea Exchange Bank

2. Contract amount: Won 1,300 billion

3. Purpose: to increase shareholder value
  1. On December 24, 2003, cash surplus amount from the existing trust agreement was partially reduced (Won 318 billion).

2. On September 24, 2004, the Board of Directors extended the term of the specified monetary trust agreement for 3 years.

3. On October 16, 2007, the Board of Directors extended the term of the specified monetary trust agreement for 3 years.

4. As of December 31, 2007, the balance of specified monetary trust for treasury shares was Won 982 billion.

 


Table of Contents

2. Summary Minutes of the Shareholders’ Meeting
         
Date   Agenda   Resolution
23rd Fiscal Year Meeting of Shareholders (March 9, 2007)
  1. Approval of the financial statements for the year ended December 31, 2006
2. Remuneration limit for Directors
3. Election of Directors
-   Election of executive directors
-   Election of independent non-executive directors as Audit Committee members
  Approved (Cash dividend, Won 7,000 per share)
Approved (Won 12 billion)
Approved (Jung Nam Cho, Sung Min Ha)
Approved (Dal Sup Shim)
24rd Fiscal Year Meeting of Shareholders (March 14, 2008)
  1. Approval of the financial statements for the year ended December 31, 2007   Approved (Cash dividend, Won 8,400 per share)
 
  2. Amendment to Articles of incorporation    
 
  3. Remuneration limit for Directors    
 
  4. Election of Directors   Approved (Won 12 billion)
 
 
-   Election of executive directors
  Approved (Shin Bae Kim, Young Ho Park)
 
 
-   Election of independent non-executive directors
-   Election of independent non-executive directors as Audit Committee members
  Approved (Rak Yong Uhm, Jay Young Chung)
Approved(Jae Ho Cho)

 


Table of Contents

SK TELECOM CO., LTD.
NON-CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
AND INDEPENDENT AUDITORS’ REPORT

 


Table of Contents

Independent Auditors’ Report
English Translation of a Report Originally Issued in Korean
To the Stockholders and Board of Directors of
SK Telecom Co., Ltd.
We have audited the accompanying non-consolidated balance sheets of SK Telecom Co., Ltd. (the “Company”) as of December 31, 2007 and 2006, the related non-consolidated statements of income, appropriations of retained earnings and cash flows for the years then ended, and the related non-consolidated statement of changes in stockholders’ equity for the year ended December 31, 2007, all expressed in Korean won. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of the Company as of December 31, 2007 and 2006, the results of its operations, changes in its retained earnings and its cash flows for the years then ended, and the changes in its stockholders’ equity for the year ended December 31, 2007, in conformity with accounting principles generally accepted in the Republic of Korea.
Our audits also comprehended the translation of the Korean won amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 2(a). Such U.S. dollar amounts are presented solely for the convenience of readers outside of the Republic of Korea.

 


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Accounting principles and auditing standards and their application in practice vary among countries. The accompanying financial statements are not intended to present the financial position, results of operations, changes in stockholders’ equity and cash flows in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying financial statements are for use by those knowledgeable about Korean accounting procedures and auditing standards and their application in practice.
January 31, 2008
Notice to Readers
This report is effective as of January 31, 2008, the auditors’ report date. Certain subsequent events or circumstances may have occurred between the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the accompanying financial statements and may result in modification to the auditors’ report.

 


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SK TELECOM CO., LTD.
NON-CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2007 AND 2006
                                 
                    Translation into U.S. dollars  
    Korean won     (Note 2)  
    December 31,     December 31,     December 31,     December 31,  
ASSETS   2007     2006     2007     2006  
    (In millions)     (In thousands)  
CURRENT ASSETS:
                               
Cash and cash equivalents (Notes 2 and 12)
  W 575,646     W 241,100     $ 615,138     $ 257,641  
Short-term financial instruments (Note 20)
    79,360       61,953       84,804       66,203  
Trading securities (Notes 2 and 3)
    633,911       665,299       677,400       710,941  
Current portion of long-term investment securities (Notes 2 and 3)
    99,858       156       106,709       167  
Accounts receivable — trade, net of allowance for doubtful accounts of W59,581 million as of December 31, 2007 and W88,285 million as of December 31, 2006 (Notes 2, 12 and 23)
    1,620,334       1,700,650       1,731,496       1,817,322  
Short-term loans, net of allowance for doubtful accounts of W753 million as of December 31, 2007 and W9,212 million as of December 31, 2006 (Notes 2, 5 and 23)
    74,532       61,967       79,645       66,218  
Accounts receivable — other, net of allowance for doubtful accounts of W23,253 million as of December 31 2007 and W26,708 million as of December 31, 2006 (Notes 2, 12 and 23)
    855,062       1,257,244       913,723       1,343,496  
Inventories (Note 2)
    18,681       16,439       19,963       17,567  
Prepaid expenses
    94,080       113,256       100,534       121,026  
Current deferred income tax assets, net (Notes 2 and 17)
    29,688       40,113       31,725       42,865  
Currency swap (Notes 2 and 25)
          16,660             17,803  
Advanced income and other
    12,907       14,488       13,792       15,482  
 
                       
 
                               
Total Current Assets
    4,094,059       4,189,325       4,374,929       4,476,731  
 
                       
 
                               
NON-CURRENT ASSETS:
                               
Property and equipment, net (Notes 2, 6, 11, 22 and 23)
    4,594,413       4,418,112       4,909,610       4,721,214  
Intangible assets, net (Notes 2, 7 and 11)
    3,174,942       3,405,159       3,392,757       3,638,768  
Long-term financial instruments (Notes 20)
    10,019       10,024       10,706       10,712  
Long-term investment securities (Notes 2 and 3)
    5,041,393       2,376,268       5,387,255       2,539,290  
Equity securities accounted for using the equity method (Notes 2 and 4)
    899,172       1,161,651       960,859       1,241,345  
Long-term loans, net of allowance for doubtful accounts of W23,783 million as of December 31, 2007 and W23,148 million as of December 31, 2006 (Notes 2, 5 and 23)
    76,642       12,828       81,900       13,708  
Guarantee deposits, net of allowance for doubtful accounts of nil as of December 31, 2007 and W163 million as of December 31, 2006 (Notes 2,12 and 23)
    122,209       120,006       130,593       128,239  
Long-term currency swap (Notes 2 and 25)
    13,057             13,953        
Long-term interest rate swap (Notes 2 and 25)
    3,170             3,387        
Long-term deposits and other
    113,973       120,680       121,793       128,960  
 
                       
 
                               
Total Non-Current Assets
    14,048,990       11,624,728       15,012,813       12,422,236  
 
                       
 
                               
TOTAL ASSETS
  W 18,143,049     W 15,814,053     $ 19,387,742     $ 16,898,967  
 
                       
(Continued)

 


Table of Contents

SK TELECOM CO., LTD.
NON-CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 2007 AND 2006
                                 
                    Translation into U.S. dollars  
    Korean won     (Note 2)  
    December 31,     December 31,     December 31,     December 31,  
LIABILITIES AND STOCKHOLDERS’ EQUITY   2007     2006     2007     2006  
    (In millions)     (In thousands)  
 
                               
CURRENT LIABILITIES:
                               
Accounts payable (Notes 12 and 23)
  W 1,112,351     W 1,107,786     $ 1,188,663     $ 1,183,785  
Income taxes payable (Note 17)
    314,830       331,496       336,429       354,238  
Accrued expenses (Notes 2 and 24)
    374,058       373,865       399,720       399,514  
Dividend payable
    308       268       329       286  
Withholdings
    222,653       327,895       237,928       350,390  
Current portion of long-term debt, net (Notes 2, 8 and 11)
    410,575       794,186       438,742       848,671  
Current portion of subscription deposits (Note 10)
    7,540       15,760       8,057       16,841  
Currency swap (Notes 2 and 25)
    12,646             13,514        
Advanced receipts and other
    29,587       34,364       31,617       36,722  
 
                       
 
                               
Total Current Liabilities
    2,484,548       2,985,620       2,654,999       3,190,447  
 
                       
 
                               
NON-CURRENT LIABILITIES:
                               
Bonds payable, net (Notes 2 and 8)
    2,281,160       1,978,874       2,437,658       2,114,633  
Long-term borrowings (Note 9)
    293,820       292,960       313,977       313,058  
Subscription deposits (Note 10)
    6,426       21,140       6,867       22,590  
Long-term payables — other, net of present value discount of W27,886 million as of December 31,2007 and W42,461 million as of December 31, 2006 (Note 2)
    422,114       517,539       451,073       553,044  
Obligations under capital lease (Notes 2 and 11)
          1,642             1,755  
Accrued severance indemnities, net (Note 2)
    22,150       9,568       23,670       10,224  
Non-current deferred income tax liabilities, net (Notes 2 and 17)
    1,044,690       530,454       1,116,360       566,845  
Long-term currency swap (Notes 2 and 25)
    110,911       112,970       118,520       120,720  
Long-term interest rate swap (Notes 2 and 25)
          454             485  
Guarantee deposits received and other (Notes 2, 23 and 24)
    39,745       56,404       42,472       60,276  
 
                       
 
                               
Total Non-Current Liabilities
    4,221,016       3,522,005       4,510,597       3,763,630  
 
                       
 
                               
Total Liabilities
    6,705,564       6,507,625       7,165,596       6,954,077  
 
                       
 
                               
STOCKHOLDERS’ EQUITY:
                               
Capital stock (Notes 1 and 13)
    44,639       44,639       47,701       47,701  
Capital surplus (Notes 2, 8, 13 and 16)
    2,939,353       2,962,699       3,141,006       3,165,953  
Capital adjustments:
                               
Treasury stock (Notes 1 and 15)
    (2,041,483 )     (2,014,927 )     (2,181,538 )     (2,153,160 )
Loss on disposal of treasury stock (Note 15)
    (95 )     (7,887 )     (102 )     (8,428 )
Stock options (Notes 2 and 16)
          3,246             3,469  
Accumulated other comprehensive income (loss) (Note 18):
                               
Unrealized gains on valuation of long-term investment securities, net (Notes 2, 3 and 17)
    1,626,689       408,521       1,738,287       436,547  
Equity in other comprehensive income (loss) of affiliates, net (Notes 2, 4 and 17)
    (27,965 )     82,200       (29,884 )     87,839  
Loss on valuation of currency swap, net (Notes 2, 17 and 25)
    (11,816 )     (16,487 )     (12,627 )     (17,618 )
Gain (loss) on valuation of interest swap, net (Notes 2, 17 and 25)
    2,298       (329 )     2,456       (352 )
Retained earnings (Note 14):
                               
Appropriated
    7,335,037       6,679,234       7,838,253       7,137,459  
Unappropriated
    1,570,828       1,165,519       1,678,594       1,245,480  
 
                       
 
                               
Total Stockholders’ Equity
    11,437,485       9,306,428       12,222,146       9,944,890  
 
                       
 
                               
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  W 18,143,049     W 15,814,053     $ 19,387,742     $ 16,898,967  
 
                       
See accompanying notes to non-consolidated financial statements.

 


Table of Contents

SK TELECOM CO., LTD.
NON-CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2007 AND 2006
                                 
                    Translation into U.S. dollars  
    Korean won     (Note 2)  
    2007     2006     2007     2006  
    (In millions)     (In thousands)  
 
                               
OPERATING REVENUE (Notes 2 and 23)
  W 11,285,900     W 10,650,952     $ 12,060,162     $ 11,381,654  
 
                       
 
                               
OPERATING EXPENSES (Notes 2 and 23)
                               
Labor cost
    (409,884 )     (396,147 )     (438,004 )     (423,324 )
Commissions paid(Note 2)
    (4,035,757 )     (3,316,551 )     (4,312,628 )     (3,544,081 )
Depreciation and amortization (Notes 6 and 7)
    (1,723,017 )     (1,513,092 )     (1,841,224 )     (1,616,897 )
Network interconnection
    (998,154 )     (955,954 )     (1,066,632 )     (1,021,537 )
Leased line
    (388,796 )     (395,113 )     (415,469 )     (422,219 )
Advertising
    (304,194 )     (300,829 )     (325,063 )     (321,467 )
Research and development (Note 2)
    (214,795 )     (211,752 )     (229,531 )     (226,279 )
Rent
    (207,199 )     (193,877 )     (221,414 )     (207,178 )
Frequency usage
    (164,072 )     (158,958 )     (175,328 )     (169,863 )
Repair
    (161,050 )     (146,312 )     (172,099 )     (156,350 )
Cost of goods sold
    (83,584 )     (39,686 )     (89,318 )     (42,409 )
Other
    (423,855 )     (438,311 )     (452,932 )     (468,381 )
 
                       
 
                               
Sub-total
    (9,114,357 )     (8,066,582 )     (9,739,642 )     (8,619,985 )
 
                       
 
                               
OPERATING INCOME
    2,171,543       2,584,370       2,320,520       2,761,669  
 
                       
 
                               
OTHER INCOME:
                               
Interest income (Note 3)
    77,344       68,624       82,650       73,332  
Dividends
    21,113       20,351       22,561       21,747  
Commissions (Note 23)
    35,601       41,080       38,043       43,898  
Reversal of allowance for doubtful accounts
    513       162       548       173  
Foreign exchange and translation gains (Note 2)
    11,112       2,744       11,874       2,932  
Equity in earnings of affiliates (Notes 2 and 4)
    266,811       83,144       285,115       88,848  
Gain on disposal of investment assets
    3,005       26,975       3,211       28,826  
Gain on disposal of property, equipment and intangible assets
    7,306       4,453       7,807       4,758  
Gain on transactions and valuation of currency swap
                           
(Notes 2 and 25)
    10,799       16,660       11,540       17,803  
Gain on conversion of convertible bond (Note 3)
    373,140             398,739        
Gain on repayment of bond
    5,600             5,984        
Other
    39,070       46,907       41,753       50,126  
 
                       
 
                               
Sub-total
    851,414       311,100       909,825       332,443  
 
                       
(Continued)

 


Table of Contents

SK TELECOM CO., LTD.
NON-CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
YEARS ENDED DECEMBER 31, 2007 AND 2006
                                 
                    Translation into U.S. dollars  
    Korean won     (Note 2)  
    2007     2006     2007     2006  
    (In millions)     (In thousands)  
 
                               
OTHER EXPENSES:
                               
Interest and discounts (Note 2)
    (W215,856 )     (W237,535 )     ($230,665 )     ($253,831 )
Donations
    (72,471 )     (103,002 )     (77,443 )     (110,068 )
Foreign exchange and translation losses (Note 2)
    (12,079 )     (2,871 )     (12,908 )     (3,068 )
Loss on valuation of trading securities (Notes 2 and 3)
    (1,203 )           (1,286 )      
Equity in losses of affiliates (Notes 2 and 4)
    (249,425 )     (212,109 )     (266,537 )     (226,661 )
Impairment loss on investment securities (Notes 2 and 3)
    (4,386 )     (27,344 )     (4,687 )     (29,220 )
Loss on disposal of investment assets
    (81 )     (3,486 )     (87 )     (3,725 )
Loss on disposal of property, equipment and
                           
intangible assets
    (30,213 )     (16,407 )     (32,286 )     (17,533 )
Impairment loss on assets (Note 2)
    (369 )     (6,866 )     (394 )     (7,337 )
Loss on transaction and valuation of currency swap
                           
(Notes 2 and 25)
    (33,876 )     (9,258 )     (36,200 )     (9,893 )
Special severance indemnities (Note 2)
          (144,021 )           (153,901 )
External research and development costs (Note 2)
    (73,725 )     (66,055 )     (78,783 )     (70,587 )
Other
    (21,488 )     (44,873 )     (22,960 )     (47,951 )
 
                       
 
                               
Sub-total
    (715,172 )     (873,827 )     (764,236 )     (933,775 )
 
                       
 
                               
INCOME BEFORE INCOME TAXES
    2,307,785       2,021,643       2,466,109       2,160,337  
 
                       
 
                               
PROVISION FOR INCOME TAXES (Notes 2 and 17)
    (665,334 )     (575,045 )     (710,979 )     (614,496 )
 
                       
 
                               
NET INCOME (Note 18)
  W 1,642,451     W 1,446,598     $ 1,755,130     $ 1,545,841  
 
                       
 
                               
NET INCOME PER SHARE (In Korean won and U.S. dollars) (Note 19)
  W 22,607     W 19,734     $ 24.16     $ 21.09  
 
                       
 
                               
DILUTED NET INCOME PER SHARE (In Korean won and U.S. dollars) (Note 19)
  W 22,289     W 19,458     $ 23.82     $ 20.80  
 
                       
See accompanying notes to non-consolidated financial statements.

 


Table of Contents

SK TELECOM CO., LTD.
NON-CONSOLIDATED STATEMENTS OF
APPROPRIATIONS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 2007 AND 2006
                                 
                    Translation into U.S. dollars  
    Korean won     (Note 2)  
    2007     2006     2007     2006  
    (In millions)     (In thousands)  
 
                               
RETAINED EARNINGS BEFORE APPROPRIATIONS:
                               
Beginning of year
  W 1,044     W 1,712     $ 1,117     $ 1,828  
Interim dividends (Note 21)
    (72,667 )     (73,714 )     (77,653 )     (78,770 )
Retirement of treasury stock
          (209,077 )           (223,419 )
Net income for the year
    1,642,451       1,446,598       1,755,130       1,545,841  
 
                       
 
                               
End of year
    1,570,828       1,165,519       1,678,594       1,245,480  
 
                       
 
                               
TRANSFER FROM VOLUNTARY RESERVES:
                               
Reserve for research and manpower development (Note 14)
          188,000             200,898  
Reserve for loss on disposal of treasury stock (Note 14)
          221,197             236,372  
Reserve for improvement of financial structure (Note 14)
    33,000             35,264        
 
                       
 
                               
 
    33,000       409,197       35,264       437,270  
 
                       
 
                               
APPROPRIATIONS:
                               
Reserve for research and manpower development (Note 14)
          (180,000 )           (192,349 )
Reserve for business expansion (Note 14)
    (193,000 )     (885,000 )     (206,241 )     (945,715 )
Reserve for technology development (Note 14)
    (800,000 )           (854,884 )      
Cash dividends (Note 21)
    (609,712 )     (508,672 )     (651,540 )     (543,569 )
 
                       
 
                               
 
    (1,602,712 )     (1,573,672 )     (1,712,665 )     (1,681,633 )
 
                       
 
                               
UNAPPROPRIATED RETAINED EARNINGS TO BE CARRIED FORWARD TO THE FOLLOWING YEAR
  W 1,116     W 1,044     $ 1,193     $ 1,117  
 
                       
See accompanying notes to non-consolidated financial statements.

 


Table of Contents

SK TELECOM CO., LTD.
NON-CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
YEAR ENDED DECEMBER 31, 2007
                                                 
                            Accumulated                
                            other             Total  
    Common     Capital     Capital     comprehensive     Retained     Stockholders’  
    stock     surplus     adjustments     income     earnings     equity  
 
                                               
(In millions of Korean won)
                                               
Balance, January 1, 2007
  W 44,639     W 2,962,699       (W2,019,568 )   W 473,905     W 7,844,753     W 9,306,428  
Cash dividends (Note 21)
                            (508,672 )     (508,672 )
Interim dividends (Note 21)
                            (72,667 )     (72,667 )
Net income
                            1,642,451       1,642,451  
Conversion of convertible bonds (Note 8)
          (11,116 )                       (11,116 )
Stock options (Notes 2 and 16)
          3,246       (3,246 )                  
Difference between the acquisition cost and the net book value incurred from the transactions between under common control companies (Note 13)
          (15,476 )                       (15,476 )
Treasury stock (Notes 2 and 15)
                (26,556 )                 (26,556 )
Loss on disposal of treasury stock (Notes 2 and 15)
                7,792                   7,792  
Unrealized gain on valuation of long-term investment securities, net (Notes 2, 3 and 18)
                      1,218,168             1,218,168  
Equity in other comprehensive income changes of affiliates, net (Notes 2, 4 and 17)
                      (110,165 )           (110,165 )
Loss on valuation of currency swap, net (Notes 2, 17 and 25)
                      4,671             4,671  
Gain (loss) on valuation of interest swap, net (Notes 2, 17 and 25)
                      2,627             2,627  
 
                                   
 
                                               
Balance, December 31, 2007
  W 44,639     W 2,939,353       (W2,041,578 )   W 1,589,206     W 8,905,865     W 11,437,485  
 
                                   
 
                                               
(In thousands of U.S. dollars) (Note 2)
                                               
Balance, January 1, 2007
  $ 47,701     $ 3,165,953       ($2,158,119 )   $ 506,416     $ 8,382,939     $ 9,944,890  
Cash dividends (Note 21)
                            (543,569 )     (543,569 )
Interim dividends (Note 21)
                            (77,653 )     (77,653 )
Net income
                            1,755,130       1,755,130  
Conversion of convertible bonds (Note 8)
          (11,878 )                       (11,878 )
Stock options (Notes 2 and 16)
          3,469       (3,469 )                  
Difference between the acquisition cost and the net book value incurred from the transactions between under common control companies (Note 13)
          (16,538 )                       (16,538 )
Treasury stock (Notes 2 and 15)
                (28,378 )                 (28,378 )
Loss on disposal of treasury stock (Notes 2 and 15)
                8,326                   8,326  
Unrealized gain on valuation of long-term investment securities, net (Notes 2, 3 and 17)
                      1,301,740             1,301,740  
Equity in other comprehensive income changes of affiliates, net (Notes 2, 4 and 17)
                      (117,723 )           (117,723 )
Loss on valuation of currency swap, net (Notes 2, 17 and 25)
                      4,991             4,991  
Gain (loss) on valuation of interest swap, net (Notes 2, 17 and 25)
                      2,808             2,808  
 
                                   
 
                                               
Balance, December 31, 2007
  $ 47,701     $ 3,141,006       ($2,181,640 )   $ 1,698,232     $ 9,516,847     $ 12,222,146  
 
                                   
See accompanying notes to non-consolidated financial statements.

 


Table of Contents

SK TELECOM CO., LTD.
NON-CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2007 AND 2006
                                 
                    Translation into U.S. dollars
    Korean won   (Note 2)
    2007   2006   2007   2006
    (In millions)   (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
                               
 
                               
Net income
  W 1,642,451     W 1,446,598     $ 1,755,130     $ 1,545,841  
 
                               
Expenses not involving cash payments:
                               
Provision for severance indemnities
    32,496       40,636       34,725       43,424  
Depreciation and amortization
    1,852,226       1,647,554       1,979,297       1,760,583  
Allowance for doubtful accounts
    46,197       77,188       49,366       82,483  
Foreign translation loss
    8,915       623       9,527       666  
Loss on valuation of trading securities
    1,203             1,286        
Impairment loss on investment securities
    4,386       27,344       4,687       29,220  
Equity in losses of affiliates
    249,425       212,109       266,537       226,661  
Loss on disposal of investment assets
    81       3,486       87       3,725  
Loss on disposal of property, equipment and intangible assets
    30,213       16,407       32,286       17,533  
Impairment loss on assets
    369       6,866       394       7,337  
Loss on transaction and valuation of currency swap
    33,876       9,258       36,200       9,893  
Donations
    286       10       306       11  
Amortization of discounts on bonds and other
    42,545       48,194       45,462       51,500  
 
                               
Sub-total
    2,302,218       2,089,675       2,460,160       2,233,036  
 
                               
Income not involving cash receipts:
                               
Foreign translation gain
    (4,910 )     (245 )     (5,247 )     (262 )
Reversal of allowance for doubtful accounts
    (513 )     (162 )     (548 )     (173 )
Equity in earnings of affiliates
    (266,811 )     (83,144 )     (285,115 )     (88,848 )
Gain on disposal of investment assets
    (3,005 )     (26,975 )     (3,211 )     (28,826 )
Gain on disposal of property, equipment and intangible assets
    (7,306 )     (4,453 )     (7,807 )     (4,758 )
Gain on transaction and valuation of currency swap
    (10,799 )     (16,660 )     (11,540 )     (17,803 )
Gain on conversion of convertible bond
    (373,140 )           (398,739 )      
Gain on repayment of bond
    (5,600 )           (5,984 )      
Other
    (371 )     (1,618 )     (397 )     (1,728 )
 
                               
Sub-total
    (672,455 )     (133,257 )     (718,588 )     (142,398 )
 
                               
Changes in assets and liabilities related to operating activities:
                               
Accounts receivable — trade
    41,657       (146,225 )     44,515       (156,257 )
Accounts receivable — other
    398,064       59,964       425,373       64,078  
Inventories
    (815 )     (9,971 )     (871 )     (10,655 )
Prepaid expenses
    67,378       60,271       72,000       64,406  
Advanced payments and other
    (11,132 )     12,712       (11,896 )     13,584  
Accounts payable
    4,489       136,443       4,797       145,804  
Income tax payable
    (20,348 )     (45,536 )     (21,744 )     (48,660 )
Accrued expenses
    (11,240 )     38,824       (12,011 )     41,487  
Withholdings
    105,242 )     122,834       (112,462 )     131,261  
Current portion of subscription deposits
    (8,220 )     885       (8,784 )     946  
Advanced receipts and other
    (4,235 )     17,290       (4,524 )     18,476  
Deferred income taxes
    111,977       (65,081 )     119,659       (69,546 )
Severance indemnities payments
    (6,005 )     (259,870 )     (6,417 )     (277,698 )
Deposits for group severance indemnities and other deposits
    (14,833 )     163,184       (15,851 )     174,379  
Dividends received from affiliate
    7,134       1,318       7,623       1,408  
 
                               
Sub-total
    448,629       87,042       479,407       93,013  
 
                               
Net Cash Provided by Operating Activities
    3,720,843       3,490,058       3,976,109       3,729,492  
(Continued)

 


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SK TELECOM CO., LTD.
NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 2007 AND 2006
                                 
                    Translation into U.S. dollars
    Korean won   (Note 2)
    2007   2006   2007   2006
    (In millions)   (In thousands)
CASH FLOWS FROM INVESTING ACTIVITIES:
                               
Cash inflows from investing activities:
                               
Decrease in short-term financial instruments
  W     W 12,246     $     $ 13,086  
Decrease in long-term financial instruments
    5       3       5       3  
Decrease in trading securities, net
    30,186       80,061       32,257       85,554  
Decrease in current portion of long-term investment securities
    156             167        
Collection of short-term loans
    113,396       93,410       121,175       99,818  
Proceeds from sales of long-term investment securities
    4,623       304,629       4,940       325,528  
Proceeds from sales of equity securities accounted for using the equity method
    9,801       108,470       10,473       115,912  
Decrease in guarantee deposits
    19,854       30,054       21,216       32,116  
Decrease in other non-current assets
    11,333       11,030       12,111       11,787  
Proceeds from disposal of property and equipment
    27,892       13,731       29,806       14,673  
Proceeds from disposal of intangible assets
    5,832       1,362       6,232       1,455  
Cash inflows from transaction of currency swap
    17,242             18,425        
 
                               
Sub-total
    240,320       654,996       256,807       699,932  
 
                               
Cash outflows for investing activities :
                               
Acquisition of short-term financial instruments
    (17,407 )           (18,601 )      
Increase in long-term financial instruments
          (10,000 )           (10,686 )
Extension of short-term loans
    (91,272 )     (86,743 )     (97,534 )     (92,694 )
Extension of long-term loans
    (98,112 )     (11,083 )     (104,843 )     (11,843 )
Acquisition of long-term investment securities
    6,609 )     (1,069,172 )     (391,760 )     (1,142,522 )
Acquisition of equity securities accounted for using the equity method
    (258,558 )     (217,793 )     (276,296 )     (232,735 )
Increase in guarantee deposits and other
    (74,696 )     (131,662 )     (79,820 )     140,695 )
Acquisition of property and equipment
    (1,754,455 )     (1,466,932 )     (1,874,818 )     (1,567,570 )
Increase in intangible assets
    (82,978 )     (52,603 )     (88,671 )     (56,212 )
Cash outflows from transaction of currency swap
    (8,769 )           (9,371 )      
 
                               
Sub-total
    (2,752,856 )     (3,045,988 )     (2,941,714 )     (3,254,957 )
 
                               
Net Cash Used in Investing Activities
    (2,512,536 )     (2,390,992 )     (2,684,907 )     (2,555,025 )
 
                               
CASH FLOWS FROM FINANCING ACTIVITIES:
                               
Cash inflows from financing activities:
                               
Issuance of bonds
    651,562       384,990       696,262       411,402  
Proceeds from long-term borrowings
          294,800             315,025  
Increase in guarantee deposots received and other
    1,858       3,370       1,985       3,601  
Proceeds from disposal of treasury stock
    45,133             48,229        
Cash inflows from transaction of currency swap
    2,901             3,100        
 
                               
Sub-total
    701,454       683,160       749,576       730,028  
 
                               
Cash outflows for financing activities:
                               
Repayment of current portion of long-term debt
    (798,197 )     (814,704 )     (852,957 )     (870,596 )
Repayment of bonds
    (43,027 )           (45,979 )      
Payment of dividends
    (581,309 )     (662,815 )     (621,189 )     (708,287 )
Decrease in subscription deposits
    (14,714 )     (2,630 )     (15,723 )     (2,810 )
Acquisition of treasury stock
    (118,512 )     (209,077 )     (126,642 )     (223,421 )
Cash outflows from transaction of currency swap
    (11,838 )           (12,650 )      
Decrease in other non-current liabilities
    (7,618 )     (3,666 )     (8,141 )     (3,918 )
 
                               
Sub-total
    (1,575,215 )     (1,692,892 )     (1,683,281 )     (1,809,032 )
 
                               
Net Cash Used in Financing Activities
    (873,761 )     (1,009,732 )     (933,705 )     (1,079,004 )
 
                               
NET INCREASE IN CASH AND CASH EQUIVALENTS
    334,546       89,334       357,497       95,463  
 
                               
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD
    241,100       151,766       257,641       162,178  
 
                               
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD
  W 575,646     W 241,100     $ 615,138     $ 257,641  
See accompanying notes to non-consolidated financial statements.

 


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SK TELECOM CO., LTD.
NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
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 Stock Market of Korea Exchange (formerly “Korea Stock Exchange”) and the New York and London Stock Exchanges, respectively. As of December 31, 2007, the Company’s total issued shares are held by the following:
                 
            Percentage of
    Number of shares   total shares issued (%)
 
               
SK Group
    18,748,452       23.09  
POSCO Corp.
    2,341,569       2.88  
Institutional investors and other minority shareholders
    51,494,656       63.43  
Treasury stock
    8,609,034       10.60  
 
               
 
               
 
    81,193,711       100.00  
 
               
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    The non-consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the Republic of Korea. The accompanying financial statements were approved by the Company’s board of directors on January 31, 2008. Significant accounting policies followed in preparing the accompanying financial statements are summarized as follows:
  a.   Basis of Presentation
 
      The Company maintains its official accounting records in Korean won and prepares statutory non-consolidated financial statements in 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 accounting principles generally accepted in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying financial statements have been condensed, restructured and translated into English with certain expanded descriptions 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, changes in stockholders’ equity or cash flows, is not presented in the accompanying financial statements.
 
      The accompanying financial statements are stated in Korean won, the currency of the country in which the Company is incorporated and operates. The translation of Korean won amounts into U.S. dollar amounts is included solely for the convenience of readers of financial statements and has been made at the rate of W935.80 to US$1.00, 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 period ended December 31, 2007. 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 that or any other rate.

 


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  b.   Adoptions of New Statements of Korea Accounting Standards (“SKAS”)
 
      On January 1, 2007, the Company adopted SKAS No. 11 and SKAS No. 21 through No. 23. The adoption of such accounting standards did not have an effect on the financial position of the Company as of December 31, 2007 and net income of the Company for the year then ended. Details of primary change due to such adoption of SKAS are as follows:
 
      Pursuant to adoption of SKAS No. 21, “Preparation and Presentation of Financial Statements”, statement of changes in stockholders’ equity was prepared only for the year ended December 31, 2007 in accordance with the transitional provision of the above SKAS. Certain amounts classified as capital adjustments through 2006 are classified as accumulated other comprehensive income (loss); such amounts include unrealized gain/loss on available-for-sale securities, equity in capital adjustments of affiliates and gain/loss on valuation of derivative instruments. In addition, certain amounts classified as investment assets through 2006 are classified as other non-current assets; such amounts include long-term loans, guarantee deposits, long-term deposits and others. Earnings per share amounts, which were reported on a periodic basis, are reflected in the accompanying statements of income. The accompanying balance sheet as of December 31, 2006, which is comparatively presented, was reclassified in accordance with SKAS No. 21.
 
  c.   Cash Equivalents
 
      Cash equivalents are highly liquid investments and short term financial instruments, which are readily convertible without significant transaction cost, do not have significant risk of changes in interest rates, and with original maturities of three months or less.
 
  d.   Allowance for Doubtful Accounts
 
      Allowance for doubtful accounts is provided based on the estimated collectibility of individual accounts and historical bad debt experience.
 
  e.   Inventories
 
      Inventories, which consist mainly of replacement units for wireless telecommunication facilities, supplies for sales promotion, and merchandise for e-commerce business are stated at the lower of cost or market value, with cost determined using the moving average method. The Company maintains perpetual inventory system, which is adjusted to physical inventory counts performed at year end. When the market value of inventories is less than the acquisition cost, the carrying amount is reduced to the market value and any difference is charged to current operations as operating expenses. There was no such loss for the years ended December 31, 2007 and 2006.

 


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  f.   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 accumulated other comprehensive income (loss) and the unrealized gains or losses are reflected in net income when the securities are sold or if there is an objective evidence of impairment such as bankruptcy of investees. Equity securities are stated at acquisition cost if fair value cannot be reliably measured.
 
      Held-to-maturity securities are presented at acquisition cost after premiums or discounts are amortized or accreted, respectively. The Company recognizes write-downs resulting from 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 asset section of the balance sheet if their maturities are within one year; otherwise, such securities are recorded in the non-current section of the balance sheet.
 
  g.   Equity Securities Accounted for Using the Equity Method
 
      Investment securities of affiliated companies, in which the Company has the ability to exercise significant influence, 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 stockholders’ equity of the investee. Differences between the purchase cost and net asset fair value of the investee are amortized over 5 to 20 years using the straight-line method. When applying the equity method of accounting, unrealized inter-company gains and losses are eliminated (See Note 4). In addition, the Company provides for additional losses for those investments accounted for using the equity method that are reduced to zero to the extent that the Company has other investment assets related to the equity method investees.
 
      When the Company’s share of equity interest in the equity method investees increases as a result of capital transactions of the investees with (or without) consideration, the increase in the Company’s proportionate shares in the investees are treated as goodwill or negative goodwill and when the Company’s share of equity interest in the equity method investees decreases as a result of capital transactions of the investees with (or without) consideration, the decrease in the Company’s proportionate shares in the investees are accounted for as gain or loss on disposal. However, if equity method investees are subsidiaries, such differences in the Company’s proportionate shares in the investees are accounted for as accumulated other comprehensive income (loss) in the Company’s stockholders’ equity.

 


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      In translating the foreign currency statements of the Company’s foreign-based investees, the Company applies (a) the current rate of exchange at the balance sheet date to the investee’s balance sheet items (except historical rates applied for stockholders’ equity), and (b) the average rate for the current period for income statements items. After translating the balance sheet and income statements items as noted above, the Company’s portion of the amount after deducting the translated total liabilities from translated total assets and equity is recorded as accumulated other comprehensive income (loss) in the Company’s stockholders’ equity.
 
  h.   Troubled Debt Restructuring
 
      In case that contractual terms such as on the face amount, interest rate, or maturity should be changed to alleviate the debtor’s burdens in accordance with an agreement between the creditor and the debtor, initiation of corporate reorganization procedures under court trustee or under debtor’s management, the Company recognizes the restructured receivables at present value of the expected future cash flows discounted by the reasonable interest rate and amortizes the difference between face value and present value to interest income using the effective interest rate method.
 
  i.   Property and Equipment
 
      Property and equipment are stated at cost less accumulated depreciation. 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 (See Note 6).
 
      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.
 
  j.   Intangible Assets
 
      Intangible assets are recorded at cost, less amortization computed using the straight-line method over 5 to 20 years. The amortization for the years ended December 31, 2007 and 2006 were W439,509 million and W366,516 million, respectively.

 


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      With its application for a license to provide IMT 2000 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% (4.56% as of December 31, 2007). The future payment obligations are W110,000 million (related present value discount: W681 million) in 2008, W130,000 million in 2009, W150,000 million in 2010 and W170,000 million in 2011. On December 4, 2001, SK IMT Co., Ltd. received the IMT 2000 license from MIC, and recorded the total license cost (measured at present value) 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 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 2000 service in December 2003, using the straight-line method over the estimated useful life of the IMT license which expires in December 2016. As of December 31, 2007, the present value discount related to the current portion and long-term portion of payments to be made to MIC totaled W681 million and W27,886 million, respectively.
 
  k.   Impairment Losses
 
      When the recoverable amount of assets (that are not recorded at fair value) including investment assets (except for trading and available for sale investments in listed companies), property and equipment, and intangible assets is significantly less than the carrying value due to obsolescence, physical damage, decline in market value or other causes, the carrying value is reduced to the recoverable amount and any difference is charged to current operation as an impairment loss. The Company recorded such impairment loss of W 369 million and W 6,866 million for the years ended December 31, 2007 and 2006, respectively.
 
  l.   Convertible Bonds
 
      The proceeds from issuance of convertible bonds are allocated between the conversion rights and the debt issued; and the portion allocable to the conversion rights is accounted for as capital surplus with a corresponding conversion right adjustment deducted from the related bonds. Such conversion right adjustment is amortized to interest expense using the effective interest rate method over the redemption period of the convertible bonds. The portion allocable to the conversion rights is measured by deducting the present value of the debt at time of issuance from the gross proceeds from issuance of convertible bonds, with the present value of the debt being computed by discounting the expected future cash flows (including call premium, if any) using the effective interest rate applied to ordinary or straight debt of the Company at the issue date.
 
  m.   Discounts on Bonds
 
      Discounts on bonds are amortized to interest expense using the effective interest rate method over the redemption period of the bonds.

 


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  n.   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 rate method over the redemption period.
 
  o.   Provisions, Contingent Liabilities and Contingent Assets
 
      The Company recognizes a provision when i) it has a present obligation as a result of a past event, ii) it is probable that a disbursement of economic resources will be required to settle the obligation, and iii) a reliable estimate can be made of the amount of the obligation (See Note 24). When a possible range of loss in connection with a probable loss contingency as of the balance sheet date is estimable with reasonable certainty, and some amount within that range appears at the time to be a better estimate than any other amount within the range, the Company accrues such amount. When no amount within the range appears to be a better estimate than any other amount, the minimum in that range is recorded.
 
      The Company does not recognize the following contingent obligations as liabilities:
    Possible obligations related to past events, for which the existence of a liability can only be confirmed upon occurrence of uncertain future event or events outside the control of the Company.
 
    Present obligations arising out of past events or transactions, for which i) a disbursement of economic resources to fulfill such obligations is not probable or ii) a disbursement of economic resources is probable, but the related amount cannot be reasonably estimated.
      In addition, the Company does not recognize potential assets related to past events or transactions, for which the existence of an asset or future benefit can only be confirmed upon occurrence of uncertain future event or events outside the control of the Company.
 
  p.   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 upon termination of their employment based on length of service and rate of pay. 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 deposits with outside insurance companies, where the beneficiaries are the Company’s employees, totaling W38,706 million and W23,895 million as of December 31, 2007 and 2006, respectively, are 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 National Pension Fund through March 1999. Such transfers, amounting to W50 million as of December 31, 2007 and 2006, respectively, are deducted from accrued severance indemnities.

 


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      Actual payment of severance indemnities amounted to W6,005 million and W259,870 million for the years ended December 31, 2007 and 2006, respectively.
 
      Effective March 31, 2006, the Company changed its policy for the severance indemnities applicable to those employees who joined the Company before or on December 31, 2002 from cumulative method, where employees are entitled to get paid more than one month of salary each year depending on the length of service, to simple multiplier method, where employees are paid one month of salary each year regardless of their service period in accordance with the resolution of the Company’s joint labor-management conference held on March 16, 2006. As a result of such policy change, the Company distributed early settlements to those eligible employees on their accumulated severance indemnities as of December 31, 2006 on a mandatory basis. In addition, the Company paid the additional bonuses of W125,890 million for those employees who received the mandatory distribution for their early settlement as compensation for those employees. The Company recorded such settlements as compensation costs as special severance indemnities in other expenses for the year ended December 31, 2006. In addition, the Company executed the early retirement program and the related special bonus of W18,131 million were paid to eligible employees and accounted for as special severance indemnities in other expenses for the year ended December 31, 2006.
 
  q.   Accounting for Employee Stock Option Compensation Plan
 
      The Company adopted the fair value based method of accounting for its employee stock option compensation plan (See Note 16). 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 granted before December 31, 2003, 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. In addition, recognized compensation costs, related to stock options expired due to such stock options not being exercised within the exercisable period, are transferred to other capital surplus from capital adjustments (See Note 16).
 
  r.   Accounting for Leases
 
      A lease is classified as a finance lease or an operating lease depending on the extent of transfer to the Company of the risks and rewards incidental to ownership. If a lease meets any one of the following criteria, it is accounted for as a finance lease:
    The lease transfers ownership of the asset to the lessee by the end of the lease term;
 
    The lessee has the option to purchase the asset at a bargain price and it is certain that the option will be exercised;
 
    The lease term is for the major part (75% or more) of the economic life of the asset even if title is not transferred;
 
    At the date of lease commencement the present value of the minimum lease payments amounts to at least substantially all (90% or more) of the fair value of the leased asset; or
 
    The leased assets are of such a specialized nature that only the Company can use them without major modifications.
      All other leases are treated as operating leases.

 


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  s.   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 W214,795 million and W211,752 million for the years ended December 31, 2007 and 2006, respectively. In addition, external research and development costs were W73,725 million and W66,055 million for the years ended December 31, 2007 and 2006, respectively.
 
  t.   Accounting for Foreign Currency Transactions and Translation
 
      Transactions denominated in foreign currencies are recorded in Korean won based on the prevailing rate of exchange at the dates of transactions. 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 W938.20 and W929.60 to US$1.00 at December 31, 2007 and 2006, respectively. The resulting gains or losses arising from the translation or settlement of such assets and liabilities are included in current operations.
 
  u.   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 result from the change in the fair value of derivative instruments are reported in current earnings. However, for derivative instruments designated as hedging the exposure of variable cash flows, the effective portions of the gains or losses on the hedging instruments are recorded as accumulated other comprehensive income (loss) and credited/charged to operations at the time the hedged transactions affect earnings, and the ineffective portions of the gains or losses are credited/charged immediately to operations.
 
  v.   Revenue Recognition
 
      Operating revenue is recognized when cellular telephone communication and related services are provided.
 
  w.   Income Tax
 
      Income tax expense is determined by adding or deducting the total income tax and surtaxes to be paid for the current period and the changes in deferred income tax assets and liabilities.
 
      Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profits. Deferred tax liabilities are generally recognized for all taxable temporary differences with some exceptions and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which the deductible temporary differences can be utilized. The carrying amount of deferred tax assets is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered. Deferred income tax assets and liabilities are classified into current and non-current based on the classification of related assets or liabilities for financial reporting purposes (See Note 17).

 


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  x.   Handset Subsidies to Long-term Mobile Subscribers
 
      Effective March 27, 2006, the Telecommunication Law of Korea was revised to allow wireless carriers to provide handset subsidies to customers who have maintained their wireless account with the same carrier for 18 months or longer and who have not received such subsidies within the last two years to acquire new or renewed customer relationships. The Company commenced its handset subsidy program on the effective date of the revised Telecommunications Law and included a clause in the service contract which allows the Company to change the terms of its subsidy program, including the Company’s ability to terminate the program at any time after a thirty day notice to its customers. The Company charges such handset subsidies to commissions paid as the related payments are made.
 
  y.   Use of Estimates
 
      The Company’s management makes reasonable estimates and assumptions in preparing the financial statements in conformity with accounting principles generally accepted in the Republic of Korea. These estimates and assumptions can change according to additional experiences, changes in circumstances, new information and other and could differ from actual results.
 
  z.   Reclassifications
 
      Certain reclassifications have been made in prior period’s financial statements to conform to classifications used in the current period. Such reclassifications did not have an effect on the previously reported net assets as of December 31, 2006 and net income for the year then ended.

 


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3.   INVESTMENT SECURITIES
  a. Trading Securities
 
      Trading securities as of December 31, 2007 and 2006 are as follows (In millions of Korean won):
                                 
    December 31, 2007     December 31, 2006  
                    Carrying amount     Fair value and  
    Acquisition cost     Fair value     (Note)     carrying amount  
 
                               
Beneficiary certificates
  W 635,114     W 633,911     W 633,911     W 665,299  
 
                               
  (note)   The difference between the fair value and the acquisition cost of trading securities amounting to W1,203 million as of December 31, 2007 was accounted for as loss on valuation of trading securities in other expenses.
 
  b. Long-term Investment Securities
 
 
Long-term investment securities as of December 31, 2007 and 2006 are as follows (In millions of Korean won):
                 
    December 31, 2007     December 31, 2006  
 
               
Available-for-sale equity securities
  W 4,675,021     W 992,455  
Available-for-sale debt securities
    466,230       1,383,969  
 
           
 
               
Total
    5,141,251       2,376,424  
Less current portion
    (99,858 )     (156 )
 
           
 
               
Long-term portion
  W 5,041,393     W 2,376,268  
 
           

 


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b-(1). Available-for-sale Equity Securities
Available-for-sale equity securities as of December 31, 2007 and 2006 are as follows (In millions of Korean won):
                                                 
    December 31, 2007     Carrying amount  
    Number of             Acquisition             December     December  
    Shares     Percentage (%)     cost     Fair value     31, 2007     31, 2006  
(Investments in listed companies)
                                               
Digital Chosunilbo Co., Ltd.
    2,890,630       7.8     W  5,781     W  8,629     W  8,629     W  5,897  
hanarotelecom incorporated
    11,045,000       4.8       121,677       116,525       116,525       88,581  
KRTnet Corporation
    234,150       4.4       1,171       2,470       2,470       2,517  
POSCO
    2,481,310       2.8       332,662       1,426,753       1,426,753       766,725  
DAEA TI Co., Ltd. (Formerly Comas Interactive Co., Ltd.)
    99,120       0.2       1,695       228       228       83  
Extended Computing Environment Co., Ltd.
    133,333       3.3       10       905       905       876  
nTels Co., Ltd.
    205,200       8.2       34     1,525 (note a)      1,525        
Qualcomm Inc.
    55,805       0.1       2,756       2,060       2,060        
China Unicom Ltd.
    899,745,075       6.6       1,333,009     1,936,840 (note b)      1,936,840        
 
                                       
Sub-total
                    1,798,795       3,495,935       3,495,935       864,679  
 
                                       
 
                                               
(Investments in non-listed companies)
                                               
LG Powercomm Co., Ltd. (Formerly Powercomm Co., Ltd.)
    7,500,000       5.0       240,243     89,422 (note c)      89,422       80,370  
SK C&C Co., Ltd.
    6,000,000       30.0       501,651     1,307,064 (note d)      1,037,604        
Japan MBCO
    54,000       7.3     27,332 (note e)                     
Eonex Technologies Inc.
    144,000       12.3     3,600 (note f)              4,593       4,593  
The Korea Economic Daily
    2,585,069       13.8     13,964 (note f)              13,964       13,964  
Others
                  117,325 (note f)              16,700       25,411  
 
                                         
Sub-total
                    904,115               1,162,283       124,338  
 
                                         
 
                                               
(Investments in funds)
                                               
Others
                  16,803 (note f)              16,803       3,438  
 
                                         
Sub-total
                    16,803               16,803       3,438  
 
                                         
Total
                  W  2,719,713             W  4,675,021     W  992,455  
 
                                         
 
(note a)     The common stocks of nTelsCo., Ltd. were newly listed on the Korea Securities Dealers Automated Quotation during the year ended December 31, 2007.
 
(note b)     In accordance with the resolution of the Company’s board of directors on August 20, 2007, convertible bonds of China Unicom Ltd. were converted into common stock and reclassified to available-for sale equity securities from available-for-sale debt securities.

 


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(note c)     The Company recorded its investments in common stock of LG Powercomm Co., Ltd. at its fair value, which was estimated by an outside professional valuation company using the present value of expected future cash flows. The unrealized loss on valuation of investments amounting to W109,345 million (net of tax effect of W41,476 million) and W115,908 million (net of tax effect of W43,965 million) as of December 31, 2007 and 2006, respectively, were recorded as accumulated other comprehensive loss.
 
(note d)     The investment in common stock of SK C&C Co., Ltd. was reclassified to available-for-sale securities from equity securities accounted for using the equity method during the three months ended December 31, 2007, as the SK C&C Co., Ltd. became the ultimate parent company of the Company. The Company recorded its investments in common stock of SK C&C 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 gain on valuation of investments totaling £Ü501,155 million (net of tax effect of W190,093 million) as of December 31, 2007 including the equity in other comprehensive income of affiliates amounting to W112,589 million (net of tax effect of W42,706 million) incurred prior to the reclassification was recorded as accumulated other comprehensive income. In addition, its acquisition cost was adjusted to the carrying amount valued using the equity method of accounting less the equity in other comprehensive income of affiliates prior to the reclassification.
 
(note e)     Due to the impairment of the Company’s investments in common stock of Japan MBCO, the Company recorded impairment loss on such investments of W27,332 million for the year ended December 31, 2006.
 
(note f)     As a reasonable estimate of fair value could not be made, the investment is stated at acquisition cost. The investment in common stock of Eonex Technologies Inc. was reclassified to available-for-sale securities from equity securities accounted for using the equity method during the year ended December 31, 2003, as the Company’s ownership in such investees decreased to less than 20% and the Company no longer exercises significant influence. Such securities were transferred to available-for-sale securities at the carrying amount valued using the equity method of accounting prior to the reclassification. Meanwhile, during the year ended December 31, 2007, the investment in common stock of Pantech Co., Ltd. was reclassified to available-for-sale equity securities from equity securities accounted for using the equity method as the Company no longer exercise significant influence over the investee as a result of Pantech’s 20 to 1 stock consolidation which resulted in decrease in the Company’s ownership to 0.5% from 22.7%. And, the carrying amount of the investment as of December 31, 2007 is nil.

 


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b-(2). Available-for-sale Debt Securities
Available-for-sale debt securities as of December 31, 2007 and 2006 are as follows (In millions of Korean won):
                                 
                    Carrying amount  
                    December     December  
    Maturity     Acquisition cost     31, 2007     31, 2006  
 
                               
Public bonds
  (note a)   W  51,545     W  51,341     W  51,300  
Currency stabilization bonds
  (note b)     49,948       49,713       49,894  
Closed beneficiary certificates (note c)
  October, 2009     4,750       4,787        
Bond-type beneficiary certificates
  (note d)     350,000       359,389       5,072  
Convertible bonds of Real Telecom Co., Ltd. (note e)
  March, 2007     10,656              
Convertible bonds of China Unicom Ltd. (note f)
  July, 2009                 1,276,703  
Convertible bonds of Eonex Technologies, Inc. (note g)
  October, 2008     1,000       1,000       1,000  
 
                         
 
                               
Total
            467,899       466,230       1,383,969  
Less current portion
            (100,304 )     (99,858 )     (156 )
 
                         
 
                               
Long-term available-for-sale debt securities
          W  367,595     W  366,372     W  1,383,813  
 
                         
The interest income incurred from available-for-sale debt securities for the years ended December 31, 2007 and 2006 was W4,800 million and W7,991 million, respectively.
(note a)     The maturities of public bonds as of December 31, 2007 and 2006 are as follows (In millions of Korean won):
                 
Maturity   December 31, 2007     December 31, 2006  
 
               
One year or less
  W  50,145     W  156  
More then one year and within five years
    1,196       51,144  
 
           
 
               
 
  W  51,341     W  51,300  
 
           
(note b)     The maturities of currency stabilization bonds as of December 31, 2007 and 2006 are as follows (In millions of Korean won):
                 
Maturity   December 31, 2007     December 31, 2006  
 
               
One year or less
  W  49,713     W  49,894  
 
           
(note c)     Returns on the closed beneficiary certificates were accounted for as interest income.

 


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(note d)     The maturities of bond-type beneficiary certificates as of December 31, 2007 and 2006 are as follows (In millions of Korean won):
                 
Maturity   December 31, 2007     December 31, 2006  
 
               
More than one year and within five years
  W  359,389     W   
 
           
(note e)     Due to the impairment of such bonds, the Company recorded an impairment loss of W10,656 million prior to December 31, 2004 and as of December 31, 2007, the principal amount of the bond has not been redeemed at its maturity.
 
(note f)     In accordance with the resolution of the Company’s board of directors dated August 20, 2007, convertible bonds of China Unicom Ltd. were converted into its common stock and reclassified to available-for sale equity securities from available-for-sale debt securities. As a result of such conversion, the Company recorded gain on conversion of convertible bonds of W373,140 million for the year ended December 31, 2007.
 
(note g)     On October 11, 2006, the Company purchased convertible bonds of Eonex Technologies, Inc. at face value of W1,000 million. Such convertible bonds can be converted into 7,142 shares of common stock of Eonex Technologies, Inc. at W140,000 per share during the period from April 1, 2007 to October 11, 2008. Unless either previously redeemed or converted, the notes are redeemable at 106% of the principal amount at maturity. If all such bonds are converted, the Company’s equity interest in Eonex Technologies, Inc. will increase to 12.9%.

 


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b-(3). Changes in Unrealized Gains (Losses) on Investments in Common Stock
The changes in unrealized gains (losses) on investments in common stock for the years ended December 31, 2007 and 2006 are as follows (In millions of Korean won):
                                 
    For the year ended December 31, 2007  
                    Transferred to        
    Beginning     Increase     realized     Ending  
    balance     (decrease)     gain (loss)     balance  
Available-for-sales securities:
                               
Digital Chosunilbo Co., Ltd.
  W 115     W 2,732     W     W 2,847  
hanarotelecom incorporated
    (33,096 )     27,944             (5,152 )
KRTnet Corporation
    1,347       (47 )           1,300  
POSCO
    434,063       660,028             1,094,091  
DAEA TI Co., Ltd. (formerly Comas Interactive Co., Ltd.)
    (1,611 )     145             (1,466 )
eXtended Computing Environment Co., Ltd.
    866       29             895  
nTels Co., Ltd.
          1,490             1,490  
Qualcomm Inc. Ltd.
          (696 )           (696 )
China Unicom
          599,012             599,012  
SK C&C Co., Ltd.
          691,248             691,248  
LG Powercomm Co., Ltd. (formerly Powercomm Co., Ltd.)
    (159,873 )     9,053             (150,820 )
Eonex Technologies Inc.
    2,011                   2,011  
Public bonds
    (5 )     (200 )           (205 )
Currency stabilization bonds
    12       (247 )           (235 )
Convertible bonds of China Unicom Ltd.
    319,648       208,095       (527,743 )      
Beneficiary certificates
          9,389             9,389  
 
                       
 
                               
Sub-total
    563,477       2,207,975       (527,743 )     2,243,709  
Less tax effect
    (154,956 )     (607,193 )     145,129       (617,020 )
 
                       
 
                               
Total
  W 408,521     W 1,600,782       (W382,614 )   W 1,626,689  
 
                       
                                 
    For the year ended December 31, 2006  
                    Transferred to        
    Beginning     Increase     realized     Ending  
    balance     (decrease)     gain (loss)     balance  
Available-for-sales securities:
                               
Digital Chosunilbo Co., Ltd.
  W 14     W 101     W     W 115  
hanarotelecom incorporated
    (65,237 )     32,141             (33,096 )
KRTnet Corporation
    1,475       (128 )           1,347  
POSCO
    168,563       265,500             434,063  
Comas Interactive Co., Ltd.
    (1,611 )                 (1,611 )
eXtended Computing Environment Co., Ltd.
          866             866  
LG Powercomm Co., Ltd.
    (163,113 )     3,240             (159,873 )
Eonex Technologies Inc.
    2,011                   2,011  
Public bonds
          (5 )           (5 )
Currency stabilization bonds
    (218 )     907       (677 )     12  
Convertible bonds of China Unicom Ltd.
          319,648             319,648  
 
                       
 
                               
Sub-total
    (58,116 )     622,270       (677 )     563,477  
Less tax effect
    15,982       (171,124 )     186       (154,956 )
 
                       
 
                               
Total
    (W42,134 )   W 451,146       (W491 )   W 408,521  
 
                       

 


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4. EQUITY SECURITIES ACCOUNTED FOR USING THE EQUITY METHOD
Equity securities accounted for using the equity method of accounting as of December 31, 2007 and 2006 are as follows (In millions of Korean won):
                                                         
    December 31, 2007             Carrying Amount  
            Ownership             Net                      
    Number     percentage     Acquisition     asset             December     December  
    of shares     (%)     cost     value           31, 2007     31, 2006  
 
                                                       
Pantech Co., Ltd.
    1,278,515       0.5     W     W     (note a)   W     W  
SK Communications Co., Ltd.
    28,029,945       64.8       175,441       141,199     (note b)     160,025       177,913  
SK Telink Co., Ltd.
    943,997       90.8       5,296       97,136               97,136       86,284  
SK C&C Co., Ltd.
    6,000,000       30.0                 (note c)           272,554  
SK Wyverns Baseball Club Co., Ltd.
    199,997       100.0       1,000                            
STIC Ventures Co., Ltd.
                          (note d)           8,651  
Paxnet Co., Ltd.
    5,590,452       59.7       26,563       14,145               30,237       30,807  
Global Credit & Information Co., Ltd.
    300,000       50.0       2,410       3,306               3,851       3,704  
TU Media Corp.
    17,538,064       32.7       96,979       5,527     (note e)     5,527       7,016  
Aircross Co., Ltd.
    1,575,000       100.0       2,440       5,967     (note f)     5,967       1,713  
IHQ, Inc.
    14,960,784       37.1       51,846       19,638     (note g)     38,911       38,938  
Ntreev Soft Co., Ltd.
    2,064,970       66.7       33,120       11,938     (note h)     13,220        
Baba Club
    200,000       100.0       3,970           (note i)     1,733        
Commerce Planet Co., Ltd. (formerly Philio Co., Ltd.)
    26,396       100.0       10,374       2,315     (note j)     6,266        
Seoul Records, Inc.
    9,582,321       60.0       27,874       19,376               21,415       25,995  
Harex Info Tech, Inc.
    225,000       21.2       3,375       417               1,118       1,835  
SK Mobile
          42.5       10,322       3,272               3,272       4,643  
SKT Vietnam PTE Ltd. (formerly SLD Telecom PTE Ltd.)
    180,476,700       73.3       191,273       101,412               101,776       118,463  
Skytel Co., Ltd.
    1,756,400       26.4       2,159       7,797               7,797       6,009  
SK China Company Ltd.
          20.7       3,195       1,086                     93  
SK Telecom China Co., Ltd.
          100.0       7,340       7,154               7,154       6,536  
ULand Company Ltd.
    14,100,100       70.1       17,511       4,026               5,290       6,761  
SK Telecom USA Holdings, Inc.
    1,000       100.0       336,625       63,023     (note k)     63,023       77,786  
SK Telecom International, Inc.
    109       100.0       17,467       26,454               26,454       25,146  
SK Telecom China Holding Co., Ltd.
          100.0       19,070       19,070     (note l)     19,070        
SK USA, Inc.
    49       49.0       3,184       3,140               3,140       2,969  
Helio, Inc.
    794,375       0.6       1,342       333               333       1,100  
Korea IT Fund
    190       63.3       190,000       210,568               210,568       193,060  
Centurion IT Investment Association
    30       53.2       1,930       2,463               2,463       3,262  
1st Music Investment Fund of SK-PVC
    1,385       69.3       6,925       5,607               5,607       7,186  
2nd Music Investment Fund of SK-PVC
    1,585       79.3       7,925       8,517               8,517       8,238  
SK-KTB Music Investment Fund
    297       74.3       14,850       13,367               13,367       15,311  
IMM Cinema Fund
    120       45.6       12,000       9,089               9,089       11,569  
Michigan Global Cinema Fund
    40       36.4       4,000       3,542               3,542       3,773  
3rd Fund of Isu Entertainment
    25       31.3       2,500       1,690               1,690       2,419  
Other investments in affiliates
                    22,113             (note m)     21,614       11,917  
 
                                                 
 
                                                       
Total
                  W 1,312,419                     W 899,172     W 1,161,651  
 
                                                 

 


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(note a)    Pantech Co., Ltd. (“Pantech”) requested its creditor banks for a debt restructuring due to deterioration of its liquidity on December 11, 2006. On December 15, 2006, Pantech entered into creditor banks agreement (the “Agreement”) with its eight creditor banks including Korea Development Bank (“KDB”), its main creditor bank. Currently, the creditor banks’ association, which was organized according to the Agreement and represented by KDB, has been supervising Pantech’s debt repayment schedule and operations. In the first half of 2007, the Company’s shares of Pantech were reduced to 1,278,515 shares from 25,570,306 shares in accordance with the Pantech’s 20 to 1 stock consolidation. In accordance with debt-equity swap, the Company’s ownership decreased from 22.7% to 0.5% for the year ended December 31, 2007. As a result, the investment in common stock of Pantech was reclassified to available-for-sale equity securities during the year ended December 31, 2007 as the Company no longer exercise significant influence over the investee.
 
(note b)    SK Communications Co., Ltd. merged with Empas Corporation on November 1, 2007 and Empas Corporation issued new stocks to the stockholders of SK Communications Co., Ltd. at the exchange ratio of 1 to 3.5732182 between the common stock of SK Communications Co., Ltd. and Empas Corporation. In addition, Empas Corporation changed its name to SK Communications Co., Ltd. Due to this merger, the Company’s shares of SK Communications Co., Ltd. increased to 28,029,945 shares from 7,844,454 shares and the Company’s ownership decreased from 85.9% to 64.8 % at December 31, 2007.
 
(note c)    For the year ended December 31, 2007, the Company’s shares of SK C&C Co., Ltd. were increased to 6,000,000 shares from 300,000 shares as a result of SK C&C Co., Ltd.’s 20 to 1 stock split. In addition, the investment in common stock of SK C&C Co., Ltd. was reclassified to available-for-sale equity securities, as SK C&C Co., Ltd. became the ultimate parent company of the Company by increasing its ownership interest in SK Holdings Co., Ltd. to 25.42% as of December 31, 2007.
 
(note d)    For the year ended December 31, 2007, the Company disposed all of its 1,600,000 shares of Stick Ventures Co., Ltd.
 
(note e)    For the year ended December 31, 2007, the Company additionally invested W32,368 million in TU Media Corp. which increased the Company’s ownership from 29.6% to 32.7%.
 
(note f)    For the year ended December 31, 2007, the Company acquired 975,000 shares of Air cross Co., Ltd.’s common stock from WiderThan Co., Ltd. and others, which increased the Company’s ownership from 38.1% to 100.0%.
 
(note g)    For the year ended December 31, 2007, the Company additionally invested W10,000 million in IHQ, Inc. which increased the Company’s ownership from 34.8% to 37.1%.

 


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(note h)    For the year ended December 31, 2007, the Company acquired 1,440,720 shares of Ntreev Soft Co., Ltd.’s common stock from IHQ, Inc. and others at W23,120 million with additional investment of W10,000 million in Ntreev Soft Co., Ltd. Therefore, the Company holds 66.7% ownership interest in Ntreev Soft Co., Ltd.
 
(note i)    For the year ended December 31, 2007, the Company acquired 200,000 shares of Baba Club’s common stock. As a result, the Company holds 100% ownership in Baba Club. Meanwhile, Baba Club was merged with Commerce Planet Co., Ltd. (formerly Philio Co., Ltd.), the Company’s subsidiary, on January 10, 2008.
 
(note j)    For the year ended December 31, 2007, the Company acquired 26,396 shares of Commerce Planet Co., Ltd. (formerly Philio Co., Ltd.)’s common stock. As a result, the Company holds 100% ownership in Commerce Planet Co., Ltd.
 
(note k)    In 2005, the Company incorporated SK Telecom USA Holdings, Inc. with an investment of US$122 million in order to invest in and manage Helio, Inc., a joint venture company in the Untied States of America, which was established in order to provide wireless telecommunication services in the United States of America. In addition, the Company invested additional US$149.5 million and US$78.5 million in SK USA Holdings, Inc. for the year ended December 31, 2007 and 2006, respectively (See Note 26).
 
(note l)    For the year ended December 31, 2007, the Company incorporated SK Telecom China Holdings Co, Ltd., a wholly owned subsidiary, with an initial investment of W19,070 million.
 
(note m)    As allowed under Korean GAAP, investments in equity securities of SK Telecom Europe Limited and others were not accounted for using the equity method of accounting, as changes in the Company’s portion of stockholders’ equity of such investees were not expected to be material.

 


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Details of the changes in investments in affiliates accounted for using the equity method for the years ended December 31, 2007 and 2006 are as follows (In millions of Korean won):
                                                             
        For the year ended December 31, 2007  
                                Equity in other                      
                        Equity in     comprehensive             Other        
        Beginning             earnings     income of     Dividend     increase     Ending  
        balance     Acquisition     (losses)     affiliates     received     (decrease)     balance  
 
                                                           
SK Communications Co., Ltd
  (note a)   W 177,913     W       (W26,254 )   W 8,366     W     W     W 160,025  
SK Telink Co., Ltd.
  (notes a and b)     86,284             15,543       (198 )     (4,493 )           97,136  
SK C&C Co., Ltd.
  (notes a and b)     272,554             225,966       4,391       (1,260 )     (501,651 )      
SK Wyverns Baseball Club Co., Ltd.
  (note a)                 3,378                          
STIC Ventures Co., Ltd.
  (note a)     8,651             (40 )     (239 )           (8,372 )      
Paxnet Co., Ltd.
  (notes a and b)     30,807             151       6       (727 )           30,237  
Global Credit & Information Co., Ltd.
        3,704             147                         3,851  
TU Media Corp.
  (notes a and c)     7,016       32,368       (33,821 )     (370 )           334       5,527  
Aircross Co., Ltd.
  (note a)     1,713       2,140       2,114                         5,967  
IHQ, Inc.
  (notes a and d)     38,938       10,000       (10,723 )     698             (2 )     38,911  
Ntreev Soft Co., Ltd.
  (notes a and e)           33,196       720       (5,219 )           (15,477 )     13,220  
Baba Club
  (notes a and f)           3,970       (243 )                 (1,994 )     1,733  
Commerce Planet Co., Ltd. (Formerly Philio Co., Ltd.)
  (notes a and f)           10,374       (10 )                 (4,098 )     6,266  
Seoul Records, Inc.
  (note a)     25,995             (4,223 )     (357 )                 21,415  
Harex Info Tech, Inc.
        1,835             (717 )                       1,118  
SK Mobile
  (note a)     4,643             (1,655 )     284                   3,272  
SKT Vietnam PTE Ltd. (Formerly SLD Telecom PTE Ltd.)
  (note a)     118,463             (17,586 )     899                   101,776  
Skytel Co., Ltd.
  (notes a and b)     6,009             2,784       (342 )     (654 )           7,797  
SK China Company Ltd.
  (note a)     93             (112 )     19                    
SK Telecom China Co., Ltd.
  (note a)     6,536             93       525                   7,154  
ULand Company Limited.
  (note a)     6,761             (1,816 )     345                   5,290  
SK Telecom USA Holdings, inc.
  (note a)     77,786       137,578       (145,870 )     (6,471 )                 63,023  
SK Telecom International, Inc.
  (note a)     25,146             1,108       200                   26,454  
SK Telecom China Holding Co., Ltd.
  (note a)           19,070                               19,070  
SK USA, Inc.
  (note a)     2,969             144       27                   3,140  
Helio, Inc.
  (notes a and d)     1,100       242       (1,121 )     184             (72 )     333  
Korea IT Fund
  (note a)     193,060             14,384       3,124                   210,568  
Centurion IT Investment Association
  (notes a and g)     3,262             (29 )     300             (1,070 )     2,463  
1st Music Investment Fund of SK-PVC
  (note a)     7,186             (1,586 )     7                   5,607  
2nd Music Investment Fund of SK-PVC
  (note a)     8,238             279                         8,517  
SK-KTB Music Investment Fund
  (note a)     15,311             (152 )     (1,792 )                 13,367  
IMM Cinema Fund
  (note a)     11,569             (2,507 )     27                   9,089  
Michigan Global Cinema Fund
  (note a)     3,773             (231 )                       3,542  
3rd Fund of Isu Entertainment
  (note a)     2,419             (729 )                       1,690  
 
                                             
 
                                                           
Total
      W 1,149,734     W 248,938     W 17,386     W 4,414       (W7,134 )     (W532,402 )   W 877,558  
 
                                             

 


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(note a)    Investments were recorded using the equity method of accounting based on unaudited and unreviewed financial statements as of and for the year ended December 31, 2007. In order to verify the reliability of such unaudited and unreviewed financial statements, the Company has performed the following procedures and found no significant errors: i) obtained the signature from the chief executive officer of the equity method investee asserting that the unaudited and unreviewed financial statements are accurate ii) checked whether the major transactions identified by the Company, including public disclosures, were appropriately reflected in the unaudited and unreviewed financial statements iii) performed an analytical review on the unaudited and unreviewed financial statements
 
(note b)    The Company received dividends from SK Telink Co., Ltd., SK C&C Co., Ltd., Paxnet Co., Ltd. and Skytel Co., Ltd., and the corresponding amount was deducted from the carrying amount of equity method securities.
 
(note c)    Other increase in investments in TU Media Corp. represents realization of equity in other comprehensive income of affiliates as TU Media Corp. became the Company’s subsidiary as a result of the Company’s additional investment in TU Media Corp. for the year ended December 31, 2007.
 
(note d)    Other increase (decrease) in investments in equity securities of IHQ, Inc. and Helio, Inc. represent gains on disposal of investments in equity securities, which have resulted from the dilution of the Company’s ownership as a result of capital transactions of the investees.
 
(note e)    Other decrease in investments in Ntreev Soft Co., Ltd. represents the difference between the purchase cost and net asset value of the investee, which is offset against the Company’s capital surplus as Ntreev Soft Co., Ltd. is the Company’s subsidiary (See Note 13).
 
(note f)    Other decrease in investments in Baba Club and Commerce Planet Co., Ltd. (formerly Philio Co., Ltd.) represents the goodwill recognized, which resulted from the Company’s acquisition of a portion of BaBa Club and Commerce Planet Co., Ltd.’s assets and operational business units after the investment in equity securities of Baba Club and Commerce Planet Co., Ltd., respectively.
 
(note g)    Other decrease in investments in Centurion IT Investment Association resulted from the collection of a portion of the Company’s investment.

 


Table of Contents

                                                             
        For the year ended December 31, 2006  
                                Equity in other                      
                        Equity in     comprehensive             Other        
        Beginning             earnings     income of     Dividend     increase     Ending  
        balance     Acquisition     (losses)     affiliates     received     (decrease)     balance  
 
                                                           
Pantech Co., Ltd.
      W 55,634     W       (W55,731 )   W 97     W     W     W  
SK Capital Co., Ltd.
  (note a)     37,501             5                   (37,506 )      
SK Communications Co., Ltd
        158,170             14,939       4,804                   177,913  
SK Telink Co., Ltd.
        70,863             15,384       37                   86,284  
SK C&C Co., Ltd.
  (note b)     198,251             42,075       33,218       (990 )           272,554  
SK Wyverns Baseball Club Co., Ltd.
                    575                          
STIC Ventures Co., Ltd.
        8,308             956       (613 )                 8,651  
Paxnet Co., Ltd.
        27,372             1,707       1,728                   30,807  
Global Credit & Information Co., Ltd.
        3,276             428                         3,704  
TU Media Corp.
        32,393             (25,377 )                       7,016  
Aircross Co., Ltd.
        970             743                         1,713  
WiderThan Co., Ltd.
  (note c)     12,827             (500 )     (55 )           (12,272 )      
IHQ, Inc.
  (note d)     13,935       27,406       (4,346 )     845             1,098       38,938  
Seoul Records, Inc.
        27,242             (1,247 )                       25,995  
Harex Info Tech, Inc.
        2,568             (733 )                       1,835  
SK Mobile
              10,322       (5,543 )     (136 )                 4,643  
SKT Vietnam PTE Ltd. (Formerly SLD Telecom PTE Ltd.)
        55,358       97,286       (17,543 )     (16,638 )                 118,463  
Skytel Co., Ltd.
  (note b)     4,872             1,912       (447 )     (328 )           6,009  
SK China Company Ltd.
        483             (267 )     (123 )                 93  
SK Telecom China Co., Ltd.
        6,927             (291 )     (100 )                 6,536  
ULand Company Limited.
        12,564             (6,812 )     1,009                   6,761  
SK Telecom USA Holdings, inc.
        103,751       75,833       (92,524 )     (9,274 )                 77,786  
SK Telecom International, Inc.
        25,957             1,284       (2,095 )                 25,146  
SK USA, Inc.
        3,353             (116 )     (268 )                 2,969  
Korea IT Fund
  (note e)                 2,338       722             190,000       193,060  
Centurion IT Investment Association
        3,635             (430 )     57                   3,262  
1st Music Investment Fund of SK-PVC
        6,990             196                         7,186  
2nd Music Investment Fund of SK-PVC
        7,966             272                         8,238  
SK-KTB Music Investment Fund
        14,999             312                         15,311  
IMM Cinema Fund
        11,884             (341 )     26                   11,569  
Michigan Global Cinema Fund
        4,000             (227 )                       3,773  
3rd Fund of Isu Entertainment
        2,500             (81 )                       2,419  
SKT-HP Ventures, LLC
  (note f)     5,272             18                   (5,290 )      
 
                                           
 
                                                           
Total
      W 919,821     W 210,847       (W128,965 )   W 12,794       (W1,318 )   W 136,030     W 1,148,634  
 
                                           

 


Table of Contents

 
(note a)    Investment was fully liquidated due to dissolution of SK Capital Co., Ltd. for the year ended December 31, 2006.
 
(note b)    The Company received dividends from SK C&C Co., Ltd. and Skytel Co., Ltd. and the corresponding amount was deducted from the carrying amount of equity method securities.
 
(note c)    The Company sold all of investments in equity securities of WiderThan Co., Ltd. for the year ended December 31, 2006 and recognized gains on disposal of investment in equity securities of W20,456 million.
 
(note d)    Other increase in investments in equity securities of IHQ, Inc. represent gains on disposal of investments in equity securities, which have resulted from the dilution of the Company’s ownership as a result of investees’ sale of their unissued shares to third parties.
 
(note e)    Other increase in investments in Korea IT Fund is the carrying amount transferred from available-for-sale equity securities.
 
(note f)    Investment was fully liquidated due to dissolution of SKT-HP Ventures, LLC for the year ended December 31, 2006.
Details of changes in the differences between the acquisition cost and net asset value of equity method investees at the acquisition date for the years ended December 31, 2007 and 2006 are as follows (In millions of Korean won):
                                 
    For the year ended December 31, 2007  
    Beginning     Increase             Ending  
    balance     (Decrease)     Amortization     balance  
 
                               
SK Communications Co., Ltd.
  W 22,417     W       (W1,398 )   W 21,019  
SK C&C Co., Ltd.
    4,464       (4,160 )     (304 )      
Paxnet Co., Ltd.
    17,164             (1,073 )     16,091  
Global Credit & Information Co., Ltd.
    587             (42 )     545  
TU Media Corp.
    784       9,572       (10,356 )      
IHQ, Inc.
    24,780             (5,506 )     19,274  
Ntreev Soft Co., Ltd.
          1,602       (320 )     1,282  
Baba Club (note a)
          2,888       (384 )     2,504  
Commerce Planet Co., Ltd. (formerly Philio Co., Ltd.)
          4,601       (651 )     3,950  
Seoul Records, Inc.
    2,855             (816 )     2,039  
Harex Info Tech, Inc.
    1,051             (350 )     701  
SK Mobile
                       
SKT Vietnam PTE Ltd. (formerly SLD Telecom PTE Ltd.)
    384             (21 )     363  
ULand Company Ltd.
    4,502             (257 )     4,245  
Helio Inc.
          38       (38 )      
 
                       
 
                               
Total
  W 78,988     W 14,541       (W21,516 )   W 72,013  
 
                       
 
(note a)    Baba Club’s negative capital of W772 million was included in the differences between the acquisition cost and the net asset value of equity method investee at acquisition date.

 


Table of Contents

                                 
    For the year ended December 31, 2006  
    Beginning                     Ending  
    balance     Increase     Amortization     balance  
 
                               
Pantech Co., Ltd.
  W 793     W       (W793 )   W  
SK Communications Co., Ltd.
    23,814             (1,397 )     22,417  
SK C&C Co., Ltd.
    4,870             (406 )     4,464  
Paxnet Co., Ltd.
    18,237             (1,073 )     17,164  
Global Credit & Information Co., Ltd.
    628             (41 )     587  
TU Media Corp.
    993             (209 )     784  
IHQ, Inc.
    6,267       22,001       (3,488 )     24,780  
Seoul Records, Inc.
    3,670             (815 )     2,855  
Harex Info Tech, Inc.
    1,402             (351 )     1,051  
SK Mobile
          3,192       (3,192 )      
SKT Vietnam PTE Ltd. (formerly SLD Telecom PTE Ltd.)
    406             (22 )     384  
ULand Company Ltd.
    3,628       1,132       (258 )     4,502  
 
                       
 
                               
Total
  W 64,708     W 26,325       (W12,045 )   W 78,988  
 
                       
Details of changes in unrealized inter-company gains incurred from sales of assets for the years ended December 31, 2007 and 2006 are as follows (In millions of Korean won):
                                 
    For the year ended December 31, 2007  
    Beginning                     Ending  
Subsidiary   balance     Increase     Decrease     balance  
 
                               
SK Communications Co., Ltd.
  W 2,913     W 263       (W984 )   W 2,192  
ULand Company Ltd.
          4,051       (1,070 )     2,981  
SK China Company Ltd.
    1,086                   1,086  
 
                       
 
                               
Total
  W 3,999     W 4,314       (W2,054 )   W 6,259  
 
                       
                                 
    For the year ended December 31, 2006  
    Beginning                     Ending  
Subsidiary   balance     Increase     Decrease     balance  
Pantech Co., Ltd.
  W     W 270       (W270 )   W  
SK Communications Co., Ltd.
    4,016             (1,103 )     2,913  
SK China Company Ltd.
    1,086                   1,086  
 
                       
 
Total
  W 5,102     W 270       (W1,373 )   W 3,999  
 
                       

 


Table of Contents

Details of market price of the equity securities accounted for using the equity method as of December 31, 2007 are as follows (In millions of Korean won, except for market price per share):
                         
    Market price   Number of    
    per share   shares owned by the    
    (In Korean won)   Company   Market price
 
                       
SK Communications Co., Ltd.
  W 32,500       28,029,945     W 910,973  
IHQ, Inc.
    3,355       14,960,784       50,193  
Seoul Records, Inc.
    4,190       9,582,321       40,150  
The condensed financial information of the investees as of and for the year ended December 31, 2007 is as follows (In millions of Korean won):
                                 
    Total   Total           Net
    assets   liabilities   Revenue   income (loss)
 
                       
SK Communications Co., Ltd.
  W 321,608     W 92,180     W 197,266       (W30,008 )
SK Telink Co., Ltd.
    162,362       55,347       235,127       18,661  
SK Wyverns Baseball Club Co., Ltd.
    7,277       8,030       27,705       3,440  
Paxnet Co., Ltd.
    34,165       9,883       36,640       2,155  
Global Credit & Information Co., Ltd.
    12,261       5,649       54,278       377  
TU Media Corp.
    350,012       333,110       119,766       (74,243 )
Aircross Co., Ltd.
    22,489       16,522       24,526       2,090  
IHQ, Inc.
    70,649       14,875       41,395       (14,046 )
Ntreev Soft Co., Ltd.
    26,209       8,008       15,232       2,140  
Baba Club
    1,322       2,093       6,176       (1,068 )
Commerce Planet Co., Ltd. (formerly Philio Co., Ltd.)
    8,355       6,040       26,719       (497 )
Seoul Records, Inc.
    41,728       9,437       34,237       (5,679 )
Harex Info Tech, Inc.
    3,544       1,573       5,626       (1,589 )
SK Mobile
    8,777       1,077       2,367       (3,949 )
SKT Vietnam PTE Ltd. (formerly SLD Telecom PTE Ltd.)
    161,461       23,146       1,858       (24,940 )
Skytel Co., Ltd.
    32,924       3,398       24,631       9,900  
SK Telecom China Co., Ltd.
    7,491       337       8,596       116  
ULand Company Limited
    6,597       858       3,069       1,146  
SK Telecom USA Holdings, Inc.
    63,169       146             (147,361 )
SK Telecom International, Inc.
    27,823       1,369       14,180       1,219  
SK USA, Inc.
    7,454       1,045       7,712       196  
Helio Inc.
    157,342       158,109       110,311       (302,470 )
Korea IT Fund
    332,476             33,644       22,710  
Centurion IT Investment Association
    4,630       1       107       93  
1st Music Investment Fund of SK-PVC
    8,156       59       156       (2,291 )
2nd Music Investment Fund of SK-PVC
    10,801       54       414       352  
SKT-KTB Music Investment Fund
    18,109       107       454       (205 )
IMM Cinema Fund
    19,928       7       1,866       (4,459 )
Michigan Global Cinema Fund
    9,742             1,070       (634 )
3rd Fund of Isu Entertainment
    5,408             234       (2,332 )

 


Table of Contents

5.   LOANS TO EMPLOYEES
 
    Short-term and long-term loans to employees as of December 31, 2007 and 2006 are as follows (In millions of Korean won):
                                 
    December 31, 2007 (note)     December 31,  
    Short-term     Long-term     Total     2006  
 
                               
Loans to employees’ stock ownership association
  W 1,522     W 33,294     W 34,816     W 7,526  
Loans to employees for housing and other
    72       118       190       277  
 
                       
 
                               
Total
  W 1,594     W 33,412     W 35,006     W 7,803  
 
                       
(note)    At December 26, 2007, the Company loaned W31,017 million to employees’ stock ownership association for the purpose of supporting employees’ acquisition of the Company’s treasury stocks. The loan will be paid over five years after two years from the lending date.
6.   PROPERTY AND EQUIPMENT
 
    Property and equipment as of December 31, 2007 and 2006 are as follows (In millions of Korean won):
                         
    Useful lives              
    (years)     2007     2006  
 
                       
Land
        W 444,252     W 462,393  
Buildings and structures
    30,15       1,496,535       1,488,824  
Machinery
    6       12,395,823       11,235,472  
Vehicles
    4       22,541       21,136  
Other
    4       942,375       956,670  
Construction in progress
          292,134       130,667  
 
                   
 
                       
 
            15,593,660       14,295,162  
Less accumulated depreciation
            (10,999,247 )     (9,877,050 )
 
                   
 
                       
Property and equipment, net
          W 4,594,413     W 4,418,112  
 
                   
The standard value of land declared by the government as of December 31, 2007 and 2006 are W547,524 million and W506,831 million, respectively.

 


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Details of change in property and equipment for the years ended December 31, 2007 and 2006 are as follows (In millions of Korean won):
                                                 
    For the year ended December 31, 2007  
    Beginning                                     Ending  
    balance     Acquisition     Disposal     Transfer     Depreciation     balance  
 
                                               
Land
  W 462,393     W 471       (W20,310 )   W 1,698     W     W 444,252  
Buildings and structures
    1,101,232       4,997       (3,487 )     7,821       (56,079 )     1,054,484  
Machinery
    2,346,517       77,327       (7,434 )     1,322,956       (1,244,114 )     2,495,252  
Vehicles
    2,341       2,039       (119 )     848       (1,913 )     3,196  
Other
    374,962       1,019,025       (13,141 )     (965,140 )     (110,611 )     305,095  
Construction in progress
    130,667       650,596       (893 )     (488,236 )           292,134  
 
                                   
 
                                               
Total
  W 4,418,112     W 1,754,455       (W45,384 )     (W120,053 )     (W1,412,717 )   W 4,594,413  
 
                                   
                                                 
    For the year ended December 31, 2006  
    Beginning                                     Ending  
    balance     Acquisition     Disposal     Transfer     Depreciation     balance  
 
                                               
Land
  W 461,513     W 115       (W645 )   W 1,410     W     W 462,393  
Buildings and structures
    1,145,497       4,620       (824 )     7,539       (55,600 )     1,101,232  
Machinery
    2,429,564       43,869       (8,169 )     1,013,305       (1,132,052 )     2,346,517  
Vehicles
    2,786       1,460       (113 )           (1,792 )     2,341  
Other
    292,214       830,772       (16,319 )     (640,111 )     (91,594 )     374,962  
Construction in progress
    264,309       586,096             (719,738 )           130,667  
 
                                   
 
                                               
Total
  W 4,595,883     W 1,466,932       (W26,070 )     (W337,595 )     (W1,281,038 )   W 4,418,112  
 
                                   
7.   INTANGIBLE ASSETS
 
    Intangible assets as of December 31, 2007 and 2006 are as follows (In millions of Korean won):
                                                 
    2007     2006  
    Acquisition     Accumulated     Carrying     Acquisition     Accumulated     Carrying  
    cost     amortization     amounts     cost     amortization     amounts  
 
                                               
Goodwill
  W 2,341,625       (W772,378 )   W 1,569,247     W 2,335,532       (W643,310 )   W 1,692,222  
Frequency use rights
    1,385,120       (424,818 )     960,302       1,385,120       (308,287 )     1,076,833  
Software development costs
    207,173       (194,144 )     13,029       231,318       (190,611 )     40,707  
Computer software
    1,036,432       (450,858 )     585,574       858,375       (303,272 )     555,103  
Other
    120,907       (74,117 )     46,790       109,753       (69,459 )     40,294  
 
                                   
 
                                               
 
  W 5,091,257       (W1,916,315 )   W 3,174,942     W 4,920,098       (W1,514,939 )   W 3,405,159  
 
                                   

 


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Details of changes in intangible assets for the years ended December 31, 2007 and 2006 are as follows (In millions of Korean won):
                                                 
    For the year ended December 31, 2007  
    Beginning                                     Ending  
    balance     Increase     Decrease     Transfer     Amortization     balance  
 
                                               
Goodwill
  W 1,692,222     W     W     W6,093 (note)   (W129,068 )   W 1,569,247  
Frequency use rights
    1,076,833                         (116,531 )     960,302  
Software development costs
    40,707       473       (5,673 )     1,679       (24,157 )     13,029  
Computer software
    555,103       68,848       (5,100 )     129,330       (162,607 )     585,574  
Other
    40,294       13,657       (473 )     458       (7,146 )     46,790  
 
                                   
 
                                               
 
  W 3,405,159     W 82,978       (W11,246 )   W 137,560       (W439,509 )   W 3,174,942  
 
                                   
(note)    The amount represents the goodwill that resulted from the purchase of Baba Club’s and Philio Co., Ltd.’s business for the year ended December 31, 2007.
                                                 
    For the year ended December 31, 2006  
    Beginning                                     Ending  
    balance     Increase     Decrease     Transfer     Amortization     balance  
 
                                               
Goodwill
  W 1,820,884     W     W     W       (W128,662 )   W 1,692,222  
Frequency use rights
    1,184,292       687                   (108,146 )     1,076,833  
Software development costs
    61,256       65             9,339       (29,953 )     40,707  
Computer software
    279,758       46,157       (914 )     323,644       (93,542 )     555,103  
Other
    40,357       5,694       (63 )     519       (6,213 )     40,294  
 
                                   
 
                                               
 
  W 3,386,547     W 52,603       (W977 )   W 333,502       (W366,516 )   W 3,405,159  
 
                                   
The book value as of December 31, 2007 and residual useful lives of major intangible assets are as follows (In millions of Korean won):
                 
    Amount   Description   Residual useful lives
 
               
Goodwill
  W 1,563,560    
Goodwill related to acquisition of Shinsegi Telecomm, Inc.
  12 years
and 3 months
IMT license
    868,465    
Frequency use rights relating to W-CDMA Service
  (note a)
WiBro license
    85,823     WiBro Service   (note b)
DMB license
    6,014     DMB Service   8 years and 6 months
(note a)    Amortization of the IMT license commenced when the Company started its commercial IMT 2000 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.
 
(note b)    The Company purchased the WiBro license from MIC on March 30, 2005. The license period is seven years from the purchase date. Amortization of the WiBro license commenced when the Company started its commercial WiBro services on June 30, 2006 using the straight line basis over the remaining useful life.

 


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8.   BONDS PAYABLE
 
    Bonds payable as of December 31, 2007 and 2006 are as follows (In millions of Korean won, thousands of U.S. dollars and thousands of Japanese Yen):
                                 
    Maturity     Annual interest              
    year     rate (%)     2007     2006  
 
                               
Domestic general bonds
    2007       5.0 — 6.0     W     W 700,000  
    2008       5.0       300,000       300,000  
    2009       5.0       300,000       300,000  
    2010       4.0       200,000       200,000  
    2011       3.0       200,000       200,000  
    2013       4.0       200,000       200,000  
    2014       5.0       200,000        
    2016       5.0       200,000       200,000  
Dollar denominated bonds (US$300,000)
    2011       4.25       281,460       278,880  
Dollar denominated bonds (US$400,000)
    2027       6.63       375,280        
Yen denominated bonds (JPY 12,500,000)
    2012     3-month Euro Yen
LIBOR rate +0.55 (note)
    104,166        
Convertible bonds (US$229,160)
    2009             268,415       356,356  
 
                           
 
                               
Total
                    2,629,321       2,735,236  
Less: discounts on bonds
                    (46,138 )     (39,097 )
Less: conversion right adjustments
                    (19,665 )     (43,629 )
Add: long-term accrued interest
                    17,256       22,910  
 
                           
 
                               
Net
                    2,580,774       2,675,420  
Less: portion due within one year
                    (299,614 )     (696,546 )
 
                           
 
                               
Long-term portion
                  W 2,281,160     W 1,978,874  
 
                           
(note)   The 3-months Euro Yen LIBOR rate as of December 31, 2007 is 0.895%.
    All of the above bonds will be paid in full at maturity.
 
    On May 27, 2004, the Company issued zero coupon convertible bonds with a maturity of five years in the principal amount of US$329,450,000 for US$324,923,469, with an initial conversion price of W235,625 per share of the Company’s common stock, which was greater than market value at the date of issuance. Subsequently, the initial conversion price was changed to W211,099 per share in accordance with anti-dilution protection. The Company may redeem the principal amount after 3 years from the issuance date if the market price exceeds 130% of the conversion price during a predetermined period. On the other hand, the bond holders may redeem their notes at 103.81% of the principal amount on May 27, 2007 (3 years from the issuance date). The conversion right may be exercised during the period from July 7, 2004 to May 13, 2009 and the number of common shares to be converted as of December 31, 2007 is 1,277,164 shares. Effective July 1, 2007, the conversion price was changed from W211,943 to W211,099 and the number of shares to be converted was changed from 1,688,842 shares to 1,695,593 shares due to the payment of interim dividends in accordance with the resolution of the Company’s board of directors on July 27, 2007.

 


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    Conversion of notes to common shares may be prohibited under the Telecommunications Law or other legal restrictions which restrains foreign governments, individuals and entities from owning more than 49% of the Company’s voting stock, if this 49% ownership limitation is violated due to the exercise of conversion rights. In this case, the Company will pay a bond holder as cash settlement determined at the average price of one day after a holder exercises its conversion right or the weighted average price for the following five business days. The Company intends to sell treasury shares held in trust by the Company that corresponds to the number of shares of common stock that would have been delivered in the absence of the 49% foreign shareholding restrictions. The Company entered into an agreement with Credit Suisse First Boston International to reduce the effect of fluctuation with respect to cash settlement payments that may be more or less than the proceeds from sales of treasury shares held in trust. Unless either previously redeemed or converted, the notes are redeemable at 106.43% of the principal amount at maturity.
 
    During the year ended December 31, 2006, the convertible bonds with a principal amount of US$25,210,000 were converted into 136,613 shares of treasury stock (See Note 15), and the principal amount of the convertible bonds decreased from US$329,450,000 to US$304,240,000. In addition, the consideration for conversion right (capital surplus) decreased by W3,733 million (net of tax effect of W1,416 million).
 
    During the year ended December 31, 2007, the conversion rights for the convertible bond with a principal amount of US$75,080,000 were exercised. The Company paid \42,962 million in cash to bond holders with a principal amount of US$36,260,000 without delivering the Company’s common stocks due to the 49% ownership limitation as explained above and the convertible bonds with a principal amount of US$38,820,000 were converted into 216,347 shares of treasury stock (See Note 15). Therefore, the principal amount of the convertible bonds decreased from US$304,240,000 to US$229,160,000. In addition, the consideration for conversion right (capital surplus) decreased by W11,116 million (net of tax effect of W4,216 million).
 
9.   LONG-TERM BORROWINGS
 
    Long-term borrowings as of December 31, 2007 and 2006 are as follows (In millions of Korean won and thousands of U.S. dollars):
                                         
            Final     Annual interest              
    Lender     maturity year     rate (%) (note)     2007     2006  
Long-term floating rate discount bill
  Shinhan Bank   June 29, 2010   91 days CD yield + 0.25%   W 200,000     W 200,000  
Long-term floating rate borrowings
  Calyon Bank   October 10, 2013   6M LIBOR + 0.29%   US$ 50,000     US$ 50,000  
  DBS Bank               US$ 25,000     US$ 25,000  
  SMBC               US$ 25,000     US$ 25,000  
 
                                   
 
                                       
Total
                          US$ 100,000     US$ 100,000  
 
                          W 200,000     W 200,000  
 
                                   
 
                                       
Equivalent in Korean won
                          W 293,820     W 292,960  
Less: current portion
                                   
 
                                   
 
                                       
Long-term borrowings
                          W 293,820     W 292,960  
 
                                   
    The above long-term floating rate discount bill is classified as long-term borrowing as the borrowing is to be rolled-over exceeding 1 year from December 31, 2007 in accordance with the loan agreement.
(note)   At December 31, 2007, the 91 days CD yield and the 6M LIBOR rate are 5.82% and 4.65%, respectively.

 


Table of Contents

10.   SUBSCRIPTION DEPOSITS
 
    The Company receives subscription deposits from customers of cellular services at the subscription date. The Company has no obligation to pay interest on subscription deposits but is required to return them to subscribers upon termination of the subscription contract.
 
    Long-term subscription deposits held as of December 31, 2007 and 2006 are as follows (In millions of Korean won except deposit per subscriber amounts):
                         
    Deposit              
    per subscriber              
Service type   (in Korean won)     December 31, 2007     December 31, 2006  
Cellular
  W 200,000     W 6,426     W 21,140  
 
                   
    The Company offers existing and new cellular subscribers the option of obtaining credit insurance from Seoul Guarantee Insurance Company (“SGIC”) in lieu of the subscription deposits. Existing subscribers who elect this option are refunded their subscription deposits. As a result, the balance of subscription deposits has been decreasing.
 
11.   LEASES
 
    The Company acquired certain computer equipment and software from SK C&C Co., Ltd. and succeeded certain capital lease agreements between SK C&C Co., Ltd. and HP Financial Service. Details of capital lease assets acquired and liabilities assumed from SK C&C Co., Ltd. as of and for the year ended December 31, 2007 and 2006 are as follows (In millions of Korean won):
                     
        2007     2006  
 
                   
Acquisition cost
  Office equipment   W 8,271     W 15,784  
 
  Computer software     5,728       7,180  
 
               
 
                   
 
      W 13,999     W 22,964  
 
               
 
                   
Accumulated depreciation
  Office equipment   W 6,509     W 8,662  
 
  Computer software     2,387       1,555  
 
               
 
                   
 
      W 8,896     W 10,217  
 
               
 
                   
Carrying amounts
  Office equipment   W 1,761     W 7,122  
 
  Computer software     3,342       5,625  
 
               
 
                   
 
      W 5,103     W 12,747  
 
               
 
                   
Depreciation expenses
  Office equipment   W 1,970     W 8,071  
 
  Computer software     1,146       1,437  
 
               
 
                   
 
      W 3,116     W 9,508  
 
               
The Company’s minimum future lease payments as of December 31, 2007 are as follows (In millions of Korean won):
                         
    Annual lease payments     Interest     Principal  
 
                       
2008
  W 1,664       (W22 )   W 1,642  
 
                 
Less: current portion
                    (1,642 )
 
                     
 
                       
Capital lease liabilities
                  W  
 
                     

 


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12.   MONETARY 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, respectively) as of December 31, 2007 and 2006 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 Singapore dollars, thousands of Swiss Franc, thousands of Euros and thousands of Chinese yuan):
                                 
    December 31, 2007     December 31, 2006  
    Foreign     Korean won     Foreign     Korean won  
    currencies     equivalent     currencies     equivalent  
 
                               
Cash and cash equivalents
  US$ 357,039     W 334,974     US$ 959     W 892  
  EUR 117     162     EUR 2     2  
Accounts receivable — trade
  US$ 4,164       3,906     US$ 16,534       15,370  
  EUR 248     303     EUR 248     303  
  CNY 5,620     722              
Accounts receivable — other
  US$ 965       905     US$ 1,657       1,541  
Guarantee deposits
  US$ 12       11     US$ 17       16  
  JPY 16,912     141     JPY 21,536     168  
 
                           
 
                               
 
          W 341,124             W 18,292  
 
                           
Accounts payable
  US$ 22,552       21,159     US$ 16,046       14,916  
  JPY 16,954     138     JPY 18,704     146  
  HK$ 248     14     HK$ 190     23  
  GBP 931       1,461     GBP 48       88  
  SG$ 27     18     SG$ 6     3  
  EUR 588     1,750     EUR 813     993  
  CHF 250     208     CHF 250     190  
  CNY 2     1     CNY 2     1  
 
                           
 
          W 24,749             W 16,360  
 
                           
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 December 31, 2007 and 2006 are as follows:
                 
    December 31, 2007   December 31, 2006
 
               
Authorized shares
    220,000,000       220,000,000  
Issued shares
    81,193,711       81,193,711  
Outstanding shares, net of treasury stock
    72,584,677       72,667,459  

 


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Significant change in capital stock and capital surplus for the years ended December 31, 2007 and 2006 are as follows (In millions of Korean won except for share data):
                         
    Number of              
    shares     Capital     Capital  
    issued     stock     surplus  
 
                       
At January 1, 2006
    82,276,711     W 44,639     W 2,966,198  
Consideration for conversion right (note a)
                (3,733 )
Transferred from stock options in capital adjustment (note b)
                234  
Retirement of treasury stock (note c)
    (1,083,000 )            
 
                 
 
                       
At December 31, 2006
    81,193,711       44,639       2,962,699  
Transferred from stock options in capital adjustment (note d)
                3,246  
Consideration for conversion right (note e)
                (11,116 )
Offset against capital surplus by equity security accounted for using the equity method (note f)
                (15,476 )
 
                 
 
                       
At December 31, 2007
    81,193,711     W 44,639     W 2,939,353  
 
                 
 
(note a)    During the year ended December 31, 2006, the convertible bonds with a face value of US$25,210,000 were converted and the capital surplus amount (in connection with the related conversion rights) decreased by W3,733 million (net of tax effect of W1,416 million).
 
(note b)    During the year ended December 31, 2006, the exercisable period for the stock options representing 43,390 shares, of which recognized compensation costs were W234 million, expired and the related stock options of W234 million in capital adjustments were transferred to capital surplus in accordance with Korean GAAP [See Note 2 (q)].
 
(note c)    The Company retired 491,000 shares and 592,000 shares of treasury stock on August 17, 2006 and September 29, 2006, respectively, and reduced retained earnings before appropriations in accordance with Korean Commercial laws.
 
(note d)    During the year ended December 31, 2007, the exercisable period for the stock options representing 65,730 shares, for which the Company recognized compensation costs of W3,246 million, expired and the related stock options of W3,246 million in capital adjustments were transferred to capital surplus in accordance with Korean GAAP [See Note 2 (q)].
 
(note e)    During the year ended December 31, 2007, the conversion rights for the convertible bonds with a face value of US$75,080,000 were exercised and the capital surplus amount (in connection with the related conversion rights) decreased by W11,116 million (net of tax effect of W4,216 million).
 
(note f)    During the year ended December 31, 2007, the Company acquired Ntreev Soft Co., Ltd’s common stocks from IHQ, Inc. a subsidiary of the Company. The difference between the acquisition cost and the net book value of Ntreev Soft Co., Ltd. amounting to W15,476 million was offset against the Company’s capital surplus.

 


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14.   RETAINED EARNINGS
 
    Details of appropriated retained earnings as of December 31, 2007 and 2006 are as follows (In millions of Korean won):
                 
    December 31,     December 31,  
    2007     2006  
 
               
Legal reserve
  W 22,320     W 22,320  
Reserve for improvement of financial structure
    33,000       33,000  
Reserve for loss on disposal of treasury stock
    255,984       477,182  
Reserve for research and manpower development
    872,595       880,594  
Reserve for business expansion
    6,151,138       5,266,138  
 
           
 
               
Total
  W 7,335,037     W 6,679,234  
 
           
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
 
    Through 2006, the Financial Control Regulation for Listed Companies in Korea required that at least 10% of net income (net of accumulated deficit), and an amount equal to net gain (net of related income tax, if any) on the disposal of property and equipment should be appropriated as a reserve for improvement of financial structure until the ratio of stockholders’ equity to total assets reached 30%. However, this regulation was abolished during the year ended December 31, 2007 and no such requirement exist as of December 31, 2007.
 
c.   Reserve 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 for tax purposes. These reserves will be reversed from appropriated retained earnings in accordance with the relevant tax laws. Such reversal will be included in taxable income in the year of reversal.
 
d.   Reserve for Business Expansion
 
    The reserve for business expansion is voluntary and was approved by the board of directors and stockholders.

 


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15.   TREASURY STOCK
 
    Upon issuances of stock dividends and new common stock, and the merger with Shinsegi Telecomm, Inc. and SK IMT Co., Ltd., the Company acquired fractional shares totaling 77,970 shares for W6,110 million through 2005. In addition, the Company acquired 8,584,445 shares of treasury stock in the market or through the trust funds for W2,040,995 million through 2005 in order to stabilize the market price of its stock. In addition, during the year ended December 31, 2006, the convertible bonds with a principal amount of US$25,210,000 were converted into 136,163 shares of common stock. Such conversion was settled by the Company by using its treasury stock with carrying value totaling W32,178 million, which resulted in loss on disposal of treasury stock of W7,887 million. In addition, the losses on disposal of treasury stock decreased by W336 million for the year ended December 31, 2007 to reflect the change in accumulated temporary differences related to treasury stocks based on the prior year tax return.
 
    On August 17, 2006, the Company retired 491,000 shares of treasury stock, which were acquired by the Company during the period from August 1, 2006 through August 14, 2006 for W92,518 million in accordance with a resolution of the board of directors on July 28, 2006. On September 29, 2006, the Company retired 592,000 shares of treasury stock, which were acquired by the Company during the period from September 4, 2006 through September 27, 2006 for W116,559 million in accordance with a resolution of the board of directors on August 31, 2006. In connection with the retired treasury stocks discussed above, the Company reduced its retained earnings before appropriations by W209,077 million in accordance with Korean Commercial law.
 
    From November 9, 2007 through December 31, 2007, the Company acquired 471,000 shares of treasury stock for W118,511 million in order to stabilize the market price of its stock in accordance with a resolution of the board of directors on November 2, 2007. In addition, for the year ended December 31, 2007, its treasury stock of 216,347 shares and 171,871 shares with carrying value totaling W51,199 million were issued to the convertible bond holders at their execution of conversion rights and treasury stock of 171,871 shares with carrying value totaling W40,756 million were sold to its employees’ stock ownership association. As a result of these transactions, loss on disposal of treasury stock decreased by W7,456 million.
 
16.   STOCK OPTIONS
 
    On March 17, 2000, March 16, 2001 and March 8, 2002, in accordance with the approval of its stockholders or 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 for two years from the first exercisable date. Upon exercise of stock options, the Company will issue its common stock. If the employees leave the Company within three years after the grant of stock options, such employees forfeit their unvested stock options awarded. Stock options representing 530 shares for which total compensation cost was W3 million were forfeited during the year ended December 31, 2004.

 


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The value of stock options granted is determined using the Black-Scholes option-pricing model, without considering the 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 per share for 2000, 2001 and 2002. Under these assumptions, total compensation cost, the recognized compensation cost (included in labor cost) for the years ended December 31, 2007 and 2006 and the outstanding balance of stock options in capital adjustment as of December 31, 2007 and 2006 are as follows (In millions of Korean won):
                                         
                            Stock options in  
    Total     Recognized     capital adjustment  
    Compensation     compensation cost     December 31,     December 31,  
Grant date   cost     2007     2006     2007     2006  
March 17, 2000(note a)
  W 1,533     W     W     W     W  
March 16, 2001(note b)
    234                          
March 8, 2002(note c)
    3,246                         3,246  
 
                             
 
                                       
 
  W 5,013     W     W     W     W 3,246  
 
                             
 
(note a)    During the year ended December 31, 2005, the exercisable period expired for stock options representing 17,800 shares, for which the Company had recognized compensation cost of W1,533 million. The related capital adjustment of W1,533 million was transferred to capital surplus.
 
(note b)    During the year ended December 31, 2006, the exercisable period expired for stock options representing 43,820 shares, for which the Company had recognized compensation cost of W234 million. The related capital adjustment of W234 million was transferred to capital surplus.
 
(note c)    During the year ended December 31, 2007, the exercisable period expired for stock options representing 65,730 shares, for which the Company had recognized compensation cost of W3,246 million. The related capital adjustment of W3,246 million was transferred to capital surplus.
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), the pro forma total compensation cost would be W15,967 million (W3,738 million, W3,617 million and W8,613 million for options granted in 2000, 2001 and 2002, respectively) and the recognized compensation cost for the year ended December 31, 2007 would be nil, and the pro forma net income and net income per common share for the years ended December 31, 2007, 2006 and 2005 are as follows:
                         
    (In millions of Korean won,
    except for net income per share)
    2007   2006   2005
 
Pro forma income before income tax
  W 2,307,785     W 2,021,643     W 2,554,315  
Pro forma net income
    1,642,451       1,446,598       1,871,082  
Pro forma net income per share (In Korean Won)
    22,607       19,734       25,417  

 


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17.   INCOME TAXES
  a.   Details of income tax expense
 
      Income tax expense for the years ended December 31, 2007 and 2006 consist of the following (In millions of Korean won):
                 
    2007     2006  
 
Current
  W 553,357     W 607,776  
Deferred (note a)
    111,977       (32,731 )
 
           
 
               
Income tax expense
  W 665,334     W 575,045  
 
           
 
(note a)    Changes in net deferred tax liabilities for the years ended December 31, 2007 and 2006 are as follows (In millions of Korean won) :
                 
    2007     2006  
 
               
Ending balance of net deferred tax liabilities
  W 1,015,002     W 490,341  
Beginning balance of net deferred tax liabilities
    (490,341 )     (348,563 )
Adjustment to the beginning net deferred income tax liabilities based on tax return filed
    3,444       10,453  
Tax effect of temporary differences charged or credited directly to related components of stockholders’ equity
    (416,128 )     (184,962 )
 
           
 
               
 
  W 111,977       (W32,731 )
 
           

 


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b.   Reconciling items between accounting income and taxable income
 
    Reconciling items between accounting income and taxable income for the years ended December 31, 2007 and 2006 are as follows (In millions of Korean won):
                 
    2007     2006  
(Temporary Differences)
               
 
               
Additions:
               
Allowance for doubtful accounts
  W 36,425     W 52,228  
Accrued interest income
    4,576       3,931  
Reserves for research and manpower development
    210,000       188,000  
Reserves for loss on disposal of treasury stock
          218,097  
Equity in losses of affiliates
          115,562  
Equity in other comprehensive income of affiliates
    150,880        
Unrealized loses on valuation of long-term investment securities
    320,838       137  
Loss on impairment of long-term investment securities
    4,386        
Accrued expenses
    24,519       50,886  
Depreciation
    51,097       52,411  
Loss on impairment of other assets
    2,651       971  
Loss on valuation of currency swap
          9,258  
Loss on valuation of currency swap (other comprehensive income)
          4,695  
Accrued severance indemnities
    20,817       20,058  
Deposits for severance indemnities
    1,337       148,610  
Consideration of conversion right
    23,965       21,589  
Interest expense from convertible bonds
    14,975        
Other
    64,022       71,617  
 
           
Sub-total
    930,488       958,050  
 
           
 
               
Deductions:
               
Reserves for research and manpower development
          (180,000 )
Allowance for doubtful accounts
    (43,975 )     (124,184 )
Depreciation
    (18,268 )     (19,594 )
Accrued interest income
    (5,025 )     (8,714 )
Equity in earnings of affiliates
    (17,386 )      
Equity in other comprehensive income of affiliates
          (15,483 )
Unrealized gains on valuation of long-term investment securities
    (2,001,070 )     (621,729 )
Accrued expenses
    (28,251 )     (57,066 )
Loss on impairment of other assets
    (971 )     (5,109 )
Gain on valuation of derivative instruments
    (3,624 )      
Accrued severance indemnities
    (1,337 )     (148,610 )
Deposits for severance indemnities
    (19,984 )     (20,058 )
Loss on disposal of property assets
          (38,719 )
Loss on disposal of treasury stock
          (30,092 )
Gain on conversion of convertible bond
    (373,140 )      
Other
    (40,317 )     (42,245 )
 
           
Sub-total
    (2,553,348 )     (1,311,603 )
 
           
Total Temporary Differences
    (1,622,860 )     (353,553 )
 
           
 
               
(Permanent Differences)
    1,668,302       869,156  
 
           
 
               
Total
  W 45,442     W 515,603  
 
           

 


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c.   Change in cumulative temporary differences and deferred tax assets (liabilities)
 
    Changes in cumulative temporary differences for the years ended December 31, 2007 and 2006 and deferred tax assets (liabilities) as of December 31, 2007 and 2006 are as follows (In millions of Korean won):
                                 
    January 1,     Increase     Decrease     December 31,  
Description   2007     (note a)     (note a)     2007  
 
                               
Current:
                               
Allowance for doubtful accounts
  W 50,824       25,058       43,975     W 31,907  
Accrued interest income
    (4,574 )     (5,027 )     (4,576 )     (5,025 )
Bad debt
    112,106       3,896       76       115,926  
Accrued expenses
    107,151       13,636       28,251       92,536  
Other
    8,913       (3,470 )     4,275       1,168  
 
                       
 
                               
Total
    274,420       34,093       72,001       236,512  
Temporary differences unlikely to be realized
    (128,555 )                 (128,555 )
 
                       
 
                               
Total current cumulative temporary differences-net
  W 145,865     W 34,093     W 72,001     W 107,957  
 
                       
 
                               
Current deferred tax assets-net (note b)
  W 40,113                     W 29,688  
 
                           
 
                               
Non-current:
                               
Property and equipment
    (W188,535 )     (4,766 )     (38,099 )     ( W155,202 )
Loss on impairment of long-term investment securities
    108,145       30,218             138,363  
Loss on impairment of other long-term assets
    971       2,651       971       2,651  
Reserves for research and manpower development
    (760,000 )           (210,000 )     (550,000 )
Reserves for loss on disposal of treasury stock
    (255,984 )                 (255,984 )
Equity in (earnings) losses of affiliates
    114,214       (4,783 )     17,271       92,160  
Equity in other comprehensive income of affiliates
    (123,206 )     (445 )     (150,880 )     27,229  
Unrealized loss on valuation of long-term investment securities, net (other comprehensive income)
    (563,477 )     (2,001,070 )     (320,838 )     (2,243,709 )
Accrued severance indemnities
    20,058       20,817       1,337       39,538  
Deposits for severance indemnities
    (20,058 )     (19,985 )     (1,337 )     (38,706 )
Loss on valuation of currency swap
    22,502                   22,502  
Loss on valuation of currency swap (other comprehensive income)
    24,249                   24,249  
Loss on valuation of interest rate swap (other comprehensive income)
    454             3,624       (3,170 )
Gain on conversion of convertible bond
          (373,140 )           (373,140 )
Considerations for conversion right
    (43,629 )     8,632       (15,333 )     (19,664 )
Add long-term accrued interest
    22,910             5,654       17,256  
Other
    (16,848 )     54,146       (7,664 )     44,962  
 
                       
 
                               
Total
    (1,658,234 )     (2,287,725 )     (715,294 )     (3,230,665 )
Temporary differences unlikely to be realized
    (270,688 )     (17,872 )     279,648       (568,208 )
 
                       
 
                               
Total non-current cumulative temporary differences-net
    ( W1,928,922 )     ( W2,305,597 )     ( W435,646 )     ( W3,798,873 )
 
                       
 
                               
Total non-current deferred tax liabilities-net (note b)
    ( W530,454 )                     ( W1,044,690 )
 
                           
 
(note a)   These changes include adjustment to reflect the change in accumulated temporary differences based on the prior year tax return.

 


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(note b)   The tax rate used in measuring deferred tax assets and liabilities is 27.5%.
                                 
    January 1,     Increase     Decrease     December 31,  
Description   2006     (note a)     (note a)     2006  
 
                               
Current:
                               
Allowance for doubtful accounts
  W 122,561     W 52,447     W 124,184     W 50,824  
Accrued interest income
    (3,931 )     (4,574 )     (3,931 )     (4,574 )
Bad debt
    130,222       (10,536 )     7,580       112,106  
Accrued expenses
    113,117       51,100       57,066       107,151  
Other
    8,176       7,840       7,103       8,913  
 
                       
 
                               
Total
    370,145       96,277       192,002       274,420  
Temporary differences unlikely to be realized
    (147,774 )           (19,219 )     (128,555 )
 
                       
 
                               
Total current cumulative temporary differences-net
  W 222,371     W 96,277     W 172,783     W 145,865  
 
                       
 
                               
Current deferred tax assets-net (note b)
  W 61,152                     W 40,113  
 
                           
 
                               
Non-current:
                               
Property and equipment
    ( W196,446 )   W 10,128     W 2,217       ( W188,535 )
Loss on impairment of long-term investment securities
    108,145                   108,145  
Loss on impairment of other long-term assets
    7,461       (1,381 )     5,109       971  
Reserves for research and manpower development
    (768,000 )     (180,000 )     (188,000 )     (760,000 )
Reserves for loss on disposal of treasury stock
    (474,081 )           (218,097 )     (255,984 )
Equity in (earnings) losses of affiliates
    (5,025 )     119,239             114,214  
Equity in other comprehensive income of affiliates
    (109,468 )     (13,738 )           (123,206 )
Unrealized loss on valuation of long-term investment securities (other comprehensive income)
    58,116       (36,351 )     585,242       (563,477 )
Accrued severance indemnities
    148,465       20,203       148,610       20,058  
Deposits for severance indemnities
    (148,465 )     (20,203 )     (148,610 )     (20,058 )
Loss on valuation of currency swap
    13,244       9,258             22,502  
Loss on valuation of currency swap (other comprehensive income)
    19,554       4,695             24,249  
Loss on valuation of interest rate swap (other comprehensive income)
          454             454  
Considerations for conversion right
    (65,219 )     16,441       (5,149 )     (43,629 )
Add long-term accrued interest
    24,808             1,898       22,910  
Other
    (37,515 )     67,963       47,296       (16,848 )
 
                       
 
                               
Total
    (1,424,426 )     (3,292 )     230,516       (1,658,234 )
Temporary differences unlikely to be realized
    (65,447 )     (211,398 )     (6,157 )     (270,688 )
 
                       
 
                               
Total non-current cumulative temporary differences-net
    ( W1,489,873 )     ( W214,690 )   W 224,359       ( W1,928,922 )
 
                       
 
                               
Total non-current deferred tax liabilities-net (note b)
    ( W409,715 )                     ( W530,454 )
 
                           
 
(note a)   These changes include adjustment to reflect the change in accumulated temporary differences based on the prior year tax return.
 
(note b)   The tax rate used in measuring deferred tax assets and liabilities is 27.5%.

 


Table of Contents

Deferred tax assets and liabilities before offsetting as of December 31, 2007 and 2006 are as follows (In millions of Korean won):
                                                 
    2007     2006  
    Current     Non-current     Sub-total     Current     Non-current     Sub-total  
 
                                               
Deferred tax assets
  W 32,346     W 3,521     W 35,867     W 43,066     W 50,631     W 93,697  
Deferred tax liabilities
    (2,658 )     (1,048,211 )     (1,050,869 )     (2,953 )     (581,085 )     (584,038 )
 
                                   
 
                                               
Deferred tax assets (liabilities), net
  W 29,688       ( W1,044,690 )     ( W1,015,002 )   W 40,113       ( W530,454 )     ( W490,341 )
 
                                   
d.   Deferred tax assets (liabilities) added to (deducted from) capital surplus, capital adjustments or accumulated other comprehensive income (loss)
 
    Deferred tax assets (liabilities) added to (deducted from) capital surplus, capital adjustments or accumulated other comprehensive income (loss) as of December 31, 2007 and 2006 are as follows (In millions of Korean won):
                 
    2007     2006  
 
               
Gains on disposal of treasury stock
    ( W36,339 )     (W38,341 )
Considerations for conversion right
    (12,869 )     (17,086 )
Unrealized loss on valuation of long-term investment securities, net
    (617,020 )     (154,956 )
Equity in other comprehensive income of affiliates, net
    (727 )     (41,441 )
Loss on valuation of currency swap, net
    6,668       6,668  
Gain (loss) on valuation of interest rate swap, net
    (872 )     125  
 
           
 
               
Total
    (W661,159 )     (W245,031 )
 
           
e.   Effective tax rate
 
    Effective tax rates for the years ended December 31, 2007 and 2006 are as follows (In millions of Korean won):
                 
    2007     2006  
 
               
Income before income tax expense
  W 2,307,785     W 2,021,643  
Income tax expenses
    665,334       575,045  
 
           
 
               
Effective tax rate
    28.83 %     28.44 %
 
           

 


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18.   COMPREHENSIVE INCOME
 
    Details of comprehensive income for the years ended December 31, 2007 and 2006 are as follows (In millions of Korean won):
                                 
    2007     2006  
    Profit and             Profit and        
    loss effect     Tax effect     loss effect     Tax effect  
 
                               
Net income
  W 1,642,451             W 1,446,598          
Other comprehensive income (loss):
                               
Unrealized gain on valuation of long-term investment securities, net
    1,218,168       (W462,064 )     450,655       (W170,938 )
Equity in other comprehensive income of affiliates, net
    (110,165 )     40,714       5,081       (9,091 )
Loss on valuation of currency swap, net
    4,671             (2,309 )     1,291  
Gain (loss) on valuation of interest rate swap, net
    2,627       (997 )     (329 )     125  
 
                       
Sub-total
    1,115,301       (W422,347 )     453,098       (W178,613 )
 
                       
 
                               
Comprehensive income
  W 2,757,752             W 1,899,696          
 
                           
19.   NET INCOME AND ORDINARY INCOME PER SHARE
 
    The Company’s net income and ordinary income per share amounts for the years ended December 31, 2007 and 2006 are computed as follows (In millions of Korean won, except for per share income per share):
 
    Net income and ordinary income per share
                 
    2007     2006  
 
               
Net income and ordinary income
  W 1,642,451     W 1,446,598  
Weighted average number of common shares outstanding
    72,650,909       73,305,026  
 
           
 
               
Net income and ordinary income per share (In Korean won)
  W 22,607     W 19,734  
 
           
The weighted average number of common shares outstanding for the years ended December 31, 2007 and 2006 is calculated as follows:
                     
    Number of   Weighted   Weighted
<2007>   shares   number of days   number of shares
 
                   
Outstanding common stocks at January 1, 2007
    81,193,711     365 / 365     81,193,711  
Treasury stocks at January 1, 2007
    (8,526,252 )   365 / 365     (8,526,252 )
Acquisition of treasury stock
    (471,000 )   28 / 365 (note a)     (36,337 )
Conversion of convertible bonds into common stock
    216,347     29 / 365 (note b)     16,962  
Disposal of treasury stock
    171,871     6/365     2,825  
 
                   
Total
    72,584,677           72,650,909  
 
                   

 


Table of Contents

                         
    Number of   Weighted   Weighted
<2006>   shares   number of days   number of shares
 
                       
Outstanding common stocks at January 1, 2006
    82,276,711       365 / 365       82,276,711  
Treasury stocks at January 1, 2006
    (8,662,415 )     365 / 365       (8,662,415 )
Retirement of treasury stock
    (1,083,000 )   126 / 365 (note c)     (373,546 )
Conversion of convertible bonds into common stock
    136,163     172 / 365 (note d)     64,276  
 
                       
 
                       
Total
    72,667,459               73,305,026  
 
                       
 
(note a)   The Company acquired treasury stocks on many different dates during the year ended December 31, 2007, and weighted number of shares was calculated considering each transaction date.
 
(note b)   Treasury stocks were used to settle the conversion of the convertible bonds on several different dates during the year ended December 31, 2007 and weighted number of shares was calculated considering each transaction date.
 
(note c)   The Company retired treasury stocks which were acquired on two different dates during the year ended December 31, 2006, and weighted number of shares was calculated considering each transaction date.
 
(note d)   Treasury stocks were used to settle the conversion of the convertible bonds on several different dates during the year ended December 31, 2006 and weighted number of shares was calculated considering each transaction date.
Diluted net income and ordinary income per share amounts for the years ended December 31, 2007 and 2006 are computed as follows (In millions of Korean won, except for share data):
Diluted net income and ordinary income per share
                 
    2007     2006  
 
               
Adjusted net income and ordinary income
  W 1,655,254     W 1,459,875  
Adjusted weighted average number of common shares outstanding
    74,263,655       75,025,926  
 
           
 
               
Diluted net income and ordinary income per share (in Korean won)
  W 22,289     W 19,458  
 
           

 


Table of Contents

Adjusted net income and ordinary income per share and the adjusted weighted average number of common shares outstanding for the years ended December 31, 2007 and 2006 are calculated as follows (In millions of Korean won, except for share data):
                 
    2007     2006  
 
               
Net income and ordinary income
  W 1,642,451     W 1,446,598  
Effect of stock options (note a)
           
Effect of convertible bonds (note b)
    12,803       13,277  
 
           
 
               
Adjusted net income and ordinary income
  W 1,655,254     W 1,459,875  
 
           
                 
    2007     2006  
Weighted average number of common shares outstanding
    72,650,909       73,305,026  
Effect of stock options (note a)
           
Effect of convertible bonds (note b)
    1,612,746       1,720,900  
 
           
 
               
Adjusted weighted average number of common shares outstanding
    74,263,655       75,025,926  
 
           
 
(note a)   For the years ended December 31, 2007 and 2006, the outstanding stock options did not have a dilutive effect because the exercise price exceeded the average market price of common stock for the years ended December 2007 and 2006.
 
(note b)   The effect of convertible bonds increased net income related to interest expenses that would not have incurred, and increase in the weighted average number of common shares outstanding related to common shares that would have been issued, assuming that the conversion of convertible bonds was made on the beginning of the period.
20.   RESTRICTED CASH AND CASH EQUIVALENTS
  a.   At December 31, 2007, the Company has guarantee deposits restricted for its checking accounts totaling W19 million and deposits restricted for a charitable trust for the public totaling W10,000 million of which due date is February 8, 2009.
 
  b.   The Company entered into a contract with First Data Corporation to sell the investment in common stock of KMPS Corporation, which was held by the Company and accounted for as available-for-sale securities. Certain portion of proceeds from sales of such investment totaling W1,137 million had been kept in escrow accounts until November 16, 2007 in accordance with this Escrow Agreement. However, due to the advent of the settlement date, this restriction was dissolved during 2007.

 


Table of Contents

21.   DIVIDEND DISCLOSURE
 
    Details of dividends which were declared for the years ended December 31, 2007 and 2006 are as follows (In millions of Korean won except for per share data):
                                         
            Number of shares     Face value              
        Dividend type   outstanding     per share     Dividend ratio     Dividends  
  2007    
Cash dividends (interim)
    72,667,459     W 500       200 %   W 72,667  
       
Cash dividends (year-end)
    72,584,677     W 500       1,680 %     609,712  
       
 
                             
       
 
                               
       
Total
                          W 682,379  
       
 
                             
       
 
                               
  2006    
Cash dividends (interim)
    73,713,657     W 500       200 %   W 73,714  
       
Cash dividends (year-end)
    72,667,459     W 500       1,400 %     508,672  
       
 
                             
       
 
                               
       
Total
                          W 582,386  
       
 
                             
Dividends payout ratios (including interim dividend) for the years ended December 31, 2007 and 2006 are as follows (In millions of Korean won):
                 
    2007     2006  
 
               
Dividends
  W 682,378     W 582,386  
Net income
    1,642,451       1,446,598  
 
           
 
               
Dividends payout ratio
    41.55 %     40.26 %
 
           
Dividends yield ratios (including interim dividend) for the years ended December 31, 2007 and 2006 are as follows (In Korean won):
                 
    2007     2006  
 
               
Dividend per share
  W 9,400     W 8,000  
Stock price at the year-end
    249,000       222,500  
 
           
 
               
 
    3.78 %     3.60 %
 
           
22.   INSURANCE
 
    As of December 31, 2007, certain Company’s assets are insured with local insurance companies as follows (In millions of Korean won and thousands of U.S. dollars):
                     
Insured   Risk   Carrying value     Coverage  
 
 
              US$ 59,115  
Property and equipment
  Fire and comprehensive liability   W 3,711,836     W 7,946,522  
 
               
In addition, the Company carries directors and officers liability coverage insurance totaling W50,000 million.

 


Table of Contents

23.   RELATED PARTY TRANSACTIONS
 
    As of December 31, 2007 and 2006, the parent company and subsidiaries of the Company are as follows:
     a. Holding company and subsidiaries
                 
        Ownership    
Type   Company   percentage (%)   Types of business
 
               
Ultimate parent
company
  SK C&C Co., Ltd.   (note a)   Information technology and software production
Parent company
  SK Holdings Co., Ltd.            
 
  (formerly SK Corporation)   21.8 (note b)   Manufacturing and selling petrochemicals
Subsidiary
  SK Communications Co., Ltd.     64.8     Internet website services
  SK Telink Co., Ltd.     90.8     Telecommunication service
  SK Wyverns Baseball Club Co., Ltd.     100.0     Business related sports
  PAXNet Co., Ltd.     59.7     Internet website services
  Global Credit & Information Co., Ltd.     50.0     Credit and collection services
  TU Media Corp.     32.7     Digital multi media broadcasting service
  Aircross Co., Ltd.     100.0     Wireless marketing related business
  IHQ, Inc.     37.1     Entertainment management
  Ntreev Soft Co., Ltd.     66.7     Game software production
 
  Commerce Planet Co., Ltd.     100.0      
  (Formerly Philio Co., Ltd.)           Cosmetic wholesale
  Seoul Records, Inc.     60.0     Release of music disc
  SKT Vietnam PTE Ltd.     73.3      
 
  (Formerly SLD Telecom PTE Ltd.)           Telecommunication service
  SK Telecom China Co., Ltd.     100.0     Telecommunication service
  ULand Company Ltd.     70.1     Network and mobile value added service
  SK Telecom USA Holdings, Inc.     100.0     Telecommunication service
  SK Telecom International Inc.     100.0     Telecommunication service
  Helio,Inc.     0.6     Corporation management
  Centurion IT Investment Association     37.5     Investment association
  The First Music Investment Fund of SK-PVC     69.3     Investment association
  The Second Music Investment Fund of SK-PVC     79.3     Investment association
  SK-KTB Music Investment Fund     74.3     Investment association
  IMM Cinema Fund     45.6     Investment association
  Michigan Global Cinema Fund     36.4     Investment association
  SK Cyberpass Inc.   70.5 (note c)   Telecommunication service
  YTN Media Inc.   51.4 (note c)   Broadcasting program production
  SK I-Media Co., Ltd.   60.0 (note c)   Game software production
  Helio,LLC.   64.2 (note c)   Telecommunication service
 
(note a)    SK C&C Co., Ltd. became the Company’s ultimate parent company as of December, 31, 2007 (See Notes 3 & 4).
 
(note b)    The ownership percentage represents parent company’s ownership over the Company.
 
(note c)    The ownership percentage represents subsidiaries’ ownership over their subsidiaries, in which the Company has no direct investment.

 


Table of Contents

   b. Transactions and balances with related parties
Significant related party transactions for the years ended December 31, 2007 and 2006, and account balances as of December 31, 2007 and 2006 are as follows (In millions of Korean won):
     b-(1) Transactions
                                                 
    For year ended December 31, 2007     For year ended December 31, 2006  
    Purchases of     Commissions     Commissions     Purchases of     Commissions     Commissions  
    property and     paid and     earned and     property and     paid and     earned and  
    equipment     other expenses     other income     equipment     Other expenses     other income  
 
                                               
Ultimate parent company:
                                               
SK C&C Co., Ltd.
  W 200,582     W 235,337     W 8,419     W 204,563     W 284,349     W 7,732  
 
                                               
Parent Company:
                                               
SK Holdings Co., Ltd. (formerly SK Corporation)
                736       2,158       37,040       12,475  
 
                                               
Subsidiaries:
                                               
SK Communications Co., Ltd.
    347       36,714       6,189       1,495       44,321       3,509  
SK Telink Co., Ltd.
          13,442       25,738             13,490       26,836  
SK Wyverns Baseball Club Co., Ltd.
          23,792       343             18,300       488  
PAXNet Co., Ltd.
          11,331       3,222             8,985       1,495  
Global Credit & Information Co., Ltd.
          53,784       1,504             42,787       1,389  
TU Media Corp.
    11       2,652       55,131       573       1,515       57,301  
Aircross Co., Ltd.
    2,018       21,837       1,574                    
SK Telecom China Co.,Ltd.
          12,449       684                    
SK Telecom International Inc.
          6,823                          
Helio, Inc.
                2,201                    
Others
    3,273       20,679       1,170       14       27,158       10,534  
 
                                               
Equity Method Investees:
                                               
Helio, LLC
                            3       18,243  
Others
    673       12,132             3,603       21,184       17,565  
 
                                               
Others :
                                               
SK Energy Co., Ltd.
          29,301       16,746                    
SK Engineering & Construction Co., Ltd.
    306,307       16,147       2,883       235,872       7,086       2,381  
SK Networks Co., Ltd.
    33,507       698,015       15,378       8,018       471,073       11,110  
Innoace Co., Ltd.
    23,597       7,378       217       23,986       7,447       218  
SK Telesys Co., Ltd.
    262,081       12,328       2,476       231,227       6,567       1,673  
Others
    4,061       29,114       5,232       2,539       17,468       3,946  
 
                                   
 
                                               
Total
  W 836,457     W 1,243,255     W 149,843     W 714,048     W 1,008,773     W 176,895  
 
                                   

 


Table of Contents

     b-(2) Account balances
                                                 
    As of December 31, 2007  
                                            Guarantee  
    Accounts     Short-term     Long-term     Guarantee     Accounts     deposits  
    receivable     loans     loans     deposits     payable     received  
Parent Company:
                                               
SK C&C Co., Ltd.
  W 320     W     W     W     W 131,029     W 346  
SK Holdings Co., Ltd. (formerly SK Corporation)
    726                                
 
                                               
Subsidiaries:
                                               
SK Communications Co., Ltd.
    1,214                         12,317       5,606  
SK Telink Co., Ltd.
    947                         414       1,197  
SK Wyverns Baseball Club Co., Ltd.
    334       575       3,557                    
PAXNet Co., Ltd.
                            614       150  
Global Credit & Information Co., Ltd.
                            7,051        
TU Media Corp.
    6,225                         10,487       3,016  
Aircross Co., Ltd.
    2,659                         3,699       255  
IHQ, Inc.
    38                         2,008        
Ntreev Soft Co., Ltd.
    18                         3,640        
Commerce Planet Co., Ltd.
    38                         2,168        
Seoul Records, Inc.
    59                         1,077        
SKT Vietnam PTE Ltd.
    1,507                                
SK Telecom China Co., Ltd.
    684                                
Helio, Inc.
    719                                
Others
                            2,117        
 
                                               
Equity Method Investees:
                                               
Others
    208                         304        
 
                                               
Others:
                                               
SK Energy Co., Ltd.
    1,169                   134       4,380       248  
SK Engineering & Construction Co., Ltd.
    310                         8,075       1,135  
SK Networks Co., Ltd.
    1,158                   112       69,337       3,432  
Innoace Co., Ltd.
                            5,672       2,291  
SK Telesys Co., Ltd.
    28                         29,286        
Others
    545                         7,861        
 
                                   
 
                                               
Total
  W 18,906     W 575     W 3,557     W 246     W 301,536     W 17,676  
 
                                   

 


Table of Contents

                                                 
    As of December 31, 2006  
                                            Guarantee  
    Accounts     Short-term     Long-term     Guarantee     Accounts     deposits  
    receivable     loans     loans     deposits     payable     received  
Parent Company:
                                               
SK Holdings Co., Ltd. (formerly SK Corporation)
  W 3,560     W     W     W 291     W 7,962     W 6,174  
 
                                               
Subsidiaries:
                                               
SK Communications Co., Ltd.
    535                         7,255       5,459  
SK Telink Co., Ltd.
    4,352                         2,209       955  
SK Wyverns Baseball Club Co., Ltd.
    475       1,150       4,132                    
PAXNet Co., Ltd.
    121                         913        
Global Credit & Information Co., Ltd.
    82                         7,645        
SKT Vietnam PTE Ltd. (Formerly SLD Telecom PTE Ltd.)
    10,948                                
SK Telecom International Inc.
                            1,673        
Others
    16                         564        
 
                                               
Equity Method Investees:
                                               
SK C&C Co., Ltd.
    650                         86,332       346  
TU Media Corp.
    6,369                         886       3,016  
Aircross Co., Ltd.
    4,275                         3,513       226  
Helio, LLC.
    13,335                                
Others
    41                         540        
 
                                               
Others:
                                               
SK Engineering & Construction Co., Ltd.
    258                         1,635       942  
SK Networks Co., Ltd.
    771                   113       69,546       3,010  
Innoace Co., Ltd.
    1                         13,574       2,291  
SK Telesys Co., Ltd.
    12                         51,531        
Others
    847                   900       12,078        
 
                                   
 
                                               
Total
  W 46,648     W 1,150     W 4,132     W 1,304     W 267,856     W 22,419  
 
                                   
c.   Compensation for the key management
 
    The Company considers registered directors who have substantial roles and responsibility for planning, operating, and controlling of the business as key management, and the considerations given to the key management for the year ended December 31, 2007 and 2006 are as follows (In millions of Korean won):
                                                 
    For the year ended     For the year ended  
    December 31, 2007     December 31, 2006  
            Severance                     Severance        
Payee   Payroll     indemnities     Total     Payroll     indemnities     Total  
 
                                               
12 Registered directors
(including outside directors)
  W 4,786     W 722     W 5,508     W 4,472     W 935     W 5,407  
 
                                   
    In addition, on March 8, 2002, the Company granted stock options to its nine key members of the management, representing 15,110 shares at an exercise price of W267,000 per share. The stock options fully vested after three years from the date of grant and are exercisable for two years upon vesting. During the year ended December 31, 2007, the exercisable period elapsed and those stock options representing 15,110 shares have expired.

 


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24.   PROVISION FOR MILEAGE POINTS
 
    The Company, for its marketing purposes, grants certain mileage points (“Rainbow Points and Point Box”) to its subscribers based on their usage of the Company’s services. Mileage points’ provision was provided based on the historical usage experience and the Company’s marketing policy. Such provision was recorded as accrued expenses or other non-current liabilities in accordance with the expected points’ usage duration since balance sheet date.
 
    Details of change in the provisions for such mileage points for the years ended December 31, 2007 and 2006 are as follows (In millions of Korean won):
                 
    2007     2006  
    (note a)     (note a)  
 
               
Beginning balance
  W 52,593     W 52,172  
Decrease (used points)
    (12,530 )     (10,336 )
Decrease (reversal of provision for mileage points)
    (27,532 )      
Increase
    15,137       10,757  
 
           
 
               
Ending balance
  W 27,668     W 52,593  
 
           
 
(note a)   Effective January 1, 2005, pursuant to adoption of SKAS No.17 [See Note 2(o)], Mileage points’ provision is recorded at the present value.
Mileage points expire after 5 years. The expected year when unused mileage points as of December 31, 2007 are expected to be used and the respective estimated monetary amount to be paid in a given year are as follows (In millions of Korean won):
                 
Expected year   Estimated amount to be paid        
of the usage (note b)   In nominal value (note b)     Current value (note b)  
 
               
2008
  W 12,203     W 11,432  
2009
    8,117       7,125  
2010
    5,443       4,475  
2011
    3,676       2,832  
2012
    2,500       1,804  
 
           
 
               
Ending balance
  W 31,939     W 27,668  
 
           
 
(note b)   The above expected year of the usage and the current value of the estimated amount to be paid are estimated based on the historical usage experience.

 


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25.   DERIVATIVE INSTRUMENTS
  a.   Currency swap contract to which the cash flow hedge accounting is applied
 
      The Company has entered into a fixed-to-fixed cross currency swap contract with Citibank, BNP Paribas and Credit Suisse First Boston International to hedge the foreign currency risk of unguaranteed U.S. dollar denominated bonds with face amounts totaling US$300,000,000 at annual fixed interest rate of 4.25% issued on April 1, 2004. As of December 31, 2007, in connection with unsettled foreign currency swap contract to which the cash flow hedge accounting is applied, an accumulated loss on valuation of derivatives amounting to W15,662 million (excluding tax effect totaling W6,669 million and foreign exchange translation gain arising from unguaranteed U.S. dollar denominated bonds totaling W62,908 million) was accounted for as accumulated other comprehensive loss.
 
      The Company has entered into a floating-to-fixed cross currency swap contract with Calyon bank to hedge the foreign currency risk and the interest rate risk of U.S. dollar denominated long-term borrowings with face amounts totaling US$100,000,000 borrowed on October 10, 2006. As of December 31, 2007, in connection with unsettled cross currency interest rate swap contract to which the cash flow hedge accounting is applied, an accumulated loss on valuation of derivatives amounting to W1,567 million (excluding foreign exchange translation gain arising from U.S. dollar denominated long-term borrowings totaling W980 million) was accounted for as accumulated other comprehensive loss.
 
      In addition, the Company has entered into a floating-to-fixed cross currency swap contract with HSBC and SMBC Bank to hedge the foreign currency risk and the interest rate risk of unguaranteed Japanese yen denominated bonds with face amounts totaling JPY12,500,000,000 issued on November 13, 2007. As of December 31, 2007, in connection with unsettled cross currency interest rate swap contract to which the cash flow hedge accounting is applied, an accumulated gain on valuation of derivatives amounting to W5,413 million (excluding foreign exchange translation loss arising from unguaranteed Japanese yen denominated bonds totaling W328 million) was accounted for as accumulated other comprehensive income.
 
  b.   Interest rate swap contract to which the cash flow hedge accounting is applied
 
      The Company has entered into a floating-to-fixed interest rate swap contract with Shinhan Bank to hedge the interest rate risk of floating rate discounted bill with face amounts totaling W200,000 million borrowed on June 29, 2006. As of December 31, 2007, in connection with unsettled interest rate swap contract to which the cash flow hedge accounting is applied, an accumulated gain on valuation of derivatives amounting to W2,298 million (excluding tax effect totaling W872 million) was accounted for as accumulated other comprehensive income.
 
  c.   Currency swap contract to which the fair value hedge accounting is applied
 
      The Company has entered into a fixed-to-fixed cross currency swap contract with Hana Bank and other 8 banks to hedge the foreign currency risk of U.S. dollar denominated equity securities of China Unicom. In connection with unsettled foreign currency swap contract to which the fair value hedge accounting is applied, loss on valuation of currency swap of W12,646 million for the year ended December 31, 2007 was charged to current operations.

 


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  d.   Currency swap contract to which the hedge accounting is not applied
 
      The Company has entered into a fixed-to-fixed cross currency swap contract with Credit Suisse First Boston International to hedge foreign currency risk of unguaranteed U.S. dollar denominated convertible bonds with face amounts of US$329,450,000 issued on May 27, 2004. In connection with unsettled fixed-to-fixed cross currency swap contract to which the hedge accounting is not applied, loss on valuation of currency swap of W623 million and W9,258 million for the years ended December 31, 2007 and 2006 was charged to current operations.
 
      Also, the Company has entered into fixed-to-fixed cross currency swap contract with Morgan Stanley Bank and two other banks to hedge the foreign currency risk of unguaranteed U.S. dollar denominated bonds with face amounts totaling US$400,000,000 issued on July 20, 2007. In connection with unsettled foreign currency swap contract to which the hedge accounting is not applied, gain on valuation of currency swap of W7,316 million for the year ended December 31, 2007 was charged to current operations.
 
      As of December 31, 2007, fair values of above derivatives recorded in assets or liabilities and details of derivative instruments as of December 31, 2007 are as follows (In thousands of U.S. dollars, H.K. dollars, Japanese yen and millions of Korean won):
                                                 
                    Fair value  
                    Designated     Designated              
                Duration   as cash     as fair     Not        
Type   Hedged item   Amount     of contract   flow hedge     value hedge     designated     Total  
 
                                               
Non-current assets:
                                               
Fix-to-fixed cross currency swap
  U.S. dollar denominated bonds   US$ 400,000     Jul. 20, 2007
~ Jul. 20, 2017
  W     W     W 7,316     W 7,316  
Floating-to-fixed cross currency interest rate swap
  Japanese yen denominated bonds   JPY 12,500,000     Nov. 13, 2007
~ Nov. 13, 2012
    5,741                   5,741  
Floating-to-fixed Interest rate swap
  Long-term floating rate discounted bill   W 200,000     Jun. 29, 2006
~ Jun. 29, 2010
    3,170                   3,170  
 
                                       
 
                                               
Total assets
                  W 8,911     W     W 7,316     W 16,227  
 
                                       
 
                                               
Current liabilities:
                                               
Fix-to-fixed cross currency swap
  U.S. dollar denominated China Unicom Equity Securities   HK$ 10,940,900     Sep. 11, 2007
~ Sep. 16, 2008
  W     W 12,646     W     W 12,646  
 
                                       
 
                                               
Non-current liabilities:
                                               
Fix-to-fixed cross currency swap
  U.S. dollar denominated bonds   US$ 300,000     Mar. 23, 2004
~ Apr. 1, 2011
    85,239                   85,239  
Fix-to-fixed cross currency swap
  U.S. dollar denominated convertible bond   US$ 100,000     May 27, 2004
~ May 27, 2009
                23,125       23,125  
Floating-to-fixed cross currency interest rate swap
  U.S. dollar denominated long-term borrowings   US$ 100,000     Oct. 10, 2006
~ Oct. 10, 2013
    2,547                   2,547  
 
                                       
 
                    87,786             23,125       110,911  
 
                                       
 
                                               
Total liabilities
                  W 87,786     W 12,646     W 23,125     W 123,557  
 
                                       

 


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26. COMMITMENTS
     a. Additional investment in SKT USA Holdings, Inc,
In accordance with the resolution of the Company’s board of directors on January 26, 2005, the Company and EarthLink, Inc., an internet service provider in the United States of America, agreed to establish ‘Helio, LLC’, a joint venture company, in the United States of America in February 2005 in order to provide wireless telecommunication service across the United States of America. The Company, via SK Telecom USA Holdings, Inc., its wholly-owned subsidiary in the United States of America, has invested US$220 million from 2005 through September 30, 2007 (to maintain 50% of equity interest in the Joint venture Company). In addition, the Company has invested US$30,000,000 in SK Telecom USA Holdings, Inc. on July 25, 2007 in accordance with the resolution of the Company’s board of directors on June 29, 2007, of which additional investment of up to US$100,000 million was approved. In addition, the Company has invested US$30,000,000, US$40,000,000 and US$30,000,000 in SK Telecom USA Holdings, Inc. on September 21, 2007, November 6, 2007 and December 13, 2007, respectively, in accordance with the resolution of the Company’s board of directors on September 20, 2007, of which additional investment of up to US$200,000 million in SK Telecom USA Holdings, Inc was approved. Helio, LLC extensively launched cellular voice and data services across the United States of America in May 2006 by renting networks from network operators throughout the United States of America also known as partial mobile virtual network operator (MVNO) system.
     b. Agreement to acquire equity interests of hanarotelecom incorporated
On December 3, 2007, the Company entered into the agreement to acquire 91,406,249 shares of hanarotelecom incorporated’s common stock from AIG — Newbridge Capital Limited and others, at the price of W11,900 per share (total acquisition cost of 1,087,734 million won) in accordance with the resolution of the Company’s board of directors on November 30, 2007. However, if the government approval is not made or the preceding conditions are not fulfilled in connection with the agreement, this agreement might not be executed. If the agreement is completed, the Company’s ownership interest in hanarotelecom incorporated will increase to 43.6% from 4.8%.
27. STATEMENTS OF CASH FLOWS
     The statements of cash flows are prepared using the indirect method.
Significant non-cash transactions for the years ended December 31, 2007 and 2006 are as follows (In millions of Korean won):
                 
    2007   2006
 
               
Conversion of convertible bonds
  W 5,654     W 29,528  
Retirement of treasury stock
          209,077  
Offset of accounts receivable
    67,313       85,695  
Transfer from advanced payments to construction in progress
    12,714        
Transfer from long-term loans to short-term loans
    35,971       13,047  
Transfer from long-term guarantee deposits received and other to accrued expenses
    11,432       13,643  
Transfer from long-term deposits and other to prepaid expenses
    48,202       72,253  

 


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28. OPERATING RESULTS FOR THE FOURTH QUARTER
The Company’s key operating results for the three months ended December 31, 2007 and 2006 (Unaudited) are as follows (In millions of Korean won, except for income per share):
                 
    4th Quarter of
    2007   2006
    (unaudited)   (unaudited)
 
               
Operating revenue
  W 2,916,012     W 2,759,776  
Income before income tax
    133,482       371,006  
Net income
    66,048       279,298  
 
               
Net income per share (in Korean won)
    909       3,926  

 


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Independent Accountant’s Review Report
on Internal Accounting Control System (“IACS”)
English Translation of a Report Originally Issued in Korean
To the Representative Director of
SK Telecom Co., Ltd.
We have reviewed the accompanying Report on the Management’s Assessment of IACS (the “Management’s Report”) of SK Telecom Co., Ltd. (the “Company”) as of December 31, 2007. The Management’s Report, and the design and operation of IACS are the responsibility of the Company’s management. Our responsibility is to review the Management’s Report and issue a review report based on our procedures. The Company’s management stated in the accompanying Management’s Report that “based on the assessment of the IACS as of December 31, 2007, the Company’s IACS has been appropriately designed and is operating effectively as of December 31, 2007, in all material respects, in accordance with the IACS Framework established by the Korea Listed Companies Association.”
We conducted our review in accordance with the IACS Review Standards established by the Korean Institute of Certified Public Accountants. Those standards require that we plan and perform a review, objective of which is to obtain a lower level of assurance than an audit, of the Management’s Report in all material respects. A review includes obtaining an understanding of a company’s IACS and making inquiries regarding the Management’s Report and, when deemed necessary, performing a limited inspection of underlying documents and other limited procedures.
A company’s IACS represents internal accounting policies and a system to manage and operate such policies to provide reasonable assurance regarding the reliability of financial statements prepared, in accordance with accounting principles generally accepted in the Republic of Korea, for the purpose of preparing and disclosing reliable accounting information. Because of its inherent limitations, IACS may not prevent or detect a material misstatement of the financial statements. Also, projections of any evaluation of effectiveness of IACS to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on our review, nothing has come to our attention that causes us to believe that the Management’s Report referred to above is not fairly stated, in all material respects, in accordance with the IACS Framework established by the Korea Listed Companies Association.
Our review is based on the Company’s IACS as of December 31, 2007, and we did not review its IACS subsequent to December 31, 2007. This report has been prepared pursuant to the Acts on External Audit for Stock Companies in the Republic of Korea and may not be appropriate for other purposes or for other users.
January 31, 2008
/s/ Deloitte Anjin LLC

 


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Report on the Assessment of Internal Accounting Control System (“IACS”)
To the Board of Directors and Audit Committee of
SK Telecom Co., Ltd.
I, as the Internal Accounting Control Officer (“IACO”) of SK Telecom Co., Ltd. (“the Company”), assessed the status of the design and operation of the Company’s IACS for the year ended December 31, 2007.
The Company’s management including IACO is responsible for designing and operating IACS. I, as the IACO, assessed whether the IACS has been appropriately designed and is effectively operating to prevent and detect any error or fraud which may cause any misstatement of the financial statements, for the purpose of preparing and disclosing reliable financial statements reporting. I, as the IACO, applied the IACS Framework established by the Korea Listed Companies Association for the assessment of design and operation of the IACS.
Based on the assessment of the IACS, the Company’s IACS has been appropriately designed and is operating effectively as of December 31, 2007, in all material respects, in accordance with the IACS Framework.
January 31, 2008
         
  /s/ Internal Accounting Control Officer
 
 
     
 
  /s/ Chief Executive Officer
 
 
     
     
     

 


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Forward-Looking Statement Disclaimer
The material above contains forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results or performance to be materially different from any future results or performance expressed or implied by such forward-looking statements. We do not make any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein, and nothing contained herein is, or shall be relied upon as, a promise or representation, whether as to the past or the future. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events. Additional information concerning these and other risk factors are contained in our latest annual report on Form 20-F and in our other filings with the U.S. Securities and Exchange Commission.

 


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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  SK Telecom Co., Ltd.
(Registrant)
 
 
  By:   /s/ Tae Jin Park    
    (Signature  
    Title:  
Name:  
Tae Jin Park
Senior Vice President 
 
 
Date: April 24, 2008