Edgar Filing: SK TELECOM CO LTD

Amount

Remark

(In millions of won)

Guarantees for employees’ borrowings relating to employee stock ownership

Form 20-F

As filed with the Securities and Exchange Commission on April 29, 2016

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from to

Commission file number 1-14418

SK Telecom Co., Ltd.

(Exact name of Registrant as specified in its charter)

SK Telecom Co., Ltd.

(Translation of Registrant’s name into English)

The Republic of Korea

(Jurisdiction of incorporation or organization)

SK T-Tower

65, Eulji-ro, Jung-gu, Seoul, Korea

(Address of principal executive offices)

Ms. Tae Hee Kim

65, Eulji-ro, Jung-gu, Seoul, Korea

Telephone No.: 82-2-6100-2114

Facsimile No.: 82-2-6100-7830

(Name, telephone, email and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.


Title of Each Class		Name of Each Exchange on Which Registered
American Depositary Shares, each representing one-ninth of one share of Common Stock		New York Stock Exchange
Common Stock, par value ￦500 per share		New York Stock Exchange*

* Not for trading, but only in connection with the registration of the American Depositary Shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

70,609,160 shares of common stock, par value ￦500 per share (not including 10,136,551 shares of common stock held by the company as treasury shares)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ¨ International Financial Reporting Standards as issued by the International Accounting Standards Board þ Other ¨

Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ¨ Item 18 þ

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

TABLE OF CONTENTS


		Page
CERTAIN DEFINED TERMS AND CONVENTIONS USED IN THIS ANNUAL REPORT			1
FORWARD-LOOKING STATEMENTS			1

PART I			4
Item 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS		4
Item 1.A.	Directors and Senior Management		4
Item 1.B.	Advisers		4
Item 1.C.	Auditors		4
Item 2.	OFFER STATISTICS AND EXPECTED TIMETABLE		4
Item 3.	KEY INFORMATION		4
Item 3.A.	Selected Financial Data		4
Item 3.B.	Capitalization and Indebtedness		7
Item 3.C.	Reasons for the Offer and Use of Proceeds		7
Item 3.D.	Risk Factors		8
Item 4.	INFORMATION ON THE COMPANY		22
Item 4.A.	History and Development of the Company		22
Item 4.B.	Business Overview		25
Item 4.C.	Organizational Structure		47
Item 4.D.	Property, Plants and Equipment		47
Item 4A.	UNRESOLVED STAFF COMMENTS		48
Item 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS		48
Item 5.A.	Operating Results		48
Item 5.B.	Liquidity and Capital Resources		61
Item 5.C.	Research and Development, Patents and Licenses, etc.		68
Item 5.D.	Trend Information		69
Item 5.E.	Off-Balance Sheet Arrangements		69
Item 5.F.	Tabular Disclosure of Contractual Obligations		69
Item 5.G.	Safe Harbor		69
Item 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		69
Item 6.A.	Directors and Senior Management		69
Item 6.B.	Compensation		70
Item 6.C.	Board Practices		71
Item 6.D.	Employees		72
Item 6.E.	Share Ownership		73
Item 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		73
Item 7.A.	Major Shareholders		73
Item 7.B.	Related Party Transactions		75
Item 7.C.	Interests of Experts and Counsel		75
Item 8.	FINANCIAL INFORMATION		75
Item 8.A.	Consolidated Statements and Other Financial Information		75
Item 8.B.	Significant Changes		78
Item 9.	THE OFFER AND LISTING		78
Item 9.A.	Offering and Listing Details		78
Item 9.B.	Plan of Distribution		78
Item 9.C.	Markets		78
Item 9.D.	Selling Shareholders		85
Item 9.E.	Dilution		85
Item 9.F.	Expenses of the Issue		85
Item 10.	ADDITIONAL INFORMATION		85
Item 10.A.	Share Capital		85

(i)


		Page
Item 10.B.	Memorandum and Articles of Association		85
Item 10.C.	Material Contracts		98
Item 10.D.	Exchange Controls		98
Item 10.E.	Taxation		102
Item 10.F.	Dividends and Paying Agents		106
Item 10.G.	Statements by Experts		106
Item 10.H.	Documents on Display		106
Item 10.I.	Subsidiary Information		106
Item 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		107
Item 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		108
Item 12.A.	Debt Securities		108
Item 12.B.	Warrants and Rights		108
Item 12.C.	Other Securities		108
Item 12.D.	American Depositary Shares		108

PART II			110
Item 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		110
Item 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		110
Item 15.	CONTROLS AND PROCEDURES		110
Item 16.	RESERVED		111
Item 16A.	AUDIT COMMITTEE FINANCIAL EXPERT		111
Item 16B.	CODE OF ETHICS		111
Item 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		111
Item 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES		112
Item 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		112
Item 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT		112
Item 16G.	CORPORATE GOVERNANCE		112
Item 16H.	MINE SAFETY DISCLOSURE		113

PART III			113
Item 17.	FINANCIAL STATEMENTS		113
Item 18.	FINANCIAL STATEMENTS		114
Item 19.	EXHIBITS		114
EX-1.1
EX-8.1
EX-12.1
EX-12.2
EX-13.1
EX-13.2
EX-15.1
EX-15.3
EX-15.4
EX-15.5

(ii)

CERTAIN DEFINED TERMS AND CONVENTIONS USED IN THIS ANNUAL REPORT

All references to “Korea” contained in this annual report shall mean The Republic of Korea. All references to the “Government” shall mean the government of The Republic of Korea. All references to “we,” “us,” or “our” shall mean SK Telecom Co., Ltd. and, unless the context otherwise requires, its consolidated subsidiaries. References to “SK Telecom” shall mean SK Telecom Co., Ltd., but shall not include its consolidated subsidiaries. All references to “U.S.” shall mean the United States of America.

All references to “MHz” contained in this annual report shall mean megahertz, a unit of frequency denoting one million cycles per second. All references to “GHz” shall mean gigahertz, a unit of frequency denoting one billion cycles per second. All references to “Mbps” shall mean one million bits per second and all references to “Gbps” shall mean one billion bits per second. All references to “GB” shall mean gigabytes, which is one billion bytes. Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.

All references to “Won,” or “￦” in this annual report are to the currency of Korea, all references to “Dollars” or “US$” are to the currency of the United States of America, all references to “CHF” or “Franc” are to the currency of Switzerland, all references to “MYR” are to the currency of Malaysia, all references to “euro” or “€” are to the currency of the European Union and all references to “Australian Dollars” or “AUD” are to the currency of the Commonwealth of Australia.

Pursuant to amendments to the Government Organization Act and the Act on the Establishment and Operation of Korea Communications Commission, both effective as of March 23, 2013, the Ministry of Science, ICT and Future Planning (the “MSIP”) was established. The MSIP is charged with regulating information and telecommunications, which function was formerly performed by the Korea Communications Commission (the “KCC”) under the previous Government. The KCC, which had taken over the regulatory functions relating to information and telecommunications policies and radio and broadcasting management from the Ministry of Information and Communication (the “MIC”) in 2008, is currently charged with regulating the public interest aspects of and fairness in broadcasting. In this annual report, we refer to the MIC and the KCC as the relevant governmental authorities in connection with any approval granted or action taken by the MIC or the KCC, as applicable, prior to such amendments and to the MSIP or other relevant governmental authority in connection with any approval granted or to be granted or action taken or to be taken by the MSIP or such other relevant governmental authority subsequent to such amendments.

Subscriber information for the wireless and fixed-line telecommunications industry set forth in this annual report are derived from information published by the MSIP unless expressly stated otherwise.

The consolidated financial statements included in this annual report are prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (the “IASB”). As such, we make an explicit and unreserved statement of compliance with IFRS, as issued by the IASB, with respect to our consolidated financial statements as of December 31, 2015 and 2014, and for the years ended December 31, 2015, 2014, and 2013 included in this annual report.

In accordance with rule amendments adopted by the U.S. Securities and Exchange Commission (the “SEC”), which became effective on March 4, 2008, we are not required to provide a reconciliation to generally accepted accounting principles in the United States, or U.S. GAAP.

Unless expressly stated otherwise, all financial data included in this annual report are presented on a consolidated basis.

FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements,” as defined in Section 27A of the U.S. Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on our current expectations, assumptions, estimates and projections about our company and our industry. The forward-looking statements are subject to various risks and uncertainties. Generally,

these forward-looking statements can be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “considering,” “depends,” “estimate,” “expect,” “intend,” “plan,” “planning,” “planned,” “project” and similar expressions, or that certain events, actions or results “may,” “might,” “should” or “could” occur, be taken or be achieved.

Forward-looking statements in this annual report include, but are not limited to, statements about the following:

•

our ability to anticipate and respond to various competitive factors affecting the telecommunications industry, including new services that may be introduced, changes in consumer preferences, economic conditions and discount pricing strategies by competitors;

•

our implementation of long-term evolution (“LTE”) technology, long-term evolution advanced (“LTE-A”) technology and the next-generation wireless technology, which we call “5G” technology;

•

our plans for capital expenditures in 2016 for a range of projects, including investments to improve and expand our LTE network and LTE-A services, investments to improve and expand our Wi-Fi network, investments to develop our platform business portfolio and funding for mid- to long-term research and development projects, as well as other initiatives, primarily related to the development of new growth engines, as well as initiatives related to our ongoing businesses in the ordinary course;

•

our efforts to make significant investments to build, develop and broaden our businesses, including developing our three next-generation growth platforms, Internet of Things (“IoT”) solutions, lifestyle enhancement and advanced media;

•

our ability to comply with governmental rules and regulations, including the regulations of the Government related to telecommunications providers, the Mobile Device Distribution Improvement Act (“MDDIA”), rules related to our status as a “market-dominating business entity” under the Korean Monopoly Regulation and Fair Trade Act (the “Fair Trade Act”) and the effectiveness of steps we have taken to comply with such regulations;

•

our ability to effectively manage our bandwidth and to timely and efficiently implement new bandwidth-efficient technologies and our intention to participate in, and acquire additional bandwidth pursuant to, frequency bandwidth auctions held by the MSIP;

•

our expectations and estimates related to interconnection fees, rates charged by our competitors, regulatory fees, operating costs and expenditures, working capital requirements, principal repayment obligations with respect to long-term borrowings, bonds and obligations under capital leases, and research and development expenditures and other financial estimates;

•

the success of our various joint ventures and investments;

•

our ability to successfully manage our acquisition in 2012 of a stake in SK hynix Inc. (known as Hynix Semiconductor Inc. at the time of such acquisition, “SK Hynix”), a memory-chip maker;

•

our ability to successfully complete the acquisition of a stake in CJ HelloVision Co., Ltd. (“CJ HelloVision”), a fixed-line cable TV broadcast service provider, and integrate CJ HelloVision’s business with that of SK Broadband Co., Ltd. (“SK Broadband”);

•

our ability to successfully attract and retain subscribers; and

•

the growth of the telecommunications industry in Korea and other markets in which we do business and the effect that economic, political or social conditions have on our number of subscribers and results of operations.

We caution you that reliance on any forward-looking statement involves risks and uncertainties, and that although we believe that the assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions could be incorrect. Risks and uncertainties associated with our business include, but are not limited to, risks related to changes in the regulatory environment, technology changes, potential litigation

and governmental actions, changes in the competitive environment, political changes, foreign exchange currency risks, foreign ownership limitations, credit risks and other risks and uncertainties that are more fully described under the heading “Item 3. Key Information — Risk Factors” and elsewhere in this annual report. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in any of the forward-looking statements. We do not undertake to release the results of any revisions of these forward-looking statements to reflect future events or circumstances.

PART I

Item 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Item 1.A.

Directors and Senior Management

Not applicable.

Item 1.B.

Advisers

Not applicable.

Item 1.C.

Auditors

Not applicable.

Item 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

Item 3.

KEY INFORMATION

Item 3.A.

Selected Financial Data

You should read the selected consolidated financial and operating data below in conjunction with the consolidated financial statements and the related notes included elsewhere in this annual report. The selected consolidated financial data set forth below as of and for the years ended December 31, 2015, 2014, 2013, 2012 and 2011 have been derived from our audited consolidated financial statements and related notes thereto, which have been prepared in accordance with IFRS as issued by the IASB.

In addition to preparing consolidated financial statements in accordance with IFRS as issued by the IASB included in this annual report, we also prepare financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”) as adopted by the Korean Accounting Standards Board (the “KASB”), which we are required to file with the Financial Services Commission of Korea (the “FSC”) and the Korea Exchange Inc. (the “Korea Exchange”) under the Financial Investment Services and Capital Markets Act (the “FSCMA”). English translations of such financial statements are furnished to the SEC on Form 6-K. Beginning with our financial statements prepared in accordance with K-IFRS as of and for the year ended December 31, 2012, we are required to adopt certain amendments to K-IFRS No. 1001, Presentation of Financial Statements, as adopted by the KASB in 2012. The amendments require operating income, which is calculated as operating revenue less operating expense, to be separately presented on the consolidated statement of income. Operating expense represents expenses incurred in our main operating activities and includes cost of products that have been resold and selling, general and administrative expenses.


	Year Ended December 31,
	2015			2014			2013			2012			2011
	(In billions of Won, except per share and number of shares data)
STATEMENT OF INCOME DATA
Operating Revenue and Other Income	￦	17,167.6		￦	17,220.3		￦	16,677.0		￦	16,343.3		￦	15,852.8
Revenue		17,136.7			17,163.8			16,602.1			16,141.4			15,803.2
Other income		30.9			56.5			74.9			201.9			49.6
Operating Expense		15,672.2			15,612.4			15,098.6			14,605.6			13,690.1
Operating Income		1,495.4			1,607.8			1,578.4			1,737.6			2,162.7
Profit before Income Tax		2,035.4			2,253.8			1,827.1			1,519.4			2,212.3
Profit from Continuing Operations		1,515.9			1,799.3			1,426.3			1,231.2			1,610.3
Profit (Loss) from Discontinued Operation, net of income taxes		—			—			183.2			(115.5	)		(28.3	)
Profit for the Year		1,515.9			1,799.3			1,609.5			1,115.7			1,582.1
Basic Earnings per Share(1)		20,988			25,154			23,211			16,525			22,848
Diluted Earnings per Share(2)		20,988			25,154			23,211			16,141			22,223
Basic Earnings per Share from Continuing Operations(1)		20,988			25,154			20,708			18,015			23,339
Diluted Earnings per Share from Continuing Operations(2)		20,988			25,154			20,708			17,583			22,699
Dividends Declared per Share (Won)		10,000			9,400			9,400			9,400			9,400
Dividends Declared per Share (US$)(3)		8.6			8.6			8.9			8.8			8.1
Weighted Average Number of Shares		71,551,966			70,936,336			70,247,592			69,694,999			70,591,937

	As of December 31,
	2015			2014			2013			2012			2011
	(In billions of Won)
STATEMENT OF FINANCIAL POSITION DATA
Working Capital (Deficit)(4)	￦	(96.3	)	￦	(337.2	)	￦	(945.8	)	￦	(880.5	)	￦	(556.1	)
Property and Equipment, Net		10,371.3			10,567.7			10,196.6			9,712.7			9,031.0
Total Assets		28,581.4			27,941.2			26,576.5			25,595.6			24,366.0
Non-current Liabilities(5)		7,950.8			7,272.7			6,340.7			6,565.9			4,959.7
Share Capital		44.6			44.6			44.6			44.6			44.6
Total Equity		15,374.1			15,248.3			14,166.6			12,854.8			12,732.7

	Year Ended December 31,
	2015			2014			2013			2012			2011
	(In billions of Won, except percentage data)
OTHER FINANCIAL DATA
Capital Expenditures(6)	￦	2,478.8		￦	3,008.0		￦	2,879.1		￦	3,394.3		￦	2,960.6
R&D Expense(7)		322.7			397.8			363.7			346.3			295.9
Depreciation and Amortization Expense		2,845.3			2,714.7			2,661.6			2,421.1			2,286.6
Net Cash Provided by Operating Activities		3,778.1			3,677.4			3,558.6			3,999.7			6,306.4
Net Cash Used in Investing Activities		(2,880.5	)		(3,683.2	)		(2,506.5	)		(5,309.6	)		(4,239.1	)
Net Cash Provided by (Used in) Financing Activities		(964.6	)		(559.4	)		(573.2	)		585.3			(1,079.3	)
Margins (% of total sales):
Operating Margin(8)		8.7	%		9.3	%		9.5	%		10.6	%		13.6	%
Net Margin(8)		8.8	%		10.4	%		9.7	%		6.8	%		9.9	%


	As of or for the Year Ended December 31,
	2015			2014			2013			2012			2011
SELECTED OPERATING DATA
Population of Korea (in millions)(9)		51.5			51.3			51.1			50.9			50.7
Our Wireless Penetration(10)		55.6	%		55.7	%		53.5	%		52.9	%		52.3	%
Number of Employees(11)		25,992			25,689			23,789			22,148			20,955
Wireless Subscribers (in thousands) (12)		28,626			28,279			27,352			26,961			26,553
Our LTE Subscribers (in thousands) (13)		18,980			16,737			13,487			7,530			634
Our LTE Penetration(14)		66.3	%		59.2	%		49.3	%		27.9	%		2.4	%
Average Monthly Data Usage per Subscriber(15)		3.9 GB			3.0 GB			2.0 GB			1.8 GB			—
Average Monthly Churn Rate(16)		1.5	%		2.0	%		2.3	%		2.6	%		2.7	%
Cell Sites		55,085			50,158			44,764			35,584			21,999

(1)

Basic earnings per share is calculated by dividing profit attributable to owners of SK Telecom by the weighted average number of common shares outstanding during the period. Basic earnings per share from continuing operations is calculated by dividing profit from continuing operations attributable to owners of SK Telecom by the weighted average number of common shares outstanding during the period.

(2)

Diluted earnings per share is calculated by dividing profit attributable to owners of SK Telecom adjusted for dilution by the potential dilutive weighted average number of common shares outstanding during the period, taking into account the conversion of outstanding convertible bonds. Diluted earnings per share from continuing operations is calculated by dividing profit from continuing operations attributable to owners of SK Telecom adjusted for dilution by the potential dilutive weighted average number of common shares outstanding during the period, taking into account the conversion of outstanding convertible bonds.

(3)

The Dollar amounts shown for the years ended December 31, 2015, 2014, 2013, 2012 and 2011 were translated at the rate of Won 1,169.3 to US$1.00, Won 1,090.9 to US$1.00, Won 1,055.3 to US$1.00, Won 1,063.2 to US$1.00 and Won 1,158.5 to US$1.00, respectively, the noon buying rates in effect at the end of the respective years.

(4)

Working capital means current assets minus current liabilities.

(5)

Our monetary assets and liabilities denominated in foreign currencies are valued at the exchange rates prevailing at the end of each reporting period. See note 4(19) of the notes to our consolidated financial statements.

(6)

Consists of cash outflows for the acquisition of property and equipment.

(7)

Consists of research and development costs that are expensed and costs that are amortized during the respective period as well as donations to Korean research institutions and educational organizations in 2012 and 2011 of Won 4.0 billion and Won 20.0 billion, respectively.

(8)

Operating revenue and other income and operating income used in the calculation of these ratios exclude the operating revenue and other income and operating income from discontinued operations.

(9)

Population numbers reflect the number of registered residents as published by the Ministry of the Interior of Korea.

(10)

Our wireless penetration is determined by dividing our wireless subscribers by total estimated population, as of the end of the period.

(11)

Includes regular employees and temporary employees. See “Item 6.D. Employees.”

(12)

Wireless subscribers include those subscribers who are temporarily deactivated, including (i) subscribers who voluntarily deactivate temporarily for a period of up to three months no more than twice a year and (ii) subscribers with delinquent accounts who may be involuntarily deactivated up to two months before permanent deactivation, which we determine based on various factors, including prior payment history. The number of subscribers as of December 31, 2015, 2014, 2013 and 2012 include 2.7 million subscribers, 2.1 million subscribers, 1.1 million subscribers and 0.4 million subscribers, respectively, of mobile virtual network operators (“MVNO”) that lease our wireless networks.

(13)

The number of LTE subscribers as of December 31, 2015 and 2014 include 0.1 million subscribers and approximately 29,000 subscribers, respectively, of MVNOs that lease our LTE network.

(14)

Our LTE wireless penetration is determined by dividing our LTE subscribers by our total wireless subscribers, as of the end of the period.

(15)

Average monthly data usage per LTE subscriber is determined by dividing the total GBs of data usage for the last month of the period by the average number of LTE subscribers for such month.

(16)

The average monthly churn rate for a period is the number calculated by dividing the sum of voluntary and involuntary deactivations during the period by the simple average of the number of subscribers at the beginning and end of the period, then dividing that number by the number of months in the period. Churn includes subscribers who upgrade to a next-generation service, such as LTE, by terminating their service and opening a new subscriber account.

Exchange Rates

The following table sets forth, for the periods and dates indicated, certain information concerning the noon buying rate for translations of Won amounts into Dollars. We make no representation that the Won or Dollar amounts we refer to in this annual report could have been or could be converted into Dollars or Won, as the case may be, at any particular rate or at all.


Year Ended December 31,	At End of Period		Average Rate(1)		High		Low
	(Won per US$1.00)
2011		1,158.5		1,106.9		1,197.5		1,049.2
2012		1,063.2		1,126.2		1,185.0		1,063.2
2013		1,055.3		1,094.7		1,161.3		1,050.1
2014		1,090.9		1,052.3		1,117.7		1,008.9
2015		1,169.3		1,131.0		1,196.4		1,063.0


	Past Six Months
	High		Low
	(Won per US$1.00)
October 2015		1,180.0		1,120.9
November 2015		1,172.7		1,136.5
December 2015		1,188.0		1,140.7
January 2016		1,217.0		1,190.4
February 2016		1,242.6		1,186.1
March 2016		1,229.6		1,138.9
April 2016 (through April 22)		1,158.4		1,126.0

Source: Federal Reserve Bank of New York.

(1)	The average rates for the annual periods were calculated based on daily noon buying rates for cable transfers in New York City certified for customs purposes by the Federal Reserve Bank of New York.

On April 22, 2016, the noon buying rate was Won 1,147.9 to US$1.00.

Item 3.B.

Capitalization and Indebtedness

Not applicable.

Item 3.C.

Reasons for the Offer and Use of Proceeds

Not applicable.

Item 3.D.

Risk Factors

Risks Relating to Our Business

Competition may reduce our market share and harm our results of operations and financial condition.

We face substantial competition across all our businesses, including our wireless telecommunications business. We expect competition to intensify as a result of the development of new technologies, products and services. We expect that such trends will continue to put downward pressure on the prevailing rates we can charge our subscribers.

Historically, there has been considerable consolidation in the telecommunications industry, resulting in the current competitive landscape comprising three mobile and fixed network operators in the Korean market, us, KT Corporation (“KT”) and LG Uplus Corp. (“LG U+”). Our competitors have substantial financial, technical, marketing and other resources to respond to our business offerings.

The collective market share of our competitors amounts to approximately 50.6%, in terms of number of wireless subscribers, as of December 31, 2015. We also compete for subscriber activations with MVNOs, including MVNOs that lease our networks. MVNOs generally provide rate plans that are relatively cheaper than similar rate plans of the wireless network providers from which they lease their networks, including us. In addition, other companies may enter the telecommunications service market by acquiring the required licenses from the MSIP. For example, in October 2015, Sejong Telecom, K Mobile and Quantum Mobile applied for licenses to become Korea’s fourth mobile network operator. Although the MSIP rejected the applications of all three companies in January 2016, the MSIP may continue its efforts to find an eligible applicant to be Korea’s fourth mobile network operator in the future.

We believe the increase in market share of MVNOs and the entrance of a new mobile network operator in the wireless telecommunications market may further increase competition in the telecommunications sector, as well as cause downward price pressure on the fees we charge for our services, which, in turn, may have a material adverse effect on our results of operations, financial position and cash flows.

Our fixed-line telephone service competes with KT and LG U+, as well as other providers of voice over Internet protocol (“VoIP”) services. As of December 31, 2015, our market share of the fixed-line telephone and VoIP service market was 16.2% (including the services provided by SK Broadband and SK Telink Co., Ltd. (“SK Telink”)) in terms of number of subscribers compared to KT with 57.5% and LG U+ with 17.5%. In addition, our broadband Internet access and Internet protocol TV (“IPTV”) services provided through SK Broadband competes with other providers of such services, including KT, LG U+ and cable companies. As of December 31, 2015, our market share of the broadband Internet market was 25.1% in terms of number of subscribers compared to KT with 41.6% and LG U+ with 17.4%. As of December 31, 2015, our market share of the pay TV market (which includes IPTV, cable TV and satellite TV) was 12.1% compared to KT with 22.7% and LG U+ with 7.9% and the collective market share of other pay TV providers with 57.3%.

Continued competition from other wireless and fixed-line service providers has also resulted in, and may continue to result in, a substantial level of deactivations among our subscribers. Subscriber deactivations, or churn, may significantly harm our business and results of operations. In 2015, the monthly churn rate in our wireless telecommunications business ranged from 1.3% to 2.1%, with an average monthly churn rate of 1.5%, which was a decrease from 2.0% in 2014. Intensification of competition in the future may cause our churn rates to increase, which in turn may cause us to increase our marketing expenses as a percentage of sales to attract and retain subscribers.

With respect to the commerce business operated by SK Planet Co., Ltd. (“SK Planet”), 11st, our marketplace business, faces intense competition from various e-commerce providers, including online open marketplaces such as Gmarket, Auction and Interpark and online social commerce operators such as Coupang, Ticket Monster and Wemakeprice. We also face competition from traditional retailers with online and mobile shopping portals such as SSG.com and Lotte.com, home shopping providers with online and mobile shopping portals such as CJ Mall by CJ O Shopping, GS Shop by GS Homeshopping and Hyundai Hmall by Hyundai Homeshopping, and various

online marketplaces for specific consumer segments or product groups. The industry in which 11st competes is evolving rapidly and is intensely competitive, and we face a broad array of competitors domestically and increasingly, internationally.

Our ability to compete successfully in all of the businesses that we operate will depend on our ability to anticipate and respond to various competitive factors affecting the respective industries, including new services that may be introduced, changes in consumer preferences, economic conditions and discount pricing strategies by competitors.

Inability to successfully implement or adapt our network and technology to meet the continuing technological advancements affecting the wireless telecommunications industry will likely have a material adverse effect on our financial condition, results of operation, cash flows and business.

The telecommunications industry has been characterized by continual improvement and advances in technology, and this trend is expected to continue. We and our competitors have continually implemented technology upgrades from our basic code division multiple access (“CDMA”) network to our wideband code division multiple access (“WCDMA”) network, and subsequently to LTE technology. We commenced commercial LTE services in July 2011 at the same time with LG U+, while KT commenced its commercial LTE services in January 2012. In June 2013, we commenced providing commercial LTE-A services using carrier aggregation technology which combines spectrum frequencies to improve data transmission speeds, and in June 2014, we launched wideband LTE-A services of up to 225 Mbps and expanded coverage nationwide in 2014.

In December 2014, we commenced tri-band LTE-A services, which bundles three different bandwidths to allow faster network service at speeds of up to 300 Mbps in Seoul and other metropolitan areas. Since then, we have expanded coverage nationwide and as of December 31, 2015, the nationwide geographic coverage percentage of our tri-band LTE-A service was approximately 51.9% according to the MSIP. KT and LG U+ have also launched similar LTE-A services around the same time as us. The more successful operation of an LTE network or development of improved LTE technology by a competitor, including better market acceptance of a competitor’s LTE services, could materially and adversely affect our existing wireless telecommunications businesses as well as the returns on future investments we may make in our LTE network or our other businesses. For a more detailed description of our backbone networks, see “Item 4.B. Business Overview — Cellular Services — Digital Wireless Network.”

Our business could also be harmed if we fail to implement, or adapt to, future technological advancements in the telecommunications sector in a timely manner, such as the implementation of 5G technology. In addition to introducing new technologies and offerings, we must phase out outdated and unprofitable technologies and services. If we are unable to do so on a cost-effective basis, our results of operations could be adversely affected.

Implementation of LTE technology has required, and may continue to require, significant capital and other expenditures, which we may not recoup.

We have made, and intend to continue to make, capital investments to develop, launch and enhance our LTE service, including launching LTE-A services. In 2015, 2014 and 2013, we spent Won 1,022.7 billion, Won 1,357.2 billion and Won 1,439.4 billion, respectively, in capital expenditures to build and enhance our LTE network. We plan to make further capital investments related to our LTE and LTE-A services in the future. Our wireless technology-related investment plans are subject to change, and will depend, in part, on market demand for LTE and LTE-A services, the competitive landscape for provision of such services and the development of competing technologies. There may not be sufficient demand for services based on our latest wireless technologies, as a result of competition or otherwise, to permit us to recoup or profit from our wireless technology-related capital investments.

Our growth strategy calls for significant investments in new businesses and regions, including businesses and regions in which we have limited experience.

We seek growth through investments in new businesses. While we believe that entering into new businesses enables us to diversify our business portfolio, we may be exposed to additional risks. For example, in February 2012, we acquired a 21.1% equity stake in SK Hynix, one of the world’s largest memory-chip makers by revenue,

for an aggregate purchase price of approximately Won 3.4 trillion, and became its largest shareholder. From time to time, the memory semiconductor industry has experienced significant and sometimes prolonged downturns, which often occur in connection with a deterioration of global economic conditions, and is subject to intense competition. For example, SK Hynix and its subsidiaries, on a consolidated basis, incurred net losses of Won 158.8 billion and Won 56.0 billion in 2012 and 2011, respectively, primarily due to increased supply and weak demand for semiconductor products. Although the memory semiconductor industry has recovered since then and SK Hynix has been recording net profits since 2013, the industry is subject to cyclical fluctuations and we expect that there may be future downturns in the industry. Accordingly, SK Hynix’s operating results would be adversely affected if it fails to compete successfully or decrease manufacturing costs at an adequate level. Since our share of any net losses incurred by SK Hynix would be reflected in our income statement as share of losses related to investments in associates, any significant loss of SK Hynix could have a material adverse effect on our results of operations.

We believe that we must continue to make significant investments to build, develop and broaden our existing businesses. Entering into new businesses and regions in which we have limited experience may require us to make substantial investments, and despite such investments, we may still be unsuccessful in these efforts to expand and diversify. We might not be able to recoup or profit from our investments in new businesses and regions. In addition, when we enter into these businesses and regions with partners through joint ventures or other strategic alliances, we and those partners may have disagreements with respect to strategic directions or other aspects of business, or may otherwise be unable to coordinate or cooperate with each other, any of which could materially and adversely affect our operations in such businesses and regions.

We may fail to successfully complete or integrate our new acquisitions and joint ventures and may fail to realize the anticipated benefits.

We continue to seek opportunities to develop new businesses that we believe are complementary to our existing product and service portfolio and expand our global business through selective acquisitions.

On November 2, 2015, we entered into a share purchase agreement with CJ O Shopping Co., Ltd. (“CJ O Shopping”) to acquire a 30.0% interest in CJ HelloVision, a fixed-line cable TV broadcast service provider, for an aggregate purchase price of Won 500.0 billion. Upon the acquisition of CJ HelloVision, SK Broadband will be merged with and into CJ HelloVision, after which we will have a 78.3% equity stake in the merged company. The acquisition and subsequent merger are subject to certain closing conditions, including obtaining regulatory approval from the relevant authorities. We may be delayed in, or fail to, obtain the necessary regulatory approvals and in such case, we may not be able to complete the acquisition and subsequent merger as planned.

In 2014 and 2015, we acquired an 83.9% interest in Neosnetworks Co., Ltd. (“Neosnetworks”), a provider of residential and small business electronic security and other related alarm monitoring services, for an aggregate purchase price of approximately Won 64.0 billion and a 49.0% equity stake in Iriver Ltd. (“Iriver”), a manufacturer of digital audio players and other portable media devices, for an aggregate purchase price of approximately Won 54.5 billion. In 2014, a 95.2%-owned subsidiary of SK Planet acquired a 100.0% ownership interest in Shopkick Inc. (“Shopkick”), the developer of “shopkick,” a mobile shopping application that checks in and rewards customers that arrive at a participating retail store in order to penetrate the mobile commerce market in the United States. For a more detailed description of our recent investments in new businesses, see “Item 5.B. Liquidity and Capital Resources — Capital Requirements — Investments in New Businesses and Global Expansion and Other Needs.”

While we are hoping to benefit from a range of synergies from the acquisitions as well as develop new growth engines for our business, we may not be able to successfully complete or integrate such acquisitions or new businesses and may fail to realize the expected benefits in the near term, or at all.

Due to the existing high penetration rate of wireless telecommunications services in Korea, we are unlikely to maintain our subscriber growth rate, which could adversely affect our results of operations.

According to data published by the MSIP and the historical population data published by the Ministry of the Interior, the penetration rate for the Korean wireless telecommunications industry as of December 31, 2015 was approximately 114.4%, which is relatively high compared to many industrialized countries. Therefore, we expect that the penetration rate for wireless telecommunications service in Korea will remain relatively stable. As a result

of the already high penetration rate in Korea for wireless telecommunications services coupled with our leading market share, we expect our subscriber growth rate to decrease. Slowed growth in the penetration rate without a commensurate increase in revenues through the introduction of new services and increased use of our services by existing subscribers would likely have a material adverse effect on our financial condition, results of operations and cash flows.

Our business and results of operations may be adversely affected if we fail to acquire adequate additional spectrum or use our bandwidth efficiently to accommodate subscriber growth and subscriber usage.

One of the principal limitations on a wireless network’s subscriber capacity is the amount of spectrum available for use by the network. We currently use 10 MHz of bandwidth in the 800 MHz spectrum for our CDMA services, 20 MHz of bandwidth in the 2.1 GHz spectrum for our WCDMA services, 40 MHz of bandwidth in the 2.1 GHz spectrum, 20 MHz of bandwidth in the 800 MHz spectrum and 35 MHz of bandwidth in the 1.8 GHz spectrum for our LTE services, as well as 27 MHz of spectrum in the 2.3 GHz band for our wireless broadband Internet (“WiBro”) services.

The growth of our wireless data businesses has been a significant factor in the increased utilization of our bandwidth, since wireless data applications are generally more bandwidth-intensive than voice services. In particular, the increasing popularity of smartphones and data intensive applications among smartphone users has recently been a major factor for the high utilization of our bandwidth. This trend has been offset in part by the implementation of new technologies, such as our tri-band LTE-A technology, which enables more efficient usage of our bandwidth than was possible on our basic LTE network. However, if the current trend of increased data transmission use by our subscribers continues, or the volume of the multimedia content we offer through our wireless data services substantially grows, our bandwidth capacity requirements are likely to increase. While we believe that we can address the capacity constraint issue through system upgrades and efficient allocation of bandwidth, inability to address such capacity constraints in a timely manner may adversely affect our business, results of operations, financial position and cash flows. In the event we are unable to maintain sufficient bandwidth capacity, our subscribers may perceive a general slowdown of wireless telecommunications services. Growth of our wireless telecommunications business will depend in part upon our ability to effectively manage our bandwidth capacity and to implement efficiently and in a timely manner new bandwidth-efficient technologies if they become available. We cannot assure you that bandwidth constraints will not adversely affect the growth of our wireless telecommunications business.

We intend to participate in the frequency bandwidth auctions to be held by the MSIP in 2016 and aim to acquire bandwidths that are complementary to our existing network. We may be required to pay a substantial amount to acquire bandwidth capacity in order to meet increasing bandwidth demand and we may not be successful in acquiring the necessary bandwidth to meet such demand, which may adversely affect our financial condition and results of operations.

We rely on key researchers and engineers and senior management, and the loss of the services of any such personnel or the inability to attract and retain them may negatively affect our business.

Our success depends to a significant extent upon the continued service of our research and development and engineering personnel, and on our ability to continue to attract, retain and motivate qualified researchers and engineers. In particular, our focus on leading the market in introducing new services has meant that we must aggressively recruit engineers with expertise in cutting-edge technologies. We also depend on the services of experienced key senior management, and if we lose their services, it would be difficult to find and integrate replacement personnel in a timely manner, or at all.

The loss of the services of any of our key research and development and engineering personnel or senior management without adequate replacement, or the inability to attract new qualified personnel, would have a material adverse effect on our operations.

We need to observe certain financial and other covenants under the terms of our debt instruments, the failure to comply with which would put us in default under those instruments.

Certain of our debt instruments contain financial and other covenants with which we are required to comply on an annual and semi-annual basis. The financial covenants with respect to SK Telecom’s debt instruments include, but are not limited to, a maximum net debt-to-EBITDA ratio of 2.75 and a minimum interest coverage ratio of 4.00, each as determined on a separate basis. The debt arrangements also contain negative pledge provisions limiting our ability to provide liens on our assets as well as cross-default and cross-acceleration clauses, which give related creditors the right to accelerate the amounts due under such debt if an event of default or acceleration has occurred with respect to our existing or future indebtedness, or if any material part of our indebtedness or indebtedness of our subsidiaries is capable of being declared payable before the stated maturity date. In addition, such covenants restrict our ability to raise future debt financing.

If we breach our financial or other covenants, our financial condition will be adversely affected to the extent we are not able to cure such breaches or repay the relevant debt.

We may have to make further financing arrangements to meet our capital expenditure requirements and debt payment obligations.

As a network-based wireless telecommunications provider, we have had, and expect to continue to have, significant capital expenditure requirements as we continue to build out, maintain and upgrade our networks. We spent Won 2,478.8 billion for capital expenditures in 2015. We expect to spend a similar amount for capital expenditures in 2016 compared to 2015 for a range of projects, including investments to improve and expand our LTE network and LTE-A services, investments to improve and expand our Wi-Fi network, investments to develop our platform business portfolio and funding for mid- to long-term research and development projects, as well as other initiatives, primarily related to the development of new growth engines, as well as initiatives related to our ongoing businesses in the ordinary course. If we acquire new bandwidths in the frequency bandwidth auctions to be held by the MSIP in 2016, we may be required to spend additional amounts on capital expenditures in connection with building out our networks on such new bandwidths.

In particular, we continue to make significant capital investments to expand and upgrade our wireless networks in response to growing bandwidth demand by our subscribers. Bandwidth usage by our subscribers has rapidly increased in recent years primarily due to the increasing popularity of smartphones and data intensive applications among smartphone users. If heavy usage of bandwidth-intensive services grows beyond our current expectations, we may need to invest more capital than currently anticipated to expand the bandwidth capacity of our networks or our customers may have a suboptimal experience when using our services. Any of these events could adversely affect our competitive position and have a material adverse effect on our business, financial condition, results of operation and cash flow. For a more detailed discussion of our capital expenditure plans and a discussion of other factors that may affect our future capital expenditures, see “Item 5.B. Liquidity and Capital Resources.”

As of December 31, 2015, we had approximately Won 1,601.8 billion in contractual payment obligations due in 2016, almost all of which involve repayment of debt obligations. See “Item 5.B. Liquidity and Capital Resources — Contractual Obligations and Commitments.”

We have not arranged firm financing for all of our current or future capital expenditure plans and contractual payment obligations. We have, in the past, obtained funds for our proposed capital expenditure and payment obligations from various sources, including our cash flow from operations as well as from financings, primarily debt and equity financings. Any material adverse change in our operational or financial condition could impact our ability to fund our capital expenditure plans and contractual payment obligations. Still volatile financial market conditions may also curtail our ability to obtain adequate funding. Inability to fund such capital expenditure requirements may have a material adverse effect on our financial condition, results of operations and business. In addition, although we currently anticipate that the capital expenditure levels estimated by us will be adequate to meet our business needs, such estimates may need to be adjusted based on developments in technology and markets. In the event we are unable to meet any such increased expenditure requirements or to obtain adequate financing for such requirements, on terms acceptable to us, or at all, this may have a material adverse effect on our financial condition, results of operations and business.

Termination or impairment of our relationship with a small number of key suppliers for network equipment and for leased lines could adversely affect our results of operations, financial position and cash flows.

We purchase wireless network equipment from a small number of suppliers. To date, we have purchased substantially all of the equipment for our networks from Samsung Electronics Co., Ltd. (“Samsung Electronics”), Ericsson-LG Co., Ltd. (“Ericsson-LG”) and Nokia Siemens Networks B.V. We believe Samsung Electronics currently manufactures approximately half of the wireless handsets sold to our subscribers. Although other manufacturers sell the equipment we require, sourcing such equipment from other manufacturers could result in unanticipated costs in the maintenance and enhancement of our wireless networks. Inability to obtain the equipment needed for our networks in a timely manner may have an adverse effect on our business, financial condition, results of operations and cash flows.

We cannot assure you that we will be able to continue to obtain the necessary equipment from one or more of our suppliers. Any discontinuation or interruption in the availability of equipment from our suppliers for any reason could have an adverse effect on our results of operations. Inability to lease adequate lines at commercially reasonable rates may impact the quality of the services we offer and may also damage our reputation and our business.

Our business relies on technology developed by us, and our business will suffer if we are unable to protect our proprietary rights.

We own numerous patents and trademarks worldwide, and have applications for patents pending in many countries, including Korea, Japan, China and the United States, and in Europe. In addition to active research and development efforts, our success depends in part on our ability to obtain patents and other intellectual property rights covering our services.

We may be required to defend against charges of infringement of patent or other proprietary rights of third parties. Although we have not experienced any significant patent or other intellectual property disputes, we cannot be certain that any significant patent or other intellectual property disputes will not occur in the future. Defending our patent and other proprietary rights could require us to incur substantial expense and to divert significant resources of our technical and management personnel, and could result in our loss of rights to employ certain technologies to provide services.

Malicious and abusive Internet practices could impair our services.

Our wireless and fixed-line subscribers increasingly utilize our network to access the Internet and, as a consequence, we or they may become victim to common malicious and abusive Internet activities, such as unsolicited mass advertising (i.e., “spam”), hacking of personal information and dissemination of viruses, worms and other destructive or disruptive software. These activities could have adverse consequences on our network and our customers, including degradation of service, excessive call volume to call centers and damage to our or our customers’ equipment and data. Significant incidents could lead to customer dissatisfaction and, ultimately, loss of customers or revenue, in addition to increased costs to us to service our customers and protect our network. For example, in July 2011, there was a leak of personal information of subscribers of websites operated by SK Communications Co., Ltd. (“SK Communications”), our consolidated subsidiary. Various lawsuits have been filed against SK Communications alleging that the leak was caused by its poor management of subscribers’ personal information. With respect to three of the lawsuits for which final judgments have been rendered, the relevant courts have rendered judgments in favor of SK Communications. As of December 31, 2015, twelve of the lawsuits, seeking damages of approximately Won 0.8 billion in aggregate, were pending at various district courts, various high courts and the Supreme Court of Korea. Any significant loss of our subscribers or revenue due to incidents of malicious and abusive Internet practices or significant increase in costs of serving those subscribers could adversely affect our business, financial condition and results of operations.

Labor disputes may disrupt our operations.

Although we are not experiencing any significant labor disputes, there can be no assurance that we will not experience labor disputes in the future, including protests and strikes, which could disrupt our business operations and have an adverse effect on our financial condition and results of operation.

Every two years, the union and management negotiate and enter into a new collective bargaining agreement that has a two-year duration, which is focused on employee benefits and welfare. Employee wages are separately negotiated on an annual basis. Although we consider our relations with our employees to be good, there can be no assurance that we will be able to maintain such a working relationship with our employees and will not experience labor disputes resulting from disagreements with the labor union in the future.

Our businesses are subject to extensive Government regulation and any change in Government policy relating to the telecommunications industry could have a material adverse effect on our results of operations, financial condition and cash flows.

Most of our businesses are subject to extensive governmental supervision and regulation. When the current president Park Geun-hye took office in February 2013, she announced that the Government will work toward reducing telecommunications service charges and promoting transparency in the decision making of telecommunications service providers. Accordingly, the Government has set detailed policy objectives to (1) gradually reduce and abolish initial subscription fees by 2015, (2) expand MVNO and mobile VoIP service, (3) intensify regulations on handset subsidies and (4) construct a data-based rate system.

Pursuant to the above policy objectives, the MSIP discussed with us, KT and LG U+ gradually reducing and abolishing initial subscription fees by 2015. Accordingly, we gradually reduced our initial subscription fees by 40% in August 2013 and again by an additional 50% in August 2014. Starting in November 2014, we ceased charging initial subscription fees to new subscribers. KT and LG U+ also gradually reduced the initial subscription fees that they charge and have ceased charging initial subscription fees to new subscribers as of March 31, 2015. Similarly, the Government has periodically reviewed the rates charged by wireless telecommunications service providers and has, from time to time, suggested rate reductions. Although these suggestions were not binding, we have implemented some rate reductions in response to such recommendations. The MSIP may suggest other rate reductions in the future and any further rate reductions we make in response to such suggestion may adversely affect our results of operations.

In furtherance of the above policy objectives, the Government also enacted the MDDIA, which became effective on October 1, 2014. The MDDIA was enacted for the purpose of establishing a transparent and fair distribution practice for mobile devices, and it limits the amount of subsidies a wireless telecommunications service provider can provide to subscribers in order to prevent excessive competition among wireless telecommunications service providers. Pursuant to the MDDIA, wireless telecommunications service providers are prohibited from (i) unfairly providing discriminatory subsidies based on criteria such as type of subscription, subscription plan and characteristics of the subscriber, (ii) providing subsidies exceeding a maximum limit established by the KCC (such limit to be determined between Won 250,000 and Won 350,000, which may be adjusted every six months, with the current limit set at Won 330,000, effective as of April 24, 2015) for the purchase of mobile phone models that were launched within the last 15 months, and (iii) entering into a separate agreement with subscribers imposing obligations to use a specific subscription plan as a condition for providing subsidies. In addition, under the MDDIA, wireless telecommunications service providers are obliged to provide certain benefits, such as discounted rates, to subscribers who subscribe to their service without receiving subsidies. It is difficult to estimate the impact the MDDIA will have on our results of operations as we believe the imposition of the MDDIA may affect the wireless telecommunications industry in various ways that we cannot fully predict, including the impact on our competitors and consumer behavior, which may have an adverse impact on our business. See “Item 5. Operating and Financial Review and Prospects — Item 5.A. Operating Results — Overview — New Regulations Relating to Handset Subsidies.”

The Government also plays an active role in the selection of technology to be used by telecommunications operators in Korea. For example, the MIC adopted the WCDMA and CDMA2000 technologies as the only standards available in Korea for implementing third generation services. The MSIP may impose similar restrictions on the choice of technology used in future telecommunications services, and it is possible that technologies promoted by the Government in the future may not provide the best commercial returns for us.

Furthermore, the Government sets the policies regarding the use of frequencies and allocates the spectrum of frequencies used for wireless telecommunications. See “Item 4.B. Business Overview — Law and Regulation —

Competition Regulation — Frequency Allocation.” The reallocation of the spectrum to our existing competitors could increase competition among wireless telecommunications service providers, which may have an adverse effect on our business.

Pursuant to the Telecommunications Business Act, certain wireless telecommunications service providers designated by the MSIP, which currently include only us, are required to lease their networks or allow use of their networks (collectively, “wholesale lease”) to other network service providers, such as an MVNO, that have requested such wholesale lease in order to provide their own services using the leased networks. To date, thirteen MVNOs have commenced providing wireless telecommunications services using the networks leased from us. We believe that leasing a portion of our bandwidth capacity to an MVNO would impair our ability to use our bandwidth in ways that would generate maximum revenues and would strengthen our MVNO competitors by granting them access and lowering their costs to enter into our markets. Accordingly, our profitability may be adversely affected.

Our wireless telecommunications services depend, in part, on our interconnection arrangements with domestic and international fixed-line and other wireless networks. Our interconnection arrangements, including the interconnection rates we pay and interconnection rates we charge, affect our revenues and operating results. The MSIP determines the basic framework for interconnection arrangements, including policies relating to interconnection rates in Korea. The KCC, which determined such basic framework under the previous Government, changed the basic framework for interconnection arrangements several times. We cannot assure you that we will not be adversely affected by the MSIP’s interconnection policies and future changes to such policies. See “Item 4.B. Business Overview — Interconnection — Domestic Calls.”

In addition, the MSIP may revoke our licenses or suspend any of our businesses if we fail to comply with its rules, regulations and corrective orders, including the rules restricting beneficial ownership and control or any violation of the conditions of our licenses. Alternatively, in lieu of suspension of our business, the MSIP may levy a monetary penalty of up to 3.0% of the average of our annual revenue for the preceding three fiscal years. The KCC had the same authority in the previous Government and exercised such authority to suspend our business and impose fines on us. For information about the penalties imposed on us for violating Governmental regulations, see “Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings — KCC and MSIP Proceedings.” Such penalties, which may include the revocation of cellular licenses, suspension of business or imposition of monetary penalties by the MSIP, could have a material adverse effect on our business. We believe we are currently in compliance with the material terms of all our cellular licenses.

We are subject to additional regulations as a result of our dominant market position in the wireless telecommunications sector, which could harm our ability to compete effectively.

The Government endeavors to promote competition in the Korean telecommunications markets through measures designed to prevent a dominant service provider from exercising its market power and deterring the emergence and development of viable competitors. We have been designated by the MSIP as the “dominant network service provider” in respect of our wireless telecommunications business. As such, we are subject to additional regulations to which certain of our competitors are not subject. For example, under current Government regulations, we must obtain prior approval from the MSIP to raise our existing rates or introduce new rates. See “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Rate Regulation.” The MSIP could also require us to charge higher usage rates than our competitors for future services or to take certain actions earlier than our competitors, as when the KCC required us to introduce number portability earlier than our competitors, KT and LG U+.

We also qualify as a “market-dominating business entity” under the Fair Trade Act, which subjects us to additional regulations, including the application of varied interconnection rates. For more information about the interconnection rates applicable to us and our competitors, see “Item 4.B. Business Overview — Interconnection.”

The additional regulations to which we are subject has affected our competitiveness in the past and may materially hurt our profitability and impede our ability to compete effectively against our competitors in the future.

Concerns that radio frequency emissions may be linked to various health concerns could adversely affect our business and we could be subject to litigation relating to these health concerns.

In the past, allegations that serious health risks may result from the use of wireless telecommunications devices or other transmission equipment have adversely affected share prices of some wireless telecommunications companies in the United States. In May 2011, the International Agency for Research on Cancer (the “IARC”), a part of the World Health Organization, announced that it has classified radiofrequency electromagnetic fields associated with wireless phone use as possibly carcinogenic to humans, based on an increased risk for glioma, a malignant type of brain cancer. The IARC conducts research on the causes of human cancer and the mechanisms of carcinogenesis and aims to develop scientific strategies for cancer control. We cannot assure you that these health concerns will not adversely affect our business. Several class action and personal injury lawsuits have been filed in the United States against several wireless phone manufacturers and carriers, asserting product liability, breach of warranty and other claims relating to radio transmissions to and from wireless phones. Certain of these lawsuits have been dismissed. We could be subject to liability or incur significant costs defending lawsuits brought by our subscribers or other parties who claim to have been harmed by or as a result of our services. In addition, the actual or perceived risk of wireless telecommunications devices could have an adverse effect on our business by reducing the number of our subscribers or the usage per subscriber.

Our ability to deliver services may be disrupted due to a systems failure, shutdown in our networks or natural disasters.

Our services are currently carried through our wireless and fixed-line networks, which could be vulnerable to damage or interruptions in operations due to fires, floods, earthquakes, power losses, telecommunication failures, network software flaws, unauthorized access, computer viruses and similar events. The occurrence of any of these events could impact our ability to deliver services and have a negative effect on our results of operations.

A global or Korean economic downturn may have a material adverse impact on our business and the ability to meet our funding needs, and could cause the market value of our common shares and American Depositary Shares (“ADSs”) to decline.

In recent years, difficulties affecting the global financial sectors, adverse conditions and volatility in the worldwide credit and financial markets, fluctuations in oil and commodity prices and the general weakness of the global economy have increased the uncertainty of global economic prospects in general and have adversely affected the global and Korean economies. In addition, the global financial markets continue to experience significant volatility as a result of, among other things, the slowdown of economic growth and financial instability in China and other major emerging market economies, as well as political and social instability in various countries in the Middle East and Northern Africa, including Iraq, Syria and Egypt, as well as in Ukraine and Russia. In light of the high level of interdependence of the global economy, any of the foregoing factors may continue to negatively impact local economic conditions in Korea and global economic conditions and financial markets, which could have a material adverse effect on our business, financial condition and results of operations.

We are exposed to risks related to changes in the global and Korean economic environments, changes in interest rates and instability in the global financial markets. Adverse global and Korean economic conditions may lead to overall decline and volatility in securities prices of Korean companies, including ours, which may result in trading and valuation losses on our trading and investment securities portfolio. Increases in credit spreads, as well as limitations on the availability of credit resulting from heightened concerns about the stability of the markets generally and the strength of counterparties specifically may lead many lenders and institutional investors to reduce or cease providing funding to borrowers, which may negatively impact our liquidity and results of operations. Major market disruptions and adverse changes in economic conditions and regulatory climate may further impair our ability to meet our desired funding needs. We cannot predict future changes in economic conditions. Adverse developments in the global or Korean economies or financial markets may have a material adverse effect on our business and the ability to meet our funding needs, as well as negatively affect the market value of our common shares and ADSs.

Depreciation of the value of the Won against the Dollar and other major foreign currencies may have a material adverse effect on our results of operations and the market value of our common shares and ADSs.

Substantially all of our revenues are denominated in Won. Depreciation of the Won may materially affect our results of operations because, among other things, it causes:

•

an increase in the amount of Won required by us to make interest and principal payments on our foreign currency-denominated debt; and

•

an increase, in Won terms, of the costs of equipment that we purchase from overseas sources which we pay for in Dollars or other foreign currencies.

Fluctuations in the exchange rate between the Won and the Dollar will affect the Dollar equivalent of the Won price of the our common shares on the KRX KOSPI Market of the Korea Exchange (the “KRX KOSPI Market”). These fluctuations also will affect:

•

the amounts a registered holder or beneficial owner of ADSs will receive from the American Depositary Receipt (“ADR”) depositary in respect of dividends, which will be paid in Won to the ADR depositary and converted by the ADR depositary into Dollars;

•

the Dollar value of the proceeds that a holder will receive upon sale in Korea of our common shares; and

•

the secondary market price of our ADSs.

For historical exchange rate information, see “Item 3.A. Selected Financial Data — Exchange Rates.”

Risks Relating to Korea

Unfavorable financial and economic developments in Korea may have an adverse effect on us.

We are incorporated in Korea, and a significant portion of our operations is based in Korea. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea. The economic indicators in Korea in recent years have shown mixed signs of growth and uncertainty, and future growth of the economy is subject to many factors beyond our control.

In recent years, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and commodity prices and the general weakness of the global economy have contributed to the uncertainty of global economic prospects in general and have adversely affected, and may continue to adversely affect, the Korean economy. The value of the Won relative to major foreign currencies in general and the U.S. dollar in particular has also fluctuated widely. See “Item 3.A. Selected Financial Data — Exchange Rates.” A depreciation of the Won increases the cost of imported goods and services and the Won revenue needed by Korean companies to service foreign currency denominated debt. An appreciation of the Won, on the other hand, causes export products of Korean companies to be less competitive by raising their prices in terms of the relevant foreign currency and reduces the Won value of such export sales. Furthermore, as a result of adverse global and Korean economic conditions, there has been significant volatility in the stock prices of Korean companies in recent years. Future declines in the Korea Composite Stock Price Index (known as the “KOSPI”) and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales may continue to adversely affect the value of the Won, the foreign currency reserves held by financial institutions in Korea and the ability of Korean companies to raise capital. Any future deterioration of the Korean or global economy could adversely affect our business, financial condition and results of operations.

Developments that could have an adverse impact on Korea’s economy in the future include:

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increased sovereign default risks in select countries and the resulting adverse effects on the global financial markets;

•

adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar, the euro, the Japanese yen or the Chinese renminbi exchange rates), interest rates, inflation rates or stock markets;

•

a continuing rise in the level of household debt and increasing delinquencies and credit defaults by retail or small and medium sized enterprise borrowers;

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continuing adverse conditions in the economies of countries and regions that are important export markets for Korea, such as the United States, Europe, Japan and China, or in emerging market economies in Asia or elsewhere;

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decreases in the market prices of Korean real estate;

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declines in consumer confidence and a slowdown in consumer spending;

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the continued growth of the Chinese economy, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign investment and the relocation of the manufacturing base from Korea to China), as well as a slowdown in the growth of China’s economy, which is Korea’s most important export market;

•

social and labor unrest;

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a decrease in tax revenues and a substantial increase in the Government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs that, together, would lead to an increased Government budget deficit;

•

financial problems or lack of progress in the restructuring of Korean conglomerates, other large troubled companies, their suppliers or the financial sector;

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loss of investor confidence arising from corporate accounting irregularities and corporate governance issues concerning certain Korean conglomerates;

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increases in social expenditures to support an aging population in Korea or decreases in economic productivity due to the declining population size in Korea;

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the economic impact of any pending or future free trade agreements;

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geo-political uncertainty and risk of further attacks by terrorist groups around the world;

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natural or man-made disasters that have a significant adverse economic or other impact on Korea (such as the sinking of the Sewol ferry in 2014, which significantly dampened consumer sentiment in Korea) or its major trading partners;

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the occurrence of severe health epidemics in Korea and other parts of the world, such as the Middle East Respiratory Syndrome outbreak in Korea in 2015;

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deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy;

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political uncertainty or increasing strife among or within political parties in Korea;

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hostilities or political or social tensions involving oil producing countries in the Middle East and North Africa and any material disruption in the global supply of oil or increase in the price of oil; and

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an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States.

Escalations in tensions with North Korea could have an adverse effect on us and the market value of our common shares and ADSs.

Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of future events. In particular, since the death of Kim Jong-il in December 2011, there has been increased uncertainty with respect to the future of North Korea’s political leadership and concern regarding its implications for political and economic stability in the region. Although Kim Jong-il’s third son, Kim Jong-un, has assumed power as his father’s designated successor, the long-term outcome of such leadership transition remains uncertain.

In addition, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and long-range missile programs as well as its hostile military and other actions against Korea. Some of the significant incidents in recent years include the following:

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From time to time, North Korea has conducted ballistic missile tests. Most recently in February 2016, North Korea launched a long-range rocket in violation of its agreement with the United States as well as United Nations sanctions barring it from conducting launches that use ballistic missile technology. Despite international condemnation, North Korea released a statement that it intends to continue its rocket launch program.

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North Korea renounced its obligations under the Nuclear Non Proliferation Treaty in January 2003 and conducted three rounds of nuclear tests between October 2006 to February 2013, which increased tensions in the region and elicited strong objections worldwide. In January 2016, North Korea conducted a fourth nuclear test, claiming that the test involved its first hydrogen bomb, which claim has not been independently verified. In response to such test (as well as North Korea’s long-range rocket launch in February 2016), the United Nations Security Council unanimously passed a resolution in March 2016 condemning North Korea’s actions and significantly expanding the scope of the sanctions applicable to North Korea.

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In August 2015, two Korean soldiers were injured in a landmine explosion near the Korean demilitarized zone. Claiming the landmines were set by North Koreans, the Korean army re-initiated its propaganda program toward North Korea utilizing loudspeakers near the demilitarized zone. In retaliation, the North Korean army fired artillery rounds on the loudspeakers, resulting in the highest level of military readiness for both Koreas. High-ranking officials from North Korea and Korea subsequently entered into an agreement on August 25, 2015 intended to diffuse military tensions.

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In March 2010, a Korean naval vessel was destroyed by an underwater explosion, killing many of the crewmen on board. The Government formally accused North Korea of causing the sinking, while North Korea denied responsibility. Moreover, in November 2010, North Korea fired more than one hundred artillery shells that hit Korea’s Yeonpyeong Island near the Northern Limit Line, which acts as the de facto maritime boundary between Korea and North Korea on the west coast of the Korean peninsula, causing casualties and significant property damage. The Government condemned North Korea for the attack and vowed stern retaliation should there be further provocation.

North Korea’s economy also faces severe challenges, which may further aggravate social and political pressures within North Korea. There can be no assurance that the level of tension affecting the Korean peninsula will not escalate in the future. Any further increase in tensions, which may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between Korea and North Korea break down or military hostilities occur, could have a material adverse effect on our business, results of operations and financial condition and the market value of our common shares and ADSs.

Korea’s legislation allowing class action suits related to securities transactions may expose us to additional litigation risk.

The Securities-related Class Action Act of Korea enacted in January 2004 allows class action suits to be brought by shareholders of companies (including us) listed on the KRX KOSPI Market for losses incurred in connection with purchases and sales of securities and other securities transactions arising from (1) false or inaccurate statements provided in the registration statements, prospectuses, business reports, audit reports, semi-annual or quarterly reports and material fact reports and omission of material information in such documents, (2) insider trading, (3) market manipulation and (4) unfair trading. This law permits 50 or more shareholders who collectively hold 0.01% of the shares of a company to bring a class action suit against, among others, the issuer and its directors and officers. Because of the relatively recent enactment of the act, there is not enough judicial precedent to predict how the courts will apply the law. Litigation can be time-consuming and expensive to resolve, and can divert management time and attention from the operation of a business. We are not aware of any basis upon which such suit may be brought against us, nor are any such suits pending or threatened. Any such litigation brought against us could have a material adverse effect on our business, financial condition and results of operations.

Risks Relating to Securities

If SK Holdings causes us to breach the foreign ownership limitations on our common shares, we may experience a change of control.

The Telecommunications Business Act currently sets a 49.0% limit on the aggregate foreign ownership of our issued shares. Under the Telecommunications Business Act, as amended, a Korean entity, such as SK Holdings Co., Ltd. (“SK Holdings”), is deemed to be a foreign entity if its largest shareholder (determined by aggregating the shareholdings of such shareholder and its related parties) is a foreigner and such shareholder (together with the shareholdings of its related parties) holds 15.0% or more of the issued voting stock of the Korean entity. As of December 31, 2015, SK Holdings owned 20,363,452 shares of our common stock, or approximately 25.22%, of our issued shares. If SK Holdings were considered to be a foreign shareholder, then its shareholding in us would be included in the calculation of our aggregate foreign shareholding and our aggregate foreign shareholding (based on our foreign ownership level as of December 31, 2015, which we believe was 39.38%) would exceed the 49.0% ceiling on foreign shareholding. As of December 31, 2015, the two largest foreign shareholders of SK Holdings each held a 3.5% stake therein.

If our aggregate foreign shareholding limit is exceeded, the MSIP may issue a corrective order to us, the breaching shareholder (including SK Holdings if the breach is caused by an increase in foreign ownership of SK Holdings) and the foreign shareholder which owns in the aggregate 15.0% or more of SK Holdings. Furthermore, if SK Holdings is considered a foreign shareholder, it will be prohibited from exercising its voting rights with respect to the shares held in excess of the 49.0% ceiling, which may result in a change in control of us. In addition, the MSIP will be prohibited from granting us licenses or permits necessary for entering into new telecommunications businesses until our aggregate foreign shareholding is reduced to below 49.0%. For a description of further actions that the MSIP could take, see “Item 4.B. Business Overview — Law and Regulation — Foreign Ownership and Investment Restrictions and Requirements.”

Sales of our shares by SK Holdings and/or other large shareholders may adversely affect the market value of our common shares and ADSs.

Sales of substantial amounts of our common shares, or the perception that such sales may occur, could adversely affect the prevailing market value of our common shares or ADSs or our ability to raise capital through an offering of our common shares.

As of December 31, 2015, SK Holdings owned 25.22% of our total issued common shares and has not agreed to any restrictions on its ability to dispose of our shares. See “Item 7.A. Major Shareholders.” We can make no prediction as to the timing or amount of any sales of our common shares. We cannot assure you that future sales of our common shares, or the availability of our common shares for future sale, will not adversely affect the prevailing market value of our common shares or ADSs from time to time.

If an investor surrenders his or her ADSs to withdraw the underlying shares, he or she may not be allowed to deposit the shares again to obtain ADSs.

Under the deposit agreement, holders of our common shares may deposit those shares with the ADR depositary’s custodian in Korea and obtain ADSs, and holders of ADSs may surrender ADSs to the ADR depositary and receive our common shares. However, under the terms of the deposit agreement, as amended, the depositary bank is required to obtain our prior consent to any such deposit if, after giving effect to such deposit, the total number of our common shares represented by ADSs, which was 9,259,552 shares as of March 31, 2016, exceeds a specified maximum, subject to adjustment under certain circumstances. In addition, the depositary bank or the custodian may not accept deposits of our common shares for issuance of ADSs under certain circumstances, including (1) if it has been determined by us that we should block the deposit to prevent a violation of applicable Korean laws and regulations or our articles of incorporation or (2) if a person intending to make a deposit has been identified as a holder of at least 3.0% of our common shares. See “Item 10.B. Memorandum and Articles of Association — Description of American Depositary Shares.” It is possible that we may not give the consent. Consequently, an investor who has surrendered his or her ADSs and withdrawn the underlying shares may not be allowed to deposit the shares again to obtain ADSs.

An investor in our ADSs may not be able to exercise preemptive rights for additional new shares and may suffer dilution of his or her equity interest in us.

The Korean Commercial Code and our articles of incorporation require us, with some exceptions, to offer shareholders the right to subscribe for new shares in proportion to their existing ownership percentage whenever new shares are issued. If we offer a right to subscribe for additional new common shares or any other rights of similar nature, the ADR depositary, after consultation with us, may make the rights available to an ADS holder or use reasonable efforts to dispose of the rights on behalf of the ADS holder and make the net proceeds available to the ADS holder. The ADR depositary, however, is not required to make available to an ADS holder any rights to purchase any additional shares unless it deems that doing so is lawful and feasible and:

•

a registration statement filed by us under the Securities Act is in effect with respect to those shares; or

•

the offering and sale of those shares is exempt from, or is not subject to, the registration requirements of the Securities Act.

We are under no obligation to file any registration statement with respect to any ADSs. If a registration statement is required for an ADS holder to exercise preemptive rights but is not filed by us, the ADS holder will not be able to exercise his or her preemptive rights for additional shares. As a result, ADS holders may suffer dilution of their equity interest in us.

Short selling of our ADSs by purchasers of securities convertible or exchangeable into our ADSs could materially adversely affect the market price of our ADSs.

SK Holdings, through one or more special purpose vehicles, has engaged and may in the future engage in monetization transactions relating to its ownership interest in us. These transactions have included and may include offerings of securities that are convertible or exchangeable into our ADSs. Many investors in convertible or exchangeable securities seek to hedge their exposure in the underlying equity securities at the time of acquisition of the convertible or exchangeable securities, often through short selling of the underlying equity securities or similar transactions. Since a monetization transaction could involve debt securities linked to a significant number of our ADSs, we expect that a sufficient quantity of ADSs may not be immediately available for borrowing in the market to facilitate settlement of the likely volume of short selling activity that would accompany the commencement of a monetization transaction. This short selling and similar hedging activity could place significant downward pressure on the market price of our ADSs, thereby having a material adverse effect on the market value of ADSs owned by you.

A holder of our ADSs may not be able to enforce a judgment of a foreign court against us.

We are a corporation with limited liability organized under the laws of Korea. Substantially all of our directors and officers and other persons named in this document reside in Korea, and all or a significant portion of the assets of our directors and officers and other persons named in this document and substantially all of our assets are located in Korea. As a result, it may not be possible for holders of our ADSs to effect service of process within the United States, or to enforce against us any judgments obtained from the United States courts based on the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Korea, either in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated on the United States federal securities laws.

We are generally subject to Korean corporate governance and disclosure standards, which may differ from those in other countries.

Companies in Korea, including us, are subject to corporate governance standards applicable to Korean public companies, which may differ in some respects from standards applicable in other countries, including the United States. As a reporting company registered with the SEC and listed on the New York Stock Exchange (the “NYSE”), we are, and in the future will be, subject to certain corporate governance standards as mandated by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). However, foreign private issuers, including us, are exempt from certain corporate governance requirements under the Sarbanes-Oxley Act or under the rules of the NYSE. There may also be less publicly available information about Korean companies, such as us, than is regularly made available by public or non-public companies in other countries. Such differences in corporate governance standards and less public information available could result in corporate governance practices or disclosures that are perceived as less than satisfactory by investors in certain countries.

There are special risks involved with investing in securities of Korean companies, including the possibility of restrictions being imposed by the Government in emergency circumstances.

As we are a Korean company and operate in a business and cultural environment that is different from that of other countries, there are risks associated with investing in our securities that are not typical for investments in securities of companies in other jurisdictions.

Under the Korean Foreign Exchange Transactions Law, if the Government deems that certain emergency circumstances, including sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilizing the balance of payments or substantial disturbance in the Korean financial and capital markets, are likely to occur, it may impose any necessary restriction such as requiring Korean or foreign investors to obtain prior approval from the Minister of Strategy and Finance for the acquisition of Korean securities or for the repatriation of interest, dividends or sales proceeds arising from Korean securities or from disposition of such securities or other transactions involving foreign exchange.

Item 4.

INFORMATION ON THE COMPANY

Item 4.A.

History and Development of the Company

As Korea’s first wireless telecommunications service provider, we have a recognized history of leadership and innovation in the domestic telecommunications sector. Today, we remain Korea’s leading wireless telecommunications services provider and have continued to pioneer the commercial development and implementation of state-of-the-art wireless technologies. We believe we are also a leader in developing new products and services that reflect the increasing convergence of telecommunications technologies, as well as the growing synergies between the telecommunications sector and other industries, and are well-positioned to become Korea’s leading platform service provider through our three next-generation growth platforms, IoT solutions, lifestyle enhancement and advanced media.

In 2008 and 2009, we acquired additional equity interests in SK Broadband to increase our total equity interest in SK Broadband to 50.6%. In June 2015, SK Broadband became our wholly-owned subsidiary pursuant to a share exchange transaction (the “Share Exchange”) through which we acquired all of the shares of SK Broadband that we did not otherwise own in exchange for 1,692,824 of our treasury shares and cash.

In September 2009, we completed the acquisition of the leased-line business and related ancillary businesses of SK Networks Co., Ltd. (“SK Networks”) for approximately Won 892.8 billion and assumed Won 611.4 billion of debt as part of the transaction. Historically, we have relied on KT and SK Networks to provide a substantial majority of the transmission lines we lease.

On March 31, 2016, we had a market capitalization of approximately Won 16.8 trillion (US$14.8 billion, as translated at the noon buying rate of March 31, 2016) or approximately 1.3% of the total market capitalization on

the KRX KOSPI Market, making us the fifteenth largest company listed on the KRX KOSPI Market based on market capitalization on that date. Our ADSs, each representing one-ninth of one share of our common stock, have traded on the NYSE since June 27, 1996.

We established our telecommunications business in March 1984 under the name of Korea Mobile Telecommunications Co., Ltd. We changed our name to SK Telecom Co., Ltd., effective March 21, 1997. In January 2002, we merged with Shinsegi, which was then the third-largest wireless telecommunications service provider in Korea. Our registered office is at SK T-Tower, 65, Eulji-ro, Jung-gu, Seoul 04539, Korea and our telephone number is +82-2-6100-2114.

Recent Developments

On November 2, 2015, we entered into a share purchase agreement with CJ O Shopping to acquire a 30.0% interest in CJ HelloVision, a fixed-line cable TV broadcast service provider, for an aggregate purchase price of Won 500.0 billion. In November 2015, we conducted a tender offer for shares of CJ HelloVision and acquired 6,671,993 shares for Won 80.1 billion. Upon the acquisition of CJ HelloVision, SK Broadband will be merged with and into CJ HelloVision pursuant to a merger agreement dated November 2, 2015, and we will be allocated 0.4761236 shares of the merged company for each share of SK Broadband to have a 78.3% equity stake in the merged company. The acquisition and subsequent merger are subject to certain closing conditions, including obtaining regulatory approval from the relevant authorities.

Following the acquisition and subsequent merger, we expect to develop additional technology and infrastructure to integrate our various media service offerings. As of December 31, 2015, CJ HelloVision had a market share of 14.4% of the pay TV market with approximately 4.2 million cable TV subscribers. For further details regarding the acquisition and subsequent merger, refer to the Form 6-Ks furnished to the SEC on November 3, 2015 entitled “Decision on Acquisition of Shares of CJ HelloVision” and “Decision on Merger of SK Broadband,” the Form 6-K/A furnished to the SEC on February 16, 2016 entitled “Changes to the Merger Ratio and Number of New Shares to be Issued Relating to the Merger of SK Broadband and CJ HelloVision,” the Form 6-K/As furnished to the SEC on April 4, 2016 entitled “Changes to the Number of Shares to be Held after Share Acquisition and Scheduled Acquisition Date” and “Changes to the Merger Schedule Relating to the Merger of SK Broadband and CJ HelloVision.”

Korean Telecommunications Industry

Established in March 1984, we became the first wireless telecommunications service provider in Korea. We remained the sole provider of wireless telecommunications services until April 1996, when Shinsegi commenced cellular service. The Government began to introduce competition into the fixed-line and wireless telecommunications services markets in the early 1990’s. During this period, the Government allowed new competitors to enter the fixed-line sector, sold a controlling stake in us to the SK Group, and granted a cellular license to our first competitor, Shinsegi. In October 1997, three additional companies began providing wireless telecommunications services under Government licenses to provide wireless telecommunications services. In 2000 and 2001, the Korean wireless telecommunications market experienced significant consolidation. In January 2002, Shinsegi was merged into us. Additionally, two of the other wireless telecommunications services providers merged.

There are currently three mobile network operators in Korea: our company, KT and LG U+. As of December 31, 2015, the market share of the Korean wireless telecommunications market, in terms of number of subscribers, of KT and LG U+ was approximately 30.4% and 20.2%, respectively (compared to our market share of 49.4%), each including MVNO subscribers leasing the respective networks. As of December 31, 2015, MVNOs had a combined market share of 10.1%, of which MVNOs leasing our networks represented 4.6%, MVNOs leasing KT’s networks represented 4.7% and MVNOs leasing LG U+’s networks represented 0.8%.

Telecommunications industry growth in Korea has been among the most rapid in the world, with fixed-line penetration being under five lines per 100 population in 1978 and increasing to 47.9 lines per 100 population as of December 31, 2006 before decreasing to 31.7 lines per 100 population as of December 31, 2015, and wireless

penetration increasing from 7.0 subscribers per 100 population in 1996 to 112.4 subscribers per 100 population as of December 31, 2015. The table below sets forth certain subscription and penetration information regarding the Korean telecommunications industry as of the dates indicated:


	As of December 31,
	2015		2014		2013		2012		2011
	(In thousands, except for per population amounts)
Population of Korea(1)		51,529		51,328		51,141		50,948		50,734
Wireless Subscribers		57,937		56,310		54,681		53,624		52,507
Wireless Subscribers per 100 Population		112.4		109.7		106.9		105.3		103.5
Telephone Lines in Service		16,341		16,939		17,620		18,261		18,633
Telephone Lines per 100 Population		31.7		33.0		34.5		35.8		36.7

(1)	Source: The Ministry of the Interior.

Since the introduction of short text messaging in 1998, Korea’s wireless data market has grown rapidly. This growth has been driven, in part, by the rapid development of wireless Internet service since its introduction in the second half of 1999 and the implementation of LTE technology providing for fast data transmission speeds and large data transmission capacity. As of December 31, 2015, approximately 53.7 million Korean wireless subscribers owned Internet-enabled handsets capable of accessing wireless Internet services, including 43.7 million subscribers that own smartphones that have direct access to the Internet using mobile Internet technology. The table below sets forth certain penetration information regarding the number of Internet-enabled handsets, smartphones and wireless subscribers in Korea as of the dates indicated:


	As of December 31,
	2015			2014			2013			2012			2011
	(In thousands, except for percentage data)
Number of Wireless Internet-Enabled Handsets		53,737			52,833			50,858			50,420			49,297
Number of Smartphones		43,668			40,560			37,517			32,727			22,578
Total Number of Wireless Subscribers		57,937			56,310			54,681			53,624			52,507
Penetration of Wireless Internet-Enabled Handsets		92.8	%		93.8	%		93.0	%		94.0	%		93.9	%
Penetration of Smartphones		75.4	%		72.0	%		66.9	%		61.0	%		43.0	%

In addition to its well-developed wireless telecommunications sector, Korea has one of the largest Internet markets in the Asia Pacific region. According to Korea Internet & Security Agency, the percentage of Internet users in Korea is greater than 80% of the population. From the end of 2005 to the end of 2015, the number of broadband Internet access subscribers increased from approximately 12.2 million to approximately 20.0 million. In connection with such growth in broadband Internet usage, the number of IPTV subscribers has also increased rapidly. The table below sets forth certain information regarding broadband Internet access subscribers and IPTV subscribers as of the dates indicated:


	As of December 31,
	2015		2014		2013		2012		2011
	(In thousands)
Number of Broadband Internet Access Subscribers(1)		20,025		19,199		18,738		18,253		17,860
Number of IPTV Subscribers		12,314		10,840		8,738		6,457		4,894

(1)	Includes subscribers accessing Internet service using digital subscriber line, or xDSL, connections; cable modem connections; local area network, or LAN, connections; fiber-to-the-home, or FTTH, connections and satellite connections.

Item 4.B.

Business Overview

Overview

We are Korea’s leading wireless telecommunications services provider and continue to pioneer the commercial development and implementation of state-of-the-art wireless and fixed-line technologies and services as well as develop our three next-generation growth platforms, IoT solutions, lifestyle enhancement and advanced media. Our operations are reported in three segments:

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cellular services, which include wireless voice and data transmission services, sales of wireless devices, IoT solutions platform services and lifestyle enhancement platform services;

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fixed-line telecommunication services, which include fixed-line telephone services, broadband Internet services, advanced media platform services (including IPTV) and business communications services; and

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other businesses, which include our commerce business and our hardware business.

Our Business Strategy

We believe that the current trends in the Korean telecommunications industry are characterized by technological change, evolving consumer needs and increasing digital convergence. Against the backdrop of these industry trends, we aim to maintain our leading position in the Korean market for wireless telecommunications services as well as actively develop differentiated services on our growth platforms, comprising our IoT solutions platform, lifestyle enhancement platform and advanced media platform, through which we will continue our growth in a rapidly changing business environment. Our corporate vision is to be a “Partner for New Possibilities” for both individuals and businesses by leveraging our network infrastructure and cutting-edge technologies. To take advantage of these industry trends and further realize our corporate vision, we have undertaken the following strategic initiatives.

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Maintain our leadership in the wireless services business by offering differentiated value-added products and services. We plan to maintain our leadership in the wireless services business by providing products and services with differentiated value propositions offered by our competitors. For example, we will continue to develop high-quality devices with convenient features at reasonable price points that run exclusively on our networks such as the Luna and the Sol. In addition, we will continue to offer various rate plans that are tailored to meet our customers’ needs for increased data usage such as our “Commuter Free” plan, which offers unlimited wireless data usage during rush hour for a fixed rate. We plan to strengthen our customer relationships by engaging our subscribers to integrate our service offerings in various aspects of their daily lives such as “T map,” our interactive navigation service which we provide to our wireless subscribers free of charge, “Club T Kids,” our childcare and kids’ community platform service offered exclusively for our wireless subscribers, and “oksusu,” our mobile IPTV service with a wide range of unique media offerings. We also provide bundled subscriptions to our wireless and fixed-line service offerings, and we believe such bundled subscriptions contribute to increased customer retention and acquisition of new subscribers for both our wireless and fixed-line services due to convenience. In addition, we believe our “T Membership” program, our membership service, also contributes to our subscriber retention with the breadth of membership benefits we provide through our membership partners.

•

Strengthen our three next-generation growth platforms. As part of our initiative to be the leading next-generation platform provider, we aim to continue to develop our next-generation growth platforms, IoT solutions, lifestyle enhancement and advanced media, to provide services which we believe complement and create synergies with our wireless and fixed-line services and through which we can generate new sources of revenue growth.

Through our IoT solutions platform, we offer “Smart Home,” a home monitoring service platform for residential customers and customized IoT solutions utilizing machine-to-machine (“M2M”) connections to our business customers. We will continue to analyze our users’ lifestyles to provide value-added services that can be integrated in our “Smart Home” users’ daily lives and collaborate with our partners to develop a wide range of compatible appliances and devices. In addition, we endeavor to provide customized value-added services to our business customers and create an ecosystem through which domestic and global

manufacturers can develop innovative hardware for our IoT solutions platform. Through our lifestyle enhancement platform, we provide various value-added services to enhance our customers’ lifestyles. Through our “3C” strategy, we aim to provide high-quality “content” through which customers with similar interests and needs can form “communities” from which we generate “commerce” by marketing and advertising targeted products and services. We believe these services will enable us to increase the retention of our wireless subscribers as well as attract new customers. Furthermore, we will continue to enlarge the scope of our media services and content offerings available on our advanced media platform to provide our subscribers with a vast library of high-quality content that can be accessed through our wireless and fixed-line networks.

•

Further expand our commerce business globally. With the expertise we have gained through our operation of “11st,” our online open marketplace, and our online-to-offline (“O2O”) commerce businesses in Korea as well as certain markets in Southeast Asia and the U.S., we intend to further expand into other overseas markets and lead the growth of the e-commerce industry in such markets.

Cellular Services

We offer wireless voice and data transmission services, sell wireless devices and provide IoT solutions and lifestyle enhancement platform services through our cellular services segment. Our wireless voice and data transmission services are offered through our backbone networks that collectively can be accessed by approximately 99.0% of the Korean population. We had 28.6 million wireless subscribers, including MVNO subscribers leasing our networks, as of December 31, 2015, representing a market share of 49.4%, the largest market share among Korean wireless telecommunications service providers. The table below sets forth the number of subscribers, including subscribers of MVNOs that lease our wireless networks, using our various digital wireless networks as of the dates indicated:


	As of December 31,
	2015		2014		2013		2012		2011
	(in thousands)
Network
LTE		18,980		16,737		13,487		7,530		634
WCDMA		7,008		8,020		9,909		14,459		19,037
CDMA		2,638		3,521		3,957		4,972		6,882

Total		28,626		28,279		27,352		26,961		26,553

As part of our initiative to be the leading next-generation platform provider, we aim to continue to develop our IoT solutions platform and lifestyle enhancement platform to provide services which we believe complement and create synergies with our wireless telecommunications service.

In 2015, 2014 and 2013, our cellular services segment revenue was Won 13,269.3 billion, Won 13,527.9 billion and Won 13,315.5 billion, respectively, representing approximately 77.4%, 78.8% and 80.2%, respectively, of our consolidated revenue.

Wireless Services

We offer wireless voice transmission and data transmission services to our subscribers through our backbone networks. Our wireless telecommunications services are available to our subscribers receiving service under the SK Telecom brand. In addition, customers can obtain wireless telecommunications services that operate on our network from MVNOs that lease our wireless networks. We derive revenues from our wireless telecommunications service principally through monthly plan-based fees as described in “— Rate Plans” below.

To complement our basic voice transmission services, we provide a voice-over-LTE service, known as our “HD Voice” service, to all of our LTE subscribers. HD Voice service is a premium communication service which features high-quality voice transmission, fast call connection, voice-to-video call switching and digital content sharing during calls. In addition, we provide “T phone” service, which is available on most devices running on the Google Android operating system. Our T phone service provides our customers with a number of convenient call functions, including a function to block spam calls and a function called “T114” that informs customers of the

phone numbers of stores, hospitals and other facilities closest in proximity to the customer’s current location. As of December 31, 2015, there were more than 8.0 million subscribers to the T phone service compared to approximately 4.3 million subscribers as of December 31, 2014.

We also offer our subscribers a wide range of wireless data transmissions services. Our messaging service allows our subscribers to send and receive text, graphic, audio and video messages. In addition, our subscribers can access a wide variety of digital content and services through mobile applications providing music, video, gaming, news, commerce and financial services as well as solutions that enable subscribers to access the Internet and e-mail. We intend to continue to build our wireless data services as a platform for growth, extending our portfolio of wireless data services and developing new content for our subscribers.

Through service agreements with various foreign wireless telecommunications service providers, we offer cellular global roaming services, branded as our “T-Roaming” service. Global roaming services allow subscribers traveling abroad to make and receive calls using their regular mobile phone numbers. In addition, we provide global roaming service to foreigners traveling to Korea. In such cases, we generally receive a fee from the traveler’s local wireless telecommunications service provider.

Through SK Telink, we also operate our MVNO business under the brand “7Mobile,” which we believe offers excellent quality at reasonable rates utilizing SK Telecom’s wireless networks. SK Telink is focused on developing low-cost distribution channels and targeting niche customer segments that have a lower average revenue per user than that of SK Telecom’s subscriber base.

In addition, we provide interconnection service to connect our networks to domestic and international fixed-line and other wireless networks. See “Item 4.B. Business Overview — Interconnection.”

Wireless Device Sales

We offer several categories of wireless devices, including smartphones and basic phones, tablets and other Internet access devices and wearable devices. As of December 31, 2015, approximately 20.6 million, or 72.0%, of our subscribers owned smartphones that have direct access to the Internet compared to approximately 19.5 million subscribers, or 68.1%, as of December 31, 2014.

Smartphones and Basic Phones. All of the smartphones we offer are enabled to utilize our LTE and/or WCDMA networks and run on various operating systems, such as Apple iOS and Google Android. Most of the basic phones we offer are enabled to utilize our WCDMA networks and have the ability to access wireless Internet services.

Tablets and Other Internet Devices. We offer tablets which can access the Internet via our LTE and/or WCDMA networks and a Wi-Fi connection. The tablets run primarily on the Apple iOS and Google Android operating systems. In addition, we also offer “T Pocket Pie” devices that provide a mobile LTE connection and are capable of connecting multiple Wi-Fi enabled devices to the Internet at one time. We offer targeted rate plans for our T Pocket Pie device. See “— Rate Plans” below.

Wearable Devices. We offer various wearable devices including smart watches, “T pet,” our pet tracking device, and “T kids’ phone – Joon”. These devices utilize our WCDMA network and have specific features for the relevant target customer. For example, T pet devices enable pet owners to send voice messages to their pets, track their position using global positioning system (“GPS”) technology as well as track and log their activity. T kids’ phone – Joon is a wearable phone targeted towards children and provides simple calling, messaging and chat services as well as GPS tracking capabilities. We offer targeted rate plans that are specific to these wearable devices. See “— Rate Plans” below.

We purchase a substantial majority of our wireless devices from Samsung Electronics, Apple and LG Electronics. We also offer a number of devices that were designed by us to exclusively run on our networks such as the Luna which was launched in September 2015 and the Sol which was launched in January 2016. The Luna and the Sol were both designed to include convenient features to easily access media contents that are popular among our subscribers and to provide high-quality devices at a relatively low-to-mid range price point. We intend to continue to work with device manufacturers to develop exclusive devices offering high quality and convenience at competitive prices.

IoT Solutions Platform Services

Through our IoT solutions platform, we provide a home monitoring service platform for residential customers and network access and enhanced services to support telemetry-type applications, which are characterized by M2M wireless connections, to business customers.

In May 2015, we launched “Smart Home,” a mobile application-based home monitoring service for residential customers. Smart Home is a paid subscription service available not only to our wireless and fixed-line service subscribers but also to subscribers of our competitors’ wireless and fixed-line services. Through Smart Home, users can control and monitor their home environment from their mobile devices and enhance the safety and convenience of their daily lives. We have partnered with more than 30 electronics and appliance manufacturers, including Samsung Electronics and LG Electronics, to develop a wide range of appliances, electronic devices, door security, heating and lighting systems that are compatible with our Smart Home service.

We also provide network access and customized IoT solutions to our business customers. Our M2M services support devices that are used in a variety of market segments, including retail, utilities, security, automotive, agriculture and data analytics. For example, we provide enhanced solutions to businesses in order to connect with and monitor their equipment, such as fleet management devices used to monitor city-operated rental bicycles and utility monitoring devices for smart grid applications.

Lifestyle Enhancement Platform Services

Through our lifestyle enhancement platform, we provide various value-added services to enhance our customers’ lifestyles in areas such as shopping, childcare, security, finance and education with customized content based on their personal interests. Through our “3C” strategy, we aim to provide high-quality “content” through which customers with similar interests and needs can form “communities” from which we generate “commerce” by marketing and advertising targeted products and services. We provide certain services exclusively to our wireless service subscribers as well as certain services to users regardless of whether they have a wireless service subscription with us.

Examples of services we provide exclusively to our wireless service subscribers are “Club T Kids” and “Petween.” Club T Kids comprises a care service platform for parents through the “T Kids” mobile application and a community platform for kids through the T kids’ phone – Joon. Through the T Kids mobile application, parents can call their children, check their location, sign up for various children’s activity programs and order organic groceries. Through the T kids’ phone – Joon, kids can communicate with their parents, send messages to and chat with their friends, play games and collect character badges. Through Petween, which is currently accessible through the Petween website, pet owners can communicate with each other, access petcare advice from veterinarians and purchase petcare products. We believe these services provide differentiated value to our wireless service subscribers’ lifestyles and enhance their loyalty to us.

Examples of services we provide to users regardless of whether they have a wireless service subscription with us are “Deal Light” and “Beauty Link.” Deal Light, which is accessible through the Deal Light website and mobile application, is an online marketplace for used products in which we participate directly in the purchase and sale process and pick up the product from the seller and then verify, clean, package, process payment for, and deliver the product to, the buyer. Beauty Link, which is accessible through a mobile application, provides information about nail salons such as location, service offerings and price as well as customer feedback. We believe we can attract new customers by offering specialized services such as these.

In addition, we provide other value-added services that enhance our customers’ lifestyles. We provide location-based services such as “T map,” an interactive navigation service which we provide to our wireless subscribers free of charge and which wireless subscribers to our competitors can subscribe to for a monthly fee. T map uses GPS technology to transmit driving directions, real-time traffic updates and emergency rescue assistance to wireless devices. In addition, we provide mobile phone verification services, enabling users to process secure mobile payment transactions.

Rate Plans

We offer our wireless telecommunications services on both a postpaid and prepaid basis. Approximately 94% of our subscribers received our wireless telecommunications services on a postpaid basis as of December 31, 2015. Postpaid accounts primarily represent retail subscribers under contract with SK Telecom under which a subscriber is billed in advance a monthly fixed rate in return for a monthly network service allowance, and usage for outgoing voice calls and wireless data services beyond the allowance is billed in arrears. The standard contract period for our rate plans is 24 months, although our subscribers have the option to enter into shorter term contracts or no fixed-term contract at all. We provide various subsidies and discounts, including handset subsidies, depending on the length of the contract. Our prepaid service enables individuals to obtain wireless telecommunications services without a fixed-term contract by paying for all services in advance according to expected usage. We do not charge our customers for incoming calls, although we do receive interconnection charges from KT and other companies for calls from the fixed-line network terminating on our networks and interconnection revenues from other wireless network operators. See “Item 4.B. Business Overview — Interconnection.”

We also charge our customers a 10.0% value-added tax. We can offset the value-added tax we collect from our customers against value-added tax refundable to us by the Korean tax authorities. We remit taxes we collect from our customers to the Korean tax authorities. We record revenues in our financial statements net of such taxes.

Basic Rate Plans. We offer various postpaid account plans for smartphones and basic phones that are designed to meet a wide range of subscriber needs and interests. As of December 31, 2015, approximately 7 million subscribers have subscribed to “Band Data” plans, which are our representative smartphone rate plans featuring unlimited domestic voice minutes and text messaging and a fixed data transmission allowance per month as well as free access to live TV on “oksusu,” our mobile IPTV service, that range from Won 29,000 to Won 100,000 per month. Our “Voice Free” plans are available for our basic phones and feature a fixed allowance of voice minutes and 50 text messages per month with rates that range from Won 19,000 to Won 94,000 per month We also offer a standard rate plan for Won 11,000 per month, through which the subscriber is charged per usage amount, other than on text message usage up to 50 messages per month.

In addition, we provide a variety of differentiated rate plans for our customer segments by age such as children, teenagers and senior citizens. We also offer rate plans for specific customer segments, such as our “Band Data Global Pack” rate plans for foreigners featuring unlimited domestic voice minutes and text messaging, a fixed allowance of international voice minutes and data transmission per month and our rate plans for people in the military service featuring unlimited domestic voice minutes, text messaging and data transmission for Won 2,000 per day of use while on leave.

For our T Pocket Pie device, we provide a fixed monthly data transmission allowance of 10 GB for Won 15,000 per month and 20 GB for Won 22,500 per month. With respect to the wearable devices that we offer, we offer targeted rate plans such as the “T Outdoor” rate plan for smart watches at Won 10,000 to Won 11,000 per month, the “T pet” rate plan for our T pet device at Won 5,000 per month and the “T kids” rate plan for our T kids’ phone – Joon devices at Won 8,000 per month.

Data Add-on Rate Plans. We offer a variety of optional “add-on” rate plans that are designed to meet a wide range of subscriber needs with respect to increased data usage that followed the widespread use of smartphones and faster transmission speeds made possible by LTE technology. For example, we offer data plans that offer unlimited data based on time, place and occasion such as our “Subway Free” plan, which offers unlimited wireless data usage on subway platforms and inside subways and our “Commuter Free” plan, which offers unlimited wireless data usage during rush hour, each for a fixed rate of Won 9,000 per month. We also offer a daily allowance of 1 GB of oksusu access and a monthly allowance of 8,000 points to purchase media content on oksusu through our “Band Play Pack” plan for Won 5,000 per month. “Safe Option Premium” offers an additional daily data transmission allowance of 50 MB to subscribers who have used the maximum data transmission on their existing plan without incurring additional data transmission fees for a fixed rate of Won 8,000 per month. We also offer “T Data Coupons,” through which subscribers can purchase a fixed amount of data for a fixed price. T Data Coupons range from Won 2,000 for 100MB of data to Won 33,000 for 5GB of data. As T Data Coupons are valid for one year after first use, we believe they are attractive to sporadic data users. T Data Coupons can also be sent as “gifts” to family

and friends that need additional data allowance. We believe that our data add-on rate plan offerings have contributed to the increase in data usage to 3.9 GB of average monthly data usage per LTE subscriber as of December 31, 2015 from 3.0 GB as of December 31, 2014.

Roaming Plans. We provide fixed-rate international roaming plans such as our “T Roaming Data Unlimited OnePass” plan which provides data roaming services at different speeds depending on usage amount for Won 9,000 per day using WCDMA networks and is available in 148 countries and our “T Roaming LTE Data Unlimited OnePass” plan which provides data roaming services at different speeds depending on usage amount for Won 15,000 per day using LTE networks and is available in 55 countries. Our “T Roaming Data OnePass Premium” plan provides data roaming services at different speeds depending on usage amount and a usage charge for outgoing voice calls of Won 500 per minute for Won 12,000 per day using WCDMA networks and is available in 35 countries. With respect to international calls placed by a subscriber, unless the subscriber uses one of our fixed-rate international roaming plans, we bill the subscriber the international rate charged by the Korean international telephone service provider through which the call is routed. We remit to that provider the international charge less our usage charges. See “Item 4.B. Business Overview — Interconnection.”

Digital Wireless Network

We offer wireless voice and data transmission services throughout Korea using digital wireless networks, primarily consisting of our LTE network, WCDMA network, CDMA network and Wi-Fi network. We continually upgrade and increase the capacity of our wireless networks to keep pace with advancements in technology, the growth of our subscriber base and the increased usage of voice and wireless data services by our subscribers.

LTE Network. We commenced commercial wireless telecommunications services based on LTE technology, which is generally referred to as a fourth generation technology, on July 1, 2011 and expanded the coverage area of our LTE services to nationwide by the end of April 2012. We launched our LTE multi-carrier service in the 1.8 GHz spectrum in July 2012. In June 2013, we commenced providing commercial LTE-A services at speeds of up to 150 Mbps using carrier aggregation technology which combines spectrum frequencies to improve data transmission speed and capacity, and in June 2014, we launched wideband LTE-A services at speeds of up to 225 Mbps and expanded coverage nationwide in 2014. In December 2014, we commenced tri-band LTE-A services, which bundles three different bandwidths to allow faster network service at speeds of up to 300 Mbps in Seoul and other metropolitan areas. Since then, we have expanded coverage nationwide and as of December 31, 2015, the nationwide geographic coverage percentage of our tri-band LTE-A service was approximately 51.9% according to the MSIP. We continue to deploy improved LTE-A technology to increase the maximum data transmission speed of our services. LTE technology has become widely accepted globally as the standard fourth generation technology. LTE technology enables data to be transmitted at speeds faster than our CDMA and WCDMA networks. Our continued upgrades to our LTE technology enables even faster data transmission speeds, as shown below.


Wireless network technology (Month of commencement of services)	Maximum download speed for data transmission		Maximum upload speed for data transmission
LTE (July 2011)		75 Mbps		37.5 Mbps
LTE-A (June 2013)		150 Mbps		75 Mbps
Wideband LTE-A (June 2014)		225 Mbps		112.5 Mbps
Tri-band LTE-A (December 2014)		300 Mbps		150 Mbps

The faster data transmission speed of our LTE network has allowed us to offer significantly improved wireless data transmission services, providing our subscribers with faster wireless access to multimedia content. We have been building new access networks and evolved packet cores for our LTE network, while we utilize our existing WCDMA network for other parts of our LTE network. For more information about our capital expenditures relating to our LTE network, see “Item 5.B. Liquidity and Capital Resources.”

CDMA and WCDMA Networks. CDMA technology is a continuous digital transmission technology that accommodates higher throughput than analog technology by using various coding sequences to allow concurrent transmission of voice and data signals for wireless communication. In January 1996, we launched our first wireless network based on CDMA technology and became the world’s first to commercialize CDMA cellular service.

WCDMA technology enables us to offer significantly faster and higher-quality voice and data transmission and supports more sophisticated wireless data transmission services than is possible through our CDMA network. We commenced provision of our WCDMA services on a limited basis in Seoul at the end of 2003. Since then, we expanded our WCDMA network nationwide and implemented various technologies to improve data transmission speeds within our WCDMA network.

Wi-Fi Network. Wi-Fi technology enables our subscribers with Wi-Fi-capable devices such as smartphones, laptops and tablet computers to access mobile Internet. We started to build Wi-Fi access points in 2010 and, as of December 31, 2015, we had more than 139,000 Wi-Fi access points in public areas such as shopping malls, restaurants, coffee shops, subways and airports where, generally, the demand for high-speed wireless Internet service is high. While each Wi-Fi access point typically has a radius of approximately 20-30 meters, some of our Wi-Fi hot zones, which have multiple Wi-Fi access points, including those installed at public transportation facilities and amusement parks, have much wider service areas. We plan to continue to increase the number of Wi-Fi access points in 2016. We also have a WiBro network that we use as a backhaul for our Wi-Fi network.

Network Infrastructure

The principal components of our wireless networks are:

•

cell sites, which are physical locations equipped with transmitters, receivers and other equipment that communicate by radio signals with wireless handsets within range of the cell (typically a 3 to 40 kilometer radius);

•

switching stations, which switch voice and data transmissions to their proper destinations, which may be, for instance, a mobile phone of one of our subscribers (for which transmissions would originate and terminate on our wireless networks), a mobile phone of a KT or LG U+ subscriber (for which transmissions would be routed to KT’s or LG U+’s wireless networks, as applicable), a fixed-line telephone number (for which calls would be routed to the public switched telephone network of a fixed-line network operator), an international number (for which calls would be routed to the network of a long distance service provider) or an Internet site; and

•

transmission lines, which link cell sites to switching stations and switching stations with other switching stations.

As of December 31, 2015, our LTE, WCDMA, CDMA and WiBro networks had an aggregate of 55,085 cell sites.

We have purchased substantially all of the equipment for our networks from Samsung Electronics, Ericsson–LG and Nokia Siemens Networks B.V. Most of the transmission lines we use, including virtually all of the lines linking switching stations, as well as a portion of the lines linking cell sites to switching stations, comprise optical fiber lines that we own and operate directly. However, we have not undertaken to install optical fiber lines to link every cell site and switching station. In places where we have not installed our own transmission lines, we have leased lines from KT and LG U+. We intend to increase the efficiency of our network utilization and provide optimal services by internalizing transmission lines.

We use a wireless network surveillance system. This system oversees the operation of cell sites and allows us to monitor our main equipment located throughout the country from one monitoring station. The automatic inspection and testing provided to the cell sites lets the system immediately rebalance to the most suitable setting, and the surveillance system provides for automatic dispatch of repair teams and quick recovery in emergency situations.

Marketing, Distribution and Customer Service

Marketing. Our marketing strategy is focused on offering solutions tailored to the needs of our various customer segments, promoting our brand and leveraging our extensive distribution network. Our marketing plan includes a coordinated program of television, print, radio, outdoor signage, Internet and point-of-sale media promotions designed to relay a consistent message across all of our markets. Our “T” brand signifies the centrality

of “Telecommunications” and “Technology” to our business and also seeks to emphasize our commitment to providing “Top” quality, “Trustworthy” products and services to our customers. We market our wireless products and services under the “T” brand.

We have implemented certain information technology improvements in connection with our marketing strategy, including customer management systems, as well as more effective information security controls. We believe these upgrades have enhanced our ability to process and utilize marketing- and subscriber-related data, which, in turn, has helped us to develop more effective and targeted marketing strategies. We currently operate a customer information system designed to provide us with an extensive customer database. Our customer information system includes a billing system that provides us with comprehensive account information for internal purposes and enables us to efficiently respond to customer requests. Our customers can also change their rate plans, verify the charges accrued on their accounts, receive their bills online and send text messages to our other subscribers through our website at www.tworld.co.kr and through our “T world” mobile application.

We strive to improve subscriber retention through our T Membership program, which is a membership service available to our wireless subscribers. Our T Membership program provides various membership benefits to its members such as discounts with our membership partners for dining, shopping, entertainment and travel, access to our online membership shopping mall and invitations to various promotional events. Although our competitors also have similar membership programs, we believe that our T Membership program has a competitive advantage over our competitors’ membership programs due to our large subscriber base and breadth of membership benefits.

Distribution. For our distribution network, we use a combination of approximately 26 branch offices and 561 stores directly operated by us through our wholly-owned subsidiary, PS&Marketing Co., Ltd. (“PS&Marketing”), 4,119 authorized exclusive dealers and an extensive network of independent retailers in order to increase subscriber growth while reducing subscriber acquisition costs.

As part of our initiative to provide a differentiated customer service experience, we operate T Premium Stores that allow our potential and existing subscribers to experience certain of our services such as services that are available through our IoT solutions platform and lifestyle enhancement platform. As of December 31, 2015, we operated 120 T Premium Stores and we intend to further expand the number of T Premium Stores in 2016.

In addition, we operate an online distribution channel, “T world Direct,” through which subscribers can conveniently purchase wireless devices and subscribe to our services online. We intend to continue to develop our online distribution channel to leverage our offline distribution capabilities to provide convenience and additional value to our subscribers. For example, subscribers purchasing wireless devices through T World Direct can opt to pick up their devices at one of our offline stores.

Currently, authorized dealers are entitled to an initial commission for each new subscriber registered by the dealer, as well as an average ongoing commission calculated as a percentage of that subscriber’s monthly plan-based rate for the first four years. In order to strengthen our relationships with our exclusive dealers, we offer a dealer financing plan, pursuant to which we provide to each authorized dealer an interest-free or low-interest loan of up to Won 4.0 billion with a repayment period of up to three years. As of December 31, 2015, we had an aggregate of Won 58.6 billion outstanding in loans to authorized dealers.

Customer Service. We provide high-quality customer service directly through our two wholly-owned subsidiaries, Service Ace Co., Ltd. and Service Top Co., Ltd., rather than rely on outsourcing. Network O&S Co., Ltd. operates our switching stations and related transmission and power facilities and offers quality customer service primarily to our business customers. We have held the top position with respect to our telecommunications service and retail sales service in Korea’s leading three customer satisfaction indices, the National Customer Satisfaction Index, the Korean Customer Satisfaction Index and the Korean Standard Service Quality Index, for over 15 years each.

Fixed-line Telecommunication Services

We offer fixed-line telephone, broadband Internet and advanced media platform services (including IPTV) and business communications services through our fixed-line telecommunication services segment. Our fixed-line

telecommunications services are provided by our subsidiaries, SK Broadband and SK Telink. The following table sets forth historical information about our subscriber base for our fixed-line telecommunication services for the periods indicated:


	As of December 31,
	2015		2014		2013
Fixed-Line Telephone (including VoIP)(1)		4,672,195		4,774,748		4,801,047
Broadband Internet		5,036,057		4,810,493		4,569,105
IPTV(2)		3,481,969		2,819,130		2,081,260

(1)	Includes subscribers to VoIP services of SK Broadband and SK Telink.

(2)	Includes subscribers to SK Broadband’s B tv service and excludes video-on-demand only service subscribers.

In 2015, 2014 and 2013, our fixed-line telecommunication services segment revenue was Won 2,494.5 billion, Won 2,449.9 billion and Won 2,324.4 billion, respectively, representing approximately 14.6%, 14.3% and 14.0%, respectively, of our consolidated revenue.

Fixed-line Telephone Services

Our fixed-line telephone services comprise local, domestic long distance, international long distance and VoIP services. VoIP is a technology that transmits voice data through an Internet Protocol network. As of December 31, 2015, we had approximately 4.7 million fixed-line telephone subscribers (including subscribers to VoIP services of SK Broadband and SK Telink). Our fixed-line telephone services are primarily offered under the “B phone” brand name. SK Telink also provides affordable international calling services under the brand name “00700.”

Broadband Internet Access Services

Our broadband Internet access network covered more than 80% of households in Korea as of December 31, 2015. As of December 31, 2015, we had approximately 5.0 million broadband Internet access subscribers. We offer broadband Internet access products with various throughput speeds, including “band Giga,” which is up to 10 times faster than data transmission speeds on networks utilizing fiber-to-the-home, or FTTH, technology and allows for data transmission at a maximum speed of 1 Gbps.

Advanced Media Platform (including IPTV)

As part of our initiative to be the leading next-generation platform provider, we aim to provide an advanced media platform with various media content and service offerings.

We have offered video-on-demand services since 2006 and launched real-time IPTV services in 2009. We currently offer IPTV services under the brand name “B tv” with access to more than 130 live high definition channels as well as video-on-demand service providing a wide range of media content, including recent box office movie releases, popular U.S. and other foreign TV shows and various children’s TV programs. We also offer “B tv UHD,” which is an ultra-high definition IPTV service and has a resolution that is four times as high as the standard high definition broadcasting service in the IPTV industry. As of December 31, 2015, we had approximately 3.5 million IPTV subscribers.

In January 2016, we launched “oksusu,” a mobile IPTV service that is a combination of the services we previously provided as “B tv mobile” and “hoppin” and provides subscribers access to a wide variety of media contents, including various television programs, movies and other video contents that can be downloaded to wireless devices. Oksusu subscribers have access to more than 100 live TV channels, a wide range of sports contents and popular U.S. and other foreign TV shows, among other contents. We are also collaborating with media content developers to provide original media content for our oksusu service. As of December 31, 2015, we had approximately 4.1 million subscribers to oksusu.

We continue to expand the scope of our media services and content offerings to provide our subscribers with a vast library of high-quality content that can be accessed through our wireless networks and our fixed-line network.

Business Communications Services

We offer other business communications services to our business customers, including corporations and government entities. Our business communications services include leased line solutions, Internet data center solutions and network solution services.

Our leased line solutions are exclusive lines that allow point-to-point connection for voice and data traffic between two or more geographically separate points. We hold a license to operate leased line services on a nationwide basis in Korea and also use international transmission lines to provide leased line services to other countries. Our leased line services enable high volumes of data to be transmitted swiftly and reliably. We also provide back-up storage for transmitted data. Through our Internet data center, we provide our business subscribers with server-based support including co-location, dedicated server hosting and cloud computing services. Our network solution service utilizes our network infrastructure and voice platform to provide 24-hour monitoring and control of our customers’ networks. Through this service, we conduct remote monitoring of our customers’ data and voice communications infrastructure and network and traffic conditions, and carry out preventive examinations and on-site visits.

Rate Plans

For our residential customers, we offer both bundled rate plans for a combination of our fixed-line service offerings as well as individual rate plans for each separate service offering. Bundled rate plans are offered at a discount compared to subscribing to the same services through individual rate plans. Approximately 83% of subscribers to our fixed-line services subscribe to two or more of our services through our bundled rate plans. Bundled rate plans for a combination of fixed-line telephone, broadband Internet access and IPTV services range from Won 20,000 to Won 46,000 per month.

Our “Unlimited Home Phone” plan for subscribers to our fixed-line telephone service features unlimited domestic land-to-land voice minutes for a fixed rate and range from Won 7,000 to Won 10,500 per month depending on whether or not the subscriber opts for a contract and if so, the length of the contract period. We offer individual fixed-rate plans for our broadband Internet access service that range from Won 20,000 to Won 50,000 per month depending on the data throughput speed and existence and length of a contract. We offer individual fixed-rate plans for our IPTV service that range from Won 6,000 to Won 28,000 per month depending on the number of channels provided and existence and length of a contract. In addition, subscribers can purchase individual videos on demand or subscribe to certain paid content on a periodic basis.

With respect to our business communications services, we offer rates that are tailored to the specific needs of our business customers. We also charge certain installation fees and equipment rental fees as well as other ancillary fees with respect to certain of our fixed-line telecommunications services.

Marketing, Distribution and Customer Service

We focus on bringing our fixed-line telephone, broadband Internet and advanced media platform services (including IPTV) to residential users, and various business communications services to corporate users. We market our fixed-line telecommunications products and services under the “B” brand. Our “B” brand signifies the centrality of “Broadband” to our business and also seeks to emphasize our commitment to providing the “Best” quality products and services to our customers that go “Beyond” expectations, leading to a “Bravo” response. Our “B” brand also strengthens our shared identity with our wireless service’s “T” brand.

We currently outsource a significant portion of our retail sales force needs. We market our services and provide after-sales service support to customers through more than 80 customer centers and a network of more than 170 authorized exclusive dealers located throughout Korea. In addition, SK Telecom’s direct retail stores and authorized dealers for wireless telecommunications services also market our fixed-line telephone, broadband Internet and advanced media platform services (including IPTV), which we believe has contributed to the increase in the number of subscribers to such services. We have contracts with our customer centers to sell our services exclusively. These centers receive a commission for each service contract and installation contract secured. In addition, we pay these centers for the maintenance and repair work that they perform for our subscribers. Customer

and service centers often enter into sub-contracts with smaller distribution outlets within their area to increase their sales coverage and engage in telemarketing efforts. Authorized dealers are entitled to an initial commission for each new subscriber registered by the dealer.

Sales to business subscribers are handled through our in-house sales group. Our sales teams focus on securing contracts with large commercial complexes, allowing us to install our remote terminals at their premises. After installation, sales teams direct their attention to individual business clients within these premises. Sales teams that have secured contracts with business clients remain the primary contacts for all aspects of the client’s needs, including further installation and customer and follow-up service.

Other Businesses

We strive to continually diversify our products and services and develop new growth engines that we believe are complementary to our existing products and services, such as our commerce business, our healthcare business and our hardware business, which we include in our others segment. In 2015, 2014 and 2013, our others segment revenue was Won 1,372.9 billion, Won 1,186.0 billion and Won 962.2 billion, respectively, representing approximately 8.0%, 6.9% and 5.8%, respectively, of our consolidated revenue.

Commerce Business

Our commerce business consists primarily of our marketplace business and O2O commerce business operated by our subsidiary, SK Planet.

Marketplace. We operate “11st” which is an online open marketplace that offers a wide range of products through an online and mobile platform. Individual consumers can buy a vast array of products such as clothes and accessories, beauty products, groceries, baby products, books, office supplies, furniture, home goods, outdoor and sporting goods, appliances, electronics, travel packages, entertainment tickets and local deals for restaurants and other services from small- to large-sized retailers that operate “mini malls” on the 11st platform.

As of December 31, 2015, the mobile version of 11st was the leading mobile commerce platform in terms of unique visitors according to Korean Click. The mobile version of 11st is continuing to grow with an increase in the percentage of annual gross merchandise volume, which represents the total annual monetary value of customer purchases of goods and services, net of estimated refunds, derived from the mobile platform to 41% in 2015 from 28% in 2014.

We have expanded our online open marketplace business globally to Turkey, Indonesia and Malaysia. In March 2013, Dogus Planet, a joint venture between SK Planet and Dogus Group, a Turkish conglomerate, launched “n11.com” in Turkey. In March 2014, XL Planet, a joint venture between SK Planet and XL Axiata Tbk, an Indonesian mobile telecommunications service provider, launched “elevenia” in Indonesia. Further, in April 2015, Celcom Planet, a joint venture between SK Planet and Celcom Axiata, a Malaysian telecommunications service provider, launched “11street” in Malaysia.

We intend to continue our efforts to increase usage of the mobile version of 11st, enhance the convenience of our 11st mobile and web user interface and develop our growth in overseas e-commerce markets.

O2O Commerce. We provide diverse O2O commerce solutions under the “Syrup” brand name, which include the following:

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Syrup Wallet, a mobile wallet service that is the successor to our Smart Wallet service, allows users to conveniently manage membership card points and payment methods such as coupons, credit cards and gift vouchers on their mobile devices for both online and offline purchases and provides shopping information to users in certain shopping areas using advanced location-based technology;

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OK Cashbag by Syrup, Korea’s largest loyalty points program in terms of number of members with more than 50,000 participating merchants and 38 million members, which allows members to collect and redeem loyalty points at its partnering merchants and offers differentiated marketing services to such partnering merchants;

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Syrup Pay, a convenient and secure payment service through which users can register their credit card to simplify payments for online and mobile purchases, including through 11st, our online open marketplace;

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Syrup Gifticon, an online and mobile gift exchange and delivery service;

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Syrup Order, a food ordering service that allows users to conveniently place and pay for orders at restaurants in advance; and

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Syrup Table, a location-based restaurant discovery service that provides users with information about nearby restaurants.

The cumulative number of daily average users of our O2O commerce solutions was 3.0 million as of December 31, 2015.

We are also expanding our O2O commerce solutions business globally. In October 2014, a 95.2%-owned subsidiary of SK Planet acquired a 100.0% ownership interest in Shopkick, the developer of “shopkick,” a mobile shopping application that checks in and rewards customers that arrive at a participating retail store, for an aggregate purchase price of Won 230.9 billion and the assumption of Won 18.7 billion in current liabilities.

Hardware Business

We manufacture projection display devices, high-end audio devices and intelligent agent machines through our hardware business.

Projection Display Devices. We offer projection display devices under the brand name “UO Smart Beam Laser.” The UO Smart Beam Laser is a high definition pico projector that uses laser diodes to deliver bright and sharp images with a liquid crystal on silicon, or LCOS, based engine and is compatible with a wide range of computers and mobile devices. The UO Smart Beam Laser was selected as a 2016 CES Innovation Awards Honoree in the Home Video/Audio Components and Accessories category.

High-end Audio Devices. We offer high-end audio devices under the brand name “Astell&Kern” that are manufactured by our subsidiary, Iriver. Two of Iriver’s audio devices were selected as 2016 CES Innovation Awards Honorees in the Portable Media Player and Accessories category and High Performance Home Audio/Video category, respectively.

In August 2014, we acquired a 39.3% equity interest in Iriver, a manufacturer of digital audio players and other portable media devices, which we increased to 49.0% in December 2014, for an aggregate purchase price of approximately Won 54.5 billion. We also acquired Won 5.0 billion of convertible bonds issued by Iriver, which may be converted into additional equity interests in Iriver when certain conditions are met.

Intelligent Agent Machines. We co-developed educational smart robots, “Atti” and “Albert,” as a learning tool for young children with diverse interactive games and educational content. We have also developed a coding training program utilizing our smart robots to teach children how to develop software in a fun and easy way. We have provided our smart robots to various countries globally, including Spain, France, China, Brazil and Colombia. In October 2015, we signed an agreement to provide Albert to be utilized in 300 preschool classrooms in Costa Rica to make learning more effective and interesting for children.

Miscellaneous Businesses

We offer a portal service under our “Nate” brand name through SK Communications. Nate can be accessed through its website, www.nate.com, or through its mobile application. Nate offers a wide variety of content and services, including Nate Search, an Internet search engine, Nate News, which provides a library of articles about current events, sports, entertainment and culture, Nate Pann, a user-generated content service as well as access to free e-mail accounts through Nate Mail.

We also operate a mobile application marketplace, “T Store.” We collaborated with KT and LG U+ to launch “One Store” in June 2015. One Store is a combination of T Store and the mobile application marketplaces separately operated by KT and LG U+. Through this joint collaboration, we expect to increase the competitiveness of One Store to compete with Google Playstore, the leading mobile application marketplace in Korea.

In addition, we operate a security and network surveillance business through Neosnetworks, a provider of residential and small business electronic security and other related alarm monitoring services. In 2014 and 2015, we acquired an 83.9% interest in Neosnetworks for an aggregate of Won 64.0 billion, as part of our initiative to further develop our IoT solutions platform.

Interconnection

Our wireless and fixed-line networks interconnect with the public switched telephone networks operated by KT and SK Broadband and, through their networks, with the international gateways of KT and LG U+, as well as the networks of the other wireless telecommunications service providers in Korea. These connections enable our subscribers to make and receive calls from telephones outside our networks. Under Korean law, service providers are required to permit other service providers to interconnect to their networks. If a new service provider desires interconnection with the networks of an existing service provider but the parties are unable to reach an agreement within 90 days, the new service provider can appeal to the KCC.

Domestic Calls

Guidelines issued by the MSIP require that all interconnection charges levied by a regulated carrier take into account (i) the actual costs to that carrier of carrying a call or (ii) imputed costs. Starting in 2016, the MSIP will determine interconnection rates applicable to each carrier based on changes in traffic volume, taking into account other factors such as research results, competition and trends in technology development.

Wireless-to-Fixed-line. According to our interconnection arrangement with KT, for a call from our wireless network to KT’s fixed-line network, we collect the usage rate from our wireless subscriber and in turn pay KT the interconnection charges. Similarly, KT pays interconnection charges to SK Broadband for a call from KT’s wireless network to SK Broadband’s fixed-line network. The interconnection rate applicable to both KT and SK Broadband was Won 13.44 per minute, Won 14.73 per minute and Won 16.74 per minute for 2015, 2014 and 2013, respectively.

Fixed-line-to-Wireless. The MSIP determines interconnection arrangements for calls from a fixed-line network to a wireless network. For a call initiated by a fixed-line user to one of our wireless subscribers, the fixed-line network operator collects our usage fee from the fixed-line user and remits to us an interconnection charge. Interconnection with KT accounts for substantially all of our fixed-line-to-wireless interconnection revenue and expenses.

The interconnection rates paid by fixed-line network service providers to each wireless network service provider are set out below. In December 2010, the KCC announced that a single interconnection rate will apply to all wireless telecommunications service providers starting from 2013, which will eliminate the cost benefit that KT and LG U+ currently derive from the differences in interconnection rates. However, in November 2012, the KCC announced that it would continue to apply varied interconnection rates for the year 2013 considering the cost difference among wireless network service providers and our position as a dominant network service provider. These regulations currently remain effective; however, it is unclear whether the MSIP will continue to maintain varied interconnection rates due to our dominant market position.


	Rate per Minute
Applicable Year	SK Telecom		KT		LG U+
2012	￦	27.05	￦	28.03	￦	28.15
2013		26.27		26.98		27.04
2014		22.22		22.73		22.78
2015		19.53		19.92		19.96

Wireless-to-Wireless. The MIC implemented interconnection charges for calls between wireless telephone networks in Korea starting in January 2000. Under these arrangements, the operator originating the call pays an interconnection charge to the operator terminating the call. The applicable interconnection rate is the same as the fixed-line-to-wireless interconnection rate set out in the table above.

Our revenues from the wireless-to-wireless charge were Won 582.6 billion in 2015, Won 651.2 billion in 2014 and Won 641.2 billion in 2013. Our expenses from these charges were Won 579.0 billion in 2015, Won 700.3 billion in 2014 and Won 615.6 billion in 2013. The charges above were agreed among the parties involved and confirmed by the KCC.

International Calls and International Roaming Arrangements

With respect to international calls, if a call is initiated by our wireless subscribers, we bill the wireless subscriber for the international charges of KT, LG U+ or SK Broadband, and we receive interconnection charges from such operators. If an international call is received by our subscriber, KT, LG U+ or SK Broadband pays interconnection charges to us based on our imputed costs.

To complement the services we provide to our subscribers in Korea, we offer international voice and data roaming services. We charge our subscribers usage fees for global roaming service and, in turn, pay foreign wireless network operators fees for the corresponding usage of their network. For a more detailed discussion of our global roaming services, see “Item 4.B. Business Overview — Cellular Services — Wireless Services” above.

Competition

We operate in highly saturated and competitive markets, and we believe that our subscriber growth is affected by many factors, including the expansion and technical enhancement of our networks, the development and deployment of new technologies, the effectiveness of our marketing and distribution strategy, the quality of our customer service, the introduction of new products and services, competitive pricing of our rate plans, new market entrants and regulatory changes.

Historically, there has been considerable consolidation in the telecommunications industry, resulting in the current competitive landscape comprising three mobile and fixed network operators in the Korean market, KT, LG U+ and us. Our competitors have substantial financial, technical, marketing and other resources to respond to our business offerings.

The following table shows the market share information, based on number of subscribers, as of December 31, 2015, for the following markets.


	Market Share (%)
	SK Telecom		KT		LG U+		Others
Wireless Service(1)		49.4		30.4		20.2		—
LTE Service(1)		46.2		30.0		23.8		—
Fixed-Line Telephone (including VoIP)		16.2		57.5		17.5		8.8
Broadband Internet		25.1		41.6		17.4		15.9
IPTV(2)		12.1		22.7		7.9		57.3

(1)	Includes MVNO subscribers that lease the wireless networks of the respective mobile network operator.

(2)	Excludes video-on-demand only service subscribers. Market share is expressed as a percentage of the pay TV market (which includes IPTV, cable TV and satellite TV).

Cellular Services

As of December 31, 2015, we had 28.6 million subscribers, representing a market share of approximately 49.4%, including MVNO subscribers leasing our networks. As of December 31, 2015, KT and LG U+ had 17.6 million and 11.7 million subscribers, respectively, representing approximately 30.4% and 20.2%, respectively, of the total number of wireless subscribers in Korea on such date, each including MVNO subscribers leasing its networks. As of December 31, 2015, we had 18.9 million LTE subscribers and KT and LG U+ had 12.2 million and 9.7 million LTE subscribers, respectively, each including MVNO subscribers leasing its networks.

In 2015, we had 6.0 million activations and 5.6 million deactivations. For 2015, our monthly churn rate ranged from 1.3% to 2.1%, with an average monthly churn rate of 1.5% for 2015, which decreased by 0.5%p from 2014. In 2015, we gained 47.7% of the total number of new wireless subscribers and subscribers that migrated to a different wireless telecommunications service provider, compared to KT with 28.6% and LG U+ with 23.8%.

We also compete for subscriber activations with MVNOs, including MVNOs that lease our networks. MVNOs generally provide rate plans that are relatively cheaper than similar rate plans of the wireless network providers from which they lease their networks, including us. To date, thirteen MVNOs have commenced providing wireless

telecommunications services. As of December 31, 2015, MVNOs had a combined market share of 10.1%, of which MVNOs leasing our networks represented 4.6%, MVNOs leasing KT’s networks represented 4.7% and MVNOs leasing LG U+’s networks represented 0.8%.

In addition, other companies may enter the telecommunications service market by acquiring the required licenses from the MSIP. For example, in October 2015, Sejong Telecom, K Mobile and Quantum Mobile applied for licenses to become Korea’s fourth mobile network operator. Although the MSIP rejected the applications of all three companies in January 2016, the MSIP may continue its efforts to find an eligible applicant to be Korea’s fourth mobile network operator in the future. For a description of the risks associated with the competitive environment in which we operate, see “Item 3.D. Risk Factors — Risks Relating to Our Business — Competition may reduce our market share and harm our results of operations and financial condition.”

Prior to 2015, competition in the wireless telecommunications business had caused us to significantly increase our marketing and advertising expenses. Between 2012 and 2014, marketing expenses as a percentage of SK Telecom’s revenue, on a separate basis, fluctuated heavily between 23.9% to 33.7%, depending on the competitive landscape. However, in 2015, such percentage fluctuated between 23.0% and 27.0%. We attribute such stabilization to the maturity of the LTE market and the implementation of the MDDIA, which prohibits wireless telecommunications service providers from unfairly providing discriminatory subsidies based on certain criteria and from providing subsidies exceeding a maximum limit established by the KCC for the purchase of mobile phone models that were launched within the last 15 months, among other restrictions and requirements. For a more detailed discussion of the MDDIA, see “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Rate Regulation.”

We expect that due to the limitations on subsidies pursuant to the MDDIA, the differentiated product and service offerings we provide, the vast library of high-quality media content we offer and the competitiveness of our T Membership program will continue to play an important role in enhancing the loyalty of our wireless subscribers.

We face competition from KT and LG U+ as well as other platform service providers in our other cellular service businesses. For example, our Smart Home service competes with KT’s Giga IoT Home service and LG U+’s IoT@Home service. Although it is difficult to determine the markets in which we compete with respect to certain of our lifestyle enhancement platform services, we generally compete with various other Internet or mobile platform service companies such as Naver and Kakao Corp. (“Kakao”) in connection with such services.

Fixed-Line Telecommunication Services

Our fixed-line telephone service competes with KT and LG U+ as well as providers of other VoIP services. As of December 31, 2015, our market share of the fixed-line telephone and VoIP service market was 16.2% (including the services provided by SK Broadband and SK Telink) in terms of number of subscribers compared to KT with 57.5% and LG U+ with 17.5%.

We are the second largest provider of broadband Internet access services in Korea in terms of both revenue and subscribers, and our network covered more than 80% of households in Korea as of December 31, 2015. As of December 31, 2015, our market share of the broadband Internet market was 25.1% in terms of number of subscribers compared to KT with 41.6% and LG U+ with 17.4%.

Our IPTV service competes with other providers of such pay TV services, including KT, LG U+ and cable companies. As of December 31, 2015, our market share of the pay TV market (which includes IPTV, cable TV and satellite TV) was 12.1% compared to KT with 22.7% and LG U+ with 7.9% and the collective market share of other pay TV providers of 57.3%. With respect to our mobile IPTV business, we face competition from similar services provided by KT and LG U+. We also face increasing competition from global media streaming service providers such as Amazon Video and Netflix, which launched its services in Korea in January 2016.

Other Businesses

The e-commerce industry is evolving rapidly and is intensely competitive, and we face a broad array of competitors domestically and increasingly, internationally. Our marketplace business, 11st, faces intense competition from various e-commerce providers, including online open marketplaces such as Gmarket, Auction and

Interpark and online social commerce operators such as Coupang, Ticket Monster and Wemakeprice. We also face competition from traditional retailers with online and mobile shopping portals such as SSG.com and Lotte.com, home shopping providers with online and mobile shopping portals such as CJ Mall by CJ O Shopping, GS Shop by GS Homeshopping and Hyundai Hmall by Hyundai Homeshopping, and various online marketplaces for specific consumer segments or product groups.

The O2O commerce solutions industry is in its early stages of development and is heavily fragmented with a wide range of services being introduced. Thus, it is difficult to determine the markets in which we compete with respect to such services at this stage of the industry’s development.

Other Investments and Relationships

We have investments in several other businesses and companies and have entered into various business arrangements with other companies. Our principal investments fall into the following categories:

SK Hynix

In February 2012, we acquired a 21.1% equity stake in SK Hynix, one of the world’s largest memory-chip makers by revenue, for an aggregate purchase price of approximately Won 3.4 trillion, and became its largest shareholder. By investing in the export-driven semiconductor business, we aim to achieve a more diversified business portfolio, as well as seeking global growth opportunities utilizing SK Hynix’s overseas network. SK Hynix designs, manufactures and sells advanced memory semiconductor products, including DRAM and NAND flash products, used in various electronic devices. SK Hynix operates four wafer fabrication facilities in Korea and China.

In 2015, 2014 and 2013, SK Hynix and its subsidiaries, on a consolidated basis, had revenues of Won 18,798.0 billion, Won 17,125.6 billion and Won 14,165.1 billion, respectively, profit before income tax of Won 5,269.1 billion, Won 5,047.7 billion and Won 3,074.9 billion, respectively, and profit for the year of Won 4,323.6 billion, Won 4,195.2 billion and Won 2,872.9 billion, respectively. As of December 31, 2015, 2014 and 2013, SK Hynix and its subsidiaries, on a consolidated basis, had total assets of Won 29,677.9 billion, Won 26,883.3 billion and Won 20,797.3 billion, respectively, and total equity of Won 21,387.7 billion, Won 18,036.3 billion and Won 13,066.9 billion, respectively.

Healthcare Business

We believe that the healthcare business is one of the new growth industries as society ages and medical and health technologies evolve and become integrated with information and communication technologies (“ICT”). In 2011, we began pursuing new opportunities in the healthcare business area by acquiring a 9.3% equity interest in NanoEnTek Inc. (“NanoEnTek”), a biotechnology and nanotechnology company manufacturing, among others, point-of-care diagnostics devices. In April 2014, we became the largest shareholder of NanoEnTek with a 26.0% equity interest. In January 2016, NanoEnTek acquired Bio Focus Co., Ltd., a manufacturer of in vitro diagnostic products. In January 2012, we established a joint venture, Healthconnect Co., Ltd. (“Healthconnect”), with Seoul National University Hospital to develop a health management service model for mobile device users utilizing ICT and currently hold a 49.5% equity interest in Healthconnect.

We are also seeking opportunities in global healthcare markets. In the first quarter of 2013, we acquired a 49.0% equity interest in X’ian Tianlong Science and Technology Co., Ltd. (“Tianlong”), a Chinese medical device manufacturer, which has since expanded its product portfolio with the development of a new diagnostic product and entry into new business areas. In July 2014, we established the SK Telecom Healthcare R&D Center in Shenzhen, China and the Shenzhen VISTA-SK Medical Center, which we believe will provide us with a strong foothold in expanding our healthcare business in China. Shenzhen VISTA-SK Medical Center was established through a joint venture with Vista Medical Center, a major private healthcare service provider based in Beijing, China, and has the capacity to provide medical examinations and checkups to approximately 30,000 people annually. We also collaborate with a hospital in the Wuxi region to operate a Smart Primary Healthcare Center based on ICT healthcare solutions, and we plan to provide a mobile healthcare clinic to underserved regions. We believe that there are opportunities to create synergies among these centers and the medical device business of Tianlong in expanding our healthcare business in China.

In June 2014, we also entered into a contract to provide medical information systems to six Saudi Arabian hospitals for approximately Won 70.0 billion through a consortium with Seoul National University Bundang Hospital. We established a joint venture in Saudi Arabia in March 2016 to provide medical information systems to additional hospitals and further expand our healthcare business in the Middle East.

Packet One Networks

In July 2010, we acquired a 27.2% equity interest in Packet One Networks (“P1”), a Malaysian fourth generation WiMAX telecommunications company and subsidiary of Green Packet Berhad, for US$101 million. In connection with P1’s plan to increase its capital, we made an additional investment of MYR50 million (approximately US$16.3 million) in 2011, which increased our ownership interest to 28.2%. P1 is the first WiMAX service provider in the country which has established itself as the market leader in high-speed wireless broadband services. In February 2014, Green Packet Berhad entered into a share purchase agreement with Telekom Malaysia Berhad (“TM”), the largest fixed-line telecommunications provider in Malaysia, under which TM became P1’s largest shareholder.

KEBHana Card

In February 2010, we purchased shares newly issued by Hana SK Card Co., Ltd. (which was subsequently merged into KEB Card Co., Ltd. and renamed KEBHana Card Co., Ltd. (“KEBHana Card”) in November 2014), a credit card services provider, for a total purchase price of Won 400.0 billion. We currently hold 15.0% of the total outstanding shares of KEBHana Card. KEBHana Card offers certain credit card products that provide for discounts on some of our wireless network services and integrate T Membership benefits, among other features.

Other Investments

Our other investments include:

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POSCO. We currently own a 1.42% interest in the outstanding capital stock of POSCO, with a book value as of December 31, 2015 of Won 206.6 billion. POSCO is the largest fully integrated steel producer in Korea, and one of the largest steel producers in the world.

•

SKY Property Management. We currently own a 33.0% equity interest in SKY Property Management Ltd. (“SKY Property Management”), with a book value as of December 31, 2015 of Won 251.2 billion. SKY Property Management was established in 2008 to manage buildings and real estate developments in China, in which affiliated companies of the SK Group had invested or will invest.

•

Kakao. We currently own a 2.0% equity interest in Kakao, with a book value as of March 31, 2016 of Won 134.7 billion, pursuant to the transaction in February 2016 through which we sold our 15.0% interest in Loen Entertainment to Kakao for Won 219.9 billion in cash and 1,357,367 new shares of Kakao.

For more information regarding our investment securities, see note 9 of the notes to our consolidated financial statements.

Law and Regulation

Overview

Korea’s telecommunications industry is subject to comprehensive regulation by the MSIP, which is responsible for information and telecommunications policies. The MSIP regulates and supervises a broad range of communications issues, including:

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entry into the telecommunications industry;

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scope of services provided by telecommunications service providers;

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allocation of radio spectrum;

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setting of technical standards and promotion of technical standardization;

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rates, terms and practices of telecommunications service providers;

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interconnection and revenue-sharing between telecommunications service providers;

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research and development of policy formulation for information and telecommunications; and

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competition among telecommunications service providers.

Pursuant to amendments to the Government Organization Act and the Act on the Establishment and Operation of Korea Communications Commission, both effective as of March 23, 2013, the MSIP was established. The MSIP is charged with regulating information and telecommunications, the function which was formerly performed by the KCC in the previous Government. The KCC, which had taken over the regulatory functions relating to information and telecommunications policies and radio and broadcasting management from the MIC in 2008, is currently charged with regulating the public interest aspects of and fairness in broadcasting. In this annual report, we refer to the MIC and the KCC as the relevant governmental authorities in connection with any approval granted or action taken by the MIC or the KCC, as applicable, prior to such amendments and to the MSIP or other relevant governmental authority in connection with any approval granted or to be granted or action taken or to be taken by the MSIP or such other relevant governmental authority subsequent to such amendments.

Telecommunications service providers are currently classified into three categories: network service providers, value-added service providers, and specific service providers. We are classified as a network service provider because we provide telecommunications services with our own telecommunications networks and related facilities. As a network service provider, we are required to obtain a license from the MSIP for the services we provide. Our licenses permit us to provide cellular services, third generation wireless telecommunications services using WCDMA and WiBro technologies and fourth generation wireless telecommunications services using LTE technology.

The MSIP may revoke our licenses or suspend any of our businesses if we fail to comply with its rules, regulations and corrective orders, including the rules restricting beneficial ownership and control and corrective orders issued in connection with any violation of rules restricting beneficial ownership and control or any violation of the conditions of our licenses. Alternatively, in lieu of suspension of our business, the MSIP may levy a monetary penalty of up to 3.0% of the average of our annual revenue for the preceding three fiscal years. A network service provider that wants to cease its business or dissolve must obtain MSIP approval.

In the past, the Government has stated that its policy was to promote competition in the Korean telecommunications market through measures designed to prevent the dominant service provider in any such market from exercising its market power in such a way as to prevent the emergence and development of viable competitors. While all network service providers are subject to MSIP regulation, we are subject to increased regulation because of our position as the dominant wireless telecommunications services provider in Korea.

Competition Regulation

The KCC is charged with ensuring that network service providers engage in fair competition and has broad powers to carry out this goal. If a network service provider is found to be in violation of the fair competition requirement, the KCC may take corrective measures it deems necessary, including, but not limited to, prohibiting further violations, requiring amendments to the articles of incorporation or to service contracts with customers, requiring the execution or performance of, or amendments to, interconnection agreements with other network service providers and prohibiting advertisements to solicit new subscribers. The KCC is required to consult with the Minister of the MSIP before it takes certain corrective measures.

In addition, we qualify as a “market-dominating business entity” under the Fair Trade Act. Accordingly, we are prohibited from engaging in any act of abusing our position as a market-dominating entity, such as unreasonably determining, maintaining or altering service rates, unreasonably controlling the rendering of services, unreasonably interfering with business activities of other business entities, hindering unfairly the entry of newcomers or substantially restricting competition to the detriment of the interests of consumers.

Because we are a member company of the SK Group, which is a large business group as designated by the FTC, we are subject to the following restrictions under the Fair Trade Act:

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Restriction on debt guarantee among affiliates. Any affiliate within the SK Group may not guarantee the debts of another domestic affiliate, except for certain guarantees prescribed in the Fair Trade Act, such as those relating to the debts of a company acquired for purposes of industrial rationalization, bid deposits for overseas construction work or technology development funds.

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Restriction on cross-investment. A member company of the SK Group may not acquire or hold shares in an affiliate belonging to the SK Group that owns shares in the member company.

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Restrictions on circular investments. A member company of the SK Group may not acquire or hold shares which would constitute “circular investments” in an affiliate company which also forms part of the SK Group where “circular investments” refer to a cross-affiliate shareholding relationship under which three or more affiliate companies become connected through cross affiliate shareholdings by owning shares in other affiliates or by becoming an entity whose shares are owned by other affiliates.

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Public notice of board resolution on large-scale transactions with specially related persons. If a member company of the SK Group engages in a transaction with a specially related person in the amount of 5.0% or more of the member company’s capital or paid-in capital or for Won 5.0 billion or more, the transaction must be approved by a resolution of the member company’s board of directors and the member company must publicly disclose the transaction.

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Restrictions on investments by subsidiaries and sub-subsidiaries of holding companies. The Fair Trade Act prohibits subsidiaries of holding companies from investing in, or holding shares of common stock of, domestic affiliates that belong to the same large business group, unless such domestic affiliates are their own subsidiaries. Furthermore, any subsidiaries of a holding company’s subsidiaries (“sub-subsidiaries”) are prohibited from investing in, or holding shares of common stock of, domestic affiliates that belong to the same large business group, unless all shares issued by the affiliates are held by the sub-subsidiary. Therefore, we and other subsidiaries of SK Holdings may not invest in any domestic affiliate that is also a member company of the SK Group, except in the case where we invest in our own subsidiary or where another subsidiary of SK Holdings invests in its own subsidiary.

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Public notice of the current status of a business group. Under the Fair Trade Act and the Enforcement Decree thereof, a member company of the SK Group must publicly disclose the general status of the SK Group, including the name, business scope and financial status of affiliates, information on the officers of affiliates, information on shareholding and cross-investments between member companies of the SK Group, information on transactions with certain related persons and, if a member company engages in a transaction with an affiliated company in the amount of 5.0% or more of the member company’s quarterly sales or Won 5.0 billion or more, information on transactions with such affiliated company on a quarterly basis.

Number Portability. In January 2003, the MIC announced its plan to implement number portability with respect to wireless telecommunications service in Korea. The number portability system allows wireless subscribers to switch wireless telecommunications service providers while retaining the same mobile phone number.

In addition, the Government has been integrating mobile telephone identification numbers into a common prefix identification number “010” and gradually retracting the current mobile service identification numbers which had been unique to each wireless telecommunications service provider, including “011” for our cellular services, since January 1, 2004. All new subscribers have been given the “010” prefix starting January 2004. As the next step in the “010” integration process, the mobile telephone number prefix for all WCDMA and LTE service users has been changed to “010” as of January 1, 2014. The MSIP plans to complete the integration process by around 2018, when all mobile telephone numbers would have the prefix identification number “010.”

Rate Regulation. Most network service providers must report to the MSIP the rates and contractual terms for each type of service they provide. However, as the dominant network service provider for specific services (based on having the largest market share in terms of number of subscribers and meeting certain revenue thresholds), we must obtain prior approval of the MSIP on our rates and terms of service; provided, however, that such pre-approval of the MSIP is not required, if we are planning to reduce the rates for any type of services that we provide under the

MSIP-approved contractual terms. The MSIP’s policy is to approve rates if they are appropriate, fair and reasonable (that is, if the rates have been reasonably calculated, considering supply costs, profits, classification of costs and profits for each service, cost savings through changes in the way services are provided and the influence on fair competition, among others). The MSIP may order changes in the submitted rates if it deems the rates to be significantly unreasonable or against public policy. On October 23, 2015, the Government proposed a bill to the National Assembly to change the approval requirement to a simple reporting requirement, which is the requirement for our competitors. However, the bill is still under review by the relevant sub-committee and was not passed during the most recent term of the National Assembly and will be automatically repealed on May 31, 2016 if not passed by then. Although the Government may resubmit this bill in the future, there is no assurance as to whether such bill will be passed.

Furthermore, in 2007, the Government announced a “road map” highlighting revisions in regulations to promote deregulation of the telecommunications industry. In accordance with the road map and pursuant to the Combined Sales Regulation, promulgated in May 2007, telecommunications service providers are now permitted to bundle their services, such as wireless data transmission service, wireless voice transmission service, broadband Internet access service, fixed-line telephone service and IPTV service, at a discounted rate; provided, however, that we and KT, as market-dominating business entities under the Telecommunications Business Act, allow other competitors to employ the services provided by us and KT, respectively, so that such competitors can provide similar discounted package services. In September 2007, the regulations and provisions under the Telecommunications Business Act were amended to permit licensed transmission service providers to offer local, domestic long-distance and international telephone services, as well as broadband Internet access and Internet phone services, without additional business licenses.

Moreover, under the amended Telecommunications Business Act, which became effective on September 23, 2010, an MVNO system was adopted for a duration of three years until September 22, 2013. The expiration date of the system was extended to September 22, 2016 under the amended Telecommunications Business Act, which became effective on August 13, 2013. Under this system, the MSIP may designate and obligate certain wireless telecommunications services providers to allow an MVNO, at such MVNO’s request, to use their telecommunication network facilities at a rate mutually agreed upon that complies with the standards set by the MSIP. We were designated as the only wireless telecommunications services provider obligated to allow the other wireless telecommunications services provider to use our telecommunications network facilities. To date, thirteen MVNOs have commenced providing wireless telecommunications services using the networks leased from us.

On October 1, 2014, the MDDIA, enacted for the purpose of establishing a transparent and fair mobile distribution practice, became effective. The MDDIA limits the amount of subsidies a wireless telecommunications service provider can provide to subscribers in order to prevent excessive competition among wireless telecommunications service providers. Pursuant to the MDDIA, wireless telecommunications service providers are prohibited from (i) unfairly providing discriminatory subsidies based on criteria such as type of subscription, subscription plan and characteristics of the subscriber, (ii) providing subsidies exceeding a maximum limit established by the KCC (such limit to be determined between Won 250,000 and Won 350,000, which may be adjusted every six months, with the current limit set at Won 330,000, effective as of April 24, 2015) for the purchase of mobile phone models that were launched within the last 15 months, and (iii) entering into a separate agreement with subscribers imposing obligations to use a specific subscription plan as a condition for providing subsidies. In addition, under the MDDIA, wireless telecommunications service providers are obliged to provide benefits, such as discounted rates, to subscribers who subscribe to the service without receiving subsidies.

Interconnection. Dominant network service providers such as ourselves that own essential infrastructure facilities or possess a certain market share are required to provide interconnection of their telecommunications network facilities to other service providers upon request. The MSIP sets and announces the standards for determining the scope, procedures, compensation and other terms and conditions of such provision, interconnection or co-use. We have entered into interconnection agreements with KT, LG U+ and other network service providers permitting these entities to interconnect with our network. We expect that we will be required to enter into additional agreements with new operators as the MSIP grants permits to additional telecommunications service providers.

Frequency Allocation. The MSIP has the discretion to allocate and adjust the frequency bandwidths for each type of service and may auction off the rights to certain frequency bandwidths. Upon allocation of new frequency bandwidths or adjustment of frequency bandwidths, the MSIP is required to give a public notice. The MSIP also regulates the frequency to be used by each radio station, including the transmission frequency used by equipment in our cell sites. All of our frequency allocations are for a definite term. We pay fees to the MSIP for our frequency usage that are determined based upon our number of subscribers, frequency usage by our networks and other factors. For 2015, 2014 and 2013, the fee amounted to Won 189.8 billion, Won 188.1 billion and Won 206.5 billion, respectively.

We currently use 10 MHz of bandwidth in the 800 MHz spectrum for our CDMA services, 20 MHz of bandwidth in the 2.1 GHz spectrum for our WCDMA services, 40 MHz of bandwidth in the 2.1 GHz spectrum, 20 MHz of bandwidth in the 800 MHz spectrum and 35 MHz of bandwidth in the 1.8 GHz spectrum for our LTE services, as well as 27 MHz of spectrum in the 2.3 GHz band for our WiBro services. For more information regarding the license fees for the various bandwidths that we use, see “Item 5.B. Liquidity and Capital Resources — Capital Requirements — Capital Expenditures” and note 17 of the notes to our consolidated financial statements.

For risks relating to the maintenance of adequate bandwidth capacity, see “Item 3.D. Risk Factors — Risks Relating to Our Business — Our business and results of operations may be adversely affected if we fail to acquire adequate additional spectrum or use our bandwidth efficiently to accommodate subscriber growth and subscriber usage.”

Mandatory Contributions and Obligations

Universal Service Obligation. All telecommunications service providers other than value-added service providers, specific service providers and regional paging service providers or any telecommunications service providers whose net annual revenue is less than an amount determined by the MSIP (currently set at Won 30.0 billion) are required to provide “universal” telecommunications services including local telephone services, local public telephone services, telecommunications services for remote islands and wireless communication services for ships and telephone services for handicapped and low-income citizens, or contribute toward the supply of such universal services. The MSIP designates universal services and the service provider who is required to provide each service. Currently, under the MSIP guidelines, we are required to offer free subscription and a discount of between 30.0% to 50.0% of our monthly fee for wireless telecommunications services to handicapped and low-income citizens.

In addition to such universal services for handicapped and low-income citizens, we are also required to make certain monetary contributions to compensate for other service providers’ costs for the universal services. The size of a service provider’s contribution is based on its net annual revenue (calculated pursuant to the MSIP guidelines, which differ from our accounting practices). In 2015, our contribution amount was Won 21.0 billion for our fiscal year 2014. In 2014, our contribution amount was Won 21.8 billion for our fiscal year 2013. In 2013, our contribution amount was Won 19.2 billion for our fiscal year 2012. As a wireless telecommunications services provider, we are not considered a provider of universal telecommunications services and do not receive funds for providing universal service. Other network service providers that do provide universal services make all or a portion of their “contribution” in the form of expenses related to the universal services they provide.

Foreign Ownership and Investment Restrictions and Requirements

Because we are a network service provider, and the exception for the foreign shareholding limit under the amended Telecommunications Business Act, which became effective on August 13, 2013, does not apply to us, foreign governments, individuals, and entities (including Korean entities that are deemed foreigners, as discussed below) are prohibited from owning more than 49.0% of our voting stock. Korean entities whose largest shareholder is a foreign government or a foreigner (together with any of its related parties) that owns 15.0% or more of the outstanding voting stock of such Korean entities are also deemed foreigners. If this 49.0% ownership limitation is violated, certain of our foreign shareholders will not be permitted to exercise voting rights in excess of the limitation, and the MSIP may require other corrective action.

As of December 31, 2015, SK Holdings owned 20,363,452 shares of our common stock, or approximately 25.22% of our issued shares. As of December 31, 2015, the two largest foreign shareholders of SK Holdings each

held a 3.5% stake therein. If such foreign shareholders increase their shareholdings in SK Holdings to 15% or more and any such foreign shareholder constitutes the largest shareholder of SK Holdings, SK Holdings will be considered a foreign shareholder, and its shareholding in us would be included in the calculation of our aggregate foreign shareholding. If SK Holdings’ shareholding in us is included in the calculation of our aggregate foreign shareholding, then our aggregate foreign shareholding, assuming the foreign ownership level as of December 31, 2015 (which we believe was 39.38%), would reach 64.60%, exceeding the 49.0% ceiling on foreign shareholding.

If our aggregate foreign shareholding limit is exceeded, the MSIP may issue a corrective order to us, the breaching shareholder (including SK Holdings if the breach is caused by an increase in foreign ownership of SK Holdings) and the foreign shareholder which owns in the aggregate 15.0% or more of SK Holdings. Furthermore, SK Holdings will be prohibited from exercising its voting rights with respect to the shares held in excess of the 49.0% ceiling, which may result in a change in control of us. In addition, the MSIP will be prohibited from granting us licenses or permits necessary for entering into new telecommunications businesses until our aggregate foreign shareholding is reduced to below 49.0%. If a corrective order is issued to us by the MSIP arising from the violation of the foregoing foreign ownership limit, and we do not comply within the prescribed period under such corrective order, the MSIP may:

•

revoke our business license;

•

suspend all or part of our business; or

•

if the suspension of business is deemed to result in significant inconvenience to our customers or to be detrimental to the public interest, impose a one-time administrative penalty of up to 3.0% of the average of our annual revenue for the preceding three fiscal years.

Additionally, the Telecommunications Business Act also authorizes the MSIP to assess monetary penalties of up to 0.3% of the purchase price of the shares for each day the corrective order is not complied with, as well as a prison term of up to one year or a penalty of Won 50 million. See “Item 3.D. Risk Factors — Risks Relating to Securities — If SK Holdings causes us to breach the foreign ownership limitations on our common shares, we may experience a change of control.”

We are required under the Foreign Exchange Transaction Act to file a report with a designated foreign exchange bank or with the Ministry of Strategy and Finance (the “MOSF”), in connection with any issue of foreign currency denominated securities by us in foreign countries. Issuances of US$30 million or less require the filing of a report with a designated foreign exchange bank, and issuances that are over US$30 million in the aggregate within one year from the filing of a report with a designated foreign exchange bank require the filing of a report with the MOSF.

The Telecommunications Business Act provides for the creation of a Public Interest Review Committee under the MSIP to review investments in or changes in the control of network service providers. The following events would be subject to review by the Public Interest Review Committee:

•

the acquisition by an entity (and its related parties) of 15.0% or more of the equity of a network service provider;

•

a change in the largest shareholder of a network service provider;

•

agreements by a network service provider or its shareholders with foreign governments or parties regarding important business matters of such network service provider, such as the appointment of officers and directors and transfer of businesses; and

•

a change in the shareholder that actually controls a network service provider.

If the Public Interest Review Committee determines that any of the foregoing transactions or events would be detrimental to the public interest, then the MSIP may issue orders to stop the transaction, amend any agreements, suspend voting rights, or divest the shares of the relevant network service provider. Additionally, if a dominant network service provider (which would currently include us and KT), together with its specially related persons (as defined under the FSCMA), holds more than 5.0% of the equity of another dominant network service provider, the voting rights on the shares held in excess of the 5.0% limit may not be exercised.

Patents and Licensed Technology

Access to the latest relevant technology is critical to our ability to offer the most advanced wireless telecommunications services and to design and manufacture competitive products. In addition to active internal and external research and development efforts as described in “Item 5.C. Research and Development, Patents and Licenses, etc.,” our success depends in part on our ability to obtain patents, licenses and other intellectual property rights covering our products. We own numerous patents and trademarks worldwide, and have applications for patents pending in many countries, including Korea, Japan, China and the United States and in Europe. Our patents are mainly related to LTE technology and wireless Internet applications. We have also acquired a number of patents related to WCDMA and CDMA technologies. There are no licensed patents that are material to our business.

We are not currently involved in any material litigation regarding patent infringement. For a description of the risks associated with our reliance on intellectual property, see “Item 3.D. Risk Factors — Risks Relating to Our Business — Our business relies on technology developed by us, and our business will suffer if we are unable to protect our proprietary rights.”

Seasonality of the Business

Our business is not affected by seasonality.

Item 4.C.

Organizational Structure

Organizational Structure

We are a member of the SK Group, based on the definition of “group” under the Fair Trade Act. As of December 31, 2015, SK Group members owned in aggregate 25.2% of the shares of our issued common stock. The SK Group is a diversified group of companies incorporated in Korea with interests in, among other things, telecommunications, trading, energy, chemicals, engineering and leisure industries.

Significant Subsidiaries

For information regarding our subsidiaries, see note 1(2) of the notes to our consolidated financial statements.

Item 4.D.

Property, Plants and Equipment

The following table sets forth certain information concerning our principal properties as of December 31, 2015:


Location	Primary Use	Approximate Area in Square Feet
Seoul Metropolitan Area	Corporate Headquarters		988,447
	Regional Headquarters		607,249
	Customer Service Centers		107,277
	Training Centers		616,845
	Central Research and Development Center		482,719
	Others(1)		962,781
Busan	Regional Headquarters		363,282
	Others(1)		637,960
Daegu	Regional Headquarters		148,065
	Others(1)		232,375
Jeolla and Jeju Provinces	Regional Headquarters		265,614
	Others(1)		690,313
Chungcheong Province	Regional Headquarters		459,302
	Others(1)		784,438

(1)	Includes cell sites.

In December 2004, we constructed a building with an area of approximately 82,624 square feet, of which we have full ownership, for use as our corporate headquarters. In addition, we own or lease various locations for cell sites and switching equipment. We do not anticipate that we will encounter material difficulties in meeting our future needs for any existing or prospective leased space for our cell sites. See “Item 4.B. Business Overview — Cellular Services — Network Infrastructure.”

We maintain a range of insurance policies to cover our assets and employees, including our directors and officers. We are insured against business interruption, fire, lightning, flooding, theft, vandalism, public liability and certain other risks that may affect our assets and employees. We believe that the types and amounts of our insurance coverage are in accordance with general business practices in Korea.

Item 4A.

UNRESOLVED STAFF COMMENTS

We do not have any unresolved comments from the SEC staff regarding our periodic reports under the Exchange Act.

Item 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion together with our consolidated financial statements and the related notes thereto which appear elsewhere in this annual report. We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. In addition, you should read carefully the section titled “— Critical Accounting Policies, Estimates and Judgments” as well as note 4 of the notes to our consolidated financial statements which provide summaries of certain critical accounting policies that require our management to make difficult, complex or subjective judgments relating to matters which are highly uncertain and that may have a material impact on our financial conditions and results of operations.

Item 5.A.

Operating Results

Overview

Our operations are reported in three segments: (1) cellular services, which include wireless voice and data transmission services, sales of wireless devices, IoT solutions platform services and lifestyle enhancement platform services, (2) fixed-line telecommunication services, which include fixed-line telephone services, broadband Internet services, advanced media platform services (including IPTV) and business communications services and (3) other businesses, which include our commerce business, our hardware business and other operations that do not meet the quantitative thresholds to be separately considered reportable segments.

In our cellular services segment, we earn revenue principally from our wireless voice and data transmission services through monthly plan-based fees, usage charges for outgoing voice calls, usage charges for wireless data services and value-added service fees paid by our wireless subscribers as well as interconnection fees paid to us by other telecommunications operators for use of our wireless network by their customers and subscribers. We also derive revenue from sales of wireless devices by our subsidiary, PS&Marketing. Other sources of revenue include revenue from our IoT solutions platform services and lifestyle enhancement platform services as well as other miscellaneous cellular services.

In our fixed-line telecommunication services segment, we earn revenue principally from our fixed-line telephone services and broadband Internet services and advanced media platform services (including IPTV) through monthly plan-based fees and usage charges as well as interconnection fees paid to us by other telecommunications operators for use of our fixed-line network by their customers and subscribers. In addition, we derive revenue from international calling services and our business communications services through customized fee arrangements with our business customers.

In our others segment, we earn revenue principally from our commerce business through third-party seller fees earned (including commissions) for transactions in which we act as a selling agent to the “mini malls” on 11st, our online open marketplace platform, as well as advertising revenue from 11st and our O2O commerce solutions. Other sources of revenue include revenue from our hardware businesses through sales of projection display devices, high-end audio devices and intelligent agent machines, revenue from our security business operated by our subsidiary, Neosnetworks, advertising revenue from our “Nate” portal service operated by our subsidiary, SK Communications, and sales commissions through our mobile application marketplaces.

Our cellular service revenue and fixed-line telecommunications service revenue depend principally upon the number of our wireless subscribers, the rates we charge for our services, the frequency and volume of subscriber usage of our services and the terms of our interconnection with other telecommunications operators. Our others revenue depends principally upon the gross merchandise volume, which is the total monetary value of customer purchases of goods and services, net of estimated refunds, of 11st and the number of merchants that utilize 11st and our O2O platforms to advertise and promote their products and services and the extent of such advertisement and promotion.

Among other factors, management uses operating income of each reportable segment presented in accordance with K-IFRS (“segment operating income”) in its assessment of the profitability of each reportable segment. The sum of segment operating income for all three reportable segments differs from our operating income presented in accordance with IFRS by IASB as segment operating income does not include certain items such as gain and loss from disposal of property and equipment and intangible assets and impairment loss on property and equipment and intangible assets. For a reconciliation of operating income presented in accordance with IFRS by IASB and operating income presented in accordance with K-IFRS, see “— Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.”

In addition to the information set forth below, see note 5 of the notes to our consolidated financial statements for more detailed information regarding each of our reportable segments.

A number of recent developments have had or are expected to have a material impact on our results of operations, financial condition and capital expenditures. These developments include:

New Regulations Relating to Handset Subsidies. We provide handset subsidies to subscribers who agree to use our service for a predetermined service period and purchase handsets on an installment basis. Generally, handset subsidies may be provided to any subscriber that uses our service and purchases handsets either directly from us or through third parties. Prior to the implementation of the MDDIA, there was intense competition among wireless telecommunications service providers to acquire subscribers by providing higher subsidies. In October 2014, the Government started limiting the amount of subsidies a wireless telecommunications service provider can provide to subscribers in order to prevent excessive competition among wireless telecommunications service providers under the MDDIA. Pursuant to the MDDIA, wireless telecommunications service providers are prohibited from (i) unfairly providing discriminatory subsidies based on criteria such as type of subscription, subscription plan and characteristics of the subscriber, (ii) providing subsidies exceeding a maximum limit established by the KCC (such limit to be determined between Won 250,000 and Won 350,000, which may be adjusted every six months, with the current limit set at Won 330,000, effective as of April 24, 2015) for the purchase of mobile phone models that were launched within the last 15 months, and (iii) entering into a separate agreement with subscribers imposing obligations to use a specific subscription plan as a condition for providing subsidies. In addition, under the MDDIA, wireless telecommunications service providers are obliged to provide certain benefits, such as discounted rates, to subscribers who subscribe to their service without receiving subsidies.

In 2015, the increase in the number of subscribers who elected to receive discounted rates in lieu of receiving handset subsidies pursuant to the MDDIA due to the increase in the applicable discount rate to 20% in April 2015 from 12% in October 2014 contributed to a decrease in revenue. Such increase also led to a decrease in our marketing expenses in 2015 compared to 2014. Furthermore, failure to comply with the MDDIA may lead to suspension of our business or imposition of monetary penalties. For more information about the MDDIA and the penalties imposed for violating Government regulations, see “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Rate Regulation” and “Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings — KCC and MSIP Proceedings.”

Abolishment of Initial Subscription Fees. Upon recommendation by the MSIP, we, KT and LG U+ agreed to gradually reduce initial subscription fees charged to new customers and in August 2013, reduced the initial subscription fee by 40% and again by an additional 50% in August 2014. Starting in November 2014, we ceased charging any initial subscription fees to new customers. The gradual reduction and ultimate abolishment of initial subscription fees adversely impacted our wireless service revenues in 2014 and 2015 compared to 2013 and may

continue to have a material impact on our results of operations in 2016. For more information about the rates we charge, see “Item 4.B. Business Overview — Cellular Services — Rate Plans” and “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Rate Regulation.”

Decrease in Interconnection Fees. Our wireless telecommunications services depend, in part, on our interconnection arrangements with domestic and international fixed-line and other wireless networks. Charges for interconnection affect our revenues and operating results. The MSIP determines the basic framework for interconnection arrangements, including policies relating to interconnection rates in Korea. Under our interconnection agreements, we are required to make payments in respect of calls which originate from our networks and terminate in the networks of other Korean telecommunications operators, and the other operators are required to make payments to us in respect of calls which originate in their networks and terminate in our network. The MSIP has continued to gradually decrease the interconnection rates in Korea, which has led to a continued decrease in our interconnection revenue as well as interconnection expenses from 2012 to 2015 and any further reduction in interconnection rates by the MSIP may continue to impact our results of operations. For more information about our interconnection revenue and expenses, see “Item 4.B. Business Overview — Interconnection.”

Decrease in Monthly Revenue per Subscriber. We measure monthly average per subscriber using two metrics: billing average monthly per subscriber (“billing ARPU”) and total average monthly revenue per subscriber (“total ARPU”). Billing average monthly revenue per subscriber is derived by dividing the sum of total SK Telecom revenues from voice service and data service for the period by the monthly average number of subscribers (excluding the number of MVNO subscribers leasing our networks) for the period, then dividing that number by the number of months in the period. Total ARPU is derived by dividing the sum of total SK Telecom revenues from voice service, data service, initial subscription fees and interconnection revenue, as well as other revenues, for the period by the monthly average number of subscribers (excluding the number of MVNO subscribers leasing our networks) for the period, then dividing that number by the number of months in the period.

Our billing ARPU increased by 1.3% to Won 36,582 in 2015 from Won 36,101 in 2014 and increased by 4.5% in 2014 from Won 34,551 in 2013. The increases in billing ARPU in 2015 and 2014 were primarily due to the increase in LTE subscribers who subscribe to data plans with higher monthly basic charges than our other wireless telecommunications services and greater data service usage attributable to increases in the number of smartphone users. In 2015, the increase in billing ARPU was partially offset by a decrease in revenue due to the increase in the applicable discount rate for subscribers that elected to receive discounted rates in lieu of receiving handset subsidies according to the MDDIA.

Our total ARPU decreased by 0.3% to Won 43,970 in 2015 from Won 44,124 and increased by 4.1% in 2014 from Won 42,377 in 2013. The decrease in total ARPU in 2015 was primarily due to decreases in initial subscription fees and interconnection revenue, which were partially offset by the reasons set forth above relating to the increase in billing ARPU in 2015. The increase in total ARPU in 2014 was primarily due to an increase in LTE subscribers who subscribe to data plans with higher monthly basic charges than our other wireless telecommunications services and greater data service usage attributable to increases in the number of smartphone users.

Acquisition of SK Hynix Shares. In February 2012, we acquired a 21.1% equity stake in SK Hynix, one of the world’s largest memory chip makers by revenue, for an aggregate purchase price of approximately Won 3.4 trillion, and became its largest shareholder. As of December 31, 2015, we held a 20.1% equity stake in SK Hynix. SK Hynix’s profit for the year was Won 4,323.6 billion in 2015, Won 4,195.2 billion in 2014 and Won 2,872.9 billion in 2013. Our investment in SK Hynix is accounted for using the equity method and the results of SK Hynix’s performance is reflected in our operating results as gains (loss) related to investments in subsidiaries and associates.

Acquisition of SK Networks’ Retail Distribution Business. In April 2014, PS&Marketing acquired the retail distribution business of SK Networks. As a result of such acquisition, there were increases in wireless device sales in 2015, due to the reflection of the full year impact of the acquisition, compared to 2014, in which the acquisition only impacted results of operations for part of the year, and in 2014 compared to 2013, along with an increase in various related operating expenses, including cost of products that have been resold and labor costs.

Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS

Beginning with our financial statements prepared in accordance with K-IFRS as of and for the year ended December 31, 2012, we are required to adopt certain amendments to K-IFRS No. 1001, Presentation of Financial Statements, as adopted by KASB in 2012. The amendments require operating income, which is calculated as operating revenue less operating expense, to be separately presented on the consolidated statement of income. Operating expense represents expenses incurred in our main operating activities and includes cost of products that have been resold and selling, general and administrative expenses. Accordingly, beginning with our consolidated statements of income prepared in accordance with K-IFRS for the year ended December 31, 2012, we present operating income in accordance with the amended K-IFRS No. 1001, Presentation of Financial Statements. Prior to the adoption of the amendments to K-IFRS No. 1001, Presentation of Financial Statements, the operating income we presented in our consolidated statements of income prepared in accordance with K-IFRS took into account certain other operating revenue and other operating expenses that are no longer included in the calculation of operating income pursuant to these amendments.

In our consolidated statements of income prepared in accordance with IFRS as issued by the IASB included in this annual report, such changes in presentation were not adopted. As a result, the presentation of operating income in our consolidated statements of income prepared in accordance with IFRS as issued by the IASB included in this annual report differs from the presentation of operating income in the consolidated statements of income prepared in accordance with K-IFRS for the corresponding periods. The table below sets forth a reconciliation of our operating income as presented in our consolidated statements of income prepared in accordance with IFRS as issued by the IASB for the years ended December 31, 2015, 2014 and 2013 to the operating income as presented in the consolidated statements of income prepared in accordance with K-IFRS after giving effect to the amendments to K-IFRS No. 1001, Presentation of Financial Statements, for each of the corresponding years.


	For the Year Ended December 31,
	2015			2014			2013
	(In billions of Won)
Operating income pursuant to IFRS by IASB	￦	1,495.4		￦	1,607.9		￦	1,578.4
Differences:
Other income pursuant to IFRS
Fee revenues		—			(8.2	)		(7.3	)
Gain on disposal of property and equipment and intangible assets		(7.1	)		(8.8	)		(8.0	)
Others		(23.8	)		(39.5	)		(59.7	)

		(30.9	)		(56.5	)		(75.0	)
Other operating expenses pursuant to IFRS that are classified as other non-operating expenses pursuant to K-IFRS
Loss on impairment of property and equipment and intangible assets		35.8			47.5			13.8
Loss on disposal of property and equipment and intangible assets		21.4			33.0			267.5
Donations		72.5			67.8			82.1
Bad debt for accounts receivable — other		15.3			17.9			22.2
Others		98.5			107.5			122.2

		243.5			273.8			507.7

Operating income pursuant to K-IFRS	￦	1,708.0		￦	1,825.1		￦	2,011.1

However, there is no impact on profit for the year or earnings per share for the years ended December 31, 2015, 2014 and 2013.

Accounting Standards Updates

We have adopted amendments to IAS 19, Employee Benefits, for the years ended December 31, 2015. See note 3 of the notes to our consolidated financial statements for a summary of IAS 19, Employee Benefits. The adoption of these amendments is not expected to have a significant impact on our consolidated results of operations or financial position.

Operating Results

The following table sets forth summary consolidated income statement information, including that expressed as a percentage of operating revenue and other income, for the periods indicated:


	For the Year Ended December 31,
	2015					2014					2013
	(In billions of Won, except percentage data)
Operating Revenue and Other Income	￦	17,167.6		100.0	%	￦	17,220.3		100.0	%	￦	16,677.0		100.0	%
Revenue		17,136.7		99.8			17,163.8		99.7			16,602.1		99.6
Other income		30.9		0.2			56.5		0.3			74.9		0.4
Operating Expense		15,672.2		91.3			15,612.4		90.7			15,098.6		90.5
Operating Income		1,495.4		8.7			1,607.8		9.3			1,578.4		9.5
Profit before Income Tax		2,035.4		11.9			2,253.8		13.1			1,827.1		11.0
Income Tax Expense from Continuing Operations		519.5		3.0			454.5		2.6			400.8		2.4
Profit from Continuing Operations		1,515.9		8.8			1,799.3		10.4			1,426.3		8.6
Profit from Discontinued Operation, Net of Income Taxes(1)		—		—			—		—			183.2		1.1
Profit (Loss) for the Year Attributable to:
Owners of the Parent Company		1,518.6		8.8			1,801.2		10.5			1,638.9		9.8
Non-controlling Interests		(2.7	)	(0.0	)		(1.9	)	(0.0	)		(29.4	)	(0.2	)
Profit for the Year		1,515.9		8.8			1,799.3		10.4			1,609.5		9.6

(1)	Relates to results of operations of Loen Entertainment, which ceased being our consolidated subsidiary in July 2013.

The following table sets forth additional information about our operations with respect to our reportable segments during the periods indicated:


	Year Ended December 31,
	2015						2014						2013
	Amount			Percentage of Total Revenue			Amount			Percentage of Total Revenue			Amount			Percentage of Total Revenue
	(In billions of Won, except percentages)
*Cellular Services Revenue*
Wireless Service(1)	￦	10,720.50			62.6	%	￦	11,010.6			64.2	%	￦	11,001.1			66.3	%
Cellular Interconnection		710.0			4.1			817.0			4.8			845.0			5.1
Wireless Device Sales		963.4			5.6			761.6			4.4			645.9			3.9
Miscellaneous(2)		875.4			5.1			938.6			5.5			823.5			5.0

Total Cellular Services Revenue		13,269.3			77.4			13,527.9			78.8			13,315.5			80.2
*Fixed-line Telecommunication Services Revenue*
Fixed-line Telephone Service	￦	420.6			2.5	%	￦	467.3			2.7	%	￦	474.4			2.9	%
Fixed-line Interconnection		57.1			0.3			57.4			0.3			78.7			0.5
Broadband Internet Service and Advanced Media Platform Service		1,308.8			7.6			1,152.7			6.7			1,023.2			6.2
International Calling Service		99.1			0.6			112.0			0.7			127.0			0.8
Miscellaneous(3)		608.9			3.6			660.5			3.8			621.1			3.7

Total Fixed-line Telecommunication Services Revenue		2,494.5			14.6			2,449.9			14.3			2,324.4			14.0
*Other Revenue*
Commerce Service(4)	￦	988.5			5.8	%	￦	911.5			5.3	%	￦	742.6			4.5	%
Portal Service(5)		63.9			0.4			73.0			0.4			92.2			0.6
Miscellaneous(6)		320.5			1.9			201.6			1.2			127.4			0.8

Total Other Revenue		1,372.9			8.0			1,186.0			6.9			962.2			5.8

*Total Revenue*	￦	17,136.7			100.0	%	￦	17,163.8			100.0	%	￦	16,602.1			100.0	%

Total Revenue Growth		(0.2	) %					3.4	%					2.9			%
*Segment Operating Expense*(7)
Cellular Services	￦	11,591.0			67.6	%	￦	11,773.5			68.6	%	￦	11,329.4			68.2	%
Fixed-line Telecommunication Services		2,386.2			13.9			2,369.5			13.8			2,268.8			13.7
Others		1,451.5			8.5			1,195.8			7.0			992.8			6.0

*Total Segment Operating Expense*	￦	15,428.7			90.0	%	￦	15,338.7			89.4	%	￦	14,591.0			87.9	%

*Segment Operating Income*
Cellular Services	￦	1,678.3			9.8	%	￦	1,754.4			10.6	%	￦	1,986.1			12.0	%
Fixed-line Telecommunication Services		108.3			0.6			80.4			0.5			55.6			0.3
Others		(78.6	)		(0.4	)		(9.8	)		(0.1	)		(30.6	)		(0.2	)

*Total Segment Operating Income*	￦	1,708.0			10.0	%	￦	1,825.1			10.6	%	￦	2,011.1			12.1	%

(1)	Wireless service revenue includes revenue from wireless voice and data transmission services principally derived through monthly plan-based fees, usage charges for outgoing voice calls, usage charges for wireless data services and value-added service fees paid by our wireless subscribers.

(2)	Miscellaneous cellular services revenue includes revenue from our IoT solutions platform services as well as other miscellaneous cellular services.

(3)	Miscellaneous fixed-line telecommunication services revenue includes revenues from business communications services (other than fixed-line telephone service) provided by SK Broadband and VoIP services provided by SK Telink.

(4)	Commerce service revenue includes revenues from 11st, our online open marketplace platform, and O2O commerce solutions.

(5)	Portal service revenue includes revenues from “Nate,” our online portal service operated by SK Communications, and Cyworld, a social networking service formerly operated by SK Communications. In March 2014, the Cyworld business was spun-off into an unaffiliated company.

(6)	Miscellaneous others revenue includes revenues from our hardware business, our security business operated by our subsidiary, Neosnetworks, and our online open marketplace for mobile applications, among other operations.

(7)

“Segment operating expense” means operating expense for each reportable segment presented in accordance with K-IFRS and therefore, does not include certain expenses that are classified as other non-operating expenses under K-IFRS. For more information on the difference between our consolidated operating expense pursuant to K-IFRS and pursuant to IFRS as issued by the IASB, see “— Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.”

2015 Compared to 2014

Operating Revenue and Other Income. Our consolidated operating revenue and other income decreased by 0.3% to Won 17,167.6 billion from Won 17,220.3 billion in 2014, due to the following decreases in operating revenue and other income.

Our consolidated operating revenue decreased slightly to Won 17,136.7 billion in 2015 from Won 17,163.8 billion in 2014, primarily due to decreases in wireless service revenue and cellular interconnection revenue, partially offset by increases in wireless device sales and broadband Internet service and advanced media platform service revenue, each as further discussed below.

Our consolidated other income decreased by 45.2% to Won 30.9 billion in 2015 from Won 56.5 billion in 2014 primarily due to a decrease in value-added tax refunds to Won 2.1 billion in 2015 from Won 8.1 billion in 2014 and a decrease in gain on disposal of property and equipment and intangible assets to Won 7.1 billion in 2015 from Won 8.8 billion in 2014.

The following sets forth additional information about our operating revenues with respect to each of our reportable segments.

•

Cellular services: The revenue of our cellular services segment, which is composed of revenues from wireless service, cellular interconnection, wireless device sales and miscellaneous cellular services, decreased by 1.9% to Won 13,269.3 billion in 2015 from Won 13,527.9 billion in 2014. The decrease in our cellular services revenue was principally due to decreases in our wireless service revenue and cellular interconnection revenue partially offset by an increase in our wireless device sales.

Wireless service revenue decreased by 2.6% to Won 10,720.5 billion in 2015 from Won 11,010.6 billion in 2014, primarily due to the decrease in initial subscription fees which we ceased charging beginning November 2014 and the increase in the number of subscribers who elected to receive discounted rates in lieu of receiving handset subsidies pursuant to the MDDIA due to the increase in the applicable discount rate to 20% in April 2015 from 12% in October 2014.

Cellular interconnection revenue decreased by 13.1% to Won 710.0 billion in 2015 from Won 817.0 billion in 2014. The decrease was primarily attributable to decreases in interconnection rates and land-to-mobile call volume in 2015.

Wireless device sales increased by 26.5% to Won 963.4 billion in 2015 from Won 761.6 billion in 2014. Such increase was due in part to the reflection of the full year impact of the acquisition by PS&Marketing in April 2014 of the retail distribution business of SK Networks in 2015 compared to 2014 in which the acquisition only impacted revenue for part of the year.

•

Fixed-line telecommunications services: The revenue of our fixed-line telecommunication services segment, which is composed of revenues from broadband Internet service and advanced media platform service

(including IPTV), fixed-line telephone service, international calling service, fixed-line interconnection and miscellaneous fixed-line telecommunication services, increased by 1.8% to Won 2,494.5 billion in 2015 from Won 2,449.9 billion in 2014, primarily due to an increase in revenue from our broadband Internet service and advanced media platform service (including IPTV), partially offset by decreases in fixed-line telephone service revenue, miscellaneous fixed-line telecommunication services revenue and international calling service revenue. Fixed-line interconnection revenue was stable between 2014 and 2015.

Revenue from our broadband Internet service and advanced media platform service (including IPTV) increased by 13.5% to Won 1,308.8 billion in 2015 from Won 1,152.7 billion in 2014, primarily due to an increase in the number of IPTV subscribers to 3.5 million subscribers as of December 31, 2015 from 2.8 million subscribers as of December 31, 2014 and an increase in the purchase of paid media content by IPTV subscribers.

Fixed-line telephone service revenue decreased by 10.0% to Won 420.6 billion in 2015 from Won 467.3 billion in 2014, primarily due to a decrease in residential calling volume. Miscellaneous fixed-line telecommunication services revenue decreased by 7.8% to Won 608.9 billion in 2015 from Won 660.5 billion in 2014, primarily due to a decline in new contracts for business communications services provided by SK Broadband. International calling service revenue decreased by 11.5% to Won 99.1 billion in 2015 from Won 112.0 billion in 2014, primarily due to a decrease in international calling volume.

•

Others: The revenue of our others segment, which is composed of revenues from our commerce service and portal service and miscellaneous other revenue, increased by 15.8% to Won 1,372.9 billion in 2015 from Won 1,186.0 billion in 2014, due to increases in commerce service revenue and miscellaneous other revenue.

Commerce service revenue increased by 8.4% to Won 988.5 billion in 2015 from Won 911.5 billion in 2014, primarily due to an increase in the annual gross merchandise volume of 11st through its mobile version. Miscellaneous other revenue increased by 59.0% to Won 320.5 billion in 2015 from Won 201.6 billion in 2014, primarily due to increases in revenue from our security business operated by Neosnetworks and revenue from SK Planet’s advertising business.

Operating Expense. Our consolidated operating expense increased by 0.4% to Won 15,672.2 billion in 2015 from Won 15,612.4 billion in 2014, primarily due to a 16.4% increase in cost of products that have been resold to Won 1,955.9 billion in 2015 from Won 1,680.1 billion in 2014, a 14.1% increase in labor cost to Won 1,893.7 billion in 2015 from Won 1,659.8 billion in 2014 and a 4.8% increase in depreciation and amortization to Won 2,845.3 billion in 2015 from Won 2,714.7 billion in 2014. Such increase was partially offset by an 8.5% decrease in commissions paid to Won 5,207.0 billion in 2015 from Won 5,692.7 billion in 2014.

The increase in cost of products that have been resold was primarily due to the reflection of the full year impact of the acquisition by PS&Marketing in April 2014 of the retail distribution business of SK Networks in 2015 compared to 2014 in which the acquisition only impacted associated costs for part of the year and an increase in high-end wireless device sales.

The increase in labor cost was primarily due to one-time severance payments in connection with our early retirement program and the increase in the number of employees at SK Broadband to further expand our advanced media platform service business and in connection with several acquisitions in 2014, including the acquisition by PS&Marketing of the retail distribution business of SK Networks in April 2014 and the acquisition by SK Planet of Shopkick in October 2014.

The increase in depreciation and amortization was primarily due to increased capital investments to upgrade our LTE network and broadband Internet fixed-line network and the increase in amortization of software.

The decrease in commissions paid was attributable mainly to the stabilized competitive environment due to the maturity of the LTE market and the implementation of the MDDIA as well as an increase in the number of subscribers who elected to receive discounted rates in lieu of receiving handset subsidies pursuant to the MDDIA.

The following sets forth additional information about our segment operating expense with respect to each of our reportable segments, which do not include certain expenses that are classified as other non-operating expenses under K-IFRS. For more information on the difference between our consolidated operating expense pursuant to K-IFRS and pursuant to IFRS as issued by the IASB, see “ — Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.”

•

Cellular services: The segment operating expense for our cellular services segment decreased by 1.6% to Won 11,591.0 billion in 2015 from Won 11,773.5 billion in 2014, primarily due to a decrease in commissions paid, which was partially offset by increases in cost of products that have been resold, labor cost and depreciation and amortization, each for the reasons described above.

•

Fixed-line telecommunication services: The segment operating expense for our fixed-line telecommunication services segment slightly increased to Won 2,386.2 billion in 2015 from Won 2,369.5 billion in 2014, primarily due to an increase in marketing costs to gain more subscribers to our IPTV service and an increase in labor cost due to an increase in the number of employees related to the expansion of our advanced media platform service business.

•

Others: The segment operating expense for our others segment increased by 21.4% to Won 1,451.5 billion in 2015 from Won 1,195.8 billion in 2014, primarily due to an increase in marketing costs relating to various promotional events for 11st and our O2O commerce solutions and an increase in labor cost due to the increase in the number of employees pursuant to the acquisition by SK Planet of Shopkick in October 2014.

Operating Income. Our consolidated operating income decreased by 7.0% to Won 1,495.4 billion in 2015 from Won 1,607.8 billion in 2014, due to the decrease in operating revenue and other income and the increase in operating expense.

Our segment operating income with respect to each of our reportable segments is based on K-IFRS and the sum of segment operating income for all three reportable segments differs from our consolidated operating income presented in accordance with IFRS by IASB. For a reconciliation of operating income presented in accordance with IFRS by IASB and operating income presented in accordance with K-IFRS, see “— Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.”

•

Cellular services: The segment operating income of our cellular services segment decreased by 4.3% to Won 1,678.3 billion in 2015 from Won 1,754.4 billion in 2014, primarily due to the decrease in initial subscription fees which we ceased charging beginning November 2014. As a result, the segment operating margin (which, with respect to each reportable segment, is segment operating income divided by revenue from such segment, expressed as a percentage) of our cellular services segment decreased to 12.6% in 2015 from 13.0% in 2014.

•

Fixed-line telecommunication services: The segment operating income of our fixed-line telecommunication services segment increased by 34.7% to Won 108.3 billion in 2015 from Won 80.4 billion in 2014, primarily due to the increase in revenue from our IPTV service despite the increase in costs to expand our advanced media platform service business. As a result, the segment operating margin of our fixed-line telecommunication services segment increased to 4.3% in 2015 from 3.3% in 2014.

•

Others: The segment operating loss of our others segment increased to Won 78.6 billion in 2015 from Won 9.8 billion in 2014. As discussed above, while revenue from our commerce service and miscellaneous other revenue increased in 2015, marketing costs related to such services increased to a greater extent, leading to a greater operating loss of our others segment.

Finance Income and Finance Costs. Our finance income decreased by 17.8% to Won 103.9 billion in 2015 from Won 126.3 billion in 2014, primarily due to a 23.5% decrease in interest income to Won 45.9 billion in 2015 from Won 60.0 billion in 2014, which was mainly due to a general decrease in interest rates, and a 77.9% decrease in gain on valuation of derivatives to Won 1.9 billion in 2015 from Won 8.7 billion in 2014. Such decreases were partially offset by a gain on valuation of financial asset at fair value through profit or loss of Won 5.2 billion in 2015 relating to profit recognized from the early redemption of certain structured bonds compared to no such gain in

2014, a 23.4% increase in dividend income to Won 16.1 billion in 2015 from Won 13.0 billion in 2014 and a 16.1% increase in gain on foreign currency transactions to Won 18.9 billion in 2015 from Won 16.3 billion in 2014.

Our finance costs decreased by 9.5% to Won 350.1 billion in 2015 from Won 386.7 billion in 2014 primarily due to an 8.1% decrease in interest expense to Won 297.7 billion in 2015 from Won 323.9 billion in 2014, which was mainly due to a general decrease in interest rates, and a 95.2% decrease in loss relating to financial liability at fair value through profit or loss to Won 0.5 billion in 2015 from Won 10.4 billion in 2014. In 2014, we recognized such loss relating to financial liability at fair value through profit or loss due to the increase in the fair value of debentures in connection with the general decrease in interest rates. Such decreases were partially offset by a significant increase in loss on settlement of derivatives to Won 4.8 billion in 2015 from Won 0.7 billion in 2014.

Gains (Losses) Related to Investments in Subsidiaries and Associates. Gains related to investments in subsidiaries and associates decreased 13.3% to Won 786.1 billion in 2015 from Won 906.3 billion in 2014, primarily due to an 8.1% decrease in share of profits of SK Hynix to Won 842.1 billion in 2015 from Won 916.5 billion in 2014. Such decrease was primarily due to the Won 88.7 billion gain recognized in connection with the dilution of equity interest in 2014 due to the conversion by noteholders of SK Hynix’s convertible bonds to SK Hynix’s common shares compared to no such gain recognized in 2015 despite the 3.1% increase in SK Hynix’s profit for the year to Won 4,323.6 billion in 2015 from Won 4,195.2 billion.

Income Tax. Income tax expense from continuing operations increased by 14.3% to Won 519.5 billion in 2015 from Won 454.5 billion in 2014 notwithstanding a 9.7% decrease in profit before income tax to Won 2,035.4 billion in 2015 from Won 2,253.8 billion in 2014, primarily due to changes in unrealizable deferred taxes which led to an increase in income tax expense of Won 83.6 billion in 2015, mainly related to the dividend in kind made by SK Planet of SK Communication’s common shares to SK Telecom, compared to such changes which led to a decrease in income tax expense of Won 43.8 billion in 2014. Our effective tax rate in 2015 increased by 5.3%p to 25.5% in 2015 from 20.2% in 2014, primarily for the reasons set forth above.

Profit for the Year. Principally as a result of the factors discussed above, our profit for the year decreased by 15.8% to Won 1,515.9 billion in 2015 from Won 1,799.3 billion in 2014. Profit for the year as a percentage of operating revenue and other income was 8.8% in 2015 compared to 10.4% in 2014.

2014 Compared to 2013

Operating Revenue and Other Income. Our consolidated operating revenue and other income increased by 3.3% to Won 17,220.3 billion in 2014 from Won 16,677.0 billion in 2013, due to the following increases in operating revenue and other income.

Our consolidated operating revenue increased by 3.4% to Won 17,163.8 billion in 2014 from Won 16,602.1 billion in 2013, primarily as a result of improved revenues from our consolidated subsidiaries, including an increase in wireless device sales principally due to the acquisition by PS&Marketing of the retail distribution business of SK Networks in April 2014, strong growth of SK Planet’s commerce service businesses such as 11th Street and increased revenue from SK Broadband’s IPTV services, as well as growth in the number of new subscribers to our LTE service and increase in data usage.

Our consolidated other income decreased by 24.7% to Won 56.5 billion in 2014 from Won 74.9 billion in 2013 primarily due to a decrease in value-added tax refunds to Won 8.1 billion in 2014 from Won 10.3 billion in 2013 and other income recognized in 2013 but not in 2014 relating to one-off items such as the receipt of insurance coverage payments for typhoon damage of Won 4.6 billion and gain from sale of property and equipment of Won 4.5 billion.

The following sets forth additional information about our operating revenues with respect to each of our reportable segments.

•

The increase in our cellular services revenue was principally due to increases in our wireless device sales and miscellaneous cellular services revenue, partially offset by a decrease in cellular interconnection revenue. There was no significant change in wireless service revenue between 2013 and 2014.

Wireless device sales increased by 17.9% to Won 761.6 billion in 2014 from Won 645.9 billion in 2013, primarily due to the acquisition by PS&Marketing of 190 retail stores as part of its acquisition of the retail distribution business of SK Networks in April 2014. Miscellaneous cellular services revenue increased by 14.0% to Won 938.6 billion in 2014 from Won 823.5 billion in 2013, primarily due to an increase in revenue from our Internet solutions business.

Cellular interconnection revenue decreased by 3.3% to Won 817.0 billion in 2014 from Won 845.0 billion in 2013. The decrease was primarily attributable to decreases in interconnection rates in 2014, which was partially offset by an increase in total call volume to mobile devices.

Wireless service revenue remained steady at Won 11,010.6 billion in 2014 compared to Won 11,001.1 billion in 2013. Factors that contributed to an increase in wireless service revenue in 2014 were an increase in the number of subscribers that subscribe to LTE plans, which have higher monthly rates than our other wireless service plans, as well as an increase in the number of LTE subscribers that subscribe to more expensive fixed-rate plans that feature a higher data transmission allowance (in connection with the increased availability of data-intensive wireless contents such as mobile video streaming). A factor that offset this increase and contributed to a decrease in wireless service revenue in 2014 was a decrease in initial subscription fees which we ceased charging beginning November 2014 after gradually decreasing the fee since August 2013.

•

Fixed-line telecommunication services: The revenue of our fixed-line telecommunication services segment, which is composed of revenues from broadband Internet service and advanced media platform service, fixed-line telephone service, international calling service, fixed-line interconnection and miscellaneous fixed-line telecommunication services, increased by 14.3% to Won 2,449.9 billion in 2014 from Won 2,324.4 billion in 2013, primarily due to an increase in revenue from our broadband Internet service and advanced media platform service and miscellaneous fixed-line telecommunications services, partially offset by decreases in revenue from fixed-line interconnection, international calling service and fixed-line telephone service.

Revenue from our broadband Internet service and advanced media platform service increased by 12.7% to Won 1,152.7 billion in 2014 from Won 1,023.2 billion in 2013, primarily attributable to an increase in the number of IPTV subscribers to 2.8 million subscribers as of December 31, 2014 from 2.1 million subscribers as of December 31, 2013. Revenue from our miscellaneous fixed-line telecommunication services increased by 6.3% to Won 660.5 billion in 2014 from Won 621.1 billion in 2013, primarily due to an increase in subscribers of SK Telink’s MVNO service.

Fixed-line interconnection revenue decreased by 27.1% to Won 57.4 billion in 2014 from Won 78.7 billion in 2013, primarily due to a decrease in residential calling volume. International calling service revenue decreased by 11.8% to Won 112.0 billion in 2014 from Won 127.0 billion in 2013, primarily due to a decrease in international calling volume. Fixed-line telephone service revenue decreased by 1.5% to Won 467.3 billion in 2014 from Won 474.4 billion in 2013, primarily due to a decrease in residential calling volume.

•

Others: The revenue of our others segment, which is composed of revenues from our commerce service and portal service and miscellaneous other revenue, increased by 3.4% to Won 1,186.0 billion in 2014 from Won 962.2 billion in 2013, due to increases in commerce service revenue and miscellaneous other revenue, partially offset by a decrease in portal service revenue.

Commerce service revenue increased by 22.7% to Won 911.5 billion in 2014 from Won 742.6 billion in 2013, primarily due to an increase in revenue generated by 11th Street. Miscellaneous other revenue increased by 58.2% to Won 201.6 billion in 2014 from Won 127.4 billion in 2013, primarily due to the revenue attributable to Neosnetworks and Iriver, which were acquired by SK Telecom in 2014.

Portal service revenue decreased by 20.8% to Won 73.0 billion in 2014 from Won 92.2 billion in 2013, primarily due to a decrease in advertising revenues from the portal services operated by SK Communications.

Operating Expense. Our consolidated operating expense increased by 3.4% to Won 15,612.4 billion in 2014 from Won 15,098.6 billion in 2013, primarily due to a 29.2% increase in cost of products that have been resold to Won 1,680.1 billion in 2014 from Won 1,300.4 billion in 2013, which was attributable mainly to the acquisition by PS&Marketing of the retail distribution business of SK Networks in April 2014; a 3.5% increase in commissions paid to Won 5,692.7 billion in 2014 from Won 5,498.7 billion in 2013, which was primarily attributable to an increase in marketing expenses to acquire new LTE subscribers in the first half of 2014 amidst intensified competition among us, KT and LG U+; and a 6.3% increase in labor costs to Won 1,659.8 billion in 2014 from Won 1,561.4 billion in 2013, which was primarily due to the significant increase in the number of employees in connection with several acquisitions in 2014, including the acquisition by PS&Marketing of the retail distribution business of SK Networks in April 2014, the acquisitions by SK Telecom of Neosnetworks in April 2014 and Iriver in August 2014 and the acquisition by SK Planet of Shopkick in October 2014. Such increase was partially offset by an 8.8% decrease in other operating expenses to Won 1,592.6 billion in 2014 from Won 1,746.3 billion in 2013, which was attributable mainly to a decrease in loss on disposal of property and equipment and intangible assets to Won 33.0 billion in 2014 from Won 267.5 billion in 2013.

•

Cellular services: The segment operating expense for our cellular services segment increased by 3.9% to Won 11,773.5 billion in 2014 from Won 11,329.4 billion in 2013, primarily due to increases in commissions paid, cost of products that have been resold and labor costs, each for the reasons described above, and an increase in depreciation and amortization expenses, which was attributable mainly to an increase in our LTE wireless network equipment and amortization of our frequency licenses.

•

Fixed-line telecommunication services: The segment operating expense for our fixed-line telecommunication services segment increased by 4.4% to Won 2,369.5 billion in 2014 from Won 2,268.8 billion in 2013, primarily due to an increase in commissions paid related to IPTV contents.

•

Others: The segment operating expense for our others segment increased by 20.4% to Won 1,195.8 billion in 2014 from Won 992.8 billion in 2013, primarily due to an increase in marketing costs resulting from increased competition in the e-commerce market.

Operating Income. Our consolidated operating income increased by 1.9% to Won 1,607.8 billion in 2014 from Won 1,578.4 billion in 2013, as the increase in operating revenue and other income was slightly greater than the increase in operating expense.

•

Cellular services: The segment operating income of our cellular services segment decreased by 11.7% to Won 1,754.4 billion in 2014 from Won 1,986.1 billion in 2013, primarily due to an increase in marketing expenses to acquire new LTE subscribers in the first half of 2014 amidst intensified competition among us, KT and LG U+. As a result, the segment operating margin (which, with respect to each reportable segment, is segment operating income divided by revenue from such segment, expressed as a percentage) of our cellular services segment decreased to 13.0% in 2014 from 14.9% in 2013.

•

Fixed-line telecommunication services: The segment operating income of our fixed-line telecommunication services segment increased by 44.6% to Won 80.4 billion in 2014 from Won 55.6 billion in 2013, due to an

increase in revenue from our broadband Internet service and advanced media platform service, which is mainly attributable to the growth in our IPTV service. Driven by strong growth in our IPTV service, the segment operating margin of our fixed-line telecommunication services segment increased to 3.3% in 2014 from 2.4% in 2013.

•

Others: The segment operating loss of our others segment decreased to Won 9.8 billion in 2014 from Won 30.6 billion in 2013. As discussed above, while our commerce service revenue increased in 2014, intense competition in the commerce service industry led to increased marketing costs, and thus, the profitability of our commerce service business did not improve in 2014; however, while our portal service revenue decreased in 2014, our operating expenses related to this business decreased to a greater degree such that the profitability of our commerce service business improved in 2014 resulting in the aforementioned decrease in the segment operating loss of our others segment.

Finance Income and Finance Costs. Our finance income increased by 11.4% to Won 126.3 billion in 2014 from Won 113.4 billion in 2013, primarily due to gain on valuation of derivatives of Won 8.7 billion in 2014 compared to no such gain in 2013; a 47.6% increase in gain on foreign currency transactions to Won 16.3 billion in 2014 from Won 11.0 billion and a 50.5% increase in gain on disposal of long-term investment securities to Won 14.0 billion in 2014 from Won 9.3 billion in 2013 attributable primarily to the disposal of equity interests of iHQ, Inc. Such increases were partially offset by an 8.5% decrease in interest income to Won 60.0 billion in 2014 from Won 65.6 billion in 2013, which was mainly due to a general decrease in interest rates and no gain on valuation of financial asset at fair value through profit or loss in 2014 compared to Won 5.2 billion of such gain in 2013, related to the valuation of convertible bonds of NanoEnTek in 2013, which were subsequently converted into equity in 2014. Our finance costs decreased by 32.3% to Won 386.7 billion in 2014 from Won 571.2 billion in 2013 primarily due to a 92.3% decrease in loss relating to financial liability at fair value through profit or loss to Won 10.4 billion in 2014 from Won 134.2 billion in 2013 due to the valuation loss on our exchangeable bonds due to rising stock prices in 2013 and loss on redemption of debentures upon the exercise of exchange claims in 2013.

Gains (Losses) Related to Investments in Subsidiaries and Associates. Gains related to investments in subsidiaries and associates increased 28.3% to Won 906.3 billion in 2014 from Won 706.5 billion in 2013, primarily due to a Won 916.5 billion gain attributable to our investment in SK Hynix, in which we have a 20.1% interest. SK Hynix’s profit for the year increased 46.0% to Won 4,195.2 billion in 2014 from 2,872.9 billion in 2013, primarily as a result of increases in unit sales of its dynamic random-access memory and NAND products.

Income Tax. Income tax expense from continuing operations increased by 13.4% to Won 454.5 billion in 2014 from Won 400.8 billion in 2013, primarily due to a 23.4% increase in profit before income tax to Won 2,253.8 billion in 2014 from Won 1,827.1 billion in 2013. Our effective tax rate in 2014 decreased by 1.7%p to 20.2% in 2014 from 21.9% in 2013, primarily due to an increase in unrecognized deferred tax liabilities in connection with our investments in SK Hynix and income tax refunds received as a result of our successful appeals to the relevant tax authorities.

Profit from Discontinued Operations. We did not recognize any profit or loss from discontinued operations in 2014. In 2013, we recognized profit from discontinued operations of Won 183.2 billion with respect to the disposition by SK Planet of its 52.6% equity stake in Loen Entertainment for an aggregate sale price of approximately Won 265.9 billion.

Profit for the Year. Principally as a result of the factors discussed above, our profit for the year increased by 11.8% to Won 1,799.3 billion in 2014 from Won 1,609.5 billion in 2013. Profit for the year as a percentage of operating revenue and other income was 10.4% in 2014 compared to 9.7% in 2013.

Inflation

We do not consider inflation in Korea to have had a material impact on our results of operations in recent years. According to data published by The Bank of Korea, annual inflation in Korea was 0.7% in 2015, 1.3% in 2014 and 1.3% in 2013.

Item 5.B.

Liquidity and Capital Resources

Liquidity

We had a working capital deficit (current liabilities in excess of current assets) of Won 96.3 billion as of December 31, 2015 and Won 337.2 billion as of December 31, 2014. The working capital deficit as of December 31, 2015 was primarily due to working capital needs in the ordinary course of business. The working capital deficit as of December 31, 2014 was primarily due to cash expenditures in 2014 used to fund SK Planet’s acquisition of Shopkick and SK Telecom’s acquisitions of Neosnetworks and Iriver. We plan to fund our current liabilities with the cash flow generated by our operations, proceeds from the disposal of investment securities or property and equipment that are no longer deemed profitable and proceeds from additional borrowings, as necessary.

We had cash, cash equivalents, short-term financial instruments and short-term investment securities of Won 1,552.3 billion as of December 31, 2015 and Won 1,427.7 billion as of December 31, 2014. We had outstanding short-term borrowings of Won 260.0 billion as of December 31, 2015 and Won 366.6 billion as of December 31, 2014. As of December 31, 2015, we had credit lines with several local banks that provided for borrowing of up to Won 490.0 billion, Won 450.0 billion of which was available for borrowing.

Cash flows from operating activities and debt financing have been our principal sources of liquidity. We had cash and cash equivalents of Won 768.9 billion as of December 31, 2015 and Won 834.4 billion as of December 31, 2014. We believe that we have a variety of alternatives available to us to satisfy our financial requirements to the extent that they are not met by funds generated by operations, including the issuance of debt securities and bank borrowings.


	Year Ended December 31,									Change
	2015			2014			2013			2015 to 2014					2014 to 2013
	(In billions of Won, except percentages)
Net Cash Provided by Operating Activities	￦	3,778.1		￦	3,677.4		￦	3,558.6		￦	100.7		2.7	%	￦	118.8		3.3	%
Net Cash Used in Investing Activities		(2,880.5	)		(3,683.2	)		(2,506.5	)		802.7		(21.8	)		(1,176.7	)	46.9
Net Cash Used in Financing Activities		(964.6	)		(559.4	)		(573.2	)		(405.2	)	72.4			13.8		(2.4	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents Held in Foreign Currencies		1.5			1.0			(0.4	)		0.5		49.2			1.4		N/A
Net Increase (Decrease) in Cash and Cash Equivalents		(67.0	)		(565.2	)		478.9			498.2		(88.2	)		(1,044.1	)	N/A
Cash and Cash Equivalents at Beginning of Period		834.4			1,398.6			920.1			(564.2	)	(40.3	)		478.5		52.0
Cash and Cash Equivalents at End of Period		768.9			834.4			1,398.6			(65.5	)	(7.9	)%		(564.2	)	(40.3	)%

N/A = Not applicable.

Cash Flows from Operating Activities. Net cash provided by operating activities was Won 3,778.1 billion in 2015, Won 3,677.4 billion in 2014 and Won 3,558.6 billion in 2013. Profit for the year was Won 1,515.9 billion in 2015, Won 1,799.3 billion in 2014 and Won 1,609.5 billion in 2013. Net cash provided by operating activities in 2015 increased slightly by 2.7% from 2014. Net cash provided by operating activities in 2014 increased by 3.3% from 2013, primarily due to an 11.8% increase in profit for the year to Won 1,799.3 billion in 2014 from Won 1,609.5 billion in 2013.

Cash Flows from Investing Activities. Net cash used in investing activities was Won 2,880.5 billion in 2015, Won 3,683.2 billion in 2014 and Won 2,506.5 billion in 2013. Cash inflows from investing activities were Won 914.5 billion in 2015, Won 341.4 billion in 2014 and Won 1,251.8 billion in 2013. Cash inflows in 2015 were primarily attributable to collection of short-term loans of Won 398.3 billion and proceeds from disposals of investments in associates and joint ventures of Won 185.1 billion, mostly in connection with the disposal of 27,725,264 shares of KEBHana Card for Won 176.3 billion. Cash inflows in 2014 were primarily attributable to collection of short-term loans of Won 207.4 billion. Cash inflows in 2013 were primarily attributable to collection of short-term loans of Won 290.9 billion, proceeds from disposal of long-term investment securities of Won 287.8 billion, mostly in connection with the merger of SK Marketing & Co., Ltd. into SK Planet in February 2013, proceeds from disposal of a subsidiary of Won 215.9 billion, mostly attributable to the sale in July 2013 of shares of Loen Entertainment, net proceeds from the disposition of non-current assets held for sale of

Won 190.4 billion, relating to the sale of shares of SKY Property Management, and a decrease in short-term financial instruments, net of Won 186.4 billion, the proceeds of which were used to repay our outstanding debt.

Cash outflows for investing activities were Won 3,795.0 billion in 2015, Won 4,024.6 billion in 2014 and Won 3,758.3 billion in 2013. Cash outflows in 2015, 2014 and 2013 were primarily attributable to expenditures related to the acquisition of property and equipment of Won 2,478.8 billion, Won 3,008.0 billion and Won 2,879.1 billion, respectively, primarily in connection with the acquisition of LTE equipment and the expansion of our LTE network. In 2015, the decrease in cash outflows for the acquisition of property, plant and equipment was partially offset by an increase in cash outflows for the acquisition of long-term investment securities to Won 312.3 billion in 2015 compared to Won 41.3 billion in 2014 and Won 22.1 billion in 2013, primarily due to the acquisition of a 2.06% equity interest in Hana Financial Group Inc.

Cash Flows from Financing Activities. Net cash used in financing activities was Won 964.6 billion in 2015, Won 559.4 billion in 2014 and Won 573.2 billion in 2013. Cash inflows from financing activities were Won 1,375.2 billion in 2015, Won 1,421.0 billion in 2014 and Won 1,852.2 billion in 2013. Such inflows were primarily driven by the issuance of debentures, which provided cash of Won 1,375.0 billion in 2015, Won 1,255.5 billion in 2014 and Won 1,328.7 billion in 2013, proceeds from long-term borrowings, which provided cash of Won 62.6 billion in 2014 and Won 105.1 billion in 2013, and the issuance of hybrid bonds in 2013, which provided cash of Won 398.5 billion. In 2014, we had cash inflows of Won 102.9 billion due to proceeds from short-term borrowings.

Cash outflows for financing activities were Won 2,339.8 billion in 2015, Won 1,980.5 billion in 2014 and Won 2,425.4 billion in 2013. Cash outflows for financing activities included payment of dividends, repayments of current portion of long-term debt, repayment of long-term borrowings, repayment of debentures, acquisition of treasury stock and repayment of short-term borrowings, among other items. Payment of dividends were Won 668.5 billion in 2015, Won 666.8 billion in 2014 and Won 655.9 billion in 2013. Repayments of other long-term account payables were Won 191.4 billion in 2015, Won 207.8 billion in 2014 and Won 161.6 billion in 2013. Repayment of long-term borrowings were Won 21.9 billion in 2015, Won 23.3 billion in 2014 and Won 467.2 billion in 2013. Repayment of debentures were Won 620.0 billion in 2015, Won 1,039.9 billion in 2014 and Won 772.0 billion in 2013. Decrease in short-term borrowings, net accounted for Won 106.6 billion and Won 340.2 billion of cash outflows for financing activities in 2015 and 2013, respectively. In 2015, we had cash outflows of Won 490.2 billion due to acquisition of treasury stock and cash outflows of Won 220.4 billion related to equity interest transactions, principally in connection with the Share Exchange.

As of December 31, 2015, we had total long-term debt (excluding current portion) outstanding of Won 6,560.7 billion, which included debentures in the amount of Won 6,439.1 billion and bank and institutional borrowings in the amount of Won 121.6 billion. As of December 31, 2014, we had total long-term debt (excluding current portion) outstanding of Won 5,798.9 billion, which included debentures in the amount of Won 5,649.2 billion and bank and institutional borrowings in the amount of Won 149.7 billion. The increase in our long-term debt as of December 31, 2015 was primarily due to an increase in debentures issued during 2015 to acquire treasury stock. For a description of our long-term debt, see note 18 of the notes to our consolidated financial statements.

As of December 31, 2015, we had Won 4,535.7 billion aggregate principal amount of Korean Won-denominated debentures outstanding, of which SK Telecom issued Won 3,385.7 billion, SK Broadband issued Won 1,120.0 billion and PS&Marketing issued Won 30.0 billion, and Won 2,603.9 billion aggregate principal amount of debentures outstanding denominated in foreign currencies, including U.S. dollars, Swiss Francs and Australian Dollars. The interest rates of our debentures range from 1.75% to 6.63% depending on the offering size, maturity, interest rate environment at the time of the offering and currency, among other factors. We have a diversified maturity profile with respect to our debentures. See “— Contractual Obligations and Commitments” for more details.

As of December 31, 2015, a substantial portion of our foreign currency-denominated long-term borrowings, which amounted to approximately 28.5% of our total outstanding long-term debt, including current portion and present value discount as of such date, was denominated in Dollars. However, substantially all of our revenue and operating expenses are denominated in Won. We generally pay for imported capital equipment in Dollars.

Appreciation of the Won against the Dollar will result in net foreign currency transaction and translation gains, while depreciation of the Won against the Dollar will result in net foreign currency transaction and translation losses. Changes in foreign currency exchange rates will also affect our liquidity because of the effect of such changes on the amount of funds required for us to make interest and principal payments on our foreign currency-denominated debt. For a description of swap or derivative transactions we have entered into, among other transactions, to mitigate the effects of such losses, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”

Capital Requirements

Historically, capital expenditures, repayment of outstanding debt and research and development expenditures have represented our most significant use of funds. In recent years, we have also increasingly dedicated capital resources to develop and invest in new growth engines, including our three next-generation growth platforms, IoT solutions, lifestyle enhancement and advanced media. In addition, we have used funds for the acquisition of treasury shares, financing of our subscribers’ handset purchases on installment payment plans and payment of retirement and severance benefits.

To fund our scheduled debt repayment and planned capital expenditures over the next several years, we intend to rely primarily on cash flows from operating activities, as well as bank and institutional borrowings, and offerings of debt or equity in the domestic or international markets. We believe that these sources will be sufficient to fund our planned capital expenditures for 2016. Our ability to rely on these alternatives could be affected by the liquidity of the Korean financial markets or by Government policies regarding Won and foreign currency borrowings and the issuance of equity and debt. Our failure to make needed expenditures would adversely affect our ability to sustain subscriber growth and provide quality services and, consequently, our results of operations.

Capital Expenditures. The following table sets forth our actual capital expenditures for 2015, 2014 and 2013:


	Year Ended December 31,
	2015		2014		2013
	(In billions of Won)
LTE Network	￦	1,022.7	￦	1,357.2	￦	1,439.4
WCDMA Network		90.0		92.3		124.2
Fixed-line Network		393.1		399.0		403.5
Other Network(1)		332.4		283.2		338.5
Others(2)		640.6		876.3		573.5

Total	￦	2,478.8	￦	3,008.0	￦	2,879.1

(1)	Includes investments in our CDMA, WiBro and Wi-Fi networks as well as other capital expenditures related to our networks.

(2)	Includes non-network related investments such as capital expenditures for product development and maintenance and upgrades of our information technology systems and equipment.

We set our capital expenditure budget for each upcoming year on an annual basis. Our actual capital expenditures in 2015, 2014 and 2013 were Won 2,478.8 billion, Won 3,008.0 billion and Won 2,879.1 billion, respectively. Of such amounts, we spent approximately 41.3%, 45.1%, 50.0% in 2015, 2014, 2013, respectively, on capital expenditures related to expanding and enhancing the quality of our LTE network. Our other non-network related capital expenditures in 2015, 2014 and 2013 primarily related to developing new products and maintenance and upgrades to our information technology systems.

We were required to pay the cost of our WCDMA license for 2 x 10 MHz of spectrum in the 2.1 GHz band that we acquired in May 2010 in annual installments of Won 17.5 billion each year from 2012 through 2014 after the initial payment of Won 52.6 billion in 2010. We are also required to pay license fees for the additional frequency licenses in the 800 MHz and 1.8 GHz spectrums that we acquired in 2011. The license fee for the 30 MHz bandwidth in the 800 MHz spectrum was Won 416.5 billion, of which Won 208.3 billion was paid in 2011 with the remainder paid in annual installments from 2013 through 2015. The license fee for the 20 MHz of bandwidth in the 1.8 GHz spectrum was Won 995.0 billion, of which Won 74.6 billion, Won 74.6 billion and

Won 248.8 billion was paid in 2013, 2012 and 2011, respectively, and the remainder has been waived in connection with our return of the right to use the 20 MHz bandwidth. The license fee for the 35 MHz of bandwidth in the 1.8 GHz spectrum was Won 1.08 trillion, of which Won 115.2 billion was paid in 2013, and the remainder is payable in annual installments through the end of the license period in 2021. In addition, we were reallocated 27 MHz of spectrum in the 2.3 GHz band for our WiBro service in March 2012. The license fee for such spectrum is Won 17.3 billion, of which Won 8.7 billion was paid in 2012, and the remainder is payable in annual installments from 2014 through 2016. For more information, see note 17 of the notes to our consolidated financial statements.

In addition, we have been making capital expenditures to build more advanced networks based on LTE technology. We commenced commercial LTE services in July 2011 and expanded our LTE network nationwide and launched our LTE multi-carrier technology in 2012. We launched our LTE-A service in June 2013, our wideband LTE-A service in September 2013 and our tri-band LTE-A service in December 2014. For a more detailed description of our LTE network, see “Item 4.B. Business Overview — Digital Wireless Network — LTE Network.” We plan to continue to make capital investments in 2016 to further improve and expand our LTE network and develop related technologies.

We expect that our capital expenditure amount in 2016 will be similar to that of 2015. Our expenditures will be for a range of projects, including investments to improve and expand our LTE network and LTE-A services, investments to improve and expand our Wi-Fi network, investments to develop our platform business portfolio and funding for mid-to long-term research and development projects, as well as other initiatives, primarily related to the development of new growth engines, as well as initiatives related to our ongoing businesses in the ordinary course. However, our overall expenditure levels and our allocation among projects remain subject to many uncertainties. We may increase, reduce or suspend our planned capital expenditures for 2016 or change the timing and area of our capital expenditure spending from the estimates described above in response to market conditions or for other reasons. We may also make additional capital expenditure investments as opportunities arise, including in connection with building out our networks on any new bandwidths we may acquire in the frequency bandwidth auctions to be held by the MSIP in 2016. Accordingly, we periodically review the amount of our capital expenditures and may make adjustments based on the current progress of capital expenditure projects and market conditions. No assurance can be given that we will be able to meet any such increased expenditure requirements or obtain adequate financing for such requirements, on terms acceptable to us, or at all.

Repayment of Outstanding Debt. As of December 31, 2015, our principal repayment obligations with respect to long-term borrowings, bonds and obligations under capital leases outstanding were as follows for the periods indicated:


Year Ending December 31,	Total
	(In billions of Won)
2016	￦	964.1
2017		867.5
2018		1,606.7
2019 and thereafter		4,118.8

We note that no commercial bank in Korea may extend credit (including loans, guarantees and purchase of bonds) in excess of 20.0% of its shareholders’ equity to any one borrower. In addition, no commercial bank in Korea may extend credit exceeding 25.0% of the bank’s shareholders’ equity to any one borrower and to any person with whom the borrower shares a credit risk.

Investments in New Growth Engines. We may also require capital for investments to support our development of new growth engines.

In April 2014, we acquired a controlling interest in Neosnetworks, a provider of residential and small business electronic security and other related alarm monitoring services, for an aggregate purchase price of approximately Won 24.0 billion. We acquired additional interests in Neosnetworks in April 2015 for Won 40.0 billion, resulting in an increase in our ownership of Neosnetworks to 83.9%. In August 2014, we acquired a 39.3% equity interest of Iriver, a manufacturer of digital audio players and other portable media devices, which we increased to 49.0% in December 2014, for an aggregate purchase price of approximately Won 54.5 billion. We also acquired Won 5.0 billion of convertible bonds issued by Iriver, which may be converted into additional equity interests of Iriver when certain conditions are met. In October 2014, SK Planet acquired a 100.0% ownership interest through

its less than wholly-owned subsidiary of Shopkick, a developer of a shopping app for mobile devices that provides benefits to customers for visiting stores, in order to penetrate the commerce business in the United States for an aggregate purchase price of Won 230.9 billion and the assumption of Won 18.7 billion in current liabilities.

In addition, upon the completion of the acquisition of a 30.0% interest in CJ HelloVision described in “Item 4. Information on the Company — Item 4.A. History and Development of the Company — Recent Developments,” we will be required to pay the share purchase price of Won 500.0 billion and may need to make additional capital expenditures in connection with the subsequent merger and integration of CJ HelloVision’s business with ours.

From time to time, we may make other investments in telecommunications or other businesses, in Korea or abroad, where we perceive attractive opportunities for investment. From time to time, we may also dispose of existing investments when we believe that doing so would be in our best interest.

Severance Payments. The defined benefit obligation, which is the total accrued and unpaid retirement and severance benefits for our employees, as of December 31, 2015 was Won 98.9 billion. This amount was reflected in our consolidated financial statements as a liability, which is net of deposits with insurance companies totaling Won 426.4 billion to fund a portion of the employees’ severance indemnities.

Also see “Item 6.D. Employees — Employee Benefits” and note 22 of the notes to our consolidated financial statements.

Dividends. Total cash outflows for payments of dividends amounted to Won 668.5 billion in 2015, Won 666.8 billion in 2014 and Won 655.9 billion in 2013.

In April 2016, we distributed annual dividends at Won 9,000 per share to our shareholders for an aggregate payout amount of Won 635.5 billion.

Contractual Obligations and Commitments

The following summarizes our contractual cash obligations at December 31, 2015, and the effect such obligations are expected to have on liquidity and cash flow in future periods:


	Payments Due by Period(1)
	Total		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years
	(In billions of Won)
Bonds
Principal	￦	7,139.7	￦	670.0	￦	2,410.4	￦	1,534.8	￦	2,524.5
Interest		1,374.3		227.9		317.5		254.2		574.7
Long-term borrowings
Principal		417.4		294.1		63.8		39.3		20.2
Interest		10.7		4.0		5.1		1.1		0.5
Capital lease obligations
Principal		0		0		—		—		—
Interest		—		—		—		—		—
Operating leases		—		—		—		—		—
Facility deposits		5.5		0.4		—		—		5.1
Derivatives		92.5		4.9		87.6		—		—
Other long-term payables(2)
Principal		709.9		120.7		235.7		235.7		117.8
Interest		69.1		19.8		29.6		16.4		3.3
Short-term borrowings		260.0		260.0	—		—		—

Total contractual cash obligations	￦	10,079.1	￦	1,601.8	￦	3,149.7	￦	2,081.5	￦	3,246.1

(1)

We are contractually obligated to make severance payments to eligible employees we have employed for more than one year, upon termination of their employment, regardless of whether such termination is voluntary or involuntary. Accruals for severance indemnities are recorded based on the amount we would be required to pay in the event the employment of all our employees were to terminate at the balance date. However, we have not yet estimated cash flows for future periods. Accordingly, payments due in connection with severance indemnities have been excluded from this table.

(2)	Related to acquisition of frequency licenses. See note 17 of the notes to our consolidated financial statements.

See note 37 of the notes to our consolidated financial statements for details related to our other commitments and contingencies.

Critical Accounting Policies, Estimates And Judgments

Our consolidated financial statements are prepared in accordance with IFRS. The preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. We continually evaluate our estimates and judgments including those related to allowances for doubtful accounts, fair value measurements of financial instruments, estimated useful lives and impairment of long-lived assets, impairment of goodwill, provisions, retirement benefit plans and income taxes. We base our estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that of our significant accounting policies, the following may involve a higher degree of judgment or complexity:

Allowances for Doubtful Accounts

An allowance for doubtful accounts is provided based on a review of the status of individual receivable accounts at the end of the year. We maintain allowances for doubtful accounts for estimated losses that result from the inability of our customers to make required payments. We base our allowances on the likelihood of recoverability of accounts receivable based on the aging of accounts receivables at the end of the period, past customer default experience and their credit status, and economic and industrial factors. Allowance for doubtful accounts amounted to Won 344.0 billion in 2015 and Won 328.2 billion in 2014. As there was no significant change in our assumptions and judgments including on the aging of accounts receivables, past customer default experience and credit status, and economic and industrial factors, there was no significant change in the percentage of allowance for doubtful accounts as of December 31, 2015 compared to the prior year. If economic or specific industry trends worsen beyond our estimates, the allowances for doubtful accounts we have recorded may be materially adjusted in the future.

Fair Value Measurement of Financial Instruments

Subsequent to initial recognition, available-for-sale financial assets and derivative financial assets are stated at fair value with any gains or losses arising on remeasurement recognized in profit for the period or other comprehensive income. When measuring fair value, we use quoted prices in active markets to the extent such prices exist. The fair values of financial instruments, including derivative instruments, that are not traded in an active market are determined using valuation techniques that require management’s estimates of future cash flows and discount rates. Our management uses its judgment to select a variety of methods and makes assumptions that are mainly based on market conditions existing at the end of each reporting period. See note 4 of the notes to our consolidated financial statements.

Estimated Useful Lives of Long-lived Assets

We estimate the useful lives of long-lived assets in order to determine the amount of depreciation and amortization expense to be recorded during any reporting period. The useful lives are estimated at the time a long-lived asset is acquired and are based on historical experience with similar assets as well as taking into account anticipated technological or other changes. If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of increased depreciation and amortization expense in future periods. See note 4 of the notes to our consolidated financial statements.

Impairment of Long-lived Assets Including the Frequency Usage Rights

Long-lived assets generally consist of property, plant and equipment and intangible assets. We review our depreciation and amortization methods, estimated useful lives and residual values of long-lived assets at the end of

each annual reporting period. An impairment loss is recognized when the asset’s recoverable amount is less than its carrying amount. The recoverable amount of a long-lived asset is the greater of an asset’s fair value less costs to sell and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). The recoverable amounts of cash-generating units are determined based on value-in-use calculations, which require the use of estimates. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated recovery value.

Our intangible assets include our frequency usage rights, which have contractual lives of 6.3 to 13.1 years and are amortized from the date commercial service is initiated through the end of their contractual lives. Because the use of frequency usage rights presents risks and challenges to our business, any or all of which, if realized or not properly addressed, may have a material adverse effect on our financial condition, results of operations and cash flows, we review the frequency usage rights for impairment on an annual basis. In connection with our review, we utilize the estimated long-term revenue and cash flow forecasts. The use of different assumptions within our cash flow model could result in different recoverable amounts for our frequency usage rights. The results of our review using the testing method described above resulted in no impairment of our frequency usage rights in 2015. See note 17 of the notes to our consolidated financial statements.

Impairment of Goodwill

Goodwill is measured as the excess of the sum of: (1) the consideration transferred, (2) the amount of any non-controlling interests in the acquiree and (3) the fair value of the acquirer’s previously held equity interest in the acquiree (if any), over the net fair value of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill is not depreciated, but tested for impairment at the end of each annual reporting period or whenever there is an indication that the asset may be impaired. Goodwill is carried at cost less accumulated impairment losses and the impairment losses are not reversed. For the purpose of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash flows, known as cash-generating units. Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires our management to estimate the future cash flows expected related to the respective cash-generating unit and the determination of an appropriate discount rate in order to calculate present value. See note 16 of the notes to our consolidated financial statements.

Provisions for Handset Subsidy and Restoration

We provide handset subsidies to subscribers who purchase handsets on an installment basis. When the subscribers agree to use our services for a predetermined service period and purchase handsets on an installment basis, the subsidies are paid every month over the installment period and we estimate a provision for handset subsidies to be paid, which is recognized as commissions paid in operating expenses at the time telecommunication service contracts are made. Our provision for handset subsidies was Won 5.7 billion as of December 31, 2015 and Won 26.8 billion as of December 31, 2014. Our provision for handset subsidies has decreased as we gradually reduced the amount of handset subsidies provided to subscribers.

We estimate restoration costs required to restore leased premises on which our cell sites and switching equipment are located after termination of the leases. These restoration costs are calculated on the basis of the identified costs for the current financial year, extrapolated into the future based on management’s best estimates of future trends in prices, inflation, and other factors, and are discounted to present value at a risk-adjusted rate specifically applicable to the relevant liability. Forecasts of estimated future provisions are revised in light of future changes in business conditions or technological requirements. See note 20 of the notes to our consolidated financial statements.

Retirement Benefit Plans

We have defined retirement benefit plans. The costs of providing benefits under the plans are determined using actuarial valuation methods that require management assumptions on discount rates, expected rates of salary increases and expected rates of returns on plan assets. These assumptions involve critical uncertainties due to the long-term nature of the retirement benefit plans. Due to changing market and economic conditions, the underlying

key assumptions may differ from actual developments and may lead to significant changes in our defined retirement benefit plans. We immediately recognize all actuarial gains and losses arising from defined retirement benefit plans in retained earnings. If the estimated average discount rates by actuarial assumptions used in these valuations were increased by 0.5%, then the estimated defined benefit obligations would have decreased by Won 20.7 billion, or 3.9% in total. If the expected rates of salary increase were increased by 0.5%, then the estimated defined benefit obligations would have increased by Won 22.6 billion, or 4.3% in total. Defined benefit liabilities were Won 98.9 billion in 2015 and Won 91.6 billion in 2014. Defined benefit liabilities in 2015 increased by Won 7.8 billion compared to 2014 due to a decrease by 0.55%p of the estimated average discount rate despite a decrease by 0.18%p of the average expected rates of salary increase. See note 22 of the notes to our consolidated financial statements.

Income Taxes

We are required to estimate the amount of tax payable or refundable for the current year and the deferred income tax liabilities and assets for the future tax consequences of events that have been reflected in our financial statements or tax returns. This process requires management to make assessments regarding the timing and probability of the tax impact. Actual income taxes could vary from these estimates due to future changes in income tax law or unpredicted results from the final determination of each year’s liability by taxing authorities.

We believe that the accounting estimate related to assessment of deferred tax assets for recoverability is a “critical accounting estimate” because (1) it requires management to make assessments about the timing of future events, including the probability of expected future taxable income and available tax planning opportunities and (2) the impact that changes in actual performance versus these estimates could have on the realization of tax benefits as reported in our results of operations could be material. Management’s assumptions require significant judgment because actual performance has fluctuated in the past and may continue to do so. As of December 31, 2015 and 2014, unused tax loss carryforwards of Won 1,034.0 billion and Won 729.6 billion, respectively, were not recognized as deferred tax assets because we did not believe that their realization would be probable. The increase of Won 304.4 billion in unrecognized tax loss carryforwards in 2015 compared to 2014 was primarily related to the tax loss that arose from the Won 336.0 billion decrease in deductible temporary difference related to the dividend in kind made by SK Planet of SK Communication’s common shares to SK Telecom. See note 31 of the notes to our consolidated financial statements.

Item 5.C.

Research and Development, Patents and Licenses, etc.

We maintain a high level of spending on our research and development activity. We also donate funds to several Korean research institutes and educational organizations that focus on research and development activity. We believe that we must maintain a substantial in-house technology capability to achieve our strategic goals.

In 2015, 2014 and 2013, our annual research and development expenses were Won 322.7 billion, Won 397.8 billion and Won 363.7 billion, respectively. Such expenses consist of research and development costs that are expensed and costs that are amortized during the respective period.

Our total research and development expenses were approximately 1.9% in 2015, 2.3% in 2014 and 2.1% in 2013, respectively, of operating revenue and other income.

The main focus of our research and development activity is the development of new wireless technologies and services and value-added technologies and services for our LTE network, such as wireless data communications, as well as development of new technologies that reflect the growing convergence between telecommunications and other industries. Our research and development activity is centered at a research center with state-of-the-art facilities and equipment established in January 1999 in Bundang-gu, Seongnam-si, Gyeonggi-do, Korea. To more efficiently manage our research and development resources, our research and development center is organized into the following core areas:

•

Network Technology R&D Center, through which we research and develop 5G-related technologies as well as technologies for access network, core network, broadband Internet, wireless devices and next-generation open source software;

•

Future Technology R&D Center, through which we research and develop technologies for human machine interface, artificial intelligence, video, big data and other business solutions;

•

Platform Technology R&D Center, through which we research and develop technologies for our IoT solutions platform, lifestyle enhancement platform and advanced media platform and quantum technologies; and

•

Network IT Convergence R&D Center, through which we research and develop technologies that converge network technology and information technology in the ICT area.

Each business unit also has its own research team that can concentrate on specific short-term research needs. Such research teams permit our research center to concentrate on long-term, technology-intensive research projects. We aim to establish strategic alliances with selected domestic and foreign companies with a view to exchanging or jointly developing technologies, products and services.

Item 5.D.

Trend Information

These matters are discussed under Item 5.A. and Item 5.B. above where relevant.

Item 5.E.

Off-Balance Sheet Arrangements

None.

Item 5.F.

Tabular Disclosure of Contractual Obligations

These matters are discussed under Item 5.B. above where relevant.

Item 5.G.

Safe Harbor

These matters are discussed under “Forward-Looking Statements.”

Item 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Item 6.A.

Directors and Senior Management

Our board of directors has ultimate responsibility for the management of our affairs. Under our articles of incorporation, our board is to consist of at least three but no more than twelve directors, more than half of whom must be independent non-executive directors. We currently have a total of six directors, four of whom are independent non-executive directors. We elect our directors at a general meeting of shareholders with the approval of at least a majority of those shares present or represented at such meeting. Such majority must represent at least one-fourth of our total issued and outstanding shares with voting rights.

As required under relevant Korean laws and our articles of incorporation, we have a committee for recommendation of independent non-executive directors within the board of directors, the Independent Director Nomination Committee. Independent non-executive directors are appointed from among those candidates recommended by the Independent Director Nomination Committee.

The term of offices for directors is until the close of the third annual general shareholders meeting convened after he or she commences his or her term. Our directors may serve consecutive terms. Our shareholders may remove them from office by a resolution at a general meeting of shareholders adopted by the holders of at least two-thirds of the voting shares present or represented at the meeting, and such affirmative votes also represent at least one-third of our total voting shares then issued and outstanding.

Representative directors are directors elected by the board of directors with the statutory power to represent our company.

The following are the names and positions of our standing and non-standing directors. The business address of all of our directors is the address of our registered office at SK T-Tower, 65, Eulji-ro, Jung-gu, Seoul 100-999, Korea.

Standing directors are our full-time employees and executive officers, and they also comprise the senior management, or the key personnel who manage us. Their names, dates of birth and positions at our company and other positions are set forth below:

Name

Date of Birth

Director
Since

Expiration
of Term

Position

Other Principal
Directorships and
Positions

Business Experience

Dong Hyun Jang

Aug. 20, 1963

2015

2018

President and Chief Executive Officer

—

Chief Operating Officer, SK Planet; Chief Marketing Officer, Chief Finance Officer, and Executive Vice President of Strategy and Planning Division, SK Telecom

Dae Sik Cho

Nov. 27, 1960

2013

2019

Executive Director

Chief Executive Officer, SK Holdings

Chief Finance Officer, Head of Finance Division and Risk Management & Corporate Auditing Office, SK Holdings; Head of Business Management Office, SK Holdings

Our current non-standing directors are as set forth below:

Name

Date of Birth

Director
Since

Expiration
of Term

Position

Other Positions

Business Experience

Dae Shick Oh

Nov. 28, 1954

2013

2019

Independent Non-executive Director

Advisor, Bae, Kim & Lee LLC

Outside Director, CJ Corporation, Head of Seoul Regional Tax Office; Head of Investigation Department, Korea National Tax Service

Jay Young Chung

Oct. 15, 1944

2011

2017

Independent Non-executive Director

Honorary Professor, Sung Kyun Kwan University

Chief, Asia-Pacific Economic Association; Vice President, Sung Kyun Kwan University; Independent Non-executive Director, POSCO

Jae Hoon Lee

Sep. 26, 1955

2014

2017

Independent Non-executive Director

President, Association of Future Strategy Forum on Energy & Resources Development

Vice Minister, Ministry of Knowledge Economy; Vice Minister, Ministry of Commerce, Industry and Energy; Assistant Minister, Ministry of Commerce, Industry and Energy

Jae Hyeon Ahn

Feb. 2, 1961

2014

2017

Independent Non-executive Director

Vice President, College of Business, KAIST

Dean, College of Information and Media Management, KAIST; President, Korea Media Management Association; Senior Technical Staff Member, AT&T Bell Labs

Item 6.B.

Compensation

The aggregate of the remuneration paid and in-kind benefits granted to the directors (all standing directors, who also serve as our executive officers, and non-standing directors) during the year ended December 31, 2015 totaled approximately Won 2.6 billion. This amount included Won 163 million in salary and Won 553 million in bonus paid to our former director and President and Chief Executive Officer, Mr. Sung Min Ha, who has since resigned, and Won 82 million in salary and Won 441 million in bonus paid to our former director and Head of our Corporate Vision Department, Mr. Dong Seob Jee, who has since resigned.

Remuneration for the directors is determined by shareholder resolution. Severance allowances for directors are determined by the board of directors in accordance with our regulation on severance allowances for officers, which was adopted by shareholder resolution. The regulation provides for monthly salary, performance bonus, severance payment and fringe benefits. The amount of performance bonuses is independently decided by a resolution of the board of directors.

In March 2002, pursuant to resolutions of the shareholders, and in accordance with our articles of incorporation, certain of our directors and officers were granted options to purchase our common shares, which have all expired without being exercised. Since 2003, none of our directors and officers have been granted options to purchase our common shares.

Item 6.C.

Board Practices

For information regarding the expiration of each director’s term of appointment, as well as the period from which each director has served in such capacity, see the table set out under “Item 6.A. Directors and Senior Management” above.

Termination of Directors, Services

Directors are given a retirement and severance payment upon termination of employment in accordance with our internal regulations on severance payments. Upon retirement, directors who have made significant contributions to our company during their term may be appointed to serve either as an advisor to us or as an officer of an affiliate company.

Audit Committee

Under relevant Korean laws and our articles of incorporation, we are required to have an audit committee under the board of directors. The committee is composed of at least three members, two-thirds of whom must be independent non-executive directors in accordance with applicable rules. The members of the audit committee are appointed annually by a resolution of the general meeting of shareholders. They are required to:

•

examine the agenda for the general meeting of shareholders;

•

examine financial statements and other reports to be submitted by the board of directors to the general meeting of shareholders;

•

review the administration by the board of directors of our affairs; and

•

examine the operations and asset status of us and our subsidiaries.

In addition, the audit committee must appoint independent auditors to examine our financial statements. An audit and review of our financial statements by independent auditors is required for the purposes of a securities report. Listed companies must provide such report on an annual, semi-annual and quarterly basis to the FSC and the KRX KOSPI Market.

Our audit committee is composed of three independent non-executive directors: Dae Shick Oh, Jae Hoon Lee and Jae Hyeon Ahn, each of whom is financially literate and independent under the rules of the NYSE as applicable. The board of directors has determined that Dae Shick Oh is an “audit committee financial expert” as defined under the applicable rules of the SEC. See “Item 16A. Audit Committee Financial Expert.”

Independent Director Nomination Committee

This committee is devoted to recommending independent non-executive directors for the board of directors. The objective of the committee is to help promote fairness and transparency in the nomination of candidates for these positions. The board of directors decides from time to time who will comprise the members of this committee. The committee is comprised of one executive director, Dong Hyun Jang, and two independent directors, Jae Hoon Lee and Jae Hyeon Ahn.

Capex Review Committee

This committee is responsible for reviewing our business plan (including the budget). It also examines major capital expenditure revisions, and routinely monitors capital expenditure decisions that have already been executed. The committee is comprised of four independent directors, Jae Hoon Lee, Jay Young Chung, Dae Shick Oh and Jae Hyeon Ahn.

Compensation Review Committee

This committee oversees our overall compensation scheme for top-level executives and directors. It is responsible for reviewing both the criteria for and level of compensation. It is comprised of three independent directors, Jay Young Chung, Dae Shick Oh and Jae Hoon Lee.

Corporate Citizenship Committee

This committee was established to help us achieve world-class sustainable growth and to help us fulfill our corporate social responsibilities. It is comprised of three independent directors, Jae Hyeon Ahn, Jay Young Chung and Dae Shick Oh.

Item 6.D.

Employees

The following table sets forth the numbers of our regular employees, temporary employees and total employees as of the dates indicated:


	Regular Employees		Temporary Employees		Total
December 31, 2013		21,546		2,243		23,789
December 31, 2014		24,404		1,285		25,689
December 31, 2015		24,479		1,513		25,992

Labor Relations

As of December 31, 2015, SK Telecom had a company union consisting of 1,968 regular employees out of 3,892 total regular employees. We have never experienced a work stoppage of a serious nature. Every two years, the union and management negotiate and enter into a new collective bargaining agreement that has a two-year duration, which is focused on employee benefits and welfare. Employee wages are separately negotiated on an annual basis. Our wage negotiations for 2013 were completed in October 2013 and resulted in an average wage increase of 1.5% for SK Telecom employees. Our wage negotiations for 2014 were completed in May 2014 and resulted in no change to the average wage of SK Telecom employees. Our wage negotiations for 2015 were completed in November 2015 and resulted in an average monthly wage increase of Won 80,000 for SK Telecom employees. Our wage negotiations for 2016 have not commenced yet. We consider our relations with our employees to be good.

Employee Benefits

Since April 1999, we have been required to contribute an amount equal to 4.5% of employee wages toward a national pension plan. Employees are eligible to participate in an employee stock ownership association. We are not required to, and we do not, make any contributions to the employee stock ownership association, although we subsidize the employee stock ownership association through the Employee Welfare Fund by providing low interest rate loans to employees who desire to purchase our stock through the plan in the event of a capitalization by the association.

We are required to pay a severance amount to eligible employees who voluntarily or involuntarily cease employment with us, including through retirement. This severance amount is based upon the employee’s length of service with us and the employee’s salary level at the time of severance. As of December 31, 2015, the defined benefit obligation, which is the accrued and unpaid retirement and severance benefits, of Won 525.3 billion for all of our employees are reflected in our consolidated financial statements as a liability, of which a total of Won 426.4 billion was funded. Under Korean laws and regulations, we are prevented from involuntarily terminating a

full-time employee except under certain limited circumstances. In September 2002, we entered into an employment stabilization agreement with the union. Among other things, this agreement provides for a one-year guarantee of the same wage level in the event that we reorganize a department into a separate entity or we outsource an employee to a separate entity where the wage is lower.

Under the Basic Labor Welfare Act, we may also contribute up to 5.0% of our annual earnings before tax for employee welfare. Contribution amounts are determined annually following negotiation with the union. The contribution amount for 2015 was set at 2.04% of SK Telecom’s profit before income tax on a separate basis, or Won 30.0 billion. The contribution amount for 2014 was set at 1.51% of SK Telecom’s profit before income tax on a separate basis, or Won 20.0 billion. The contribution amount for 2013 was set at 1.64% of SK Telecom’s profit before income tax on a separate basis, or Won 20.0 billion.

In addition, we provide our employees with miscellaneous other fringe benefits including housing loans, free medical examinations, subsidized on-site child care facilities and sabbatical programs for long-term employees.

Item 6.E.

Share Ownership

The following table sets forth the share ownership by our standing and non-standing directors as of March 31, 2016:

Name

Position

Number of
Shares
Owned

Percentage of
Total Shares
Outstanding

Special
Voting
Rights

Options

Standing Directors:

Dong Hyun Jang

President & Chief Executive Officer

251

0.0

None

Dae Sik Cho

Executive Director

None

Non-Standing Directors:

Dae Shick Oh

Independent Non-executive Director

None

Jay Young Chung

Independent Non-executive Director

None

Jae Hoon Lee

Independent Non-executive Director

None

Jae Hyeon Ahn

Independent Non-executive Director

None

Item 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Item 7.A.

Major Shareholders

As of the close of our shareholders’ registry on December 31, 2015, approximately 60.62% of our issued shares were held in Korea by approximately 61,372 shareholders. According to Citibank, N.A. (“Citibank”), depositary for our ADRs, as of December 31, 2015, there were 34,173 U.S. holders of our ADRs evidencing ADSs and 9,245,141 shares of our common stock were held in the form of ADSs. As of such date, outstanding ADSs represented approximately 13.1% of our outstanding common shares.

The following table sets forth certain information as of March 31, 2016 with respect to any person known to us to be the beneficial owner of more than 5.0% of our common shares and with respect to the total amount of such shares owned by our officers and directors, as a group:


Shareholder/Category	Number of Shares		Percentage Total Shares Issued			Percentage Total Shares Outstanding
Domestic Shareholders
SK Holdings		20,363,452		25.22	%		28.84	%
Treasury shares(1)		10,136,551		12.55			14.36
Officers and Directors		251		0.00			—
Other Domestic Shareholders		17,740,302		21.97			25.12
Foreign Shareholders(2)
Shareholders holding ADRs		9,259,552		11.47			13.11
Shareholders holding common stock		23,245,603		28.79			32.92
Total Issued Shares		80,745,711		100	%		—
Total Outstanding Shares(3)		70,609,160		—			100	%

(1)	Treasury shares do not have any voting rights. Pursuant to the Share Exchange in June 2015, we exchanged 1,692,824 treasury shares for the common shares of SK Broadband. In the fourth quarter of 2015, we acquired 2,020,000 treasury shares on the market through a share buy-back program.

(2)	Based on the data collected by the KRX KOSPI Market under the Foreign Exchange Transaction Laws.

(3)	Represents total issued shares excluding treasury shares.

The following table sets forth significant changes in the percentage ownership held by our major shareholders during the past three years:


	As of December 31,
Shareholder	2015			2014			2013
	(As a percentage of total issued shares)(1)
SK Group(2)		25.22	%		25.22	%		25.22	%
SK Holdings		25.22			25.22			25.22
National Pension Service		8.62			7.09			5.90

(1)

Includes 10,136,551, 9,809,375 and 9,809,375 shares held in treasury as of December 31, 2015, 2014 and 2013, respectively. Pursuant to the Share Exchange in June 2015, we exchanged 1,692,824 treasury shares for the common shares of SK Broadband. In the fourth quarter of 2015, we acquired 2,020,000 treasury shares on the market through a share buy-back program.

(2)	SK Group’s ownership interest as of December 31, 2015, 2014 and 2013 consisted of the ownership interest of SK Holdings only.

Except as described above, other than companies in the SK Group, no other persons or entities known by us to be acting in concert, directly or indirectly, jointly or severally, own in excess of 5.0% of our total shares outstanding or exercise control or could exercise control over our business.

On July 1, 2007, the company formerly known as SK Corporation underwent a corporate reorganization, pursuant to which SK Corporation spun off substantially all of its operating business divisions into a newly established corporation named SK Energy Co., Ltd. The surviving company currently operates as a holding company, renamed SK Holdings. Ownership of all our shares held by SK Corporation immediately preceding the reorganization passed to SK Holdings as of July 1, 2007. On August 1, 2015, SK Holdings merged with and into SK C&C and the merged entity was renamed SK Holdings.

As of March 31, 2016, SK Holdings held 25.22% of our shares of common stock. For a description of our foreign ownership limitation, see “Item 3.D. Risk Factors — Risks Relating to Securities — If SK Holdings causes us to breach the foreign ownership limitations on our common shares, we may experience a change of control” and “Item 4.B. Business Overview — Law and Regulation — Foreign Ownership and Investment Restrictions and

Requirements.” In the event that SK Holdings announces plans of a sale of our shares, we expect to be able to discuss the details of such sale with them in advance and will endeavor to minimize any adverse effects on our share prices as a result of such sale.

As of March 31, 2016, the total number of our common shares outstanding was 70,609,160.

Other than as disclosed herein, there are no other arrangements, to the best of our knowledge, which would result in a material change in the control of us. Our major shareholders do not have different voting rights.

Item 7.B.

Related Party Transactions

We are part of the SK Group of affiliated companies. See “Item 7.A. Major Shareholders.” As disclosed in note 36 of the notes to our consolidated financial statements, we had related party transactions with a number of affiliated companies of the SK Group during the year ended December 31, 2015.

SK Networks

In September 2009, we acquired the leased-line business and related ancillary businesses from SK Networks for Won 892.8 billion and assumed Won 611.4 billion of debt as part of the transaction. Prior to such acquisition, KT and SK Networks provided a substantial majority of our leased lines. For a more detailed discussion of the lines we lease from fixed-line operators, see “Item 4.B. Business Overview — Cellular Services — Network Infrastructure.” In addition, PS&Marketing acquired the retail distribution business of SK Networks in April 2014.

As of December 31, 2015, we had Won 1.6 billion of accounts receivable from SK Networks. As of the same date, we had Won 208.3 billion of accounts payable to SK Networks, mainly relating to payments for wireless devices by PS&M. The aggregate fees we paid to SK Networks for dealer commissions amounted to Won 1,258.0 billion, Won 1,509.0 billion and Won 1,463.3 billion in 2015, 2014 and 2013.

SK Holdings

We enter into agreements with SK Holdings from time to time for specific information technology-related projects. The aggregate fees we paid to SK Holdings for information technology services amounted to Won 324.1 billion in 2015, Won 360.8 billion in 2014 and Won 357.9 billion in 2013. We also purchase various information technology-related equipment from SK Holdings from time to time. The total amount of such purchases was Won 236.4 billion in 2015, Won 168.8 billion in 2014 and Won 206.3 billion in 2013. We are a party to several service agreements with SK Holdings relating to the development and maintenance of our information technologies systems. We also pay SK Holdings for use of the SK brand.

Item 7.C.

Interests of Experts and Counsel

Not applicable.

Item 8.

FINANCIAL INFORMATION

Item 8.A.

Consolidated Statements and Other Financial Information

See “Item 18. Financial Statements” and pages F-1 through G-71.

Legal Proceedings

FTC Proceedings

In March 2012, the FTC fined us Won 21.9 billion for allegedly colluding with KT, LG U+, Samsung Electronics, LG Electronics and Pantech (which were also assessed separate fines) to inflate the prices of handsets while advertising that the handsets are offered at a discount through subsidy plans. We paid such fine in September 2012 and filed an appeal at the Seoul High Court, which ruled against us in October 2014. We appealed the decision to the Supreme Court of Korea, where the case is currently pending.

In July 2012, the FTC fined us Won 25.0 billion for alleged violation of Article 23 of the Fair Trade Act relating to the payment of system management and operation fees. We paid such fine in November 2012 and filed an appeal at the Seoul High Court, which ruled in favor of us in May 2014. The FTC appealed the decision to the Supreme Court of Korea, which ruled in favor of us in March 2016.

KCC and MSIP Proceedings

Prior to the implementation of the MDDIA, the KCC and the MSIP imposed suspensions on acquiring new subscribers and fines on us for providing subsidies to subscribers which were not universally available. In 2013, the KCC imposed fines on us of Won 96.3 billion in aggregate. In 2014, the KCC and the MSIP suspended us from acquiring new subscribers for an aggregate of 52 days and imposed fines on us of Won 54.6 billion in aggregate.

On March 26, 2015, the KCC imposed a fine of Won 23.5 billion on us and imposed a suspension on acquiring new subscribers for a period of seven days for providing subsidies to subscribers in excess of the amounts permitted under the MDDIA. We suspended acquisition of new customers during the period from October 1, 2015 to October 7, 2015. On May 13, 2015, the KCC imposed a fine of Won 3.6 billion on us and issued a correctional order for violating its obligations to protect personal information. We paid such fine in July 2015 and reported to the KCC on the implementation of actions pursuant to the correctional order in September 2015. On May 28, 2015 and December 10, 2015, the KCC imposed a fine of Won 350 million and Won 560 million, respectively, on us and issued a correctional order for misleading and exaggerated advertisement of bundled wireless and fixed-line telecommunications products. On January 14, 2016, the KCC imposed a fine of Won 15 million on us and issued a correctional order for failure to comply with the retention period for our subscribers’ personal information.

KT Interconnection Fee Litigation

In December 2010, we filed a lawsuit in the Seoul Central District Court against KT alleging that they paid us lower interconnection fees for intentionally bypassing our WCDMA spectrum and using our CDMA network rather than our WCDMA network. In response, KT filed a counterclaim against us, alleging that we failed to respond to their request for information and that we intentionally delayed the interconnection for calls from fixed-line KT users to our wireless subscribers and seeking damages of Won 33.7 billion. In September 2012, the Seoul Central District Court dismissed our lawsuit against KT and rendered a judgment that accepted KT’s claims in part. We filed an appeal at the Seoul High Court in October 2012, and in January 2014, the Seoul High Court overturned the District Court’s decision and rendered a judgment that accepted our claims in part. We and KT each filed an appeal at the Supreme Court of Korea in February 2014.

SK Communications Litigation

In July 2011, there was a leak of personal information of subscribers of NATE and Cyworld websites operated by SK Communications, our consolidated subsidiary. Various lawsuits have been filed against SK Communications alleging that the leak was caused by its poor management of subscribers’ personal information. With respect to three of the lawsuits for which final judgments have been rendered, the relevant courts have rendered judgments in favor of SK Communications. As of December 31, 2015, twelve of the lawsuits, seeking damages of approximately Won 0.8 billion in aggregate, were pending at various district courts, various high courts and the Supreme Court of Korea.

Except as described above, neither we nor any of our subsidiaries are involved in any litigation, arbitration or administrative proceedings relating to claims which may have, or have had during the twelve months preceding the date hereof, a significant effect on our financial position or the financial position of our subsidiaries taken as a whole, and, so far as we are aware, no such litigation, arbitration or administrative proceedings are pending or threatened.

Dividends

Annual dividends, if any, on our outstanding shares must be approved at the annual general meeting of shareholders. This meeting is generally held in March of the following year, and the annual dividend is generally paid shortly after the meeting. Since our shareholders have discretion to declare annual dividends, we cannot give

any assurance as to the amount of dividends per share or that any dividends will be declared at all. Interim dividends, if any, can be approved by a resolution of our board of directors. Once declared, dividends must be claimed within five years, after which the right to receive the dividends is extinguished and reverted to us.

We pay cash dividends to the ADR depositary in Won. Under the terms of the deposit agreement, cash dividends received by the ADR depositary generally are to be converted by the ADR depositary into Dollars and distributed to the holders of the ADSs, less withholding tax, other governmental charges and the ADR depositary’s fees and expenses. The ADR depositary’s designated bank in Korea must approve this conversion and remittance of cash dividends. See “Item 10.B. Memorandum and Articles of Association — Description of American Depositary Shares” and “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations.”

The following table sets forth the dividend per share and the aggregate total amount of dividends declared (including any interim dividends), as well as the number of outstanding shares entitled to dividends, with respect to the years indicated. The dividends set out for each of the years below were paid in the immediately following year.


Year Ended December 31,	Dividend per Share		Total Amount of Dividends		Number of Shares Entitled to Dividend
	(In Won)		(In billions of Won)
2011		9,400		656.5		69,694,999	(1)
2012		9,400		655.1		69,694,999
2013		9,400		666.4		70,936,336
2014		9,400		666.8		70,936,336
2015		10,000		708.1		70,609,160	(2)

(1)	The number of shares entitled to the interim dividend was 71,094,999.

(2)	The number of shares entitled to the interim dividend was 72,629,160.

Holders of non-voting shares are entitled to receive dividends in priority to the holders of common shares. The dividend on the non-voting shares is between 9.0% and 25.0% of the par value as determined by the board of directors at the time of their issuance. If the dividends for common shares exceed the dividends for non-voting shares, the holders of non-voting shares will be entitled to participate in the distribution of such excess amount with the holders of common shares. If the amount available for dividends is less than the aggregate amount of the minimum required dividend, holders of non-voting shares will be entitled to receive such accumulated unpaid dividend from dividends payable in the next fiscal year before holders of common shares. There are no non-voting shares issued or outstanding.

We declare dividends annually at the annual general meeting of shareholders which is generally held within three months after the end of the fiscal year. We pay the annual dividend shortly after the annual general meeting to the shareholders of record or registered pledges as of the end of the preceding fiscal year. We may distribute the annual dividend in cash or in shares. However, a dividend of shares must be distributed at par value. Dividends in shares may not exceed one-half of the annual dividend. Our obligation to pay dividend expires if no claim to dividend is made for five years from the payment date.

Under the Korean Commercial Code, we may pay an annual dividend only out of the excess of our net assets, on a non-consolidated basis, over the sum of (1) our stated capital, (2) the total amount of our capital surplus reserve, (3) legal reserve accumulated up to the end of the relevant dividend period and (4) the increase in our net asset value resulting from the evaluation of our assets and liabilities that has not been offset against unrealized losses. In addition, we may not pay an annual dividend unless we have set aside as a legal reserve an amount equal to at least 10.0% of the cash portion of the annual dividend or until we have accumulated a legal reserve of not less than one-half of our stated capital. We may not use our legal reserve to pay cash dividends but may transfer amounts from our legal reserve to capital stock or use our legal reserve to reduce an accumulated deficit.

In addition, the Korean Commercial Code and our articles of incorporation provide that, in addition to annual dividends, we may pay interim dividends once during each fiscal year. Unlike annual dividends, the decision to pay interim dividends can be made by a resolution of the board of directors and is not subject to shareholder approval. Any interim dividends must be paid in cash to the shareholders of record as of June 30 of the relevant fiscal year. In July 2014, we distributed such interim dividends at Won 1,000 per share to our shareholders for a total amount of approximately Won 71.0 billion.

Under the Korean Commercial Code, the total amount of interim dividends payable in a fiscal year shall not be more than the net assets on the balance sheet of the immediately preceding fiscal year, after deducting (1) a company’s capital in the immediately preceding fiscal year, (2) the aggregate amount of its capital reserves and legal reserves accumulated up to the immediately preceding fiscal year, (3) the amount of earnings for dividend payments confirmed at the general shareholders’ meeting with respect to the immediately preceding fiscal year and (4) the amount of legal reserve that should be set aside for the current fiscal year following the interim dividend payment. Furthermore, the rate of interim dividends for non-voting shares must be the same as that for our common shares.

Our obligation to pay interim dividends expires if no claims to such dividends are made for a period of five years from the payment date.

Item 8.B.

Significant Changes

Not applicable.

Item 9.

THE OFFER AND LISTING

Item 9.A.

Offering and Listing Details

These matters are described under Item 9.C. below where relevant.

Item 9.B.

Plan of Distribution

Not applicable.

Item 9.C.

Markets

The principal trading market for our common shares is the KRX KOSPI Market. As of March 31, 2016, 70,609,160 shares of our common stock were outstanding.

The ADSs are traded on the NYSE and the London Stock Exchange. The ADSs have been issued by the ADR depositary and are traded on the NYSE under the ticker symbol “SKM”. Each ADS represents one-ninth of one share of our common stock. As of March 31, 2016, ADSs representing 9,259,552 shares of our common stock were outstanding.

Shares of Common Stock

The following table sets forth the high, low and closing prices and the average daily trading volume of our common shares on the KRX KOSPI Market since January 1, 2011:


	Prices						Average Daily Trading Volume
Calendar Year	High(1)		Low(1)		Close		Average Daily Trading Volume
	(Won per shares)						(Number of shares)
2011		172,500		131,000		141,500		214,788
First Quarter		172,500		156,000		163,500		124,796
Second Quarter		169,000		152,500		161,500		160,839
Third Quarter		161,500		131,000		149,500		324,018
Fourth Quarter		165,000		141,500		141,500		249,500
2012		161,000		120,500		152,500		216,031
First Quarter		146,000		134,500		139,500		193,924
Second Quarter		142,500		120,500		125,000		284,712
Third Quarter		153,000		125,000		147,000		208,276
Fourth Quarter		161,000		145,500		152,500		177,955
2013		238,500		150,000		230,000		212,769
First Quarter		185,500		150,000		180,500		234,684
Second Quarter		225,500		172,000		210,000		245,151
Third Quarter		226,500		202,000		218,500		175,670
Fourth Quarter		238,500		211,500		230,000		195,925
2014		298,500		196,500		268,000		170,709
First Quarter		229,000		196,500		215,500		184,185
Second Quarter		243,500		198,000		236,500		180,743
Third Quarter		298,500		236,000		290,000		152,740
Fourth Quarter		298,500		259,000		268,000		165,710
2015		301,500		214,000		215,500		185,999
First Quarter		301,500		261,500		272,500		151,786
Second Quarter		293,500		236,500		250,000		209,931
Third Quarter		263,000		236,000		263,000		185,542
Fourth Quarter		267,000		214,000		215,500		195,488
2016 (through April 22)		234,000		191,500		201,500		199,721
First Quarter		234,000		191,500		208,500		212,966
January		216,000		191,500		209,000		217,493
February		233,500		199,500		233,500		253,416
March		234,000		206,000		208,500		175,756
Second Quarter (through April 22)		212,000		201,000		201,500		146,741
April (through April 22)		212,000		201,000		201,500		146,741

Source: Korea Exchange

(1)	Both high and low prices are based on the daily closing prices for the period.

American Depositary Shares

The following table sets forth the high, low and closing prices and the average daily trading volume of the ADSs on the NYSE since January 1, 2011:


	Prices						Average Daily Trading Volume
Calendar Year	High		Low		Close		Average Daily Trading Volume
	(US$ per ADS)						(Number of ADSs)
2011		19.80		13.47		13.61		1,866,528
First Quarter		18.81		16.83		18.81		1,639,731
Second Quarter		19.80		17.36		18.70		1,640,469
Third Quarter		18.77		13.47		14.07		2,125,730
Fourth Quarter		15.89		13.49		13.61		2,060,180
2012		16.48		11.14		15.83		1,758,414
First Quarter		14.60		12.90		13.91		1,644,366
Second Quarter		14.13		11.14		12.10		2,135,473
Third Quarter		15.06		12.23		14.54		1,836,959
Fourth Quarter		16.48		14.48		15.83		1,409,508
2013		25.16		15.69		24.62		1,407,958
First Quarter		18.69		15.69		17.87		1,884,190
Second Quarter		22.37		17.05		20.33		1,724,433
Third Quarter		22.70		19.47		22.70		848,082
Fourth Quarter		25.16		22.16		24.62		1,204,890
2014		31.75		20.76		27.01		905,341
First Quarter		24.07		20.76		22.57		952,847
Second Quarter		26.50		20.76		25.94		908,195
Third Quarter		31.75		25.54		30.34		963,636
Fourth Quarter		30.62		27.01		27.01		803,932
2015		30.07		20.15		20.15		600,919
First Quarter		29.76		26.22		27.21		787,402
Second Quarter		30.07		23.96		24.79		598,632
Third Quarter		25.22		22.08		24.40		515,965
Fourth Quarter		25.49		20.15		20.15		508,946
2016 (through April 22)		20.98		17.89		19.39		739,569
First Quarter		20.98		17.89		20.17		674,693
January		19.99		17.89		19.71		759,842
February		20.82		18.78		20.82		689,515
March		20.98		19.60		20.17		587,682
Second Quarter (through April 22)		20.20		19.27		19.39		986,906
April (through April 22)		20.20		19.27		19.39		986,906

The Korean Securities Market

The Korea Exchange Inc.

With the enactment of the Korea Stock and Futures Exchange Act, which came into effect on January 27, 2005, the three existing spot and futures exchanges (which were the Korea Stock Exchange, Korean Futures Exchange, and KOSDAQ) and KOSDAQ Committee, a sub-organization of Korea Securities Dealers Association, were merged and integrated into the Korea Exchange as a joint stock company. There are four different markets run by the Korea Exchange: the KRX KOSPI Market, the KRX KOSDAQ Market, the KRX KONEX Market and the KRX Derivatives Market. The Korea Exchange has three trading floors located in Seoul, one for the KRX KOSPI Market, one for the KRX KOSDAQ Market and one for the KRX KONEX Market, and one trading floor in Busan for the KRX Derivatives Market. The Korea Exchange is a limited liability company, the shares of which are held by (1) securities companies and futures companies that were formerly members of the Korea Stock Exchange or the Korea Futures Exchange, (2) the Small & Medium Business Corporation, (3) the Korea Securities Finance

Corporation and (4) the Korea Financial Investment Association. Currently, the Korea Exchange is the only stock exchange in Korea and is run by membership, having most of Korean securities companies and some Korean branches of foreign securities companies as its members.

As of December 31, 2015, the aggregate market value of equity securities listed on the KRX KOSPI Market was approximately Won 1,242.8 trillion. For the year ended December 31, 2015, the average daily trading volume of equity securities was approximately 455.3 million shares with an average trading value of Won 5,351.7 billion. For the year ended December 31, 2014, the average daily trading volume of equity securities was approximately 278.1 million shares with an average trading value of Won 3,983.6 billion. For the year ended December 31, 2013, the average daily trading volume of equity securities was approximately 328.3 million shares with an average trading value of Won 3,993.4 billion.

The Korea Exchange has the power in some circumstances to suspend trading in the shares of a given company or to de-list a security. The Korea Exchange also restricts share price movements. All listed companies are required to file accounting reports annually, semi-annually and quarterly and to release immediately all information that may affect trading in a security.

The Government has in the past exerted, and continues to exert, substantial influence over many aspects of the private sector business community that can have the intention or effect of depressing or boosting the market. In the past, the Government has informally both encouraged and restricted the declaration and payment of dividends, induced mergers to reduce what it considers an excess capacity in a particular industry and induced private companies to publicly offer their securities.

The Korea Exchange publishes the KOSPI, every ten seconds, which is an index of all equity securities listed on the KRX KOSPI Market. On January 1, 1983, the method of computing KOSPI was changed from the Dow Jones method to the aggregate value method. In the new method, the market capitalizations of all listed companies are aggregated, subject to certain adjustments, and this aggregate is expressed as a percentage of the aggregate market capitalization of all listed companies as of the base date, January 4, 1980.

Movements in KOSPI are set out in the following table together with the associated dividend yields and price to earnings ratios:


									Period Average
Year	Opening		High		Low		Closing		Dividend Yield(1) (%)		Price to Earnings(2)
1980		100.00		119.36		100.00		106.87		20.9		2.6
1981		97.95		165.95		93.14		131.37		13.2		3.1
1982		123.60		134.49		106.00		127.31		10.5		3.4
1983		122.52		134.46		115.59		121.21		6.9		3.8
1984		116.73		142.46		114.37		142.46		5.1		4.5
1985		139.53		163.37		131.40		163.37		5.3		5.2
1986		161.40		279.67		153.85		272.61		4.3		7.6
1987		264.82		525.11		264.82		525.11		2.6		10.9
1988		532.04		922.56		527.89		907.20		2.4		11.2
1989		919.61		1,007.77		844.75		909.72		2.0		13.9
1990		908.59		928.77		566.27		696.11		2.2		12.8
1991		679.75		763.10		586.51		610.92		2.6		11.2
1992		624.23		691.48		459.07		678.44		2.2		10.9
1993		697.41		874.10		605.93		866.18		1.6		12.7
1994		879.32		1,138.75		860.47		1,027.37		1.2		16.2
1995		1,013.57		1,016.77		847.09		882.94		1.2		16.4
1996		888.85		986.84		651.22		651.22		1.3		17.8
1997		653.79		792.29		350.68		376.31		1.5		17.0
1998		385.49		579.86		280.00		562.46		1.9		10.8
1999		587.57		1,028.07		498.42		1,028.07		1.1		13.5


									Period Average
Year	Opening		High		Low		Closing		Dividend Yield(1) (%)		Price to Earnings(2)
2000		1,059.04		1,059.04		500.60		504.62		2.4		15.3
2001		520.95		704.50		468.76		693.70		1.7		29.3
2002		724.95		937.61		584.04		829.44		1.8		15.6
2003		635.17		822.16		515.24		810.71		2.1		10.1
2004		821.26		936.06		719.59		895.92		2.1		15.8
2005		893.71		1,379.37		870.84		1,379.37		1.7		11.0
2006		1,389.27		1,464.70		1,192.09		1,434.46		1.7		11.4
2007		1,435.26		2,064.85		1,355.79		1,897.13		1.4		16.8
2008		1,853.45		1,888.88		938.75		1,124.47		2.6		9.0
2009		1,157.4		1,718.88		1,018.81		1,682.77		1.2		23.7
2010		1,696.14		2,052.97		1,532.68		2,051.00		1.1		17.8
2011		2,070.08		2,228.96		1,652.71		1,825.74		1.6		10.9
2012		1,826.37		2,049.28		1,769.31		1,997.05		1.3		12.9
2013		2,031.10		2,059.58		1,780.63		2,011.34		1.2		13.5
2014		2,013.11		2,093.08		1,881.73		1,915.59		1.1		15.3
2015		1,926.44		2,173.41		1,829.81		1,961.31		1.2		16.1
2016 (through April 22)		1,918.76		2,022.10		1,835.28		2,015.49		1.3		15.5

Source: Korea Exchange

(1)	Dividend yields are based on daily figures. Before 1983, dividend yields were calculated at the end of each month. Dividend yields after January 3, 1984 include cash dividends only.

(2)	The price to earnings ratio is based on figures for companies that record a profit in the preceding year.

KOSPI closed at 2,015.49 on April 22, 2016.

Shares are quoted “ex-dividend” on the first trading day of the relevant company’s accounting period. Since the calendar year is the accounting period for the majority of listed companies, this may account for the drop in KOSPI between its closing level at the end of one calendar year and its opening level at the beginning of the following calendar year.

With certain exceptions, principally to take account of a share being quoted “ex-dividend” and “ex-rights,” upward and downward movements in share prices of any category of shares on any day are limited under the rules of the Korea Exchange to 15.0% of the previous day’s closing price of the shares, rounded down as set out below:


Previous Day’s Closing Price ￦	Rounded Down to ￦
Less than 5,000	￦	5
5,000 to less than 10,000		10
10,000 to less than 50,000		50
50,000 to less than 100,000		100
100,000 to less than 500,000		500
500,000 or more		1,000

As a consequence, if a particular closing price is the same as the price set by the fluctuation limit, the closing price may not reflect the price at which persons would have been prepared, or would be prepared to continue, if so permitted, to buy and sell shares. Orders are executed on an auction system with priority rules to deal with competing bids and offers.

The brokerage commission rate on equity securities transactions may be determined by the parties, subject to commission schedules being filed with the Korea Exchange by the securities companies. In addition, a securities transaction tax of 0.15% of the sales price will generally be imposed on the transfer of shares or certain securities representing rights to subscribe for shares. A special agricultural and fishery tax of 0.15% of the sales prices will also be imposed on transfer of these shares and securities on the KRX KOSPI Market. See “Item 10.E. Taxation — Korean Taxation.”

The following table sets forth the number of companies listed on the KRX KOSPI Market, the corresponding total market capitalization and the average daily trading volume at the end of the periods indicated:


	Market Capitalization on the Last Day of Each Period						Average Daily Trading Volume, Value
Year	Number of Listed Companies		(Billions of Won)		(Millions of US$)(1)		Thousands of Shares		(Millions of Won)		(Thousands of US$)(1)
1981		343	￦	2,959	US$	4,223		10,565	￦	8,708	US$	12,427
1982		334		3,001		4,012		9,704		6,667		8,914
1983		328		3,490		4,361		9,325		5,941		7,425
1984		336		5,149		6,207		14,847		10,642		12,829
1985		342		6,570		7,362		18,925		12,315		13,798
1986		355		11,994		13,863		31,755		32,870		37,991
1987		389		26,172		32,884		20,353		70,185		88,183
1988		502		64,544		93,895		10,367		198,364		288,571
1989		626		95,477		140,119		11,757		280,967		412,338
1990		669		79,020		109,872		10,866		183,692		255,412
1991		686		73,118		95,541		14,022		214,263		279,973
1992		688		84,712		107,027		24,028		308,246		389,445
1993		693		112,665		138,870		35,130		574,048		707,566
1994		699		151,217		190,762		36,862		776,257		979,257
1995		721		141,151		181,943		26,130		487,762		628,721
1996		760		117,370		138,490		26,571		486,834		928,418
1997		776		70,989		41,881		41,525		555,759		327,881
1998		748		137,799		114,261		97,716		660,429		547,619
1999		725		349,504		307,662		278,551		3,481,620		3,064,806
2000		704		188,042		148,415		306,163		2,602,211		2,053,837
2001		689		255,850		194,785		473,241		1,997,420		1,520,685
2002		683		258,681		216,071		857,245		3,041,598		2,540,590
2003		684		355,363		298,624		542,010		2,216,636		1,862,719
2004		683		412,588		398,597		372,895		2,232,109		2,156,419
2005		702		655,075		648,589		467,629		3,157,662		3,126,398
2006		731		704,588		757,622		279,096		3,435,180		3,693,742
2007		746		951,900		1,017,205		363,732		5,539,588		5,919,697
2008		765		576,888		457,122		355,205		5,189,644		4,112,238
2009		770		887,316		762,528		485,657		5,795,552		4,980,494
2010		777		1,114,882		1,260,486		379,171		5,607,749		6,340,121
2011		791		1,041,999		899,438		353,759		6,863,146		5,924,166
2012		784		1,154,294		1,085,679		486,734		4,824,610		4,537,819
2013		777		1,185,974		1,123,826		328,325		3,993,422		3,784,158
2014		773		1,192,253		1,092,908		278,082		3,983,580		3,651,646
2015		770		1,242,832		1,062,885		455,256		5,351,734		4,576,870
2016 (through April 22)		769		1,276,836		1,112,372		361,995		4,586,928		3,996,104

Source: Korea Exchange

(1)	Converted at the noon buying rate on the last business day of the period indicated.

The Korean securities markets are principally regulated by the FSC and became subject to the FSCMA beginning in February 2009. The law imposes restrictions on insider trading and price manipulation, requires specified information to be made available by listed companies to investors and establishes rules regarding margin trading, proxy solicitation, takeover bids, acquisition of treasury shares and reporting requirements for shareholders holding substantial interests.

Further Opening of the Korean Securities Market

Stock index futures market was opened on May 3, 1996 and a stock index option market was opened on July 7, 1997, in each case at the Korea Stock Exchange. Remittance and repatriation of funds in connection with investment in stock index futures and options are subject to regulations similar to those that govern remittance and repatriation in the context of foreign investment in Korean stocks.

In addition, the Korea Stock Exchange opened new option markets for stocks of seven companies including our shares of common stock and common stock of six other companies on January 28, 2002. Foreigners will be permitted to invest in such options for individual stocks subject to certain procedural requirements.

Starting from May 1, 1996, foreign investors were permitted to invest in warrants representing the right to subscribe for shares of a company listed on the Korea Stock Exchange or registered on the KOSDAQ, subject to certain investment limitations. A foreign investor may not acquire such warrants with respect to shares of a class of a company for which the ceiling on aggregate investment by foreigners has been reached or exceeded.

As of December 30, 1997, foreign investors were permitted to invest in all types of corporate bonds, bonds issued by national or local governments and bonds issued in accordance with certain special laws without being subject to any aggregate or individual investment ceiling. The FSC sets forth procedural requirements for such investments. The Government announced on February 8, 1998 its plans for the liberalization of the money market with respect to investment in money market instruments by foreigners in 1998. According to the plan, foreigners have been permitted to invest in money market instruments issued by corporations, including commercial paper, starting February 16, 1998 with no restrictions as to the amount. Starting May 25, 1998, foreigners have been permitted to invest in certificates of deposit and repurchase agreements.

Currently, foreigners are permitted to invest in securities including shares of most Korean companies that are not listed on the KRX KOSPI Market or the KRX KOSDAQ Market and in bonds that are not listed.

Protection of Customer’s Interest in Case of Insolvency of Financial Investment Companies with a Brokerage License

Under Korean law, the relationship between a customer and a financial investment company with a brokerage license in connection with a securities sell or buy order is deemed to be consignment and the securities acquired by a consignment agent (i.e., the financial investment company with a brokerage license) through such sell or buy order are regarded as belonging to the customer in so far as the customer and the consignment agent’s creditors are concerned. Therefore, in the event of a bankruptcy or rehabilitation procedure involving a financial investment company with a brokerage license, the customer of such financial investment company is entitled to the proceeds of the securities sold by such financial investment company.

When a customer places a sell order with a financial investment company with a brokerage license which is not a member of the Korea Exchange and this financial investment company places a sell order with another financial investment company with a brokerage license which is a member of the Korea Exchange, the customer is still entitled to the proceeds of the securities sold received by the non-member company from the member company regardless of the bankruptcy or rehabilitation of the non-member company.

Under the FSCMA, the Korea Exchange is obliged to indemnify any loss or damage incurred by a counterparty as a result of a breach by its members. If a financial investment company with a brokerage license which is a member of the Korea Exchange breaches its obligation in connection with a buy order, the Korea Exchange is obliged to pay the purchase price on behalf of the breaching member.

When a customer places a buy order with a non-member company and the non-member company places a buy order with a member company, the customer has the legal right to the securities received by the non-member company from the member company because the purchased securities are regarded as belonging to the customer in so far as the customer and the non-member company’s creditors are concerned.

As the cash deposited with a financial investment company with a brokerage license is regarded as belonging to such financial investment company, which is liable to return the same at the request of its customer, the customer cannot take back deposited cash from the financial investment company with a brokerage license if a bankruptcy or

rehabilitation procedure is instituted against such financial investment company and, therefore, can suffer from loss or damage as a result. However, the Depositor Protection Act provides that Korea Deposit Insurance Corporation will, upon the request of the investors, pay investors up to Won 50 million per investor in case of such financial investment company’s bankruptcy, liquidation, cancellation of securities business license or other insolvency events. Pursuant to the FSCMA, subject to certain exceptions, financial investment companies with a brokerage license are required to deposit the cash received from their customers with the Korea Securities Finance Corporation, a special entity established pursuant to the FSCMA. Set-off or attachment of cash deposits by financial investment companies with a brokerage license is prohibited. The premiums related to this insurance under the Depositor Protection Act are paid by financial investment companies with a brokerage license.

Item 9.D.

Selling Shareholders

Not Applicable.

Item 9.E.

Dilution

Not Applicable.

Item 9.F.

Expenses of the Issue

Not Applicable.

Item 10.

ADDITIONAL INFORMATION

Item 10.A.

Share Capital

Not Applicable.

Item 10.B.

Memorandum and Articles of Association

Description of Capital Stock

This section provides information relating to our capital stock, including brief summaries of material provisions of our articles of incorporation, the FSCMA, the Korean Commercial Code, the Telecommunications Business Act and related laws of Korea, all as currently in effect. The following summaries are subject to, and are qualified in their entirety by reference to, our articles of incorporation and the applicable provisions of the FSCMA, the Korean Commercial Code and the Telecommunications Business Act. We have filed copies of our articles of incorporation and the Telecommunications Business Act as exhibits to our annual reports on Form 20-F.

General

The name of our company is SK Telecom Co., Ltd. We are registered under the laws of Korea under the commercial registry number of 110111-0371346. As specified in Article 2 (Objectives) of our articles of incorporation, as amended and approved at our general shareholders meeting held on March 18, 2016, our objectives are the rational management of the telecommunications business, development of telecommunications technology, and contribution to public welfare and convenience. In order to achieve these objectives, we are engaged in the following:

•

information and communication business;

•

sale and lease of subscriber handsets;

•

new media business;

•

advertising business;

•

mail order sales business;

•

real estate business (development, management and leasing, etc.) and chattel leasing business;

•

research and technology development relating to the first four items above;

•

overseas and import/export business relating to the first four items above;

•

manufacture and distribution business relating to the first four items above;

•

travel business;

•

electronic financial services business;

•

film business (production, import, distribution and screening);

•

lifetime education and management of lifetime educational facilities;

•

electric engineering business;

•

information- and communication-related engineering business;

•

ubiquitous city construction and related service business;

•

any related business through investment, management and operation of our Korean or offshore subsidiaries and investment companies;

•

construction business, including the machine and equipment business;

•

export/import business and export/import intermediation/agency business;

•

electrical business such as intelligent electrical grid business; and

•

any business or undertaking incidental or conducive to the attainment of the objectives stated above.

Currently, our authorized share capital is 220,000,000 shares, which consists of shares of common stock, par value Won 500 per share, and shares of non-voting stock, par value Won 500 per share (common shares and non-voting shares together are referred to as “shares”). Under our articles of incorporation, we are authorized to issue up to 5,500,000 non-voting preferred shares. As of March 31, 2016, 80,745,711 common shares were issued, of which 10,136,551 shares were held by us in treasury. Pursuant to the Share Exchange in June 2015, we exchanged 1,692,824 treasury shares for the common shares of SK Broadband. In the fourth quarter of 2015, we acquired 2,020,000 treasury shares on the market through a share buy-back program to further increase shareholder value. We have never issued any non-voting preferred shares. All of the issued and outstanding common shares are fully-paid and non-assessable and are in registered form. We issue share certificates in denominations of 1, 5, 10, 50, 100, 500, 1,000 and 10,000 shares.

Board of Directors

Meetings of the board of directors are convened by the representative director as he or she deems necessary or upon the request of three or more directors. The board of directors determines all important matters relating to our business. In addition, the prior approval of the majority of the independent non-executive directors is required for certain matters, which include:

•

investment by us or any of our subsidiaries in a foreign company in equity or acquisition of such foreign company’s other overseas assets in an amount equal to 5.0% or more of our equity under our most recent balance sheet; and

•

contribution of capital, loans or guarantees, acquisition of our subsidiaries’ assets or similar transactions with our affiliated companies in excess of Won 10.0 billion through one or a series of transactions.

Resolutions of the board are adopted in the presence of a majority of the directors in office and by the affirmative vote of a majority of the directors present. No director who has an interest in a matter for resolution may exercise his or her vote upon such matter.

There are no specific shareholding requirements for director’s qualification. Directors are elected at a general meeting of shareholders if the approval of the holders of the majority of the voting shares present at such meeting is obtained and if such majority also represents at least one-fourth of the total number of shares outstanding. Under the

Korean Commercial Code, unless otherwise stated in the articles of incorporation, holders of an aggregate of 1.0% or more of the outstanding shares with voting rights may request cumulative voting in any election for two or more directors. Our articles of incorporation do not permit cumulative voting for the election of directors.

The term of office for directors is until the close of the third annual general shareholders meeting convened after he or she commences his or her term. Our directors may serve consecutive terms and our shareholders may remove them from office at any time by a special resolution adopted at a general meeting of shareholders.

Dividends

We distribute dividends to our shareholders in proportion to the number of shares owned by each shareholder. Our common shares represented by the ADSs have the same dividend rights as other outstanding common shares. For a detailed discussion of our dividend policy, see “Item 8.A. Consolidated Statements and Other Financial Information — Dividends.”

Distribution of Free Shares

In addition to paying dividends in shares out of our retained or current earnings, we may also distribute to our shareholders an amount transferred from our capital surplus or legal reserve to our stated capital in the form of free shares. We must distribute such free shares to all our shareholders in proportion to their existing shareholdings.

Preemptive Rights and Issuance of Additional Shares

We may at times issue authorized but unissued shares, unless otherwise provided in the Korean Commercial Code, on terms determined by our board of directors. All our shareholders are generally entitled to subscribe to any newly-issued shares in proportion to their existing shareholdings. We must offer new shares on uniform terms to all shareholders who have preemptive rights and are listed on our shareholders’ registry as of the relevant record date. We must give public notice of the preemptive rights regarding new shares and their transferability at least two weeks before the relevant record date. Our board of directors may determine how to distribute shares for which preemptive rights have not been exercised or where fractions of shares occur.

Under the Korean Commercial Code and our articles of incorporation, we may issue new shares pursuant to a board resolution to persons other than existing shareholders only if (1) the new shares are issued for the purpose of issuing depositary receipts in accordance with the relevant regulations or through an offering to public investors and (2) the purpose of such issuance is deemed necessary by us to achieve a business purpose, including, but not limited to, the introduction of new technology or the improvement of our financial condition. If we make an allotment of new shares to persons other than our existing shareholders, we are required by the Korean Commercial Code to notify our existing shareholders of (a) the class and number of new shares, (b) the issuance price of new shares and the date set for the payment thereof, (c) in cases of no par value shares, the amount to be included in the paid-up capital out of the issuance price of new shares and (d) the method of subscription to new shares by no later than two weeks before the date of payment of the subscription price, or publicly announce such information. Under our articles of incorporation, only our board of directors is authorized to set the terms and conditions with respect to such issuance of new shares.

In addition, under our articles of incorporation, we may issue convertible bonds or bonds with warrants, each up to an aggregate principal amount of Won 400.0 billion, to persons other than existing shareholders, where such issuance is deemed necessary by us to achieve a business purpose, including, but not limited to, the introduction of new technology or the improvement of our financial condition.

Members of our employee stock ownership association, whether or not they are our shareholders, generally have a preemptive right to subscribe for up to 20.0% of the shares publicly offered pursuant to the FSCMA. This right is exercisable only to the extent that the total number of shares so acquired and held by members of our employee stock ownership association does not exceed 20.0% of the sum of the number of shares then outstanding and the number of newly-issued shares.

General Meeting of Shareholders

We generally hold the annual general meeting of shareholders within three months after the end of each fiscal year. Subject to a board resolution or court approval, we may hold an extraordinary general meeting of shareholders:

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as necessary;

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at the request of holders of an aggregate of 3.0% or more of our outstanding common shares;

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at the request of shareholders holding an aggregate of 1.5% or more of our outstanding shares and preferred shares for at least six months; or

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at the request of our audit committee.

Holders of non-voting preferred shares may request a general meeting of shareholders only after the non-voting shares become entitled to vote or “enfranchised,” as described under “— Voting Rights” below.

We must give shareholders written notice setting out the date, place and agenda of the meeting at least two weeks before the date of the general meeting of shareholders. However, for holders of less than 1.0% of the total number of issued and outstanding voting shares, we may give notice by placing at least two public notices in at least two daily newspapers at least two weeks in advance of the meeting. Currently, we use The Korea Economic Daily News and Maeil Business Newspaper, both published in Seoul, for this purpose, but we may give notice in the future through electronic means. Shareholders who are not on the shareholders’ registry as of the record date are not entitled to receive notice of the general meeting of shareholders or attend or vote at the meeting. Holders of non-voting preferred shares, unless enfranchised, are not entitled to receive notice of or vote at general meetings of shareholders.

Our general meetings of shareholders have historically been held in or near Seoul.

Voting Rights

Holders of our common shares are entitled to one vote for each common share, except that voting rights of common shares held by us (including treasury shares and shares held by bank trust funds controlled by us), or by a corporate shareholder in which we own more than 10.0% equity interest, either directly or indirectly, may not be exercised. The Korean Commercial Code, unless otherwise stated in the articles of incorporation, permits cumulative voting, which would allow each shareholder to have multiple voting rights corresponding to the number of directors to be appointed in the voting and to exercise all voting rights cumulatively to elect one director. Our articles of incorporation do not permit cumulative voting for the election of directors.

Our shareholders may adopt resolutions at a general meeting by an affirmative majority vote of the voting shares present or represented at the meeting if such affirmative votes also represent at least one-fourth of our total voting shares then issued and outstanding. However, under the Korean Commercial Code and our articles of incorporation, the following matters, among others, require approval by the holders of at least two-thirds of the voting shares present or represented at a meeting, and such affirmative votes must also represent at least one-third of our total voting shares then issued and outstanding:

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amending our articles of incorporation;

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removing a director;

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effecting any dissolution, merger or consolidation of us;

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transferring the whole or any significant part of our business;

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effecting our acquisition of all of the business of any other company or a part of the business of any other company having a material effect on our business;

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reducing our capital; or

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issuing any new shares at a price lower than their par value.

In general, holders of non-voting preferred shares are not entitled to vote on any resolution or receive notice of any general meeting of shareholders.

However, in case of amendments to our articles of incorporation, or any merger or consolidation of us, or in some other cases which affect the rights or interests of the non-voting preferred shares, approval of the holders of non-voting preferred shares is required. We may obtain the approval by a resolution of holders of at least two-thirds of the non-voting preferred shares present or represented at a class meeting of the holders of non-voting preferred shares, where the affirmative votes also represent at least one-third of our total issued and outstanding non-voting shares. In addition, if we are unable to pay dividends on non-voting preferred shares as provided in our articles of incorporation, the holders of non-voting shares will become enfranchised and will be entitled to exercise voting rights beginning at the next general meeting of shareholders to be held after the declaration of non-payment of dividends is made until such dividends are paid. The holders of enfranchised non-voting preferred shares will have the same rights as holders of common shares to request, receive notice of, attend and vote at a general meeting of shareholders.

Shareholders may exercise their voting rights by proxy. A shareholder may give proxies only to another shareholder, except that a corporate shareholder may give proxies to its officers or employees.

Holders of ADRs exercise their voting rights through the ADR depositary, an agent of which is the record holder of the underlying common shares. Subject to the provisions of the deposit agreement, ADR holders are entitled to instruct the ADR depositary how to vote our common shares underlying their ADSs.

Limitation on Shareholdings

The Telecommunications Business Act prohibits foreign governments, individuals, and entities (including Korean entities that are deemed foreigners, as discussed below) from owning more than 49.0% of our voting stock. Korean entities whose largest shareholder is a foreign government or a foreigner (together with any of its related parties) that owns 15.0% or more of such Korean entities’ outstanding voting stock are deemed foreigners. A foreigner who has acquired shares of our voting stock in excess of such limitation may not exercise the voting rights with respect to the shares exceeding such limitation and may be subject to the MSIP’s corrective orders.

Rights of Dissenting Shareholders

Under Financial Investment Services and Capital Market Act, in some limited circumstances, including the transfer of all or a significant part of our business or our merger or consolidation with another company (with certain exceptions), dissenting shareholders have the right to require us to purchase their shares. To exercise this right, shareholders, including holders of non-voting shares, must submit to us a written notice of their intention to dissent before the general meeting of shareholders. Then, within 20 days after the relevant resolution is passed at a meeting, the dissenting shareholders must request us in writing to purchase their shares. We are obligated to purchase the shares of such dissenting shareholders within one month after the expiration of the 20-day period. The purchase price for the shares is required to be determined through negotiation between the dissenting shareholders and us. If we cannot agree on a price through negotiation, the purchase price will be the average of (1) the weighted average of the daily share prices on the KRX KOSPI Market for the two-month period before the date of the adoption of the relevant board resolution, (2) the weighted average of the daily share price on the KRX KOSPI Market for the one month period before the date of the adoption of the relevant resolution and (3) the weighted average of the daily share price on the KRX KOSPI Market for the one week period before the date of the adoption of the relevant resolution. However, a court may determine the purchase price if we or dissenting shareholders do not accept the purchase price.

Registry of Shareholders and Record Dates

Our transfer agent, Kookmin Bank, maintains the register of our shareholders at its office in Seoul, Korea. It records and registers transfers of shares on the register of shareholders upon presentation of the share certificates.

The record date for annual dividends is December 31. For the purpose of determining the shareholders entitled to annual dividends, the registry of shareholders is closed for the period from January 1 to January 31 of the

following year. Further, for the purpose of determining the shareholders entitled to some other rights pertaining to the shares, we may, on at least two weeks’ public notice, set a record date and/or close the register of shareholders for not more than three months. The trading of shares and the delivery of share certificates may continue while the register of shareholders is closed.

Annual Report

At least one week before the annual general meeting of shareholders, we must make our annual reports and audited non-consolidated financial statements available for inspection at our principal office and at all of our branch offices. In addition, copies of annual reports, the audited non-consolidated financial statements and any resolutions adopted at the general meeting of shareholders will be available to our shareholders.

Under the FSCMA, we must file with the FSC and the Korea Exchange (1) an annual securities report within 90 days after the end of our fiscal year, (2) a mid-year report within 45 days after the end of the first six months of our fiscal year, and (3) quarterly reports within 45 days after the end of the third month and the ninth month of our fiscal year. Copies of these reports are or will be available for public inspection at the FSC and the Korea Exchange.

Transfer of Shares

Under the Korean Commercial Code, the transfer of shares is effected by the delivery of share certificates. However, to assert shareholders’ rights against us, the transferee must have his or her name, seal and address registered on our registry of shareholders, maintained by our transfer agent. A non-Korean shareholder may file a sample signature in place of a seal, unless he or she is a citizen of a country with a sealing system similar to that of Korea. In addition, a non-resident shareholder must appoint an agent in Korea authorized to receive notices on his or her behalf and file his or her mailing address in Korea.

Under current Korean regulations, the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and internationally recognized custodians may act as agents and provide related services for foreign shareholders. Certain foreign exchange controls and securities regulations apply to the transfer of shares by non-residents or non-Korean citizens. See “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations.”

Our transfer agent is Kookmin Bank, located at 24, Gukjegeumyung-ro, Yeongdeungpo-gu, Seoul, Korea.

Restrictions Applicable to Shares

Pursuant to the Telecommunications Business Act, the maximum aggregate foreign shareholding in us is limited to 49.0%. See “Item 4.B. Business Overview — Law and Regulation — Foreign Ownership and Investment Restrictions and Requirements.” In addition, certain foreign exchange controls and securities regulations apply to the acquisition of securities by non-residents or non-Korean citizens. See “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations.”

Acquisition of Shares by Us

We may acquire our own shares pursuant to an approval at the general meeting of shareholders, through purchases on the Korea Exchange or a tender offer, or by acquiring the interests in a trust account holding our own shares through agreements with trust companies and asset management companies. The aggregate purchase price for the shares may not exceed the total amount available for distribution as dividends as of the end of the preceding fiscal year less the amount of dividends and mandatory reserves required to be set aside for that fiscal year, subject to certain procedural requirements.

Under the Korean Commercial Code, we may resell or transfer any shares acquired by us to a third party pursuant to an approval by the Board of Directors. In general, corporate entities in which we own a 50.0% or more equity interest may not acquire our common stock. Under the FSCMA, we are subject to certain selling restrictions with respect to the shares acquired by us.

Liquidation Rights

In the event of our liquidation, remaining assets after payment of all debts, liquidation expenses and taxes will be distributed among shareholders in proportion to their shareholdings. Holders of non-voting preferred shares have no preference in liquidation. Holders of debt securities have no preference over other creditors in the event of liquidation.

Description of American Depositary Shares

The following is a summary of the deposit agreement dated as of May 31, 1996, as amended by amendment no. 1 dated as of March 15, 1999, amendment no. 2 dated as of April 24, 2000 and amendment no. 3 dated as of July 24, 2002, among us, Citibank, as ADR depositary, and all holders and beneficial owners of ADSs, as supplemented by side letters dated as of July 25, 2002, October 1, 2002 and October 1, 2007. The deposit agreement is governed by the laws of the State of New York. Because it is a summary, this description does not contain all the information that may be important to you. For more complete information, you should read the entire deposit agreement and the ADR. The deposit agreement has been filed as an exhibit to our registration statement on Form F-3 (File No. 333-91304) filed with the SEC. Copies of the deposit agreement are available for inspection at the principal New York office of the ADR depositary, currently located at 388 Greenwich Street, 14th Floor, New York, New York 10013, United States of America, and at the principal London office of the ADR depositary, currently located at Canada Square, Canary Wharf, London, E14 5LB, England.

American Depositary Receipts

The ADR depositary may execute and deliver ADRs evidencing the ADSs. Each ADR evidences a specified number of ADSs, each ADS representing one-ninth of one share of our common stock to be deposited with the ADR depositary’s custodian in Seoul. Korea Securities Depository is the institution authorized under applicable law to effect book-entry transfers of our common shares, known as the “Custodian”. The Custodian is located at 358-8, Hosu-ro, Ilsandong-gu, Goyang-si, Gyeonggi-do 411-770, Korea. An ADR may represent any number of ADSs. We and the ADR depositary will treat only persons in whose names ADRs are registered on the books of the registrar as holders of ADRs.

Deposit and Withdrawal of Shares of Common Stock

Notwithstanding the provisions described below, under the terms of the deposit agreement, the deposit of shares and issuance of ADSs may only be made if the total number of shares represented by ADSs after such deposit does not exceed a specified maximum, 24,321,893 shares as of March 31, 2016. This limit will be adjusted in certain circumstances, including (1) upon the cancellation of existing ADSs, (2) upon future offerings of ADSs by us or our shareholders, (3) rights offerings and (4) adjustments for share reclassifications. The limit also may be decreased in certain circumstances. As of March 31, 2016, the outstanding ADSs represented 9,259,552 shares of our common stock. Notwithstanding the foregoing, the ADR depositary and the Custodian may not accept deposits of shares of common stock for issuance of ADSs if it has been notified by us in writing that we block deposits to prevent a violation of applicable Korean laws or regulations or a violation of our articles of incorporation. In addition, the ADR depositary may not accept deposits of shares of common stock for issuance of ADSs from a person who identifies him-, her- or itself to the depositary, and has been identified in writing by us, as a holder of at least 3.0% of our shares of common stock.

The shares of common stock underlying the ADSs are delivered to the ADR depositary’s Custodian in book-entry form. Accordingly, no share certificates will be issued but the ADR depositary will hold the shares of common stock through the book-entry settlement system of the Custodian. The delivery of the shares of common stock pursuant to the deposit agreement will take place through the facilities of the Custodian in accordance with its applicable settlement procedures. The ADR depositary will execute and deliver ADSs if you or your broker deposit shares or evidence of rights to receive shares of common stock with the Custodian. Upon payment of fees and expenses and any taxes or charges, such as stamp taxes or stock transfer taxes, the ADR depositary will register the appropriate number of ADSs in the names you designate. The ADR depositary and the ADR depositary’s Custodian will refuse to accept shares of common stock for deposit whenever we restrict transfer of shares of common stock to comply with ownership restrictions under applicable law or our articles of incorporation or whenever the deposit

would cause the total number of shares of common stock deposited to exceed a level we determine from time to time. We may instruct the ADR depositary to take certain actions with respect to a holder of ADSs who holds in excess of the ownership limitation set forth in the deposit agreement, including the mandatory sale or disposition of the shares represented by the ADSs in excess of such ownership limitations if, and to the extent, permitted by applicable law.

You may surrender your ADRs to the ADR depositary to withdraw the underlying shares of our common stock. Upon payment of the fees and any governmental charges and taxes provided in the deposit agreement, and subject to applicable laws and regulations of Korea and our articles of incorporation, you will be entitled to physical delivery or electronic delivery to an account in Korea or, if permissible under applicable Korean law, outside the United States, of the shares of common stock evidenced by the ADRs and any other property at the time represented by ADR you surrendered. If you surrender an ADR evidencing a number of ADSs not evenly divisible by nine, the ADR depositary will deliver the appropriate whole number of shares of common stock represented by the surrendered ADSs and will execute and deliver to you a new ADR evidencing ADSs representing any remaining fractional shares of common stock.

If you request withdrawal of shares of common stock, you must deliver to the ADR depositary a written order directing the ADR depositary to cause the shares of common stock being withdrawn to be delivered or to cause such delivery upon the written order of the person designated in your order, subject to applicable Korean laws and the provisions of the deposit agreement.

Under the provisions of the deposit agreement, the ADR depositary may not lend shares of common stock or ADSs. However, subject to the provisions of the deposit agreement and limitations established by the ADR depositary, the ADR depositary may execute and deliver ADSs before deposit of the underlying shares of common stock. This is called a pre-release of the ADS. The ADR depositary may also deliver shares of common stock upon cancellation of pre-released ADSs (even if the cancellation occurs before the termination of the pre-release). The ADR depositary may pre-release ADSs only under the following circumstances:

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before or at the time of the pre-release, the person to whom the pre-release is being made must represent to the ADR depositary in writing that the person, or, in case of an institution its customer, owns the shares of common stock or ADSs to be deposited and show evidence of the ownership to the ADR depositary’s satisfaction;

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before or at the time of such pre-release, the person to whom the pre-release is being made must agree in writing that he or she will hold the shares of common stock or ADSs in trust for the ADR depositary until their delivery to the ADR depositary or Custodian, reflect on his or her records the ADR depositary as owner of such shares of common stock or ADSs and deliver such shares of common stock upon the ADR depositary’s request;

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the pre-release must be fully collateralized with cash or U.S. government securities;

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the ADR depositary must be able to terminate the pre-release on not more than five business days’ notice; and

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the pre-release is subject to further indemnities and credit regulations as the ADR depositary deems appropriate.

The ADR depositary may retain for its own account any compensation received by it in connection with the pre-release, such as earnings on the collateral.

If you want to withdraw the shares of common stock from the depositary facility, you must register your identity with the Financial Supervisory Service of Korea (the “FSS”) before you acquire the shares of common stock unless you intend to sell the shares of common stock within three months. See “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations — Restrictions Applicable to Shares.”

Dividends, Other Distributions and Rights

If the ADR depositary can, in its judgment and pursuant to applicable law, convert Won (or any other foreign currency) into Dollars on a reasonable basis and transfer the resulting Dollars to the United States, the ADR

depositary will as promptly as practicable convert all cash dividends and other cash distributions received by it on the deposited shares of common stock into Dollars and distribute the Dollars to you in proportion to the number of ADSs representing shares of common stock held by you, after deduction of the fees and expenses of the ADR depositary. If the ADR depositary determines that in its judgment any currency other than Dollars it receives from us cannot be converted and distributed on a reasonable basis, the ADR depositary may distribute the currency it receives to the extent permitted under applicable law or hold the currency for your account if you are entitled to receive the distribution. The ADR depositary will not be liable for any interest. Before making a distribution, the ADR depositary will deduct any withholding taxes that must be paid.

In the event that the ADR depositary or the ADR depositary’s Custodian receives any distribution upon any deposited shares of common stock in property or securities (other than shares of common stock, non-voting preferred stock or rights to receive shares of common stock or non-voting preferred stock), the ADR depositary will distribute the property or securities to you in proportion to your holdings in any manner that the ADR depositary deems, after consultation with us, equitable and practicable. If the ADR depositary determines that any distribution of property or securities (other than shares of common stock, non-voting preferred stock or rights to receive shares of common stock or non-voting preferred stock) cannot be made proportionally, or if for any other reason the ADR depositary deems the distribution not to be feasible, the ADR depositary may, after consultation with us, dispose of all or a portion of the property or securities in such amounts and in such manner, including by public or private sale, as the ADR depositary deems equitable or practicable. The ADR depositary will distribute to you the net proceeds of any such sale, or the balance of the property or securities, after the deduction of the fees and expenses of the ADR depositary.

If a distribution by us consists of a dividend in, or free distribution of, our shares of common stock, the ADR depositary may, with our approval, and will, if we request, deposit the shares of common stock and either (1) distribute to you, in proportion to your holdings, additional ADSs representing those shares of common stock, or (2) reflect on the records of the ADR depositary the increase in the aggregate number of ADSs representing those number of shares of common stock, in both cases, after the deduction of the fees and expenses of the ADR depositary. If the ADR depositary deems that such distribution for any reason is not feasible, the ADR depositary may adopt, after consultation with us, any method as it may deem equitable and practicable, including by public or private sale of all or part of the shares of common stock received. The ADR depositary will distribute to you the net proceeds of any such sale in the same way as it does with cash. The ADR depositary will only distribute whole ADSs. If the ADR depositary does not distribute additional ADSs, then each outstanding ADS will also represent the new shares so distributed.

If a distribution by us consists of a dividend in, or free distribution of, shares of non-voting preferred stock, the ADR depositary will deposit such shares of non-voting preferred stock under a non-voting preferred stock deposit agreement to be entered into among us, the ADR depositary and all holders and beneficial owners of depositary shares. The ADR depositary will deliver to you, in proportion to your holdings of ADSs, depositary shares issued under the non-voting preferred stock deposit agreement representing the number of non-voting shares received as such dividend or distribution. If the ADR depositary deems such distribution for any reason is not feasible, the ADR depositary may adopt, after consultation with us, any method as it may deem equitable and practicable, including by public or private sale of all or part of the nonvoting shares received. The ADR depositary will distribute to you the net proceeds of any such sale in the same way as it does with cash. The ADR depositary will only distribute whole depositary shares. We are not obligated to list depositary shares representing non-voting shares on any exchange.

If we offer holders of our securities any rights to subscribe for additional shares of common stock or any other rights, the ADR depositary may make these rights available to you. The ADR depositary must first determine whether it is lawful and feasible to do so. If the ADR depositary determines that it is not lawful or feasible to make these rights available to you, then upon our request, the ADR depositary will sell the rights and distribute the proceeds in the same way as it would do with cash. The ADR depositary may allow these rights that are not distributed or sold to lapse. In that case, you will receive no value for these rights.

If we issue any rights with respect to non-voting shares, the securities issuable upon any exercise of such rights by holders or beneficial owners will be depositary shares representing those non-voting shares issued under the provisions of a non-voting preferred stock deposit agreement.

If a registration statement under the Securities Act is required with respect to the securities to which any rights relate in order for us to offer the rights to you and to sell the securities represented by these rights, the ADR depositary will not offer such rights to you until such a registration is in effect, or unless the offering and sale of such securities and such rights to you are exempt from the registration requirements of the Securities Act or any required filing, report, approval or consent has been submitted, obtained or granted. We or the ADR depositary will not be obligated to register the rights or securities under the Securities Act or to submit, obtain or request any filing, report, approval or consent.

The ADR depositary may not be able to convert any currency or to sell or dispose of any distributed or offered property or rights in a timely manner or at a specified price, or at all.

Record Dates

The ADR depositary will fix a record date, after consultation with us, in each of the following situations:

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any cash dividend or other cash distribution becomes payable;

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any distribution other than cash is made;

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rights are issued with respect to deposited shares of common stock;

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the ADR depositary causes a change in the number of shares of common stock that are represented by each ADS; or

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the ADR depositary receives notice of any shareholders’ meeting.

The record date will, to the extent practicable, be as near as the record date fixed by us for the shares of common stock. The record date will determine (1) the ADR holders who are entitled to receive the dividend, distribution or rights, or the net proceeds of the sale of the rights; or (2) the ADR holders who are entitled to receive notices or exercise rights.

Voting of the Underlying Shares of Common Stock

We will give the ADR depositary a notice of any meeting or solicitation of shareholder proxies immediately after we finalize the form and substance of such notice but not less than 14 days before the meeting. As soon as practicable after it receives our notice, the ADR depositary will fix a record date, and upon our written request, the ADR depositary will mail to you a notice that will contain the following:

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the information contained in our notice to the ADR depositary including an English translation, or, if requested by us, a summary of the information provided by us;

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a statement that the ADR holders as of the close of business on a specified record date will be entitled to instruct the ADR depositary as to how to exercise their voting rights for the number of shares of deposited shares of common stock, subject to the provisions of applicable Korean law and our articles of incorporation, which provisions, if any, will be summarized in the notice to the extent that they are material; and

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a statement as to the manner in which the ADR holders may give their instructions.

Upon your written request received on or before the date set by the ADR depositary for this purpose, the ADR depositary will endeavor, in so far as practicable, to vote or cause to be voted the deposited shares of common stock in accordance with the instructions set forth in your written requests. The ADR depositary may not itself exercise any voting discretion over any deposited shares of common stock. You may only exercise the voting rights in respect of nine ADSs or multiples of nine ADSs. ADR holders may not be entitled to give instruction to vote the shares represented by the ADSs if, and to the extent, the total number of shares represented by the ADSs of an ADR holder exceeds the limit set under applicable law. We can give no assurance to you, however, that we will notify the ADR depositary sufficiently in advance of the scheduled date of a meeting or solicitation of consents or proxies to enable the ADR depositary to make a timely mailing of notices to you, or that you will receive the notices sufficiently in advance of a meeting or solicitation of consents or proxies to give instructions to the ADR depositary.

Inspection of Transfer Books

The ADR depositary will keep books at its principal New York office, which is currently located at 388 Greenwich Street, 14th Floor, New York, New York 10013, for the registration and transfer of ADRs. You may inspect the books of the ADR depositary as long as the inspection is not for the purpose of communicating with holders in the interest of a business or object other than our business or a matter related to the deposit agreement or the ADRs.

Reports and Notices

On or before the first date on which we give notice, by publication or otherwise, of any meeting of shareholders, or of any adjourned meeting of shareholders, or of the taking of any action in respect of any cash or other distributions or the offering of any rights in respect of the shares of common stock, we will transmit to the Custodian and the ADR depositary sufficient copies of the notice in English in the form given or to be given to shareholders. We will furnish to the ADR depositary English language versions of any reports, notices and other communications that we generally transmit to holders of our common stock, including our annual reports, with annual audited consolidated financial statements prepared in conformity with IFRS and unaudited non-consolidated semiannual financial statements prepared in conformity with IFRS. The ADR depositary will arrange for the prompt mailing of copies of these documents, or, if we request, a summary of any such notice provided by us to you or, at our request, make notices, reports (other than the annual reports and semiannual financial statements) and other communications available to you on a basis similar to that for the holders of our common stock or on such other basis as we may advise the ADR depositary according to any applicable law, regulation or stock exchange requirement.

Notices to you under the deposit agreement will be deemed to have been duly given if personally delivered or sent by mail or cable, telegraph or facsimile transmission, confirmed by letter, addressed to you at your address as it appears on the transfer books of the ADR depositary or at such other address as you have notified the ADR depositary.

In addition, the ADR depositary will make available for inspection by holders at its principal New York office and its principal London office any notices, reports or communications, including any proxy soliciting materials, received from us that we generally transmit to the holders of our common stock or other deposited securities, including the ADR depositary. The ADR depositary will also send to you copies of reports and communications we will provide as provided in the deposit agreement.

Changes Affecting Deposited Shares of Common Stock

In case of a change in the par value, or a split-up, consolidation or any other reclassification of our common shares or upon any recapitalization, reorganization, merger or consolidation or sale of assets affecting us, any securities received by the ADR depositary or the Custodian in exchange for, in conversion of or in respect of deposited shares of our common stock will be treated as new deposited shares of common stock under the deposit agreement. In that case, ADSs will, subject to the terms of the deposit agreement and applicable laws and regulations, including any registration requirements under the Securities Act, represent the right to receive the new deposited shares of common stock, unless additional ADRs are issued, as in the case of a stock dividend, or unless the ADR depositary calls for the surrender of outstanding ADRs to be exchanged for new ADRs.

Amendment and Termination of the Deposit Agreement

We may agree with the ADR depositary to amend the deposit agreement and the ADSs without your consent for any reason. If the amendment adds or increases fees or charges, except for taxes and other governmental charges or certain expenses of the ADR depositary, or prejudices any substantial existing right of ADR holders, it will only become effective 30 days after the ADR depositary notifies you of the amendment. If you continue to hold your ADSs at the time an amendment becomes effective, you will be considered to have agreed to the amendment and to be bound by the deposit agreement as amended. Except as otherwise required by any mandatory provisions of applicable law, no amendment may impair your right to surrender your ADSs and to receive the underlying deposited securities.

The ADR depositary will terminate the deposit agreement if we ask it to do so with 90 days’ prior written notice. The ADR depositary may also terminate the deposit agreement if the ADR depositary has notified us at least 90 days in advance that it would like to resign and we have not appointed a new depositary. In both cases, the ADR depositary must notify you at least 30 days before the termination date.

If any ADRs remain outstanding after the date of termination, the ADR depositary will stop performing any further acts under the deposit agreement, except:

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to collect dividends and other distributions pertaining to the deposited shares of common stock;

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to sell property and rights and the conversion of deposited shares of common stock into cash as provided in the deposit agreement; and

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to deliver deposited shares of common stock, together with any dividends or other distributions received with respect to the deposited shares of common stock and the net proceeds of the sale of any rights or other property represented by those ADSs in exchange for surrendered ADRs.

At any time after the expiration of six months from the date of termination, the ADR depositary may sell any remaining deposited shares of common stock and hold uninvested the net proceeds in an unsegregated account, together with any other cash or property then held, without liability for interest, for the pro rata benefit of the holders of ADSs that have not been surrendered by then.

Charges of ADR Depositary

The fees and expenses of the ADR depositary as agreed between us and the ADR depositary include:

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taxes and other governmental charges;

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registration fees applicable to transfers of shares of common stock on our shareholders’ register, or that of any entity acting as registrar for the shares, to the name of the ADR depositary or its nominee, or the Custodian or its nominee, when making deposits or withdrawals under the deposit agreement;

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cable, telegraph and facsimile transmission expenses that are expressly provided in the deposit agreement;

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expenses incurred by the ADR depositary in the conversion of foreign currency into Dollars under the deposit agreement;

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a fee of up to US$5.00 per 100 ADSs, or portion thereof, for execution and delivery of ADSs and the surrender of ADRs under the deposit agreement; and

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a fee of up to US$0.02 per ADS held for cash distributions, a sale or exercise of rights or the taking of any other corporate action involving distributions to shareholders.

For a detailed description of fees and charges payable by the holders of ADSs under the deposit agreement, see “Item 12.D. American Depositary Shares — Fees and Charges under Deposit Agreement.”

General

Neither we nor the ADR depositary will be liable to you if prevented or delayed by law, governmental authority, any provision of our articles of incorporation or any circumstances beyond our or its control in performing our or its obligations under the deposit agreement. The deposit agreement provides that the ADR depositary will hold the shares of common stock for your sole benefit. Our obligations and those of the ADR depositary under the deposit agreement are expressly limited to performing, in good faith and without negligence, our and its respective duties specified in the deposit agreement.

The ADSs are transferable on the books of the ADR depositary, provided that the ADR depositary may, after consultation with us, close the transfer books at any time or from time to time, when deemed expedient by it in connection with the performance of its duties. As a condition precedent to the execution and delivery of any ADSs, registration of transfer, split-up, combination of any ADR or surrender of any ADS for the purpose of withdrawal of deposited shares of common stock, the ADR depositary or the Custodian may require payment from the depositor of

the shares of common stock or a holder of ADSs of a sum sufficient to reimburse the ADR depositary for any tax or other governmental charge and any stock transfer or registration fee and payment of any applicable fees payable by the holders of ADSs.

Any person depositing shares of common stock, any holder of an ADS or any beneficial owner may be required from time to time to file with the ADR depositary or the Custodian a proof of citizenship, residence, exchange control approval, payment of applicable Korean or other taxes or governmental charges, or legal or beneficial ownership and the nature of their interest, to provide information relating to the registration on our shareholders’ register (or our appointed agent for the transfer and registration of shares of common stock) of the shares of common stock presented for deposit or other information, to execute certificates and to make representations and warranties as we or the ADR depositary may deem necessary or proper or to enable us or the ADR depositary to perform our and its obligations under the deposit agreement. The ADR depositary may withhold the execution or delivery or registration of transfer of all or part of any ADR or the distribution or sale of any dividend or other distribution of rights or of the proceeds from their sale or the delivery of any shares deposited under the deposit agreement and any other securities, property and cash received by the ADR depositary or the Custodian until the proof or other information is filed or the certificates are executed or the representations and warranties are made. The ADR depositary shall provide us, unless otherwise instructed by us, in a timely manner, with copies of any of these proofs and certificates and these written representations and warranties.

The delivery and surrender of ADSs and transfer of ADSs generally may be suspended during any period when our or the ADR depositary’s transfer books are closed or, if that action is deemed necessary or advisable by us or the ADR depositary, at any time or from time to time in accordance with the deposit agreement. We may restrict, in a manner as we deem appropriate, transfers of shares of common stock where the transfers may result in ownership of shares of common stock in excess of limits under applicable law. Except as described in “Deposit and Withdrawal of Shares of Common Stock” above, notwithstanding any other provision of the deposit agreement, the surrender of outstanding ADRs and withdrawal of Deposited Securities (as defined in the deposit agreement) represented by the ADRs may be suspended, but only as required in connection with (1) temporary delays caused by closing the transfer books of the ADR depositary or the issuer of any Deposited Securities (or the appointed agent or agents for such issuer for the transfer and registration of such Deposited Securities) in connection with voting at a shareholders’ meeting or the payment of dividends, (2) payment of fees, taxes and similar charges, or (3) compliance with any United States or foreign laws or governmental regulations relating to the ADRs or to the withdrawal of the Deposited Securities.

Governing Law

The deposit agreement and the ADRs will be interpreted under, and all rights under the deposit agreement or the ADRs are governed by, the laws of the State of New York.

We have irrevocably submitted to the non-exclusive jurisdiction of New York State or United States Federal Courts located in New York City and waived any objection to legal actions or proceedings in these courts whether on the ground of venue or on the ground that the proceedings have been brought in an inconvenient forum.

This submission was made for the benefit of the ADR depositary and the holders and will not limit the right of any of them to take legal actions or proceedings in any other court of competent jurisdiction nor will the taking of legal actions or proceedings in one or more jurisdictions preclude the taking of legal actions or proceedings in any other jurisdiction (whether concurrently or not), to the extent permitted under applicable law.

Information Relating to the ADR Depositary

Citibank has been appointed as ADR depositary pursuant to the deposit agreement. Citibank is an indirect wholly-owned subsidiary of Citigroup Inc., a Delaware corporation whose principal office is located in New York, New York. Citibank is a global financial services organization serving individuals, businesses, governments and financial institutions in approximately 100 countries around the world.

Citibank was originally organized on June 16, 1812, and now is a national banking association organized under the National Bank Act of 1864 of the United States of America. Citibank is primarily regulated by the United States Office of the Comptroller of the Currency. Its principal office is at 399 Park Avenue, New York, NY 10022.

The consolidated balance sheets of Citibank are set forth in Citigroup’s most recent annual report on Form 10-K and quarterly report on Form 10-Q, each on file with the SEC.

Citibank’s Articles of Association and By-laws, each as currently in effect, together with Citigroup’s most recent annual and quarterly reports will be available for inspection at the Depositary Receipt office of Citibank, N.A., 388 Greenwich Street, 14th Floor, New York, New York 10013.

Item 10.C.

Material Contracts

We have not entered into any material contracts since January 1, 2015, other than in the ordinary course of our business. For information regarding our agreements and transactions with entities affiliated with the SK Group, see “Item 7.B. Related Party Transactions” and note 36 of the notes to our consolidated financial statements. For a description of certain agreements entered into during the past three years related to our capital commitments and obligations, see “Item 5B. Liquidity and Capital Resources.”

Item 10.D.

Exchange Controls

Korean Foreign Exchange Controls and Securities Regulations

General

The Foreign Exchange Transaction Act and the Presidential Decree and regulations under that Act and Decree, collectively referred to as the Foreign Exchange Transaction Laws, regulate investment in Korean securities by non-residents and issuance of securities outside Korea by Korean companies. Non-residents may invest in Korean securities pursuant to the Foreign Exchange Transaction Laws. The FSC has also adopted, pursuant to its authority under the FSCMA, regulations that restrict investment by foreigners in Korean securities and regulate issuance of securities outside Korea by Korean companies.

Subject to certain limitations, the MOSF has authority to take the following actions under the Foreign Exchange Transaction Laws:

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if the Government deems it necessary on account of war, armed conflict, natural disaster or grave and sudden and significant changes in domestic or foreign economic circumstances or similar events or circumstances, the MOSF may temporarily suspend performance under any or all foreign exchange transactions, in whole or in part, to which the Foreign Exchange Transaction Laws apply (including suspension of payment and receipt of foreign exchange) or impose an obligation to deposit, safe-keep or sell any means of payment to The Bank of Korea, a foreign exchange stabilization fund, certain other governmental agencies or financial companies; and

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if the Government concludes that the international balance of payments and international financial markets are experiencing or are likely to experience significant disruption or that the movement of capital between Korea and other countries are likely to adversely affect the Won, exchange rate or other macroeconomic policies, the MOSF may take action to require any person who intends to effect or effects a capital transaction to deposit all or a portion of the means of payment acquired in such transactions with The Bank of Korea, a foreign exchange stabilization fund, certain other governmental agencies or financial companies.

Under the regulations of the FSC amended on February 4, 2009, (1) if a company listed on the KRX KOSPI Market or a company listed on the KRX KOSDAQ Market has submitted a public disclosure of material matters to a foreign financial investment supervisory authority pursuant to the laws of the foreign jurisdiction, then it must submit a copy of the public disclosure and a Korean translation thereof to the FSC and the Korea Exchange, and (2) if a KRX KOSPI Market-listed company or KRX KOSDAQ Market-listed company is approved for listing on a foreign stock market or determined to be de-listed from the foreign stock market or actually listed on, or de-listed from a foreign stock market, then it must submit a copy of any document, which it submitted to or received from the relevant foreign government, foreign financial investment supervisory authority or the foreign stock market, and a Korean translation thereof to the FSC and the Korea Exchange.

Government Review of Issuances of ADSs

In order for us to issue ADSs in excess of US$30 million, we are required to submit a report to the MOSF with respect to the issuance of the ADSs prior to and after such issuance; provided that such US$30 million threshold amount would be reduced by the aggregate principal amount of any foreign currency loans borrowed, and any securities offered and issued, outside Korea during the one-year period immediately preceding the report’s submission date. The MOSF may at its discretion direct us to take necessary measures to avoid exchange rate fluctuation in connection with its acceptance of report of the issuance of the ADSs.

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Under current Korean laws and regulations, the depositary is required to obtain our prior consent for any proposed deposit of common shares if the number of shares to be deposited in such proposed deposit exceeds the number of common shares initially deposited by us for the issuance of ADSs (including deposits in connection with the initial and all subsequent issuances of ADSs by us or with our consent and stock dividends or other distributions related to the ADSs).

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In addition to such restrictions under Korean laws and regulations, there are also restrictions on the deposits of our common shares for issuance of ADSs. See “Item 10.B. Memorandum and Articles of Incorporation — Description of American Depositary Shares.” Therefore, a holder of ADRs who surrenders ADRs and withdraws shares may not be permitted subsequently to deposit those shares and obtain ADRs.

We submitted a report to and obtained acceptance thereof by the MOSF for the issuance of ADSs up to an amount corresponding to 24,321,893 common shares. No additional Korean governmental approval is necessary for the issuance of ADSs except that if the total number of our common shares on deposit for conversion into ADSs exceeds 24,321,893 common shares, we may be required to file a report to and obtain acceptance thereof by the MOSF with respect to the increase of such limit and the issuance of additional ADSs.

Reporting Requirements for Holders of Substantial Interests

Under the FSCMA, any person whose direct or beneficial ownership of shares with voting rights, certificates representing the rights to subscribe for shares and equity-related debt securities including convertible bonds and bonds with warrants (collectively referred to as “equity securities”), together with the equity securities beneficially owned by certain related persons or by any person acting in concert with the person, accounts for 5.0% or more of the total outstanding equity securities is required to report the status and purpose (in terms of whether the purpose of shareholding is to affect control over management of the issuer) of the holdings to the FSC and the Korea Exchange within five business days after reaching the 5.0% ownership interest threshold and promptly deliver a copy of such report to the issuer. In addition, any change (1) in the ownership interest subsequent to the report which equals or exceeds 1.0% of the total outstanding equity securities, or (2) in the shareholding purpose is required to be reported to the FSC and the Korea Exchange within five business days from the date of the change. However, reporting deadline of such reporting requirement is extended to (1) certain professional investors, as specified under the FSCMA, or (2) persons who hold shares for purposes other than management control by the tenth day of the month immediately following the month of share acquisition or change in their shareholding. Those who reported the purpose of shareholding is to affect control over management of the issuer are prohibited from exercising their voting rights and acquiring additional shares for five days subsequent to the report under the FSCMA.

Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment and may result in a loss of voting rights with respect to the ownership of unreported equity securities exceeding 5.0%. Furthermore, the FSC may issue an order to dispose of such non-reported equity securities.

In addition to the reporting requirements described above, any person whose direct or beneficial ownership of our common shares accounts for 10.0% or more of the total issued and outstanding shares with voting rights (a “major shareholder”) must report the status of his or her shareholding to the Securities and Futures Commission and the Korea Exchange within five business days after he or she becomes a major shareholder. In addition, any change in the ownership interest subsequent to the report must be reported to the Securities and Futures Commission and the Korea Exchange by the fifth business day of any changes in his or her shareholding. Violations of these reporting requirements may subject a person to criminal sanctions, such as fines or imprisonment.

Restrictions Applicable to ADSs

No Korean governmental approval is necessary for the sale and purchase of ADSs in the secondary market outside Korea or for the withdrawal of shares underlying ADSs and the delivery of shares in Korea in connection with the withdrawal, provided that a foreigner who intends to acquire the shares must obtain an investment registration card from the FSS, as described below. The acquisition of the shares by a foreigner must be reported by the foreigner or his or her standing proxy in Korea immediately to the Governor of the FSS (the “Governor”).

Persons who have acquired shares as a result of the withdrawal of shares underlying the ADSs may exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares without any further governmental approval.

In addition, we are required to file a securities registration statement with the FSC and such securities registration statement has to become effective pursuant to the FSCMA in order for us to issue shares represented by ADSs, except in certain limited circumstances.

Restrictions Applicable to Shares

As a result of amendments to the Foreign Exchange Transaction Laws and the regulations of the FSC, together referred to as the Investment Rules, adopted in connection with the stock market opening from January 1992 and after that date, foreigners may invest, with limited exceptions and subject to procedural requirements, in all shares of Korean companies, whether listed on the KRX KOSPI Market or the KRX KOSDAQ Market, unless prohibited by specific laws. Foreign investors may trade shares listed on the KRX KOSPI Market or the KRX KOSDAQ Market only through the KRX KOSPI Market or the KRX KOSDAQ Market, except in limited circumstances, including, among others:

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odd-lot trading of shares;

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acquisition of shares by a foreign company as a result of a merger;

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acquisition or disposal of shares in connection with a tender offer;

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acquisition of shares by exercise of warrant, conversion right under convertible bonds, exchange right under exchangeable bonds or withdrawal right under depositary receipts issued outside of Korea by a Korean company (“converted shares”);

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acquisition of shares through exercise of rights under securities issued outside of Korea;

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acquisition of shares as a result of inheritance, donation, bequest or exercise of shareholders’ rights, including preemptive rights or rights to participate in free distributions and receive dividends;

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over-the-counter transactions between foreigners of a class of shares for which the ceiling on aggregate acquisition by foreigners, as explained below, has been reached or exceeded;

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acquisition of shares by direct investment under the Foreign Investment Promotion Law;

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acquisition and disposal of shares on an overseas stock exchange market, if such shares are simultaneously listed on the KRX KOSPI Market or KRX KOSDAQ Market and such overseas stock exchange;

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arm’s length transactions between foreigners in the event all such foreigners belong to an investment group managed by the same person; and

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acquisition and disposal of shares through alternative trading systems.

For over-the-counter transactions of shares between foreigners outside the KRX KOSPI Market or the KRX KOSDAQ Market for shares with respect to which the limit on aggregate foreign ownership has been reached or exceeded, a financial investment company with a brokerage license in Korea must act as an intermediary. Odd-lot trading of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market must involve a financial investment company with a dealing license in Korea as the other party. Foreign investors are prohibited from engaging in margin transactions through borrowing shares from financial investment companies with respect to shares which are subject to a foreign ownership limit.

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The Investment Rules require a foreign investor who wishes to invest in shares for the first time on the KRX KOSPI Market or the KRX KOSDAQ Market (including converted shares) and shares being publicly offered for initial listing on the KRX KOSPI Market or the KRX KOSDAQ Market to register its identity with the FSS prior to making any such investment; however, the registration requirement does not apply to foreign investors who acquire converted shares with the intention of selling such converted shares within three months from the date of acquisition of the converted shares or who acquire the shares in an over-the-counter transaction or dispose of shares where such acquisition or disposal is deemed to be a foreign direct investment pursuant to the Foreign Investment Promotion Law. Upon registration, the FSS will issue to the foreign investor an investment registration card which must be presented each time the foreign investor opens a brokerage account with a financial investment company or financial institution in Korea. Foreigners eligible to obtain an investment registration card include foreign nationals who have not been residing in Korea for a consecutive period of six months or longer, foreign governments, foreign municipal authorities, foreign public institutions, international financial institutions or similar international organizations, corporations incorporated under foreign laws and any person in any additional category designated by decree promulgated under the FSCMA. All Korean offices of a foreign corporation as a group are treated as a separate foreigner from the offices of the corporation outside Korea for the purpose of investment registration. However, a foreign corporation or depositary issuing depositary receipts may obtain one or more investment registration cards in its name in certain circumstances as described in the relevant regulations.

Upon a foreign investor’s purchase of shares through the KRX KOSPI Market or the KRX KOSDAQ Market, no separate report by the investor is required because the investment registration card system is designed to control and oversee foreign investment through a computer system. However, where a foreign investor acquires or sells shares outside the KRX KOSPI Market and the KRX KOSDAQ Market, such acquisition or sale of shares must be reported by the foreign investor or such foreign investor’s standing proxy to the Governor at the time of each such acquisition or sale; provided, however, that a foreign investor must ensure that any acquisition or sale of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market in the case of trades in connection with a tender offer, odd-lot trading of shares or trades of a class of shares for which the aggregate foreign ownership limit has been reached or exceeded, is reported to the Governor by the Korea Securities Depository, financial investment companies with a dealing or brokerage license or securities finance companies engaged to facilitate such transaction. In the event a foreign investor desires to acquire or sell shares outside the KRX KOSPI Market or the KRX KOSDAQ Market and the circumstances in connection with such sale or acquisition do not fall within the exceptions made for certain limited circumstances described above, then the foreign investor must obtain the prior approval of the Governor. In addition, in the event a foreign investor acquires or sells shares outside the KRX KOSPI Market or the KRX KOSDAQ Market, a prior report to the Bank of Korea may also be required in certain circumstances. A foreign investor must appoint one or more standing proxies among the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and certain eligible foreign custodians which will act as a standing proxy to exercise shareholders’ rights, or perform any matters related to the foregoing activities if the foreign investor does not perform these activities himself. Generally, a foreign investor may not permit any person, other than his, her or its standing proxy, to exercise rights relating to its shares or perform any tasks related thereto on his, her or its behalf. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the Governor in cases deemed inevitable by reason of conflict between laws of Korea and the home country of the foreign investor.

Certificates evidencing shares of Korean companies must be kept in custody with an eligible custodian in Korea. The Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and certain eligible foreign custodians are eligible to act as a custodian of shares for a non-resident or foreign investor. A foreign investor must ensure that his, her or its custodian deposits the shares with the Korea Securities Depository. However, a foreign investor may be exempted from complying with this deposit requirement with the approval of the Governor in circumstances where compliance with that requirement is made impracticable, including cases where compliance would contravene the laws of the home country of such foreign investor.

Under the Investment Rules, with certain exceptions, foreign investors may acquire shares of a Korean company without being subject to any foreign investment ceiling. As one such exception, designated public

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corporations are subject to a 40.0% ceiling on the acquisition of shares by foreigners in the aggregate. Designated public corporations may set a ceiling on the acquisition of shares by a single person within 3.0% of the total number of shares in their articles of incorporation. Currently, Korea Electric Power Corporation is the only designated public corporation which has set such a ceiling. Furthermore, an investment by a foreign investor of not less than 10.0% of the outstanding shares with voting rights of a Korean company is defined as a direct foreign investment under the Foreign Investment Promotion Law, which is, in general, subject to the report to, and acceptance by, the Ministry of Trade, Industry and Energy of Korea, which delegates its authority to foreign exchange banks or the Korea Trade-Investment Promotion Agency under the relevant regulations. The acquisition of our shares by a foreign investor is also subject to the restrictions prescribed in the Telecommunications Business Act. The Telecommunications Business Act generally limits the maximum aggregate foreign shareholdings in us to 49.0% of the outstanding shares. A foreigner who has acquired shares in excess of such restriction described above may not exercise the voting rights with respect to the shares exceeding such limitations and may be subject to corrective orders.

Under the Foreign Exchange Transaction Laws, a foreign investor who intends to make a portfolio investment in shares of a Korean company listed on the KRX KOSPI Market or the KRX KOSDAQ Market must designate a foreign exchange bank at which he, she or it must open a foreign currency account and a Won account exclusively for stock investments. No approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may be transferred from the foreign currency account at the time required to place a deposit for, or settle the purchase price of, a stock purchase transaction to a Won account opened at a securities company. Funds in the foreign currency account may be remitted abroad without any governmental approval.

Dividends on shares are paid in Won. No governmental approval is required for foreign investors to receive dividends on, or the Won proceeds of the sale of, any such shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any such shares held by a non-resident of Korea must be deposited either in a Won account with the investor’s financial investment companies with a securities dealing, brokerage or collective investment license or the investor’s Won account. Funds in the investor’s Won account may be transferred to such investor’s foreign currency account or withdrawn for local living expenses, provided that any withdrawal of local living expenses in excess of a certain amount is reported to the tax authorities by the foreign exchange bank at which the Won account is maintained. Funds in the investor’s Won account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive rights.

Financial investment companies with a securities dealing, brokerage or collective investment license are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea. Through these accounts, these financial investment companies may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Won funds, either as a counterparty to or on behalf of foreign investors, without the investors having to open their own accounts with foreign exchange banks.

Item 10.E.

Taxation

United States Taxation

This summary describes certain material U.S. federal income tax consequences for a U.S. holder (as defined below) of acquiring, owning, and disposing of common shares or ADSs. This summary applies to you only if you hold our common shares or ADSs as capital assets for tax purposes. This summary does not apply to you if you are a member of a class of holders subject to special rules, such as:

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a dealer in securities or currencies;

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a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;

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a bank;

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a life insurance company;

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a tax-exempt organization;

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a person that holds common shares or ADSs that are a hedge or that are hedged against interest rate or currency risks;

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a person that holds common shares or ADSs as part of a straddle or conversion transaction for tax purposes;

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a person whose functional currency for tax purposes is not the U.S. dollar; or

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a person that owns or is deemed to own 10.0% or more of any class of our stock.

This summary is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations promulgated thereunder, and published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis.

Please consult your own tax advisers concerning the U.S. federal, state, local, and other tax consequences of purchasing, owning, and disposing of common shares or ADSs in your particular circumstances.

For purposes of this summary, you are a “U.S. holder” if you are the beneficial owner of a common share or an ADS and are:

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a citizen or resident of the United States;

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a U.S. domestic corporation; or

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otherwise subject to U.S. federal income tax on a net income basis with respect to income from the common share or ADS.

In general, if you are the beneficial owner of ADSs, you will be treated as the beneficial owner of the common shares represented by those ADSs for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an ADS for the common share represented by that ADS.

Dividends

The gross amount of cash dividends that you receive (prior to deduction of Korean taxes) generally will be subject to U.S. federal income taxation as foreign source dividend income and will not be eligible for the dividends received deduction. Dividends paid in Won will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of your receipt of the dividend, in the case of common shares, or the depositary’s receipt, in the case of ADSs, regardless of whether the payment is in fact converted into U.S. dollars. If such a dividend is converted into U.S. dollars on the date of receipt, you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income.

Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual with respect to the ADSs will be subject to taxation at a maximum rate of 20.0% if the dividends are “qualified dividends”. Dividends paid on the ADSs will be treated as qualified dividends if (1) the ADSs are readily tradable on an established securities market in the United States and (2) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company as defined for U.S. federal income tax purposes (“PFIC”). The ADSs are listed on the NYSE, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. Based on our audited financial statements, as well as relevant market and shareholder data, we believe that we were not a PFIC with respect to our 2015 taxable year. In addition, based on our audited financial statements and current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 2016 taxable year.

Distributions of additional shares in respect of common shares or ADSs that are made as part of a pro-rata distribution to all of our stockholders generally will not be subject to U.S. federal income tax.

Sale or Other Disposition

For U.S. federal income tax purposes, gain or loss you realize on a sale or other disposition of common shares or ADSs generally will be treated as U.S. source capital gain or loss, and will be long-term capital gain or loss if the

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common shares or ADSs were held for more than one year. Your ability to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder generally is subject to taxation at reduced rates.

Foreign Tax Credit Considerations

You should consult your own tax advisers to determine whether you are subject to any special rules that limit your ability to make effective use of foreign tax credits, including the possible adverse impact of failing to take advantage of benefits under the income tax treaty between the United States and Korea. If no such rules apply, you may claim a credit against your U.S. federal income tax liability for Korean taxes withheld from dividends on the common shares or ADSs, so long as you have owned our common shares or ADSs (and not entered into specified kinds of hedging transactions) for at least a 16-day period that includes the ex-dividend date. Instead of claiming a credit, you may, if you so elect, deduct such Korean taxes in computing your taxable income, subject to generally applicable limitations under U.S. tax law. Korean taxes withheld from a distribution of additional shares that is not subject to U.S. tax may be treated for U.S. federal income tax purposes as imposed on “general category” income. Such treatment could affect your ability to utilize any available foreign tax credit in respect of such taxes.

Any Korean securities transaction tax or agriculture and fishery special surtax that you pay will not be creditable for foreign tax credit purposes.

Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securities and may not be allowed in respect of arrangements in which a U.S. holder’s expected economic profit is insubstantial.

The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions involve the application of complex rules that depend on a U.S. holder’s particular circumstances. You should consult your own tax advisers regarding the creditability or deductibility of such taxes.

U.S. Information Reporting and Backup Withholding Rules

Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (1) is a corporation or other exempt recipient and demonstrates this when required or (2) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of its non-U.S. status in connection with payments received within the United States or through a U.S.-related financial intermediary.

Korean Taxation

The following is a summary of the principal Korean tax consequences to owners of the common shares or ADSs, as the case may be, who are non-resident individuals or non-Korean corporations without a permanent establishment in Korea to which the relevant income is attributable or with which the relevant income is effectively connected (“Non-resident Holders”). The statements regarding Korean tax laws set forth below are based on the laws in force and as interpreted by the Korean taxation authorities as of the date hereof. This summary is not exhaustive of all possible tax considerations which may apply to a particular investor and potential investors are advised to satisfy themselves as to the overall tax consequences of the acquisition, ownership and disposition of the common shares or ADSs, including specifically the tax consequences under Korean law, the laws of the jurisdiction of which they are resident, and any tax treaty between Korea and their country of residence, by consulting their own tax advisors.

Tax on Dividends

Dividends on the common shares or ADSs paid (whether in cash or in shares) to a Non-resident Holder will be subject to Korean withholding taxes at the rate of 22.0% (including local income tax) or such lower rate as is applicable under a treaty between Korea and such Non-resident Holder’s country of tax residence. Free distributions of shares representing a capitalization of certain capital surplus reserves may be subject to Korean withholding taxes.

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The tax is withheld by the payer of the dividend. Since the payer is required to withhold the tax, Korean law does not entitle the person who was subject to the withholding of Korean tax to recover from the Government any part of the Korean tax withheld, even if it subsequently produces evidence that it was entitled to have tax withheld at a lower rate, except in certain limited circumstances.

Tax on Capital Gains

As a general rule, capital gains earned by Non-resident Holders upon transfer of the common shares or ADSs are subject to Korean withholding tax at the lower of (1) 11.0% (including local income tax) of the gross proceeds realized or (2) 22.0% (including local income tax) of the net realized gains (subject to the production of satisfactory evidence of the acquisition costs and certain direct transaction costs), unless exempt from Korean income taxation under the effective Korean tax treaty with the Non-resident Holder’s country of tax residence.

However, a Non-resident Holder will not be subject to Korean income taxation on capital gains realized upon the sale of the common shares through the KRX KOSPI Market if the Non-resident Holder (1) has no permanent establishment in Korea and (2) did not or has not owned (together with any shares owned by any entity with certain special relationship with such Non-resident Holder) 25.0% or more of the total issued and outstanding shares of us at any time during the calendar year in which the sale occurs and during the five calendar years prior to the calendar year in which the sale occurs.

It should be noted that capital gains earned by you (regardless of whether you have a permanent establishment in Korea) from a transfer of ADSs outside Korea will generally be exempt from Korean income taxation, provided that the ADSs are deemed to have been issued overseas. If and when an owner of the underlying common shares transfers the ADSs following the conversion of the underlying shares for ADSs, such person will not be exempt from Korean income taxation.

Inheritance Tax and Gift Tax

Korean inheritance tax is imposed upon (1) all assets (wherever located) of the deceased if at the time of his death he was domiciled in Korea and (2) all property located in Korea which passes on death (irrespective of the domicile of the deceased). Gift tax is imposed in similar circumstances to the above. The taxes are imposed if the value of the relevant property is above a certain limit and vary according to the identity of the parties involved.

Under Korean inheritance and gift tax laws, securities issued by a Korean corporation are deemed to be located in Korea irrespective of where they are physically located or by whom they are owned.

Securities Transaction Tax

Securities transaction tax is imposed on the transfer of shares issued by a Korean corporation or the right to subscribe for such shares generally at the rate of 0.5% of the sales price. In the case of the transfer of shares listed on the KRX KOSPI Market (such as our common shares), the securities transaction tax is imposed generally at the rate of (1) 0.3% of the sales price of such shares (including agricultural and fishery special surtax thereon) if traded on the KRX KOSPI Market or (2) subject to certain exceptions, 0.5% of the sales price of such shares if traded outside the KRX KOSPI Market.

Securities transaction tax or the agricultural and fishery special surtax is not applicable if (1) the shares or rights to subscribe for shares are listed on a designated foreign stock exchange and (2) the sale of the shares takes place on such exchange.

Securities transaction tax, if applicable, must be paid by the transferor of the shares or rights, in principle. When the transfer is effected through a securities settlement company, such settlement company is generally required to withhold and pay (to the tax authority) the tax, and when such transfer is made through a financial investment company with a brokerage license only, such company is required to withhold and pay the tax. Where the transfer is effected by a Non-resident Holder without a permanent establishment in Korea, other than through a securities settlement company or a financial investment company with a brokerage license, the transferee is required to withhold the securities transaction tax. Failure to do so will result in the imposition of penalties equal to the sum of (1) between 10.0% to 40.0% of the tax amount due, depending on the nature of the improper reporting, and (2) 10.95% per annum on the tax amount due for the default period.

105

Tax Treaties

Currently, Korea has income tax treaties with a number of countries, inter alia, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Luxembourg, Ireland, the Netherlands, New Zealand, Norway, Singapore, Sweden, Switzerland, the United Kingdom and the United States under which the rate of withholding tax on dividend and interest is reduced, generally to between 5.0% and 16.5% (including local income tax), and the tax on capital gains derived by a non-resident from the transfer of securities issued by a Korean company is often eliminated.

Each Non-resident Holder of common shares should inquire for itself whether it is entitled to the benefits of a tax treaty with Korea. It is the responsibility of the party claiming the benefits of a tax treaty in respect of interest, dividend, capital gains or “other income” to submit to us (or our agent), the purchaser or the financial investment company with a brokerage license, as the case may be, prior to or at the time of payment, such evidence of tax residence of the party claiming the treaty benefit as the Korean tax authorities may require in support of its claim for treaty protection. In the absence of sufficient proof, we (or our agent), the purchaser or the financial investment company with a brokerage license, as the case may be, must withhold tax at the normal rates.

Furthermore, in order for a non-resident of Korea to obtain the benefits of tax exemption on certain Korean source income (e.g., capital gains and interest) under an applicable tax treaty, Korean tax law requires such non-resident (or its agent) to submit to the payer of such Korean source income an application for a tax exemption along with a certificate of tax residency of such non-resident issued by a competent authority of the non-resident’s country of tax residence, subject to certain exceptions. The payer of such Korean source income, in turn, is required to submit such application to the relevant district tax office by the ninth day of the month following the date of the first payment of such income.

For a non-resident of Korea to obtain the benefits of treaty-reduced tax rates on certain Korean source income (e.g., capital gains and interest) under an applicable tax treaty, Korean tax law requires such non-resident (or its agents) to submit to the payer of such Korean source income an application for treaty-reduced tax rates prior to receipt of such Korean source income; provided, however, that an owner of ADSs who is a non-resident of Korea is not required to submit such application, if the Korean source income on the ADSs is paid through an account opened at the Korea Securities Depository by a foreign depository.

At present, Korea has not entered into any tax treaty relating to inheritance or gift tax.

Item 10.F.

Dividends and Paying Agents

Not applicable.

Item 10.G.

Statements by Experts

Not applicable.

Item 10.H.

Documents on Display

We file reports, including annual reports on Form 20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. You may read and copy any materials filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Any filings we make electronically will be available to the public over the Internet at the SEC’s Website at http://www.sec.gov.

Documents filed with annual reports and documents filed or submitted to the SEC are also available for inspection at our principal business office during normal business hours. Our principal business office is located at SK T-Tower, 65, Eulji-ro, Jung-gu, Seoul 100-999, Korea.

Item 10.I.

Subsidiary Information

Not applicable.

106

Item 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to foreign exchange rate and interest rate risk primarily associated with underlying liabilities and to equity price risk as a result of our investment in equity instruments.

We have entered into floating-to-fixed cross currency swap contracts to hedge foreign currency and interest rate risks with respect to long-term borrowings of US$300 million of bonds issued in March 2013, US$300 million of bonds issued in October 2013 and US$74.8 million of bonds issued in December 2013. In addition, we have entered into fixed-to-fixed cross currency swap contracts to hedge the foreign currency risks of US$400 million of bonds issued in July 2007, CHF 300 million of bonds issued in June 2012, US$700 million of bonds issued in November 2012 and AUD 300 million of bonds issued in January 2013. See note 23 of the notes to our consolidated financial statements. We may consider in the future entering into other such transactions solely for hedging purposes.

The following discussion and tables, which constitute “forward looking statements” that involve risks and uncertainties, summarize our market-sensitive financial instruments including fair value, maturity and contract terms. These tables address market risk only and do not present other risks which we face in the normal course of business, including country risk, credit risk and legal risk.

Exchange Rate Risk

Korea is our main market and, therefore, substantially all of our cash flow is denominated in Won. We are exposed to foreign exchange risk related to foreign currency denominated liabilities. These liabilities relate primarily to foreign currency denominated debt, primarily in Dollars, Franc and Australian Dollars. A 10.0% increase in the exchange rate between the Won and all foreign currencies would result in an increase in profit before income tax of approximately 0.6%, or Won 12.7 billion, with a decrease of 10.0% in the exchange rate having the opposite effect, as of December 31, 2015. For a further discussion of our exchange rate risk exposures, see note 35(1) of the notes to our consolidated financial statements.

Interest Rate Risk

We are also subject to market risk exposure arising from changing interest rates. The following table summarizes the carrying amounts and fair values, maturity and contract terms of our exchange rate and interest sensitive short-term and long-term liabilities as of December 31, 2015:


	Maturities
	2016			2017			2018			2019			2020			Thereafter			Total		Fair Value
	(In billions of Won, except for percentage data)
Local currency:
Fixed-rate	￦	929.5		￦	239.7		￦	416.2		￦	767.0		￦	428.5		￦	2,049.4		￦	4,830.3	￦	5,031.5
Average weighted rate(1)		4.08	%		3.71	%		3.48	%		3.02	%		2.39	%		3.12	%
Sub-total		929.5			239.7			416.2			767.0			428.5			2,049.4			4,830.3		5,031.5
Foreign currency:
Fixed-rate		13.5			623.5			1,178.1			13.5			13.5			482.6			2,324.7		2,560.3
Average weighted rate(1)		1.70	%		2.98	%		2.36	%		1.70	%		1.70	%		6.51	%
Variable rate		—			—			—			—			350.5			—			350.5		350.5
Average weighted rate(1)		—			—			—			—			1.49	%		—
Sub-total		13.5			623.5			1,178.1			13.5			364.0			482.6			2,675.2		2,910.8
Total	￦	943.0		￦	863.2		￦	1,594.3		￦	780.5		￦	792.5		￦	2,532.0		￦	7,505.5	￦	7,942.3

(1)	Weighted average rates of the portfolio at the period end.

A 1.0% point increase in interest rates would result in a decrease in profit before income tax of approximately Won 0.2 billion with a 1.0% point decrease in interest rates having the opposite effect, as of December 31, 2015. For a further discussion of our interest rate risk exposures, see note 35(1) of the notes to our consolidated financial statements.

107

Equity Price Risk

We are also subject to market risk exposure arising from changes in the equity securities market, which affect the fair value of our equity portfolio. As of December 31, 2015, 2014 and 2013, a 10.0% increase in the equity indices where our available-for-sale equity instruments are listed, with all other variables held constant, would have increased our total equity by Won 89.8 billion, Won 54.2 billion and Won 63.4 billion, respectively, with a 10.0% decrease in the equity index having the opposite effect. The foregoing sensitivity analysis assumes that all variables other than changes in the equity index are held constant, and that our available-for-sale equity instruments had moved according to the historical correlation to the index, and as such, does not reflect any correlation between the equity index and other variables. For a further discussion of our equity price risk exposures, see note 35(1) of the notes to our consolidated financial statements.

Item 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Item 12.A.

Debt Securities

Not applicable.

Item 12.B.

Warrants and Rights

Not applicable.

Item 12.C.

Other Securities

Not applicable.

Item 12.D.

American Depositary Shares

Fees and Charges under Deposit Agreement

The ADR depositary will charge the party receiving ADSs up to US$5.00 per 100 ADSs (or fraction thereof), provided that the ADR depositary has agreed to waive such fee as would have been payable by us in the case of (1) an offering of ADSs by us or (2) any distribution of shares of common stock or any rights to subscribe for additional shares of common stock. The ADR depositary will not charge the party to whom ADSs are delivered against deposits. The ADR depositary will charge the party surrendering ADSs for delivery of deposited securities up to US$5.00 per 100 ADSs (or fraction thereof) surrendered. The ADR depositary will also charge the party to whom any cash distribution, or for whom the sale or exercise of rights or other corporate action involving distributions to shareholders, is made with respect to ADSs up to US$0.02 per ADS held plus the expenses of the ADR depositary on a per-ADS basis. We will pay the expenses of the ADR depositary and any entity acting as registrar for the shares only as specified in the deposit agreement. The ADR depositary will pay any other charges and expenses of the ADR depositary and the entity acting as registrar for the shares.

Holders of ADRs must pay (1) taxes and other governmental charges, (2) share transfer registration fees on deposits of shares of common stock, (3) such cable, telex, facsimile transmission and delivery expenses as are expressly provided in the deposit agreement to be at the expense of persons depositing shares of common stock or holders of ADRs and (4) such reasonable expenses as are incurred by the ADR depositary in the conversion of foreign currency into United States dollars.

Notwithstanding any other provision of the deposit agreement, in the event that the ADR depositary determines that any distribution in property (including shares or rights to subscribe therefor or other securities) is subject to any tax or governmental charges which the ADR depositary is obligated to withhold, the ADR depositary may dispose of all or a portion of such property (including shares and rights to subscribe therefor) in such amounts and in such manner as the ADR depositary deems necessary and practicable to pay such taxes or governmental charges, including by public or private sale, and the ADR depositary will distribute the net proceeds of any such sale or the balance of any such property after deduction of such taxes or governmental charges to the holders of ADSs entitled thereto in proportion to the number of ADSs held by them respectively.

108

All such charges may be changed by agreement between the ADR depositary and us at any time and from time to time, subject to the deposit agreement. The right of the ADR depositary to receive payment of fees, charges and expenses shall survive the termination of this deposit agreement and, as to any depositary, the resignation or removal of such depositary pursuant to the deposit agreement.

For a detailed summary of the deposit agreement, see “Item 10.B. Memorandum and Articles of Association — Description of American Depositary Shares.”

Payments made by ADS Depositary

All fees and other direct and indirect payments reimbursed by the depositary are as following:


	Year Ended December 31, 2015
	(In Dollars)
Expenses for preparation of SEC filing and submission	US$	1,829,582
Listing Fees		254,081
Education/Training		278,103
Corporate Action		153,088
Miscellaneous		756,194

Total	US$	3,271,047

109

PART II

Item 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

Item 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

Item 15.

CONTROLS AND PROCEDURES

Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2015. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as of December 31, 2015. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness 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. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS as issued by the IASB. Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2015.

Report of the Independent Registered Public Accounting Firm on the Effectiveness of Our Internal Control Over Financial Reporting

The report of our independent registered public accounting firm, KPMG Samjong Accounting Corp. (“KPMG Samjong”), on the effectiveness of our internal control over financial reporting as of December 31, 2015 is included in Item 18 of this Form 20-F.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

110

Item 16.

RESERVED

Item 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

Dae Shick Oh is the chairman of our audit committee and was elected and designated an “audit committee financial expert” within the meaning of this Item 16A at a meeting of the board of directors in April 2014. The board of directors have further determined that Dae Shick Oh is independent within the meaning of applicable SEC rules and the listing standards of the NYSE. See “Item 6.C. Board Practices — Audit Committee” for additional information regarding our audit committee.

Item 16B.

CODE OF ETHICS

Code of Ethics for Chief Executive Officer, Chief Financial Officer and Controller

We have a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, senior accounting officers and employees. We also have internal control and disclosure policy designed to promote full, fair, accurate, timely and understandable disclosure in all of our reports and publicly filed documents. A copy of our code of ethics is available on our website at www.sktelecom.com. If we amend the provisions of our code of ethics that apply to our Chief Executive Officer, Chief Financial Officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our website.

Item 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The table sets forth the fees we paid to our independent registered public accounting firm KPMG Samjong and its affiliates for the years ended December 31, 2015 and 2014:


	Year Ended December 31,
	2015		2014
	(In millions of Won)
Audit Fees	￦	3,325	￦	3,522
Audit-Related Fees	￦	36	￦	12
Tax Fees	￦	289	￦	408
All Other Fees	￦	0	￦	50

Total	￦	3,650	￦	3,992

“Audit Fees” are the aggregate fees billed by KPMG Samjong for the audit of our consolidated annual financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements.

“Audit-Related Fees” are fees charged by KPMG Samjong for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” This category comprises fees billed for advisory services associated with our financial reporting.

“Tax Fees” are fees for professional services rendered by KPMG Samjong for tax compliance, tax advice on actual or contemplated transactions and tax planning services.

Fees disclosed under the category “All Other Fees” are fees for professional services rendered by KPMG Samjong, primarily for business consulting in connection with our internal control over financial reporting.

Pre-Approval of Audit and Non-Audit Services Provided by Independent Registered Public Accounting Firm

Our audit committee pre-approves all audit services to be provided by KPMG Samjong, our independent registered public accounting firm. Our audit committee’s policy regarding the pre-approval of non-audit services to be provided to us by our independent auditors is that all such services shall be pre-approved by our audit committee. Non-audit services that are prohibited to be provided to us by our independent auditors under the rules of the SEC and applicable law may not be pre-approved. In addition, prior to the granting of any pre-approval, our audit committee must be satisfied that the performance of the services in question will not compromise the independence of our independent registered public accounting firm.

111

Our audit committee did not pre-approve any non-audit services under the de minimis exception of Rule 2-01 (c)(7)(i)(C) of Regulation S-X as promulgated by the SEC.

Item 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

Item 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Neither we nor any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, purchased any of our equity securities during the period covered by this annual report.

Item 16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

Item 16G.

CORPORATE GOVERNANCE

The following is a summary of the significant differences between the NYSE’s corporate governance standards and those that we follow under Korean law.


NYSE Corporate Governance Standards		Our Corporate Governance Practice
Director Independence
Listed companies must have a majority of independent directors.		Of the six members of our board of directors, four are independent directors.
Executive Session
Non-management directors must meet in regularly scheduled executive sessions without management. Independent directors should meet alone in an executive session at least once a year.		Our audit committee, which is comprised solely of three independent directors, holds meetings whenever there are matters related to management directors, and such meetings are generally held once every month.
Nomination/Corporate Governance Committee
Listed companies must have a nomination/corporate governance committee composed entirely of independent directors. The committee must have a charter that addresses the purpose, responsibilities (including development of corporate governance guidelines) and annual performance evaluation of the committee.		Although we do not have a separate nomination/ corporate governance committee, we maintain an independent director nomination committee composed of two independent directors and one management director.
Compensation Committee
Listed companies must have a compensation committee composed entirely of independent directors. The committee must have a charter that addresses the purpose, responsibilities and annual performance evaluation of the committee. The charter must be made available on the company’s website. In addition, in accordance with the U.S. Securities and Exchange Commission rules adopted pursuant to Section 952 of the Dodd-Frank Act, the New York Stock Exchange listing standards were amended to expand the factors relevant in determining whether a committee member has a relationship with the company that will materially affect that member’s duties to the compensation committee.		We maintain a compensation review committee comprised of three independent directors.

112


NYSE Corporate Governance Standards		Our Corporate Governance Practice
Audit Committee
Listed companies must have an audit committee that satisfies the independence and other requirements of Rule 10A 3 under the Exchange Act. All members must be independent. The committee must have a charter addressing the committee’s purpose, an annual performance evaluation of the committee, and the duties and responsibilities of the committee. The charter must be made available on the company’s website.		We maintain an audit committee comprised solely of three independent directors.
Audit Committee Additional Requirements
Listed companies must have an audit committee that is composed of at least three directors.		Our audit committee has three independent directors.
Shareholder Approval of Equity Compensation Plan
Listed companies must allow its shareholders to exercise their voting rights with respect to any material revision to the company’s equity compensation plan.		We currently have two equity compensation plans: a stock option plan for officers and directors and employee stock ownership plan for employees (“ESOP”). We manage such compensation plans in compliance with the applicable laws and our articles of incorporation, provided that, under certain limited circumstances, the grant of stock options or matters relating to ESOP are not subject to shareholders’ approval under Korean law.
Corporate Governance Guidelines
Listed companies must adopt and disclose corporate governance guidelines.		Although we do not maintain separate corporate governance guidelines, we are in compliance with the Korean Commercial Code in connection with such matters, including the governance of the board of directors.
Code of Business Conduct and Ethics
Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees and promptly disclose any waivers of the code for directors or executive officers.		We have adopted a Code of Business Conduct and Ethics for all of our directors, officers and employees, and such code is also available on our website at www.sktelecom.com.

Item 16H.

MINE SAFETY DISCLOSURE

Not applicable.

PART III

Item 17.

FINANCIAL STATEMENTS

Not applicable.

113

Item 18.

FINANCIAL STATEMENTS


Index of Financial Statements			F-1
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements			F-2
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting			F-3
Consolidated Statements of Financial Position as of December 31, 2015 and 2014			F-4
Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013			F-6
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013			F-7
Consolidated Statements of Changes in Equity for the years ended December 31, 2015, 2014 and 2013			F-8
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013			F-10
Notes to the Consolidated Financial Statements for the years ended December 31, 2015, 2014 and 2013			F-12
Financial Statements of SK Hynix
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements			G-1
Consolidated Statements of Financial Position as of December 31, 2015 and 2014			G-2
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013			G-4
Consolidated Statements of Changes in Equity for the years ended December 31, 2015, 2014 and 2013			G-5
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013			G-7
Notes to the Consolidated Financial Statements for the years ended December 31, 2015, 2014 and 2013			G-8

Item 19.

EXHIBITS


Number		Description

1.1		Articles of Incorporation

2.1		Deposit Agreement dated as of May 31, 1996, as amended by Amendment No. 1 dated as of March 15, 1999, Amendment No. 2 dated as of April 24, 2000 and Amendment No. 3 dated as of July 24, 2002, entered into among SK Telecom Co., Ltd., Citibank, N.A., as Depositary, and all Holders and Beneficial Owners of American Depositary Shares (incorporated by reference to Exhibit 2.1 to the Registrant’s Annual Report on Form 20-F filed on June 30, 2006)

8.1		List of Subsidiaries of SK Telecom Co., Ltd.

12.1		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

12.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

13.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

13.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

15.1		Framework Act on Telecommunications, as amended (English translation)

15.2		Enforcement Decree of the Framework Act on Telecommunications, as amended (English translation) (incorporated by reference to Exhibit 15.2 to the Registrant’s Annual Report on Form 20-F filed on June 30, 2011)

15.3		Telecommunications Business Act, as amended (English translation)

15.4		Enforcement Decree of the Telecommunications Business Act, as amended (English translation)

15.5		Government Organization Act, as amended (English translation)

114

INDEX TO FINANCIAL STATEMENTS


	Page
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements		F-2
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting		F-3
Consolidated Statements of Financial Position as of December 31, 2015 and 2014		F-4
Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013		F-6
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013		F-7
Consolidated Statements of Changes in Equity for the years ended December 31, 2015, 2014 and 2013		F-8
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013		F-10
Notes to the Consolidated Financial Statements for the years ended December 31, 2015, 2014 and 2013		F-12

Financial Statements of SK Hynix
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements		G-1
Consolidated Statements of Financial Position as of December 31, 2015 and 2014		G-2
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013		G-4
Consolidated Statements of Changes in Equity for the years ended December 31, 2015, 2014 and 2013		G-5
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013		G-7
Notes to the Consolidated Financial Statements for the years ended December 31, 2015, 2014 and 2013		G-8

F-1

Report of Independent Registered Public Accounting Firm

To The Board of Directors and Shareholders

SK Telecom Co., Ltd.:

We have audited the accompanying consolidated statements of financial position of SK Telecom Co., Ltd. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2015. These consolidated financial statements are the responsibility of SK Telecom Co., Ltd.’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of SK Telecom Co., Ltd. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of SK Telecom Co., Ltd.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 28, 2016, expressed an unqualified opinion on SK Telecom Co., Ltd.’s internal control over financial reporting.

/s/ KPMG Samjong Accounting Corp.

Seoul, Korea

April 28, 2016

F-2

Report of Independent Registered Public Accounting Firm

To The Board of Directors and Shareholders

SK Telecom Co., Ltd.:

We have audited the internal control over financial reporting of SK Telecom Co., Ltd. as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. SK Telecom Co., Ltd.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on SK Telecom Co., Ltd.’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness 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.

In our opinion, SK Telecom Co., Ltd. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), consolidated statements of financial position of SK Telecom Co., Ltd. and its subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2015, and our report dated April 28, 2016, expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG Samjong Accounting Corp.

Seoul, Korea

April 28, 2016

F-3

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Financial Position

As of December 31, 2015 and 2014


(In millions of won)	*Note*		December 31, 2015		December 31, 2014
Assets
Current Assets:
Cash and cash equivalents		34,35	￦	768,922		834,429
Short-term financial instruments		6,34,35,36,37		691,090		313,068
Short-term investment securities		9,34,35		92,262		280,161
Accounts receivable — trade, net		7,34,35,36		2,344,867		2,392,150
Short-term loans, net		7,34,35,36		53,895		74,512
Accounts receivable — other, net		7,34,35,36		673,739		690,527
Prepaid expenses				151,978		134,404
Inventories, net		8,37		273,556		267,667
Assets classified as held for sale		10		—		10,510
Advanced payments and other		7,9,34,35,36		109,933		85,720

Total Current Assets				5,160,242		5,083,148

Non-Current Assets:
Long-term financial instruments		6,34,35,37		10,623		631
Long-term investment securities		9,34,35		1,207,226		956,280
Investments in associates and joint ventures		13		6,896,293		6,298,088
Property and equipment, net		14,36,37		10,371,256		10,567,701
Investment property, net		15		15,071		14,997
Goodwill		16		1,908,590		1,917,595
Intangible assets, net		17		2,304,784		2,483,994
Long-term loans, net		7,34,35,36		62,454		55,728
Long-term accounts receivable — other		7,34,35		2,420		3,596
Long-term prepaid expenses		37		76,034		51,961
Guarantee deposits		6,7,34,35,36		297,281		285,144
Long-term derivative financial assets		23,34,35		166,399		70,035
Deferred tax assets		31		17,257		25,083
Other non-current assets		7,34,35		85,457		127,252

Total Non-Current Assets				23,421,145		22,858,085

Total Assets			￦	28,581,387		27,941,233

F-4

See accompanying notes to the consolidated financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Financial Position — (Continued)

As of December 31, 2015 and 2014


(In millions of won)	*Note*		December 31, 2015			December 31, 2014
Liabilities and Equity
Current Liabilities:
Short-term borrowings		18,34,35	￦	260,000			366,600
Current installments of long-term debt, net		18,34,35		703,087			590,714
Current installments of finance lease liabilities		21,34,35		26			3,804
Current installments of long-term payables — other		19,34,35		120,185			189,389
Accounts payable — trade		34,35,36		279,782			275,495
Accounts payable — other		34,35,36		1,323,434			1,381,850
Withholdings		34,35,36		865,327			1,053,063
Accrued expenses		34,35		920,739			952,418
Income tax payable		31		381,794			99,236
Unearned revenue				224,233			327,003
Provisions		20		40,988			51,075
Advanced receipts				136,844			129,255
Liabilities classified as held for sale		10		—			408
Other current liabilities				54			—

Total Current Liabilities				5,256,493			5,420,310

Non-Current Liabilities:
Debentures, excluding current installments, net		18,34,35		6,439,147			5,649,158
Long-term borrowings, excluding current installments		18,34,35		121,553			149,720
Long-term payables — other		19,34,35		581,697			684,567
Long-term unearned revenue				2,842			19,659
Finance lease liabilities		21,34,35		—			26
Defined benefit liabilities		22		98,856			91,587
Long-term derivative financial liabilities		23,34,35		89,296			130,889
Long-term provisions		20		29,217			36,013
Deferred tax liabilities		31		538,114			444,211
Other non-current liabilities		34,35		50,076			66,823

Total Non-Current Liabilities				7,950,798			7,272,653

Total Liabilities				13,207,291			12,692,963

Equity
Share capital		1,24		44,639			44,639
Capital surplus (deficit) and other capital adjustments		24,25		(209,008	)		(120,520	)
Hybrid bonds		26		398,518			398,518
Retained earnings		27		15,007,627			14,188,591
Reserves		28		9,303			(4,489	)

Equity attributable to owners of the Parent Company				15,251,079			14,506,739
Non-controlling interests				123,017			741,531

Total Equity				15,374,096			15,248,270

Total Liabilities and Equity			￦	28,581,387			27,941,233

See accompanying notes to the consolidated financial statements.

F-5

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Income

For the years ended December 31, 2015, 2014 and 2013


(In millions of won except for per share data)	*Note*		2015			2014			2013
Continuing operations
Operating revenue and other income:		5,36
Revenue			￦	17,136,734			17,163,798			16,602,054
Other income		29		30,935			56,471			74,954

				17,167,669			17,220,269			16,677,008

Operating expense:		36
Labor cost		22		1,893,745			1,659,777			1,561,358
Commissions paid				5,206,951			5,692,680			5,498,695
Depreciation and amortization		5		2,845,295			2,714,730			2,661,623
Network interconnection				957,605			997,319			1,043,733
Leased line				389,819			399,014			448,833
Advertising				405,005			415,857			394,066
Rent				493,586			460,309			443,639
Cost of products that have been resold				1,955,861			1,680,110			1,300,375
Other operating expenses		29		1,524,377			1,592,647			1,746,283

				15,672,244			15,612,443			15,098,605

Operating income		5		1,495,425			1,607,826			1,578,403
Finance income		5,30		103,900			126,337			113,392
Finance costs		5,30		(350,100	)		(386,673	)		(571,203	)
Gain related to investments in subsidiaries, associates and joint ventures, net		1,5,13		786,140			906,338			706,509

Profit before income tax				2,035,365			2,253,828			1,827,101

Income tax expense from continuing operations		31		519,480			454,508			400,797

Profit from continuing operations				1,515,885			1,799,320			1,426,304

Discontinued operation
Profit from discontinued operations, net of income taxes		38		—			—			183,245

Profit for the year			￦	1,515,885			1,799,320			1,609,549

Attributable to :
Owners of the Parent Company			￦	1,518,604			1,801,178			1,638,964
Non-controlling interests				(2,719	)		(1,858	)		(29,415	)
Earnings per share		32
Basic earnings per share (in Won)			￦	20,988			25,154			23,211

Diluted earnings per share (in Won)			￦	20,988			25,154			23,211

Earnings per share — Continuing operations		32
Basic earnings per share (in Won)			￦	20,988			25,154			20,708

Diluted earnings per share (in Won)			￦	20,988			25,154			20,708

See accompanying notes to the consolidated financial statements.

F-6

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2015, 2014 and 2013


(In millions of won)	*Note*		2015			2014			2013
Profit for the year			￦	1,515,885			1,799,320			1,609,549
Other comprehensive income (loss)
Items that will never be reclassified to profit or loss, net of taxes:
Remeasurement of defined benefit liabilities		22		(14,489	)		(32,942	)		5,946
Items that are or may be reclassified subsequently to profit or loss, net of taxes:
Net change in unrealized fair value of available-for-sale financial assets		28,30		(3,661	)		27,267			2,009
Net change in other comprehensive income of investments in associates and joint ventures		13,28		(5,709	)		8,187			3,034
Net change in unrealized fair value of derivatives		23,28,30		(1,271	)		(45,942	)		11,222
Foreign currency translation differences for foreign operations		28		26,965			14,944			(3,714	)

Other comprehensive income (loss) for the year				1,835			(28,486	)		18,497

Total comprehensive income			￦	1,517,720			1,770,834			1,628,046

Total comprehensive income attributable to:
Owners of the Parent Company			￦	1,522,280			1,777,519			1,655,570
Non-controlling interests				(4,560	)		(6,685	)		(27,524	)

See accompanying notes to the consolidated financial statements.

F-7

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Changes in Equity

For the years ended December 31, 2015, 2014 and 2013


(In millions of won)
	Controlling interest																Non- controlling interests
	Share capital		Capital surplus (deficit) and other capital adjustments			Hybrid bonds		Retained earnings			Reserves			Sub-total			Non- controlling interests			Total equity
Balance, January 1, 2013	￦	44,639		(288,883	)		—		12,124,657			(25,636	)		11,854,777			1,000,005			12,854,782
Cash dividends		—		—			—		(655,946	)		—			(655,946	)		(2,242	)		(658,188	)
Total comprehensive income
Profit (loss) for the year		—		—			—		1,638,964			—			1,638,964			(29,415	)		1,609,549
Other comprehensive income		—		—			—		3,240			13,366			16,606			1,891			18,497

		—		—			—		1,642,204			13,366			1,655,570			(27,524	)		1,628,046
Issuance of hybrid bonds		—		—			398,518		—			—			398,518			—			398,518
Interest on hybrid bonds		—		—			—		(8,420	)		—			(8,420	)		—			(8,420	)
Treasury stock		—		271,536			—		—			—			271,536			—			271,536
Business combination under common control		—		(61,854	)		—		—			—			(61,854	)		—			(61,854	)
Changes in ownership in subsidiaries		—		(1,809	)		—		—			—			(1,809	)		(256,054	)		(257,863	)

Balance, December 31, 2013	￦	44,639		(81,010	)		398,518		13,102,495			(12,270	)		13,452,372			714,185			14,166,557

Balance, January 1, 2014	￦	44,639		(81,010	)		398,518		13,102,495			(12,270	)		13,452,372			714,185			14,166,557
Cash dividends		—		—			—		(666,802	)		—			(666,802	)		(170	)		(666,972	)
Total comprehensive income
Profit (loss) for the year		—		—			—		1,801,178			—			1,801,178			(1,858	)		1,799,320
Other comprehensive income (loss)		—		—			—		(31,440	)		7,781			(23,659	)		(4,827	)		(28,486	)

		—		—			—		1,769,738			7,781			1,777,519			(6,685	)		1,770,834
Interest on hybrid bonds		—		—			—		(16,840	)		—			(16,840	)		—			(16,840	)
Changes in consolidation scope		—		—			—		—			—			—			23,667			23,667
Business combination under common control		—		(28,641	)		—		—			—			(28,641	)		—			(28,641	)
Changes in ownership in subsidiaries		—		(10,869	)		—		—			—			(10,869	)		10,534			(335	)

Balance, December 31, 2014	￦	44,639		(120,520	)		398,518		14,188,591			(4,489	)		14,506,739			741,531			15,248,270

See accompanying notes to the consolidated financial statements.

F-8

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Changes in Equity — (Continued)

For the years ended December 31, 2015, 2014 and 2013


(In millions of won)
	Controlling interest																Non- controlling interests
	Share capital		Capital surplus (deficit) and other capital adjustments			Hybrid bonds		Retained earnings			Reserves			Sub-total			Non- controlling interests			Total equity
Balance, January 1, 2015	￦	44,639		(120,520	)		398,518		14,188,591			(4,489	)		14,506,739			741,531			15,248,270
Cash dividends		—		—			—		(668,494	)		—			(668,494	)		(143	)		(668,637	)
Total comprehensive income
Profit (loss) for the year		—		—			—		1,518,604			—			1,518,604			(2,719	)		1,515,885
Other comprehensive income (loss)		—		—			—		(13,402	)		17,078			3,676			(1,841	)		1,835

		—		—			—		1,505,202			17,078			1,522,280			(4,560	)		1,517,720
Interest on hybrid bond		—		—			—		(16,840	)		—			(16,840	)		—			(16,840	)
Acquisition of treasury stock		—		(490,192	)		—		—			—			(490,192	)		—			(490,192	)
Disposal of treasury stock		—		425,744					—			—			425,744			—			425,744
Changes in consolidation scope		—		—			—		—			—			—			(5,226	)		(5,226	)
Changes in ownership in subsidiaries		—		(24,040	)		—		(832	)		(3,286	)		(28,158	)		(608,585	)		(636,743	)

Balance, December 31, 2015	￦	44,639		(209,008	)		398,518		15,007,627			9,303			15,251,079			123,017			15,374,096

See accompanying notes to the consolidated financial statements.

F-9

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2015, 2014 and 2013


(In millions of won)	2015			2014			2013
Cash flows from operating activities:
Cash generated from operating activities
Profit for the year	￦	1,515,885			1,799,320			1,609,549
Adjustments for income and expenses (Note 39)		3,250,143			2,978,995			3,275,376
Changes in assets and liabilities related to operating activities (Note 39)		(685,734	)		(707,333	)		(969,870	)

Sub-total		4,080,294			4,070,982			3,915,055
Interest received		43,400			56,706			64,078
Dividends received		62,973			13,048			10,197
Interest paid		(275,796	)		(280,847	)		(300,104	)
Income tax paid		(132,742	)		(182,504	)		(130,656	)

Net cash provided by operating activities		3,778,129			3,677,385			3,558,570

Cash flows from investing activities:
Cash inflows from investing activities:
Decrease in short-term financial instruments, net		—			5,627			186,425
Decrease in short-term investment securities, net		105,158			—			—
Collection of short-term loans		398,308			207,439			290,856
Decrease in long-term financial instruments		7,424			2,535			16
Proceeds from disposals of long-term investment securities		149,310			65,287			287,777
Proceeds from disposals of investments in associates and joint ventures		185,094			7,333			43,249
Proceeds from disposals of property and equipment		36,586			25,143			12,579
Proceeds from disposals of intangible assets		3,769			10,917			2,256
Proceeds from disposal of assets held for sale		1,009			3,667			190,393
Collection of long-term loans		2,132			4,454			13,104
Decrease in deposits		14,635			8,891			8,509
Proceeds from disposals of other non-current assets		607			94			683
Proceeds from disposals of subsidiaries		155			—			215,939
Increase in cash due to acquisitions of subsidiaries		10,355			—			—

Sub-total		914,542			341,387			1,251,786
Cash outflows for investing activities:
Increase in short-term financial instruments, net		(385,612	)		—			—
Increase in short-term investment securities, net		—			(174,209	)		(45,032	)
Increase in short-term loans		(370,378	)		(202,501	)		(279,926	)
Increase in long-term loans		(16,701	)		(4,341	)		(4,050	)
Increase in long-term financial instruments		(10,008	)		(2,522	)		(7,510	)
Acquisitions of long-term investment securities		(312,261	)		(41,305	)		(22,141	)
Acquisitions of investments in associates and joint ventures		(65,080	)		(60,020	)		(97,366	)
Acquisitions of property and equipment		(2,478,778	)		(3,008,026	)		(2,879,126	)
Acquisitions of intangible assets		(127,948	)		(130,667	)		(243,163	)
Cash held by disposal group classified as held for sale		—			(552	)		—
Increase in deposits		(12,536	)		(6,903	)		(83,314	)
Increase in other non-current assets		(2,542	)		(18,233	)		(1,830	)
Acquisitions of businesses, net of cash acquired		(13,197	)		(375,273	)		(94,805	)

Sub-total		(3,795,041	)		(4,024,552	)		(3,758,263	)

Net cash used in investing activities	￦	(2,880,499	)		(3,683,165	)		(2,506,477	)

See accompanying notes to the consolidated financial statements.

F-10

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Cash Flows — (Continued)

For the years ended December 31, 2015, 2014 and 2013


(In millions of won)	2015			2014			2013
Cash flows from financing activities:
Cash inflows from financing activities:
Increase in short-term borrowings, net	￦	—			102,868			—
Proceeds from issuance of debentures		1,375,031			1,255,468			1,328,694
Proceeds from long-term borrowings		—			62,552			105,055
Proceeds from issuance of hybrid bonds		—			—			398,518
Cash inflows from settlement of derivatives		175			200			19,970

Sub-total		1,375,206			1,421,088			1,852,237
Cash outflows for financing activities:
Decrease in short-term borrowings, net		(106,600	)		—			(340,245	)
Repayments of long-term account payables-other		(191,436	)		(207,791	)		(161,575	)
Repayments of debentures		(620,000	)		(1,039,938	)		(771,976	)
Repayments of long-term borrowings		(21,924	)		(23,284	)		(467,217	)
Cash outflows from settlement of derivatives		(655	)		(6,444	)		—
Payments of finance lease liabilities		(3,206	)		(19,388	)		(20,342	)
Payments of dividends		(668,494	)		(666,802	)		(655,946	)
Payments of interest on hybrid bonds		(16,840	)		(16,840	)		—
Acquisitions of treasury stock		(490,192	)		—			—
Cash outflows related to equity interest transactions		(220,442	)		—			(8,093	)

Sub-total		(2,339,789	)		(1,980,487	)		(2,425,394	)

Net cash used in financing activities		(964,583	)		(559,399	)		(573,157	)

Net increase (decrease) in cash and cash equivalents		(66,953	)		(565,179	)		478,936
Cash and cash equivalents at beginning of the year		834,429			1,398,639			920,125
Effects of exchange rate changes on cash and cash equivalents		1,446			969			(422	)

Cash and cash equivalents at end of the year	￦	768,922			834,429			1,398,639

See accompanying notes to the consolidated financial statements.

F-11

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015, 2014 and 2013

1.	Reporting Entity

(1) General

SK Telecom Co., Ltd. (“the Parent Company”) was incorporated in March 1984 under the laws of the Republic of Korea (“Korea”) to engage in providing cellular telephone communication services in Korea. The Parent Company mainly provides wireless telecommunications in Korea. The Parent Company’s common shares and depositary receipts (DRs) are listed on the Stock Market of Korea Exchange, the New York Stock Exchange and the London Stock Exchange. As of December 31, 2015, the Parent Company’s total issued shares are held by the following:


	Number of shares		Percentage of total shares issued (%)
SK Holdings Co., Ltd.(*)		20,363,452		25.22
National Pension Service		6,963,591		8.63
Institutional investors and other minority stockholders		43,282,117		53.60
Treasury stock		10,136,551		12.55

Total number of shares		80,745,711		100.00

(*) During the year ended December 31, 2015, SK C&C Co., Ltd., the ultimate controlling entity’s investee accounted using the equity method, merged SK Holdings Co., Ltd., the ultimate controlling entity of the Parent Company, and changed its name to SK Holdings Co., Ltd.

These consolidated financial statements comprise the Parent Company and its subsidiaries (together referred to as the “Group” and individuals as “Group entities”). SK Holdings Co., Ltd. is the ultimate controlling entity of the Parent Company.

(2) List of subsidiaries

The list of subsidiaries as of December 31, 2015 and 2014 is as follows:

Ownership (%)

Subsidiary

Location

Primary business

Dec. 31,
2015

Dec. 31,
2014

SK Telink Co., Ltd.

Korea

Telecommunication and MVNO service

83.5

M&Service Co., Ltd.

Korea

Data base and internet website service

100.0

SK Communications Co., Ltd.

Korea

Internet website services

64.6

Stonebridge Cinema Fund

Korea

Investment association

55.2

56.0

Commerce Planet Co., Ltd.

Korea

Online shopping mall operation agency

100.0

SK Broadband Co., Ltd.(*1,4)

Korea

Telecommunication services

100.0

50.6

K-net Culture and Contents Venture Fund

Korea

Investment association

59.0

Fitech Focus Limited Partnership II

Korea

Investment association

66.7

Open Innovation Fund

Korea

Investment association

98.9

PS&Marketing Corporation

Korea

Communications device retail business

100.0

Service Ace Co., Ltd.

Korea

Customer center management service

100.0

Service Top Co., Ltd.

Korea

Customer center management service

100.0

Network O&S Co., Ltd.

Korea

Base station maintenance service

100.0

BNCP Co., Ltd.(*5)

Korea

Internet website services

—

100.0

Iconcube Holdings, Inc.(*5)

Korea

Investment association

—

100.0

Iconcube, Inc.(*5)

Korea

Internet website services

—

100.0

F-12

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

Ownership (%)

Subsidiary

Location

Primary business

Dec. 31,
2015

Dec. 31,
2014

SK Planet Co., Ltd.

Korea

Telecommunication service

100.0

Neosnetworks Co., Ltd.(*2)

Korea

Guarding of facilities

83.9

66.7

IRIVER LIMITED(*3)

Korea

Manufacturing digital audio players and other portable media devices.

49.0

Iriver CS Co., Ltd.(*5)

Korea

After-sales service and logistics agency

—

100.0

iriver Enterprise Ltd.

Hong Kong

Management of Chinese subsidiary

100.0

iriver America Inc.

USA

Marketing and sales in North America

100.0

iriver Inc.

USA

Marketing and sales in North America

100.0

iriver China Co., Ltd.

China

Sales and manufacturing MP3,4 in China

100.0

Dongguan iriver Electronics Co., Ltd.

China

Sales and manufacturing e-book in China

100.0

Groovers JP Ltd.(*5)

Japan

Digital music contents sourcing and distribution service

100.0

—

SK Telecom China Holdings Co., Ltd.

China

Investment association

100.0

Shenzhen E-eye High Tech Co., Ltd.(*5)

China

Manufacturing

—

65.5

SK Global Healthcare Business Group, Ltd.

Hong Kong

Investment association

100.0

SK Planet Japan, K. K.

Japan

Digital contents sourcing service

100.0

SKT Vietnam PTE. Ltd.

Singapore

Telecommunication service

73.3

SK Planet Global PTE. Ltd.

Singapore

Digital contents sourcing service

100.0

SKP GLOBAL HOLDINGS PTE. LTD.

Singapore

Investment association

100.0

SKT Americas, Inc.

USA

Information gathering and consulting

100.0

SKP America LLC.

USA

Digital contents sourcing service

100.0

YTK Investment Ltd.

Cayman

Investment association

100.0

Atlas Investment

Cayman

Investment association

100.0

Technology Innovation Partners, L.P.

USA

Investment association

100.0

SK Telecom China Fund I L.P.

Cayman

Investment association

100.0

Entrix Co., Ltd.(*5)

Korea

Cloud streaming services

100.0

—

shopkick Management Company, Inc.

USA

Investment association

95.2

shopkick, Inc.

USA

Mileage-based online transaction app development

100.0

(*1)

On March 20, 2015, the Board of Directors of the Parent Company decided to grant 0.0168936 share of its treasury stock in exchange for 1 share of SK Broadband Co., Ltd., a subsidiary of the Parent Company, to the shareholders of SK Broadband Co., Ltd. as of June 9, 2015. After the stock exchange, SK Broadband Co., Ltd. became a wholly-owned subsidiary of the Parent Company.

(*2)

Due to the shareholders’ agreement which grants put option to the non-controlling shareholders, this entity is consolidated as a wholly owned subsidiary in the consolidated financial statements. The Parent Company newly acquired 50,377 and 326,748 shares of Neosnetworks Co., Ltd. by participating in the capital increase and capital increase without consideration, respectively during the year ended December 31, 2015.

(*3)	Although the Group has less than 50% of the voting rights of IRIVER LIMITED, it is considered to have de facto control since the Group holds significantly more voting rights than any other vote holder or organized group of vote holders, and the other shareholdings are widely dispersed.

(*4)

On November 2, 2015, the board of directors of the Parent Company entered into a share purchase agreement to acquire 30%(23,234,060 shares) of the issued and outstanding common shares of CJ Hello Vision Co., Ltd. (“CJ Hello Vision”) from CJ O Shopping Co., Ltd. (“CJ O Shopping”) for an aggregate purchase price of

F-13

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

￦500 billion. According to the share purchase agreement, the Parent Company will grant put option (exercisable at a price of ￦26,994 during the two year period following the third anniversary of the transaction closing date) to CJ O Shopping and be granted call option (exercisable at a price of ￦26,994 during the five year period following the closing date) on CJ O Shopping’s remaining shares in CJ Hello Vision. On November 2, 2015, the board of directors of SK Broadband Co., Ltd. (“SK Broadband”), a subsidiary of the Parent Company, held a meeting to resolve the merger of SK Broadband into CJ Hello Vision, and SK Broadband entered into a merger agreement with CJ Hello Vision. Under the agreement, SK Broadband will be merged into CJ Hello Vision on or after the transaction closing date through an exchange of shares, after which the Parent Company will have a 78.3% equity interest in the merged company. As of December 31, 2015, the approval of relevant government agencies for the share purchase and the merger has not been completed, and the transaction closing date is subject to be changed depending on various conditions including the approval of government agencies.

(*5)	Changes in subsidiaries are explained in Note 1-(4).

In accordance with the Group’s accounting policy relating to the scope of consolidation, small-sized subsidiaries including IM Shopping Inc. were excluded from the list of subsidiaries as the effects on the Group’s consolidated financial statements are not material considering both individual and overall quantitative and qualitative effects.

F-14

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(3) Condensed financial information of subsidiaries

Condensed financial information of subsidiaries as of and for the year ended December 31, 2015 is as follows:


(In millions of won)
Subsidiary	Total assets		Total liabilities		Total equity (deficit)			Revenue		Profit (loss)
SK Telink Co., Ltd.	￦	309,955		113,878		196,077			431,368		55,781
M&Service Co., Ltd.		89,452		42,414		47,038			143,255		5,549
SK Communications Co., Ltd.		152,496		35,014		117,482			80,147		(14,826	)
Stonebridge Cinema Fund		7,797		523		7,274			—		3,290
Commerce Planet Co., Ltd.		26,291		33,660		(7,369	)		78,647		(3,003	)
SK Broadband Co., Ltd.		3,291,707		2,170,484		1,121,223			2,731,344		10,832
K-net Culture and Contents Venture Fund		13,169		—		13,169			—		(421	)
Fitech Focus Limited Partnership II		18,249		—		18,249			—		(1,085	)
Open Innovation Fund		19,455		—		19,455			—		(2,348	)
PS&Marketing Corporation		509,580		300,364		209,216			1,791,944		4,835
Service Ace Co., Ltd.		65,424		34,240		31,184			206,338		2,778
Service Top Co., Ltd.		61,897		38,482		23,415			197,092		4,396
Network O&S Co., Ltd.		77,426		48,069		29,357			210,676		6,466
SK Planet Co., Ltd.		2,406,988		784,631		1,622,357			1,624,630		(75,111	)
Neosnetworks Co., Ltd.		68,361		15,583		52,778			61,092		(5,615	)
IRIVER LIMITED(*1)		60,434		12,377		48,057			55,637		635
SK Telecom China Holdings Co., Ltd.		37,748		2,111		35,637			10,764		(10,124	)
SK Global Healthcare Business Group, Ltd.		25,768		—		25,768			—		(106	)
SK Planet Japan, K. K.		5,068		1,021		4,047			699		(4,988	)
SKT Vietnam PTE. Ltd.		4,523		1,371		3,152			—		—
SK Planet Global PTE. Ltd.		1,570		218		1,352			1		(4,069	)
SKP GLOBAL HOLDINGS PTE. LTD.		28,320		16		28,304			—		(23,918	)
SKT Americas, Inc.		51,138		837		50,301			9,132		(3,204	)
SKP America LLC.		380,141		—		380,141			—		791
YTK Investment Ltd.		16,318		—		16,318			—		(3,210	)
Atlas Investment(*2)		77,750		199		77,551			—		(2,429	)
Entrix Co., Ltd.		30,876		3,186		27,690			4,895		(1,826	)
shopkick Management Company, Inc.		306,248		7		306,241			7		(2,455	)
shopkick, Inc.		25,388		32,243		(6,855	)		33,851		(52,390	)

(*1)	The condensed financial information of IRIVER LIMITED includes financial information of iriver Enterprise Ltd., iriver America Inc., iriver Inc., iriver China Co., Ltd., Dongguan iriver Electronics Co., Ltd. and Groovers JP Ltd., subsidiaries of IRIVER LIMITED.

(*2)	The financial information of Atlas Investment includes financial information of Technology Innovation Partners, L.P. and SK Telecom China Fund I L.P., subsidiaries of Atlas Investment.

F-15

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

Condensed financial information of subsidiaries as of and for the year ended December 31, 2014 is as follows:


(In millions of won)
Subsidiary	Total assets		Total liabilities		Total equity (deficit)			Revenue		Profit (loss)
SK Telink Co., Ltd.	￦	324,028		184,074		139,954			465,463		13,073
M&Service Co., Ltd.		78,826		36,817		42,009			133,789		7,458
SK Communications Co., Ltd.		176,168		41,987		134,181			93,910		(18,386	)
Stonebridge Cinema Fund		11,137		320		10,817			—		383
Commerce Planet Co., Ltd.		26,078		27,259		(1,181	)		64,509		933
SK Broadband Co., Ltd.		3,109,991		1,988,379		1,121,612			2,654,381		4,307
K-net Culture and Contents Venture Fund		21,094		4		21,090			—		4,920
Fitech Focus Limited Partnership II		19,301		—		19,301			—		(2,055	)
Open Innovation Fund		21,765		—		21,765			—		(6,266	)
PS&Marketing Corporation		544,292		336,221		208,071			1,627,217		2,817
Service Ace Co., Ltd.		66,336		37,770		28,566			207,427		3,570
Service Top Co., Ltd.		57,032		36,723		20,309			188,835		3,503
Network O&S Co., Ltd.		71,348		45,770		25,578			211,916		3,823
BNCP Co., Ltd.		6,785		5,887		898			12,869		(1,505	)
Iconcube Holdings, Inc.(*1)		1,415		515		900			630		(2,284	)
SK Planet Co., Ltd.		2,579,286		746,832		1,832,454			1,512,492		1,593
Neosnetworks Co., Ltd.		31,633		13,251		18,382			33,302		(1,989	)
IRIVER LIMITED(*2)		61,945		14,392		47,553			53,192		2,345
SK Telecom China Holdings Co., Ltd.		37,877		2,335		35,542			12,420		1,058
Shenzhen E-eye High Tech Co., Ltd.		15,566		408		15,158			3,637		(1,143	)
SK Global Healthcare Business Group, Ltd.		25,874		—		25,874			—		(689	)
SK Planet Japan, K. K.		5,222		1,638		3,584			93		(4,561	)
SKT Vietnam PTE. Ltd.		4,242		1,286		2,956			—		(73	)
SK Planet Global PTE. Ltd.		4,215		64		4,151			87		(2,543	)
SKP GLOBAL HOLDINGS PTE. LTD.		29,529		11		29,518			—		(9,716	)
SKT Americas, Inc.		42,159		554		41,605			9,100		(5	)
SKP America LLC.		297,981		67		297,914			—		(2,370	)
YTK Investment Ltd.		27,944		—		27,944			—		(15,259	)
Atlas Investment(*3)		66,825		94		66,731			—		(6,626	)
shopkick Management Company, Inc.		230,925		—		230,925			—		—
shopkick, Inc.		28,216		13,698		14,518			—		—

(*1)	The condensed financial information of Iconcube Holdings, Inc. includes financial information of Iconcube, Inc., a subsidiary of Iconcube Holdings, Inc.

(*2)	The condensed financial information of IRIVER LIMITED includes financial information of iriver CS Co., Ltd., iriver Enterprise Ltd., iriver America Inc., iriver Inc., iriver China Co., Ltd., and Dongguan iriver Electronics Co., Ltd., subsidiaries of IRIVER LIMITED.

(*3)	The financial information of Atlas Investment includes financial information of Technology Innovation Partners, L.P. and SK Telecom China Fund I L.P., subsidiaries of Atlas Investment.

F-16

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

Condensed financial information of subsidiaries as of and for the year ended December 31, 2013 is as follows:


(In millions of won)
Subsidiary	Total assets		Total liabilities		Total equity (deficit)			Revenue		Profit (loss)
SK Telink Co., Ltd.	￦	252,475		125,807		126,668			433,276		16,024
M&Service Co., Ltd.		68,587		32,626		35,961			130,178		4,176
SK Communications Co., Ltd.		205,792		53,755		152,037			128,272		(41,893	)
Stonebridge Cinema Fund		11,974		377		11,597			1		1,320
Commerce Planet Co., Ltd.		26,237		27,333		(1,096	)		56,565		587
SK Broadband Co., Ltd.		3,044,349		1,916,721		1,127,628			2,539,366		12,306
K-net Culture and Contents Venture Fund		16,181		12		16,169			—		(16,595	)
Fitech Focus Limited Partnership II		21,446		—		21,446			—		(1,179	)
Open Innovation Fund		27,996		—		27,996			—		(15,408	)
PS&Marketing Corporation		277,300		141,356		135,944			1,095,647		1,369
Service Ace Co., Ltd.		56,276		30,667		25,609			187,961		2,995
Service Top Co., Ltd.		48,369		30,634		17,735			159,364		3,484
Network O&S Co., Ltd.		56,677		32,353		24,324			198,664		2,060
BNCP Co., Ltd.		12,108		6,433		5,675			14,819		(9,019	)
SK Planet Co., Ltd.		2,528,054		766,841		1,761,213			1,378,211		201,556
SK Telecom China Holdings Co., Ltd.		36,261		2,052		34,209			17,025		613
Shenzhen E-eye High Tech Co., Ltd.		17,894		1,841		16,053			7,703		(789	)
SK Global Healthcare Business Group, Ltd.		27,625		—		27,625			—		831
SK Planet Japan, K. K.		1,793		280		1,513			394		(1,635	)
SKT Vietnam PTE. Ltd.		11,773		8,862		2,911			—		(28,086	)
SK Planet Global PTE. Ltd.		697		149		548			331		(1,420	)
SKP GLOBAL HOLDINGS PTE. LTD.		20,713		9		20,704			—		1,542
SKT Americas, Inc.		33,876		1,315		32,561			9,207		(6,544	)
SKP America LLC.		22,399		12		22,387			—		—
YTK Investment Ltd.		42,118		—		42,118			—		(21,764	)
Atlas Investment(*)		40,218		101		40,117			—		(8,248	)

(*)	The financial information of Atlas Investment includes financial information of Technology Innovation Partners, L.P. and SK Telecom China Fund I L.P., subsidiaries of Atlas Investment.

(4) Changes in subsidiaries

The list of subsidiaries that were newly included in consolidation during the year ended December 31, 2015 is as follows:


Subsidiary		Reason
Groovers JP Ltd.		Established by IRIVER LIMITED, a subsidiary of the Parent Company during the year ended December 31, 2015.

Entrix Co., Ltd		Established by spin-off from SK Planet Co., Ltd., a subsidiary of the Parent Company.

F-17

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

The list of subsidiaries that were excluded from subsidiaries during the year ended December 31, 2015 is as follows:


Subsidiary		Reason
BNCP Co., Ltd.		Disposed during the year ended December 31, 2015.

Iconcube Holdings, Inc.		Disposed during the year ended December 31, 2015.

Iconcube, Inc.		Disposed during the year ended December 31, 2015.

Iriver CS Co., Ltd.		Merged into IRIVER LIMITED, a subsidiary of the Parent Company during the year ended December 31, 2015.

Shenzhen E-eye High Tech Co., Ltd.		Disposed during the year ended December 31, 2015.

(5) The information of significant non-controlling interests of the Group as of and for the years ended December 31, 2015, 2014 and 2013 are as follows. There were no dividends paid during the years ended December 31, 2015, 2014 and 2013 by subsidiaries of which non-controlling interests are significant.


(In millions of won)
	December 31, 2015
	SK Communications Co., Ltd.
Ownership of non-controlling interests (%)		35.4
Current assets	￦	95,662
Non-current assets		56,834
Current liabilities		(33,306	)
Non-current liabilities		(1,708	)
Net assets		117,482
Net assets of consolidated entities		117,482
Carrying amount of non-controlling interests		41,659
Revenue	￦	80,147
Loss for the period		(14,826	)
Loss of the consolidated entities		(14,826	)
Total comprehensive loss		(16,698	)
Loss attributable to non-controlling interests		(5,254	)
Net cash used in operating activities	￦	(2,706	)
Net cash provided by investing activities		8,723
Net cash provided by financing activities		—
Net increase in cash and cash equivalents		6,017

F-18

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013


(In millions of won)
	December 31, 2014
	SK Communications Co., Ltd.			SK Broadband Co., Ltd.
Ownership of non-controlling interests (%)		35.4			49.4
Current assets	￦	89,135			463,764
Non-current assets		87,033			2,646,227
Current liabilities		(41,252	)		(881,886	)
Non-current liabilities		(735	)		(1,106,493	)
Net assets		134,181			1,121,612
Adjustment for fair value		—			111,561
Net assets of consolidated entities		134,181			1,233,173
Carrying amount of non-controlling interests		47,577			609,638
Revenue	￦	93,910			2,654,381
Profit (loss) for the period		(18,386	)		4,307
Amortization of fair value adjustment		—			(1,916	)
Profit (loss) of the consolidated entities		(18,386	)		2,391
Total comprehensive income (loss)		530			(10,324	)
Profit (loss) attributable to non-controlling interests		(6,519	)		1,182
Net cash provided by (used in) operating activities	￦	(5,962	)		431,760
Net cash used in investing activities		(17,927	)		(599,016	)
Net cash provided by financing activities		—			119,484
Net decrease in cash and cash equivalents		(23,889	)		(47,772	)


(In millions of won)
	December 31, 2013
	SK Communications Co., Ltd.			SK Broadband Co., Ltd.
Ownership of non-controlling interests (%)		35.4			49.4
Current assets	￦	108,100			533,597
Non-current assets		97,692			2,510,752
Current liabilities		(51,868	)		(938,385	)
Non-current liabilities		(1,887	)		(978,336	)
Net assets		152,037			1,127,628
Adjustment for fair value		—			113,478
Net assets of consolidated entities		152,037			1,241,106
Carrying amount of non-controlling interests		53,856			613,560
Revenue	￦	128,272			2,539,366
Profit (loss) for the period		(41,893	)		12,306
Amortization of fair value adjustment		—			(30,977	)
Loss of the consolidated entities		(41,893	)		(18,671	)
Total comprehensive loss		(43,318	)		(13,059	)
Loss attributable to non-controlling interests		(14,853	)		(9,231	)
Net cash provided by (used in) operating activities	￦	(22,867	)		440,036
Net cash provided by (used in) investing activities		41,788			(329,346	)
Net cash provided by (used in) financing activities		19			(129,181	)
Net increase (decrease) in cash and cash equivalents		18,940			(18,491	)

F-19

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

2.	Basis of Presentation

(1) Statement of compliance

These consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

The consolidated financial statements were authorized for issuance by the Board of Directors on February 3, 2016.

(2) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the consolidated statements of financial position:

•

derivative financial instruments are measured at fair value

•

financial instruments at fair value through profit or loss are measured at fair value

•

available-for-sale financial assets are measured at fair value

•

liabilities for defined benefit plans are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets

(3) Functional and presentation currency

Financial statements of Group entities within the Group are presented in functional currency and the currency of the primary economic environment in which each entity operates. Consolidated financial statements of the Group are presented in Korean won, which is the Parent Company’s functional and presentation currency.

(4) Use of estimates and judgments

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period prospectively.

1) Critical judgments

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in Note 4 for the following areas: revenue, consolidation: whether the Group has de facto control over an investee, and classification of lease.

2) Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes: allowance for doubtful accounts, estimated useful lives of property and equipment and intangible assets, impairment of goodwill, recognition of provision, measurement of defined benefit liabilities, and recognition of deferred tax assets (liabilities).

F-20

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

3) Fair value measurement

A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the finance executive.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.

•

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

•

Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

•

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Information about assumptions used for fair value measurements are included in Note 35.

(5) Common control transactions

SK Holdings Co., Ltd. (“the Ultimate Controlling Entity”) is the Ultimate Controlling Entity of the Parent Company because it controls the Parent Company. Accordingly, gains and losses from business acquisitions and dispositions involving entities that are under the control of the Ultimate Controlling Entity are accounted for as common control transactions within equity.

3.	Changes in Accounting Policies

Except for the changes below, the Group has consistently applied the accounting policies set out in Note 4 to all periods presented in these consolidated financial statements.

The Group has adopted the following amendments to standards with a date of initial application of January 1, 2015.

1) IAS 19 ‘Employee Benefits’ — Employee contributions

Amendments to IAS 19 introduced a practical expedient to accounting for defined benefit plan, when employees or third parties pay contributions if certain criteria are met. According to the amendments, the entity is permitted to recognize those contributions as a reduction of the service cost in the period in which the related service is rendered, instead of forecast future contributions from employees or third parties and attribute them to periods or service as negative benefits.

There is no material impact of the application of this amendment on the consolidated financial statements.

F-21

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

4.	Significant Accounting Policies

The significant accounting policies applied by the Group in preparation of its consolidated financial statements are included below. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements except for those as described in Note 3.

(1) Operating segments

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. The Group’s operating segments have been determined to be each business unit, for which the Group generates separately identifiable financial information that is regularly reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance. The Group has three reportable segments which consist of cellular services, fixed-line telecommunication services and others, as described in Note 5. Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

The group’s chief operating decision maker receives and reviews operating income based on Korean IFRS as the measure of segment profit and loss for each operating segment. Segment operating income differs from consolidated operating income from continuing operations used in the Group’s consolidated statements of income. Segment operating income does not include certain items such as fee revenues, gain/loss from disposal of property, plant, equipment and intangible assets, impairment losses on property, plant, equipment and intangible assets, donations, bad debt expense and penalties. The chief operating decision maker does not receive any information about segment assets and liabilities. Segment information does not include the Group’s discontinued operations information. See Note 38 for details on discontinued operations.

(2) Basis of consolidation

(i) Business combination

A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control.

Consideration transferred is generally measured at fair value, identical to the measurement of identifiable net assets acquired at fair value. If goodwill incurs as a result of business combination, the Group performs impairment test on an annual basis and recognizes gain from bargain purchases through profit or loss. Acquisition-related costs are expensed in the periods in which the costs are incurred and the services are received excluding costs to issue debt or equity securities recognized based on IAS 32 and 39.

Consideration transferred does not include the amount settled in relation to the pre-existing relationship and the amount settled in relation to the pre-existing relationship is generally recognized through profit or loss.

Contingent consideration is measured at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. If contingent consideration is not classified as equity, the Group subsequently recognizes changes in fair value of contingent consideration and recognizes through profit or loss.

Entire or certain portion of market-based measure of replacement award for share-based payment transactions of the acquiree or the replacement of an acquiree’s share-based payment transactions with share-based payment transactions of the acquirer is included in measurement of contingent considerations. Portion of a replacement award that is part of the consideration transferred for the acquiree and the portion that is remuneration for post-combination service is determined by comparing market-based measure of the awards of acquire and replacement awards that is attributable to pre-combination service.

F-22

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(ii) Non-controlling interests

The Group measure at the acquisition date components of non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the acquiree’s net assets.

Changes in a Controlling Company’s ownership interest in a subsidiary that do not result in the Controlling Company losing control of the subsidiary are accounted for as equity transactions.

(iii) Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of an investee begins from the date the Group obtains control of the investee and cease when the Group loses control of the investee.

(iv) Loss of control

If the Group loses control of a subsidiary, the Group derecognizes the assets and liabilities of the former subsidiary from the consolidated statement of financial position and recognizes gain or loss associated with the loss of control attributable to the former controlling interest. Any investment retained in the former subsidiary is recognized at its fair value when control is lost.

(v) Interest in investees accounted for using the equity method

Interest in investees accounted for using the equity method composed of interest in associates and joint ventures. An associate is an entity in which the Group has significant influence, but not control, over the entity’s financial and operating policies. A joint venture is a joint arrangement whereby the Group that has joint control of the arrangement have rights to the net assets of the arrangement.

The investment in an associate and a joint venture is initially recognized at cost including transaction costs and the carrying amount is increased or decreased to recognize the Group’s share of the profit or loss and changes in equity of the associate or the joint venture after the date of acquisition.

(vi) Intra-group transactions

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. The Group’s share of unrealized gain incurred from transactions with investees accounted for using the equity method are eliminated and unrealized loss are eliminated using the same basis if there are no evidence of asset impairments.

(vii) Business combinations under common control

The assets and liabilities acquired from the combination of entities or business under common control are recognized at the carrying amounts in the ultimate controlling shareholder’s consolidated financial statements. The difference between consideration and carrying amount of net assets acquired is added to or subtracted from other capital adjustments.

(3) Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.

F-23

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(4) Inventories

Inventories are stated at the acquisition cost using the average method. During the period, a perpetual inventory system is used to value inventories, which is adjusted to the physical inventory counts performed at the period end. When the net realizable value of inventories is less than the acquisition cost, the carrying amount is reduced to the net realizable value and any difference is charged to current operations as operating expenses. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

(5) Non-derivative financial assets

The Group recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The Group recognizes financial assets in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Upon initial recognition, non-derivative financial assets are measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the asset’s acquisition or issuance.

(i) Financial assets at fair value through profit or loss

A financial asset is classified as financial assets are classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

(ii) Held-to-maturity investments

A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Group has the positive intention and ability to hold to maturity, are classified as held-to-maturity investments. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest rate method.

(iii) Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method except for loans and receivables of which the effect of discounting is immaterial.

(iv) Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at fair value, which changes in fair value, net of any tax effect, recorded in other comprehensive income in equity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost.

(v) De-recognition of financial assets

F-24

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability. If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

(vi) Offsetting between financial assets and financial liabilities

Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Group currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

(6) Derivative financial instruments, including hedge accounting

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

(i) Hedge accounting

The Group holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk. The Group designated derivatives as hedging instruments to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).

On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.

Fair value hedge

Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the consolidated statement of income. The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting. Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued.

Cash flow hedge

When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.

F-25

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(ii) Separable embedded derivatives

Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria have been met:

(a)

the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract;

(b)

a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and

(c)

the hybrid instrument is not measured at fair value with changes in fair value recognized in profit or loss.

Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

(iii) Other derivative financial instruments

Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.

(7) Impairment of financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.

Objective evidence that a financial asset is impaired includes following loss events:

•

significant financial difficulty of the issuer or obligor;

•

a breach of contract, such as default or delinquency in interest or principal payments;

•

the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

•

it becoming probable that the borrower will enter bankruptcy or other financial reorganization;

•

the disappearance of an active market for that financial asset because of financial difficulties; or

•

observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group

In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

If financial assets have objective evidence that they are impaired, impairment losses should be measured and recognized.

(i) Financial assets measured at amortized cost

F-26

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

can recognize impairment losses directly or establish a provision to cover impairment losses. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss shall be reversed either directly or by adjusting an allowance account.

(ii) Financial assets carried at cost

If there is objective evidence that an impairment loss has occurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses shall not be reversed.

(iii) Available-for-sale financial assets

When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale shall not be reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognized in profit or loss.

(8) Property, plant and equipment

Property, plant and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent to initial recognition, an item of property, plant and equipment is carried at its cost less any accumulated depreciation and any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of property, plant and equipment at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Property, plant and equipment, except for land, are depreciated on a straight-line basis over estimated useful lives that appropriately reflect the pattern in which the asset’s future economic benefits are expected to be consumed. A component that is significant compared to the total cost of property, plant and equipment is depreciated over its separate useful life.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized as other non-operating income (loss).

F-27

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

The estimated useful lives of the Group’s property, plant and equipment are as follows:


	Useful lives (years)
Buildings and structures		15 ~ 40
Machinery		3 ~ 15
Other property, plant and equipment (“Other PP&E”)		4 ~ 10

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

(9) Borrowing costs

The Group capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets and inventories that are manufactured or otherwise produced over a short period of time are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.

To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that the Group borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Group shall determine the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to the borrowings of the Group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Group capitalizes during a period shall not exceed the amount of borrowing costs incurred during that period.

(10) Intangible assets

Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.

Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, as there are no foreseeable limits to the periods over which club memberships are expected to be available for use, this intangible asset is determined as having indefinite useful lives and not amortized.

The estimated useful lives of the Group’s intangible assets are as follows:


		Useful lives (years)
Frequency use rights		6.3 ~ 13.1
Land use rights		5
Industrial rights		5,10
Development costs		5
Facility usage rights		10,20
Customer relations		3 ~ 7
Other		3 ~ 20

F-28

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.

Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.

Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.

(11) Government grants

Government grants are not recognized unless there is reasonable assurance that the Group will comply with the grant’s conditions and that the grant will be received.

(i) Grants related to assets

Government grants whose primary condition is that the Group purchase, construct or otherwise acquire long-term assets are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduction to depreciation expense.

(ii) Grants related to income

Government grants which are intended to compensate the Group for expenses incurred are deducted from the related expenses.

(12) Investment property

Property held for the purpose of earning rentals or benefiting from capital appreciation is classified as investment property. Investment property is initially measured at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at depreciated cost less any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Investment property except for land, are depreciated on a straight-line basis over 15~40 years as estimated useful lives.

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

(13) Impairment of non-financial assets

F-29

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

The Group estimates the recoverable amount of an individual asset, if it is impossible to measure the individual recoverable amount of an asset, then the Group estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a pre-tax discount rate that reflect current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.

An impairment loss is recognized in profit or loss if the carrying amount of an asset or a CGU exceeds its recoverable amount.

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the goodwill acquired. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(14) Leases

The Group classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

(i) Finance leases

At the commencement of the lease term, the Group recognizes as finance assets and finance liabilities in its consolidated statements of financial position, the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset.

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life. The Group reviews to determine whether the leased asset may be impaired.

(ii) Operating leases

Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the period of the lease.

F-30

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(iii) Determining whether an arrangement contains a lease

Determining whether an arrangement is, or contains, a lease shall be based on the substance of the arrangement and requires an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset or assets (the asset) and the arrangement conveys a right to use the asset.

At inception or reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a financial lease that it is impracticable to separate the payments reliably, the Group recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability shall be reduced as payments are made and an imputed finance charge on the liability recognized using the purchaser’s incremental borrowing rate of interest.

(15) Non-current assets held for sale

Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. In order to be classified as held for sale, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. The assets or disposal group that are classified as non-current assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell. The Group recognizes an impairment loss for any initial or subsequent write-down of an asset (or disposal group) to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized in accordance with IAS 36, ‘Impairment of Assets’.

A non-current asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).

(16) Non-derivative financial liabilities

The Group classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability.

(i) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the acquisition are recognized in profit or loss as incurred.

(ii) Other financial liabilities

The Group derecognizes a financial liability from the consolidated statement of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

F-31

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(17) Employee benefits

(i) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

(ii) Other long-term employee benefits

Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the period in which the employees render the related service, and are calculated at the present value of the amount of future benefit that employees have earned in return for their service in the current and prior periods. Any changes from remeasurements are recognized through profit or loss in the period in which they arise.

(iii) Retirement benefits: defined contribution plans

When an employee has rendered service to the Group during a period, the Group recognizes the contribution payable to a defined contribution plan in exchange for that service as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, the Group recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.

(iv) Retirement benefits: defined benefit plans

As of the end of reporting period, defined benefits liabilities relating to defined benefit plans are recognized as present value of defined benefit obligations net of fair value of plan assets.

The calculation is performed annually by an independent actuary using the projected unit credit method. When the fair value of plan assets exceeds the present value of the defined benefit obligations, the Group recognizes an asset, to the extent of the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.

Remeasurements of the net defined benefit liability comprise of actuarial gains and losses, the return on plan assets excluding amounts included in net interest on the net defined benefit liability, and any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and recognized in other comprehensive income. The Group determines net interests on net defined benefit liability (asset) by multiplying discount rate determined at the beginning of the annual reporting period and considers changes in net defined benefit liability (asset) from contributions and benefit payments. Net interest costs and other costs relating to the defined benefit plan are recognized through profit or loss.

When the plan amendment or curtailment occurs, gains or losses on amendment or curtailment in benefits for the past service provided are recognized through profit or loss. The Group recognizes gain or loss on a settlement when the settlement of defined benefit plan occurs.

(v) Termination benefits

The Group recognizes a liability and expense for termination benefits at the earlier of the period when the Group can no longer withdraw the offer of those benefits and the period when the Group recognizes costs for a restructuring that involves the payment of termination benefits. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value.

F-32

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(18) Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

A provision shall be used only for expenditures for which the provision was originally recognized.

(19) Foreign currencies

(i) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the reporting date’s exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.

Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments, a financial liability designated as a hedge of the net investment in a foreign operation, or qualifying cash flow hedges, which are recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

(ii) Foreign operations

If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:

The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and translated at the closing rate.

F-33

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

relevant proportion of such cumulative amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

(20) Equity capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.

When the Group repurchases its share capital, the amount of the consideration paid is recognized as a deduction from equity and classified as treasury shares. The profits or losses from the purchase, disposal, reissue, or retirement of treasury shares are not recognized as current profit or loss. If the Group acquires and retains treasury shares, the consideration paid or received is directly recognized in equity.

(21) Hybrid bond

The Group recognizes a financial instrument issued by the Group as an equity instrument if it does not include contractual obligation to deliver financial assets including cash to the counter party.

(22) Revenue

Revenue from the sale of goods, rendering of services or use of the Group assets is measured at the fair value of the consideration received or receivable. Returns, trade discounts and volume rebates are recognized as a reduction of revenue.

(i) Services

Revenue from cellular services consists of revenue from basic charges, voice charges, data charges, data-roaming services and interconnection charges. Such revenues are recognized as services are performed. Revenues received for the activation of service are deferred and recognized over the average customer retention period.

Revenue from fixed-line services includes domestic short and long distance charges, international phone connection charges, and broadband internet services. Such revenues are recognized as the related services are performed.

Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

(ii) Goods sold

Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.

(iii) Customer loyalty programmes

For customer loyalty programmes, the fair value of the consideration received or receivable in respect of the initial sale is allocated between the award credits and the other components of the sale. The amount allocated to the award credits is estimated by reference to the fair value of the services to be provided with respect to the redeemable award credits. The fair value of the services to be provided with respect to the redeemable portion of the award credits granted to the customers in accordance with customer loyalty programmes is estimated taking into account the expected redemption rate and timing of the expected redemption. Considerations allocated to the award credits are deferred and revenue is recognized when the award credits are recovered and the Group performs its obligation

F-34

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

to provide the service. The amount of revenue recognized is based on the relative size of the total award credits that are expected to be redeemed and the redeemed award credits in exchange for services.

(iv) Bundled arrangements

When the Group sells both handsets and wireless services to subscribers, the Group recognizes these transactions separately as sales for handset sales and wireless telecommunication services.

(23) Finance income and finance costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets, changes in the fair value of financial assets at fair value through profit or loss, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is recognized in profit or loss on the date that the Group’s right to receive payment is established.

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets at fair value through profit or loss, and losses on hedging instruments that are recognized in profit or loss. Interest expense on borrowings and debentures are recognized in profit or loss using the effective interest rate method.

(24) Income taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

(i) Current tax

Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit.

(ii) Deferred tax

Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries and associates, except to the extent that the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Group recognizes a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries and associates, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively

F-35

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if (a) there is a legally enforceable right to offset the related current tax liabilities and assets, (b) they relate to income taxes levied by the same tax authority and (c) they intend to settle current tax liabilities and assets on a net basis. Income tax expense in relation to dividend payments is recognized when liabilities relating to the dividend payments are recognized.

(25) Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

(26) Discontinued operations

A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. When an operation is classified as a discontinued operation, the comparative consolidated statement of comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative period.

(27) New standards and interpretations not yet adopted

The following accounting standards are issued and will be effective for annual periods beginning after January 1, 2016, and have not been adopted early in preparing these consolidated financial statements.

As of December 31, 2015, management is in the process of evaluating the impact of applying these standards on its financial position and results of operations.

1) IFRS 9 ‘Financial Instruments’

IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. IFRS 9 is effective for annual reporting periods beginning on or after January 1, 2018, with early adoption permitted.

2) IFRS 15 ‘Revenue from Contracts with Customers’

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 is effective for annual reporting periods beginning on or after January 1, 2018, with early adoption permitted.

F-36

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

3) IFRS 16 ‘Leases’

IFRS 16, published in January 2016, replaces the existing guidance in IAS 17, Leases. IFRS 16 eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019, with early adoption permitted.

5. Operating Segments

The Group’s operating segments have been determined to be each business unit, for which the Group provides independent services and merchandise. The Group’s reportable segments are: 1) cellular services, which include wireless voice and data transmission services, sales of wireless devices, loT solutions platform services, and 2) fixed-line telecommunication services, which include fixed-line telephone services, broadband Internet services, advanced media platform services (including IPTV) and business communications services. All other operating segments, which include commerce business and hardware business, do not meet the quantitative thresholds to be considered reportable segments and are presented as Others.

(1) Segment information as of and for the years ended December 31, 2015, 2014 and 2013 is as follows:


(In millions of won)
	2015
	Cellular services		Fixed-line telecommu- nication services		Others			Total segments		Consolidation adjustments			Consolidated amount
Total revenue	￦	14,962,689		3,162,712		2,113,543			20,238,944		(3,102,210	)		17,136,734
Internal revenue		1,693,411		668,139		740,660			3,102,210		(3,102,210	)		—
External revenue		13,269,278		2,494,573		1,372,883			17,136,734		—			17,136,734
Depreciation and amortization		2,174,819		531,106		139,370			2,845,295		—			2,845,295
Operating income (loss)		1,678,339		108,252		(78,585	)		1,708,006		(212,581	)		1,495,425
Gain related to investments in subsidiaries, associates and joint ventures, net														786,140
Finance income														103,900
Finance costs														(350,100	)

Profit from continuing operations before income tax														2,035,365

F-37

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013


(In millions of won)
	2014
	Cellular services		Fixed-line telecommu- nication services		Others			Total segments		Consolidation adjustments			Consolidated amount
Total revenue	￦	15,248,039		3,119,845		1,884,784			20,252,668		(3,088,870	)		17,163,798
Internal revenue		1,720,158		669,925		698,787			3,088,870		(3,088,870	)		—
External revenue		13,527,881		2,449,920		1,185,997			17,163,798		—			17,163,798
Depreciation and amortization		2,113,510		501,623		99,597			2,714,730		—			2,714,730
Operating income (loss)		1,754,433		80,423		(9,751	)		1,825,105		(217,279	)		1,607,826
Gain related to investments in subsidiaries, associates and joint ventures, net														906,338
Finance income														126,337
Finance costs														(386,673	)

Profit from continuing operations before income tax														2,253,828


(In millions of won)
	2013
	Cellular services		Fixed-line telecommu- nication services		Others			Total segments		Consolidation adjustments			Consolidated amount
Total revenue	￦	14,501,829		2,972,642		1,741,599			19,216,070		(2,614,016	)		16,602,054
Internal revenue		1,186,297		648,253		779,466			2,614,016		(2,614,016	)		—
External revenue		13,315,532		2,324,389		962,133			16,602,054		—			16,602,054
Depreciation and amortization		2,019,531		522,155		119,937			2,661,623		—			2,661,623
Operating income (loss)		1,986,106		55,625		(30,622	)		2,011,109		(432,706	)		1,578,403
Gain related to investments in subsidiaries, associates and joint ventures, net														706,509
Finance income														113,392
Finance costs														(571,203	)

Profit from continuing operations before income tax														1,827,101

F-38

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

Reconciliation of total segment operating income to consolidated operating income from continuing operations for the years ended December 31, 2015, 2014 and 2013 are as follows:


(In millions of won)
	2015			2014			2013
Total segment operating income	￦	1,708,006			1,825,105			2,011,109

Other operating income:
Fees revenues		—			8,199			7,303
Gain on disposal of property and equipment and intangible assets		7,140			8,792			7,991
Others(*1)		23,795			39,480			59,660

		30,935			56,471			74,954
Other operating expenses:
Impairment loss on property and equipment and intangible assets		(35,845	)		(47,489	)		(13,770	)
Loss on disposal of property and equipment and intangible assets		(21,392	)		(32,950	)		(267,468	)
Donations		(72,454	)		(67,823	)		(82,057	)
Bad debt for accounts receivable – other		(15,323	)		(17,943	)		(22,155	)
Others(*2)		(98,502	)		(107,545	)		(122,210	)

		(243,516	)		(273,750	)		(507,660	)

Consolidated operating income from continuing operations	￦	1,495,425			1,607,826			1,578,403

(*1)	Others for the years ended December 31, 2015, 2014 and 2013 include ￦2.1 billion, ￦8.1 billion and ￦10.3 billion of VAT refund, respectively, and various other incomes with inconsequential amounts.

(*2)	Others for the years ended December 31, 2015, 2014 and 2013 include ￦29.5 billion, ￦54.7 billion and ￦96.5 billion of penalties, respectively, and various other expenses with inconsequential amounts.

Intersegment sales and purchases are conducted on an arms-length basis and eliminated on consolidation. Since there are no intersegment sales of inventory, there is no unrealized intersegment profit to be eliminated on consolidation. Domestic revenue for the years ended December 31, 2015, 2014 and 2013 amounts to ￦17,083 billion, ￦17,073 billion and ￦16,557 billion, respectively. Domestic non-current assets (excluding financial assets, investments in associates and joint ventures and deferred tax assets) as of December 31, 2015, 2014 and 2013 amount to ￦14,474 billion, ￦14,817 billion and ￦14,762 billion, and non-current assets outside of Korea amount to ￦287 billion, ￦278 billion and ￦1 billion, respectively.

No single customer contributed 10% or more to the Group’s total sales for the years ended December 31, 2015, 2014 and 2013.

Though the Group is expanding into new geographic regions, as of December 31, 2015, the Group still principally operates in its domestic market in Korea.

F-39

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

The Group’s operating revenue by service type is as follows:


(In millions of won)
	2015		2014		2013
Cellular revenue
Wireless service(*1)	￦	10,720,518		11,010,639		11,001,123
Cellular interconnection		710,026		817,038		844,977
Wireless device sales		963,354		761,629		645,914
Miscellaneous(*2)		875,380		938,575		823,518

		13,269,278		13,527,881		13,315,532

Fixed-line telecommunication services revenue
Fixed line telephone service		420,611		467,333		474,430
Fixed line interconnection		57,130		57,401		78,731
Broadband internet service and advanced media platform service		1,308,789		1,152,708		1,023,156
International calling service		99,106		111,983		127,005
Miscellaneous(*3)		608,937		660,495		621,067

		2,494,573		2,449,920		2,324,389

Others revenue
Commerce service(*4)		988,524		911,487		742,616
Portal service(*5)		63,880		72,984		92,153
Miscellaneous(*6)		320,479		201,526		127,364

		1,372,883		1,185,997		962,133

Consolidated operating revenue	￦	17,136,734		17,163,798		16,602,054

(*1)	Wireless service revenue includes revenue from wireless voice and data transmission services principally derived through monthly plan-based fees, usage charges for outgoing voice calls, usage charges for wireless data services and value-added service fees.

(*2)	Miscellaneous cellular services revenue includes revenue from IoT solutions platform services as well as other miscellaneous cellular services.

(*3)	Miscellaneous fixed-line telecommunication services revenue includes revenues from business communications services (other than fixed-line telephone service) provided by SK Broadband and VoIP services provided by SK Telink.

(*4)	Commerce service revenue includes revenues from 11st, an online open marketplace platform, and O2O commerce solutions.

(*5)	Portal service revenue includes revenues from Nate, and online portal service operated by SK Communications, and Cyworld, a social networking service formerly operated by SK Communications. In March 2014, the Cyworld business was spun-off into an unaffiliated company.

(*6)	Miscellaneous others revenue includes revenues from hardware business, security business operated by one of the Group’s subsidiaries, Neosnetworks, and an online open marketplace for mobile applications, among other operations.

F-40

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

6.	Restricted Deposits

Deposits which are restricted in use as of December 31, 2015 and 2014 are summarized as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Short-term financial instruments
Charitable fund(*)	￦	79,500		86,000
Other		2,969		4,321
Long-term financial instruments		10,596		612
Guarantee deposits		280		280

	￦	93,345		91,213

(*)	The Group established a trust fund for charitable purposes. Profits from the fund are donated to charitable institutions. As of December 31, 2015, the funds cannot be withdrawn.

7.	Trade and Other Receivables

(1)	Details of trade and other receivables as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015
	Gross amount		Allowances for impairment			Carrying amount
Current assets:
Accounts receivable — trade	￦	2,583,558		(238,691	)		2,344,867
Short-term loans		54,377		(482	)		53,895
Accounts receivable — other		752,731		(78,992	)		673,739
Accrued income		10,753		—			10,753
Others		1,861		—			1,861

		3,403,280		(318,165	)		3,085,115
Non-current assets:
Long-term loans		87,501		(25,047	)		62,454
Long-term accounts receivable — other		2,420		—			2,420
Guarantee deposits		297,281		—			297,281
Long-term accounts receivable — trade		46,047		(804	)		45,243

		433,249		(25,851	)		407,398

	￦	3,836,529		(344,016	)		3,492,513

F-41

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013


(In millions of won)	December 31, 2014
	Gross amount		Allowances for impairment			Carrying amount
Current assets:
Accounts receivable — trade	￦	2,614,059		(221,909	)		2,392,150
Short-term loans		75,199		(687	)		74,512
Accounts receivable — other		769,115		(78,588	)		690,527
Accrued income		10,134		—			10,134
Others		3,865		—			3,865

		3,472,372		(301,184	)		3,171,188
Non-current assets:
Long-term loans		82,735		(27,007	)		55,728
Long-term accounts receivable — other		3,596		—			3,596
Guarantee deposits		285,144		—			285,144
Long-term accounts receivable — trade		68,536		—			68,536

		440,011		(27,007	)		413,004

	￦	3,912,383		(328,191	)		3,584,192

(2)	The movements in allowances for doubtful accounts of trade and other receivables during the years ended December 31, 2015 and 2014 were as follows:


(In millions of won)
	2015			2014
Balance at January 1	￦	328,191			323,984
Increase of bad debt allowances		75,773			63,697
Write-offs		(87,798	)		(89,529	)
Collection of receivables previously written-off		27,364			29,213
Net exchange differences and changes in consolidation scope		486			826

Balance at December 31	￦	344,016			328,191

(3)	Details of overdue but not impaired, and impaired trade and other receivable as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015						December 31, 2014
	Accounts receivable — trade			Other receivables			Accounts receivable — trade			Other receivables
Neither overdue nor impaired	￦	1,841,442			1,053,096			1,831,243			1,089,001
Overdue but not impaired		77,008			5,155			76,671			3,481
Impaired		711,155			148,673			774,681			137,306

		2,629,605			1,206,924			2,682,595			1,229,788
Allowances for doubtful accounts		(239,495	)		(104,521	)		(221,909	)		(106,282	)

	￦	2,390,110			1,102,403			2,460,686			1,123,506

The Group establishes allowances for doubtful accounts based on the likelihood of recoverability of trade and other receivables based on their aging at the end of the period, past customer default experience, customer credit status, and economic and industrial factors.

F-42

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(4)	The aging of overdue but not impaired accounts receivable as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015				December 31, 2014
	Accounts receivable — trade		Other receivables		Accounts receivable — trade		Other receivables
Less than 1 month	￦	20,908		2,770		25,254		1,795
1 ~ 3 months		21,941		924		26,469		213
3 ~ 6 months		7,043		265		11,641		608
More than 6 months		27,116		1,196		13,307		865

	￦	77,008		5,155		76,671		3,481

8.	Inventories

Details of inventories as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015							December 31, 2014
	Acquisition cost		Write- down of inventory			Carrying amount		Acquisition cost		Write- down of inventory			Carrying amount
Merchandise	￦	247,294		(5,064	)		242,230		252,063		(5,325	)		246,738
Finished goods		3,530		(179	)		3,351		1,930		(216	)		1,714
Work in process		1,976		(149	)		1,827		1,144		(131	)		1,013
Raw materials and supplies		27,296		(1,148	)		26,148		19,242		(1,040	)		18,202

	￦	280,096		(6,540	)		273,556		274,379		(6,712	)		267,667

The amount of the inventory write-downs charged to statements of income and write-off of inventories are as follows:


(In millions of won)
	2015			2014			2013
Charged to cost of products that have been resold	￦	1,983			2,052			1,498
Write-off upon sale		(2,095	)		(1,326	)		(95	)

There are no significant reversals of inventory write-downs for the periods presented.

9.	Investment Securities

(1)	Details of short-term investment securities as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Beneficiary certificates(*)	￦	92,262		277,003
Current portion of long-term investment securities		—		3,158

	￦	92,262		280,161

(*)	The distributions arising from beneficiary certificates as of December 31, 2015 were accounted for as accrued income.

F-43

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(2) Details of long-term investment securities as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Equity securities:
Marketable equity securities	￦	897,958		657,286
Unlisted equity securities(*1)		96,899		56,236
Equity investments(*2)		207,916		209,120

		1,202,773		922,642
Debt securities:
Public bonds(*3)		—		158
Investment bonds(*4)		4,453		36,638

		4,453		36,796

Total		1,207,226		959,438
Less current portion of long-term investment securities		—		(3,158	)

Long-term investment securities	￦	1,207,226		956,280

(*1)	Unlisted equity securities whose fair value cannot be measured reliably are recorded at cost.

(*2)	Equity investments are recorded at cost.

(*3)	Details of maturity for the public bonds as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Less than 1 year	￦	—		158

(*4)

During the year ended December 31, 2015, the Parent Company exercised the conversion right for the convertible bonds of Health Connect Co., Ltd., which were classified as available-for-sale financial assets. Health Connect Co., Ltd. has been classified as investments in associates (￦5,900 million) as the Parent Company obtained significant influence over the company. As a result of this transaction, investments in associates have increased by ￦5,900 million and the remaining convertible bonds of ￦560 million was fully redeemed.

10.

Assets and Liabilities Classified as Held for Sale

During the year ended December 31, 2014, the Group entered into a disposal contract regarding the Group’s ownership interests in Shenzhen E-eye High Tech Co., Ltd., the Parent Company’s subsidiary. Assets and liabilities of the subsidiary amounting to ￦10,510 million and ￦408 million, were reclassified to assets and liabilities held for sale, respectively, and the carrying amount in excess of the fair value less cost to sell was recognized as impairment loss. The ownership interests of Shenzhen E-eye High Tech Co., Ltd. were disposed during the year ended December 31, 2015.

11.

Business Combination

(1)

2015

1)	General information

On April 1, 2015, Neosnetworks Co., Ltd., a subsidiary of the Parent Company, acquired an unmanned machine security business of Joeun Safe Co., Ltd., which manages facility guarding services, in order to expand infrastructure and enhance competitiveness of its security business.

F-44

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

The Group recognized the acquired assets and liabilities at fair value and the difference between the consideration and fair value of net assets as goodwill.

2)	Consideration paid and identifiable assets and liabilities transferred

Consideration paid and assets in succession recognized at the acquisition date are as follows:


(In millions of won)
	2015
Consideration paid
Cash and cash equivalents	￦	13,197
Accounts payable — other		1,858

	￦	15,055

Assets transferred
Property and equipment	￦	3,208
Intangible assets		8,486
Other assets		1,603

	￦	13,297

(2)

2014

1)	General information

The Parent Company acquired the ownership interests of Neosnetworks Co., Ltd., IRIVER LIMITED and shopkick, Inc. and they were newly included in the list of subsidiaries during the year ended December 31, 2014.

i)	Neosnetworks Co., Ltd.

On April 2, 2014, the Parent Company acquired the ownership interest of 66.7% of Neosnetworks Co., Ltd., which manages facility guarding services, in order to secure new growth engine in physical security market and obtained the control over Neosnetworks Co., Ltd.

Neosnetworks Co., Ltd. recognized revenue of ￦25,743 million and loss of ￦2,277 million, respectively, from the acquisition date to December 31, 2014.

ii)	IRIVER LIMITED

On August 13, 2014, the Parent Company obtained ownership interests of 39.3% by acquiring 10,241,722 shares of IRIVER LIMITED from investment companies in order to develop smart phone applications and media devices such as Bluetooth speakers and ear phones for future growth and additionally acquired 4,960,317 shares by participating in the capital increase. As of the end of December 31, 2014, the Parent Company has the ownership interest of 49% of IRIVER LIMITED. After the Group acquired control over IRIVER LIMITED, IRIVER LIMITED has recognized revenue of ￦16,311 million and a net profit of ￦4,066 million.

iii)	shopkick, Inc.

On October 10, 2014, shopkick Management Company, Inc., of which SKP America LLC., a subsidiary of the Parent Company, has the ownership interest of 95.2%, obtained control over shopkick, Inc. by purchasing the ownership interest of 100% of shopkick, Inc. for the purpose of acquiring the platform of its mobile commerce business in the United States and expansion of the Group’s global market position.

F-45

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

2)	Consideration paid and identifiable assets and liabilities transferred

Consideration paid and identifiable assets acquired and liabilities assumed recognized at the acquisition date are as follows:


(In millions of won)
	Neosnetworks Co., Ltd.			IRIVER LIMITED			shopkick, Inc.
Consideration paid
Cash and cash equivalents	￦	23,968			29,503			230,925
Other current liabilities		—			—			18,686
Long-term payables — other (*)		14,500			—			—

		38,468			29,503			249,611

Fair value of assets acquired and liabilities assumed
Cash and cash equivalents	￦	16,631			3,098			13,881
Accounts receivable — trade, net		111			11,687			6,541
Inventories, net		—			11,780			727
Property, equipment and intangible assets		11,489			3,153			81,972
Other assets		1,289			6,824			6,236
Accounts payable — trade		(3,411	)		(7,113	)		(796	)
Borrowings and debentures		(2,150	)		(2,293	)		—
Other liabilities		(3,305	)		(6,268	)		(13,008	)

	￦	20,654			20,868			95,553

Controlling interests		20,654			8,193			91,006
Non-controlling interests		—			12,675			4,547

(*)

During the year ended December 31, 2014, the Parent Company acquired 31,310 shares of Neosnetworks Co., Ltd. (the ownership interest of 66.7%) by purchasing old shares from the pre-existing shareholders and participating in the capital increase. The Parent Company entered into a shareholders’ agreement which granted put options to the pre-existing shareholders for the remaining equity interest of Neosnetworks Co., Ltd. and call options to the Parent Company for those shares if certain conditions are met. In accordance with this shareholders’ agreement, the Group deemed that it assumed the residual equity of the pre-existing shareholders on the acquisition date, and the amount to be paid to the pre-existing shareholders for this acquisition in the future was recorded as long-term payables-other.

12.

Business Combinations under Common Control

(1)

2015

During the year ended December 31, 2015, hoppin service division of SK Planet Co., Ltd., a subsidiary of the Parent Company, was spun off from SK Planet Co., Ltd. and was merged into SK Broadband, Co., Ltd., a subsidiary of the Parent Company. There is no impact on the consolidated financial statements as it is a business combination under common control.

(2)

2014

1)	General information

PS&Marketing Corporation, a subsidiary of the Parent Company, acquired the retail distribution business of IT service department of SK Networks Co., Ltd. on April 30, 2014 in order to strengthen the mid/long-term distribution competitiveness by expanding the retail infrastructure and enlarging the direct management network.

F-46

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

Revenues and profit or loss recognized after the acquisition date by the acquired businesses of PS&Marketing Corporation are not disclosed as the estimate is practically impossible.

As the business combination which occurred during the years ended December 31, 2014 was a business combination between entities under common control, the difference between the consideration and book value of net assets was recognized as a capital deficit and other capital adjustments.

2)	Consideration paid and assets and liabilities transferred

Consideration paid and assets and liabilities transferred as of the acquisition date are as follows:


(In millions of won)
	2014
Consideration paid
Cash and cash equivalents	￦	111,330
Investments in associates (carrying value)		—
Accounts payables — other		13,156

		124,486
Assets and liabilities transferred
Cash and cash equivalents		—
Accounts receivable — trade		57,760
Inventories		94,441
Property and equipment, and intangible assets		13,010
Other assets		23,281
Accounts payable — trade and other		(78,821	)
Other liabilities		(13,826	)

		95,845

Amount recorded in capital surplus and other capital adjustments	￦	28,641

F-47

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

13.

Investments in Associates and Joint Ventures

(1)	Investments in associates and joint ventures accounted for using the equity method as of December 31, 2015 and 2014 are as follows:


(In millions of won)		December 31, 2015				December 31, 2014
	Country	Ownership percentage		Carrying amount		Ownership percentage		Carrying amount
Investments in associates
SK China Company Ltd.(*1)	China		9.6	￦	43,814		9.6	￦	35,817
Korea IT Fund(*2)	Korea		63.3		260,456		63.3		240,676
KEB HanaCard Co., Ltd.(*1,3)	Korea		15.0		254,177		25.4		425,140
Candle Media Co., Ltd.	Korea		35.1		20,144		35.1		19,486
NanoEnTek, Inc. (*4)	Korea		28.6		45,008		26.0		36,527
SK Industrial Development China Co., Ltd.	Hong Kong		21.0		86,324		21.0		79,394
Packet One Network(*5)	Malaysia		—		—		13.6		53,670
SK Technology Innovation Company	Cayman		49.0		45,891		49.0		44,052
HappyNarae Co., Ltd.	Korea		42.5		17,095		42.5		15,551
SK hynix Inc.	Korea		20.1		5,624,493		20.1		4,849,159
SK MENA Investment B.V.	Netherlands		32.1		14,929		32.1		14,015
SKY Property Mgmt. Ltd.	Virgin Island		33.0		251,166		33.0		248,534
Xinan Tianlong Science and Technology Co., Ltd.	China		49.0		25,767		49.0		25,874
Daehan Kanggun BcN Co., Ltd. and others	—		—		161,058		—		158,725

Sub-total					6,850,322				6,246,620

Investments in joint ventures
Dogus Planet, Inc.(*6)	Turkey		50.0		15,118		50.0		11,441
PT. Melon Indonesia	Indonesia		49.0		4,339		49.0		3,564
Television Media Korea Ltd.(*7)	Korea		—		—		51.0		6,944
Celcom Planet	Malaysia		51.0		3,406		51.0		16,605
PT XL Planet Digital(*6)	Indonesia		50.0		23,108		50.0		12,914

Sub-total					45,971				51,468

Total				￦	6,896,293			￦	6,298,088

(*1)	Classified as investments in associates as the Group can exercise significant influence through participation on the board of directors even though the Group has less than 20% of equity interests.

(*2)	Investment in Korea IT Fund was classified as investment in associates as the Group has less than 50% of voting rights, and therefore does not have control over Korea IT Fund under the agreement.

(*3)	During the year ended December 31, 2015, the Group disposed of 27,725,264 shares of KEB HanaCard Co., Ltd.

(*4)	During the year ended December 31, 2015, the Group newly acquired 1,090,155 shares of NanoEnTek, Inc. by participating in paid in capital increase allocation of third parties.

(*5)	Reclassified from investment in associates to available-for-sale financial assets during the year ended December 31, 2015, as the Group lost the right to appoint directors of this investee and consequently no longer has significant influence.

F-48

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(*6)	There were additional investments in associates and joint ventures during the year ended December 31, 2015.

(*7)	During the year ended December 31, 2015, the Group disposed of all shares of Television Media Korea Ltd.

(2)	The market price of investments in listed associates as of December 31, 2015 and 2014 are as follows:


(In millions of won, except for share and per share data)
	December 31, 2015						December 31, 2014
	Market value per share (In won)		Number of shares		Market price		Market value per share (In won)		Number of shares		Market price
Candle Media Co., Ltd.	￦	1,170		21,620,360		25,296	￦	734		21,620,360		15,869
NanoEnTek, Inc.		7,300		6,960,445		50,811		5,710		5,870,290		33,519
SK hynix Inc.		30,750		146,100,000		4,492,575		47,750		146,100,000		6,976,275

(3)	The financial information of the significant investees as of and for the years ended December 31, 2015 and 2014 is as follows:


(In millions of won)	As of and for the year ended December 31, 2015
	SK hynix Inc.		KEB HanaCard Co., Ltd.
Current assets	￦	9,760,030		6,228,076
Non-current assets		19,917,876		509,579
Current liabilities		4,840,698		1,103,873
Non-current liabilities		3,449,505		4,297,289
Revenue		18,797,998		1,472,830
Profit from continuing operations		4,323,595		10,119
Other comprehensive income (loss)		40,215		(547	)
Total comprehensive income		4,363,810		9,572


(In millions of won)	As of and for the year ended December 31, 2014
	SK hynix Inc.			KEB HanaCard Co., Ltd.(*)
Current assets	￦	10,363,514			6,716,612
Non-current assets		16,519,764			568,065
Current liabilities		5,765,304			848,140
Non-current liabilities		3,081,671			5,109,888
Revenue		17,125,566			305,756
Profit (loss) from continuing operations		4,195,169			(11,196	)
Other comprehensive income (loss)		(52,360	)		(734	)
Total comprehensive income (loss)		4,142,809			(11,930	)

(*)	Pre-merger(the date of the merger: December 1, 2014) revenue and net profit of KEB HanaCard Co., Ltd., amounting to ￦853,506 million and ￦3,521 million, respectively, were not included.

F-49

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(4)	The condensed financial information of joint ventures as of and for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	As of and for the year ended December 31, 2015
	Dogus Planet, Inc.			PT. Melon Indonesia			PT XL Planet Digital			Celcom Planet
Current assets	￦	46,248			12,805			9,500			21,416
Cash and cash equivalents		8,091			4,027			5,034			19,371
Non-current assets		18,088			2,657			46,013			5,519
Current liabilities		34,022			6,416			8,583			20,257
Account payable, other payables and provision		4,317			3,396			3,648			5,889
Non-current liabilities		78			140			714			—
Account payable, other payables and provisions		—			—			—			—
Revenue		38,944			17,094			5,536			1,647
Depreciation and amortization		(5,318	)		(132	)		(2,746	)		(1,332	)
Interest income		465			288			525			345
Interest expense		—			—			—			—
Income tax benefit		—			—			7,025			—
Profit (loss) from continuing operations		(32,713	)		1,853			(21,381	)		(25,881	)
Total comprehensive income(loss)		(32,713	)		1,853			(21,381	)		(25,881	)


(In millions of won)
	As of and for the year ended December 31, 2014
	Television Media Korea Ltd.			Dogus Planet, Inc.			PT. Melon Indonesia			PT XL Planet Digital			Celcom Planet
Current assets	￦	16,252			38,641			10,022			9,241			30,407
Cash and cash equivalents		5,104			6			4,763			6,710			30,400
Non-current assets		4,543			13,011			3,094			14,589			3,343
Current liabilities		7,188			28,406			5,689			4,198			1,182
Account payable, other payables and provisions		265			3,648			—			—			—
Non-current liabilities		464			377			102			124			—
Account payable, other payables and provisions		464			377			—			124			—
Revenue		16,403			23,897			11,826			1,019			—
Depreciation and amortization		(3,732	)		(2,402	)		(928	)		(1,452	)		(1	)
Interest income		254			1,154			268			—			—
Interest expense		—			(6	)		—			—			—
Income tax benefit		—			—			—			5,334			—
Profit (loss) from continuing operations		(3,361	)		(37,146	)		523			(15,596	)		(1,479	)
Total comprehensive income (loss)		(3,361	)		(37,146	)		523			(15,596	)		(1,479	)

F-50

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(5)	Reconciliations of financial information of significant associates to carrying amounts of investments in associates in the consolidated financial statements as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015
	Net assets		Ownership interests (%)		Net assets attributable to the ownership interests		Cost-book value differentials		Carrying amount
Associates:
SK hynix Inc.(*1,2)	￦	21,386,863		20.1		4,425,794		1,198,699		5,624,493
KEB HanaCard Co., Ltd.		1,336,493		15.0		200,474		53,703		254,177
SKY Property Mgmt. Ltd.(*1)		537,847		33.0		177,490		73,676		251,166
Korea IT Fund		411,246		63.3		260,456		—		260,456

(*1)	Net assets of these entities represent net assets excluding their non-controlling interests.

(*2)

The ownership interest is based on the number of shares owned by the Parent Company for the total listed shares of the investee company. The Group applied the equity method using the effective ownership interest of 20.69% which is based on the number of shares owned by the Parent Company for the total issued shares outstanding not including the shares held by the investee as treasury shares.


(In millions of won)
	December 31, 2014
	Net assets		Ownership interests (%)		Net assets attributable to the ownership interests		Cost-book value differentials		Carrying amount
Associates:
SK hynix Inc.(*)	￦	18,036,453		20.1		3,619,666		1,229,493		4,849,159
KEB HanaCard Co., Ltd.		1,326,649		25.4		337,266		87,874		425,140
SKY Property Mgmt. Ltd.(*)		527,479		33.0		174,068		74,466		248,534
Korea IT Fund		380,170		63.3		240,676		—		240,676

(*)	These entities prepare consolidated financial statements and net assets of these entities represent net assets attributable to owners of the Parent Company.

F-51

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(6)	Details of changes in investments in associates and joint ventures accounted for using the equity method for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015
	Beginning balance		Acquisition and disposition			Share of profits (losses)			Other compre- hensive income (loss)			Impair- ment loss			Other increase (decrease)			Ending balance
Investments in associates
SK China Company Ltd.	￦	35,817		—			4,361			3,636			—			—			43,814
Korea IT Fund(*)		240,676		—			11,971			9,912			—			(2,103	)		260,456
KEB HanaCard Co., Ltd.		425,140		(174,475	)		3,275			237			—			—			254,177
Candle Media Co., Ltd.		19,486		—			550			70			—			38			20,144
NanoEnTek, Inc.		36,527		10,000			(1,649	)		130			—			—			45,008
SK Industrial Development China Co., Ltd.		79,394		—			3,380			3,550			—			—			86,324
Packet One Network		53,670		—			(8,714	)		(3,030	)		—			(41,926	)		—
SK Technology Innovation Company		44,052		—			(2,907	)		4,746			—			—			45,891
HappyNarae Co., Ltd.		15,551		—			1,589			(45	)		—			—			17,095
SK hynix Inc.(*)		4,849,159		—			842,086			(22,922	)		—			(43,830	)		5,624,493
SK MENA Investment B.V.		14,015		—			3			911			—			—			14,929
SKY Property Mgmt. Ltd.		248,534		—			6,408			(3,776	)		—			—			251,166
Xinan Tianlong Science and Technology Co., Ltd.		25,874		—			(107	)		—			—			—			25,767
Daehan Kanggun BcN Co., Ltd. and others(*)		158,725		12,320			(15,726	)		1,689			(1,305	)		5,355			161,058

Sub-total		6,246,620		(152,155	)		844,520			(4,892	)		(1,305	)		(82,466	)		6,850,322

Investments in joint ventures
Dogus Planet, Inc.		11,441		16,419			(16,357	)		3,615			—			—			15,118
PT. Melon Indonesia		3,564		—			908			(133	)		—			—			4,339
Television Media Korea Ltd.		6,944		(6,712	)		(232	)		—			—			—			—
Celcom Planet		16,605		—			(13,199	)		—			—			—			3,406
PT XL Planet Digital		12,914		20,884			(10,690	)		—			—			—			23,108

Sub-total		51,468		30,591			(39,570	)		3,482			—			—			45,971

Total	￦	6,298,088		(121,564	)		804,950			(1,410	)		(1,305	)		(82,466	)		6,896,293

(*)	Dividends paid by the associate are deducted from the carrying amount during the year ended December 31, 2015.

F-52

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013


(In millions of won)
	2014
	Beginning balance		Acquisition and disposition		Share of profits (losses)			Other compre- hensive income (loss)			Impair- ment loss			Other increase (decrease)			Ending balance
Investments in associates
SK China Company Ltd.	￦	37,434		—		(365	)		(1,252	)		—			—			35,817
Korea IT Fund		231,402		—		3,243			6,031			—			—			240,676
Etoos Co., Ltd.		12,029		—		346			—			—			(12,375	)		—
KEB HanaCard Co., Ltd.		378,616		—		(739	)		(2,031	)		—			49,294			425,140
Candle Media Co., Ltd.		21,241		—		(1,701	)		(54	)		—			—			19,486
NanoEnTek, Inc.		9,312		7,778		284			(27	)		—			19,180			36,527
SK Industrial Development China Co., Ltd.		77,517		—		(791	)		2,668			—			—			79,394
Packet One Network		60,706		—		(11,845	)		4,809			—			—			53,670
SK Technology Innovation Company		53,874		—		(9,822	)		—			—			—			44,052
HappyNarae Co., Ltd.		13,935		—		1,688			(72	)		—			—			15,551
SK hynix Inc.		3,943,232		—		916,486			(10,559	)		—			—			4,849,159
SK MENA Investment B.V.		13,477		—		(4	)		542			—			—			14,015
SKY Property Mgmt. Ltd.		238,278		—		3,438			6,818			—			—			248,534
Xinan Tianlong Science and Technology Co., Ltd.		26,562		—		(688	)		—			—			—			25,874
Daehan Kanggun BcN Co., Ltd. and others		164,976		14,172		(18,126	)		1,324			(2,363	)		(1,258	)		158,725

Sub-total		5,282,591		21,950		881,404			8,197			(2,363	)		54,841			6,246,620

Investments in joint ventures
Dogus Planet, Inc.		10,105		19,677		(18,573	)		232			—			—			11,441
PT. Melon Indonesia		3,230		—		256			78			—			—			3,564
Television Media Korea Ltd.		8,659		—		(1,715	)		—			—			—			6,944
Celcom Planet		—		17,433		(656	)		—			—			(172	)		16,605
PT XL Planet Digital		20,712		—		(7,798	)		—			—			—			12,914

Sub-total		42,706		37,110		(28,486	)		310			—			(172	)		51,468

Total	￦	5,325,297		59,060		852,918			8,507			(2,363	)		54,669			6,298,088

(7)	As the Group discontinued the application of the equity method due to the carrying amount of the Group’s share being reduced to zero, the unrecognized accumulated equity losses as of December 31, 2015 are as follows:


(In millions of won)
	Unrealized loss				Unrealized change in equity
	Year ended December 31, 2015		Accumulated		Year ended December 31, 2015		Accumulated
Wave City Development Co., Ltd.	￦	2,894		4,538		—		—
SK Wyverns Co., Ltd. and others		1,193		6,510		—		365

	￦	4,087		11,048		—		365

F-53

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

14.

Property and Equipment

(1)	Property and equipment as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015
	Acquisition cost		Accumulated depreciation			Accumulated impairment loss			Carrying amount
Land	￦	812,947		—			—			812,947
Buildings		1,563,069		(651,940	)		—			911,129
Structures		763,122		(418,901	)		—			344,221
Machinery		28,624,842		(21,281,400	)		(1,433	)		7,342,009
Other		1,511,304		(1,036,780	)		(1,086	)		473,438
Construction in progress		487,512		—			—			487,512

	￦	33,762,796		(23,389,021	)		(2,519	)		10,371,256


(In millions of won)
	December 31, 2014
	Acquisition cost		Accumulated depreciation			Accumulated impairment loss			Carrying amount
Land	￦	766,780		—			—			766,780
Buildings		1,537,042		(603,175	)		—			933,867
Structures		737,494		(384,705	)		—			352,789
Machinery		27,088,067		(19,775,784	)		(1,468	)		7,310,815
Other		1,461,201		(960,450	)		(1,701	)		499,050
Construction in progress		704,400		—			—			704,400

	￦	32,294,984		(21,724,114	)		(3,169	)		10,567,701

(2)	Changes in property and equipment for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015
	Beginning balance		Acquisition		Disposal			Transfer			Depreciation			Impairment			Business combination		Change of consolidation scope			Ending balance
Land	￦	766,780		6,629		(2,031	)		41,569			—			—			—		—			812,947
Buildings		933,867		6,042		(6,839	)		27,500			(49,441	)		—			—		—			911,129
Structures		352,789		9,776		(57	)		16,104			(34,391	)		—			—		—			344,221
Machinery		7,310,815		645,986		(22,518	)		1,538,235			(2,133,193	)		(524	)		3,208		—			7,342,009
Other		499,050		786,531		(16,721	)		(652,022	)		(143,288	)		(4	)		—		(108	)		473,438
Construction in progress		704,400		1,063,169		(1,522	)		(1,271,762	)		—			(6,773	)		—		—			487,512

	￦	10,567,701		2,518,133		(49,688	)		(300,376	)		(2,360,313	)		(7,301	)		3,208		(108	)		10,371,256

F-54

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013


(In millions of won)
	2014
	Beginning balance		Acquisition		Disposal			Transfer			Depreciation			Impairment			Classified as held for sale			Change of consolidation scope		Ending balance
Land	￦	732,206		8,306		(12	)		24,178			—			—			—			2,102		766,780
Buildings		956,691		5,862		(451	)		16,885			(48,745	)		—			—			3,625		933,867
Structures		364,951		8,909		(39	)		11,919			(32,951	)		—			—			—		352,789
Machinery		6,847,059		572,764		(28,101	)		1,979,590			(2,065,368	)		(2,879	)		(6	)		7,756		7,310,815
Other		533,181		1,124,067		(6,188	)		(1,022,999	)		(135,213	)		(49	)		(245	)		6,496		499,050
Construction in progress		762,519		1,101,691		(11,277	)		(1,147,666	)		—			(691	)		(176	)		—		704,400

	￦	10,196,607		2,821,599		(46,068	)		(138,093	)		(2,282,277	)		(3,619	)		(427	)		19,979		10,567,701

15.

Investment Property

(1)	Investment property as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015
	Acquisition cost		Accumulated depreciation			Carrying amount
Land	￦	10,634		—			10,634
Buildings		7,531		(3,094	)		4,437

	￦	18,165		(3,094	)		15,071


(In millions of won)
	December 31, 2014
	Acquisition cost		Accumulated depreciation			Carrying amount
Land	￦	10,418		—			10,418
Buildings		7,379		(2,800	)		4,579

	￦	17,797		(2,800	)		14,997

(2)	Changes in investment property for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015
	Beginning balance		Transfer		Depreciation			Ending balance
Land	￦	10,418		216		—			10,634
Buildings		4,579		98		(240	)		4,437

	￦	14,997		314		(240	)		15,071


(In millions of won)
	2014
	Beginning balance		Transfer			Depreciation			Ending balance
Land	￦	10,822		(404	)		—			10,418
Buildings		4,989		(172	)		(238	)		4,579

	￦	15,811		(576	)		(238	)		14,997

F-55

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(3)	Fair value of investment property as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015				December 31, 2014
	Carrying amount		Fair value		Carrying amount		Fair value
Land	￦	10,634		6,009		10,418		6,056
Buildings		4,437		4,261		4,579		4,288

	￦	15,071		10,270		14,997		10,344

The fair value of investment property was appraised on the basis of market price by an independent appraisal company.

(4)	Income (expense) from investment property for the years ended December 31, 2015, 2014 and 2013 are as follows:


(In millions of won)
	2015			2014			2013
Rent revenue	￦	850			896			1,373
Operating expense		(240	)		(239	)		(476	)

16.

Goodwill

(1)	Goodwill as of December 31, 2015 and 2014 is as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Goodwill related to acquisition of Shinsegi Telecom, Inc.	￦	1,306,236		1,306,236
Goodwill related to acquisition of SK Broadband Co., Ltd.		358,443		358,443
Other goodwill		243,911		252,916

	￦	1,908,590		1,917,595

Goodwill is allocated to the following CGUs for the purpose of the impairment testing.

•

Shinsegi Telecom, Inc.(*1): cellular services

•

SK Broadband Co., Ltd.(*2): fixed-line telecommunication services

•

Other: other

(*1)	Shinsegi Telecom, Inc.

The recoverable amount of the CGU is based on its value in use calculated by applying the annual discount rate of 4.9% to the estimated future cash flows based on financial budgets for the next five years. An annual growth rate of 0.62% was applied for the cash flows expected to be incurred after five years and is not expected to exceed the Group’s long-term wireless telecommunication business growth rate. Management of the Group does not expect the total carrying amount of the CGU will exceed the total recoverable amount due to reasonably possible changes from the major assumptions used to estimate the recoverable amount.

(*2)	Goodwill related to acquisition of SK Broadband Co., Ltd.

The recoverable amount of the CGU is based on its value in use calculated by applying the annual discount rate of 5.4% to the estimated future cash flows based on financial budgets for the next five years. An annual growth

F-56

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

rate of 1.0%, the Group’s long-term fixed-line telecommunication business growth rate, was applied for the cash flows expected to be incurred after five years. Management of the Group does not expect the total carrying amount of the CGU will exceed the total recoverable amount due to reasonably possible changes from the major assumptions used to estimate the recoverable amount.

(2)	Details of changes in goodwill for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015			2014
Beginning balance	￦	1,917,595			1,733,261
Increase due to business acquisition		1,758			193,202
Impairment loss		(19,245	)		(8,868	)
Other		8,482			—

	￦	1,908,590			1,917,595

Accumulated impairment losses as of December 31, 2015 and 2014 are ￦17,269 million and ￦18,849 million, respectively.

17.

Intangible Assets

(1)	Intangible assets as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015
	Acquisition cost		Accumulated depreciation			Accumulated impairment			Carrying amount
Frequency use rights	￦	3,033,879		(1,930,362	)		—			1,103,517
Land use rights		74,217		(47,641	)		—			26,576
Industrial rights		159,926		(43,384	)		—			116,542
Development costs		140,226		(132,754	)		—			7,472
Facility usage rights		149,841		(101,822	)		—			48,019
Customer relations		16,528		(9,353	)		—			7,175
Memberships(*1)		126,622		—			(35,115	)		91,507
Other(*2)		3,101,622		(2,197,646	)		—			903,976

	￦	6,802,861		(4,462,962	)		(35,115	)		2,304,784


(In millions of won)
	December 31, 2014
	Acquisition cost		Accumulated depreciation			Accumulated impairment			Carrying amount
Frequency use rights	￦	3,033,879		(1,649,835	)		—			1,384,044
Land use rights		64,136		(38,783	)		—			25,353
Industrial rights		144,497		(36,737	)		—			107,760
Development costs		162,493		(144,215	)		(9,947	)		8,331
Facility usage rights		146,112		(93,476	)		—			52,636
Customer relations		17,147		(10,743	)		—			6,404
Memberships(*1)		128,274		—			(34,155	)		94,119
Other(*2)		3,029,590		(2,223,627	)		(616	)		805,347

	￦	6,726,128		(4,197,416	)		(44,718	)		2,483,994

F-57

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(*1)	Memberships are classified as intangible assets with indefinite useful life and are not amortized.

(*2)	Other intangible assets primarily consist of computer software and usage rights to a research facility which the Group built and donated to a university, and the Group is given rights-to-use for a definite number of years in turn.

(2)	Details of changes in intangible assets for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015
	Beginning balance		Acquisition		Disposal			Transfer		Amortization			*Impairment()**			Business combination		Change of consolidation scope			Ending balance
Frequency use rights	￦	1,384,044		—		—			—		(280,527	)		—			—		—			1,103,517
Land use rights		25,353		11,956		(1,314	)		—		(9,419	)		—			—		—			26,576
Industrial rights		107,760		5,878		(22	)		8,935		(6,009	)		—			—		—			116,542
Development costs		8,331		3,737		—			23		(4,563	)		(56	)		—		—			7,472
Facility usage rights		52,636		2,721		(23	)		1,177		(8,492	)		—			—		—			48,019
Customer relations		6,404		—		—			—		(4,689	)		—			8,486		(3,026	)		7,175
Memberships		94,119		1,137		(1,802	)		68		—			(2,015	)		—		—			91,507
Other		805,347		103,137		(1,772	)		323,933		(319,234	)		(7,228	)		—		(207	)		903,976

	￦	2,483,994		128,566		(4,933	)		334,136		(632,933	)		(9,299	)		8,486		(3,233	)		2,304,784

(*)	The Group recognized the difference between recoverable amount and the carrying amount of memberships, computer software and development costs, amounting to ￦9,299 million as impairment loss during for the year ended December 31, 2015.


(In millions of won)
	2014
	Beginning balance		Acquisition		Disposal			Transfer			Amortization			Impairment			Change of consolidation scope		Ending balance
Frequency use rights	￦	1,664,571		—		—			—			(280,527	)		—			—		1,384,044
Land use rights		16,590		15,560		(573	)		—			(8,483	)		—			2,259		25,353
Industrial rights		58,763		5,048		(180	)		—			(4,584	)		—			48,713		107,760
Development costs		10,127		1,253		(25	)		63			(4,048	)		(398	)		1,359		8,331
Facility usage rights		58,828		1,890		(30	)		382			(8,434	)		—			—		52,636
Customer relations		6,333		779		—			(39	)		(3,063	)		—			2,394		6,404
Memberships(*)		128,452		5,629		(5,810	)		(264	)		—			(34,155	)		267		94,119
Other		807,118		102,322		(9,919	)		171,858			(300,216	)		(449	)		34,633		805,347

	￦	2,750,782		132,481		(16,537	)		172,000			(609,355	)		(35,002	)		89,625		2,483,994

(*)	The Group recognized the difference between recoverable amount and the carrying amount of memberships, amounting to ￦34,155 million as impairment loss for the year ended December 31, 2014.

F-58

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(3)	Research and development expenditure recognized as expense for the years ended December 31, 2015, 2014 and 2013 are as follows:

2015

2014

2013

Research and development costs expensed as incurred

￦

315,790

390,943

352,385

(4)	The carrying amount and residual useful lives of frequency usage rights as of December 31, 2015 are as follows, all of which are amortized on a straight-line basis:


(In millions of won)
	Amount		Description	Commencement of depreciation	Completion of depreciation
W-CDMA license		￦102,839	Frequency use rights relating to W-CDMA service	Dec. 2003	Dec. 2016
W-CDMA license		16,311	Frequency use rights relating to W-CDMA service	Oct. 2010	Dec. 2016
800MHz license		222,992	Frequency use rights relating to CDMA and LTE service	Jul. 2011	Jun. 2021
1.8GHz license		753,720	Frequency use rights relating to LTE service	Sep. 2013	Dec. 2021
WiBro license		7,655	WiBro service	Mar. 2012	Mar. 2019

		￦1,103,517

18.

Borrowings and Debentures

(1)	Short-term borrowings as of December 31, 2015 and 2014 are as follows:

(In millions of won)

Lender

Annual
interest
rate (%)

December 31,
2015

December 31,
2014

Commercial Paper

KTB Investment and

Securities Co., Ltd., etc.

1.76~1.84

￦220,000

206,000

Short-term borrowings

Kookmin Bank, etc.

2.47

40,000

160,600

￦260,000

366,600

F-59

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(2)	Long-term borrowings as of December 31, 2015 and 2014 are as follows:


(In millions of won, thousands of U.S. dollars)
Lender	Annual interest rate (%)	Maturity	December 31, 2015			December 31, 2014
Shinhan Bank	2.39	Jun. 15, 2015	￦	—			1,712
Kookmin Bank	1.98	Jun. 15, 2016		1,625			4,874
Kookmin Bank	1.98	Mar. 15, 2017		2,498			4,496
Kookmin Bank	1.98	Mar. 15, 2018		6,450			8,600
Shinhan Bank(*1)	6M bank debenture rate+1.58	Apr. 30, 2016		10,000			10,000
Korea Finance Corporation	3.32	Jul. 30 ,2019		39,000			39,000
Korea Finance Corporation	2.94	Jul. 30 ,2019		10,000			10,000
Export Kreditnamnden(*2)	1.7	Apr. 29, 2022		87,685			94,903
				(USD 74,817	)		(USD 86,338	)

Sub-total				157,258			173,585
Less present value discount on long-term borrowings				(2,124	)		(2,623	)

				155,134			170,962
Less current portion of long-term borrowings				(33,581	)		(21,242	)

Long-term borrowings			￦	121,553			149,720

(*1)	As of December 31, 2015, the 6M bank debenture rate of Shinhan Bank is 1.69%.

(*2)	For the years ended December 31, 2014 and 2013, the Group obtained long-term borrowings from Export Kreditnamnden, an export credit agency. The long-term borrowings are redeemed by installment on an annual basis from 2014 to 2022.

(*3)	Convenient translation was provided for the borrowings repayable in other currencies.

F-60

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(3)	Debentures as of December 31, 2015 and 2014 are as follows:


(In millions of won, thousands of U.S. dollars and thousands of other currencies)
	Purpose	Maturity	Annual interest rate (%)	December 31, 2015			December 31, 2014
Unsecured private bonds	Refinancing fund	2016	5.00	￦	200,000			200,000
Unsecured private bonds	Other fund	2015	5.00		—			200,000
Unsecured private bonds		2018	5.00		200,000			200,000
Unsecured private bonds		2016	5.54		40,000			40,000
Unsecured private bonds		2016	5.92		230,000			230,000
Unsecured private bonds	Operating fund	2016	3.95		110,000			110,000
Unsecured private bonds		2021	4.22		190,000			190,000
Unsecured private bonds	Operating and	2019	3.24		170,000			170,000
Unsecured private bonds	refinancing fund	2022	3.30		140,000			140,000
Unsecured private bonds		2032	3.45		90,000			90,000
Unsecured private bonds	Operating fund	2023	3.03		230,000			230,000
Unsecured private bonds		2033	3.22		130,000			130,000
Unsecured private bonds		2019	3.30		50,000			50,000
Unsecured private bonds		2024	3.64		150,000			150,000
Unsecured private bonds(*5,6)		2029	4.73		—			55,188
Unsecured private bonds(*5)		2029	4.72		54,695			55,177
Unsecured private bonds	Refinancing fund	2019	2.53		160,000			160,000
Unsecured private bonds		2021	2.66		150,000			150,000
Unsecured private bonds		2024	2.82		190,000			190,000
Unsecured private bonds	Operating and	2022	2.40		100,000			—
Unsecured private bonds	refinancing fund	2025	2.49		150,000			—
Unsecured private bonds		2030	2.61		50,000			—
Unsecured private bonds	Operating fund	2018	1.89		90,000			—
Unsecured private bonds		2025	2.66		70,000			—
Unsecured private bonds		2030	2.82		90,000			—
Unsecured private bonds(*5)		2030	3.40		50,485			—
Unsecured private bonds	Operating and	2018	2.07		80,000			—
Unsecured private bonds	refinancing fund	2025	2.55		100,000			—
Unsecured private bonds		2035	2.75		70,000			—
Unsecured private bonds(*5)		2030	3.10		50,524			—
Unsecured private bonds(*1)	Operating fund	2015	4.62		—			10,000
Unsecured private bonds(*2)		2015	4.09		—			110,000
Unsecured private bonds(*2)		2015	4.14		—			110,000
Unsecured private bonds(*2)		2017	4.28		100,000			100,000
Unsecured private bonds(*2)		2015	3.14		—			130,000
Unsecured private bonds(*2)		2017	3.27		120,000			120,000
Unsecured private bonds(*2)		2016	3.05		80,000			80,000
Unsecured private bonds(*2)		2019	3.49		210,000			210,000
Unsecured private bonds(*2)		2019	2.76		130,000			130,000
Unsecured private bonds(*2)		2018	2.23		50,000			—
Unsecured private bonds(*2)		2020	2.49		160,000			—
Unsecured private bonds(*2)		2020	2.43		140,000			—
Unsecured private bonds(*2)		2020	2.18		130,000			—
Unsecured private bonds(*3)		2015	3.12		—			10,000
Unsecured private bonds(*3)		2016	3.24		10,000			10,000
Unsecured private bonds(*3)		2017	3.48		20,000			20,000
Foreign global bonds		2027	6.63		468,800			439,680
					(USD 400,000	)		(USD 400,000	)
Swiss unsecured private bonds		2017	1.75		355,617			333,429
					(CHF 300,000	)		(CHF 300,000	)

F-61

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013


(In millions of won, thousands of U.S. dollars and thousands of other currencies)
	Purpose	Maturity	Annual interest rate (%)	December 31, 2015			December 31, 2014
Foreign global bonds	Operating fund	2018	2.13	￦	820,400			769,440
					(USD 700,000	)		(USD 700,000	)
Australia unsecured private		2017	4.75		255,930			269,727
					(AUD 300,000	)		(AUD 300,000	)
Floating rate notes(*4)		2020	3M Libor + 0.88		351,600			329,760
					(USD 300,000	)		(USD 300,000	)
Foreign global bonds(*2)		2018	2.88		351,600			329,760
					(USD 300,000	)		(USD 300,000	)

Sub-total					7,139,651			6,252,161
Less discounts on bonds					(30,998	)		(33,531	)

					7,108,653			6,218,630
Less current portion of bonds					(669,506	)		(569,472	)

				￦	6,439,147			5,649,158

(*1)	Unsecured private bonds were issued by SK Telink Co., Ltd., a subsidiary of the Parent Company.

(*2)	Unsecured private bonds were issued by SK Broadband Co., Ltd., a subsidiary of the Parent Company.

(*3)	Unsecured private bonds were issued by PS&Marketing Corporation, a subsidiary of the Parent Company.

(*4)	As of December 31, 2015, 3M Libor rate is 0.61%.

(*5)	The Group settled the difference of the measurement bases of accounting profit or loss between the bonds and related derivatives by designating the structured bonds as financial liabilities at fair value through profit or loss.

The difference between the carrying amount of the designated financial liabilities at fair value through profit or loss and the amount required to pay at maturity is ￦5,704 million as of December 31, 2015.

(*6)	As of December 31, 2014, the principal amount and the fair value of the structured bonds were ￦50,000 million and ￦55,188 million, respectively. The entire bonds were early redeemed during the year ended December 31, 2015.

(*7)	Convenient translation was provided for the bonds repayable in other currencies.

19.

Long-term Payables — Other

(1)	Long-term payables — other as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Payables related to acquisition of W-CDMA licenses	￦	550,964		657,001
Other(*)		30,733		27,566

	￦	581,697		684,567

(*)	Other includes vested compensation claims of employees who have rendered long-term service, etc.

F-62

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(2)	As of December 31, 2015 and 2014, long-term payables — other consist of payables related to the acquisition of W-CDMA licenses for 800MHZ, 2.3GHz and 1.8GHz frequencies as follows:


(In millions of won)
	Period of repayment		Coupon rate	Annual effective interest rate(*)	December 31, 2015			December 31, 2014
800MHz		2013~2015	3.51%	5.69%		—			69,416
2.3GHz		2014~2016	3.00%	5.80%		2,882			5,766
1.8GHz		2012~2021	2.43~3.00%	4.84~5.25%		707,006			824,841

						709,888			900,023
Present value discount on long-term payables — other						(38,739	)		(53,633	)

						671,149			846,390
Current portion of long-term payables — other						(120,185	)		(189,389	)

Carrying amount at December 31					￦	550,964			657,001

(*)	The Group estimated the discount rate based on its credit ratings and corporate bond yield rate as there is no market interest rate available for long-term account payables-other.

(3)	The repayment schedule of long-term payables – other related to acquisition of W-CDMA licenses as of December 31, 2015 is as follows:


(In millions of won)
	Amount
Less than 1 year		￦120,718
1~3 years		235,669
3~5 years		235,669
More than 5 years		117,832

		￦709,888

20.

Provisions

(1)	Changes in provisions for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	For the year ended December 31, 2015																	As of December 31, 2015
	Beginning balance		Increase		Utilization			Reversal			Other		Change of consolida- tion scope			Ending balance		Current		Non-current
Provision for handset subsidy(*1)	￦	26,799		1,641		(5,004	)		(17,766	)		—		—			5,670		2,232		3,438
Provision for restoration(*2)		59,727		4,983		(1,135	)		(5,433	)		1,812		—			59,954		34,336		25,618
Emission allowance(*3)		—		1,477		—			—			—		—			1,477		1,477		—
Other provisions		562		3,795		(510	)		(472	)		—		(271	)		3,104		2,943		161

	￦	87,088		11,896		(6,649	)		(23,671	)		1,812		(271	)		70,205		40,988		29,217

F-63

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013


(In millions of won)
	For the year ended December 31, 2014															As of December 31, 2014
	Beginning balance		Increase		Utilization			Reversal			Other			Ending balance		Current		Non-current
Provision for handset subsidy(*1)	￦	53,923		41,802		(68,926	)		—			—			26,799		14,844		11,955
Provision for restoration(*2)		40,507		20,098		(702	)		(34	)		(142	)		59,727		35,865		23,862
Other provisions		451		155		(225	)		—			181			562		366		196

	￦	94,881		62,055		(69,853	)		(34	)		39			87,088		51,075		36,013

(*1)

The Group recognizes a provision for handset subsidies given to the subscribers who purchase handsets on an installment basis. During the years ended December 31, 2015 and 2014, the Group’s provision for handset subsidies significantly decreased as it gradually ceased providing handset subsidies to subscribers.

The amount recognized as a provision for handset subsidies is the Group’s best estimate of the expenditure required to settle the current obligations to the relevant subscribers at the end of the reporting period, which is calculated as the sum of the present values of the monthly balances for handset subsidies over the relevant service periods, taking into account the customer retention rate for the relevant subscribers. The discount rate used in calculating the present values is based on AAA-rated corporate bonds with a two-year maturity. The customer retention rate is based on the Group’s historical retention rate.

(*2)

In the course of the Group’s activities, base station and other assets are utilized on leased premises which are expected to have costs associated with restoring the location where these assets are situated upon ceasing their use on those premises. The associated cash outflows, which are long-term in nature, are generally expected to occur at the dates of exit of the assets to which they relate. These restoration costs are calculated on the basis of the identified costs for the current financial year, extrapolated into the future based on management’s best estimates of future trends in prices, inflation, and other factors, and are discounted to present value at a risk-adjusted rate specifically applicable to the liability. Forecasts of estimated future provisions are revised in light of future changes in business conditions or technological requirements. The Group records these restoration costs as property and equipment and subsequently allocates them to expense using a systematic and rational method over the asset’s useful life, and records the accretion of the liability as a charge to finance costs.

(*3)	The Group recognizes estimated future payment for the number of emission certificates required to settle the Group’s obligation exceeding the actual number of certificates on hand as emission allowances according to the Act on Allocation and Trading of Greenhouse Gas Emission Permits.

(2)	The followings are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period.


		Key assumptions
Provision for handset subsidy		estimation based on historical service retention period data
Provision for restoration		estimation based on inflation assuming demolition of the relevant assets after six years

F-64

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

21.

Lease

(1) Finance Leases

The Group has leased telecommunication equipment under finance lease agreements with Cisco Systems Capital Korea Ltd. Finance lease liabilities as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Finance Lease Liabilities
Current portion of long-term finance lease liabilities	￦	26		3,804
Long-term finance lease liabilities		—		26

	￦	26		3,830

The Group’s related interest and principal as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015					December 31, 2014
	Minimum lease payment		Present value			Minimum lease payment		Present value
Less than 1 year	￦	26		26			3,909		3,804
1~5 years		—		—			26		26

Sub-total		26		26			3,935		3,830

Current portion of long-term finance lease liabilities				(26	)				(3,804	)

Long-term finance lease liabilities	￦			—					26

(2) Operating Leases

The Group entered into operating leases and sublease agreements in relation to rented office space and the expected future lease payments and lease revenues as of December 31, 2015 and 2014 (included in other non-operating income in the accompanying consolidated statements of income) are as follows:


(In millions of won)
	2015				2014
	Lease payments		Lease revenues		Lease payments		Lease revenues
Less than 1 year	￦	32,416		1,876		29,233		3,496
1~5 years		75,568		1,026		76,306		1,390
More than 5 years		33,602		577		49,582		1,043

	￦	141,586		3,479		155,121		5,929

(3) Sale and Leaseback Transaction

During the year ended December 31, 2012, the Group disposed a portion of its property and equipment and investment property, and entered into lease agreements with respect to those assets. This sale and leaseback transaction is considered as an operating lease. The Group recognized ￦14,539 million and ￦14,075 million of lease payments in relation to the operating lease agreement for the years ended December 31, 2015 and 2014, respectively, and ￦2,393 million and ￦2,469 million of lease revenues in relation to the sublease agreement for the years ended December 31, 2015 and 2014, respectively. Expected future lease payments and lease revenues are included in Note 21-(2).

F-65

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

22.

Defined Benefit Liabilities

(1)	Details of defined benefit liabilities as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015			December 31, 2014
Present value of defined benefit obligations	￦	525,269			437,844
Fair value of plan assets		(426,413	)		(346,257	)

	￦	98,856			91,587

(2)	Principal actuarial assumptions as of December 31, 2015 and 2014 are as follows:


	December 31, 2015	December 31, 2014
Discount rate for defined benefit obligations	1.90%~2.93%	2.23%~3.70%
Expected rate of salary increase	2.51%~7.04%	2.51%~7.39%

Discount rate for defined benefit obligations is determined based on the Group’s credit ratings and yield rate of corporate bonds with similar maturities for estimated payment term of defined benefit obligations. Expected rate of salary increase is determined based on the Group’s historical promotion index, inflation rate and salary increase ratio in accordance with salary agreement.

(3)	Changes in defined benefit obligations for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015			2014
Beginning balance	￦	437,844			312,494
Current service cost		106,764			109,625
Interest cost		12,292			12,630
Remeasurement
- Demographic assumption		732			2,859
- Financial assumption		5,900			28,287
- Adjustment based on experience		15,100			9,932
Benefit paid		(58,513	)		(46,531	)
Others(*)		5,150			8,548

Ending balance	￦	525,269			437,844

(*)

Others for the year ended December 31, 2015 include liabilities of ￦3,470 million succeeded due to transfer of employees from associates and transfer to construction in progress, etc. Others for the year ended December 31, 2014 include the effect of changes in the consolidation scope of ￦2,939 million, liabilities of ￦4,433 million succeeded due to transfer of employees from associates, and transfer to construction in progress, etc.

(4)	Changes in plan assets for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015			2014
Beginning balance	￦	346,257			238,293
Interest income		9,035			9,538
Actuarial gain		3,146			50
Contributions by employer directly to plan assets		115,640			117,558
Benefits paid		(47,809	)		(20,711	)
Others(*)		144			1,529

Ending balance	￦	426,413			346,257

F-66

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(*)	Others for the year ended December 31, 2014 include the effect of changes in the consolidation scope of ￦1,221 million.

The Group expects to make a contribution of ￦82,220 million to the defined benefit plans during the next financial year.

(5)	Expenses recognized in profit and loss (included in labor cost in the accompanying consolidated statements of income) and capitalized into construction-in-progress for the years ended December 31, 2015, 2014 and 2013 are as follows:


(In millions of won)
	2015		2014		2013
Current service cost	￦	106,764		109,625		89,802
Net interest cost		3,257		3,092		3,038

	￦	110,021		112,717		92,840

The above costs are recognized in labor cost, research and development, or capitalized into construction-in-progress.

(6)	Details of plan assets as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Equity instruments	￦	1,086		1,746
Debt instruments		81,867		70,778
Short-term financial instruments, etc.		343,460		273,733

	￦	426,413		346,257

Actual return on plan assets for the years ended December 31, 2015 and 2014 amounted to ￦12,181 million and ￦9,588 million, respectively.

(7)	As of December 31, 2015, effects on defined benefit obligations if each of significant actuarial assumptions changes within expectable and reasonable range are as follows:


(In millions of won)
	Increase			Decrease
Discount rate (if changed by 0.5%)	￦	(20,669	)		22,690
Expected salary increase rate (if changed by 0.5%)		22,604			(20,851	)

The sensitivity analysis does not consider dispersion of all cash flows that are expected from the plan and provides approximate values of sensitivity for the assumptions used.

Weighted average durations of defined benefit obligations as of December 31, 2015 and 2014 are 9.35 years and 9.10 years, respectively.

F-67

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

23.

Derivative Instruments

(1)	Currency swap contracts under cash flow hedge accounting as of December 31, 2015 are as follows:


(In thousands of foreign currencies)
Borrowing date	Hedged item	Hedged risk	Contract type	Financial institution	Duration of contract
Jul. 20, 2007	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 400,000)	Foreign currency risk	Currency swap	Morgan Stanley and five other banks	Jul. 20, 2007 ~ Jul. 20, 2027
Jun. 12, 2012	Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000)	Foreign currency risk	Currency swap	Citibank and four other banks	Jun. 12, 2012 ~ Jun.12, 2017

Nov. 1, 2012	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 700,000)	Foreign currency risk	Currency swap	Barclays and eight other banks	Nov. 1, 2012~ May. 1, 2018

Jan. 17, 2013	Fixed-to-fixed cross currency swap (Australia dollar denominated bonds face value of AUD 300,000)	Foreign currency risk	Currency swap	BNP Paribas and three other banks	Jan. 17, 2013 ~ Nov. 17, 2017

Mar. 7, 2013	Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 300,000)	Foreign currency risk and the interest rate risk	Currency interest rate swap	DBS bank	Mar. 7, 2013 ~ Mar. 7, 2020

Oct. 29, 2013	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 300,000)	Foreign currency risk	Currency swap	Korea Development Bank and four other banks	Oct.29, 2013 ~ Oct. 26, 2018

Dec. 16, 2013	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 74,817)	Foreign currency risk	Currency swap	Deutsche bank	Dec.16, 2013 ~ Apr. 29, 2022

F-68

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(2)	As of December 31, 2015, fair values of the above derivatives recorded in assets or liabilities and details of derivative instruments are as follows:


(In millions of won and thousands of foreign currencies)
	Fair value
	Cash flow hedge											Held for trading purpose		Total
Hedged item	Accumulated gain (loss) on valuation of derivatives			Tax effect			Accumulated foreign currency translation (gain) loss			Others *()**		Held for trading purpose		Total
Non-current assets:
Structured bond (face value of KRW 150,000)	￦	—			—			—			—		6,277		6,277
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 400,000)		(46,616	)		(14,883	)		11,180			129,806		—		79,487
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 700,000)		(18,705	)		(5,971	)		56,738			—		—		32,062
Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 300,000)		(5,748	)		(1,835	)		26,439			—		—		18,856
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 300,000)		(6,394	)		—			32,870			—		—		26,476
Fixed-to-fixed long-term borrowings (U.S. dollar denominated bonds face value of USD 74,817)		(4,072	)		(1,300	)		8,613			—		—		3,241

Total assets														￦	166,399

Non-current liabilities:
Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000)	￦	(3,678	)		(1,174	)		(7,851	)		—		—		(12,703	)
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of AUD 300,000)		2,013			642			(79,248	)		—		—		(76,593	)

Total liabilities														￦	(89,296	)

(*)	Cash flow hedge accounting has been applied to the relevant contracts from May 12, 2010. Others represent gain on valuation of currency swap incurred prior to the application of hedge accounting and was recognized through profit or loss prior to the year ended December 31, 2013.

F-69

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

24.

Share Capital and Capital Surplus (Deficit) and Other Capital Adjustments

The Parent Company’s outstanding share capital consists entirely of common stock with a par value of ￦500. The number of authorized, issued and outstanding common shares and capital surplus and other capital adjustments as of December 31, 2015 and 2014 are as follows:


(In millions of won, except for share data)
	December 31, 2015			December 31, 2014
Authorized shares		220,000,000			220,000,000
Issued shares(*1)		80,745,711			80,745,711
Share capital
Common stock	￦	44,639			44,639
Capital surplus and other capital adjustments:
Paid-in surplus		2,915,887			2,915,887
Treasury stock (Note 25)		(2,260,626	)		(2,139,683	)
Loss on disposal of treasury stock		—			(18,087	)
Others(*2)		(864,269	)		(878,637	)

	￦	(209,008	)		(120,520	)

(*1)

During the years ended December 31, 2003, 2006 and 2009, the Parent Company retired 7,002,235 shares, 1,083,000 shares and 448,000 shares, respectively, of treasury stock which reduced its retained earnings before appropriation in accordance with the Korean Commercial Act. As a result, the Parent Company’s outstanding shares have decreased without change in the share capital.

(*2)	Others primarily consist of the excess of the consideration paid by the Group over the carrying values of net assets acquired from common control transactions with entities within the control of the Ultimate Controlling Entity.

There were no changes in share capital for the years ended December 31, 2015 and 2014. Changes in number of shares outstanding for the years ended December 31, 2015 and 2014 as follows:


(In shares)
	2015								2014
	Issued shares		Treasury stock			Outstanding shares			Issued shares		Treasury stock		Outstanding shares
Beginning issued shares		80,745,711		9,809,375			70,936,336			80,745,711		9,809,375		70,936,336
Disposal of treasury stock		—		(1,692,824	)		1,692,824			—		—		—
Acquisition of treasury stock		—		2,020,000			(2,020,000	)		—		—		—

Ending issued shares		80,745,711		10,136,551			70,609,160			80,745,711		9,809,375		70,936,336

25.

Treasury Stock

The Parent Company acquired treasury stock to provide stock dividends, merge with Shinsegi Telecom, Inc. and SK IMT Co, Ltd., increase shareholder value and to stabilize its stock prices when needed.

Treasury stock as of December 31, 2015 and 2014 are as follows:


(In millions of won, shares)
	December 31, 2015		December 31, 2014
Number of shares		10,136,551		9,809,375
Amount	￦	2,260,626		2,139,683

F-70

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

On June 9, 2015, the Parent Company granted 1,692,824 shares of its treasury stock (acquisition cost: ￦369,249 million) in order to acquire shares of SK Broadband Co., Ltd. In addition, from September 30, 2015 to December 11, 2015, the Parent Company newly acquired 2,020,000 shares of its treasury stock amounting to ￦490,192 million in order to stabilize stock price.

26.

Hybrid Bonds

Hybrid bonds classified as equity as of December 31, 2015 are as follows:

(In millions of won)

Type

Issuance date

Maturity

Annual
interest
rate(%)

Amount

Private hybrid bonds

Blank coupon unguaranteed subordinated bond

June 7, 2013

June 7, 2073(*1)

4.21(*2)

￦

400,000

Issuance costs

(1,482

)

￦

398,518

Hybrid bonds issued by the Parent Company is classified as equity as there is no contractual obligation for delivery of financial assets to the bond holders. These are subordinated bonds which rank before common shareholders in the event of a liquidation or reorganization of the Parent Company.

(*1)	The Parent Company has a right to extend the maturity under the same issuance terms without any notice or announcement. The Parent Company also has the right to defer interest payment at its sole discretion.

(*2)	Annual interest rate is adjusted after five years from the issuance date.

27.

Retained Earnings

(1)	Retained earnings as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Appropriated:
Legal reserve	￦	22,320		22,320
Reserve for research & manpower development		87,301		151,533
Reserve for business expansion		9,671,138		9,476,138
Reserve for technology development		2,616,300		2,416,300

		12,397,059		12,066,291
Unappropriated		2,610,568		2,122,300

	￦	15,007,627		14,188,591

(2)	Legal reserve

The Korean Commercial Act requires the Parent Company to appropriate as a legal reserve at least 10% of cash dividends paid for each accounting period until the reserve equals 50% of outstanding share capital. 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 share capital.

F-71

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(3)	Reserve for research & manpower development

The reserve for research and manpower development was 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 and retained earnings in accordance with the relevant tax laws. Such reversal will be included in taxable income in the year of reversal.

28.

Reserves

(1)	Details of reserves, net of taxes, as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015			December 31, 2014
Unrealized fair value of available-for-sale financial assets	￦	232,316			235,385
Other comprehensive loss of investments in associates		(169,520	)		(163,808	)
Unrealized fair value of derivatives		(83,200	)		(77,531	)
Foreign currency translation differences for foreign operations		29,707			1,465

	￦	9,303			(4,489	)

(2)	Changes in reserves for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015
	Unrealized fair value of available-for- sale financial assets			Other compre- hensive loss of investments in associates			Unrealized fair value of derivatives			Foreign currency translation differences for foreign operations		Total
Balance at January 1, 2015	￦	235,385			(163,808	)		(77,531	)		1,465		(4,489	)
Changes		(5,530	)		(5,649	)		(5,221	)		28,242		11,842
Tax effect		2,461			(63	)		(448	)		—		1,950

Balance at December 31, 2015	￦	232,316			(169,520	)		(83,200	)		29,707		9,303


(In millions of won)

	2014
	Unrealized fair value of available-for- sale financial assets			Other compre- hensive loss of investments in associates			Unrealized fair value of derivatives			Foreign currency translation differences for foreign operations			Total
Balance at January 1, 2014	￦	208,529			(172,117	)		(35,429	)		(13,253	)		(12,270	)
Changes		30,945			8,381			(54,290	)		14,718			(246	)
Tax effect		(4,089	)		(72	)		12,188			—			8,027

Balance at December 31, 2014	￦	235,385			(163,808	)		(77,531	)		1,465			(4,489	)

F-72

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(3)	Details of changes in unrealized fair value of available-for-sale financial assets for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015
	Before taxes			Income tax effect			After taxes
Balance at January 1, 2015	￦	306,608			(71,223	)		235,385
Amount recognized as other comprehensive loss during the year		(3,902	)		2,067			(1,835	)
Amount reclassified to profit or loss		(1,628	)		394			(1,234	)

Balance at December 31, 2015	￦	301,078			(68,762	)		232,316


(In millions of won)
	2014
	Before taxes			Income tax effect			After taxes
Balance at January 1, 2014	￦	275,663			(67,134	)		208,529
Amount recognized as other comprehensive income during the year		40,785			(6,470	)		34,315
Amount reclassified to profit or loss		(9,840	)		2,381			(7,459	)

Balance at December 31, 2014	￦	306,608			(71,223	)		235,385

(4)	Details of changes in unrealized fair value of derivatives for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015
	Before taxes			Income tax effect			After taxes
Balance at January 1, 2015	￦	(102,501	)		24,970			(77,531	)
Amount recognized as other comprehensive loss during the year		(4,714	)		(570	)		(5,284	)
Amount reclassified to profit or loss		(507	)		122			(385	)

Balance at December 31, 2015	￦	(107,722	)		24,522			(83,200	)


(In millions of won)
	2014
	Before taxes			Income tax effect		After taxes
Balance at January 1, 2014	￦	(48,211	)		12,782		(35,429	)
Amount recognized as other comprehensive loss during the year		(46,535	)		10,311		(36,224	)
Amount reclassified to profit or loss		(7,755	)		1,877		(5,878	)

Balance at December 31, 2014	￦	(102,501	)		24,970		(77,531	)

F-73

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

29.

Other Operating Income and Expenses

Details of other operating income and expenses for the years ended December 31, 2015, 2014 and 2013 are as follows:


(In millions of won)
	2015		2014		2013
Other Operating Income:
Reversal of allowance for doubtful accounts	￦	—		—		359
Gain on disposal of property and equipment and intangible assets		7,140		8,792		7,991
Others(*1)		23,795		47,679		66,604

	￦	30,935		56,471		74,954

Other Operating Expenses:
Communication expenses	￦	43,979		58,622		62,193
Utilities		270,621		247,919		227,593
Taxes and dues		36,118		33,500		29,873
Repair		312,517		260,533		252,344
Research and development		315,790		390,943		352,385
Training		37,278		42,781		40,446
Bad debt for accounts receivables — trade		60,450		45,754		53,344
Travel		27,860		28,912		31,762
Supplies and other		176,248		209,933		189,224
Loss on disposal of property and equipment and intangible assets		21,392		32,950		267,468
Impairment loss on other investment securities		42,966		22,749		6,137
Impairment loss on property and equipment and intangible assets		35,845		47,489		13,770
Donations		72,454		67,823		82,057
Bad debt for accounts receivable — other		15,323		17,943		22,155
Others(*2)		55,536		84,796		115,532

	￦	1,524,377		1,592,647		1,746,283

(*1)	Others for the year ended December 31, 2015, 2014 and 2013, primarily consist of ￦2.1 billion, ￦8.1 billion and ￦10.3 billion of VAT refund, respectively.

(*2)	Others for the years ended December 31, 2015, 2014 and 2013 primarily consist of ￦29.5 billion, ￦54.7 billion, and ￦96.5 billion of penalties.

F-74

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

30.

Finance Income and Costs

(1)	Details of finance income and costs for the years ended December 31, 2015, 2014 and 2013 are as follows:


(In millions of won)
	2015		2014		2013
Finance Income:
Interest income	￦	45,884		60,006		65,560
Dividends		16,102		13,048		10,197
Gain on foreign currency transactions		18,923		16,301		11,041
Gain on foreign currency translations		5,090		6,277		4,401
Gain on disposal of long-term investment securities		10,786		13,994		9,300
Gain on valuation of derivatives		1,927		8,713		—
Gain on settlement of derivatives		—		7,998		7,716
Gain relating to financial asset at fair value through profit or loss		—		—		5,177
Gain relating to financial liability at fair value through profit or loss		5,188		—		—

	￦	103,900		126,337		113,392

Finance Costs:
Interest expense	￦	297,662		323,910		331,834
Loss on foreign currency transactions		17,931		18,053		16,430
Loss on foreign currency translations		4,750		5,079		2,634
Loss on disposal of long-term investment securities		2,599		2,694		31,909
Loss on valuation of derivatives		—		10		2,106
Loss on settlement of derivatives		4,845		672		—
Loss relating to financial asset at fair value through profit or loss		—		1,352		—
Loss relating to financial liability at fair value through profit or loss(*1)		526		10,370		134,232
Other finance costs(*2)		21,787		24,533		52,058

	￦	350,100		386,673		571,203

(*1)

Loss relating to financial liability at fair value through profit or loss for the year ended December 31, 2013 represents 1) valuation loss related to exchangeable bond (issue price of USD 326,397,463) as a result of increase in stock price of the Parent Company and increase in foreign exchange rate, and 2) loss on repayment of debentures upon the claim for exchange.

(*2)	See Note 30-(5)

(2)	Details of interest income included in finance income for the years ended December 31, 2015, 2014 and 2013 are as follows:


(In millions of won)
	2015		2014		2013
Interest income on cash equivalents and deposits	￦	20,009		33,417		41,907
Interest income on installment receivables and others		25,875		26,589		23,653

	￦	45,884		60,006		65,560

F-75

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(3)	Details of interest expense included in finance costs for the years ended December 31, 2015, 2014 and 2013 are as follows:


(In millions of won)
	2015		2014		2013
Interest expense on bank overdrafts and borrowings	￦	19,577		26,360		28,600
Interest expense on debentures		238,450		247,972		258,962
Interest on finance lease liabilities		58		504		1,333
Others		39,577		49,074		42,939

	￦	297,662		323,910		331,834

(4)	Finance income and costs by categories of financial instruments for the years ended December 31, 2015, 2014 and 2013 are as follows. Bad debt expenses (reversal of allowance for doubtful accounts) for accounts receivable — trade, loans and receivables are excluded and are explained in Note 7 :

(i) Finance income


(In millions of won)
	2015		2014		2013
Financial Assets:
Financial assets at fair value through profit or loss	￦	1,927		8,713		5,177
Available-for-sale financial assets		31,220		32,227		23,311
Loans and receivables		64,749		57,685		62,211
Derivative financial instruments designated as hedged item		—		7,998		7,716

		97,896		106,623		98,415

Financial Liabilities:
Financial liabilities at fair value through profit or loss		5,188		—		—
Financial liabilities measured at amortized cost		816		19,714		14,977

		6,004		19,714		14,977

	￦	103,900		126,337		113,392

(ii) Finance costs


(In millions of won)
	2015		2014		2013
Financial Assets:
Financial assets at fair value through profit or loss	￦	4,188		1,361		276
Available-for-sale financial assets		24,386		27,227		83,967
Loans and receivables		15,861		18,182		16,479
Derivative financial instruments designated as hedged item		657		672		1,830

		45,092		47,442		102,552

Financial Liabilities:
Financial liabilities at fair value through profit or loss		526		10,370		134,232
Financial liabilities measured at amortized cost		304,482		328,861		334,419

		305,008		339,231		468,651

	￦	350,100		386,673		571,203

F-76

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(iii) Other comprehensive income


(In millions of won)
	2015			2014			2013
Financial Assets:
Available-for-sale financial assets	￦	(3,661	)		26,856			2,009
Derivative financial instruments designated as hedged item		(3,248	)		(20,301	)		12,240

		(6,909	)		6,555			14,249

Financial Liabilities:
Derivative financial instruments designated as hedged item		1,977			(21,801	)		(1,018	)

		1,977			(21,801	)		(1,018	)

	￦	(4,932	)		(15,246	)		13,231

(5)	Details of impairment losses for financial assets for the years ended December 31, 2015, 2014 and 2013 are as follows :


(In millions of won)
	2015		2014		2013
Available-for-sale financial assets(*)	￦	21,787		24,533		52,058
Bad debt for accounts receivable — trade		60,450		45,754		53,344
Bad debt for accounts receivable — other		15,323		17,943		22,167

	￦	97,560		88,230		127,569

(*)	This is included in other finance costs (See Note 30-(1)).

31.

Income Tax Expense for Continuing Operations

(1)	Income tax expenses for continuing operations for the years ended December 31, 2015, 2014 and 2013 consist of the following:


(In millions of won)
	2015			2014			2013
Current tax expense
Current tax payable	￦	417,022			181,273			145,457
Adjustments recognized in the period for current tax of prior periods		(4,124	)		(19,938	)		(16,696	)

		412,898			161,335			128,761

Deferred tax expense
Changes in net deferred tax assets		102,305			276,049			266,601
Tax directly charged to equity		4,669			16,929			(3,584	)
Changes in scope of consolidation		(575	)		—			8,919
Others (exchange rate differences, etc.)		183			195			100

		106,582			293,173			272,036

Income tax for continuing operation	￦	519,480			454,508			400,797

F-77

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(2)	The difference between income taxes computed using the statutory corporate income tax rates and the actual income tax expense from continuing operations for the years ended December 31, 2015, 2014 and 2013 is attributable to the following:


(In millions of won)
	2015			2014			2013
Income taxes at statutory income tax rate	￦	492,096			544,964			441,697
Non-taxable income		(85,589	)		(32,277	)		(35,632	)
Non-deductible expenses		44,770			61,580			74,311
Tax credit and tax reduction		(25,756	)		(33,581	)		(37,893	)
Changes in unrealizable deferred taxes		83,623			(43,820	)		(13,285	)
Additional income tax payable (refund) for prior periods		8,131			(44,459	)		(23,162	)
Deferred tax effect from statutory tax rate change for future periods		2,205			2,101			(5,239	)

Income tax for continuing operation	￦	519,480			454,508			400,797

(3)	Deferred taxes directly charged to (credited to) equity for the years ended December 31, 2015, 2014 and 2013 are as follows:


(In millions of won)
	2015			2014			2013
Net change in fair value of available-for-sale financial assets	￦	2,461			(4,089	)		(1,281	)
Share of other comprehensive income of associates		(63	)		(72	)		1,673
Gain or loss on valuation of derivatives		(448	)		12,188			(3,265	)
Remeasurement of defined benefit liabilities		2,719			8,902			(466	)
Loss on disposal of treasury stock		—			—			(245	)

	￦	4,669			16,929			(3,584	)

F-78

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(4)	Details of changes in deferred tax assets (liabilities) for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015
	Beginning			Changes in scope of consolidation			Deferred tax expense (income)			Directly added to (deducted from) equity			Other		Ending
Deferred tax assets (liabilities) related to temporary differences
Allowance for doubtful accounts	￦	53,578			—			6,379			—			—		59,957
Accrued interest income		(2,450	)		—			(117	)		—			—		(2,567	)
Available-for-sale financial assets		(4,824	)		—			32,728			2,461			—		30,365
Investments in subsidiaries and associates		(211,043	)		—			(144,167	)		(63	)		—		(355,273	)
Property and equipment (depreciation)		(372,332	)		—			44,760			—			—		(327,572	)
Provisions		7,587			—			(5,102	)		—			—		2,485
Retirement benefit obligation		27,361			—			(1,753	)		2,719			—		28,327
Gain or loss on valuation of derivatives		24,969			—			—			(448	)		—		24,521
Gain or loss on foreign currency translation		19,324			—			193			—			—		19,517
Tax free reserve for research and manpower development		(7,162	)		—			—			—			—		(7,162	)
Goodwill relevant to leased line		4,433			—			(720	)		—			—		3,713
Unearned revenue (activation fees)		25,977			—			(23,912	)		—			—		2,065
Others		(15,682	)		(575	)		(7,708	)		—			183		(23,782	)

		(450,264	)		(575	)		(99,419	)		4,669			183		(545,406	)

Deferred tax assets related to unused tax loss carryforwards and unused tax credit carryforwards
Tax loss carryforwards		31,712			—			(7,163	)		—			—		24,549

	￦	(418,552	)		(575	)		(106,582	)		4,669			183		(520,857	)

F-79

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013


(In millions of won)
	2014
	Beginning			Deferred tax expense (benefit)			Directly added to (deducted from) equity			Other			Ending
Deferred tax assets (liabilities) related to temporary differences
Allowance for doubtful accounts	￦	56,427			(2,700	)		—			(149	)		53,578
Accrued interest income		(2,831	)		381			—			—			(2,450	)
Available-for-sale financial assets		(589	)		(146	)		(4,089	)		—			(4,824	)
Investments in subsidiaries and associates		(44,844	)		(165,663	)		(72	)		(464	)		(211,043	)
Property and equipment (depreciation)		(333,633	)		(38,690	)		—			(9	)		(372,332	)
Provisions		14,303			(6,699	)		—			(17	)		7,587
Retirement benefit obligation		16,089			2,390			8,902			(20	)		27,361
Gain or loss on valuation of derivatives		12,779			2			12,188			—			24,969
Gain or loss on foreign currency translation		19,572			(248	)		—			—			19,324
Tax free reserve for research and manpower development		(40,011	)		32,849			—			—			(7,162	)
Goodwill relevant to leased line		31,025			(26,592	)		—			—			4,433
Unearned revenue (activation fees)		53,412			(27,435	)		—			—			25,977
Others		44,738			(61,274	)		—			854			(15,682	)

		(173,563	)		(293,825	)		16,929			195			(450,264	)

Deferred tax assets related to unused tax loss carryforwards and unused tax credit carryforwards
Tax loss carryforwards		31,060			652			—			—			31,712

	￦	(142,503	)		(293,173	)		16,929			195			(418,552	)

(5)

Details of temporary differences, unused tax loss carryforwards and unused tax credits carryforwards which are not recognized as deferred tax assets(liabilities), as the Group does not believe it is probable that the deferred tax assets will be realizable in the future, in the consolidated statements of financial position as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Allowance for doubtful accounts	￦	182,266		155,634
Investments in subsidiaries and associates		281,719		422,033
Other temporary differences		285,845		314,188
Unused tax loss carryforwards		1,034,070		729,570
Unused tax credit carryforwards		2,271		2,438

	￦	1,786,171		1,623,863

(6)	The expirations of unused tax loss carryforwards and unused tax credit carryforwards which are not recognized as deferred tax assets as of December 31, 2015 are as follows:


(In millions of won)
	Unused tax loss carryforwards		Unused tax credit carryforwards
Less than 1 year	￦	4,894		1,041
1 ~ 2 years		—		155
2 ~ 3 years		—		870
More than 3 years		1,029,176		205

	￦	1,034,070		2,271

F-80

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

32.

Earnings per Share

(1) Basic earnings per share

1)	Basic earnings per share for the years ended December 31, 2015, 2014 and 2013 are calculated as follows:


(In millions of won, shares)
	2015			2014			2013
Basic earnings per share attributable to owners of the Parent Company from continuing operation:
Profit attributable to owners of the Parent Company from continuing operations	￦	1,518,604			1,801,178			1,463,097
Interest on hybrid bonds		(16,840	)		(16,840	)		(8,420	)

Profit attributable to owners of the Parent Company from continuing operations on common shares		1,501,764			1,784,338			1,454,677
Weighted average number of common shares outstanding		71,551,966			70,936,336			70,247,592

Basic earnings per share from continuing operations (In won)	￦	20,988			25,154			20,708

Basic earnings per share attributable to owners of the Parent Company:
Profit attributable to owners of the Parent Company	￦	1,518,604			1,801,178			1,638,964
Interest on hybrid bond		(16,840	)		(16,840	)		(8,420	)

Profit attributable to owners of the Parent Company on common shares		1,501,764			1,784,338			1,630,544
Weighted average number of common shares outstanding		71,551,966			70,936,336			70,247,592

Basic earnings per share (In won)	￦	20,988			25,154			23,211

2)	Profit attributable to owners of the Parent Company from continuing operation for the years ended December 31, 2015, 2014 and 2013 are calculated as follows:


(In millions of won)
	2015		2014		2013
Profit attributable to owners of the Parent Company	￦	1,518,604		1,801,178		1,638,964
Results of discontinued operation attributable to owners of the Parent Company		—		—		(175,867	)

Profit attributable to owners of the Parent Company from continuing operation	￦	1,518,604		1,801,178		1,463,097

3)	The weighted average number of common shares outstanding for the years ended December 31, 2015, 2014 and 2013 are calculated as follows:


(In shares)
	2015			2014			2013
Outstanding common shares		80,745,711			80,745,711			80,745,711
Weighted number of treasury stocks		(9,193,745	)		(9,809,375	)		(10,498,119	)

Weighted average number of common shares outstanding		71,551,966			70,936,336			70,247,592

F-81

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(2) Diluted earnings per share

For the years ended December 31, 2015 and 2014, there were no potentially dilutive shares. The number of common shares outstanding in respect of the exchangeable common shares of exchangeable bonds is excluded from the diluted earnings per share calculation for the year ended December 31, 2013 as the effect would have been anti-dilutive (diluted shares of 688,744). Therefore, diluted earnings per share for the years ended December 31, 2015, 2014 and 2013 are the same as basic earnings per share.

(3)	Basic earnings per share from discontinued operation


(In millions of won, shares)
	2015		2014		2013
Results of discontinued operation attributable to owners of the Parent Company	￦	—		—		175,867
Weighted average number of common shares outstanding		71,551,966		70,936,336		70,247,592

Basic earnings per share (In won)	￦	—		—		2,503

Diluted earnings per share from discontinued operation is the same as basic loss per share from discontinued operation.

33.

Dividends

(1) Details of dividends declared

Details of dividend declared for the years ended December 31, 2015, 2014 and 2013 are as follows:


(In millions of won, except for face value and share data)
Year	Dividend type	Number of shares outstanding		Face value (In won)		Dividend ratio		Dividends
2015	Cash dividends (Interim)		72,629,160		500		200%	￦	72,629
	Cash dividends (Year-end)		70,609,160		500		1800%		635,482

								￦	708,111

2014	Cash dividends (Interim)		70,936,336		500		200%	￦	70,937
	Cash dividends (Year-end)		70,936,336		500		1,680%		595,865

								￦	666,802

2013	Cash dividends (Interim)		70,508,482		500		200%	￦	70,508
	Cash dividends (Year-end)		70,936,336		500		1,680%		595,865

								￦	666,373

(2) Dividends payout ratio

Dividends payout ratios for the years ended December 31, 2015, 2014 and 2013 are as follows:


(In millions of won)
Year	Dividends calculated		Profit		Dividends payout ratio
2015	￦	708,111		1,518,604		46.63	%
2014	￦	666,802		1,801,178		37.02	%
2013	￦	666,373		1,638,964		40.66	%

F-82

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(3) Dividends yield ratio

Dividends yield ratios for the years ended December 31, 2015, 2014 and 2013 are as follows:


(In won)
Year	Dividend type	Dividend per share	Closing price at settlement	Dividend yield ratio
2015	Cash dividend	10,000	215,500	4.64%
2014	Cash dividend	9,400	268,000	3.51%
2013	Cash dividend	9,400	230,000	4.09%

34.

Categories of Financial Instruments

(1)	Financial assets by categories as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015
	Financial assets at fair value through profit or loss		Available- for-sale financial assets		Loans and receivables		Derivative financial instruments designated as hedged item		Total
Cash and cash equivalents	￦	—		—		768,922		—		768,922
Financial instruments		—		—		701,713		—		701,713
Short-term investment securities		—		92,262		—		—		92,262
Long-term investment securities		—		1,207,226		—		—		1,207,226
Accounts receivable — trade		—		—		2,390,110		—		2,390,110
Loans and other receivables(*)		—		—		1,102,403		—		1,102,403
Derivative financial assets		6,277		—		—		160,122		166,399

	￦	6,277		1,299,488		4,963,148		160,122		6,429,035


(In millions of won)
	December 31, 2014
	Financial assets at fair value through profit or loss		Available- for-sale financial assets		Loans and receivables		Derivative financial instruments designated as hedged item		Total
Cash and cash equivalents	￦	—		—		834,429		—		834,429
Financial instruments		—		—		313,699		—		313,699
Short-term investment securities		—		280,161		—		—		280,161
Long-term investment securities		7,817		948,463		—		—		956,280
Accounts receivable — trade		—		—		2,460,686		—		2,460,686
Loans and other receivables(*)		—		—		1,123,507		—		1,123,507
Derivative financial assets		8,713		—		—		61,322		70,035

	￦	16,530		1,228,624		4,732,321		61,322		6,038,797

F-83

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(*)	Details of loans and other receivables as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Short-term loans	￦	53,895		74,512
Accounts receivable — other		673,739		690,527
Accrued income		10,753		10,134
Other current assets		1,861		3,866
Long-term loans		62,454		55,728
Long-term accounts receivable — other		2,420		3,596
Guarantee deposits		297,281		285,144

	￦	1,102,403		1,123,507

(2)	Financial liabilities by categories as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015
	Financial liabilities at fair value through profit or loss		Financial liabilities measured at amortized cost		Derivative financial instruments designated as hedged item		Total
Accounts payable — trade	￦	—		279,782		—		279,782
Derivative financial liabilities		—		—		89,296		89,296
Borrowings		—		415,134		—		415,134
Debentures(*1)		155,704		6,952,949		—		7,108,653
Accounts payable — other and others(*2)		—		2,970,801		—		2,970,801

	￦	155,704		10,618,666		89,296		10,863,666


(In millions of won)
	December 31, 2014
	Financial liabilities at fair value through profit or loss		Financial liabilities measured at amortized cost		Derivative financial instruments designated as hedged item		Total
Accounts payable — trade	￦	—		275,495		—		275,495
Derivative financial liabilities		—		—		130,889		130,889
Borrowings		—		537,562		—		537,562
Debentures(*1)		110,365		6,108,265		—		6,218,630
Accounts payable — other and others(*2)		—		3,241,615		—		3,241,615

	￦	110,365		10,162,937		130,889		10,404,191

(*1)

Bonds classified as financial liabilities at fair value through profit or loss as of December 31, 2015 and 2014 are structured bonds and they were designated as financial liabilities at fair value through profit or loss in order to settle the difference of the measurement bases of accounting profit or loss between the related derivatives and bonds.

F-84

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(*2)	Details of accounts payable – other and other payables as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Accounts payable — other	￦	1,323,434		1,381,850
Withholdings		1,178		1,760
Accrued expenses		920,739		952,418
Current portion of long-term payables — other		120,211		193,193
Long-term payables — other		581,697		684,567
Finance lease liabilities		—		26
Other non-current liabilities		23,542		27,801

	￦	2,970,801		3,241,615

35.

Financial Risk Management

(1)	Financial risk management

The Group is exposed to credit risk, liquidity risk and market risk. Market risk is the risk related to the changes in market prices, such as foreign exchange rates, interest rates and equity prices. The Group implements a risk management system to monitor and manage these specific risks.

The Group’s financial assets under financial risk management consist of cash and cash equivalents, financial instruments, available-for-sale financial assets, trade and other receivables. Financial liabilities consist of trade and other payables, borrowings, and debentures.

1)	Market risk

(i) Currency risk

The Group is exposed to currency risk mainly on exchange fluctuations on recognized assets and liabilities. The Group manages currency risk by currency forward, etc. if needed to hedge currency risk on business transactions. Currency risk occurs on forecasted transaction and recognized assets and liabilities which are denominated in a currency other than the functional currency of the Group.

Monetary foreign currency assets and liabilities as of December 31, 2015 are as follows:


(In millions of won, thousands of U.S. dollars, thousands of Euros, thousands of Japanese Yen, thousands of other currencies)
	Assets				Liabilities
	Foreign currencies		Won translation		Foreign currencies		Won translation
USD		162,322	￦	189,763		1,836,860	￦	2,152,800
EUR		23,421		30,005		257		328
JPY		24,462		238		695		7
AUD		—		—		299,023		255,097
CHF		—		—		299,403		354,909
Others		4,995		1,148		291		121

			￦	221,154			￦	2,763,262

In addition, the Group has entered into cross currency swaps to hedge against currency risk related to foreign currency borrowings and debentures. (Refer to Note 23)

F-85

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

As of December 31, 2015, effects on income (loss) before income tax as a result of change in exchange rate by 10% are as follows:


(In millions of won)
	If increased by 10%		If decreased by 10%
USD	￦	9,600		(9,600	)
EUR		2,934		(2,934	)
JPY		23		(23	)
Others		100		(100	)

	￦	12,657		(12,657	)

(ii) Equity price risk

The Group has equity securities which include listed and non-listed securities for its liquidity and operating purpose. As of December 31, 2015, available-for-sale equity instruments measured at fair value amount to ￦1,076,291 million.

(iii) Interest rate risk

Since the Group’s interest bearing assets are mostly fixed-interest bearing assets, as such, the Group’s revenue and operating cash flow are not influenced by the changes in market interest rates. However, the Group still has interest rate risk arising from borrowings and debentures.

Accordingly, the Group performs various analysis of interest rate risk, which includes refinancing, renewal, alternative financing and hedging instrument option, to reduce interest rate risk and to optimize its financing.

The interest rate risk arises from the Group’s floating-rate borrowings and bonds agreements. As of December 31, 2015, the floating-rate borrowings and bonds are ￦20,573 million and ￦351,600 million, respectively, and the Group has entered into interest rate swap agreements, as described in Note 23, for all floating-rate bonds to hedge the interest rate risk of floating-rate bonds. On the other hand, if the interest rate increases (decreases) 1% with all other variables held constant, income before income taxes for the year ended December 31, 2015, fluctuates as much as ￦206 million due to the interest expense on floating-rate borrowings that have not entered into an interest rate swap agreement.

2)	Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet his/her contractual obligations. The maximum credit exposure as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Cash and cash equivalents	￦	768,794		833,129
Financial instruments		701,713		313,699
Available-for-sale financial assets		3,430		15,498
Accounts receivable — trade		2,390,110		2,460,686
Loans and receivables		1,102,403		1,123,507
Derivative financial assets		166,399		70,035
Financial assets at fair value through profit or loss		—		7,817

	￦	5,132,849		4,824,371

F-86

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

To manage credit risk, the Group evaluates the credit worthiness of each customer or counterparty considering the party’s financial information, its own trading records and other factors; based on such information, the Group establishes credit limits for each customer or counterparty.

For the year ended December 31, 2015, the Group has no trade and other receivables or loans which have indications of significant impairment loss or are overdue for a prolonged period. As a result, the Group believes that the possibility of default is remote. Also, the Group’s credit risk can rise due to transactions with financial institutions related to its cash and cash equivalents, financial instruments and derivatives. To minimize such risk, the Group has a policy to deal with high credit worthy financial institutions. The amount of maximum exposure to credit risk of the Group is the carrying amount of financial assets as of December 31, 2015.

In addition, the aging of trade and other receivables that are overdue at the end of the reporting period but not impaired is stated in Note 7 and the analysis of financial assets that are individually determined to be impaired at the end of the reporting period is stated in Note 30.

3)	Liquidity risk

The Group’s approach to managing liquidity is to ensure that it will always maintain sufficient cash and cash equivalents balances and have enough liquidity through various committed credit lines. The Group maintains flexibly enough liquidity under credit lines through active operating activities.

Contractual maturities of financial liabilities as of December 31, 2015 are as follows:


(In millions of won)
	Carrying amount		Contractual cash flows		Less than 1 year		1 - 5 years		More than 5 years
Accounts payable — trade	￦	279,782		279,782		279,782		—		—
Borrowings(*1)		415,134		428,012		298,118		109,200		20,694
Debentures(*1)		7,108,653		8,514,028		897,895		4,516,896		3,099,237
Accounts payable — other and others(*2)		2,970,801		3,030,356		2,330,565		578,643		121,148

	￦	10,774,370		12,252,178		3,806,360		5,204,739		3,241,079

The Group does not expect that the cash flows included in the maturity analysis could occur significantly earlier or at different amounts.

(*1)	Includes estimated interest to be paid and excludes discounts on borrowings and debentures.

(*2)	Excludes discounts on accounts payable-other and others.

As of December 31, 2015, periods which cash flows from cash flow hedge derivatives are expected to be incurred are as follows:


(In millions of won)
	Carrying amount			Contractual cash flows			Less than 1 year			1 -5 years			More than 5 years
Assets	￦	160,122			171,808			1,894			138,980			30,934
Liabilities		(89,296	)		(92,498	)		(4,882	)		(87,616	)		—

	￦	70,826			79,310			(2,988	)		51,364			30,934

(2)	Capital management

The Group manages its capital to ensure that it will be able to continue as a business while maximizing the return to shareholders through the optimization of its debt and equity balance. The overall strategy of the Group is the same as that of the group as of and for the year ended December 31, 2014.

F-87

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

The Group monitors its debt-equity ratio as a capital management indicator. This ratio is calculated as total liabilities divided by total equity which are extracted from the financial statements.

Debt-equity ratio as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015			December 31, 2014
Liabilities	￦	13,207,291			12,692,963
Equity		15,374,096			15,248,270

Debt-equity ratio		85.91	%		83.24	%

(3) Fair value

1)	Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2015 are as follows:


(In millions of won)
	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets that can be measured at fair value
Financial assets at fair value through profit or loss	￦	6,277		—		6,277		—		6,277
Derivative financial assets		160,122		—		160,122		—		160,122
Available-for-sale financial assets		1,076,291		897,958		47,262		131,071		1,076,291

	￦	1,242,690		897,958		213,661		131,071		1,242,690

Financial assets that cannot be measured at fair value
Cash and cash equivalents(*1)	￦	768,922		—		—		—		—
Available-for-sale financial assets(*1,2)		223,197		—		—		—		—
Accounts receivable — trade and others(*1)		3,492,513		—		—		—		—
Financial instruments(*1)		701,713		—		—		—		—

	￦	5,186,345		—		—		—		—

Financial liabilities that can be measured at fair value
Financial liabilities at fair value through profit or loss	￦	155,704		—		155,704		—		155,704
Derivative financial liabilities		89,296		—		89,296		—		89,296

	￦	245,000		—		245,000		—		245,000

Financial liabilities that cannot be measured at fair value
Accounts payable — trade(*1)	￦	279,782		—		—		—		—
Borrowings		415,134		—		416,702		—		416,702
Debentures		6,952,949		—		7,411,909		—		7,411,909
Accounts payable — other and others(*1)		2,970,801		—		—		—		—

	￦	10,618,666		—		7,828,611		—		7,828,611

F-88

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

2)	Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2014 are as follows:


(In millions of won)
	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets that can be measured at fair value
Financial assets at fair value through profit or loss	￦	16,530		—		8,713		7,817		16,530
Derivative financial assets		61,322		—		61,322		—		61,322
Available-for-sale financial assets		846,614		657,286		47,002		142,326		846,614

	￦	924,466		657,286		117,037		150,143		924,466

Financial assets that cannot be measured at fair value
Cash and cash equivalents(*1)	￦	834,429		—		—		—		—
Available-for-sale financial assets(*1,2)		382,010		—		—		—		—
Accounts receivable — trade and others(*1)		3,584,193		—		—		—		—
Financial instruments(*1)		313,699		—		—		—		—

	￦	5,114,331		—		—		—		—

Financial liabilities that can be measured at fair value
Financial liabilities at fair value through profit or loss	￦	110,365		—		110,365		—		110,365
Derivative financial liabilities		130,889		—		130,889		—		130,889

	￦	241,254		—		241,254		—		241,254

Financial liabilities that cannot be measured at fair value
Accounts payable — trade(*1)	￦	275,495		—		—		—		—
Borrowings		537,562		—		549,083		—		549,083
Debentures		6,108,265		—		6,514,832		—		6,514,832
Accounts payable — other and others(*1)		3,241,615		—		—		—		—

	￦	10,162,937		—		7,063,915		—		7,063,915

(*1)	Does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are a reasonable approximation of fair value.

(*2)	Equity instruments which do not have quoted price in an active market for the identical instruments (inputs for level 1) are measured at cost in accordance with IAS 39 as such equity instruments cannot be reliably measured using other methods.

Fair value of the financial instruments that are traded in an active market (available-for-sale financial assets, financial liabilities at fair value through profit or loss, etc.) is measured based on the bid price at the end of the reporting date.

The Group uses various valuation methods for valuation of fair value of financial instruments that are not traded in an active market. Fair value of available-for-sale securities is determined using the market approach methods and financial assets through profit or loss are measured using the option pricing model. In addition, derivative financial contracts and long-term liabilities are measured using the present value methods. Inputs used to such valuation methods include swap rate, interest rate, and risk premium, and the Group performs valuation using the inputs which are consistent with natures of assets and liabilities being evaluated.

F-89

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

Fair values of accounts receivable — trade, and accounts payable — trade are considered to be carrying amount less impairment and fair value of financial liabilities for the disclosure purpose is estimated by discounting contractual future cash flows using the current market interest rate used for the similar financial instruments by the Group.

Interest rates used by the Group for the fair value measurement as of December 31, 2015 are as follows:


		Interest rate
Derivative instruments		1.92 ~ 2.37%
Borrowings and debentures		2.12 ~ 3.34%

3)	There have been no transfers from Level 2 to Level 1 in 2015 and changes of financial assets classified as Level 3 for the year ended December 31, 2015 are as follows:


(In millions of won)
	Balance at Jan. 1		Acquisition		Loss for the period			Other comprehensive loss			Disposal			Others		Balance at Dec.31
Available-for-sale financial assets	￦	142,326		3,103		(449	)		(2,379	)		(30,359	)		18,829		131,071

(4)	Enforceable master netting agreement or similar agreement

Carrying amount of financial instruments recognized of which offset agreements are applicable as of December 31, 2015 are as follows:


(In millions of won)
	Gross financial instruments recognized		Gross offset financial instruments recognized			Net financial instruments presented on the statements of financial position		Relevant amount not offset on the statements of financial position					Net amount
	Gross financial instruments recognized		Gross offset financial instruments recognized					Financial instruments			Cash collaterals received		Net amount
Financial assets:
Derivatives(*)	￦	55,673		—			55,673		(55,673	)		—		—
Accounts receivable — trade and others		129,527		(113,003	)		16,524		—			—		16,524

	￦	185,200		(113,003	)		72,197		(55,673	)		—		16,524

Financial liabilities:
Derivatives(*)	￦	89,734		—			89,734		(55,673	)		—		34,061
Accounts payable — other and others		113,003		(113,003	)		—		—			—		—

	￦	202,737		(113,003	)		89,734		(55,673	)		—		34,061

F-90

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

Carrying amount of financial instruments recognized of which offset agreements are applicable as of December 31, 2014 are as follows:


(In millions of won)
	Gross financial instruments recognized		Gross offset financial instruments recognized			Net financial instruments presented on the statements of financial position		Relevant amount not offset on the statements of financial position					Net amount
	Gross financial instruments recognized		Gross offset financial instruments recognized					Financial instruments			Cash collaterals received		Net amount
Financial assets:
Derivatives(*)	￦	48,057		—			48,057		(45,892	)		—		2,165
Accounts receivable — trade and others		128,794		(117,568	)		11,226		—			—		11,226

	￦	176,851		(117,568	)		59,283		(45,892	)		—		13,391

Financial liabilities:
Derivatives(*)	￦	45,892		—			45,892		(45,892	)		—		—
Accounts payable — others		117,568		(117,568	)		—		—			—		—

	￦	163,460		(117,568	)		45,892		(45,892	)		—		—

(*)

The Group entered into derivative contracts which include enforceable master netting arrangement in accordance with International Swap and Derivatives Association (ISDA). Generally, all contracts made with the identical currencies are settled from one party to another by combining one net amount. In this case, all contracts are liquidated and paid off at net amount by evaluating liquidation value if credit events such as bankruptcy occur.

ISDA agreements do not allow the Group to exercise rights of set-off unless credit events such as bankruptcy occur. Therefore, assets and liabilities recognized in accordance with the agreements cannot be offset as the Group does not have enforceable rights of set-off.

36.

Transactions with Related Parties

(1) List of related parties


Relationship		Company
Ultimate Controlling Entity		SK Holdings Co., Ltd.
Joint venture		Dogus Planet, Inc. and 3 others
Associates		SK hynix Inc. and 52 others
Affiliates		The Ultimate Controlling Entity’s subsidiaries and associates, etc.

(2) Compensation for the key management

The Parent Company considers registered directors who have substantial role and responsibility in planning, operating, and controlling of the business as key management. The compensation given to such key management for the years ended December 31, 2015, 2014 and 2013 are as follows:


(In millions of won)
	2015		2014		2013
Salaries	￦	1,971		2,600		2,263
Provision for retirement benefits		626		907		1,012

	￦	2,597		3,507		3,275

F-91

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

Compensation for the key management includes salaries, non-monetary salaries and contributions made in relation to the pension plan.

(3) Transactions with related parties for the years ended December 31, 2015, 2014 and 2013 are as follows:


(In millions of won)
		2015
Scope	Company	Operating revenue and others		Operating expense and others		Acquisition of property and equipment		Loans		Loans collection
Ultimate Controlling Entity	SK Holdings Co., Ltd. (formerly, SK C&C Co., Ltd.)(*1)		￦20,260		324,078		236,414		—		—
	SK Holdings Co., Ltd. (formerly, SK Holdings Co., Ltd.)(*2,3)		1,299		212,378		117		—		—

			21,559		536,456		236,531		—		—

Associates	F&U Credit information Co., Ltd.		2,510		43,967		—		—		—
	HappyNarae Co., Ltd.		297		6,886		13,495		—		—
	SK hynix Inc.(*4)		55,949		2,384		—		—		—
	SK Wyverns Baseball Club., Ltd.		3,849		18,544		—		—		204
	KEB HanaCard Co., Ltd.		21,414		16,057		—		—		—
	Xian Tianlong Science and Technology Co., Ltd.		—		—		—		8,287		—
	Others(*5)		6,397		11,917		1,864		690		—

			90,416		99,755		15,359		8,977		204

Other	SK Engineering & Construction Co., Ltd.		15,598		27,243		240,701		—		—
	SK Networks Co., Ltd.		11,923		1,257,975		2		—		—
	SK Networks Services Co., Ltd.		10,491		94,097		6,472		—		—
	SK Telesys Co., Ltd.		397		48,900		141,870		—		—
	SK Energy Co., Ltd.		9,930		978		—		—		—
	SK Gas Co., Ltd.		3,561		2		—		—		—
	Others		29,409		71,314		194,945		—		—

			81,309		1,500,509		583,990		—		—

Total			￦193,284		2,136,720		835,880		8,977		204

(*1)	On August 1, 2015, SK C&C Co., Ltd., the Ultimate Controlling Entity’s investor using equity method, merged SK Holdings Co., Ltd., the ultimate controlling entity of the Parent Company, and changed its name to SK Holdings Co., Ltd.

(*2)	These relates to transactions occurred until July 31, 2015 before the merger with SK C&C Co., Ltd.

(*3)	Operating expense and others include ￦191,416 million of dividends paid by the Parent Company.

(*4)	Operating revenue and others include ￦43,830 million of dividends paid by SK hynix Inc. and deducted from the investment in associates.

(*5)	Operating revenue and others include ￦2,103 million and ￦457 million of dividends paid by Korea IT Fund and UniSK, respectively, and deducted from the investment in associates.

F-92

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013


(In millions of won)
		2014
Scope	Company	Operating revenue and others		Operating expense and others		Acquisition of property and equipment		Loans		Loans collection
Ultimate Controlling Entity	SK Holding Co., Ltd.(*1)	￦	530		226,772		—		—		—
Associates	F&U Credit information Co., Ltd.		2,395		45,417		—		—		—
	HappyNarae Co., Ltd.		253		6,492		10,418		—		—
	SK hynix Inc.		12,964		3,391		—		—		—
	SK USA, Inc.		—		2,153		—		—		—
	SK Wyverns Baseball Club., Ltd.		901		22,402		—		—		204
	KEB HanaCard Co., Ltd.(*2)		39,828		5,416		—		—		—
	Others		5,852		15,150		—		45		—

			62,193		100,421		10,418		45		204

Other	SK Engineering & Construction Co., Ltd.		3,385		42,964		460,783		—		—
	SK C&C Co., Ltd.		18,309		360,842		168,778		—		—
	SK Networks Co., Ltd.		16,230		1,509,017		5,388		—		—
	SK Networks Services Co., Ltd.		13,017		106,273		2,583		—		—
	SK Telesys Co., Ltd.		494		64,038		205,538		—		—
	SK Energy Co., Ltd.		22,650		944		—		—		—
	SK Gas Co., Ltd.		10,115		—		—		—		—
	Others		25,537		38,868		12,628		—		—

			109,737		2,122,946		855,698		—		—

Total		￦	172,460		2,450,139		866,116		45		204

(*1)	Operating expense and others include ￦191,416 million of dividends paid by the Parent Company.

(*2)

During the year ended December 31, 2014, due to merger between Hana SK Card Co., Ltd., the Parent Company’s associate and KEB Card Co., Ltd., the Group returned 57,647,058 shares of Hana SK Card Co., Ltd., and received 67,627,587 shares of the merged company, KEB HanaCard Co., Ltd. (See Note 13-(1)).

F-93

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013


(In millions of won)
		2013
Scope	Company	Operating revenue and others		Operating expense and others		Acquisition of property and equipment		Loans		Loans collection
Ultimate Controlling Entity	SK Holding Co., Ltd.(*)	￦	1,912		226,023		—		—		—
Associates	F&U Credit information Co., Ltd.		1,753		43,931		—		—		—
	HappyNarae Co., Ltd.		281		6,217		10,542		—		—
	SK hynix Inc.		3,178		1,160		—		—		—
	SK USA, Inc.		—		2,086		—		—		—
	SK Wyverns Baseball Club., Ltd.		363		—		—		—		204
	HanaSK Card Co., Ltd.		11,129		14,342		—		—		—
	Others		3,171		3,734		125		1,200		—

			19,875		71,470		10,667		1,200		204

Other	SK Engineering & Construction Co., Ltd.		5,564		37,978		484,006		—		—
	SK C&C Co., Ltd.		4,041		357,945		206,298		—		—
	SK Networks Co., Ltd.		51,996		1,463,341		6,241		—		—
	SK Networks Services Co., Ltd.		6,165		108,972		3,057		—		—
	SK Telesys Co., Ltd.		1,554		99,381		234,319		—		—
	SK Energy Co., Ltd.		20,831		2,422		—		—		—
	SK Gas Co., Ltd.		6,656		—		—		—		—
	Others		30,905		43,759		11,724		—		—

			127,712		2,113,798		945,645		—		—

Total		￦	149,499		2,411,291		956,312		1,200		204

(*)	Operating expense and others include ￦191,416 million of dividends paid by the Parent Company.

F-94

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(4)	Account balances as of December 31, 2015 and 2014 are as follows:


(In millions of won)
		2015
		Accounts receivable				Accounts payable
Scope	Company	Loans		Accounts receivable-trade, and others		Accounts payable-other, and others
Ultimate Controlling Entity	SK Holdings Co., Ltd. (formerly, SK C&C Co., Ltd.) (*)	￦	—		1,836		160,133
Associates	HappyNarae Co., Ltd.		—		12		6,162
	F&U Credit information Co., Ltd.		—		66		934
	SK hynix Inc.		—		4,360		155
	SK Wyverns Baseball Club Co., Ltd.		1,017		4,502		—
	Wave City Development Co., Ltd.		1,890		38,412		—
	Daehan Kanggun BcN Co., Ltd.		22,148		—		—
	KEB HanaCard Co., Ltd.		—		1,771		9,042
	Xian Tianlong Science and Technology Co., Ltd.		8,287		—		—
	Others		—		299		964

			33,342		49,422		17,257

Other	SK Engineering & Construction Co., Ltd.		—		1,005		14,877
	SK Networks. Co., Ltd.		—		1,569		208,291
	SK Networks Services Co., Ltd.		—		—		9,414
	SK Telesys Co., Ltd.		—		140		37,491
	SK Innovation Co., Ltd.		—		2,159		1,424
	SK Energy Co., Ltd.		—		1,681		173
	SK Gas Co., Ltd.		—		1,830		9
	Others		—		2,886		58,088

			—		11,270		329,767

Total		￦	33,342		62,528		507,157

(*)	On August 1, 2015, SK C&C Co., Ltd., the Ultimate Controlling Entity’s investor using equity method, merged SK Holdings Co., Ltd., the ultimate controlling entity of the Parent Company, and changed its name to SK Holdings Co., Ltd.

F-95

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013


(In millions of won)
		2014
		Accounts receivable				Accounts payable
Scope	Company	Loans		Accounts receivable-trade, and others		Accounts payable-trade, and others
Ultimate Controlling Entity	SK Holding Co., Ltd.	￦	—		90		—
Associates	HappyNarae Co., Ltd.		—		13		2,650
	F&U Credit information Co., Ltd.		—		148		797
	SK hynix Inc.		—		2,800		2,840
	SK Wyverns Baseball Club Co., Ltd.		1,221		—		—
	Wave City Development Co., Ltd.		1,200		38,412		—
	Daehan Kanggun BcN Co., Ltd.		22,148		—		—
	KEB HanaCard Co., Ltd.		—		1,998		59
	Others		—		543		1,285

			24,569		43,914		7,631

Other	SK Engineering & Construction Co., Ltd.		—		897		27,282
	SK C&C Co., Ltd.		—		1,393		121,145
	SK Networks. Co., Ltd.		—		2,608		238,351
	SK Networks Services Co., Ltd.		—		16		2,922
	SK Telesys Co., Ltd.		—		321		3,037
	SK Innovation Co., Ltd.		—		1,641		271
	SK Energy Co., Ltd.		—		4,781		79
	SK Gas Co., Ltd.		—		2,143		47
	Others		—		2,813		9,342

			—		16,613		402,476

Total		￦	24,569		60,617		410,107

(5)	As of December 31, 2015, there are no collateral or guarantee provided by the Group to related parties nor by related parties to the Group.

(6)	M&Service Co., Ltd., a subsidiary of the Parent Company, entered into performance agreement with SK Energy Co., Ltd. and provides a blank note to SK Energy Co., Ltd., with regard to this transaction.

(7)

During the year ended December 31, 2014, the Group acquired convertible bonds with a face value of ￦6,000 million from Health Connect Co., Ltd. at the face value. During the year ended December 31, 2015, the Parent Company exercised the conversion right for the convertible bonds of Health Connect Co., Ltd. As a result of this transaction, investments in associates have increased by ￦5,900 million.

(8)	As of December 31, 2015 the Parent Company has established a right of pledge on its capital investment for Entrix Co., Ltd., a subsidiary of the Parent Company, amounting to ￦10,000 million.

(9)	There were additional investments in associates and joint ventures during the year ended December 31, 2015. (See Note 13)

F-96

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

37.

Commitments and Legal Claims and Litigations

(1) Collateral assets and commitments

SK Broadband Co., Ltd., a subsidiary of the Parent Company, has pledged its properties as collateral for leases on buildings in the amount of ￦10,193 million as of December 31, 2015.

SK Broadband Co., Ltd., a subsidiary of the Parent Company, has guaranteed for employees’ borrowings relating to employee stock ownership and provided short-term financial instruments amounting to ￦1,219 million as collateral as of December 31, 2015.

(2) Legal claims and litigations

As of December 31, the Group is involved in various legal claims and litigation. Provision recognized in relation to these claims and litigation is immaterial. For those legal claims and litigation for which no provision was recognized, management does not believe the Group has a present obligation for these matters, nor is it expected any of these claims or litigation will have a significant impact on the Group’s financial position or operating results in the event an outflow of resources is ultimately necessary.

(3) Guarantee provided

PS&Marketing Corporation, a subsidiary of the Parent Company, obtained ￦3,000 million of payment guarantees from Shinhan Bank, in relation to handsets purchased from the Apple Computer Korea Ltd.

38.

Discontinued Operations

(1) Discontinued operations

During the year ended December 31, 2013, SK Planet Co., Ltd., a subsidiary of the Parent Company, sold 52.6% of its ownership interests (13,294,369 shares) in Loen Entertainment, Inc., to Star Invest Holdings Limited. Consideration for the sale amounted to ￦265,887 million. Loen Entertainment was a subsidiary of SK Planet Co., Ltd. and is engaged in the release of music discs as its primary business, The Group’s ownership interests after the disposition is 15.0% and Loen Entertainment, Inc. was excluded from the Group’s consolidated financial statements as of the date of the sale. The results of operations of Loen Entertainment, Inc. prior to the date of disposal of the Group’s controlling interest is presented as a discontinued operation.

F-97

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(2) Results of discontinued operations

Results of discontinued operations included in the consolidated statements of income for the year ended December 31, 2013 is as follows.


(In millions of won)
	2013
Results of discontinued operations:
Operating revenue and other income	￦	167,448
Operating expense		(140,203	)

Operating income generated by discontinued operations		27,245
Finance income and costs		1,773
Gain related to investments in associates, net		1,000
Gain on disposal relating to discontinued operations		214,352
Income tax expense		(61,125	)

Profit generated by discontinued operations	￦	183,245

Attributable to :
Owners of the Parent Company		175,867
Non-controlling interests		7,378

(3) Cash flows from discontinued operations

Cash flows from discontinued operations for the year ended December 31, 2013 is as follows:


(In millions of won)	2013
Cash flow from discontinued operations:
Net cash provided by operating activities	￦	40,884
Net cash provided by investing activities		179,490
Net cash used in financing activities		(4,780	)

	￦	215,594

(4)	Changes in financial condition relating to discontinued operations due to the disposal of ownership interests in Loen Entertainment, Inc. at the date of disposal is as follows:


(In millions of won)
	Date of disposal
Cash and cash equivalents	￦	55,527
Long-term and short-term financial instruments		42,404
Accounts receivable — trade		49,700
Property and equipment, and intangible assets		26,334
Other assets		39,526
Accounts payable — trade		(33,154	)
Defined benefit liabilities		(737	)
Other liabilities		(87,022	)

Decrease in net assets		92,578

Consideration received for disposal		264,245
Cash and cash equivalents disposed		(55,527	)

Net cash inflow	￦	208,718

F-98

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

39.

Statements of Cash Flows

(1)	Adjustments for income and expenses from operating activities for the years ended December 31, 2015, 2014 and 2013 are as follows:


(In millions of won)
	2015			2014			2013
Interest income	￦	(45,884	)		(60,006	)		(67,359	)
Dividend		(16,102	)		(13,048	)		(10,197	)
Gain on foreign currency translation		(5,090	)		(6,277	)		(4,401	)
Gain on disposal of long-term investment securities		(10,786	)		(13,994	)		(9,300	)
Gain on valuation of derivatives		(1,927	)		(8,713	)		—
Gain on settlement of derivatives		—			(7,998	)		(7,716	)
Gain related to investments in subsidiaries and associates, net		(786,140	)		(906,338	)		(921,861	)
Gain on disposal of property, equipment and intangible assets		(7,140	)		(8,792	)		(7,991	)
Gain on valuation of financial assets at fair value through profit or loss		—			—			(5,177	)
Gain relating to financial liabilities at fair value through profit or loss		(5,188	)		—			—
Reversal of allowance for doubtful accounts		—			—			(359	)
Other income		(7,577	)		(608	)		(3,951	)
Interest expenses		297,662			323,910			331,834
Loss on foreign currency translation		4,750			5,079			2,634
Loss on disposal of long-term investment securities		2,599			2,694			31,909
Other finance costs		21,787			24,533			52,058
Loss on valuation of derivatives		—			10			2,106
Loss on settlement of derivatives		4,845			672			—
Income tax expense		519,480			454,508			461,922
Expense related to defined benefit plan		110,021			112,717			92,840
Depreciation and amortization		2,993,486			2,891,870			2,829,784
Bad debt expenses		60,450			45,754			57,163
Loss on disposal of property and equipment and intangible assets		21,392			32,950			267,702
Impairment loss on property and equipment and intangible assets		35,845			47,489			14,399
Loss relating to financial assets at fair value through profit or loss		—			1,352			—
Loss relating to financial liabilities at fair value through profit or loss		526			10,370			134,232
Bad debt for accounts receivable — other		15,323			17,943			22,167
Impairment loss on other investment securities		42,966			22,749			6,136
Other expenses		4,845			10,169			6,802

	￦	3,250,143			2,978,995			3,275,376

F-99

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2015, 2014 and 2013

(2)	Changes in assets and liabilities from operating activities for the years ended December 31, 2015, 2014 and 2013 are as follows:


(In millions of won)
	2015			2014			2013
Accounts receivable — trade	￦	7,554			(168,839	)		(267,754	)
Accounts receivable — other		(11,108	)		(52,137	)		(41,243	)
Accrued income		116			14			(502	)
Advance payments		(35,906	)		(62,873	)		(26,064	)
Prepaid expenses		(40,464	)		(36,808	)		(1,583	)
V.A.T. refund receivable		1,385			7,200			(5,442	)
Inventories		(7,814	)		(171	)		(39,610	)
Long-term accounts receivables — other		—			80			—
Guarantee deposits		(11,238	)		(12,699	)		59,431
Accounts payable — trade		12,442			(37,790	)		(4,708	)
Accounts payable — other		(107,114	)		(296,875	)		(131,142	)
Advanced receipts		6,421			20,701			(2,916	)
Withholdings		(191,209	)		306,515			22,025
Deposits received		(9,661	)		(4,395	)		(1,745	)
Accrued expenses		(28,845	)		(79,831	)		98,081
V.A.T. payable		3,494			2,711			(3,901	)
Unearned revenue		(115,187	)		(140,295	)		(188,589	)
Provisions		(30,562	)		(38,469	)		(226,644	)
Long-term provisions		(4,447	)		29,532			(72,398	)
Plan assets		(67,831	)		(96,847	)		(61,856	)
Retirement benefit payment		(58,513	)		(46,531	)		(42,948	)
Others		2,753			474			(30,362	)

	￦	(685,734	)		(707,333	)		(969,870	)

(3)	Significant non-cash transactions for the years ended December 31, 2015, 2014 and 2013 are as follows:


(In millions of won)
	2015		2014			2013
Transfer of construction in progress to property and equipment, and intangible assets	￦	2,002,231		2,238,620			2,320,528
Transfer of other property and equipment and others to construction in progress		730,469		1,090,954			1,188,826
Increase(decrease) of accounts payable — other related to acquisition of property and equipment and intangible assets		39,973		(184,614	)		350,735
Return of the existing 1.8GHz frequency use rights		—		—			614,600

40.

Cash Dividends paid to the Parent Company

Cash dividends paid to the Parent Company for the years ended December 31, 2015, 2014 and 2013 are as follows:


(In millions of won)
	2015		2014		2013
Cash dividends received from consolidated subsidiaries	￦	—		—		13,657
Cash dividends received from associates		46,390		939		—

		￦46,390		939		13,657

F-100

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

SK hynix, Inc.:

We have audited the accompanying consolidated statements of financial position of SK hynix, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2015. These consolidated financial statements are the responsibility of SK hynix, Inc.’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of SK hynix, Inc. and subsidiaries as of December 31, 2015 and 2014 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

/s/ KPMG Samjong Accounting Corp.

Seoul, Korea

April 27, 2016

G-1

SK HYNIX, INC. and Subsidiaries

Consolidated Statements of Financial Position

As of December 31, 2015 and 2014


	*Note*		2015		2014
			(In millions of won)
Assets
Current assets
Cash and cash equivalents		5,6	￦	1,175,719		436,761
Short-term financial instruments		5,6,7		3,615,554		3,618,014
Trade receivables, net		5,6,8,32		2,628,448		3,732,926
Loans and other receivables, net		5,6,8,32		61,613		691,529
Inventories, net		9		1,923,376		1,497,563
Current tax assets				1,394		1,629
Assets held for sale		10		—		27,661
Other current assets		11		353,926		357,431

				9,760,030		10,363,514

Non-current assets
Equity-accounted investees		12		122,609		97,090
Available-for-sale financial assets		5,6,13		131,354		127,314
Loans and other receivables, net		5,6,8,32		62,919		58,989
Other financial assets		5,6,7		430		323
Property, plant and equipment, net		14,21,33		16,966,252		14,090,334
Intangible assets, net		15,29		1,704,896		1,336,680
Investment property, net		14,16		2,679		28,456
Deferred tax assets		21,30		361,204		272,102
Other non-current assets		11		565,533		508,476

				19,917,876		16,519,764

Total assets			￦	29,677,906		26,883,278

See accompanying notes to the consolidated financial statements.

G-2

SK HYNIX, INC. and Subsidiaries

Consolidated Statements of Financial Position, continued

As of December 31, 2015 and 2014


	*Note*		2015			2014
			(In millions of won)
Liabilities
Current liabilities
Trade payables		5,6	￦	791,373			787,822
Other payables		5,6,32		1,337,803			1,358,816
Other non-trade payables		5,6		1,001,171			1,182,956
Borrowings		5,6,17,32		1,013,372			1,755,020
Other financial liabilities		5,6,22		—			30
Provisions		19,33		25,276			25,932
Current tax liabilities				627,260			583,529
Other current liabilities		18		44,443			71,199

				4,840,698			5,765,304

Non-current liabilities
Other non-trade payables		5,6		89,891			132,947
Borrowings		5,6,17,32		2,805,223			2,419,739
Other financial liabilities		5,6,22		683			708
Defined benefit liabilities, net		20		484,977			465,350
Deferred tax liabilities		21		7,582			3,463
Other non-current liabilities		18		61,149			59,464

				3,449,505			3,081,671

Total liabilities				8,290,203			8,846,975

Equity
Equity attributable to owners of the Parent Company
Capital stock		1,23		3,657,652			3,657,652
Capital surplus		23		4,143,736			4,143,736
Other equity		23		(771,913	)		(24	)
Accumulated other comprehensive loss		24		(1,600	)		(41,815	)
Retained earnings		25		14,358,988			10,276,904

Total equity attributable to owners of the Parent Company				21,386,863			18,036,453
Non-controlling interests				840			(150	)

Total equity				21,387,703			18,036,303

Total liabilities and equity			￦	29,677,906			26,883,278

See accompanying notes to the consolidated financial statements.

G-3

SK HYNIX, INC. and Subsidiaries

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2015, 2014 and 2013


	*Note*		2015			2014			2013
			(In millions of won, except per share information)
Revenue		4,32	￦	18,797,998			17,125,566			14,165,102
Cost of sales		27,32		10,515,353			9,461,725			8,864,587

Gross profit				8,282,645			7,663,841			5,300,515
Selling and administrative expense		26,27		(2,946,545	)		(2,554,375	)		(1,920,730	)
Finance income		28		846,752			678,570			560,570
Finance expenses		28		(829,913	)		(799,771	)		(747,329	)
Share of profit of equity-accounted investees		12		24,642			23,145			19,256
Other income		29		40,479			618,684			368,513
Other expenses		29		(148,939	)		(582,424	)		(505,870	)

Profit before income tax				5,269,121			5,047,670			3,074,925
Income tax expense		30		945,526			852,501			202,068

Profit for the year				4,323,595			4,195,169			2,872,857

Other comprehensive income (loss)
Item that will never be reclassified to profit or loss:
Remeasurements of defined benefit liability, net of tax		20		(21,871	)		(119,874	)		15,587
Items that are or may be reclassified to profit or loss:
Available-for-sale financial assets — unrealized net change in fair value, net of tax		13,24		—			(7,824	)		(655	)
Foreign operations — foreign currency translation differences, net of tax		24		33,479			71,631			8,419
Equity-accounted investees — share of other comprehensive income (loss), net of tax		12,24		6,487			3,706			(1,226	)

Other comprehensive income (loss) for the year, net of tax				18,095			(52,361	)		22,125

Total comprehensive income for the year			￦	4,341,690			4,142,808			2,894,982

Profit (loss) attributable to:
Owners of the Parent Company			￦	4,322,356			4,195,456			2,872,470
Non-controlling interests				1,239			(287	)		387
Total comprehensive income attributable to:
Owners of the Parent Company				4,340,700			4,142,574			2,894,652
Non-controlling interests				990			234			330
Earnings per share
Basic and diluted earnings per share (in won)		31		6,002			5,842			4,045

See accompanying notes to the consolidated financial statements.

G-4

SK HYNIX, INC. and Subsidiaries

Consolidated Statements of Changes in Equity

For the year ended December 31, 2013


	Attributable to owners of the Parent Company
	Capital stock		Capital surplus		Other components of equity		Accumulated other comprehensive income (loss)			Retained earnings		Total		Non- controlling interests			Total equity
	(In millions of won)
Balance at January 1, 2013	￦	3,488,419		3,053,874		—		(115,402	)		3,313,265		9,740,156		(714	)		9,739,442
Total comprehensive income
Profit for the year		—		—		—		—			2,872,470		2,872,470		387			2,872,857
Other comprehensive income (loss)		—		—		—		6,595			15,587		22,182		(57	)		22,125

Total comprehensive income		—		—		—		6,595			2,888,057		2,894,652		330			2,894,982

Transactions with owners of the Parent Company
Exercise of conversion rights		80,226		352,209		—		—			—		432,435		—			432,435

Total transactions with owners of the Parent Company		80,226		352,209		—		—			—		432,435		—			432,435

Balance at December 31, 2013	￦	3,568,645		3,406,083		—		(108,807	)		6,201,322		13,067,243		(384	)		13,066,859

See accompanying notes to the consolidated financial statements.

G-5

SK HYNIX, INC. and Subsidiaries

Consolidated Statements of Changes in Equity

For the years ended December 31, 2015 and 2014


	Attributable to owners of the Parent Company
	Capital stock		Capital surplus		Other components of equity			Accumulated other comprehensive income (loss)			Retained earnings			Total			Non- controlling interests			Total equity
	(In millions of won)
Balance at January 1, 2014	￦	3,568,645		3,406,083		—			(108,807	)		6,201,322			13,067,243			(384	)		13,066,859
Total comprehensive income
Profit for the year		—		—		—			—			4,195,456			4,195,456			(287	)		4,195,169
Other comprehensive income (loss)		—		—		—			66,992			(119,874	)		(52,882	)		521			(52,361	)

Total comprehensive income		—		—		—			66,992			4,075,582			4,142,574			234			4,142,808

Transactions with owners of the Parent Company
Issue of ordinary shares related to acquisition of a subsidiary		6,793		47,277		—			—			—			54,070			—			54,070
Exercise of conversion rights		82,214		690,376		—			—			—			772,590			—			772,590
Acquisition of treasury shares		—		—		(24	)		—			—			(24	)		—			(24	)

Total transactions with owners of the Parent Company		89,007		737,653		(24	)		—			—			826,636			—			826,636

Balance at December 31, 2014	￦	3,657,652		4,143,736		(24	)		(41,815	)		10,276,904			18,036,453			(150	)		18,036,303

Balance at January 1, 2015	￦	3,657,652		4,143,736		(24	)		(41,815	)		10,276,904			18,036,453			(150	)		18,036,303
Total comprehensive income
Profit for the year		—		—		—			—			4,322,356			4,322,356			1,239			4,323,595
Other comprehensive income (loss)		—		—		—			40,215			(21,871	)		18,344			(249	)		18,095

Total comprehensive income		—		—		—			40,215			4,300,485			4,340,700			990			4,341,690

Transactions with owners of the Parent Company
Dividends paid		—		—		—			—			(218,401	)		(218,401	)		—			(218,401	)
Acquisition of treasury shares		—		—		(771,889	)		—			—			(771,889	)		—			(771,889	)

Total transactions with owners of the Parent Company		—		—		(771,889	)		—			(218,401	)		(990,290	)		—			(990,290	)

Balance at December 31, 2015	￦	3,657,652		4,143,736		(771,913	)		(1,600	)		14,358,988			21,386,863			840			21,387,703

See accompanying notes to the consolidated financial statements.

G-6

SK HYNIX, INC. and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2015, 2014 and 2013


	*Note*		2015			2014			2013
			(In millions of won)
Cash flows from operating activities
Cash generated from operating activities		34	￦	10,357,267			6,305,229			6,521,553
Interest received				51,610			35,658			58,888
Interest paid				(124,304	)		(151,551	)		(199,553	)
Dividends received				17,045			17,134			17,414
Income tax paid				(982,098	)		(339,779	)		(26,246	)

Net cash provided by operating activities				9,319,520			5,866,691			6,372,056

Cash flows from investing activities
Decrease (increase) in short-term financial instruments, net				39,533			(1,407,752	)		(1,028,615	)
Collection of loans and other receivables				10,692			3,501			2,728
Increase in loans and other receivables				(14,134	)		(15,735	)		(5,969	)
Proceeds from disposal of available-for-sale financial assets				1,319			28,602			331
Acquisition of available-for-sale financial assets				(5,359	)		(1,415	)		(115,564	)
Decrease in other financial assets				—			275,422			29,681
Increase in other financial assets				—			(29,611	)		(276,591	)
Cash inflows from derivative transactions				1,672			2,371			3,656
Cash outflows from derivative transactions				(2,088	)		(4,534	)		(6,550	)
Proceeds from disposal of property, plant and equipment				220,097			198,959			15,509
Acquisition of property, plant and equipment				(6,774,625	)		(4,800,722	)		(3,205,797	)
Proceeds from disposal of intangible assets				7,963			286			200
Acquisition of intangible assets				(623,743	)		(336,291	)		(301,496	)
Proceeds from disposal of assets held for sale				22,630			—			—
Receipt of government grants				406			20,241			—
Cash outflows from business combinations				—			(19,682	)		(3,648	)
Cash outflows from disposal of investments in a subsidiary				—			(1,467	)		—
Investments in associates				(9,893	)		—			—

Net cash used in investing activities			￦	(7,125,530	)		(6,087,827	)		(4,892,125	)

Cash flows from financing activities
Proceeds from borrowings			￦	3,933,056			3,848,816			3,528,687
Repayments of borrowings				(4,405,023	)		(3,820,449	)		(5,028,676	)
Acquisition of treasury shares				(771,889	)		(24	)		—
Dividends paid				(218,401	)		—			—

Net cash provided by (used in) financing activities				(1,462,257	)		28,343			(1,499,989	)

Effect of movements in exchange rates on cash and cash equivalents				7,225			(2,313	)		(6,462	)

Net increase (decrease) in cash and cash equivalents				738,958			(195,106	)		(26,520	)
Cash and cash equivalents at beginning of the year				436,761			631,867			658,387

Cash and cash equivalents at end of the year			￦	1,175,719			436,761			631,867

See accompanying notes to the consolidated financial statements.

G-7

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

1. Reporting Entity

(1) General information about SK hynix, Inc. (the “Parent Company” or the “Company”) and its subsidiaries (collectively the “Group”) is as follows:

The Parent Company is engaged in the manufacture, distribution and sales of semiconductor products and its shares have been listed on the Korea Exchange since 1996. The Parent Company’s headquarters is located at 2091 Gyeongchung-daero, Bubal-eup, Icheon-si, Gyeonggi-do, South Korea, and the Group has manufacturing facilities in Icheon-si and Cheongju-si, South Korea, and Wuxi and Chongqing, China.

As of December 31, 2015, the shareholders of the Parent Company are as follows:


Shareholder	Number of shares		Percentage of ownership (%)
SK Telecom Co., Ltd.		146,100,000		20.07
National Pension Service		59,898,134		8.23
Share Management Council¹		5,097,667		0.70
Other investors		494,905,994		67.98
Treasury shares		22,000,570		3.02

		728,002,365		100.00

¹	As of December 31, 2015, the number of shares held by each member of Share Management Council is as follows:


Shareholder	Number of shares		Percentage of ownership (%)
KEB Hana Bank (formerly, Korea Exchange Bank)		5,092,500		0.70
Other financial institutions		5,167		0.00

		5,097,667		0.70

According to the share purchase agreement dated November 14, 2011, between SK Telecom Co., Ltd. and the Share Management Council, the Share Management Council should exercise its voting right on its shares following SK Telecom Co., Ltd.’s decision in designating officers of the Company or other matters unless this conflicts with the Share Management Council’s interest.

G-8

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

1. Reporting Entity, continued

(2) Details of the Group’s consolidated subsidiaries as of December 31, 2015 and 2014 are as follows:

Ownership(%)

Company

Location

Business

2015

2014

SK hyeng Inc.

Korea

Domestic subsidiary

100.00

SK hystec Inc.

Korea

Domestic subsidiary

100.00

Siliconfile Technologies Inc.

Korea

Development and manufacturing of electronic component

100.00

SK hynix America Inc. (SKHYA)

U.S.A.

Overseas sales subsidiary

97.74

Hynix Semiconductor Manufacturing America Inc. (HSMA)¹

U.S.A.

Discontinued subsidiary

100.00

SK hynix Deutschland GmbH (SKHYD)

Germany

Overseas sales subsidiary

100.00

SK hynix U.K. Ltd. (SKHYU)

U.K.

Overseas sales subsidiary

100.00

SK hynix Asia Pte. Ltd. (SKHYS)

Singapore

Overseas sales subsidiary

100.00

SK hynix Semiconductor India Pvt. Ltd. (SKHYIS)²

India

Overseas sales subsidiary

100.00

SK hynix Semiconductor Hong Kong Ltd. (SKHYH)

Hong Kong

Overseas sales subsidiary

100.00

SK hynix Semiconductor (Shanghai) Co., Ltd. (SKHYCS)

China

Overseas sales subsidiary

100.00

SK hynix Japan Inc. (SKHYJ)

Japan

Overseas sales subsidiary

100.00

SK hynix Semiconductor Taiwan Inc. (SKHYT)

Taiwan

Overseas sales subsidiary

100.00

SK hynix Semiconductor (China) Ltd. (SKHYCL)

China

Overseas manufacturing subsidiary

100.00

SK hynix Semiconductor (Wuxi) Ltd. (SKHYMC)

China

Overseas manufacturing subsidiary

100.00

SK hynix (Wuxi) Semiconductor Sales Ltd. (SKHYCW)

China

Overseas sales subsidiary

100.00

SK hynix Italy S.r.l (SKHYIT)

Italy

Overseas R&D center

100.00

SK hynix memory solutions Inc. (SKHMS)

U.S.A.

Overseas R&D center

100.00

SK hynix Flash Solution Taiwan (SKHYFST)

Taiwan

Overseas R&D center

100.00

SK APTECH Ltd. (SKAPTECH)

Hong Kong

Holding company

100.00

SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL)³

China

Overseas manufacturing subsidiary

100.00

Softeq Flash Solutions LLC.(SOFTEQ)

Belarus

Overseas R&D center

100.00

MMT (Money Market Trust)

Korea

Money Market Trust

100.00

¹	Subsidiary of SK hynix America Inc. (SKHYA)

²	Subsidiary of SK hynix Asia Pte. Ltd. (SKHYS)

³	Subsidiary of SK APTECH Ltd. (SKAPTECH)

G-9

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

1. Reporting Entity, continued

(3) There is no change in the consolidated subsidiaries for the year ended December 31, 2015.

(4) Major subsidiaries’ summarized statements of financial position as of December 31, 2015 and 2014 are as follows:


	2015						2014
	Assets		Liabilities		Equity		Assets		Liabilities		Equity
	(In millions of won)
SK hynix America Inc.(SKHYA)	￦	1,504,882		1,333,291		171,591		1,711,746		1,634,047		77,699
SK hynix Asia Pte. Ltd.(SKHYS)		269,286		190,155		79,131		386,135		313,152		72,983
SK hynix Semiconductor Hong Kong Ltd.(SKHYH)		529,095		431,074		98,021		563,598		478,449		85,149
SK hynix Japan Inc.(SKHYJ)		245,142		183,277		61,865		285,122		227,860		57,262
SK hynix Semiconductor Taiwan Inc.(SKHYT)		299,834		277,520		22,314		628,791		605,861		22,930
SK hynix Semiconductor (China) Ltd.(SKHYCL)		3,718,832		503,776		3,215,056		4,179,186		1,197,588		2,981,598
SK hynix Deutschland GmbH(SKHYD)		75,152		38,697		36,455		135,384		98,477		36,907
SK hynix U.K. Ltd.(SKHYU)		155,531		138,918		16,613		194,318		179,990		14,328
SK hynix Semiconductor (Chongqing) Ltd.(SKHYCQL)		406,552		224,672		181,880		341,984		174,936		167,048

(5) Major subsidiaries’ summarized statements of comprehensive income for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015
	Revenue		Profit		Total comprehensive income
	(In millions of won)
SK hynix America Inc. (SKHYA)	￦	7,599,679		89,716		89,716
SK hynix Asia Pte.Ltd. (SKHYS)		1,612,550		1,303		1,303
SK hynix Semiconductor Hong Kong Ltd. (SKHYH)		4,181,208		6,909		6,909
SK hynix Japan Inc. (SKHYJ)		934,001		1,116		1,322
SK hynix Semiconductor Taiwan Inc. (SKHYT)		1,915,465		5,852		5,852
SK hynix Semiconductor (China) Ltd. (SKHYCL)		2,273,536		206,446		206,446
SK hynix Deutschland GmbH (SKHYD)		414,489		1,072		1,072
SK hynix U.K. Ltd. (SKHYU)		702,329		1,289		1,289
SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL)		350,110		13,328		13,328

G-10

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

1. Reporting Entity, continued


	2014
	Revenue		Profit		Total comprehensive income
	(In millions of won)
SK hynix America Inc. (SKHYA)	￦	6,360,992		21,385		21,385
SK hynix Asia Pte.Ltd. (SKHYS)		1,638,396		2,773		2,773
SK hynix Semiconductor Hong Kong Ltd. (SKHYH)		3,714,085		12,941		12,941
SK hynix Japan Inc. (SKHYJ)		843,383		9,890		10,478
SK hynix Semiconductor Taiwan Inc. (SKHYT)		2,176,739		7,599		7,599
SK hynix Semiconductor (China) Ltd. (SKHYCL)		1,914,452		381,729		381,729
SK hynix Deutschland GmbH (SKHYD)		551,528		6,197		6,197
SK hynix U.K. Ltd. (SKHYU)		575,959		1,813		1,813
SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL)		109,769		6,813		6,813


	2013
	Revenue		Profit		Total comprehensive income
	(In millions of won)
SK hynix America Inc. (SKHYA)	￦	5,187,848		23,547		23,547
SK hynix Asia Pte.Ltd. (SKHYS)		1,203,290		2,385		2,385
SK hynix Semiconductor Hong Kong Ltd. (SKHYH)		3,022,397		19,471		19,471
SK hynix Japan Inc. (SKHYJ)		790,736		10,335		10,447
SK hynix Semiconductor Taiwan Inc. (SKHYT)		1,769,055		6,680		6,680
SK hynix Semiconductor (China) Ltd. (SKHYCL)		1,718,074		23,611		23,611
SK hynix Deutschland GmbH (SKHYD)		594,166		2,440		2,440
SK hynix U.K. Ltd. (SKHYU)		494,305		1,743		1,743

(6) There are no significant non-controlling interests to the Group as of December 31, 2015, 2014 and 2013.

2. Basis of Preparation

(1) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (IASB).

The consolidated financial statements were authorized for issuance by the board of directors on January 25, 2016

(2) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the consolidated statements of financial position:

•

derivative financial instruments are measured at fair value

•

financial instruments at fair value through profit or loss are measured at fair value

•

liabilities for defined benefit plans are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets

G-11

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

2. Basis of Preparation, continued

(3) Functional and presentation currency

Financial statements of entities within the Group are presented in functional currency and the currency of the primary economic environment in which each entity operates. Consolidated financial statements of the Group are presented in Korean won, which is the Parent Company’s functional and presentation currency.

(4) Use of estimates and judgments

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

(a) Critical judgments

Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the consolidated financial statements is included in the following notes:

•

Note 3: estimated useful lives of property, plant and equipment and intangible assets

•

Note 5: classification of financial instruments

(b) Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year is included in the following notes:

•

Note 9: net realizable value of inventories

•

Note 15: impairment of goodwill

•

Note 19: recognition and measurement of provisions

•

Note 20: measurement of defined benefit obligations

•

Note 21: recognition of deferred tax assets and liabilities

(c) Fair value measurement

The Group establishes fair value measurement policies and procedures as its accounting policies and disclosures require fair value measurements for various financial and non-financial assets and liabilities. Such policies and procedures are executed by the valuation department, which is responsible for the review of significant fair value measurements including fair values classified as level 3 in the fair value hierarchy.

The valuation department regularly reviews unobservable significant inputs and valuation adjustments. If third party information such as prices available from an exchange, dealer, broker, industry group, pricing service or regulatory agency is used for fair value measurements, the valuation department reviews whether the valuation based on third party information includes classifications by levels within the fair value hierarchy and meets the requirements for the relevant standards.

G-12

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

2. Basis of Preparation, continued

The Group uses the best observable inputs in market when measuring fair values of assets or liabilities. Fair values are classified within the fair value hierarchy based on inputs used in valuation methods as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)

If various inputs used to measure fair value of assets or liabilities fall into different levels of the fair value hierarchy, the Group classifies the assets and liabilities at the lowest level of inputs among the fair value hierarchy which is significant to the entire measured value. The Group recognizes transfers between levels at the end of the reporting period of which such transfers occurred.

Information about assumptions used for fair value measurements are included in note 6.

3. Significant Accounting Policies

The significant accounting policies applied by the Group in preparation of its consolidated financial statements are explained below. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

(1) Operating Segments

An operating segment is a component of the Group that: 1) engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with other components of the Group, 2) whose operating results are reviewed regularly by the Group’s chief operating decision maker (“CODM”) in order to allocate resources and assess its performance, and 3) for which discrete financial information is available. The Group’s CODM is the board of directors, who do not receive and therefore do not review discrete financial information for any component of the Group. Consequently, no operating segment information is included in these consolidated financial statements. Entity wide disclosures of geographic, product and customer information are provided in note 4.

(2) Basis of consolidation

(a) Business combination

A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control.

The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss.

Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.

G-13

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

3. Significant Accounting Policies, continued

If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees (acquiree’s awards), then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree’s awards and the extent to which the replacement awards relate to pre-combination service.

(b) Non-controlling interests

Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition.

Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

(c) Subsidiaries

(d) Loss of control

(e) Interests in equity-accounted investees

The Group’s interest in equity-accounted investees comprise interests in an associate and a joint venture. An associate is an entity in which the Group has significant influence, but not control or joint control, over the entity’s financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

Interests in an associate and a joint venture are initially recognized at cost including transaction costs. Subsequent to initial recognition, their carrying amounts are increased or decreased to recognize the Group’s share of the profit or loss and changes in equity of the associate or the joint venture. Distributions from equity-accounted investees are accounted for as deduction from the carrying amounts.

(f) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. The Group’s share of unrealized gain incurred from transactions with equity-accounted investees are eliminated and unrealized loss are eliminated using the same basis if there are no evidence of asset impairments.

(g) Business combinations under common control

The assets and liabilities acquired in the combination of entities or business under common control are recognized at the carrying amounts recognized previously in the consolidated financial statements of the ultimate parent. The difference between consideration transferred and carrying amounts of net assets acquired is added to or deducted from other capital adjustments.

G-14

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

3. Significant Accounting Policies, continued

(3) Cash and cash equivalents

(4) Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted average method (except for goods in-transit that is based on the specific identification method), and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing inventories to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and selling expenses. In the case of manufactured inventories and work-in-process, cost includes an appropriate share of production overheads based on the actual capacity of production facilities. However, the normal capacity is used for the allocation of fixed production overheads if the actual level of production is lower than the normal capacity.

(5) Non-derivative financial assets

Upon initial recognition, non-derivative financial assets not at fair value through profit or loss are measured at their fair value plus transaction costs that are directly attributable to the asset’s acquisition.

(a) Financial assets at fair value through profit or loss

A financial asset is classified as financial assets at fair value through profit or loss if it is held for trading or designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

(b) Held-to-maturity investments

A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Group has the positive intention and ability to hold to maturity, is classified as held-to-maturity investments. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest rate method.

(c) Loans and receivables

(d) Available-for-sale financial assets

G-15

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

3. Significant Accounting Policies, continued

and receivables. Subsequent to initial recognition, they are measured at fair value, and changes in their fair value, net of any tax effect, are recorded in other comprehensive income. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost.

(e) De-recognition of financial assets

The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. If the Group neither transfers nor retains substantially all of the risks and rewards of ownership of the financial assets, it derecognizes the financial assets when it does not retain control over the transferred financial assets. If the Group has retained control over the transferred financial assets, it continues to recognize the assets to the extent of its continuing involvement. If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

(f) Offsetting between financial assets and financial liabilities

(6) Derivative financial instruments

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

(a) Embedded derivatives

Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria have been met:

•

the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract;

•

a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and

•

the hybrid instrument is not measured at fair value with changes in fair value recognized in profit or loss.

Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

(b) Other derivative financial instruments

Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.

(7) Impairment of financial assets

A financial asset not carried at fair value through profit or loss is assessed at the end of each reporting period to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence

G-16

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

3. Significant Accounting Policies, continued

indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.

Objective evidence that a financial asset is impaired includes:

•

significant financial difficulty of the issuer or obligor;

•

a breach of contract, such as default or delinquency in interest or principal payments;

•

the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

•

it becoming probable that the borrower will enter bankruptcy or other financial reorganization;

•

the disappearance of an active market for that financial asset because of financial difficulties; or

•

observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot be identified with the individual financial assets in the group

In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

If there is objective evidence that financial assets are impaired, impairment losses are measured and recognized.

(a) Financial assets measured at amortized cost

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. If it is not practicable to obtain the financial asset’s estimated future cash flows, impairment losses would be measured based on prices from any observable current market transactions. Impairment losses are deducted through an allowance account or directly from the carrying amount. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss either directly or by adjusting an allowance account.

(b) Financial assets carried at cost

The amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed.

(c) Available-for-sale financial assets

When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed, with the amount of the reversal recognized in profit or loss.

G-17

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

3. Significant Accounting Policies, continued

(8) Property, plant and equipment

Property, plant and equipment are initially measured at cost. The cost of property, plant and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent to initial recognition, an item of property, plant and equipment is carried at its cost less any accumulated depreciation and any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of property, plant and equipment at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the cost will flow to the Group and it can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day repair and maintenance are recognized in profit or loss as incurred.

The estimated useful lives of the Group’s property, plant and equipment are as follows:


	Useful lives (years)
Buildings		10 - 50
Structures		10 - 30
Machinery		4 - 15
Vehicles		4 - 10
Other		3 - 15

Depreciation methods, useful lives, and residual values are reviewed at the end of each reporting period and, if appropriate, accounted for as changes in accounting estimates.

(9) Borrowing costs

To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that the Group borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate is the weighted average of the borrowing costs applicable to the borrowings of the Group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Group capitalizes during a period does not exceed the amount of borrowing costs incurred during that period.

G-18

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

3. Significant Accounting Policies, continued

(10) Intangible assets

Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.

Goodwill arising from business combinations is recognized as the excess of the consideration transferred in the acquisition over the net fair value of the identifiable assets acquired and liabilities assumed. Any deficit is a bargain purchase that is recognized in profit or loss. Goodwill is measured at cost less accumulated impairment losses.

Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, certain intangible assets are determined as having indefinite useful lives and not amortized as there is no foreseeable limit to the period over which the assets are expected to be available for use.

The estimated useful lives of the Group’s intangible assets are as follows:


		Useful lives (years)
Industrial rights		5 - 10
Development costs		1 - 2
Software		5

Useful lives and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.

(11) Government grants

Government grants are not recognized unless there is reasonable assurance that the Group will comply with the grant’s conditions and that the grant will be received.

(a) Grants related to assets

Government grants whose primary condition is that the Group purchases, constructs or otherwise acquires non-current assets are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the useful lives of depreciable assets.

(b) Grants related to income

Government grants which are intended to compensate the Group for expenses incurred are recognized in profit or loss by as deduction of the related expenses.

G-19

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

3. Significant Accounting Policies, continued

(12) Investment property

Property held for the purpose of earning rental income or benefiting from capital appreciation is classified as investment property. Investment property is initially measured at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at cost less accumulated depreciation and impairment losses.

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the cost will flow to the Group and it can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day repair and maintenance are recognized in profit or loss as incurred.

Investment property except for land, are depreciated on a straight-line basis over estimated useful lives.

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting period and, if appropriate, accounted for as changes in accounting estimates.

(13) Impairment of non-financial assets

The carrying amounts of the Group’s non-financial assets, other than assets arising from employee benefits, inventories, deferred tax assets and non-current assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

The Group estimates the recoverable amount of an individual asset; however if it is impossible to measure the individual recoverable amount of an asset, the Group estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a pre-tax discount rate that reflect current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.

An impairment loss is recognized in profit or loss if the carrying amount of an asset or a CGU exceeds its recoverable amount.

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from business combination. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis.

Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(14) Leases

G-20

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

3. Significant Accounting Policies, continued

(a) Finance leases

At the commencement of the lease term, the Group recognizes as finance lease assets and finance lease liabilities in its consolidated statements of financial position, the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset.

Minimum lease payments are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.

(b) Operating leases

(c) Determining whether an arrangement contains a lease

Determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset or assets (the asset) and the arrangement conveys a right to use the asset.

At inception or reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a financial lease that it is impracticable to separate the payments reliably, the Group recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability is reduced as payments are made and an imputed finance expense on the liability recognized using the purchaser’s incremental borrowing rate of interest.

(15) Non-current assets held for sale

A non-current asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).

G-21

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

3. Significant Accounting Policies, continued

(16) Non-derivative financial liabilities

(a) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, any directly attributable transaction costs are recognized in profit or loss as incurred.

(b) Other financial liabilities

Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest rate method. The Group derecognizes a financial liability from the consolidated statements of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

(17) Employee benefits

(a) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the reporting period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

(b) Other long-term employee benefits

Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the reporting period in which the employees render the related service, and are calculated at the present value of the amount of future benefit that employees have earned in return for their service in the current and prior periods. Any changes from remeasurements are recognized through profit or loss in the period in which they arise.

(c) Retirement benefits: defined benefit plans

As of the end of reporting period, defined benefits liabilities relating to defined benefit plans are recognized as present value of defined benefit obligations, net of fair value of plan assets.

The calculation is performed annually by an independent actuary using the projected unit credit method. When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Group recognizes an asset, to the extent of the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.

G-22

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

3. Significant Accounting Policies, continued

the asset ceiling, excluding amounts included in net interest on the net defined benefit liability, are recognized in other comprehensive income. The Group determines net interests on net defined benefit liability (asset) by multiplying discount rate determined at the beginning of the annual reporting period and considers changes in net defined benefit liability (asset) from contributions and benefit payments. Net interest costs and other costs relating to the defined benefit plan are recognized through profit or loss.

(d) Termination benefits

The Group recognizes a liability and expense for termination benefits at the earlier of the period when the Group can no longer withdraw the offer of those benefits and the period when the Group recognizes costs for a restructuring. If benefits are not payable within 12 months after the end of the reporting period, then they are discounted to their present value.

(18) Provisions

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement is recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement is treated as a separate asset.

A provision is used only for expenditures for which the provision was originally recognized.

(19) Foreign currencies

(a) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the reporting date’s exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined.

Foreign currency differences arising on the settlement or retranslation of monetary items are recognized in profit or loss, except for differences arising on the retranslation of the net investment in a foreign operation, which are recognized in other comprehensive income. When a gain or loss on a non-monetary item is recognized in other comprehensive income, any exchange component of that gain or loss is recognized in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognized in profit or loss, any exchange component of that gain or loss is recognized in profit or loss.

G-23

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

3. Significant Accounting Policies, continued

(b) Foreign operations

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

(20) Equity capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares is recognized as a deduction from equity, net of any tax effects.

(21) Revenue

Revenue from the sale of goods, rendering of services or use of assets is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates.

(a) Sale of goods

(b) Sale of services

(22) Finance income and finance expenses

Finance income comprises interest and dividend income on funds invested (including available-for-sale financial assets), gains on the disposal of available-for-sale financial assets, and changes in the fair value of

G-24

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

3. Significant Accounting Policies, continued

financial instruments at fair value through profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is recognized in profit or loss on the date that the Group’s right to receive dividend is established.

Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, and changes in the fair value of financial instruments at fair value through profit or loss. Interest expense on borrowings and debentures are recognized in profit or loss using the effective interest rate method.

(23) Income taxes

Income tax expense comprises current and deferred tax. Current and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

(a) Current tax

Current tax is the expected tax payable or refundable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit. The tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period.

(b) Deferred tax

The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures except to the extent that the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Group recognizes deferred tax assets for all deductible temporary differences including unused tax loss and tax credit to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis. If there are any additional income tax expense incurred in accordance with dividend payments, such income tax expense is recognized when liabilities relating to the dividend payments are recognized.

G-25

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

3. Significant Accounting Policies, continued

(24) Earnings per share

(25) Standards issued but not yet adopted

A number of new standards and amendments to standards are effective for annual periods beginning after January 1, 2015. The Group has not early adopted the following new or amended standards in preparing these consolidated financial statements.

(a) IFRS 9, ‘Financial Instruments’

IFRS 9, published in July 2014, replaces the existing guidance in IAS 39, ‘Financial Instruments: Recognition and Measurement’. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. IFRS 9 is effective for annual reporting periods beginning on or after January 1, 2018, with early adoption permitted.

The Group is in the process of assessing the potential impact on its consolidated financial statements resulting from the application of IFRS 9.

(b) IFRS 15, ‘Revenue from Contracts with Customers’

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including IAS 18, ‘Revenue’, IAS 11, ‘Construction Contracts’ and IFRIC 13, ‘Customer Loyalty Programmes’. IFRS 15 is effective for annual reporting periods beginning on or after January 1, 2018, with early adoption permitted.

The Group is in the process of assessing the potential impact on its consolidated financial statements resulting from the application of IFRS 15.

(c) IFRS 16 ‘Leases’

The Group is in the process of assessing the potential impact on its consolidated financial statements resulting from the application of IFRS 16.

G-26

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

4. Geographic, Product and Customer Information

The Group has a single reportable segment that is engaged in the manufacture and sale of semiconductor products.

(1) Details of the Group’s revenue for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015		2014¹		2013¹
	(In millions of won)
Sale of goods	￦	18,739,177		17,054,031		14,093,027
Sale of services		58,821		71,535		72,075

	￦	18,797,998		17,125,566		14,165,102

¹	Sale of service for the year ended December 31, 2014 amounting to ￦40,432 million (2013: ￦4,606 million) was reclassified to sale of goods to conform with the classification for the year ended December 31, 2015.

(2) Details of the Group’s revenue by product and service types for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015		2014		2013
	(In millions of won)
DRAM	￦	14,045,339		13,311,628		10,211,993
NAND Flash		4,148,315		3,320,658		3,391,561
Other		604,344		493,280		561,548

	￦	18,797,998		17,125,566		14,165,102

(3) The Group’s revenue information by region based on the location of selling entities for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015		2014		2013
	(In millions of won)
Korea	￦	1,204,642		1,179,949		1,105,083
China		4,496,357		3,825,747		3,038,355
Taiwan		1,899,649		2,155,005		1,765,343
Asia (other than China and Taiwan)		2,536,009		2,482,716		1,986,394
U.S.A.		7,549,622		6,359,461		5,191,619
Europe		1,111,719		1,122,688		1,078,308

	￦	18,797,998		17,125,566		14,165,102

G-27

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

4. Geographic, Product and Customer Information, continued

(4) The Group’s non-current assets (excluding financial assets, equity-accounted investees and deferred tax assets) information by region based on the location of subsidiaries as of December 31, 2015 and 2014 are as follows:


	2015		2014
	(In millions of won)
Korea	￦	15,648,779		12,356,735
China		3,208,908		3,255,550
Taiwan		7,007		5,831
Asia (other than China and Taiwan)		770		798
U.S.A.		365,024		333,908
Europe		8,874		11,124

	￦	19,239,362		15,963,946

(5) Revenue from customer A and B each constitutes more than 10% of the Group’s consolidated revenue for the year ended December 31, 2015 amounts to ￦3,485,795 million (2014: ￦2,959,663 million, 2013: ￦2,457,867 million) and ￦2,078,835 million, respectively.

5. Categories of Financial Instruments

(1) Categories of financial assets as of December 31, 2015 and 2014 are as follows:


	2015
	Financial assets at fair value through profit or loss		Available- for-sale financial assets		Loans and receivables		Total
	(In millions of won)
Cash and cash equivalents	￦	—		—		1,175,719		1,175,719
Short-term financial instruments		1,047,277		—		2,568,277		3,615,554
Trade receivables		—		—		2,628,448		2,628,448
Loans and other receivables		—		—		124,532		124,532
Other financial assets		—		—		430		430
Available-for-sale financial assets		—		131,354		—		131,354

	￦	1,047,277		131,354		6,497,406		7,676,037

G-28

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

5. Categories of Financial Instruments, continued


	2014
	Financial assets at fair value through profit or loss		Available- for-sale financial assets		Loans and receivables		Total
	(In millions of won)
Cash and cash equivalents	￦	—		—		436,761		436,761
Short-term financial instruments		1,842,020		—		1,775,994		3,618,014
Trade receivables		—		—		3,732,926		3,732,926
Loans and other receivables		—		—		750,518		750,518
Other financial assets		—		—		323		323
Available-for-sale financial assets		—		127,314		—		127,314

	￦	1,842,020		127,314		6,696,522		8,665,856

(2) Categories of financial liabilities as of December 31, 2015 and 2014 are as follows:


	2015
	Financial liabilities at fair value through profit or loss		Financial liabilities measured at amortized cost		Total
	(In millions of won)
Trade payables	￦	—		791,373		791,373
Other payables		—		1,337,803		1,337,803
Other non-trade payables¹		—		1,091,062		1,091,062
Borrowings		—		3,818,595		3,818,595
Other financial liabilities		683		—		683

	￦	683		7,038,833		7,039,516


	2014
	Financial liabilities at fair value through profit or loss		Financial liabilities measured at amortized cost		Total
	(In millions of won)
Trade payables	￦	—		787,822		787,822
Other payables		—		1,358,816		1,358,816
Other non-trade payables¹		—		1,315,903		1,315,903
Borrowings		—		4,174,759		4,174,759
Other financial liabilities		738		—		738

	￦	738		7,637,300		7,638,038

G-29

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

5. Categories of Financial Instruments, continued

¹	Details of other non-trade payables as of December 31, 2015 and 2014 are as follows:


	2015		2014
	(In millions of won)
Current
Accrued expenses	￦	1,001,171		1,182,956

Non-current
Long-term other payables		87,036		130,566
Rent deposits payable		2,855		2,357
Long-term accrued expenses		—		24

		89,891		132,947

	￦	1,091,062		1,315,903

(3) Finance income and expenses by categories for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015			2014			2013
	(In millions of won)
Loans and receivables
Interest income	￦	40,715			50,804			59,262
Foreign exchange differences		300,163			200,390			(61,819	)
Reversal of impairment (loss)		82			(5,463	)		2,250

		340,960			245,731			(307	)

Available-for-sale financial assets
Other comprehensive loss		—			—			(966	)
Gain on disposal		—			6,553			205
Dividend income		1,265			1,233			2,381

		1,265			7,786			1,620

Held-to-maturity financial assets
Interest income		—			1,318			853

Financial assets at fair value through profit or loss
Interest income		—			—			6,296
Gain on valuation		2,280			6,920			—
Gain from derivative instruments		—			—			73
Gain on disposal		33,814			28,493			—

		36,094			35,413			6,369

Financial liabilities measured at amortized cost
Interest expenses		(118,505	)		(170,363	)		(256,623	)
Loss on redemption of debentures		—			(2,924	)		—
Foreign exchange differences		(242,532	)		(71,870	)		169,509

		(361,037	)		(245,157	)		(87,114	)

Financial liabilities at fair value through profit or loss
Loss from derivative instruments		(361	)		(171,754	)		(93,546	)

	￦	16,921			(126,663	)		(172,125	)

G-30

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

6. Financial Risk Management

(1) Financial risk management

The Group’s activities are exposed to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.

Risk management is carried out by the Parent Company’s corporate finance division in accordance with policies approved by the board of directors. The Parent Company’s corporate finance division identifies, evaluates and hedges financial risks in close cooperation with the Group’s operating units. The board of directors provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, and credit risk; use of derivative financial instruments and non-derivative financial instruments; and the investment of excess liquidity.

(a) Market risk

(i) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, Euro and Japanese Yen. Foreign exchange risk arises from future commercial transactions; recognized assets and liabilities in foreign currencies; and net investments in foreign operations.

Monetary foreign currency assets and liabilities as of December 31, 2015 are as follows:


	Assets				Liabilities
	Foreign currencies		Korean won equivalent		Foreign currencies		Korean won equivalent
	(In millions of won and millions of foreign currencies)
USD		4,299	￦	5,038,126		3,261	￦	3,821,703
EUR		—		115		148		189,031
JPY		6,194		60,204		37,445		363,967

As of December 31, 2015, effects on profit before income tax as a result of change in exchange rate by 10% are as follows:


	If increased by 10%			If decreased by 10%
	(In millions of won)
USD	￦	121,642			(121,642	)
EUR		(18,892	)		18,892
JPY		(30,376	)		30,376

(ii) Interest rate risk

Interest rate risk of the Group is defined as the risk that the interest expenses arising from borrowings will fluctuate because of changes in future market interest rate. The interest rate risk mainly arises through floating rate borrowings, and is partially offset by interests received from floating rate financial assets.

The Group manages its interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the Group raises long-term borrowings at floating rates and swaps them into fixed rates. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (primarily quarterly), the difference between interests of fixed rates and floating rates, which are calculated based on the agreed notional amounts.

G-31

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

6. Financial Risk Management, continued

As of December 31, 2015, the Group is partially exposed to a risk of increase in interest rates. If interest rates on borrowings were 100 basis points higher/lower with all other variables held constant, profit before income tax for the following year would be ￦17,771 million (2014: ￦15,267 million) lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings and interest income on floating rate financial assets.

(iii) Price risk

As of December 31, 2015, there are no available-for-sale equity securities measured at fair value held by the Group. Accordingly, the Group is not exposed to any equity securities price risk.

(b) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises mainly from operating and investing activities. In order to manage credit risk, the Group periodically evaluates the creditworthiness of each customer or counterparty through the analysis of its financial information, historical transaction records and other factors, based on which the Group establishes credit limits for each customer or counterparty.

(i) Trade and other receivables

For each new customer, the Group individually analyzes its credit worthiness before standard payment and delivery terms and conditions are offered. In addition, the Group is consistently managing trade and other receivables by reevaluating the customer’s credit worthiness and securing collaterals in order to limit its credit risk exposure.

The Group reviews at the end of each reporting period whether trade and other receivables are impaired and maintains credit insurance policies to manage credit risk exposure from oversea customers. The maximum exposure to credit risk as of December 31, 2015 is the carrying amount of trade and other receivables.

(ii) Other financial assets

Credit risk also arises from other financial assets such as cash and cash equivalents; short-term financial instruments; and deposits with banks and financial institutions as well as short-term and long-term loans mainly due to the bankruptcy of each counterparty to those financial assets. The maximum exposure to credit risk as of December 31, 2015 is the carrying amount of those financial assets. The Group transacts only with banks and financial institutions with high credit ratings including Shinhan Bank, and accordingly management does not expect any losses from non-performance by these counterparties.

(c) Liquidity risk

Liquidity risk is defined as the risk that the Group is unable to meet its short-term payment obligations on time due to deterioration of its business performance or inability to access financing. The Group forecasts its cash flow and liquidity status and sets action plans on a regular basis to manage liquidity risk proactively.

The Group invests surplus cash in interest-bearing current accounts, time deposits, demand deposits, marketable available-for-sale securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts.

G-32

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

6. Financial Risk Management, continued

Contractual maturities of financial liabilities as of December 31, 2015 and 2014 are as follows:


	2015
	Less than 1 year		1 - 2 years		2 - 5 years		More than 5 years		Total
	(In millions of won)
Borrowings (other than finance lease liabilities)	￦	1,012,385		735,424		2,025,522		156,995		3,930,326
Finance lease liabilities		98,927		26,654		16,050		24,075		165,706
Trade payables		791,373		—		—		—		791,373
Other payables		1,346,469		—		—		—		1,346,469
Other non-trade payables		1,001,077		83,536		10,877		—		1,095,490
Derivatives		683		—		—		—		683
Financial guarantee contract		8		—		—		—		8

	￦	4,250,922		845,614		2,052,449		181,070		7,330,055

	2014
	Less than 1 year		1 - 2 years		2 - 5 years		More than 5 years		Total
	(In millions of won)
Borrowings (other than finance lease liabilities)	￦	1,765,674		795,191		1,675,663		—		4,236,528
Finance lease liabilities		106,318		92,024		24,253		—		222,595
Trade payables		787,822		—		—		—		787,822
Other payables		1,369,959		—		—		—		1,369,959
Other non-trade payables		1,182,957		78,625		54,297		—		1,315,879
Derivatives		738		—		—		—		738
Financial guarantee contract		27		—		—		—		27

	￦	5,213,495		965,840		1,754,213		—		7,933,548

The table above analyzes the Group’s non-derivative financial liabilities and net-settled derivative financial liabilities into relevant maturity groups based on the remaining period at the statement of financial position date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows and includes estimated interest payments. The Group’s derivative instruments have been included at their fair value of ￦683 million (2014: ￦738 million) within the less than one-year time bucket as of December 31, 2015. These contracts are managed on a net-fair value basis rather than by maturity date. Net settled derivatives comprise interest rate swaps used by the Group to manage the Group’s interest rate risk.

(2) Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends to shareholders, proceeds and repayments of borrowings, issue new shares or sell assets to reduce debt.

G-33

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

6. Financial Risk Management, continued

The debt-to-equity ratio and net borrowing ratio as of December 31, 2015 and 2014 are as follows:


	2015			2014
	(In millions of won)
Total liabilities (A)	￦	8,290,203			8,846,975
Total equity (B)		21,387,703			18,036,303
Cash and cash equivalents and short-term financial instruments (C)		4,791,273			4,054,775
Total borrowings (D)		3,818,595			4,174,759
Debt-to-equity ratio (A/B)		39	%		49	%
Net borrowing ratio (D-C)/B		-5	%		1	%

(3) Fair value

(a) The following table presents the carrying amounts and fair values of financial instruments by categories, including their levels in the fair value hierarchy, as of December 31, 2015 and 2014:


			2015
	Carrying amounts		Level 1		Level 2		Level 3		Total
	(In millions of won)
Financial assets measured at fair value
Short-term financial instruments	￦	1,047,277		—		1,047,277		—		1,047,277

		1,047,277		—		1,047,277		—		1,047,277

Financial assets not measured at fair value
Cash and cash equivalents¹		1,175,719		—		—		—		—
Short-term financial instruments¹		2,568,277		—		—		—		—
Trade receivables¹		2,628,448		—		—		—		—
Loans and other receivables¹		124,532		—		—		—		—
Other financial assets¹		430		—		—		—		—
Available-for-sale financial assets^1,2		131,354		—		—		—		—

		6,628,760		—		—		—		—

Financial liabilities measured at fair value
Other financial liabilities		683		—		683		—		683

		683		—		683		—		683

Financial liabilities not measured at fair value
Trade payables¹		791,373		—		—		—		—
Other payables¹		1,337,803		—		—		—		—
Other non-trade payables¹		1,091,062		—		—		—		—
Borrowings		3,818,595		—		3,869,536		—		3,869,536

	￦	7,038,833		—		3,869,536		—		3,869,536

G-34

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

6. Financial Risk Management, continued


			2014
	Carrying amounts		Level 1		Level 2		Level 3		Total
	(In millions of won)
Financial assets measured at fair value
Short-term financial instruments	￦	1,842,020		—		1,842,020		—		1,842,020

		1,842,020		—		1,842,020		—		1,842,020

Financial assets not measured at fair value
Cash and cash equivalents¹		436,761		—		—		—		—
Short-term financial instruments¹		1,775,994		—		—		—		—
Trade receivables¹		3,732,926		—		—		—		—
Loans and other receivables¹		750,518		—		—		—		—
Other financial assets¹		323		—		—		—		—
Available-for-sale financial assets^1,2		127,314		—		—		—		—

		6,823,836		—		—		—		—

Financial liabilities measured at fair value
Other financial liabilities		738		—		738		—		738

		738		—		738		—		738

Financial liabilities not measured at fair value
Trade payables¹		787,822		—		—		—		—
Other payables¹		1,358,816		—		—		—		—
Other non-trade payables¹		1,315,903		—		—		—		—
Borrowings		4,174,759		—		4,243,974		—		4,243,974

	￦	7,637,300		—		4,243,974		—		4,243,974

¹	Does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are close to the reasonable approximate fair values.

Equity instruments which do not have quoted price in an active market for the identical instruments (inputs for level 1) are measured at cost in accordance with IAS 39, ‘Financial Instrument: Recognition and Measurement’ as fair values of such equity instruments cannot be reliably measured using other valuation methods.

(b) Valuation Techniques

The valuation techniques of recurring and non-recurring fair value measurements and quoted prices classified as level 2 are as follows:


	Fair value		Level		Valuation Techniques
	(In millions of won)
Short-term financial instruments:
Financial assets at fair value through profit or loss	￦	1,047,277		2	The present value method
Derivative financial Liabilities:
Interest swap		683		2	The present value method

G-35

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

7. Restricted Financial Instruments

Details of restricted financial instruments as of December 31, 2015 and 2014 are as follows:


	2015		2014		Description
	(In millions of won)
Short-term financial instruments	￦	—		3	Restricted for government grants
		77,500		46,000	Restricted for supporting small business
		22,190		21,655	Pledged for borrowings
		5,832		4,601	Pledged for consumption tax
		—		4,764	Pledged for letter of credit
		2,843		584	Deposit for import duties

		108,365		77,607

Other financial assets		308		308	Pledged for borrowings
		12		12	Bank overdraft guarantee deposit
		110		3	Others

		430		323

	￦	108,795		77,930

8. Trade Receivables and Loans and Other Receivables

(1) Details of loans and other receivables as of December 31, 2015 and 2014 are as follows:


	2015		2014
	(In millions of won)
Current
Other receivables¹	￦	37,427		655,112
Accrued income		18,126		28,337
Short-term loans		3,786		3,504
Short-term guarantee and other deposits		2,274		4,576

		61,613		691,529

Non-current
Long-term other receivables		22,921		22,880
Long-term loans		6,104		7,199
Guarantee deposits		33,637		28,585
Long-term deposits		257		325

		62,919		58,989

	￦	124,532		750,518

¹	Some of other receivables as of December 31, 2014 were reclassified to other current assets to conform with the classification as of December 31, 2015.

G-36

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

8. Trade Receivables and Loans and Other Receivables, continued

(2) Trade receivables and loans and other receivables, net of provision for impairment, as of December 31, 2015 and 2014 are as follows:


	2015
	Gross amount		Provision for impairment			Carrying amount
	(In millions of won)
Trade receivables	￦	2,631,422		(2,974	)		2,628,448
Current loans and other receivables		63,046		(1,433	)		61,613
Non-current loans and other receivables		69,062		(6,143	)		62,919

	￦	2,763,530		(10,550	)		2,752,980


	2014
	Gross amount		Provision for impairment			Carrying amount
	(In millions of won)
Trade receivables	￦	3,735,845		(2,919	)		3,732,926
Current loans and other receivables		693,197		(1,668	)		691,529
Non-current loans and other receivables		65,023		(6,034	)		58,989

	￦	4,494,065		(10,621	)		4,483,444

(3) Details of provision for impairment

Movements in the provision for impairment of trade receivables for the years ended December 31, 2015 and 2014 are as follows:


	2015			2014
	(In millions of won)
Beginning balance	￦	2,919			3,446
Provision for receivables impairment		88			525
Receivables written off during the year as uncollectible		—			(885	)
Foreign exchange difference		(33	)		(167	)

Ending balance	￦	2,974			2,919

Movements in the provision for impairment of current loans and other receivables for the years ended December 31, 2015 and 2014 are as follows:


	2015			2014
	(In millions of won)
Beginning balance	￦	1,668			2,062
Provision for receivables impairment		—			302
Unused amounts reversed		(234	)		(1	)
Receivables written off during the year as uncollectible		—			(697	)
Foreign exchange difference		(1	)		2

Ending balance	￦	1,433			1,668

G-37

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

8. Trade Receivables and Loans and Other Receivables, continued

Movements in the provision for impairment of non-current loans and other receivables for the years ended December 31, 2015 and 2014 are as follows:


	2015			2014
	(In millions of won)
Beginning balance	￦	6,034			12,510
Provision for receivables impairment		68			4,636
Unused amounts reversed		(4	)		—
Receivables written off during the year as uncollectible		(6	)		(10,891	)
Foreign exchange difference		51			(221	)

Ending balance	￦	6,143			6,034

(4) The aging analyses of trade receivables and loans and other receivables as of December 31, 2015 and 2014 are as follows:


	2015
	Not impaired
			Overdue
	Not Past due		Less than 3 months		Over 3 months and less than 6 months		Over 6 months		Impaired		Total
	(In millions of won)
Trade receivables	￦	2,606,603		24,819		—		—		—		2,631,422
Current loans and other receivables		61,753		—		—		—		1,293		63,046
Non-current loans and other receivables		43,953		—		—		—		25,109		69,062

	￦	2,712,309		24,819		—		—		26,402		2,763,530


	2014
	Not impaired
			Overdue
	Not Past due		Less than 3 months		Over 3 months and less than 6 months		Over 6 months		Impaired		Total
	(In millions of won)
Trade receivables	￦	3,731,621		3,809		415		—		—		3,735,845
Current loans and other receivables		691,918		—		—		—		1,279		693,197
Non-current loans and other receivables		41,599		—		—		—		23,424		65,023

	￦	4,465,138		3,809		415		—		24,703		4,494,065

G-38

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

9. Inventories

(1) Details of inventories as of December 31, 2015 and 2014 are as follows:


	2015		2014
	(In millions of won)
Finished goods	￦	613,382		408,256
Work-in-process		848,199		762,421
Raw materials		222,742		188,037
Supplies		164,156		102,705
Goods in transit		74,897		36,144

	￦	1,923,376		1,497,563

(2) The amount of the inventories recognized as cost of sales is as follows:

2015

2014

2013

(In millions of won)

Inventories recognized as cost of sales

￦

10,350,548

9,448,374

8,594,938

(3) The changes in inventory valuation allowance during the years ended December 31, 2015 and 2014 are as follows:


	2015			2014
	(In millions of won)
Beginning balance	￦	68,528			73,116
Charged to cost of sales		119,764			20,924
Write-off upon sales		(46	)		(25,512	)

Ending balance	￦	188,246			68,528

There were no significant reversals of inventory write-downs recognized during 2015 and 2014.

10. Non-current assets held for sale

Details of changes in non-current assets held for sale for the years ended December 31, 2015 and 2014 are as follows:


	2015			2014
	(In millions of won)
Beginning balance	￦	27,661			26,557
Disposal¹		(27,661	)		—
Other		—			1,104

Ending balance	￦	—			27,661

¹	The Group disposed assets held for sale during the year ended December 31, 2015 and recognized loss on disposal of assets held for sale as other expenses for the amount of ￦5,844 million.

G-39

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

11. Other Current and Non-current Assets

Details of other current and non-current assets as of December 31, 2015 and 2014 are as follows:


	2015		2014
	(In millions of won)
Current
Advance payments	￦	2,033		4,501
Prepaid expenses		212,766		156,590
Value added tax refundable¹		131,673		190,356
Others		7,454		5,984

		353,926		357,431

Non-current
Long-term prepaid expenses²		558,058		494,908
Others		7,475		13,568

		565,533		508,476

	￦	919,459		865,907

¹	Value added tax refundable for the year ended December 31, 2014 was reclassified from other receivables to other current assets to conform with the classification for the year ended December 31, 2015.

²	Long-term prepaid expenses primarily consist of prepaid royalties.

12. Investments in Associates and Joint Ventures

(1) Details of investments in associates and joint ventures as of December 31, 2015 and 2014 are as follows:


				2015				2014
Type	Investee	Ownership (%)		Net asset value		Carrying amount		Carrying amount
		(In millions of won)
Associate	Stratio, Inc.¹		9.10	￦	171		2,171		—
	Gemini Partners Pte. Ltd.²		20.00		6,228		7,976		—
Joint venture	HITECH Semiconductor (Wuxi) Co., Ltd. (HITECH)		45.00		112,462		112,462		97,090

				￦	118,861		122,609		97,090

¹	In 2015, the Parent Company acquired 1,136,013 preferred shares of Stratio, Inc. Stratio, Inc. is classified as an associate because the Parent Company has significant influence over Stratio, Inc.’s financial and operating policies through its right to appoint a member of the board of directors.

²	In 2015, the Parent Company acquired 20% of shares of Gemini Partners Pte. Ltd. and classified it as an associate because the Parent Company has significant influence over Gemini Partners Pte. Ltd.

G-40

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

12. Investments in Associates and Joint Ventures, continued

(2) Changes in investments in associates and joint ventures for the years ended December 31, 2015 and 2014 are as follows:


	2015
	Beginning balance		Acquisition (disposal)		Share of profit (loss)			Other equity movement		Dividend			Ending balance
	(In millions of won)
Stratio, Inc.	￦	—		2,194		(35	)		12		—			2,171
Gemini Partners Pte. Ltd.		—		7,976		—			—		—			7,976
HITECH Semiconductor (Wuxi) Co., Ltd.		97,090		—		24,677			6,475		(15,780	)		112,462

	￦	97,090		10,170		24,642			6,487		(15,780	)		122,609


	2014
	Beginning balance		Acquisition (disposal)			Share of profit (loss)			Other equity movement		Dividend			Ending balance
	(In millions of won)
Siliconfile Technologies Inc.	￦	10,962		(10,319	)		(579	)		171		(235	)		—
HITECH Semiconductor (Wuxi) Co., Ltd.		96,135		—			13,084			3,535		(15,664	)		97,090

	￦	107,097		(10,319	)		12,505			3,706		(15,899	)		97,090

(3) Associate and joint venture’s statements of financial position as of December 31, 2015 and 2014 are as follows:


	2015
	Current assets		Non-current assets		Current liabilities		Non-current liabilities
	(In millions of won)
Stratio, Inc.	￦	962		921		—		1
Gemini Partners Pte. Ltd.		27,762		14,694		3,444		7,867
HITECH Semiconductor (Wuxi) Co., Ltd.		270,959		314,464		89,034		246,478

2014

Current
assets

Non-current
assets

Current
liabilities

Non-current
liabilities

(In millions of won)

HITECH Semiconductor (Wuxi) Co., Ltd.

￦

251,443

306,344

289,990

52,042

G-41

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

12. Investments in Associates and Joint Ventures, continued

(4) Summary of associate and joint venture’s statements of comprehensive income (loss) for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015					2014					2013
	Revenue		Profit (loss) for the year			Revenue		Profit (loss) for the year			Revenue		Profit for the year
	(In millions of won)
Stratio, Inc.	￦	—		(385	)		—		—			—		—
Gemini Partners Pte. Ltd.		—		(747	)		—		—			—		—
HITECH Semiconductor (Wuxi) Co., Ltd.		677,284		54,835			608,300		29,077			566,065		38,008
Siliconfile Technologies Inc.¹		—		—			40,339		(2,072	)		131,914		7,708

Siliconfile Technologies Inc. was reclassified as a subsidiary due to the Group’s additional acquisition of the remaining interest on April 22, 2014. Accordingly, the information presented in the above table includes the results of Siliconfile Technologies Inc. only for the period from January 1 to April 22, 2014.

13. Available-for-sale Financial Assets

(1) Details of available-for-sale financial assets as of December 31, 2015 and 2014 are as follows:


	2015								2014
	Ownership		Ownership (%)		Acquisition cost		Book value		Book value
	(In millions of won)
ProMos		201,600,000		7.93	￦	21,847		—		—
JNT Frontier Private Equity Unit		Certificate		—		1,213		1,213		1,307
SV M&A No.1 Equity Unit		Certificate		—		1,120		1,120		1,196
Daishin Aju IB Investment Co., Ltd.		Certificate		—		699		699		1,265
Seoul Investment Early & Green Venture Fund		Certificate		—		1,678		1,678		1,760
TS 2011-4 Technology Transfer & Business		Certificate		—		1,262		1,262		1,262
IMM Investment		Certificate		—		620		620		1,040
L&S Venture Capital		Certificate		—		1,849		1,849		1,899
KTC-NP-Growth		Certificate		—		2,271		2,271		516
Intellectual Discovery, Ltd.		800,000		7.05		4,000		4,000		4,000
SKY Property Mgmt. Ltd.		5,745		15.00		112,360		112,360		112,360
Equity investment in a construction guarantee association		526		0.01		709		709		709
China Walden Venture Investments II		Certificate		—		3,573		3,573		—

					￦	153,201		131,354		127,314

(2) Changes in the carrying amount of available-for-sale financial assets for the years ended December 31, 2015 and 2014 are as follows:


	2015			2014
	(In millions of won)
Beginning balance	￦	127,314			158,770
Acquisition		5,359			1,414
Disposal		(1,319	)		(32,870	)

Ending balance	￦	131,354			127,314

G-42

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

14. Property, Plant and Equipment

(1) Changes in property, plant and equipment for the years ended December 31, 2015 and 2014 are as follows:


	2015
	Land			Buildings			Structures			Machinery			Vehicles			Others			Construction -in-progress			Total
	(In millions of won)
Beginning net book amount	￦	542,952			1,433,541			282,191			9,974,301			863			254,129			1,602,357			14,090,334
Changes during 2015
Additions		—			—			907			48,005			94			11,030			6,699,838			6,759,874
Receipt of government grants		—			—			—			(378	)		—			—			—			(378	)
Disposals		(4	)		(71	)		(271	)		(204,220	)		—			(12,759	)		(7,665	)		(224,990	)
Depreciation		—			(88,013	)		(27,851	)		(3,476,825	)		(371	)		(101,385	)		—			(3,694,445	)
Transfers¹		23,908			1,198,576			167,970			5,271,980			783			243,497			(6,881,650	)		25,064
Impairments		—			(22,050	)		—			—			—			(5	)		—			(22,055	)
Exchange differences		758			3,058			1,663			26,345			—			1,431			(407	)		32,848

Ending net book amount	￦	567,614			2,525,041			424,609			11,639,208			1,369			395,938			1,412,473			16,966,252

Acquisition cost		567,614			3,243,654			792,270			39,376,245			3,659			966,111			1,412,473			46,362,026
Accumulated depreciation		—			(672,563	)		(348,493	)		(27,479,837	)		(2,290	)		(568,466	)		—			(29,071,649	)
Accumulated impairment		—			(45,749	)		(19,168	)		(250,883	)		—			(1,509	)		—			(317,309	)
Government grants		—			(301	)		—			(6,317	)		—			(198	)		—			(6,816	)

	￦	567,614			2,525,041			424,609			11,639,208			1,369			395,938			1,412,473			16,966,252

¹	￦25,064 million was transferred from investment property during the year ended December 31, 2015.

G-43

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

14. Property, Plant and Equipment, continued


	2014
	Land		Buildings			Structures			Machinery			Vehicles			Others			Construction -in-progress			Total
	(In millions of won)
Beginning net book amount	￦	504,398		1,309,816			207,299			9,222,376			227			209,111			676,570			12,129,797
Changes during 2014
Additions		—		59,216			12,454			160,039			71			26,552			5,160,807			5,419,139
Receipt of government grants		—		—			—			(502	)		—			—			—			(502	)
Business combination and disposal of a subsidiary		—		—			(468	)		(5,945	)		27			1,462			(242	)		(5,166	)
Disposals		—		(1,114	)		(1,437	)		(197,242	)		(14	)		(734	)		(5,231	)		(205,772	)
Depreciation		—		(55,986	)		(21,260	)		(3,117,150	)		(177	)		(73,893	)		—			(3,268,466	)
Transfers¹		38,097		139,858			83,673			3,874,433			730			90,310			(4,228,187	)		(1,086	)
Impairments		—		(23,620	)		(1,777	)		(4,139	)		—			—			—			(29,536	)
Exchange differences		457		5,371			3,707			42,431			(1	)		1,321			(1,360	)		51,926

Ending net book amount	￦	542,952		1,433,541			282,191			9,974,301			863			254,129			1,602,357			14,090,334

Acquisition cost		542,952		2,020,429			621,345			34,956,922			3,037			772,844			1,602,357			40,519,886
Accumulated depreciation		—		(562,724	)		(319,991	)		(24,721,171	)		(2,174	)		(516,775	)		—			(26,122,835	)
Accumulated impairment		—		(23,847	)		(19,163	)		(254,597	)		—			(1,646	)		—			(299,253	)
Government grants		—		(317	)		—			(6,853	)		—			(294	)		—			(7,464	)

	￦	542,952		1,433,541			282,191			9,974,301			863			254,129			1,602,357			14,090,334

¹	￦1,086 million was transferred to investment property during the year ended December 31, 2014.

(2) Details of depreciation expense allocation for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015		2014		2013
	(In millions of won)
Cost of sales	￦	3,365,460		3,040,674		2,616,341
Selling and administrative expenses		263,938		197,196		154,673
Other expenses¹		8,050		4,902		122,471
Development costs and other		56,997		25,694		27,481

	￦	3,694,445		3,268,466		2,920,966

¹	During 2013, depreciation expense of ￦122,471 million related to idle assets of the manufacturing facility in Wuxi, China, has been charged to casualty losses in other expenses (Note 29).

(3) During 2014, Impairment of ￦4,139 million (2013: ￦101,532 million) has been charged to casualty losses caused by a fire on the manufacturing facilities in Wuxi, China, which is included in other expenses (Note 29).

(4) Certain property, plant and equipment are pledged as collaterals for borrowings as of December 31, 2015 (Note 33).

(5) During 2015, the Group capitalized borrowing costs amounting to ￦18,892 million (2014: ￦20,762 million and 2013: ￦7,687 million) on qualifying assets. Borrowing costs were calculated using a capitalization rate of 4.83% (2014: 5.08% and 2013: 3.87%) for the year ended December 31, 2015.

G-44

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

14. Property, Plant and Equipment, continued

(6) The Group leases certain machinery and others from ME Semiconductor Rental First L.L.C. and other under finance lease agreements.

The book value of the machinery and others subject to finance lease agreement amounted to ￦136,134 million as of December 31, 2015 (as of December 31, 2014: ￦165,414 million). The machinery and others are pledged as collateral for the finance lease liabilities.

The Group leases certain machinery and others from Macquarie Capital and others under operating lease agreements. The payment schedule of minimum lease payments under operating lease agreements as of December 31, 2015 is as follows:


	Minimum lease payments
	(In millions of won)
No later than 1 year	￦	104,911
Later than 1 year		217,092

	￦	322,003

(7) As of December 31, 2015, certain inventories; property, plant and equipment; and investment properties are insured and details of insured assets is as follows:


	Insured assets	Insured amount		Insurance Company
		(In millions of won)
Package insurance	Property, plant and equipment, investment property, inventories and others Business interruption	￦	48,476,239	Hyundai Marine & Fire Insurance Co., Ltd. and others
Fire insurance	Property, plant and equipment, investment property		247,316
Erection all risks insurance	Property, plant and equipment		1,664,895

		￦	50,388,450

G-45

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

15. Intangible Assets

(1) Changes in intangible assets for the years ended December 31, 2015 and 2014 are as follows:


	2015
	Goodwill		Industrial property rights			Development costs			Others¹			Total
	(In millions of won)
Beginning net book amount	￦	704,185		83,750			319,824			228,921			1,336,680
Changes during 2015
Internal development		—		—			349,264			—			349,264
Separate acquisition		—		31,604			—			242,875			274,479
Disposals		—		(12,859	)		—			(597	)		(13,456	)
Impairment		—		(2	)		(1,606	)		(163	)		(1,771	)
Amortization		—		(12,800	)		(184,167	)		(61,111	)		(258,078	)
Others		16,570		94			15			1,099			17,778

Ending net book amount		720,755		89,787			483,330			411,024			1,704,896

Acquisition cost		720,755		160,180			1,126,505			585,500			2,592,940
Accumulated amortization and impairment		—		(70,393	)		(643,175	)		(137,621	)		(851,189	)
Government grants		—		—			—			(36,855	)		(36,855	)

	￦	720,755		89,787			483,330			411,024			1,704,896


	2014
	Goodwill		Industrial property rights			Development costs			Others¹			Total
	(In millions of won)
Beginning net book amount	￦	632,311		73,860			276,930			127,302			1,110,403
Changes during 2014
Internal development		—		—			181,287			—			181,287
Separate acquisition		—		32,229			—			122,775			155,004
Receipt of government grants		—		—			—			(19,739	)		(19,739	)
Business combinations		62,618		—			—			21,858			84,476
Disposals		—		(9,428	)		—			(380	)		(9,808	)
Impairment		—		—			—			(529	)		(529	)
Amortization		—		(13,374	)		(138,389	)		(22,512	)		(174,275	)
Others		9,256		463			(4	)		146			9,861

Ending net book amount		704,185		83,750			319,824			228,921			1,336,680

Acquisition cost		704,185		173,828			777,226			301,252			1,956,491
Accumulated amortization and impairment		—		(90,078	)		(457,402	)		(34,987	)		(582,467	)
Government grants		—		—			—			(37,344	)		(37,344	)

	￦	704,185		83,750			319,824			228,921			1,336,680

¹	Others include software and club memberships.

(2) Amortization of ￦12,811 million (2014: ￦3,106 million and 2013: ￦501 million) is included in the cost of sales and ￦244,978 million (2014: ￦171,169 million and 2013: ￦155,775 million) in selling and

G-46

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

15. Intangible Assets, continued

administrative expenses in the statements of comprehensive income for the year ended December 31, 2015. Amortization of ￦289 million (2014 and 2013 : nil) is capitalized as development cost.

(3) Among costs associated with development activities, ￦349,264 million (2014: ￦181,287 million and 2013: ￦190,271 million) that met capitalization criteria, were capitalized as development cost for the year ended December 31, 2015. In addition, costs associated with research activities and other development expenditures that did not meet the criteria and amounted to ￦1,620,324 million (2014: ￦1,409,530 million and 2013: ￦968,804 million) were recognized as expenses for the year ended December 31, 2015.

(4) Goodwill impairment tests

Goodwill impairment tests are undertaken annually. As the Group has only one CGU, goodwill was allocated to one CGU. Recoverable amount of the CGU was determined based on fair value less costs to sell, which was determined using the current stock price as of December 31, 2015. No impairment loss of goodwill was recognized since the recoverable amount is higher than carrying value of the CGU as of December 31, 2015.

16. Investment Property

Changes in investment property during the years ended December 31, 2015 and 2014 are as follows:


	2015			2014
	(In millions of won)
Beginning net book amount	￦	28,456			28,609
Changes for the year
Depreciation		(713	)		(1,239	)
Transfer¹		(25,064	)		1,086

Ending net book amount		2,679			28,456

Acquisition cost		—			50,839
Accumulated depreciation		—			(22,383	)

	￦	2,679			28,456

¹	Transfer from (to) property, plant and equipment.

The depreciation expense of ￦713 million was charged to cost of sales for the year ended December 31, 2015 (2014: ￦1,239 million and 2013: ￦1,279 million).

Rental income from investment property during the year ended December 31, 2015 was ￦2,627 million (2014: ￦4,534 million and 2013: ￦4,283 million).

G-47

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

17. Borrowings

(1) Details of borrowings as of December 31, 2015 and 2014 are as follows:


	2015		2014
	(In millions of won)
Current
Short-term borrowings	￦	147,948		734,165
Current portion of long-term borrowings		465,561		820,855
Current portion of debentures		399,863		200,000

		1,013,372		1,755,020

Non-current
Long-term borrowings		1,512,003		1,262,772
Debentures		1,293,220		1,156,967

		2,805,223		2,419,739

	￦	3,818,595		4,174,759

(2) Details of short-term borrowings as of December 31, 2015 and 2014 are as follows:

Financial

Institutions

Interest rate
per annum
in 2015 (%)

2015

2014

(In millions of won)

Import finance

Woori Bank

—

￦

—

22,060

Borrowings on trade receivables collateral

Shinhan Bank and others

3M LIBOR +
1.20 ~ 3.30

1,160

220,663

NongHyup Bank

KORIBOR + 1.1

1,916

—

Refinancing and others

China Construction Bank and others

1.23 ~ 3.20

144,872

491,442

￦

147,948

734,165

G-48

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

17. Borrowings, continued

(3) Details of long-term borrowings as of December 31, 2015 and 2014 are as follows:


	Financial institutions	Interest rate per annum in 2015 (%)¹	2015			2014
			(In millions of won)
Local currency borrowings:
Borrowing for housing	Kookmin Bank	—	￦	—			10
Borrowings for childcare facilities	NongHyup Bank	2.00		123			185
Funds for equipment	Korea Development Bank (formerly Korea Finance Corporation)	Industrial financial debentures (4 years) + 0.93		166,667			250,000
Funds for equipment²	KEB Hana Bank (formerly Korea Exchange Bank)	CD (91days) +1.31		40,000			50,000
Commercial paper	KEB Hana Bank (formerly Korea Exchange Bank)	—		—			200,000
Finance lease liabilities	Hansu Technical Service Ltd.	3.70		42,775			—
Finance lease liabilities	ME Semiconductor Rental First L.L.C.	5.00		74,898			147,870

				324,463			648,065
Foreign currency borrowings:
General borrowings	Export-Import Bank of Korea	3M LIBOR + 1.00 ~ 3.15		488,333			274,800
General borrowings	Standard Chartered Bank Korea Ltd.	—		—			12,366
General borrowings	Woori Bank	3M LIBOR + 0.98		175,800			—
General borrowings	Korea Development Bank	Exchange equalization fund rate + 0.60		117,200			109,920
General borrowings	Korea Development Bank	3M LIBOR + 0.95		175,800			—
General borrowings	NongHyup Bank and others	Exchange equalization fund rate + 0.63		187,520			175,872
General borrowings	NongHyup Bank and others	3M LIBOR + 3.19		234,400			274,800
General borrowings	Agricultural Bank of China and other	—		—			182,841
Syndicated loans	Development Bank of China and others	3M LIBOR + 2.95		65,340			209,348
Funds for equipment	Standard Chartered Bank Korea Ltd.	3M LIBOR + 3.45		172,688			118,653
Mortgage loans	HITECH Semiconductor (Wuxi) Co., Ltd.	—		—			18,162
Finance lease liabilities	Goodmemory First L.L.C.	4.70		36,020			59,415

				1,653,101			1,436,177

				1,977,564			2,084,242

Less: Discount on present value				—			(615	)
Current maturities				(465,561	)		(820,855	)

			￦	1,512,003			1,262,772

G-49

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

17. Borrowings, continued

¹	As of December 31, 2015, the interest rates are as follows:


Type	Interest rate per annum as of December 31, 2015
Exchange equalization fund rate		1.14	%
Industrial financial debentures (4 years)		3.05	%
CD (91 days)		1.67	%
3M LIBOR		0.61	%
KORIBOR (30 days)		1.55	%

²	The Group entered into interest swap contracts with KEB Hana Bank (formerly Korea Exchange Bank) to hedge interest rate risk from the local currency loans.

(4) Details of debentures as of December 31, 2015 and 2014 are as follows:


	Maturity date	Interest rate per annum in 2015 (%)	2015			2014
			(In millions of won)
Unsecured notes in local currency:
210th	Jan. 14, 2015	6.35	￦	—			200,000
211th	May 6, 2016	6.20		400,000			400,000
212th	May 30, 2019	5.35		450,000			450,000
213th	Sep. 4, 2017	3.72		200,000			200,000
214-1st	Aug. 26, 2020	2.27		210,000			—
214-2nd	Aug. 26, 2022	2.63		140,000			—
215-1st	Nov. 25, 2018	2.26		70,000			—
215-2nd	Nov. 25, 2020	2.56		100,000			—
215-3rd	Nov. 25, 2020	2.75		10,000			—

Secured notes in foreign currency
Foreign 8th¹	Jun. 20, 2017	3M LIBOR + 2.85		117,200			109,920

				1,697,200			1,359,920
Less: Discounts on debentures				(4,117	)		(2,953	)
Current portion				(399,863	)		(200,000	)

			￦	1,293,220			1,156,967

¹	The Group is provided with USD100 million of payment guarantee from Shinhan Bank as of December 31, 2015.

(5) Finance lease liability

Lease liabilities are effectively secured as the rights to the leased asset belong to the lessor.

G-50

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

17. Borrowings, continued

Details of future minimum lease payments to the lessor as of December 31, 2015 and 2014 are as follows:


	2015			2014
	(In millions of won)
Total minimum lease payment
No later than 1 year	￦	98,927			106,318
Between 1 and 5 years		66,779			116,277

		165,706			222,595

Discount on present value		(12,013	)		(16,346	)
Net minimum lease payment
No later than 1 year		93,770			97,567
Between 1 and 5 years		59,923			108,682

	￦	153,693			206,249

(6) Details of book value and fair value of non-current borrowings as of December 31, 2015 and 2014 are as follows:


	2015				2014
	Book value		Fair value		Book value		Fair value
	(In millions of won)
Long-term borrowings	￦	1,512,003		1,517,683		1,262,772		1,271,718
Debentures		1,293,220		1,338,481		1,156,967		1,217,236

	￦	2,805,223		2,856,164		2,419,739		2,488,954

18. Other Current and Non-current Liabilities

Details of other current and non-current liabilities as of December 31, 2015 and 2014 are as follows:


	2015		2014
	(In millions of won)
Current
Advance receipts	￦	2,867		2,682
Unearned income		374		322
Withholdings		35,938		67,174
Deposits received		1,256		858
Others		4,008		163

		44,443		71,199

Non-current
Other long-term employee benefits		61,149		59,464

	￦	105,592		130,663

G-51

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

19. Provisions

(1) Details of changes in provisions for the years ended December 31, 2015 and 2014 are as follows:


	2015
	Beginning balance		Increase		Utilization			Reversal			Other¹		Ending balance
	(In millions of won)
Warranty	￦	6,886		2,910		(4,346	)		(2,514	)		—		2,936
Sales returns		14,646		53,642		(53,552	)		—			—		14,736
Legal claims		4,400		1,440		(4,370	)		(30	)		83		1,523
Emission allowances		—		6,081		—			—			—		6,081

	￦	25,932		64,073		(62,268	)		(2,544	)		83		25,276

¹	Others include foreign exchange rate differences.


	2014
	Beginning balance		Increase		Utilization			Reversal			Ending balance
	(In millions of won)
Warranty	￦	13,914		10,862		(17,890	)		—			6,886
Sales returns		12,564		51,148		(49,066	)		—			14,646
Legal claims		26,106		—		(21,031	)		(675	)		4,400

	￦	52,584		62,010		(87,987	)		(675	)		25,932

(2) Provisions for warranty

The Group estimates the expected warranty costs based on historical results and accrues provisions for warranty.

(3) Provisions for sales returns

The Group estimates the expected sales returns based on historical results and adjusts sales and cost of sales, respectively. Accordingly, related gross profit and estimated expenses related to the return (such as transportation costs) are recorded as provisions for sales returns.

(4) Provisions for legal claims

The Group recognizes provisions for legal claims when the Group has a present legal or constructive obligation as a result of past events and an outflow of resources required to settle the obligation is probable and the amount can be reliably estimated.

(5) Provision for emission allowances

The Group recognizes estimated future payment for the number of emission certificates required to settle the Group’s obligation exceeding the actual number of certificates on hand as emission allowances according to the Act on Allocation and Trading of Greenhouse Gas Emission Permits.

20. Defined Benefit Liabilities

Under the defined benefit plan, the Group pays employee benefits to retired employees in the form of a lump sum that are based on their salaries and years of service at the time of their retirement. Accordingly, the Group is

G-52

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

20. Defined Benefit Liabilities, continued

exposed to a variety of actuarial assumption risks such as risk associated with expected years of service, interest risk, and market (investment) risk.

(1) Details of defined benefit liabilities as of December 31, 2015 and 2014 are as follows:


	2015			2014
	(In millions of won)
Present value of defined benefit obligations	￦	1,055,340			887,277
Fair value of plan assets		(570,363	)		(421,927	)

	￦	484,977			465,350

(2) Principal actuarial assumptions as of December 31, 2015 and 2014 are as follows:


	2015		2014
Discount rate for defined benefit obligations¹		2.89% ~ 4.10%		3.19% ~ 4.50%
Expected rate of salary increase		2.20% ~ 5.52%		4.92% ~ 5.81%

As of December 31, 2015, discount rate of 2.89% was applied for SK hystec Inc., which comprises 0.7% of total defined benefit liabilities, and 3.30% to 4.10% was applied for the others in defined benefit liabilities. As of December 31, 2014, discount rate of 3.19% was applied for SK hystec Inc., which comprises 0.8% of total defined benefit liabilities, and 4.50% was applied for the others.

(3) Weighted average durations of defined benefit obligations as of December 31, 2015 and 2014 are 12.39 and 12.67 years, respectively.

(4) Changes in defined benefit obligations for the years ended December 31, 2015 and 2014 are as follows:


	2015			2014
	(In millions of won)
Beginning balance	￦	887,277			656,080
Current service cost		139,486			109,403
Interest cost		39,243			35,442
Benefits paid		(24,459	)		(35,529	)
Remeasurements:
Demographic assumption		(1,860	)		7
Financial assumption		33,632			119,206
Adjustment based on experience		(18,561	)		262
Business combinations and disposal of a subsidiary		—			1,711
Transfer from associates		576			757
Effect of movements in exchange rates		6			(62	)

Ending balance	￦	1,055,340			887,277

G-53

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

20. Defined Benefit Liabilities, continued

(5) Changes in plan assets for the years ended December 31, 2015 and 2014 are as follows:


	2015			2014
	(In millions of won)
Beginning balance	￦	421,927			20,340
Interest income		18,545			1,413
Contributions		153,566			402,894
Benefits paid		(15,137	)		(1,385	)
Remeasurements		(8,661	)		(399	)
Business combinations and disposal of a subsidiary		—			(1,133	)
Transfer from associates		123			197

Ending balance	￦	570,363			421,927

(6) The amounts recognized in profit or loss for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015		2014		2013
	(In millions of won)
Current service cost	￦	139,486		109,403		98,095
Net interest expense		20,698		34,029		27,400

	￦	160,184		143,432		125,495

(7) The amounts in which defined benefit plan related expenses are included for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015		2014		2013
	(In millions of won)
Cost of sales (manufacturing costs)	￦	88,415		82,922		73,950
Selling and administrative expenses		71,769		60,510		51,545

	￦	160,184		143,432		125,495

(8) Details of plan assets as of December 31, 2015 and 2014 are as follows:


	2015		2014
	(In millions of won)
Deposits	￦	568,790		420,300
Other		1,573		1,627

	￦	570,363		421,927

Actual return on plan assets for the year ended December 31, 2015 amounted to ￦9,884 million (2014: ￦1,014 million and 2013: ￦492 million).

(9) As of December 31, 2015, the Group funded defined benefit obligations through insurance plans with Mirae Asset Life Insurance Co., Ltd. and other insurance companies. The Group’s minimum required contribution to the plan assets for the year ending December 31, 2016 is ￦239,780 million under the assumption that the Group maintains the defined benefit plan.

G-54

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

20. Defined Benefit Liabilities, continued

(10) The sensitivity analysis of the defined benefit obligations as of December 31, 2015 to changes in the principal assumptions is as follows:


	Effects on defined benefit obligation
	Increase of rate			Decrease of rate
	(In millions of won)
Discount rate (if changed by 1%)	￦	(115,409	)		136,562
Expected rate of salary increase (if changed by 1%)		136,638			(117,540	)

The sensitivity analysis does not consider dispersion of all cash flows that are expected from the plan and provides approximate values of sensitivity for the assumptions used.

(11) Information about the maturity profile of the defined benefit obligation as of December 31, 2015 is as follows:

2015

Less than
1 year

1 - 5
years

5 - 10
years

10 - 20
years

Total

(In millions of won)

Benefits paid

￦

32,397

208,589

592,188

2,567,869

3,401,043

Information about the maturity profile is based on undiscounted amount of defined benefit obligation and classified to employee’s expected years of remaining services.

21. Deferred Income Tax

(1) Changes in deferred taxes for the years ended December 31, 2015 and 2014 are as follows:


	2015		2014
	(In millions of won)
At January 1	￦	268,639		198,570
Recorded in profit or loss		81,265		69,176
Exchange differences		3,718		893

At December 31	￦	353,622		268,639

G-55

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

21. Deferred Income Tax, continued

(2) Changes in deferred income tax assets and liabilities for the years ended December 31, 2015 and 2014 without taking into consideration the offsetting of balances within the same tax jurisdiction, are as follows:


	2015
	January 1, 2015			Profit or loss			Currency translation differences			December 31, 2015
	(In millions of won)
Deferred tax liabilities:
Advanced depreciation provision	￦	(55,666	)		—			—			(55,666	)
Valuation of derivatives		(208	)		135			—			(73	)
Gains on foreign currency translation		(2,325	)		1,513			(25	)		(837	)
Plan assets		(96,902	)		(33,524	)		—			(130,426	)
Others		(16,967	)		7,041			(133	)		(10,059	)

		(172,068	)		(24,835	)		(158	)		(197,061	)

Deferred tax assets:
Loss on valuation of inventories		18,001			22,329			5			40,335
Valuation of equity-method investments		250,682			(17,550	)		4,477			237,609
Accumulated depreciation		79,819			(757	)		416			79,478
Net defined benefits		186,627			36,492			16			223,135
Deemed investments and others		161,995			—			—			161,995
Provisions and others		1,066			(716	)		—			350
Impairment of available-for-sale financial assets		37,238			(735	)		—			36,503
Losses on foreign currency translation		2,522			(2,329	)		—			193
Property, plant and equipment		3,381			(3,960	)		—			(579	)
Losses on valuation of derivative		386			(148	)		—			238
Tax loss carryforwards		23,581			7,277			1,562			32,420
Others		246,606			(49,816	)		9,976			206,766

		1,011,904			(9,913	)		16,452			1,018,443

Deferred tax assets, net		839,836			(34,748	)		16,294			821,382
Deferred tax assets not recognized		(750,313	)		165,453			(12,788	)		(597,648	)
Tax credit carryforwards recognized		179,116			(49,440	)		212			129,888

Deferred tax assets recognized	￦	268,639			81,265			3,718			353,622

G-56

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

21. Deferred Income Tax, continued


	2014
	January 1, 2014			Profit or loss			Currency translation differences			December 31, 2014
	(In millions of won)
Deferred tax liabilities:
Advanced depreciation provision	￦	(55,666	)		—			—			(55,666	)
Valuation of derivatives		(5,452	)		5,244			—			(208	)
Gains on foreign currency translation		(2,597	)		261			11			(2,325	)
Conversion rights adjustment		(6,827	)		6,827			—			—
Plan assets		(725	)		(96,177	)		—			(96,902	)
Others		(13,897	)		(2,996	)		(74	)		(16,967	)

		(85,164	)		(86,841	)		(63	)		(172,068	)

Deferred tax assets:
Loss on valuation of inventories		18,876			(873	)		(2	)		18,001
Valuation of equity-method investments		216,334			35,920			(1,572	)		250,682
Accumulated depreciation		120,960			(41,917	)		776			79,819
Net defined benefits		137,578			49,091			(42	)		186,627
Deemed investments and others		162,390			(395	)		—			161,995
Provisions and others		5,816			(4,750	)		—			1,066
Impairment of available-for-sale financial assets		40,134			(2,896	)		—			37,238
Losses on foreign currency translation		2,546			(24	)		—			2,522
Property, plant and equipment		15,217			(11,836	)		—			3,381
Losses on valuation of derivative		31,367			(30,981	)		—			386
Tax loss carryforwards		72,736			(50,412	)		1,257			23,581
Others		209,967			30,701			5,938			246,606

		1,033,921			(28,372	)		6,355			1,011,904

Deferred tax assets, net		948,757			(115,213	)		6,292			839,836
Deferred tax assets not recognized		(827,313	)		82,399			(5,399	)		(750,313	)
Tax credit carryforwards recognized		77,126			101,990			—			179,116

Deferred tax assets recognized	￦	198,570			69,176			893			268,639

(3) Deferred tax assets are recognized for deductible temporary differences, tax loss carryforwards and tax credit carryforwards to the extent that the realization of the related tax benefit through future taxable profits is probable.

As of December 31, 2015 the Group did not recognize deferred tax assets of ￦597,648 million (2014: ￦750,313 million) associated with deductable temporary differences amounting to ￦2,469,626 million (2014: ￦3,100,467 million).

As of December 31, 2015, the unused tax credits that were not recognized as deferred tax assets amounted to ￦234,632 million (2014: ￦387,088 million).

G-57

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

21. Deferred Income Tax, continued

(4) Expiration schedule of tax credit carryforwards that were not recognized as deferred tax assets as of December 31, 2015 is as follows:


	Tax credit carryforwards
	(In millions of won)
2018	￦	10,277
2019		120,010
2020		104,345

	￦	234,632

22. Derivative Financial Instruments

(1) Details of derivative financial liabilities as of December 31, 2015 and 2014 are as follows:


	2015		2014
	(In millions of won)
Current
Interest rates swap	￦	—		30
Non-current
Interest rates swap		683		708

	￦	683		738

(2) Details of gains and losses from derivative instruments for the years ended December 31, 2015, 2014 and 2013 are follows:

2015

Gain on
valuation

Loss on
valuation

Gain on
transaction

Loss on
transaction

(In millions of won)

Interest rates swap

￦

—

1,672

2,058


	2014
	Gain on valuation		Loss on valuation		Gain on transaction		Loss on transaction
	(In millions of won)
Interest rates swap	￦	215		980		2,955		237
Embedded derivative instruments¹		—		171,016		—		2,691

	￦	215		171,996		2,955		2,928


	2013
	Gain on valuation		Loss on valuation		Gain on transaction		Loss on transaction
	(In millions of won)
Foreign currency forward contract	￦	—		—		3,630		5,308
Interest rates swap		2,507		—		26		1,242
Embedded derivative instruments¹		—		93,085		—		—

	￦	2,507		93,085		3,656		6,550

G-58

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

22. Derivative Financial Instruments, continued

¹	The Group bifurcated convertible options and separately accounted for them as derivative instruments which were embedded in the foreign-currency convertible bond. These convertible options were measured at fair value and changes in therein were recognized in profit or loss.

23. Capital Stock, Capital Surplus and Other Equity

(1) Details of capital stock, capital surplus and other equity as of December 31, 2015 and 2014 are as follows:


	2015			2014
	(In millions of won, thousands of shares)
Authorized shares		9,000,000			9,000,000
Issued shares¹		731,530			731,530
Capital stock:
Common stock	￦	3,657,652			3,657,652
Capital surplus:
Additional paid in capital		3,625,797			3,625,797
Consideration for conversion rights		42,928			42,928
Others		475,011			475,011

		4,143,736			4,143,736
Other equity
Acquisition cost of treasury shares	￦	(771,913	)		(24	)
Number of treasury shares		22,001			1

¹	As of December 31, 2015, the number of outstanding shares is 728,002 thousand shares, which differs from total issued shares due to the result of stock retirement.

(2) Changes in number of outstanding shares as of December 31, 2015 and December 31, 2014 are as follows:


	2015			2014
	(In thousands of shares)
Beginning		728,002			710,201
Issue of ordinary shares related to the acquisition of a subsidiary		—			1,358
Exercise of conversion rights		—			16,443
Acquisition of treasury shares		(22,000	)		—

Ending		706,002			728,002

24. Accumulated Other Comprehensive Loss

(1) Details of accumulated other comprehensive loss as of December 31, 2015 and 2014 are as follows:


	2015			2014
	(In millions of won)
Equity-accounted investees — share of other comprehensive income (loss)	￦	1,856			(4,631	)
Foreign operations — foreign currency translation differences		(3,456	)		(37,184	)

	￦	(1,600	)		(41,815	)

G-59

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

24. Accumulated Other Comprehensive Loss, continued

(2) Changes in accumulated other comprehensive income (loss) for the years ended December 31, 2015 and 2014 are as follows:


	2015
	Beginning			Change		Ending
	(In millions of won)
Equity-accounted investees — share of other comprehensive income (loss)	￦	(4,631	)		6,487		1,856
Foreign operations — foreign currency translation differences		(37,184	)		33,728		(3,456	)

	￦	(41,815	)		40,215		(1,600	)


	2014
	Beginning			Change			Ending
	(In millions of won)
Available-for-sale financial assets — unrealized net change in fair value	￦	7,824			(7,824	)		—
Equity-accounted investees — share of other comprehensive loss		(8,337	)		3,706			(4,631	)
Foreign operations — foreign currency translation differences		(108,294	)		71,110			(37,184	)

	￦	(108,807	)		66,992			(41,815	)

25. Retained Earnings and Dividends

(1) Details of retained earnings as of December 31, 2015 and 2014 are as follows:


	2015		2014
	(In millions of won)
Legal reserve¹	￦	30,694		8,854
Discretionary reserve²		235,506		235,506
Unappropriated retained earnings		14,092,788		10,032,544

	￦	14,358,988		10,276,904

The Commercial Code of the Republic of Korea requires the Company to appropriate for each financial year, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued capital stock. The reserve is not available for cash dividends payment, but may be transferred to capital stock or used to reduce accumulated deficit.

²	Discretionary reserve is a reserve for technology development.

(2) Dividends of the Parent Company

(a) Details of dividends for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015			2014			2013
	(In millions of won and In thousands of shares)
Type of dividends		Cash Dividends			Cash Dividends			—
Outstanding ordinary shares		706,002			728,002			710,201
Par value (in won)	￦	5,000			5,000			5,000
Dividend rate		10	%		6	%		—
Total dividends	￦	353,001			218,401			—

G-60

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

(b) Dividend payout ratio for the years ended December 31, 2015, 2014 and 2013 is as follows:


	2015			2014			2013
	(In millions of won)
Dividends	￦	353,001			218,401			—
Profit attributable to owners of the Parent Company		4,322,356			4,195,456			2,872,470
Dividend payout ratio		8.17	%		5.21	%		—


	2015			2014			2013
	(In won)
Dividends per share	￦	500			300			—
Closing stock price		30,750			47,750			36,800
Dividend yield ratio		1.63	%		0.63	%		—

26. Selling and Administrative Expenses

Selling and administrative expenses for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015		2014		2013
	(In millions of won)
Salaries	￦	385,281		351,318		265,137
Defined benefit plan related		25,499		22,801		19,132
Employee benefits		81,606		60,277		60,459
Commission		212,129		211,111		158,107
Depreciation		89,879		58,608		51,240
Amortization		239,227		169,844		155,313
Research and development		1,620,324		1,409,530		968,804
Freight and custody charge		41,999		37,453		33,201
Legal cost		7,722		7,210		11,374
Rental		18,698		11,521		14,650
Taxes and dues		18,436		15,145		17,912
Training		20,314		42,737		26,863
Sales promotional		46,169		31,018		28,414
Utility		13,595		5,673		10,804
Supplies		51,630		42,737		26,863
Repair		9,629		9,994		19,890
Other		64,408		67,398		52,567

	￦	2,946,545		2,554,375		1,920,730

G-61

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

27. Expenses by Nature

Nature of expenses for the years ended December 31, 2015, 2014 and 2013 is as follows:


	2015			2014²			2013²
	(In millions of won)
Changes in finished goods and work-in-process	￦	(290,904	)		(216,403	)		292,330
Raw materials and consumables		3,537,227			2,857,555			2,312,998
Employee benefit		2,485,372			2,353,196			1,896,843
Depreciation and amortization		3,887,900			3,413,636			2,928,559
Royalty		210,902			167,167			187,611
Commission		802,432			712,492			442,628
Utility		656,251			608,523			543,516
Repair		625,383			749,949			1,012,702
Outsourcing		982,358			1,017,970			952,336
Other		564,977			352,015			215,794

Total¹	￦	13,461,898			12,016,100			10,785,317

¹	Total expenses consist of cost of sales and selling and administrative expenses.

²	Expenses for the years ended December 31, 2014 and 2013 were reclassified to conform with the classification for the year ended December 31, 2015.

28. Finance Income and Expenses

Finance income and expenses for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015		2014			2013
	(In millions of won)
Finance income:
Interest income	￦	40,715		52,122			66,410
Dividend income		1,265		1,233			2,381
Gain on disposal of available-for-sale financial assets		—		10,054			205
Gain on disposal of financial assets at fair value through profit or loss		33,814		28,493			—
Foreign exchange differences		766,981		576,577			485,411
Gain from derivative instruments		1,697		3,170			6,163
Gain on valuation of financial assets at fair value through profit or loss		2,280		6,921			—

		846,752		678,570			560,570

Finance expenses:
Interest expenses		118,505		170,363			256,623
Loss on disposal of available-for-sale financial assets		—		3,500			—
Foreign exchange differences		709,350		448,060			391,071
Loss on redemption of debentures		—		2,924			—
Loss from derivative instruments		2,058		174,924			99,635

		829,913		799,771			747,329

Net finance income (expense)	￦	16,839		(121,201	)		(186,759	)

G-62

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

29. Other Income and Expenses

Other income for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015		2014		2013
	(In millions of won)
Gain on disposal of property, plant and equipment	￦	16,554		5,611		9,560
Gain on disposal of intangible assets		—		—		191
Insurance compensation¹		—		587,429		327,659
Other		23,925		25,644		31,103

	￦	40,479		618,684		368,513

Other expenses for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015		2014		2013
	(In millions of won)
Loss on disposal of property, plant and equipment	￦	19,540		11,522		7,952
Loss on disposal of intangible assets		5,493		9,522		17,278
Donation		55,131		16,111		3,222
Loss on disposal of trade receivables		1,413		3,756		3,317
Loss on impairment of property, plant and equipment		22,055		25,397		—
Loss on impairment of intangible assets		1,771		529		183
Casualty losses¹		—		123,957		450,752
Other²		43,536		391,630		23,166

	￦	148,939		582,424		505,870

For the year ended December 31, 2014, the Group recognized casualty losses of ￦123,957 million (2013: ￦450,752 million) caused by a fire in the manufacturing facilities located in Wuxi, China, which includes impairment losses on property, plant and equipment, impairment losses on inventories, depreciation of temporarily idle property, plant and equipment and others. In 2014, the Group and insurance companies reached an agreement about the insurance compensation amounting to USD560 million (￦587,429 million equivalent), which was recognized as other income (2013: ￦327,659 million).

²	For the year ended December 31,2014, expenses related to settlement of trade secret lawsuit alleged by Toshiba Corporation amounting to USD 278 million (￦306,161 million equivalent) are included.

30. Income Tax Expense

(1) Income tax expense for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015			2014			2013
	(In millions of won)
Current tax:
Current tax on profits for the year	￦	1,026,791			922,228			22,728
Adjustments in respect of prior years		—			(551	)		(1,588	)

		1,026,791			921,677			21,140

Deferred tax:
Origination and reversal of temporary differences		(81,265	)		(69,176	)		180,928

Income tax expense	￦	945,526			852,501			202,068

G-63

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

30. Income Tax Expense, continued

(2) The relationship between income tax expense and accounting profit for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015			2014			2013
	(In millions of won)
Profit before tax	￦	5,269,121			5,047,670			3,074,925
Tax calculated at domestic tax rates applicable to profits in the respective countries		1,266,293			1,181,621			744,847
Tax effects of:
Tax-exempt income		(24	)		(13	)		76
Non-deductible expenses		6,614			71,531			13,545
Tax credit		(104,425	)		(148,052	)		(108,433	)
Changes in unrecognized deferred tax assets		(252,088	)		(260,437	)		(450,113	)
Others		29,156			7,851			2,146

Income tax expense	￦	945,526			852,501			202,068

(3) The income taxes recorded directly in equity for the years ended December 31, 2015, 2014 and 2013 are as follows:

2015

2014

2013

(In millions of won)

Recognized in other comprehensive income: Gains on valuation of available-for-sale financial assets

￦

—

311

31. Earnings Per Share

(1) Basic earnings per share for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015		2014		2013
	(In millions of won, except for shares and per share amounts)
Profit attributable to ordinary shareholders	￦	4,322,356		4,195,456		2,872,470
Weighted average number of outstanding ordinary shares¹		720,143,294		718,197,377		710,200,891
Basic earnings per share	￦	6,002		5,842		4,045

¹	Weighted average number of outstanding ordinary shares is calculated as follows:


	2015			2014			2013
	(In shares)
Outstanding ordinary shares		728,001,795			710,200,891			694,155,767
Exercise of conversion rights		—			7,051,443			16,045,124
Issue of ordinary shares related to the acquisition of a subsidiary		—			945,393			—
Acquisition of treasury shares		(7,858,501	)		(350	)		—

Weighted average number of outstanding ordinary shares		720,143,294			718,197,377			710,200,891

(2) There is no potential ordinary shares with dilutive effect during the years ended December 31, 2015, 2014 and 2013. Accordingly, diluted earnings per share for the years ended December 31, 2015, 2014 and 2013 are the same as basic earnings per share.

G-64

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

32. Related Party Transactions

(1) Details of joint venture and other related parties as of December 31, 2015 are as follows:


Type		Name of related parties
Associates		Stratio, Inc., Gemini Partners Pte. Ltd.
Joint venture		HITECH Semiconductor (Wuxi) Co., Ltd.
Other related parties		SK Telecom Co., Ltd., which has significant influence over the Group, SK Holdings Co., Ltd., which has control over SK Telecom Co., Ltd., and their subsidiaries

(2) Significant transactions for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015
	Company	Operating revenue and others		Operating expense and others		Dividend income		Asset acquisition
		(In millions of won)
Joint venture	HITECH Semiconductor (Wuxi) Co., Ltd.	￦	1,364		675,112		15,780		—
Other related parties	SK Telecom Co., Ltd.¹		2,384		52,944		—		3,984
	SK Holdings Co., Ltd.²		199		81,997		—		76,398
	ESSENCORE Limited		147,992		—		—		—
	SK Engineering & Construction Co., Ltd.		1,923		1,378		—		1,084,554
	SK Energy Co., Ltd.		5,245		44,893		—		—
	SK Networks Co., Ltd.		—		3,627		—		—
	Ko-one energy service Co., Ltd.		—		2,685		—		7
	SKC solmics Co., Ltd.		—		36,055		—		269
	Chungcheong energy service Co., Ltd.		—		24,292		—		—
	HAPPYNARAE Co., Ltd.		3,176		83,258		—		21,448
	Others		493		63,845		—		14,516

		￦	162,776		1,070,086		15,780		1,201,176

¹	Operating expense and others include dividend payments of ￦43,830 million.

The Group entered into a contract with SK Holdings Co., Ltd. under which the Group pays royalty for the use of SK brand in proportion to sales amount. For the year ended December 31, 2015, royalty paid for the use of the SK brand amounted to ￦34,597 million (2014: ￦28,780 million and 2013: ￦18,251 million). Meanwhile, on August 1, 2015, SK C&C Co., Ltd. merged with SK Holdings Co., Ltd. and changed its name to SK Holdings Co., Ltd.

G-65

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

32. Related Party Transactions, continued


	2014
	Company	Operating revenue and others		Operating expense and others		Dividend income		Asset acquisition
	(In millions of won)
Associate	Siliconfile Technologies Inc.¹	￦	25,109		411		236		—
Joint venture	HITECH Semiconductor (Wuxi) Co., Ltd.		1,734		612,890		15,664		—
Other related parties	SK Telecom Co., Ltd.		3,391		7,493		—		2,685
	SK Holdings Co., Ltd.		—		33,273		—		—
	SK C&C Co., Ltd.²		70		5,879		—		12,225
	SK Engineering & Construction Co., Ltd.		481		44,928		—		959,985
	SK Energy Co., Ltd.		5,121		44,664		—		—
	SK Networks Co., Ltd.		—		2,777		—		2,772
	Ko-one energy service Co., Ltd.		—		3,074		—		—
	SKC solmics Co., Ltd.		—		28,023		—		718
	Chungcheong energy service Co., Ltd.		—		27,496		—		—
	HAPPYNARAE Co., Ltd.		53		63,398		—		10,187
	Others		427		19,837		—		1,548

		￦	36,386		894,143		15,900		990,120

¹	Siliconfile Technologies Inc. became a subsidiary through the Parent Company’s additional acquisition of the remaining interest on April 22, 2014.

²	SK C&C Co., Ltd. was excluded from related party after April 2014 due to change in CEO.


	2013
	Company	Operating revenue and others		Operating expense and others		Dividend Income		Asset acquisition
	(In millions of won)
Associate	Siliconfile Technologies Inc.	￦	100,975		1,585		—		—
Joint venture	HITECH Semiconductor (Wuxi) Co., Ltd.		61,368		581,374		15,033		—
Other related parties	SK Telecom Co., Ltd.		954		2,811		—		230
	SK Holdings Co., Ltd.		—		20,583		—		—
	SK C&C Co., Ltd.		150		22,374		—		30,522
	SK Engineering & Construction Co., Ltd.		637		12,056		—		166,423
	SK Energy Co., Ltd.		13,103		28,258		—		—
	SK Networks Co., Ltd.¹		—		927		—		112,360
	Ko-one energy service Co., Ltd.		—		20,452		—		—
	SKC solmics Co., Ltd.		—		24,041		—		300
	Chungcheong energy service Co., Ltd.		—		28,231		—		—
	HAPPYNARAE Co., Ltd.		62		59,624		—		7,763
	Others		261		9,095		—		332

		￦	177,510		811,411		15,033		317,930

G-66

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

32. Related Party Transactions, continued

¹	The Group acquired 5,745 shares of Sky Property Management Ltd. at ￦112,360 million from SK Networks Co., Ltd., a related party during 2013 and recognized them as available-for-sale securities.

(3) The balances of significant transactions as of December 31, 2015 and December 31,2014 are as follows:


	2015
	Company	Trade receivables and others		Other payables and others
		(In millions of won)
Joint venture	HITECH Semiconductor (Wuxi) Co., Ltd.¹	￦	15,628		108,519
Other related parties	SK Telecom Co., Ltd.		155		2,797
	SK Holdings Co., Ltd.		103		98,798
	ESSENCORE Limited		142		—
	SK Engineering & Construction Co., Ltd.		1,049		236,875
	SK Energy Co., Ltd.		474		5,962
	SK Networks Co., Ltd.		—		954
	SKC solmics Co., Ltd.		—		9,544
	Chungcheong energy service Co., Ltd.		—		1,425
	HAPPYNARAE Co., Ltd.		275		24,148
	Others		102		29,339

		￦	17,928		518,361

¹	The Parent Company repaid remaining balance of borrowings from HITECH Semiconductor (Wuxi) Co., Ltd. in the amount of ￦22,552 million for the year ended December 31, 2015.


	2014
	Company	Trade receivables and others		Other payables and others		Borrowings¹
		(In millions of won)
Joint venture	HITECH Semiconductor (Wuxi) Co., Ltd.	￦	18,393		113,257		22,552
Other related parties	SK Telecom Co., Ltd.		2,763		2,622		—
	SK Holdings Co., Ltd.		—		3,080		—
	SK Engineering & Construction Co., Ltd.		23		561,004		—
	SK Energy Co., Ltd.		462		5,961		—
	SK Networks Co., Ltd.		—		479		—
	SKC solmics Co., Ltd.		—		9,258		—
	Chungcheong energy service Co., Ltd.		—		3,295		—
	HAPPYNARAE Co., Ltd.		1		14,606		—
	Others		32		14,455		—

		￦	21,674		728,017		22,552

G-67

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

32. Related Party Transactions, continued

(4) Key management compensation

Key management includes directors, members of the board of directors, chief financial officer, subsidiary’s executives and internal auditors. The compensation paid to key management for employee services for the years ended December 31, 2015, 2014 and 2013 are as follows:


Details	2015		2014		2013
	(In millions of won)
Salaries	￦	73,013		74,599		30,909
Defined benefit plan related expenses		7,250		7,061		4,546
Others		15		19		6

	￦	80,278		81,679		35,461

33. Commitments and Contingencies

(1) Significant pending litigations and claims of the Group as of December 31, 2015 are as follows:

(a) Lawsuit from SanDisk Corporation (“SanDisk”)

SanDisk filed a lawsuit against the Parent Company and its subsidiaries (SK hynix America Inc. and SK hynix memory solutions Inc.) in Santa Clara Superior Court of the United States of America, alleging misappropriation of trade secrets jointly owned by SanDisk and Toshiba Corporation, on March 13, 2014 (“SanDisk lawsuit”). Meanwhile on August 4, 2015, SanDisk agreed to withdraw the lawsuit against the Parent Company and its subsidiaries, and therefore, the lawsuit has been terminated.

(b) Lawsuit regarding ordinary wages

On August 1, 2014, some of the Parent Company’s employees filed a lawsuit against the Parent Company to the Suwon District Court, seeking additional payment of overtime allowance in relation to ordinary wages. The Parent Company submitted a written response on September 5, 2014 and oral pleading has been processed several times after that date. The court’s decision to exclude additional payment such as regular bonus from ordinary wages has been made as of November 12, 2015. Since the plaintiff decided not to appeal the case, the lawsuit has been terminated.

(c) Other patent infringement claims and litigation

The Group is involved in various alleged patent infringement claims and litigation. No provisions have been made as the final outcome of these matters cannot be determined or predicted given that these claims and litigation are at their the early stage as of December 31, 2015.

(2) Technology and patent license agreements

The Group has entered into a number of patent license agreements with several companies. The related royalties are paid in a lump-sum or running basis in accordance with the respective agreements. Lump-sum royalties are expensed over the contract period using the straight-line method.

(3) Contract for supply of industrial water

In March 2001, the Group and Veolia Water Industrial Development Co., Ltd. (“VWID”) entered into a contract for the purpose of purchasing industrial water from VWID for 12 years from March 2001 to March 2013. In December 2006, the contract was extended to March 2018, and subsequently amended due to the establishment

G-68

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

33. Commitments and Contingencies, continued

of additional plants. According to the amended contract, the Group is obligated to pay base service charges which are predetermined and additional service charges which are variable according to the amount of water used.

(4) Post-process service contract with HITECH

In 2009, the Group entered into an agreement with HITECH to be provided with post-process service by HITECH. The conditions of the service provided includes package, package test, modules and others. As the agreement has been expired in June, 2015, the Group extended the agreement for the next five years and main terms of the agreement such as the conditions of the service and preemptive rights to use HITECH equipments are equivalent to those of the former agreement. According to the agreement, the Group is liable to guarantee a certain level of margin to HITECH.

(5) Assets provided as collateral

Details of assets provided as collateral as of December 31, 2015 are as follows:


	Book value		Pledged amount		Remark
	(In millions of won)
Land	￦	45,750
Buildings		115,194		1,404,275	Borrowings for equipment and others
Machinery		872,957

	￦	1,033,901		1,404,275

Other than the above assets provided as collateral, the finance lease assets of the Group are pledged as collateral for the finance lease liabilities in accordance with the finance lease contracts.

(6) Financing agreements

Details of credit lines with financial institutions as of December 31, 2015 are as follows:


	Financial Institution	Commitment	Currency	Amount
			(In millions of won and millions of foreign currencies)
The Parent Company	KEB Hana	Import finance including usance	USD		200
	Bank and others	Export finance including bills bought	USD		350
		Comprehensive limit contract for import and export	USD		1,305
SK Hynix Semiconductor (China) Ltd. (SKHYCL)	Agricultural Bank of China and others	Import finance including usance	RMB		1,895
			USD		1,397
SK Hynix America Inc. (SKHYA) and other sales entities	Citibank and others	Accounts receivable factoring contracts which have no right to recourse	USD		139
Domestic subsidiaries	KEB Hana Bank	Export finance including bills bought	KRW		5,000
		Guarantee	KRW		2,000
		Foreign currency forward	USD		1

The Group has entered into trade receivables discounting agreements with several financial institutions. There are outstanding trade receivables discounted corresponding to ￦3,076 million as of December 31, 2015 (as of December 31, 2014: ￦220,663 million). The Group is obliged to redeem discounted receivables to financial

G-69

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

33. Commitments and Contingencies, continued

institutions in case of the default of the counterparties and accordingly, accounted for the above transactions as collateralized borrowings.

(7) Details of guarantees provided to others as of December 31, 2015 are as follows:

(8) Capital commitments

As of December 31, 2015, the Group has ￦300,041 million (as of December 31, 2014: ￦348,802 million) of commitments in relation to the capital expenditures on fixed assets.

34. Cash Generated from Operating Activities

(1) Reconciliations between profit for the year and net cash inflow from operating activities for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015			2014			2013
	(In millions of won)
Profit for the year		￦4,323,595			4,195,169			2,872,857
Adjustment
Income tax expense		945,526			852,501			202,068
Defined benefit plan related expenses		160,184			143,432			125,495
Depreciation of property, plant and equipment and investment property		3,695,158			3,269,705			2,922,245
Amortization		258,078			174,275			156,276
Loss on impairment of property, plant and equipment		22,055			—			—
Loss on foreign currency translation		143,768			116,726			24,415
Interest expense		118,505			170,363			256,623
Gain on foreign currency translation		(58,658	)		(79,678	)		(94,175	)
Interest income		(40,715	)		(52,122	)		(66,410	)
Loss on derivative instruments, net		361			171,754			93,473
Gain on equity method investments, net		(24,642	)		(12,506	)		(19,256	)
Others, net		(18,231	)		13,072			116,735
Changes in operating assets and liabilities
Decrease (increase) in trade receivables		1,260,172			(1,628,665	)		(278,141	)
Decrease (increase) in loans and other receivables		724,149			(753,278	)		(214,701	)
Decrease (increase) in inventories		(414,830	)		(314,547	)		333,179
Increase in other assets		(177,316	)		(10,210	)		(239,553	)
Increase (decrease) in trade payables		(156,074	)		69,290			113,552
Increase (decrease) in other payables		(60,252	)		(105,971	)		74,666
Increase (decrease) in other non-trade payables		(147,392	)		498,152			309,974
Decrease in provisions		(6,889	)		(26,793	)		(127,052	)
Increase (decrease) in other liabilities		(29,327	)		51,598			8,567
Payment of defined benefit liabilities		(6,392	)		(34,144	)		(45,171	)
Contribution to plan assets		(153,566	)		(402,894	)		(4,113	)

Cash generated from operating activities	￦	10,357,267			6,305,229			6,521,553

G-70

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014 and 2013

34. Cash Generated from Operating Activities, continued

(2) Details of significant transactions without inflows and outflows of cash for the years ended December 31, 2015 and 2014 are as follows:


	2015		2014		2013
	(In millions of won)
Other payables related to acquisition of property, plant and equipment	￦	—		588,435		190,667
Issue of ordinary shares related to the acquisition of a subsidiary		—		54,070		—
Exercise of conversion rights		—		772,590		432,434
Transferred to non-current convertible bond due to expiration of early redemption rights		—		—		486,569

G-71

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.


SK TELECOM CO., LTD. (Registrant)

/s/ Sung Hyung Lee
Name:		Sung Hyung Lee
Title:		Senior Vice President Financial Strategy & Management

Date: April 29, 2016