Table of Contents
| (Mark One) | ||
|
o
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| OR | ||
|
þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended December 31, 2005 | ||
| OR | ||
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| OR | ||
|
o
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| Date of event requiring this shall company report | ||
| For the transition period from to | ||
| Title of each class | Name of each exchange on which registered | |
|
American Depositary Shares, each representing one-ninth of one
share
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New York Stock Exchange, Inc. | |
|
of Common Stock
|
||
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Common Stock, par value
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New York Stock Exchange, Inc.* |
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o |
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ii
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| • | our ability to anticipate and respond to various competitive factors affecting the wireless telecommunications industry, including new services that may be introduced, changes in consumer preferences, economic conditions and discount pricing strategies by competitors; | |
| • | our implementation of high-speed download packet access, or HSDPA, technology and wireless broadband internet, or WiBro, technology; | |
| • | our plans to spend approximately Won 1.6 trillion for capital expenditures in 2006 for a range of projects, including expansion of our upgraded, HSDPA-ready WCDMA network, as well as investments in our wireless Internet-related businesses and our expected future capital expenditures on various initiatives; | |
| • | our efforts to make significant investments to build, develop and broaden our businesses, including developing and providing wireless data, multimedia, mobile commerce and Internet services; | |
| • | our ability to comply with governmental rules and regulations, including the regulations of the Ministry of Information and Communication, or the MIC, related to telecommunications providers, rules related to our status as a “market-dominating business entity” under the Korean Monopoly Regulation and Fair Trade Act, or the Fair Trade Act, and the effectiveness of steps we have taken to comply with such regulations; | |
| • | our ability to manage effectively our bandwidth and to implement timely and efficiently new bandwidth-efficient technologies; | |
| • | our expectations and estimates related to interconnection fees; tariffs 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 in other telecommunications service providers; 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, call volumes and results of operations. |
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| Item 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
| Item 1A. | Directors and Senior Management |
| Item 1B. | Advisers |
| Item 1C. | Auditors |
| Item 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
| Item 3. | KEY INFORMATION |
| Item 3A. | Selected Financial Data |
| As of or for the Year Ended December 31, | |||||||||||||||||||||||||
| 2001 | 2002 | 2003 | 2004 | 2005 | 2005 | ||||||||||||||||||||
| (In billions of won and millions of dollars, except per share and percentage data) | |||||||||||||||||||||||||
|
INCOME STATEMENT DATA
|
|||||||||||||||||||||||||
|
Korean GAAP:
|
|||||||||||||||||||||||||
|
Total Operating Revenue(1)
|
|
8,371.9 |
|
9,324.0 |
|
10,272.1 |
|
10,570.6 |
|
10,721.8 | US$ | 10,615.6 | |||||||||||||
|
Cellular Service(1)
|
8,203.0 | 9,156.8 | 10,091.8 | 10,297.6 | 10,361.9 | 10,259.3 | |||||||||||||||||||
|
Paging Service(2)
|
8.8 | — | — | — | — | — | |||||||||||||||||||
|
Other(3)
|
160.1 | 167.2 | 180.3 | 273.0 | 359.9 | 356.3 | |||||||||||||||||||
|
Operating Expenses
|
6,047.4 | 6,526.4 | 7,167.0 | 8,130.9 | 8,051.2 | 7,971.5 | |||||||||||||||||||
|
Operating Income
|
2,324.5 | 2,797.6 | 3,105.1 | 2,439.7 | 2,670.6 | 2,644.2 | |||||||||||||||||||
|
Income before Income Taxes and Minority Interest
|
1,976.7 | 2,218.8 | 2,754.3 | 2,123.2 | 2,561.6 | 2,536.2 | |||||||||||||||||||
|
Income before Minority Interest
|
1,126.4 | 1,520.3 | 1,965.3 | 1,493.4 | 1,868.3 | 1,849.8 | |||||||||||||||||||
|
Net Income
|
1,146.0 | 1,487.2 | 1,966.1 | 1,491.5 | 1,873.0 | 1,854.5 | |||||||||||||||||||
|
Income per Share of Common Stock(4)
|
13,242 | 17,647 | 26,187 | 20,261 | 25,443 | 25.19 | |||||||||||||||||||
|
Diluted Net Income per Share of Common Stock(4)
|
13,242 | 17,647 | 26,187 | 20,092 | 25,036 | 24.79 | |||||||||||||||||||
|
Dividends Declared per Share of Common Stock(5)
|
690 | 1,800 | 5,500 | 10,300 | 9,000 | 8.91 | |||||||||||||||||||
|
Weighted Average Number of Shares
|
86,545,041 | 84,270,450 | 75,078,219 | 73,614,297 | 73,614,296 | 73,614,296 | |||||||||||||||||||
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As of or for the Year Ended December 31,
2001
2002
2003
2004
2005
2005
(In billions of won and millions of dollars, except per share and percentage data)
W
8,307.1
W
9,219.7
W
10,225.1
W
10,534.6
W
10,701.4
US$
10,595.5
6,235.0
6,643.4
7,044.5
8,137.6
7,847.7
7,770.0
2,072.1
2,576.3
3,180.6
2,397.0
2,853.7
2,825.5
1,111.6
1,301.1
2,062.7
1,553.1
2,027.6
2,007.5
12,844
15,440
27,475
21,097
27,543
27.27
12,844
15,439
27,475
20,918
27,089
26.82
W
668.2
W
(189.7
)
W
(461.4
)
W
1,323.8
W
1,735.2
US$
1,718.0
4,174.7
4,569.4
4,641.5
4,703.9
4,663.4
4,617.2
13,326.3
14,228.7
13,818.2
14,283.4
14,704.8
14,559.2
3,498.4
3,693.4
3,193.5
4,010.7
3,513.9
3,479.1
6,149.3
6,231.9
6,093.8
7,205.7
8,327.5
8,245.1
729.6
(108.2
)
(445.5
)
1,311.3
1,587.2
1,571.5
13,841.0
15,720.7
15,586.2
15,576.8
16,351.2
16,189.3
5,820.1
6,356.2
7,014.7
8,237.0
9,472.4
9,378.6
W
3,932.4
W
3,954.1
W
4,706.4
W
4,085.8
W
4,434.2
US$
4,390.3
1,382.1
2,024.7
1,647.6
1,631.9
1,416.6
1,402.6
153.7
253.3
300.7
336.1
321.1
317.9
130.7
194.3
235.8
267.1
252.0
249.5
23.0
59.0
64.9
69.0
69.1
68.4
1,759.6
1,543.3
1,646.3
1,752.5
1,675.5
1,658.9
2,424.5
4,268.4
3,329.4
2,516.8
3,404.1
3,370.4
(1,973.4
)
(3,064.0
)
(1,415.1
)
(1,470.3
)
(1,938.2
)
(1,919.0
)
331.2
(1,418.2
)
(2,261.0
)
(968.6
)
(1,429.0
)
(1,414.9
)
47.0
%
42.4
%
45.8
%
38.7
%
41.4
%
41.4
%
27.8
30.0
30.2
23.1
24.9
24.9
13.7
15.9
19.1
14.1
17.5
17.5
3,859.1
3,620.7
4,679.1
3,970.4
4,412.2
4,368.5
1,382.1
2,024.7
1,668.0
1,656.9
1,429.3
1,415.1
2,428.3
3,606.2
3,144.3
3,228.9
3,293.8
3,261.2
(1,977.3
)
(2,892.5
)
(1,285.5
)
(1,634.1
)
(1,816.5
)
(1,798.5
)
331.2
(927.5
)
(2,205.5
)
(1,514.8
)
(1,439.3
)
(1,425.1
)
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As of or for the Year Ended December 31,
2001
2002
2003
2004
2005
47.4
47.6
47.9
48.2
48.3
32.0
36.1
38.2
39.0
40.4
5,693
6,241
6,286
7,353
6,646
W
1,470.6
W
1,494.0
W
1,634.1
W
1,437.6
W
1,613.3
15,179,163
17,219,562
18,313,315
18,783,338
19,530,117
172
191
197
194
197
W
36,400
W
38,383
W
39,739
W
39,689
W
40,205
1.4
%
1.4
%
1.2
%
1.7
%
1.8
%
6,056
7,384
8,309
9,458
10,142
| * | The conversion into Dollars was made at the rate of Won 1,010.0 to US$1.00. See note 2(a) of the notes to our consolidated financial statements. |
| (1) | Includes revenues from SK Teletech Co., Ltd. of Won 702.4 billion for 2001, Won 534.0 billion for 2002, Won 612.0 billion for 2003, Won 649.8 billion for 2004 and Won 294.6 billion for 2005 from the sale of digital handsets and Won 1,339.9 billion for 2001, Won 1,043.2 billion for 2002, Won 1,017.1 billion for 2003, Won 849.4 billion for 2004 and Won 898.6 billion for 2005 of interconnection revenue. Following our sale of a 60% equity interest in SK Teletech to Pantech & Curitel in July 2005, our equity interest in the company was reduced to 29.1% (which subsequently became a 22.7% interest in Pantech following the merger of SK Teletech into Pantech in December 2005) and SK Teletech ceased to be our consolidated subsidiary. See “Item 4B. Business Overview — Interconnection”. | |
| (2) | In March 2001, we transferred our paging business to Real Telecom Co., Ltd. (formerly known as INTEC Telecom Co., Ltd.) in exchange for 9.9% of Real Telecom’s newly issued shares and bonds with a principal amount of Won 9.5 billion that can be converted into an additional 7.8% interest in Real Telecom. Consequently, the results of the paging business are no longer included in our revenues after such date. | |
| (3) | For more information about our other revenue, see “Item 5. Operating and Financial Review and Prospects” and “Item 4B. Business Overview”. | |
| (4) | Income per share of common stock is calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted net income per share of common stock is calculated by dividing adjusted net income by adjusted weighted average number of shares outstanding during the period, taking into account the dilutive effect of stock options in 2002 and issuance of convertible bonds in 2004 and 2005. | |
| (5) | On January 1, 2002, we adopted Statement of Korea Accounting Standards (“SKAS”) No. 6, “Events Occurring after Balance Sheet Date”. This statement requires that proposed cash dividends be reflected on the balance sheet when the appropriations are approved by shareholders which is similar to U.S. GAAP. In order to reflect this accounting change, our 2001 financial statements have been restated accordingly. | |
| (6) | Working capital means current assets minus current liabilities. | |
| (7) | Our monetary assets and liabilities denominated in foreign currencies are valued at the exchange rate of Won 1,326 to US$1.00 as of December 31, 2001, Won 1,200 to US$1.00 as of December 31, 2002, Won 1,198 to US$1.00 as of December 31, 2003, Won 1,044 to US$1.00 as of December 31, 2004 and Won 1,013.0 to US$1.00 as of December 31, 2005, the rates of exchange permitted under Korean GAAP as of those dates. See note 2(w) of the notes to our consolidated financial statements. |
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| (8) | EBITDA refers to income before interest income, interest expense, taxes, depreciation and amortization. EBITDA is commonly used in the telecommunications industry to analyze companies on the basis of operating performance, leverage and liquidity. Since the telecommunications business is a very capital intensive business, capital expenditures and level of debt and interest expenses may have a significant impact on net income for companies with similar operating results. Therefore, for a telecommunications company such as ourselves, we believe that EBITDA provides a useful reflection of our operating results. We use EBITDA as a measurement of operating performance because it assists us in comparing our performance on a consistent basis as it removes from our operating results the impact of our capital structure, which includes interest expense from our outstanding debt, and our asset base, which includes depreciation and amortization of our property and equipment. However, EBITDA should not be construed as an alternative to operating income or any other measure of performance determined in accordance with Korean GAAP or U.S. GAAP or as an indicator of our operating performance, liquidity or cash flows generated by operating, investing and financing activities. Other companies may define EBITDA differently than we do. EBITDA under U.S. GAAP is computed using interest income, interest expense, depreciation, amortization and income taxes under U.S. GAAP which may differ from Korean GAAP for these items. | |
| (9) | Consists of investments in property, plant and equipment. Under U.S. GAAP, interest costs incurred during the period required to complete an asset or ready an asset for its intended use are capitalized based on the interest rates a company pays on its outstanding borrowings. Under Korean GAAP, beginning January 1, 2003, such interest costs are expensed as incurred. Through the end of 2002, the accounting treatment for capitalizing interest costs under Korean GAAP was consistent with that under U.S. GAAP. |
| (10) | Includes donations to Korean research institutes and educational organizations. See “Item 5C. Research and Development, Patents and Licenses, etc.”. |
| (11) | Population estimates based on historical data published by the National Statistical Office of Korea. |
| (12) | Wireless penetration is determined by dividing our subscribers by total estimated population, as of the end of the period. |
| (13) | Includes regular employees and temporary employees. See “Item 6D. Employees”. Includes 1,332 Shinsegi employees as of December 31, 2001. |
| (14) | Wireless subscribers include those subscribers who are temporarily deactivated, including (1) subscribers who voluntarily deactivate temporarily for a period of up to three months no more than twice a year and (2) 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. Wireless subscribers also include 3,311,874 Shinsegi subscribers as of December 31, 2001. |
| (15) | The average monthly outgoing voice minutes per subscriber is computed by dividing the total minutes of outgoing voice usage for the period by the monthly weighted average number of subscribers for the period and dividing the quotient by the number of months in the period. The monthly weighted average number of subscribers is the sum of the average number of subscribers for the month, calculated by taking the simple average number of subscribers at the beginning of the month and at the end of the month, divided by the number of months in the period. Shinsegi’s subscribers and outgoing voice minutes are included from 2001. |
| (16) | The average monthly revenue per subscriber excludes interconnection revenue and is computed by dividing total initial connection fees, monthly access fees, usage charges for voice and data, international charges, value-added service fees; and interest on overdue accounts (net of telephone tax) for the period by the monthly weighted average number of subscribers for the period and dividing the quotient by the number of months in the period. Including interconnection revenue, consolidated average monthly revenue per subscriber was Won 45,441 for 2001, Won 43,958 for 2002, Won 44,546 for 2003, Won 43,542 for 2004 and Won 44,167 for 2005. For information about the average monthly revenue per subscriber of SK Telecom and Shinsegi on a stand-alone basis, see “Item 5A. Operating Results — Overview”. |
| (17) | 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 and dividing the quotient by the number of months in the period. Churn |
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| includes subscribers who upgrade to CDMA lxRTT or CDMA 1xEV/ DO-capable handsets by terminating their service and opening a new subscriber account. |
| (18) | Includes 1,685 cell sites of Shinsegi as of December 31, 2001. |
| As of or for the Year Ended December 31, | ||||||||||||||||||||||||
| 2001 | 2002 | 2003 | 2004 | 2005 | 2005 | |||||||||||||||||||
| (In billions of won and millions of dollars) | ||||||||||||||||||||||||
|
Net Income
|
|
1,111.6 |
|
1,301.1 |
|
2,062.7 |
|
1,553.1 |
|
2,027.6 | US$ | 2,007.5 | ||||||||||||
|
ADD: Interest income
|
(101.8 | ) | (90.8 | ) | (93.9 | ) | (86.7 | ) | (62.6 | ) | (62.0 | ) | ||||||||||||
|
Interest expense
|
274.4 | 396.6 | 387.1 | 291.0 | 226.8 | 224.6 | ||||||||||||||||||
|
Taxes
|
791.3 | 585.0 | 811.5 | 611.1 | 667.1 | 660.5 | ||||||||||||||||||
|
Depreciation and Amortization
|
1,783.6 | 1,428.8 | 1,511.7 | 1,601.9 | 1,553.3 | 1,537.9 | ||||||||||||||||||
|
EBITDA
|
|
3,859.1 |
|
3,620.7 |
|
4,679.1 |
|
3,970.4 |
|
4,412.2 | US$ | 4,368.5 | ||||||||||||
| As of or for the Year Ended December 31, | ||||||||||||||||||||||||
| 2001 | 2002 | 2003 | 2004 | 2005 | 2005 | |||||||||||||||||||
| (In billions of won and millions of dollars) | ||||||||||||||||||||||||
|
Net Income
|
|
1,146.0 |
|
1,487.2 |
|
1,966.1 |
|
1,491.5 |
|
1,873.0 | US$ | 1,854.5 | ||||||||||||
|
ADD: Interest income
|
(97.4 | ) | (86.0 | ) | (86.5 | ) | (80.5 | ) | (61.1 | ) | (60.5 | ) | ||||||||||||
|
Interest expense
|
273.9 | 311.1 | 391.5 | 303.4 | 253.5 | 251.0 | ||||||||||||||||||
|
Taxes
|
850.3 | 698.5 | 789.0 | 629.8 | 693.3 | 686.4 | ||||||||||||||||||
|
Depreciation and Amortization
|
1,759.6 | 1,543.3 | 1,646.3 | 1,741.6 | 1,675.5 | 1,658.9 | ||||||||||||||||||
|
EBITDA
|
|
3,932.4 |
|
3,954.1 |
|
4,706.4 |
|
4,085.8 |
|
4,434.2 | US$ | 4,390.3 | ||||||||||||
| At End | Average | |||||||||||||||
| Year Ended December 31, | of Period | Rate(1) | High | Low | ||||||||||||
|
2001
|
1,314 | 1,293 | 1,369 | 1,234 | ||||||||||||
|
2002
|
1,186 | 1,250 | 1,332 | 1,161 | ||||||||||||
|
2003
|
1,192 | 1,193 | 1,262 | 1,146 | ||||||||||||
|
2004
|
1,035 | 1,145 | 1,195 | 1,035 | ||||||||||||
|
2005
|
1,010 | 1,023 | 1,060 | 997 | ||||||||||||
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Past Six Months
High
Low
(Won per
US$1.00)
1,003
959
976
962
982
967
970
940
952
927
962
943
| (1) | The average rates for the annual periods were calculated based on the average noon buying rate on the last day of each month (or portion thereof) during the period. The average rate for the monthly periods were calculated based on the average noon buying rate of each day of the month (or portion thereof). |
| Competition may reduce our market share and harm our results of operations and financial condition. |
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| Inability to successfully implement or adapt our network and technology to meet the continuing technological advancements affecting the wireless industry will likely have a material adverse effect on our financial condition, results of operation and business. |
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| HSDPA technology may require significant capital and other expenditures for implementation which we may not recoup and such technology may be difficult to integrate with our existing technology and business. |
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| Our growth strategy calls for significant investments in new businesses and regions, including businesses and regions in which we have limited experience. |
| Due to the existing high penetration rate of wireless services in Korea, we are unlikely to maintain our subscriber growth rate, which could adversely affect our results of operations. |
| 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. |
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| We may have to make further financing arrangements to meet our capital expenditure requirements and debt payment obligations. |
| Termination or impairment of our relationship with a small number of key suppliers for network equipment and for lease lines could adversely affect our results of operations. |
| 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 and financial condition. |
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| We are subject to additional regulation as a result of our market position, which could harm our ability to compete effectively. |
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| Financial difficulties and charges of financial statement irregularities at our affiliate, SK Networks (formerly SK Global), may cause disruptions in our business. |
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| 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. |
| Our businesses may be adversely affected by developments affecting the Korean economy. |
| • | financial problems or lack of progress in restructuring of chaebols, or Korean conglomerates, other large troubled companies, their suppliers or the financial sector; | |
| • | loss of investor confidence arising from corporate accounting irregularities and corporate governance issues of certain chaebols; | |
| • | a slowdown in consumer spending; | |
| • | adverse changes or volatility in foreign currency reserve levels, commodity prices, exchange rates, interest rates or stock markets; |
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| • | adverse developments in the economies of countries that are important export markets for Korea, such as the United States, Japan and China, or in emerging market economies in Asia or elsewhere; | |
| • | the continued emergence 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 manufacturing base from Korea to China); | |
| • | social and labor unrest; | |
| • | substantial decrease in market price of the Korean real estate market; | |
| • | a decrease in tax revenues and a substantial increase in the Korean government’s expenditures for unemployment compensation and other social programs that, together, would lead to an increased government budget deficit; | |
| • | geo-political uncertainty and risk of further attacks by terrorist groups around the world; | |
| • | the recurrence of SARS or avian flu in Asia and other parts of the world; | |
| • | deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from trade disputes or disagreements in foreign policy; | |
| • | political uncertainty or increasing strife among or within political parties in Korea; | |
| • | hostilities involving oil producing countries in the Middle East and any material disruption in the supply of oil or increase in the price of oil; and | |
| • | an increase in the level of tension or an outbreak of hostilities between North Korea and Korea or the United States. |
| 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 on the prices of our common stock and the ADSs. |
| • | an increase in the amount of Won required by us to make interest and principal payments on our foreign currency-denominated debt, which accounted for approximately 9.6% of our total consolidated long-term debt, including current portion, as of December 31, 2005; 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. |
| • | the amounts a registered holder or beneficial owner of ADSs will receive from the 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 the shares; and | |
| • | the secondary market price of the ADSs. |
| Increased tensions with North Korea could have an adverse effect on us and the prices of our common stock and the ADSs. |
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| If SK Corporation causes us to breach the foreign ownership limitations on shares of our common stock, we may experience a change of control. |
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| If our convertible notes are converted by foreign holders and the conversion would cause a violation of the foreign ownership restrictions of the Telecommunications Business Law, or in certain other circumstances, we may sell common stock in order to settle the converting holders’ conversion rights in cash in lieu of delivering common stock to them, and these sales might adversely affect the market price of our common stock or ADRs. |
| Sales of SK Telecom shares by companies in the SK Group, POSCO and/or other large shareholders may adversely affect the prices of SK Telecom’s common stock and the ADSs. |
| Korea’s new legislation allowing class action suits related to securities transactions may expose us to additional litigation risk. |
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| If an investor surrenders his ADSs to withdraw the underlying shares, he 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 shares and may suffer dilution of his equity interest in us. |
| • | a registration statement filed by us under the U.S. Securities Act of 1933, as amended, 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 U.S. Securities Act. |
| 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. |
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| After the exchange of ADSs into the underlying common shares of SK Telecom, seller or purchasers of the underlying common shares may have to pay securities transaction tax upon the transfer of the shares. |
| A holder of our ADSs may not be able to enforce a judgment of a foreign court against us. |
| We are generally subject to Korean corporate governance and disclosure standards, which may differ from those in other countries. |
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| • | Enhance the technical capabilities of our wireless networks to improve data transmission rates and service quality and to enable us to offer an increased range of services, including in connection with our development of new and improved wireless technologies. We have completed expanding the geographic coverage and subscriber capacity of our existing CDMA 1xRTT and CDMA 1xEV/ DO networks and are currently upgrading our existing WCDMA network to support HSDPA service, as well as expanding an HSPDA-ready version of our WCDMA network nationwide. In addition, we began to offer WiBro service to limited areas of metropolitan Seoul in June 2006, and intend to continue to expand our WiBro service coverage area. We believe we are a leader in the development and implementation of wireless technologies in Korea and that convergence among communications technologies, as well as between telecommunications and other industries, creates growth opportunities for incumbent telecommunications service providers, like us, whose existing infrastructure and know-how will provide a competitive advantage. We also pursue a research and development program designed to allow us to implement new wireless technologies as market opportunities arise. As a part of such program, we operate a network research and development center which is focused on wireless network design, digital cellular technologies and wireless telecommunications applications. | |
| • | Retain and capitalize on our large, high-quality wireless subscriber base. With approximately 19.8 million subscribers as of April 30, 2006, we have the largest wireless subscriber base in Korea. We focus on maintaining and expanding our high-quality subscriber base through the provision of enhanced wireless services, particularly advanced Wireless Internet-based applications, at higher speeds than previously available. | |
| • | Offer a broad range of new and innovative Wireless Internet contents and services. Through our integrated wireless and on-line portal, NATE, we plan to continue expanding the range of our Wireless Internet contents and services, with a view to increasing revenue from these services to complement our core cellular revenues. Our strategy includes the introduction of sophisticated multimedia services (such as June, a premium wireless data service that provides streaming multimedia video content through our |
23
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| CDMA 1xEV/ DO and HSDPA technologies, as well as MelOn, our music portal service, GXG, our mobile gaming portal, and Cizle, our wireless Internet movie portal); mobile commerce services (such as Moneta, a wireless credit and payment system); community portal and mobile community portal services (such as Mobile Cyworld, which allows subscribers to access Cyworld, our on-line community portal service, using their cellular phone); and mobile finance services (such as M BANK, M-Stock and Moneta Card) that can be accessed using handsets and other devices, including personal computers, personal digital assistants and vehicle mounted terminals. | ||
| • | Create new opportunities that arise from an increasingly convergent and ubiquitous era in mobile communications, including by pioneering new businesses. We seek to offer our customers a variety of innovative “convergent” services that create value and convenience for our customers. For example, we have launched new services, such as Telematics, Digital Home and mobile banking, that provide access to content and services previously available only through traditional media or requiring direct personal interface. In particular, we are focusing on new businesses that provide synergies with our existing services. For example, in May 2005, TU Media Corp., one of our affiliates, successfully launched satellite DMB service, which provides broadcasting of multimedia content by satellite to various portable and handheld devices. | |
| • | Continue to seek opportunities in overseas markets. We continue to seek opportunities into various overseas markets, particularly to Asia. In March 2005, we established a joint venture with EarthLink, Inc., the third largest Internet service provider in the United States, and, in May 2006 we launched our Mobile Virtual Network Operator, or MVNO, service, under the brand name “HELIO”, to provide wireless voice and data services across the United States. We have also been providing CDMA cellular service, under the brand name, “S-Fone”, in Vietnam since 2003 and plan to expand our network coverage to all of Vietnam. In February 2004, through the launch of a joint venture company with China Unicom, we also began extending our wireless Internet service to China. In addition, in June 2006, our board of directors approved plans to subscribe for up to US$1 billion of convertible bonds issued by China Unicom convertible into 899,745,075 common shares of China Unicom. We expect the subscription to be consummated in July 2006. In the event all of such convertible bonds are converted into common shares, our equity interest in China Unicom would be 6.67%. |
| • | Decommissioned Shinsegi’s former network and transferred Shinsegi’s subscribers to SK Telecom’s networks. We have allowed transferred subscribers to continue receiving services under their existing rate plans. However, after the merger, no new subscribers have been accepted under Shinsegi’s plans and further marketing efforts have been limited to the SK Telecom brands. Shinsegi’s subscribers do not have to purchase new handsets, are allowed to use the same mobile telephone numbers and have access to the same services as before the merger. | |
| • | Re-allocated the spectrum formerly used by Shinsegi’s network to SK Telecom’s CDMA and CDMA 1xRTT networks. | |
| • | Redeployed a portion of Shinsegi’s former network equipment to SK Telecom’s CDMA network or sold it to wireless operators outside of Korea. The remainder of Shinsegi’s network equipment was discarded and written off and we recorded an impairment loss of Won 185.8 billion in 2002. |
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25
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| As of December 31, | ||||||||||||||||||||
| 2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
| (In thousands, except for per population amounts) | ||||||||||||||||||||
|
Population of Korea(1)
|
47,354 | 47,615 | 47,849 | 48,082 | 48,294 | |||||||||||||||
|
Wireless Subscribers(2)
|
29,046 | 32,342 | 33,592 | 36,586 | 38,342 | |||||||||||||||
|
Wireless Subscribers per 100 Population
|
61.3 | 67.9 | 70.2 | 76.1 | 79.4 | |||||||||||||||
|
Telephone Lines in Service(2)
|
22,725 | 23,490 | 22,877 | 22,871 | 22,920 | |||||||||||||||
|
Telephone Lines per 100 Population
|
48.0 | 49.3 | 47.8 | 47.6 | 47.5 | |||||||||||||||
| (1) | Source: National Statistical Office of Korea |
| (2) | Source: MIC |
| (1) | Percentages may differ depending on method selected for determining population. |
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| 2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Wireless Internet Enabled Handsets
|
23,874 | 29,085 | 31,431 | 35,016 | 37,202 | |||||||||||||||
|
WAP/ ME Type
|
18,190 | 25,981 | 29,804 | 34,220 | 36,713 | |||||||||||||||
|
I-SMS Type
|
5,684 | 3,104 | 1,627 | 797 | 489 | |||||||||||||||
|
Total Number of Wireless Subscribers
|
29,046 | 32,342 | 33,592 | 36,586 | 38,342 | |||||||||||||||
|
Penetration of Advanced Handsets
|
82.2 | % | 89.9 | % | 93.6 | % | 95.7 | % | 97.0 | % | ||||||||||
| 2001.12 | 2002.12 | 2003.12 | 2004.12 | 2005.12 | ||||||||||||||||
|
Number of Internet Users(1)
|
24,380 | 26,270 | 29,220 | 31,580 | 33,010 | |||||||||||||||
|
Number of Broadband Subscribers(2)
|
7,806 | 10,405 | 11,172 | 11,921 | 12,191 | |||||||||||||||
| (1) | Source: Korea Network Information Center (KRNIC). |
| (2) | Source: MIC. Broadband service includes xDSL (Digital Subscriber Line), Cable Modem, Apartment LAN (Local Area Network) and Satellite. |
| Item 4B. | Business Overview |
| • | Cellular services — we provide digital cellular services to our subscribers using CDMA (code division multiple access) technology, with our network covering approximately 99% of the Korean population; | |
| • | Wireless Internet services — under our “NATE” brand name, we allow our wireless subscribers to access various websites designed for cellular use, such as access to entertainment-related contents and services and on-line financial services; and | |
| • | Digital convergence and new businesses — we have pioneered new services that reflect the growing convergence between the telecommunications sector and other industries, including our provision of satellite DMB service, which enables satellite broadcasting to mobile devices; telematics service, which makes use of GPS technology; and our “Digital Home” service, which brings home maintenance and security into the mobile digital era. |
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| • | Call Keeper service, which provides a record of missed calls in the event a subscriber’s mobile phone is engaged or switched off; | |
| • | COLORing service, which plays a “ring back” melody in lieu of a conventional dial tone when callers dial a COLORing subscriber’s mobile phone; | |
| • | Auto COLORing service, which periodically changes the default ring-back melody according to the subscriber’s music category selection; and | |
| • | Perfect Call service, which combines Call Keeper service with a new service that alerts subscribers when a dialed number that was engaged when first dialed, is no longer engaged. |
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| Multimedia |
| Music Portal Service |
29
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| Community Portal Service |
| Wireless Entertainment Services |
| M-Commerce |
30
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| Satellite DMB |
| Telematics Service |
31
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| Digital Home |
| Provision of Wireless Internet Platforms and Cellular Network Solutions to Foreign CDMA Network Operators |
| Overseas Operations |
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| Handset Manufacturing |
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| International Calling Services |
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| As of and for the Year Ended December 31, | ||||||||||||
| 2003 | 2004 | 2005 | ||||||||||
| (In billions of won) | ||||||||||||
|
Initial Connection Fees
|
|
176.6 |
|
198.4 |
|
232.3 | ||||||
|
Monthly Access Fees
|
3,132.2 | 3,266.1 | 3,365.1 | |||||||||
|
Usage Charges
|
3,615.1 | 5,300.7 | 5,538.8 | |||||||||
|
Interconnection Revenue
|
1,017.1 | 849.4 | 898.6 | |||||||||
|
Revenue from Sales of Digital Handsets(1)
|
612.0 | 649.8 | 294.6 | |||||||||
|
Other Revenue(2)
|
1,538.8 | 33.2 | 32.5 | |||||||||
|
Total
|
|
10,091.8 |
|
10,297.6 |
|
10,361.9 | ||||||
|
Additional Facility Deposits
|
|
5.0 |
|
31.8 |
|
3.4 | ||||||
|
Refunded Facility Deposits
|
7.7 | 44.6 | 11.0 | |||||||||
|
Facility Deposits at Period End
|
44.2 | 31.4 | 23.8 | |||||||||
| (1) | Until its sale to Pantech & Curitel in July 2005, our revenue from handset sales consisted of sales by our former subsidiary, SK Teletech. |
| (2) | Other revenue includes revenue from value-added services, including voice-activated dialing, caller ID, call forwarding, call waiting and three-way calling. |
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| Peak Usage | Off-Peak Usage | Night-Time Usage | ||||||||||||||||||
| Included Airtime/ | Charges | Charges | Charges | |||||||||||||||||
| Monthly Access Fee | Discount | (Per 10 Seconds) | (Per 10 Seconds)(2) | (Per 10 Seconds) | ||||||||||||||||
|
Standard
|
||||||||||||||||||||
|
Regular
|
|
13,000 | 10 minutes |
|
20 |
|
13 |
|
10 | |||||||||||
|
Slim
|
12,500 | 19 | 19 | 19 | ||||||||||||||||
|
Family
|
13,000 | 5 minutes | 18 | 12 | 9 | |||||||||||||||
|
Designated Number Discount
|
16,000 | 20 | 20 | 20 | ||||||||||||||||
|
Three-Three(3)
|
14,500 | — | — | — | ||||||||||||||||
|
Time
|
16,000 | 7 minutes | 21 | 17 | 12 | |||||||||||||||
|
Pink Couple
|
22,000 | 500 minutes | 20 | 20 | 20 | |||||||||||||||
|
Silver(4)
|
11,000 | 30 minutes | 38 | 38 | 38 | |||||||||||||||
|
i-Kids(5)
|
11,000 | 70 minutes | 20 | 20 | 20 | |||||||||||||||
|
Welfare 160/220(6)
|
16,000 | Won 10,000 | 30 | 30 | 30 | |||||||||||||||
| 22,000 | Won 22,000 | 30 | 30 | 30 | ||||||||||||||||
|
TTL Plans
|
||||||||||||||||||||
|
Standard
|
15,000 | 20 | 20 | 20 | ||||||||||||||||
|
SMS
|
25,000 | 19 | 19 | 19 | ||||||||||||||||
|
Regional
|
15,500 | 7 minutes | 21 | 16 | 9 | |||||||||||||||
|
Designated Number
|
16,000 | 20 | 20 | 20 | ||||||||||||||||
|
Pink Couple
|
22,000 | 20 | 20 | 20 | ||||||||||||||||
|
Couple
|
16,500 | 150 minutes | 20 | 20 | 9 | |||||||||||||||
|
Ting Plans
|
||||||||||||||||||||
|
Text Premium
|
26,000 | 30 | 30 | 30 | ||||||||||||||||
|
Buddy
|
15,000 | 70 minutes | ||||||||||||||||||
|
Ting 500
|
15,000 | 60 minutes | 12 | 12 | 12 | |||||||||||||||
|
Ting 100 (Normal Rate)
|
13,500 | 60 minutes | 35 | 18 | 9 | |||||||||||||||
|
Ting 100 (Vacation Rate)
|
13,500 | 60 minutes | 24 | 24 | 9 | |||||||||||||||
|
Ting Start
|
18,000 | 30 | 30 | 30 | ||||||||||||||||
|
Data Free Plan
(7)
|
26,000 | — | — | — | ||||||||||||||||
|
“Free Plans”
|
||||||||||||||||||||
|
Free Holiday(8)
|
— | — | — | — | ||||||||||||||||
|
Free Everyday(9)
|
— | — | — | — | ||||||||||||||||
|
Free Plan for Calls Over 3 Minutes(10)
|
— | — | — | — | ||||||||||||||||
| (1) | Discounts may include free text messages, ring tone downloads, coloring and NATE minutes. | |
| (2) | Excludes a 5% discount on domestic calls for customers who have subscribed to our cellular services for over 1 year; a 10% discount for customers who have subscribed to our cellular services over 2 years; a 15% |
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| discount for customers who have subscribed to our cellular services over 3 years and a 20% discount for customers who have subscribed to our cellular services over 5 years. | ||
| (3) | Under this plan, for the first three minutes of airtime we charge Won 20 per 10 seconds; we offer the fourth to sixth minutes free of charge; and charge Won 15 per 10 seconds for airtime thereafter. | |
| (4) | Subscribers must be 65 years old or older and each subscriber is limited to enrolling in one Silver Plan. | |
| (5) | Subscribers must be 12 years old or younger and each subscriber is limited to enrolling one i-Kid Plan. | |
| (6) | This plan is limited to mentally or physically challenged subscribers. | |
| (7) | Includes unlimited use of data service. This plan is offered from September 30, 2005 through September 30, 2006. | |
| (8) | 11 hours of airtime on Sundays and public holidays, for an additional Won 10,000 per month. | |
| (9) | 11 hours of airtime in excess of the average number of minutes used during the previous two months, for an additional Won 15,000 per month. |
| (10) | 11 hours of domestic airtime for any airtime exceeding the first three minutes, for an additional Won 15,000 per month. |
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| • | our expansion and technical enhancement of our digital network, including with high-speed data capabilities; | |
| • | increasing consumer awareness of the benefits of wireless telecommunications; | |
| • | an effective marketing strategy; | |
| • | our focus on customer service; | |
| • | the introduction of new, value-added services, such as voicemail services, call-forwarding, caller ID, three-way calling and Wireless Internet services provided by NATE; and | |
| • | our acquisition of Shinsegi. |
| As of or for the Year Ended December 31, | ||||||||||||
| 2003 | 2004 | 2005 | ||||||||||
|
Subscribers
|
18,313,153 | 18,783,338 | 19,530,117 | |||||||||
|
Subscribers Growth Rate
|
6.4 | % | 2.6 | % | 4.0 | % | ||||||
|
Activations
|
3,688,312 | 4,407,087 | 5,057,176 | |||||||||
|
Deactivations
|
2,594,721 | 3,936,884 | 4,310,397 | |||||||||
|
Average Monthly Churn Rate(1)
|
1.2 | % | 1.7 | % | 1.8 | % | ||||||
| (1) | Average monthly churn rate for a period is the number calculated by dividing the sum of deactivations during the period by the simple average of the number of subscribers at the beginning and end of the period and dividing the quotient by the number of months in the period. Churn includes subscribers who upgrade to CDMA 1xRTT or CDMA lxEV/ DO-capable handsets by terminating their service and opening a new subscriber account. |
38
Table of Contents
| Period | SKT→KTF | SKT→LGT | KTF→SKT | KTF→LGT | LGT→SKT | LGT→KTF | Total | |||||||||||||||||||||||
|
2004
|
||||||||||||||||||||||||||||||
|
First Quarter
|
417,212 | 286,163 | — | — | — | — | 703,375 | |||||||||||||||||||||||
|
Second Quarter
|
444,225 | 287,660 | — | — | — | — | 731,885 | |||||||||||||||||||||||
|
Third Quarter
|
173,384 | 133,315 | 351,238 | 109,223 | — | — | 767,160 | |||||||||||||||||||||||
|
Fourth Quarter
|
236,251 | 149,939 | 216,175 | 133,276 | — | — | 735,641 | |||||||||||||||||||||||
|
2005
|
||||||||||||||||||||||||||||||
|
First Quarter
|
391,386 | 148,486 | 354,672 | 156,394 | 213,179 | 220,322 | 1,484,439 | |||||||||||||||||||||||
|
Second Quarter
|
355,300 | 178,550 | 372,621 | 170,378 | 159,662 | 131,246 | 1,367,757 | |||||||||||||||||||||||
|
Third Quarter
|
395,070 | 170,604 | 392,104 | 154,723 | 161,308 | 128,472 | 1,402,281 | |||||||||||||||||||||||
|
Fourth Quarter
|
344,941 | 178,560 | 367,998 | 164,114 | 149,887 | 112,711 | 1,318,211 | |||||||||||||||||||||||
|
2006
|
||||||||||||||||||||||||||||||
|
January
|
155,588 | 60,465 | 154,166 | 60,741 | 63,112 | 58,552 | 552,624 | |||||||||||||||||||||||
|
February
|
164,413 | 62,672 | 166,271 | 67,880 | 60,338 | 61,534 | 583,108 | |||||||||||||||||||||||
|
March
|
172,963 | 59,056 | 165,979 | 62,168 | 60,016 | 65,694 | 585,876 | |||||||||||||||||||||||
|
April
|
81,071 | 37,869 | 91,112 | 35,164 | 41,186 | 34,884 | 321,286 | |||||||||||||||||||||||
|
Total
|
3,331,804 | 1,753,339 | 2,632,336 | 1,114,061 | 908,688 | 813,415 | 10,553,643 | |||||||||||||||||||||||
39
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| New Wireless Subscribers | |||||||||||||||||||||||||
| SK Telecom | KTF | LGT | |||||||||||||||||||||||
| Number of | Percentage | Number of | Percentage | Number of | Percentage | ||||||||||||||||||||
| Period | Subscribers | of Total | Subscribers | of Total | Subscribers | of Total | |||||||||||||||||||
|
2004
|
|||||||||||||||||||||||||
|
First Quarter
|
1,210,435 | 41.5 | % | 1,060,250 | 36.4 | % | 644,709 | 22.1 | % | ||||||||||||||||
|
Second Quarter
|
1,276,659 | 44.3 | % | 989,318 | 34.4 | % | 613,341 | 21.3 | % | ||||||||||||||||
|
Third Quarter
|
547,146 | 39.4 | % | 501,154 | 36.1 | % | 341,810 | 24.6 | % | ||||||||||||||||
|
Fourth Quarter
|
795,359 | 45.9 | % | 552,618 | 31.9 | % | 384,825 | 22.2 | % | ||||||||||||||||
|
2005
|
|||||||||||||||||||||||||
|
First Quarter
|
739,056 | 42.3 | % | 670,187 | 38.3 | % | 338,911 | 19.4 | % | ||||||||||||||||
|
Second Quarter
|
713,151 | 46.2 | % | 516,628 | 33.4 | % | 314,811 | 20.4 | % | ||||||||||||||||
|
Third Quarter
|
707,228 | 43.1 | % | 607,024 | 37.0 | % | 328,133 | 20.0 | % | ||||||||||||||||
|
Fourth Quarter
|
662,731 | 42.1 | % | 528,244 | 33.6 | % | 381,800 | 24.3 | % | ||||||||||||||||
|
2006
|
|||||||||||||||||||||||||
|
January
|
245,324 | 43.9 | % | 186,804 | 33.5 | % | 126,092 | 22.6 | % | ||||||||||||||||
|
February
|
262,623 | 45.4 | % | 191,535 | 33.1 | % | 124,525 | 21.5 | % | ||||||||||||||||
|
March
|
250,407 | 46.0 | % | 171,461 | 31.5 | % | 122,587 | 22.5 | % | ||||||||||||||||
|
April
|
164,076 | 44.5 | % | 118,983 | 32.2 | % | 85,964 | 23.3 | % | ||||||||||||||||
|
May
|
196,569 | 43.4 | % | 140,814 | 31.1 | % | 115,273 | 25.5 | % | ||||||||||||||||
40
Table of Contents
| Year | SK Telecom | KTF | LGT | |||||||||
| (Won/Minute) | ||||||||||||
|
2003
|
41.02 | 47.99 | 52.89 | |||||||||
|
2004
|
31.81 | 47.66 | 58.55 | |||||||||
|
2005
|
31.19 | 46.70 | 54.98 | |||||||||
41
Table of Contents
| Domestic Calls |
42
Table of Contents
| International Calls |
| International Roaming Arrangements |
| CDMA Networks |
| CDMA 1xRTT Network |
43
Table of Contents
| WCDMA Network |
| WiBro |
| Network infrastructure |
| • | 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); | |
| • | base station transceiver subsystems , which manage the radio transmission by the equipment located at one or more cell sites, including radio-channel management, message transport and hand-off of calls between cell sites; | |
| • | switching stations , which switch calls to the proper destinations; and | |
| • | leased lines, microwave links or other connections which link the switching stations, the cell sites and the public switched telephone networks of KT Corporation and Hanaro Telecom. |
44
Table of Contents
| Switching | ||||||||
| Cell Sites | Stations | |||||||
|
CDMA Network (excluding CDMA lxRTT and CDMA 1xEV/ DO)
|
4.878 | 55 | ||||||
|
CDMA 1xRTT Network and CDMA 1xEV/ DO
|
3.718 | 60 | ||||||
|
WCDMA
|
1.546 | 6 | ||||||
|
WiBro(1)
|
— | — | ||||||
| (1) | We first launched WiBro service in May 2006. |
| Wireless Application Developers and Content Providers |
| • | Information Technology and Content Providers. We hold investments in approximately 40 companies, with an aggregate book value of approximately Won 22.4 billion as of December 31, 2005. Such companies develop technology and content for use in our fixed-line and Wireless Internet businesses and help enable us to further develop of our multimedia platforms and networks. | |
| • | Joint Ventures. Pursuant to an agreement entered into on March 20, 2003, we established UNISK, a joint venture company with China Unicom in December 2003. See “— Global Business — Overseas Operations”. In September 2003, we reached a business cooperation agreement with Teliasonera for the purpose of jointly developing and commercializing new businesses, cross-licensing, partnership exchange and joint advancement into overseas markets. On September 16, 2003, we signed a memorandum of understanding with Alcatel for joint development of a Mobile Payment Service by combining our Nemo with Alcatel’s Prepayment Instant Billing System. |
45
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| • | Mobile Broadcasting Corporation. In September 2003, we entered into an agreement with Mobile Broadcasting Corporation, or MBCO, a wireless multi-media company in Japan, for the purpose of co-owning and launching a satellite for the satellite DMB business. MBCO is a developer and provider of content and technology related to wireless multimedia services and has developed new services in satellite DMB. Under the terms of the agreement, SK Telecom is committed to fund 34.7% of the cost of launching and maintaining the operations of the satellite, which is approximately Won 96.9 billion. As of December 31, 2005, we had invested a total of Won 27.3 billion and had a 7.3% interest in MBCO. We launched the satellite in March 2004. In March 2004, the MIC assigned us a frequency for satellite DMB. In October 2004, we granted the right to use our satellite, satellite orbit and frequency to TU Media Corp., one of our affiliates, which received a license from the MIC as a satellite DMB provider on December 30, 2004. On May 1, 2005, TU Media Corp. began to provide satellite DMB services. As of April 30, 2006, TU Media had over 500,000 subscribers. See “— Multimedia”. | |
| • | Mobile Data and Digital Content Market. In order to generate new revenue from the growing mobile data and digital content market, we plan to increase our investment in the entertainment sector, particularly in music and movies. As mobile data and digital content market has become increasingly important in the growth of our business, we are seeking to secure valuable mobile data and digital contents by making equity investments in various content providers. In March 2005, we acquired 8 million shares, or 21.7% equity interest in iHQ Inc., for Won 14.46 billion, with an option to purchase 5 million additional shares from Mr. Hun-Tak Jeong, a majority shareholder of iHQ Inc. iHQ Inc. is an entertainment management firm producing films, managing entertainers and operating on-line game services. We exercised the option to purchase 5 million shares of iHQ on April 26, 2006, which purchase is expected to be consummated in July 2006. Following such purchase we will hold a 34.91% equity interest in iHQ. In August 2005, we also acquired a 60% stake in YBM Seoul Records Inc., Korea’s largest music recording company in terms of records released and revenues, for Won 27.9 billion. Through our acquisition of YBM, we are able to offer customers of our MelOn service access to an expanded digital music contents pool. Also, in July and October 2005, we and certain other Korean investment companies invested an aggregate Won 40 billion to establish three funds to invest in the music industry and seek strategic partnerships with recording companies. As of December 31, 2005, our contribution to the funds amounted to Won 39.6 billion. Furthermore, in September, October and December 2005, we and co-investors invested an aggregate Won 55.8 billion to establish four movie-production funds to strengthen our ability to obtain movie contents. We had invested Won 20 billion in the funds as of December 31, 2005. Such investments reflect our business strategy of diversification into new areas, such as media and entertainment. |
| Other Investments |
| • | Hanaro Telecom. As of December 31, 2005, we owned a 4.8% interest in the outstanding capital stock of Hanaro Telecom. On September 2, 2003, we purchased Won 120.0 billion of Hanaro Telecom commercial paper in order to provide Hanaro Telecom with short-term liquidity while it attempted to secure a foreign investor that would inject new capital into the company. The decision to provide liquidity support to Hanaro Telecom was made to protect the value of our stake in Hanaro Telecom. Following an investment in Hanaro Telecom by a consortium led by AIG and Newbridge, we disposed of the Hanaro Telecom commercial paper in December 2003. In May 2004, we purchased from Samsung Electronics Co., Ltd. 13,870,000 shares of Hanaro Telecom, representing 3.0% of the outstanding shares of Hanaro, for Won 39.3 billion as part of our strategic efforts in consideration of increasing convergence between wireless and fixed-line services. As a result of the acquisition, our equity interest in Hanaro had increased to 4.8% as of December 31, 2004, up from 1.8% as of December 31, 2003. Following Hanaro’s merger with Korea Thrunet in January 2006, we continue to hold a 4.8% equity interest in Hanaro. | |
| • | Powercomm. We currently own a 5.0% interest in Powercomm Corporation, with a book value as of December 31, 2005, of Won 77.1 billion. For more information, see note 4 of the notes to our consolidated financial statements. Powercomm is an operator of fixed-line networks that provides |
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| wholesale fixed-line network services, such as leased lines, to telecommunications, Internet and cable television service providers in Korea. We have no current plans to either increase or decrease our investment in Powercomm. | ||
| • | SKC&C. We currently own a 30.0% equity interest in SKC&C Co., Ltd., with a book value as of December 31, 2005 of Won 168.2 billion. SKC&C is an information technologies services provider. Substantially all of SKC&C’s revenue is generated from services provided to member companies of the SK Group, including us. We are party to several service contracts with SKC&C related to development and maintenance of our information technologies systems. See “Item 7B. Related Party Transactions”. |
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| Overview |
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| • | entry into the telecommunications industry; | |
| • | scope of services provided by telecommunications service providers; | |
| • | allocation of radio spectrum; | |
| • | setting of technical standards and promotion of technical standardization; | |
| • | rates, terms and practices of telecommunications service providers; | |
| • | customer complaints; | |
| • | interconnection and revenue-sharing between telecommunications service providers; | |
| • | disputes between telecommunications service providers; | |
| • | research and development budgeting and objectives of telecommunications service providers; and | |
| • | competition among telecommunications service providers. |
| Rate Regulation |
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| Interconnection |
| Wireless Internet Network Co-Share |
| Contributions to the Fund for Development of Information Telecommunications |
| Universal Service Obligation |
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| Frequency Allocation |
| Competition Regulation |
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| Number Portability |
| Contribution to 114 Directory Service |
| Foreign Ownership and Investment Restrictions and Requirements |
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| Handset Subsidy Payments |
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| Item 4C. | Organizational Structure |
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| Item 4D. | Property, Plants And Equipment |
| Approximate Area | ||||||
| Location | Primary Use | in Square Feet | ||||
|
Seoul Metropolitan Area
|
Corporate Headquarters | 988,455 | ||||
| Regional Headquarters | 1,095,992 | |||||
| Customer Service Centers | 384,223 | |||||
| Training Centers | 397,574 | |||||
| Central Research and Development Center | 482,725 | |||||
| Others | 547,061 | |||||
|
Busan
|
Regional Headquarters | 363,272 | ||||
| Others | 237,056 | |||||
|
Daegu
|
Regional Headquarters | 153,573 | ||||
| Others | 317,440 | |||||
|
Cholla and Jeju Provinces
|
Regional Headquarters | 265,595 | ||||
| Others | 359,784 | |||||
|
Choongchung Province
|
Regional Headquarters | 459,240 | ||||
| Others | 481,978 | |||||
|
Others
|
Seoul National University Research Center | 108,530 | ||||
| KAIST SUPEX Management Center | 10,817 | |||||
| Ewha University SK Telecom Center | 7,117 | |||||
| Item 4.A. | UNRESOLVED STAFF COMMENTS |
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| Item 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
| Item 5A. | Operating Results |
| Revenue |
| Year Ended December 31, | |||||||||||||||||||||||||
| 2003 | 2004 | 2005 | |||||||||||||||||||||||
| Percentage | Percentage | Percentage | |||||||||||||||||||||||
| of Total | of Total | of Total | |||||||||||||||||||||||
| Revenue | Revenue | Revenue | Revenue | Revenue | Revenue | ||||||||||||||||||||
| (In billions of won, except percentages) | |||||||||||||||||||||||||
|
Cellular Revenue:
|
|||||||||||||||||||||||||
|
Wireless Services(1)
|
|
8,462.7 | 82.4 |
|
8,798.4 | 83.2 |
|
9,168.7 | 85.5 | ||||||||||||||||
|
Interconnection
|
1,017.1 | 9.9 | 849.4 | 8.0 | 898.6 | 8.4 | |||||||||||||||||||
|
Digital Handset Sales(2)
|
612.0 | 5.9 | 649.8 | 6.2 | 294.6 | 2.7 | |||||||||||||||||||
|
Total Cellular Revenue
|
10,091.8 | 98.2 | 10,297.6 | 97.4 | 10,361.9 | 96.6 | |||||||||||||||||||
|
Other Revenue:
|
|||||||||||||||||||||||||
|
International Calling Service(3)
|
97.4 | 1.0 | 126.3 | 1.2 | 138.7 | 1.3 | |||||||||||||||||||
|
Portal Service(4)
|
42.0 | 0.4 | 85.0 | 0.8 | 126.9 | 1.2 | |||||||||||||||||||
|
Miscellaneous
|
40.9 | 0.4 | 61.7 | 0.6 | 94.3 | 0.9 | |||||||||||||||||||
|
Total Other Revenue:
|
180.3 | 1.8 | 273.0 | 2.6 | 359.9 | 3.4 | |||||||||||||||||||
|
Total Operating Revenue:
|
|
10,272.1 | 100.0 |
|
10,570.6 | 100.0 |
|
10,721.8 | 100.0 | ||||||||||||||||
|
Total Operating Revenue Growth
|
10.2 | % | 2.9 | % | 1.4 | % | |||||||||||||||||||
| (1) | Wireless services revenue includes initial connection fees, monthly access fees, usage charges, international charges, wireless Internet service fees, value-added-service fees and interest on overdue subscriber accounts (net of telephone tax). |
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| (2) | Until July 2005, we consolidated revenues derived from sales of digital handsets made through our former subsidiary, SK Teletech. In July 2005, we sold 4,542,000 shares of SK Teletech owned by us to Pantech & Curitel, Inc., a Korean mobile handset manufacturer, reducing our equity interest in SK Teletech from 89.1% to 29.1%, which became a 22.7% equity interest in Pantech following the merger of SK Teletech (renamed SKY Teletech following our sale of the company to Pantech & Curitel) into Pantech in December 2005. |
| (3) | Provided by SK Telink Co. |
| (4) | Portal service revenue attributable to SK Communications Co., Ltd. and, since 2003, SK Communications and Paxnet Co., Ltd., and since 2005, SK Communications, Paxnet Co., Ltd. and U-Land Company Limited. |
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| Year Ended December 31, | ||||||||||||
| 2003 | 2004 | 2005 | ||||||||||
|
Outgoing Voice Minutes (In Thousands):(1)
|
42,175,874 | 43,184,944 | 45,241,348 | |||||||||
|
Average Monthly Outgoing Voice Minutes Per Subscriber:(2)
|
197 | 194 | 197 | |||||||||
|
Average Monthly Revenue Per Subscriber:(3)(4)
|
|
39,739 |
|
39,689 |
|
40,205 | ||||||
| (1) | Does not include minutes of incoming calls or minutes of use relating the use of short text messaging and data services. |
| (2) | The average monthly outgoing voice minutes per subscriber is computed by dividing the total minutes of outgoing voice usage for the period by the monthly weighted average number of subscribers for the period and dividing the quotient by the number of months in the period. The monthly weighted average number of subscribers is the sum of the average number of subscribers for the months calculated by taking the simple average number of subscribers at the beginning of the month and at the end of the month, divided by the number of months in the period. |
| (3) | The average monthly revenue per subscriber excludes interconnection revenue and is computed by dividing total initial connection fees, monthly access fees, usage charges for voice and data, international charges, value-added service fees and interest on overdue subscriber accounts (net of telephone tax) for the period by the monthly weighted average number of subscribers for the period and dividing the quotient by the number of months in the period. |
| (4) | Including interconnection revenue, consolidated average monthly revenue per subscriber was Won 44,546 for 2003, Won 43,542 for 2004 and Won 44,167 for 2005. |
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| For the Year Ended December 31, | ||||||||||||||||||||||||
| 2003 | 2004 | 2005 | ||||||||||||||||||||||
| (In billions of won, except percentage data) | ||||||||||||||||||||||||
|
Operating Revenue
|
|
10,272.1 | 100.00 | % |
|
10,570.6 | 100.00 | % |
|
10,721.8 | 100.00 | % | ||||||||||||
|
Operating Expenses
|
7,167.0 | 69.77 | 8,130.9 | 76.92 | 8,051.2 | 75.09 | ||||||||||||||||||
|
Operating Income
|
3,105.1 | 30.23 | 2,439.7 | 23.08 | 2,670.6 | 24.91 | ||||||||||||||||||
|
Other Income
|
261.4 | 2.54 | 199.4 | 1.89 | 392.6 | 3.66 | ||||||||||||||||||
|
Other Expenses
|
612.2 | 5.96 | 516.0 | 4.88 | 501.6 | 4.68 | ||||||||||||||||||
|
Income Before Income Taxes and Minority Interest
|
2,754.3 | 26.81 | 2,123.1 | 20.09 | 2,561.6 | 23.89 | ||||||||||||||||||
|
Income Taxes
|
789.0 | 7.68 | 629.7 | 5.96 | 693.3 | 6.47 | ||||||||||||||||||
|
Minority Interest
|
0.8 | 0.01 | (1.9 | ) | (0.02 | ) | 4.7 | 0.04 | ||||||||||||||||
|
Net Income
|
|
1,966.1 | 19.14 | % |
|
1,491.5 | 14.10 | % |
|
1,873.0 | 17.47 | % | ||||||||||||
|
Depreciation and Amortization(1)
|
|
1,510.5 | 14.70 | % |
|
1,607.5 | 15.20 | % |
|
1,546.3 | 14.42 | % | ||||||||||||
| (1) | Excludes the depreciation and amortization allocated to internal research and development costs of Won 135.8 billion, Won 134.1 billion and Won 126.9 billion for the years ended December 31, 2003, 2004 and 2005, respectively. |
| 2005 Compared to 2004 |
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| 2004 Compared to 2003 |
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| Item 5B. | Liquidity and Capital Resources |
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| Cash Flow Analysis |
| Year Ended December 31, | Change | |||||||||||||||||||||||||||
| 2003 | 2004 | 2005 | 2003 to 2004 | 2004 to 2005 | ||||||||||||||||||||||||
| (In billions of won, except percentages) | ||||||||||||||||||||||||||||
|
Net Cash Flow from Operating Activities
|
|
3,329.4 |
|
2,516.8 |
|
3,404.1 |
|
(812.6 | ) | (24.4 | )% |
|
887.3 | 35.3 | % | |||||||||||||
|
Net Cash Used in Investing Activities
|
(1,415.1 | ) | (1,470.3 | ) | (1,938.2 | ) | (55.2 | ) | (3.9 | ) | (467.9 | ) | (31.8 | ) | ||||||||||||||
|
Net Cash Used in Financing Activities
|
(2,261.0 | ) | (968.6 | ) | (1,429.0 | ) | 1,292.4 | 57.2 | (460.4 | ) | (47.5 | ) | ||||||||||||||||
|
Net Cash Flow due to Changes in Consolidated Subsidiaries
|
0.1 | (24.8 | ) | (29.1 | ) | (24.9 | ) | (249.0 | ) | (4.3 | ) | (17.3 | ) | |||||||||||||||
|
Equivalents
|
|
(346.6 | ) |
|
53.1 |
|
7.8 |
|
399.7 | 115.3 |
|
(45.3 | ) | (85.3 | ) | |||||||||||||
|
Cash and Cash Equivalents at Beginning of Period
|
664.1 | 317.5 | 370.6 | (346.6 | ) | (52.2 | ) | 53.1 | 16.7 | |||||||||||||||||||
|
Cash and Cash Equivalents at End of Period
|
|
317.5 |
|
370.6 |
|
378.4 |
|
53.1 | 16.7 | % |
|
7.8 | 2.1 | % | ||||||||||||||
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| Capital Requirements and Resources |
| Year Ended (Ending) December 31, | |||||||||||||
| 2003 | 2004 | 2005 | |||||||||||
| (In billions of won) | |||||||||||||
|
CDMA (95A/B, 1xRTT and EV-DO) Network3
|
|
737 |
|
728 |
|
376 | |||||||
|
WCDMA Network
|
204 | 220 | 575 | ||||||||||
|
WiBro(1)
|
— | — | — | ||||||||||
|
Others(2)
|
707 | 684 | 466 | ||||||||||
|
Total(3)
|
|
1,648 |
|
1,632 |
|
1,417 | |||||||
| (1) | We commenced WiBro service in May 2006. |
| (2) | Includes investments in infrastructure consisting of equipment necessary for the provision of data services and marketing. |
| (3) | Also, see note 7 of the notes to our consolidated financial statements. |
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| Year Ending December 31, | Total | |||
| (In billions of won) | ||||
|
2006
|
|
814.4 | ||
|
2007
|
708.6 | |||
|
2008
|
301.7 | |||
|
After 2008
|
1,389.8 | |||
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| Payments Due by Period (1) | |||||||||||||||||||||
| Less Than | After | ||||||||||||||||||||
| Total | 1 Year | 1-3 Years | 4-5 Years | 5 Years | |||||||||||||||||
| (In billions of won) | |||||||||||||||||||||
|
Bonds
|
|||||||||||||||||||||
|
Principal
|
|
3,189.8 |
|
800.0 |
|
1,000.0 |
|
885.9 |
|
503.9 | |||||||||||
|
Interest
|
334.0 | 132.0 | 136.0 | 54.0 | 12.0 | ||||||||||||||||
|
Long-term borrowings
|
0.2 | 0.1 | 0.1 | 0.0 | |||||||||||||||||
|
Capital lease obligations
|
24.5 | 14.3 | 10.2 | — | — | ||||||||||||||||
|
Operating leases
|
— | — | — | — | |||||||||||||||||
|
Purchase obligations
|
53.5 | 53.5 | — | — | |||||||||||||||||
|
Facility deposits
|
38.7 | 14.9 | — | — | 23.8 | ||||||||||||||||
|
Derivatives
|
73.0 | — | — | 13.0 | 60.0 | ||||||||||||||||
|
Investment commitment to HELIO
|
99.3 | 79.5 | 19.8 | — | — | ||||||||||||||||
|
Other long-term payables(2)
|
|||||||||||||||||||||
|
Principal
|
650.0 | — | 200.0 | 280.0 | 170.0 | ||||||||||||||||
|
Interest
|
138.4 | 32.0 | 60.0 | 38.0 | 8.4 | ||||||||||||||||
|
Total contractual cash obligations(3)
|
|
4,601.4 |
|
1,126.3 |
|
1,426.1 |
|
1,270.9 |
|
778.1 | |||||||||||
| (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 IMT license. See note 2(j) of the notes to our consolidated financial statements. |
| (3) | This amount does not include our future investments in the CDMA market in Vietnam, which we expect to make through our overseas subsidiary SLD Telecom PTE. Ltd. under a business cooperation contract with Saigon Post & Telecommunication Service Corporation. See “Item 4B. Business Overview — Other Investments and Relationships” and “— Critical Accounting Policies, Estimates And Judgments — Off-Balance Sheet Arrangements”. |
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| • | Through 2004, when our equity interests in the equity method investees were diluted as a result of the equity method investees’ direct sales of their unissued shares to third parties, the changes in the our proportionate equity of investees were accounted for as capital transactions. Effective January 1, 2005, such transactions are accounted for as income statement treatment, pursuant to adoption of SKAS No. 15, “Investments: Equity Method”. As a result of adopting SKAS No. 15, net income for the year ended December 31, 2005 increased by Won 6.3 billion (net of tax effect of Won 2.4 billion). | |
| • | Through 2004, tax effects of temporary differences related to capital surplus or capital adjustments were excluded in determining the deferred tax assets or liabilities. Effective January 1, 2005, such tax effects of temporary differences are included in determining the deferred tax assets or liabilities, pursuant to adoption of SKAS No. 16 “Income Taxes”. Accordingly, adjustments made directly to capital surplus or capital adjustments, which result in temporary differences, are recorded net of related tax effects. In addition, effective January 1, 2005, deferred income tax assets and liabilities which were presented on the balance sheet as a single non-current net number through 2004, are separated into current and non-current portions. As a result of adopting SKAS No. 16, total assets and total liabilities as of December 31, 2005 increased by Won 67.6 billion and Won 97.8 billion, respectively, and total stockholders’ equity as of December 31, 2005 decreased by Won 30.2 billion, which was directly reflected in capital surplus or capital adjustments. See note 18 of the notes to our consolidated financial statements. |
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| • | Through 2004, provisions were recorded at nominal value. Effective January 1, 2005, provisions are recorded at the present value when the effect of the time value of money is material, pursuant to adoption of SKAS No. 17 “Provisions, Contingent Liabilities and Contingent Assets”. SKAS No. 17 is prospectively applied and as a result of adopting such accounting standard, total liabilities as of December 31, 2005 decreased by Won 7.4 billion and ordinary income and net income for the year ended December 31, 2005 increased by Won 5.4 billion. See note 25 of the notes to our consolidated financial statements. |
| Allowances for Doubtful Accounts |
| Inventories |
| Estimated Useful Lives |
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| Impairment of Long-lived Assets Including the WCDMA Frequency Usage Right |
| Impairment of Investment Securities |
| Employee Stock Option Compensation Plan |
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| Income Taxes |
| Off-Balance Sheet Arrangements |
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| As of and for the Year Ended | |||||||||||||
| December 31, | |||||||||||||
| 2003 | 2004 | 2005 | |||||||||||
| (In billions of won) | |||||||||||||
|
Internal R&D Expenses
|
|
235.8 |
|
267.1 |
|
252.0 | |||||||
|
External R&D Expenses
|
64.9 | 69.0 | 69.1 | ||||||||||
|
Total R&D Expenses
|
|
300.7 |
|
336.1 |
|
321.1 | |||||||
| Internal Research and Development |
| External Research and Development |
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| Item 5D. | Trend Information |
| Item 5E. | Off-Balance Sheet Arrangements |
| Item 5F. | Tabular Disclosure of Contractual Obligations |
| Item 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
| Item 6A. | Directors and Senior Management |
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| Other Principal | ||||||||||||||||
| Director | Expiration | Directorships and | ||||||||||||||
| Name | Date of Birth | Since | of Term | Position | Positions | Business Experience | ||||||||||
|
Jung Nam Cho
|
Nov. 20, 1941 | 1995 | 2007 | Vice-Chairman and Representative Director | President & COO, SK Telecom | |||||||||||
|
Shin Bae Kim
|
Oct. 15, 1954 | 2002 | 2008 | CEO and Representative Director | Chairman, Korea Association of RFID/USN | Head of Strategic Planning Group, Shinsegi Telecomm, Inc.; Director, SK Telecom; Senior Vice President, SK Telecom; Director, KORMS | ||||||||||
|
Bang Hyung Lee
|
Aug. 20, 1955 | 2005 | 2008 | Executive Vice- President, Chief Marketing Officer and Head of Business Center | Head of Internet Business Group, SK Telecom; Head of Marketing Group, SK Telecom; Senior Accountant, Deloitte Haskin & Sells, USA | |||||||||||
|
Sung Min Ha
|
Mar. 24, 1957 | 2004 | 2007 | Senior Vice President and Chief Financial Officer | Representative Director, SK Capital | Head of Strategic Planning Group, SK Telecom; Director, SK Telink; Auditor, SK C&C; Chairman and Representative Director, SLD Telecom; Auditor, SK Teletech | ||||||||||
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| Other Principal | ||||||||||||||||||
| Director | Expiration | Directorships and | ||||||||||||||||
| Name | Date of Birth | Since | of Term | Position | Positions | Business Experience | ||||||||||||
|
Dae Sik Kim
|
Jan. 11, 1955 | 2005 | 2008 | Independent Non- executive Director | Professor, Hanyang University; Committee Member, MOFE Advisory Committee on Financial Development | University of Pennsylvania, MBA (1981), Ph.D. (1987) | ||||||||||||
|
Yong Woon Kim
|
Oct. 4, 1943 | 2003 | 2006 | Independent Non- executive Director | Non-Standing Auditor, Pohang University of Science and Technology | Senior Executive Vice President (Legal Department, Seoul Office, Investment and Finance) and Director, POSCO; Standing Advisor, POSCO Research Institute | ||||||||||||
|
Dae Kyu Byun
|
Mar. 8, 1960 | 2005 | 2008 | Independent Non- executive Director | CEO & Representative Director, Humax Co., Ltd.; Head Vice-President, Korea Venture Business Association | Director, the Federation of Korea Information Industries; Representative Director, Guin Co.; Co-founder, Venture Leaders Club | ||||||||||||
|
Seung Taik Yang
|
Oct. 24, 1939 | 2005 | 2008 | Independent Non- executive Director | President, Tong- Myung University of Information Technology | Polytechnic Institute of Brooklyn, Ph.D.; 7th Minister, Ministry of Information and Communication | ||||||||||||
|
Jae Seung Yoon
|
Nov. 9, 1962 | 2002 | 2008 | Independent Non- executive Director | CEO & Representative Director; Daewoong Pharmaceutical Co., Ltd.; Vice-president, Insung Information Co., Ltd. | Public Prosecutor, The Seoul/Busan District Public Prosecutors’ Office; Auditor and Vice President, Daewoong Pharmaceutical Co., Ltd. | ||||||||||||
|
Sang C. Lee
|
Jan. 24, 1941 | 1999 | 2008 | Independent Non- executive Director | IT Consultant | Chairman, Communication Network Interface, Inc.; Chairman and CEO, Spectron Corp.; President, Scovill Fasteners, Inc.; Director of Organization, ITT Worldwide Corp.; Vice President, ITT Asia Pacific Corp. | ||||||||||||
|
Hyun Chin Lim
|
Apr. 26, 1949 | 2006 | 2009 | Independent Non- executive Director | Dean, Seoul National University, Professor, Central Officials Training Institute; Chairman, Korea Association of Sociology | Professor, Seoul National University | ||||||||||||
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| Item 6B. | Compensation |
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| Number of | |||||||||||||||||||
| Shares Allotted | Number of | ||||||||||||||||||
| Options | |||||||||||||||||||
| Name | Position | 2003 | 2004 | 2005 | Exercised | ||||||||||||||
|
Jung Nam Cho
|
Director | 0 | 0 | 0 | 0 | ||||||||||||||
|
Shin Bae Kim
|
Director | 0 | 0 | 0 | 0 | ||||||||||||||
|
Bang Hyung Lee
|
Director | 0 | 0 | 0 | 0 | ||||||||||||||
|
Sung Min Ha
|
Director | 0 | 0 | 0 | 0 | ||||||||||||||
|
Dae Sik Kim
|
Independent Non-executive Director | 0 | 0 | 0 | 0 | ||||||||||||||
|
Yong Woon Kim
|
Independent Non-executive Director | 0 | 0 | 0 | 0 | ||||||||||||||
|
Dae Kyu Byun
|
Independent Non-executive Director | 0 | 0 | 0 | 0 | ||||||||||||||
|
Seung Taik Yang
|
Independent Non-executive Director | 0 | 0 | 0 | 0 | ||||||||||||||
|
Jae Seung Yoon
|
Independent Non-executive Director | 0 | 0 | 0 | 0 | ||||||||||||||
|
Sang C. Lee
|
Independent Non-executive Director | 0 | 0 | 0 | 0 | ||||||||||||||
|
Hyun Chin Lim
|
Independent Non-executive Director | 0 | 0 | 0 | 0 | ||||||||||||||
|
Other Officers
|
0 | 0 | 0 | 0 | |||||||||||||||
|
Total
|
0 | 0 | 0 | 0 | |||||||||||||||
| Item 6C. | Board Practices |
| • | 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. |
84
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85
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| NYSE Corporate Governance Standards | SK Telecom Corporate Governance Practice | |
|
Director Independence
|
||
| Listed companies must have a majority of independent directors. | Of the 11 members of our board of directors, 7 are independent directors. | |
|
Executive Session
|
||
| Listed companies must hold meetings solely attended by non-management directors to more effectively check and balance management directors. | 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. | Although we do not have a separate nomination/ corporate governance committee, we maintain an Independent Director Recommendation Committee composed of independent directors and management directors. |
| NYSE Corporate Governance Standards | SK Telecom Corporate Governance Practice | |
|
Audit Committee
|
||
| Listed companies must have an audit committee that satisfies the requirements of Rule 10A-3 under the Exchange Act. | 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 more than 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 Law 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. |
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| Item 6D. | Employees |
| Regular | Temporary | |||||||||||
| Employees | Employees | Total | ||||||||||
|
December 31, 2003
|
5,447 | 1,474 | 6,921 | |||||||||
|
December 31, 2004
|
6,421 | 932 | 7,353 | |||||||||
|
December 31, 2005
|
5,727 | 919 | 6,646 | |||||||||
| New | |||||||||||||||||||||||||
| Marketing | Production | Research | Support | Business | Total | ||||||||||||||||||||
|
Regular Employees
|
1,613 | 1,880 | 552 | 1,011 | 691 | 5,727 | |||||||||||||||||||
|
Temporary Employees
|
669 | 148 | 6 | 80 | 16 | 919 | |||||||||||||||||||
|
Total
|
2,282 | 2,028 | 558 | 1,091 | 687 | 6,646 | |||||||||||||||||||
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Table of Contents
| Item 6E. | Share Ownership |
| Percentage | ||||||||||||||||||||
| Number | of Total | Special | ||||||||||||||||||
| of Shares | Shares | Voting | ||||||||||||||||||
| Name | Position | Owned | Outstanding | Rights | Options | |||||||||||||||
|
Standing Directors
:
|
||||||||||||||||||||
|
Jung Nam Cho
|
Vice-Chairman and Representative | 0 | 0 | None | 6,150 | |||||||||||||||
| Director | ||||||||||||||||||||
|
Shin Bae Kim
|
CEO and Representative Director | 1,270 | * | None | 1,650 | |||||||||||||||
|
Bang Hyung Lee
|
Executive Vice-President | 1,630 | * | None | 1,620 | |||||||||||||||
|
Sung Min Ha
|
Chief Financial Officer | 738 | * | None | 690 | |||||||||||||||
|
Non-Standing Directors
:
|
||||||||||||||||||||
|
Dae Sik Kim
|
Independent Non-executive Director | 0 | 0 | None | 1,000 | |||||||||||||||
|
Yong Woon Kim
|
Independent Non-executive Director | 0 | 0 | None | 0 | |||||||||||||||
|
Dae Kyu Byun
|
Independent Non-executive Director | 50 | * | None | 1,000 | |||||||||||||||
|
Seung Taik Yang
|
Independent Non-executive Director | 0 | 0 | None | 0 | |||||||||||||||
|
Jae Seung Yoon
|
Independent Non-executive Director | 200 | * | None | 1,000 | |||||||||||||||
|
Sang C. Lee
|
Independent Non-executive Director | 0 | 0 | None | 1,000 | |||||||||||||||
|
Hyun Chin Lim
|
Independent Non-executive Director | 0 | 0 | None | 0 | |||||||||||||||
| * | Less than 1.0% |
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Table of Contents
| Item 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
| Item 7A. | Major Shareholders |
| Percentage | Percentage | ||||||||||||
| Total | Total | ||||||||||||
| Number of | Shares | Shares | |||||||||||
| Shareholder/Category | Shares | Issued | Outstanding | ||||||||||
|
Domestic Shareholders
|
|||||||||||||
|
SK Group(1)
|
18,748,459 | 22.79 | % | 25.47 | % | ||||||||
|
POSCO
|
2,991,496 | 3.64 | 4.06 | ||||||||||
|
Employees(2)
|
297,246 | 0.36 | 0.40 | ||||||||||
|
Treasury shares(3)
|
8,662,415 | 10.53 | N/A | ||||||||||
|
Officers and Directors
|
4,688 | 0.01 | 0.01 | ||||||||||
|
Other Domestic Shareholders
|
11,466,681 | 13.93 | 15.58 | ||||||||||
|
Foreign Shareholders
|
40,105,726 | 48.74 | 54.48 | ||||||||||
|
Total Issued Shares
|
82,276,711 | 100.00 | % | 100.00 | % | ||||||||
| (1) | The SK Group’s ownership interest consists of the following as of December 31, 2005: |
| Percentage | Percentage | |||||||||||
| Total | Total | |||||||||||
| Number of | Shares | Shares | ||||||||||
| SK Group Member | Shares | Issued | Outstanding | |||||||||
|
SK Corporation
|
17,663,127 | 21.47 | % | 24.00 | % | |||||||
|
SK Securities Co., Ltd.
|
7 | 0.00 | 0.00 | |||||||||
|
SK Networks
|
1,085,325 | 1.32 | 1.47 | |||||||||
| 18,748,459 | 22.79 | % | 25.47 | % | ||||||||
| (1) | The SK Group is a group of affiliated entities. As of December 31, 2005, the ownership interests among the SK Group included, among others: |
| • | SK Corporation owned: 21.47% of SK Telecom Co., Ltd., 40.97% of SK Networks, 46.22% of SKC and 72.13% of SK Shipping Co., Ltd. | |
| • | SK Networks owned 1.32% of SK Telecom Co., Ltd., 17.71% of SK Shipping, 15% of SK Computer & Communications Co., Ltd., and 22.71% of SK Securities Co., Ltd. | |
| • | SK Chemicals owned 0.83% of SK Corporation and 39.40% of SK Engineering and Construction. | |
| • | SKC owned 6.2% of SK Chemicals, 10.16% of SK Shipping Co., Ltd. and 12.41% of SK Securities Co., Ltd. | |
| • | SK Shipping Co., Ltd. owned 30.94% of SK Engineering and Construction. | |
| • | SK Computer & Communications Co., Ltd. owned 11.16% of SK Corporation. | |
| • | We owned 30.0% of SK Computer & Communications Co., Ltd. |
| (2) | Represents shares owned by our employee stock ownership association. See “Item 6D. Employees”. |
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Table of Contents
| (3) | Treasury shares do not have any voting rights; includes 1,777,173 treasury shares that were deposited with Korea Securities Depository to be reserved and used to satisfy the conversion rights of the holders of US$329.5 million in zero coupon convertible notes that were sold in May 2004. |
| As of December 31, | ||||||||||||
| Shareholder | 2003 | 2004 | 2005 | |||||||||
| (As a percentage of total | ||||||||||||
| issued shares)(1) | ||||||||||||
|
SK Group
|
24.60 | % | 24.03 | % | 22.79 | % | ||||||
|
SK Corporation
|
21.47 | 21.47 | 21.47 | |||||||||
|
SK Networks(2)
|
3.06 | 2.55 | 1.32 | |||||||||
|
POSCO(3)
|
4.98 | 4.98 | 3.64 | |||||||||
| (1) | Includes 8,662,403, 8,662,415 and 8,662,415 shares held in treasury as of December 31, 2003, 2004 and 2005, respectively. |
| (2) | SK Networks sold 418,000 shares in January 2004 and currently owns 1,085,325 shares. |
| (3) | POSCO acquired these shares in connection with our acquisition of a 27.7% equity interest in Shinsegi. |
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| Item 7B. | Related Party Transactions |
91
Table of Contents
| Item 7C. | Interest of Experts and Counsel |
92
Table of Contents
| Item 8. | FINANCIAL INFORMATION |
| Item 8A. | Consolidated Statements and Other Financial Information |
| FTC Proceedings |
| MIC Proceedings |
93
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94
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| Multinet Litigation |
| Coloring Litigation |
| GNI Enterprise Litigation |
95
Table of Contents
| Number of Shares | ||||||||||||
| Dividend | Total Amount of | Entitled to | ||||||||||
| Year Ended December 31, | per Share | Dividends | Dividend | |||||||||
| (In won)(1) | (In billions of won) | |||||||||||
|
1997
|
|
90 |
|
5.6 | 62,169,720 | |||||||
|
1998
|
118 | 7.6 | 64,258,670 | |||||||||
|
1999
|
185 | 15.4 | 83,284,110 | |||||||||
|
2000
|
540 | 48.1 | 89,079,034 | |||||||||
|
2001
|
690 | 57.3 | 82,993,404 | |||||||||
|
2002
|
1,800 | 151.7 | 84,299,698 | |||||||||
|
2003
|
5,500 | 404.9 | 73,614,308 | |||||||||
|
2004
|
10,300 | 758.2 | 73,614,296 | |||||||||
|
2005
|
9,000 | 662.5 | 73,614,296 | |||||||||
| (1) | Dividend per share and amount of shares entitled to dividend have been adjusted to give effect to the 10-for-1 stock split of our common shares which became effective on April 21, 2000. |
96
Table of Contents
| Item 8B. | Significant Changes |
| Item 9. | THE OFFER AND LISTING |
| Item 9A. | Offering and Listing Details |
97
Table of Contents
Prices(1)
Average Daily
Trading Volume
Calendar Year
High(1)
Low(1)
Close
(Number of Shares)
(Won per share)
295,000
165,000
268,000
242,254
293,500
182,000
183,000
253,393
235,500
165,000
191,500
312,070
233,000
184,500
208,000
154,785
295,000
220,000
268,000
250,676
299,000
209,500
229,000
261,482
299,000
242,000
290,000
263,168
292,000
239,000
269,500
227,115
279,500
209,500
237,000
241,154
252,500
220,000
229,000
314,019
235,000
142,000
199,000
327,689
235,000
142,000
153,000
497,115
210,000
157,500
204,000
298,346
216,000
183,000
184,000
267,821
212,500
185,000
199,000
247,332
238,500
154,500
197,000
179,712
238,500
207,500
214,500
243,681
213,000
179,000
190,000
188,095
186,000
154,500
175,500
137,559
205,000
174,500
197,000
151,903
216,500
163,500
181,000
187,053
200,500
171,000
171,000
203,869
192,500
163,500
182,000
137,021
216,500
178,500
202,500
156,019
209,500
181,000
181,000
249,550
237,500
176,000
201,000
197,780
204,500
176,000
192,500
177,491
192,000
176,000
192,000
221,563
204,500
189,500
202,500
201,075
203,000
187,500
192,500
113,984
237,500
188,500
201,000
220,204
222,500
188,500
221,500
262,914
237,000
207,500
225,500
182,659
234,000
193,000
201,000
214,127
| (1) | Both high and low prices are based on the daily closing prices for the period. |
98
Table of Contents
Prices(1)
Average Daily
Trading Volume
Calendar Year
High(1)
Low(1)
Close
(Number of Shares)
(US$ per ADS)
(Number of ADSs)
28.94
13.50
21.62
710,410
28.94
15.18
15.18
743,602
21.05
13.50
16.90
817,532
20.21
16.15
18.44
655,302
25.29
18.26
21.62
623,611
26.75
19.25
21.35
684,421
24.70
20.30
24.60
488,958
26.75
20.20
24.40
555,865
26.36
19.25
21.23
963,578
22.81
19.30
21.35
717,859
21.85
12.83
18.65
743,316
21.85
12.83
13.62
971,259
19.40
14.07
18.86
723,959
20.83
17.71
17.84
724,406
19.90
17.46
18.65
564,023
25.01
17.28
22.25
911,823
25.01
19.43
21.30
1,331,177
21.83
19.15
20.99
832,175
20.76
17.28
19.45
768,117
23.10
19.30
22.25
727,683
23.14
18.96
20.29
882,342
22.19
19.41
19.72
798,390
21.84
18.96
20.40
618,870
23.14
20.06
21.84
1,071,227
21.95
19.74
20.29
1,039,398
27.70
20.62
22.54
983,033
24.56
20.62
23.59
952,819
23.23
20.62
23.23
1,123,040
24.51
23.06
24.15
1,096,226
24.56
23.00
23.59
686,335
27.70
22.54
22.54
1,015,329
26.70
23.31
26.70
874,747
27.70
24.91
26.10
1,073,577
26.75
22.54
22.54
1,097,071
| (1) | Both high and low prices are based on the daily closing prices for the period. |
99
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| The Korea Exchange Inc. |
100
Table of Contents
| Period Average | ||||||||||||||||||||||||
| Price | ||||||||||||||||||||||||
| Dividend | Earnings | |||||||||||||||||||||||
| Year | Opening | High | Low | Closing | Yield(1)(%) | Ratio(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 | ||||||||||||||||||
|
2000
|
1,059.04 | 1,059.04 | 500.60 | 504.62 | 2.1 | 12.9 | ||||||||||||||||||
|
2001
|
520.95 | 704.50 | 468.76 | 693.70 | 1.7 | 16.4 | ||||||||||||||||||
|
2002
|
724.95 | 937.61 | 584.04 | 829.44 | 1.6 | 15.2 | ||||||||||||||||||
|
2003
|
635.17 | 822.16 | 515.24 | 810.71 | 2.0 | 11.8 | ||||||||||||||||||
|
2004
|
821.26 | 936.06 | 719.59 | 895.92 | 2.0 | 13.8 | ||||||||||||||||||
|
2005
|
893.71 | 1,379.37 | 870.84 | 1,379.37 | 1.8 | 10.6 | ||||||||||||||||||
|
2006 (though June 26)
|
1,383.32 | 1,469.70 | 1,192.09 | 1,238.05 | N/A | N/A | ||||||||||||||||||
| (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. |
| (3) | Starting in April 2000, dividend yield and price earnings ratio of KOSPI 200, an index of 200 equity securities listed on the KRX Stock Market. Starting in April 2000, excludes classified companies, companies which did not submit annual reports to the KRX, and companies which received disqualified opinion from external auditors. |
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| Market Capitalization | ||||||||||||||||||||||||
| on the Last Day of Each Period | Average Trading Volume & Value | |||||||||||||||||||||||
| Number of | ||||||||||||||||||||||||
| Listed | (Millions of | (Thousands of | Thousands of | (Millions of | (Thousands of | |||||||||||||||||||
| Year | Companies | Won) | Dollars)(1) | Shares | Won) | Dollars)(1) | ||||||||||||||||||
|
1980
|
352 |
|
2,526,553 | US $ | 3,828,691 | 5,654 |
|
3,897 | US $ | 5,905 | ||||||||||||||
|
1981
|
343 | 2,959,057 | 4,224,207 | 10,565 | 8,708 | 12,433 | ||||||||||||||||||
|
1982
|
334 | 3,000,494 | 4,407,711 | 9,704 | 6,667 | 8,904 | ||||||||||||||||||
|
1983
|
328 | 3,489,654 | 4,386,743 | 9,325 | 5,941 | 7,468 | ||||||||||||||||||
|
1984
|
336 | 5,148,460 | 6,222,456 | 14,847 | 10,642 | 12,862 | ||||||||||||||||||
|
1985
|
342 | 6,570,404 | 7,380,818 | 18,925 | 12,315 | 13,834 | ||||||||||||||||||
|
1986
|
355 | 11,994,233 | 13,924,115 | 31,755 | 32,870 | 38,159 | ||||||||||||||||||
|
1987
|
389 | 26,172,174 | 33,033,162 | 20,353 | 70,185 | 88,584 | ||||||||||||||||||
|
1988
|
502 | 64,543,685 | 94,348,318 | 10,367 | 198,364 | 289,963 | ||||||||||||||||||
|
1989
|
626 | 95,476,774 | 140,489,660 | 11,757 | 280,967 | 414,431 | ||||||||||||||||||
|
1990
|
669 | 79,019,676 | 110,301,055 | 10,866 | 183,692 | 256,500 | ||||||||||||||||||
|
1991
|
686 | 73,117,833 | 96,182,364 | 14,022 | 214,263 | 281,850 | ||||||||||||||||||
|
1992
|
688 | 84,711,982 | 107,502,515 | 24,028 | 308,246 | 391,175 | ||||||||||||||||||
|
1993
|
693 | 112,665,260 | 139,419,948 | 35,130 | 574,048 | 676,954 | ||||||||||||||||||
|
1994
|
699 | 151,217,231 | 191,729,721 | 36,862 | 776,257 | 984,223 | ||||||||||||||||||
|
1995
|
721 | 141,151,399 | 182,201,367 | 26,130 | 487,762 | 629,614 | ||||||||||||||||||
|
1996
|
760 | 117,369,988 | 139,031,021 | 26,571 | 486,834 | 575,733 | ||||||||||||||||||
|
1997
|
776 | 70,988,897 | 50,161,742 | 41,525 | 555,759 | 392,707 | ||||||||||||||||||
|
1998
|
748 | 137,798,451 | 114,090,455 | 97,716 | 660,429 | 471,432 | ||||||||||||||||||
|
1999
|
725 | 349,503,966 | 305,137,040 | 278,551 | 3,481,620 | 3,039,654 | ||||||||||||||||||
|
2000
|
704 | 188,041,490 | 150,162,898 | 306,163 | 2,602,211 | 2,078,028 | ||||||||||||||||||
|
2001
|
689 | 225,850,076 | 194,784,979 | 473,241 | 1,997,420 | 1,520,685 | ||||||||||||||||||
|
2002
|
683 | 258,680,756 | 218,167,122 | 851,242 | 3,041,592 | 2,414,362 | ||||||||||||||||||
|
2003
|
684 | 355,362,626 | 297,960,530 | 542,010 | 2,216,636 | 1,858,580 | ||||||||||||||||||
|
2004
|
683 | 412,588,138 | 427,069,982 | 372,894 | 2,232,108 | 2,310,455 | ||||||||||||||||||
|
2005
|
702 | 655,074,595 | 648,588,707 | 467,629 | 3,157,662 | 3,126,398 | ||||||||||||||||||
|
2006 (through June 26)
|
717 | 604,501,659 | 598,516,494 | 336,721 | 4,105,713 | 4,065,062 | ||||||||||||||||||
| (1) | Converted at the noon buying rate in The City of New York for cable transfers in Won per US$1.00 as certified for customs purposes by the Federal Reserve Bank of New York. |
103
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| Further Opening of the Korean Securities Market |
| Protection of Customer’s Interest in Case of Insolvency of Securities Companies |
104
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| Item 9D. | Selling Shareholders |
| Item 9E. | Dilution |
| Item 9F. | Expenses of the Issue |
| Item 10. | ADDITIONAL INFORMATION |
| Item 10A. | Share Capital |
| Item 10B. | Memorandum and Articles of Association |
| • | information and communication business; | |
| • | sale and lease of subscriber handsets; | |
| • | new media business; | |
| • | advertising business; | |
| • | mail order business; | |
| • | business of leasing available and real estate property; | |
| • | 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; |
105
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| • | tourism; and | |
| • | any business or undertaking incidental or conducive to the attainment of the objectives stated above. |
| • | investment by us or any of our subsidiaries in a foreign company or equity or other overseas assets in an amount equal to 5.0% or more of our shareholders’ 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 billion through one or a series of transactions. |
106
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107
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| • | as necessary; | |
| • | at the request of holders of an aggregate of 3.0% or more of our outstanding common shares; | |
| • | at the request of shareholders holding an aggregate of 3.0% or more of our outstanding shares for at least six months; or | |
| • | at the request of our audit committee. |
108
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| • | amending our articles of incorporation; | |
| • | removing a director; | |
| • | effecting any dissolution, merger or consolidation of us; | |
| • | transferring the whole or any significant part of our business; | |
| • | 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; | |
| • | reducing our capital; or | |
| • | issuing any new shares at a price lower than their par value. |
109
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110
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111
Table of Contents
112
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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 it or 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; | |
| • | 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 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 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; | |
| • | the pre-release must be fully collateralized with cash or U.S. government securities; | |
| • | the ADR depositary must be able to terminate the pre-release on not more than five business day’s notice; and | |
| • | the pre-release is subject to further indemnities and credit regulations as the ADR depositary deems appropriate. |
113
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| • | any cash dividend or other cash distribution becomes payable; | |
| • | any distribution other than cash is made; | |
| • | rights are issued with respect to deposited shares of common stock; | |
| • | the ADR depositary causes a change in the number of shares of common stock that are represented by each ADS; or | |
| • | the ADR depositary receives notice of any shareholders’ meeting. |
114
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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; | |
| • | 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 | |
| • | a statement as to the manner in which the ADR holders may give their instructions. |
115
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| • | to collect dividends and other distributions pertaining to the deposited shares of common stock; | |
| • | to sell property and rights and the conversion of deposited shares of common stock into cash as provided in the deposit agreement; and | |
| • | 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. |
116
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| • | taxes and other governmental charges; | |
| • | 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; | |
| • | cable, telex and facsimile transmission expenses that are expressly provided in the deposit agreement; | |
| • | expenses incurred by the ADR depositary in the conversion of foreign currency into Dollars under the deposit agreement; | |
| • | 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 | |
| • | 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. |
117
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118
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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 MOFE 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 or certain other governmental agencies or financial institutions; and | |
| • | 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 MOFE 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 or certain other governmental agencies or financial institutions. |
| • | 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 offerings of ADSs and stock dividends or other distributions related to the ADSs). | |
| • | We can give no assurance that we would grant our consent, if our consent is required. 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 10B. 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. |
119
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120
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| • | odd-lot trading of shares; | |
| • | acquisition of shares by a foreign company as a result of a merger; | |
| • | acquisition or disposal of shares in connection with a tender offer; | |
| • | 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”); | |
| • | acquisition of shares through exercise of rights under securities issued outside of Korea; | |
| • | 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; | |
| • | 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; and | |
| • | acquisition of shares by direct investment under the Foreign Investment Promotion Law. |
121
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122
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| • | a dealer in securities or currencies; | |
| • | a trader in securities that elects to use a mark-to -market method of accounting for securities holdings; | |
| • | a bank; | |
| • | a life insurance company; | |
| • | a tax-exempt organization; | |
| • | a person that holds common shares or ADSs that are a hedge or that are hedged against interest rate or currency risks; | |
| • | a person that holds common shares or ADSs as part of a straddle or conversion transaction for tax purposes; | |
| • | a person whose functional currency for tax purposes is not the U.S. dollar; or | |
| • | a person that owns or is deemed to own 10% or more of any class of our stock. |
| • | a citizen or resident of the United States; | |
| • | a U.S. domestic corporation; or | |
| • | otherwise subject to U.S. federal income tax on a net income basis with respect to income from the common share or ADS. |
123
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| Dividends |
| Sale or Other Disposition |
| Foreign Tax Credit Considerations |
124
Table of Contents
| • | a resident of Korea; | |
| • | a corporation organized under Korean law; or | |
| • | engaged in a trade or business in Korea through a permanent establishment or a fixed base to which the relevant income is attributable or with which the relevant income is effectively connected. |
125
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126
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127
Table of Contents
| Item 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
| Maturities | ||||||||||||||||||||||||||||||||||
| 2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||||
| (In billions of won, except for percentage data) | ||||||||||||||||||||||||||||||||||
|
Local currency:
|
||||||||||||||||||||||||||||||||||
|
Fixed rate
|
|
795.2 |
|
692.0 |
|
297.9 |
|
297.8 |
|
194.6 |
|
189.3 |
|
2,466.7 |
|
2,509.5 | ||||||||||||||||||
|
Average weighted rate(1)
|
5.53 | % | 5.57 | % | 5.00 | % | 5.00 | % | 4.00 | % | 3.00 | % | ||||||||||||||||||||||
|
Variable rate
|
— | — | — | — | — | — | ||||||||||||||||||||||||||||
|
Average weighted rate(1)
|
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
|
Sub-total
|
|
795.2 |
|
692.0 |
|
297.9 |
|
297.8 |
|
194.6 |
|
189.3 |
|
2,466.7 |
|
2,509.5 | ||||||||||||||||||
|
Foreign currency:
|
||||||||||||||||||||||||||||||||||
|
Fixed rate
|
— | — | — | 341.7 | — | 301.0 | 642.7 | 647.5 | ||||||||||||||||||||||||||
|
Average weighted rate(1)
|
— | — | — | 0.00 | % | — | 4.25 | % | ||||||||||||||||||||||||||
|
Variable rate
|
1.1 | 0.1 | — | — | — | — | 1.2 | 1.2 | ||||||||||||||||||||||||||
|
Average weighted rate(1)
|
3.34 | % | 3.39 | % | 3.39 | % | 3.39 | % | — | — | ||||||||||||||||||||||||
|
Sub-total
|
|
1.1 |
|
0.1 |
|
— |
|
341.7 |
|
— |
|
301.0 |
|
643.9 |
|
648.7 | ||||||||||||||||||
|
Total
|
|
796.3 |
|
692.1 |
|
297.9 |
|
639.5 |
|
194.6 |
|
490.3 |
|
3,110.6 |
|
3,158.2 | ||||||||||||||||||
| (1) | Weighted average rates of the portfolio at the period end. |
128
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| Item 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
| Item 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
| Item 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
| Item 15. | CONTROLS AND PROCEDURES |
129
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| Years Ended | |||||||||
| December 31, | |||||||||
| 2005 | 2004 | ||||||||
| (In millions of won) | |||||||||
|
Audit
|
|
838.9 |
|
841.3 | |||||
|
Audit Related
|
|
86.7 |
|
127.7 | |||||
|
Tax
|
|
139.4 |
|
110.1 | |||||
|
All Other Fees
|
|
900.0 |
|
2,418.0 | |||||
|
Total
|
|
1,965.0 |
|
3,497.1 | |||||
130
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131
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| Item 17. | FINANCIAL STATEMENTS |
| Item 18. | FINANCIAL STATEMENTS |
|
Report of Independent Registered Public Accounting Firm
|
F-3 | |||
|
Consolidated balance sheets as of December 31, 2004 and 2005
|
F-4 | |||
|
Consolidated statements of income for the years ended
December 31, 2003, 2004 and 2005
|
F-6 | |||
|
Consolidated statements of changes in stockholders’ equity
for the years ended December 31, 2003, 2004 and 2005
|
F-8 | |||
|
Consolidated statements of cash flows for the years ended
December 31, 2003, 2004 and 2005
|
F-10 | |||
|
Notes to consolidated financial statements
|
F-14 |
132
Table of Contents
| Number | Description | |||
| 1 | .1 | Memorandum and Articles of Association | ||
| 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 | ||
| 4 | .1 | Telecommunications Basic Law of 1983, as amended (English translation) | ||
| 4 | .2 | Enforcement Decree of the Telecommunications Basic Law, as amended (English translation) | ||
| 4 | .3 | Telecommunications Business Law of 1983, as amended (English translation) | ||
| 4 | .4 | Enforcement Decree of the Telecommunications Business Law (English translation)*** | ||
| 4 | .5 | Korean Commercial Code (together with English translation)* | ||
| 4 | .6 | Amendment to Korean Commercial Code dated December 29, 2001 (together with English translation)** | ||
| 4 | .7 | Korean Securities and Exchange Act, as amended (English translation) | ||
| 8 | .1 | List of Subsidiaries of SK Telecom Co., Ltd. | ||
| 11 | .1 | Code of Ethics 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 | ||
| 99 | .1 | Consent of Deloitte Anjin LLC | ||
|
*
|
Filed previously as exhibits to our Form 20-F filed on June 30, 2000. | |
|
**
|
Filed previously as exhibits to our Form 20-F filed on June 28, 2002. | |
|
***
|
Filed previously as exhibits to our Form 20-F filed on May 31, 2005. |
133
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|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-3 | |
|
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2004 AND 2005
|
F-4 | |
|
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED
DECEMBER 31, 2003, 2004 AND 2005
|
F-6 | |
|
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
|
F-8 | |
|
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2003, 2004 AND 2005
|
F-10 | |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
F-14 |
F-1
Table of Contents
F-2
Table of Contents
F-3
Table of Contents
2003
2004
2005
2005
(In millions of Korean won)
(In thousands of
U.S. dollars
(Note 2(a)))
ASSETS
W
317,488
W
370,630
W
378,426
$
374,679
154,922
12,730
106,592
105,537
893,217
654,779
777,472
769,774
85,861
3,709
1
1
W
65,327 million,
W
71,090 million and
W
133,499 million at December 31, 2003, 2004
and 2005, respectively (Notes 2,13 and 24)
1,579,153
1,720,201
1,684,119
1,667,445
W
516 million,
W
564 million and
W
1,350 million at December 31, 2003, 2004 and
2005, respectively (Notes 2 and 6)
48,849
55,355
65,539
64,890
W
16,768 million,
W
15,622 million and
W
17,526 million at December 31, 2003, 2004
and 2005, respectively (Notes 2, 13 and 24)
867,120
1,406,553
1,369,691
1,356,130
31,516
52,321
7,784
7,707
68,256
84,933
104,124
103,093
—
—
66,117
65,462
23,143
29,482
38,715
38,331
4,069,525
4,390,693
4,598,580
4,553,049
4,641,547
4,703,922
4,663,369
4,617,197
3,674,944
3,522,903
3,452,889
3,418,702
879,193
948,101
1,220,208
1,208,127
183,709
304,028
471,879
467,207
352
10,351
1,479
1,464
W
19,552 million,
W
19,273 million and
W
19,130 million at December 31, 2003, 2004
and 2005, respectively (Notes 2 and 6)
40,819
30,442
18,430
18,248
270,255
289,015
168,559
166,890
—
—
1,495
1,480
57,873
83,903
107,884
106,816
9,748,692
9,892,665
10,106,192
10,006,131
W
13,818,217
W
14,283,358
W
14,704,772
$
14,559,180
F-4
Table of Contents
F-5
F-6
F-7
F-8
F-9
F-10
F-11
F-12
F-13
F-14
F-15
F-16
F-17
F-18
F-19
F-20
F-21
F-22
F-23
F-24
F-25
F-26
F-27
F-28
F-29
F-30
F-31
F-32
F-33
F-34
F-35
F-36
F-37
F-38
F-39
F-40
F-41
F-42
F-43
F-44
F-45
F-46
F-47
F-48
F-49
F-50
F-51
F-52
F-53
F-54
F-55
F-56
F-57
F-58
F-59
F-60
F-61
F-62
F-63
F-64
F-65
F-66
F-67
F-68
F-69
F-70
F-71
F-72
F-73
F-74
F-75
F-76
F-77
F-78
F-79
F-80
F-81
F-82
Table of Contents
2003
2004
2005
2005
(In thousands of
U.S. dollars, except
(In millions of Korean won,
for income per share
except for income per share)
(Note 2(a)))
W
10,272,081
W
10,570,615
W
10,721,820
$
10,615,663
(407,243
)
(464,778
)
(464,764
)
(460,162
)
(2,314,558
)
(2,812,318
)
(2,859,638
)
(2,831,325
)
(1,510,545
)
(1,607,478
)
(1,546,285
)
(1,530,975
)
(771,553
)
(913,688
)
(989,417
)
(979,621
)
(306,527
)
(375,227
)
(407,043
)
(403,013
)
(376,424
)
(352,877
)
(279,390
)
(276,624
)
(235,551
)
(267,107
)
(252,046
)
(249,550
)
(144,509
)
(178,310
)
(190,134
)
(188,251
)
(129,525
)
(143,047
)
(156,098
)
(154,552
)
(96,464
)
(112,094
)
(131,719
)
(130,415
)
(22,378
)
(29,181
)
(112,792
)
(111,675
)
(560,859
)
(479,257
)
(240,746
)
(238,362
)
(290,838
)
(395,504
)
(421,132
)
(416,964
)
(7,166,974
)
(8,130,866
)
(8,051,204
)
(7,971,489
)
3,105,107
2,439,749
2,670,616
2,644,174
86,485
80,459
61,143
60,538
25,923
23,843
26,515
26,252
80,180
26,891
32,738
32,414
—
—
20,949
20,742
6,131
20,559
4,167
4,126
1,555
759
450
446
188
2,548
1
1
1,259
2,004
24,613
24,369
—
—
178,689
176,920
2,750
2,067
4,693
4,647
—
2,850
2,578
2,552
56,973
37,439
36,016
35,659
261,444
199,419
392,552
388,666
Table of Contents
2003
2004
2005
2005
(In thousands of
U.S. dollars, except
(In millions of Korean won,
for income per share
except for income per share)
(Note 2(a)))
(391,482
)
(303,410
)
(253,472
)
(250,962
)
(91,487
)
(89,232
)
(145,325
)
(143,886
)
(6,975
)
(11,954
)
(71,825
)
(71,114
)
(10,230
)
(9,074
)
(4,178
)
(4,137
)
(3,974
)
(232
)
(16
)
(16
)
(45,403
)
(1,539
)
(4,017
)
(3,977
)
(13,784
)
(19,208
)
(6,783
)
(6,716
)
(5,749
)
(33,654
)
(3,422
)
(3,388
)
—
(15,818
)
—
—
(43,131
)
(31,872
)
(12,564
)
(12,440
)
(612,215
)
(515,993
)
(501,602
)
(496,636
)
2,754,336
2,123,175
2,561,566
2,536,204
(789,059
)
(629,761
)
(693,259
)
(686,395
)
1,965,277
1,493,414
1,868,307
1,849,809
823
(1,935
)
4,671
4,625
W
1,966,100
W
1,491,479
W
1,872,978
$
1,854,434
W
26,187
W
20,261
W
25,443
$
25.19
W
26,187
W
20,092
W
25,036
$
24.79
Table of Contents
Total
Common
Capital
Retained
Capital
Minority
Shareholders’
Stock
Surplus
Earnings
Adjustments
Interest
Equity
(In millions of Korean won)
W
44,576
W
2,884,382
W
4,873,205
W
(2,295,770
)
W
725,507
W
6,231,900
—
—
1,966,100
—
(823
)
1,965,277
—
—
—
(1,379,337
)
—
(1,379,337
)
—
—
(1,545,281
)
1,524,683
—
(20,598
)
—
—
(151,739
)
—
—
(151,739
)
—
(230
)
—
—
—
(230
)
63
31,809
—
—
—
31,872
—
58
—
—
—
58
—
—
(33
)
—
—
(33
)
—
—
(2,341
)
—
(515
)
(2,856
)
—
—
—
(56,505
)
—
(56,505
)
—
(4,463
)
—
47,752
—
43,289
—
—
—
1,289
—
1,289
—
—
—
(356
)
—
(356
)
—
—
—
—
(568,184
)
(568,184
)
W
44,639
W
2,911,556
W
5,139,911
W
(2,158,244
)
W
155,985
W
6,093,847
—
—
1,491,479
—
1,935
1,493,414
—
—
(404,878
)
—
—
(404,878
)
—
—
(73,614
)
—
—
(73,614
)
—
(77
)
—
—
—
(77
)
—
67,279
—
—
—
67,279
—
—
—
(2
)
—
(2
)
—
(10,457
)
—
91,795
—
81,338
—
—
—
67,647
—
67,647
—
—
—
(49,452
)
—
(49,452
)
—
—
—
1,092
—
1,092
—
—
—
(11,128
)
—
(11,128
)
—
—
—
—
(59,722
)
(59,722
)
W
44,639
W
2,968,301
W
6,152,898
W
(2,058,292
)
W
98,198
W
7,205,744
Table of Contents
Total
Common
Capital
Retained
Capital
Minority
Shareholders’
Stock
Surplus
Earnings
Adjustments
Interest
Equity
(In millions of Korean won)
W
44,639
W
2,968,301
W
6,152,898
W
(2,058,292
)
W
98,198
W
7,205,744
—
—
1,872,978
—
(4,671
)
1,868,307
—
—
(684,613
)
—
—
(684,613
)
—
—
(73,614
)
—
—
(73,614
)
—
(18,502
)
—
—
—
(18,502
)
—
1,533
—
(1,533
)
—
—
—
3,508
—
(73,008
)
—
(69,500
)
—
—
—
50,882
—
50,882
—
—
—
35,276
—
35,276
—
—
—
180
—
180
—
—
—
(2,020
)
—
(2,020
)
—
—
—
—
15,400
15,400
W
44,639
W
2,954,840
W
7,267,649
W
(2,048,515
)
W
108,927
W
8,327,540
(In thousands of U.S. dollars) (Note 2(a))
$
44,197
$ 2,938,912
$ 6,091,978
$ (2,037,913
)
$ 97,226
$ 7,134,400
—
—
1,854,434
—
(4,625
)
1,849,809
—
—
(677,835
)
—
—
(677,835
)
—
—
(72,885
)
—
—
(72,885
)
—
(18,319
)
—
—
—
(18,319
)
—
1,518
—
(1,518
)
—
—
—
3,473
—
(72,285
)
—
(68,812
)
—
—
—
50,378
—
50,378
—
—
—
34,927
—
34,927
—
—
—
178
—
178
—
—
—
(2,000
)
—
(2,000
)
—
—
—
—
15,248
15,248
$
44,197
$ 2,925,584
$ 7,195,692
$ (2,028,233
)
$ 107,849
$ 8,245,089
Table of Contents
2003
2004
2005
2005
(In thousands
of U.S. dollars
(In millions of Korean won)
(Note 2(a)))
W
1,966,100
W
1,491,479
W
1,872,978
$
1,854,434
1,649,902
1,752,530
1,675,528
1,658,939
65,375
58,151
47,073
46,607
23,304
43,144
115,731
114,585
2,546
2,179
981
971
3,974
232
16
16
13,784
19,208
6,783
6,716
5,749
33,654
3,422
3,388
45,403
1,539
4,017
3,977
—
15,818
—
—
6,975
11,954
71,825
71,114
—
1,935
—
—
73,655
46,274
51,846
51,333
1,890,667
1,986,618
1,977,222
1,957,646
(1,555
)
(759
)
(450
)
(446
)
(668
)
(3,367
)
(658
)
(651
)
(188
)
(2,548
)
(1
)
(1
)
(1,555
)
(2,004
)
(24,613
)
(24,369
)
—
—
(178,689
)
(176,920
)
(2,750
)
(2,067
)
(4,693
)
(4,647
)
—
(2,850
)
(2,578
)
(2,552
)
—
—
(20,949
)
(20,742
)
(823
)
—
(4,671
)
(4,625
)
(12,491
)
(12,129
)
(3,769
)
(3,731
)
(20,030
)
(25,724
)
(241,071
)
(238,684
)
Table of Contents
2003
2004
2005
2005
(In thousands
of U.S. dollars
(In millions of Korean won)
(Note 2(a)))
(159,160
)
(170,891
)
(210,957
)
(208,868
)
(48,789
)
(552,343
)
22,284
22,063
(4,056
)
(20,982
)
8,297
8,215
(30,417
)
(5,549
)
(15,922
)
(15,764
)
(396,700
)
(90,977
)
(34,441
)
(34,100
)
(11,597
)
(125,430
)
88,477
87,601
24,385
(26,622
)
(12,944
)
(12,816
)
45,776
25,188
(1,009
)
(999
)
120,879
78,356
7,640
7,564
(24,516
)
(27,582
)
(24,365
)
(24,124
)
621
755
785
777
(24,727
)
(19,489
)
(32,869
)
(32,543
)
955
—
—
—
(507,346
)
(935,566
)
(205,024
)
(202,994
)
3,329,391
2,516,807
3,404,105
3,370,402
Table of Contents
2003
2004
2005
2005
(In thousands
of U.S. dollars
(In millions of Korean won)
(Note 2(a)))
W
95,123
W
90,034
W
(75,261
)
$
(74,516
)
(137,618
)
240,204
(122,710
)
(121,495
)
51,612
89,447
60,530
59,931
—
50,006
2
2
70,267
85,861
53,608
53,077
762,896
17,658
40,889
40,484
2,889
268
7,539
7,464
—
—
290,966
288,085
9,980
4,746
57
56
67,410
22,096
142,131
140,724
50,758
36,287
36,110
35,753
12,828
10,116
34,179
33,841
2,248
2,291
107
106
(60,145
)
(56,428
)
(59,008
)
(58,424
)
(350
)
(60,005
)
(1,140
)
(1,129
)
(437,076
)
(54,132
)
(319,061
)
(315,902
)
(7,158
)
(21,086
)
(231,793
)
(229,498
)
(15,578
)
(35,291
)
(5,766
)
(5,709
)
(88,223
)
(40,957
)
(75,295
)
(74,550
)
(54,090
)
(82,843
)
(86,803
)
(85,943
)
(1,647,639
)
(1,631,941
)
(1,416,622
)
(1,402,596
)
(56,745
)
(72,376
)
(199,494
)
(197,519
)
(36,442
)
(64,247
)
(11,352
)
(11,240
)
(1,415,053
)
(1,470,292
)
(1,938,187
)
(1,918,998
)
Table of Contents
2003
2004
2005
2005
(In thousands
of U.S. dollars
(In millions of Korean won)
(Note 2(a)))
W
108,669
W
—
W
—
$
—
688,737
1,205,727
193,683
191,765
13,532
—
—
—
(12,087
)
(359,133
)
(376,929
)
(373,197
)
(939,176
)
(1,370,611
)
(500,033
)
(495,082
)
—
(5,068
)
—
—
(151,739
)
(478,318
)
(758,192
)
(750,685
)
(2,654
)
(12,757
)
(7,670
)
(7,594
)
—
2,821
—
—
(1,379,337
)
(2
)
—
—
22,278
45,065
21,243
21,033
(609,262
)
3,706
(1,140
)
(1,129
)
(2,261,039
)
(968,570
)
(1,429,038
)
(1,414,889
)
72
(24,803
)
(29,084
)
(28,796
)
(346,629
)
53,142
7,796
7,719
664,117
317,488
370,630
366,960
W
317,488
W
370,630
W
378,426
$
374,679
W
328,890
W
264,224
W
203,259
$
201,247
W
675,122
W
679,262
W
588,296
$
582,471
Table of Contents
1.
GENERAL
Percentage of
Number of
Total Shares
Shares
Issued (%)
18,748,459
22.79
2,991,496
3.64
51,874,341
63.04
8,662,415
10.53
82,276,711
100.00
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a.
Basis of Presentation
b.
Principles of Consolidation
Table of Contents
Ownership Percentage (%)
Year of
Subsidiary
Establishment
Primary Business
2003
2004
2005
61.66
89.13
—
1995
Finance
100.00
100.00
100.00
1998
Telecommunication services
90.77
90.77
90.77
1999
Internet website services
92.69
93.44
92.37
2000
Business related sports
99.99
99.99
99.99
2001
Investment association
37.50
37.50
37.50
1998
Credit and collection services
50.00
50.00
50.00
1999
Internet website services
67.10
67.10
67.10
1982
Release of music disc
—
—
60.00
1995
Internet website services
100.00
100.00
100.00
2000
Telecommunication services
53.80
55.10
55.10
2002
Telecommunication services
100.00
100.00
100.00
2003
Digital multi media
broadcasting service
100.00
28.50
29.60
2004
Telecommunication services
—
100.00
100.00
2005
Telecommunication services
—
—
100.00
2005
Investment association
—
—
99.00
2005
Investment association
—
—
99.00
2005
Investment association
—
—
99.00
2005
Investment association
—
—
48.39
W
7 billion, in
accordance with Korean GAAP.
Table of Contents
W
7 billion, in
accordance with Korean GAAP.
c.
Use of Estimates
d.
Cash and Cash Equivalents
e.
Allowance for Doubtful Accounts
2003
2004
2005
W
60,542
W
65,327
W
71,090
(17,593
)
(23,418
)
(49,181
)
42,949
41,909
21,909
22,378
29,181
112,792
—
—
(1,202
)
W
65,327
W
71,090
W
133,499
f.
Inventories
W
639 million was recorded for the year
ended December 31, 2005 (nil for the years ended
December 31, 2003 and 2004).
Table of Contents
g.
Securities (excluding securities accounted for using the
equity method of accounting)
h.
Investment Securities with 20% or More
Ownership Interest
i.
Property and Equipment
j.
Intangible Assets
Table of Contents
W
1,300,000 million to the Ministry of
Information Communication (“MIC”). SK IMT Co., Ltd.,
which was merged into the Company on May 1, 2003, paid
W
650,000 million in March 2001 and the
Company is required to pay the remainder over 10 years with
an annual interest rate equal to the
3-year
-maturity
government bond rate minus 0.75% (3.58% as of December 31,
2005). The future payment obligations are
W
90,000 million in 2007,
W
110,000 million in 2008,
W
130,000 million in 2009,
W
150,000 million in 2010 and
W
170,000 million in 2011. On
December 4, 2001, SK IMT Co., Ltd. received the IMT license
from the MIC, and recorded the total license cost as an
intangible asset. Amortization of the IMT license commenced when
the Company started its commercial IMT 2000 service in December
2003, using the straight-line method over the estimated useful
life of the IMT license which expires in December 2016. The
Company determined the IMT license has a finite life,
considering that renewal cost is expected to be substantial.
k.
Convertible Bonds
l.
Discounts on Bonds
m.
Valuation of Long-Term Payables
n.
Provisions, Contingent Liabilities and Contingent Assets
—
Possible obligations related to past events, for which the
existence of a liability can only be confirmed upon occurrence
of uncertain future event or events outside the control of the
Company and certain subsidiaries.
Table of Contents
—
Present obligations arising out of past events or transactions,
for which i) a disbursement of economic resources to
fulfill such obligations is not probable or ii) a
disbursement of economic resources is probable, but the related
amount cannot be reasonably estimated.
o.
Accrued Severance Indemnities
W
144,861 million,
W
164,643 million and
W
191,354 million as of December 31,
2003, 2004 and 2005, respectively, were deducted from accrued
severance indemnities in accordance with Korean GAAP.
W
6,229 million,
W
5,687 million and
W
5,217 million as of December 31,
2003, 2004 and 2005, respectively, are deducted from accrued
severance indemnities.
2003
2004
2005
W
48,519
W
67,824
W
80,984
65,375
58,151
47,073
(24,516
)
(27,582
)
(24,365
)
955
—
—
2,395
2,372
594
(24,904
)
(19,781
)
(33,002
)
W
67,824
W
80,984
W
71,284
W
218,914
W
251,314
W
267,855
(144,861
)
(164,643
)
(191,354
)
(6,229
)
(5,687
)
(5,217
)
W
67,824
W
80,984
W
71,284
Table of Contents
Year ending December 31,
W
248,710
(note)
9
629
400
808
10,661
W
261,217
(note)
The future benefits in 2006 include early settlement of
retirement benefit of
W
243,847 million
which is paid in April 2006, in accordance with a resolution of
the Company’s a joint labor-management conference dated
March 16, 2006. These amounts do not include additional
bonuses for early settlement and voluntary early retirement
amounting to
W
125,890 million and
W
14,705 million, respectively, which is
paid in April 2006.
p.
Accounting for Leases
q.
Research and Development Costs
W
235,551 million,
W
267,107 million and
W
252,046 million for the years ended
December 31, 2003, 2004 and 2005, respectively, and
external research and development costs of
W
64,893 million,
W
69,016 million and
W
69,140 million for the years ended
December 31, 2003, 2004 and 2005, respectively.
r.
Derivative Instruments
Table of Contents
s.
Revenue Recognition
t.
Income Taxes
u.
Net Income Per Share and Dilutive Net Income Per Share
v.
Foreign-Based Operations’ Translation Adjustment
w.
Accounting for Foreign Currency Transactions and
Translation
W
1,197=US$1,
W
1,043=US$1 and
W
1,013=US$1 at
December 31, 2003, 2004 and 2005, respectively. The
resulting gains and losses arising from the translation or
settlement of such assets and liabilities are included in
current operations.
Table of Contents
x.
Accounting for Employee Stock Option Compensation Plan
y.
Adoption of New Statements of Korea Accounting Standards
(“SKAS”)
—
Through 2004, when the Company’s equity interests in the
equity method investees were diluted as a result of the equity
method investees’ direct sales of their unissued shares to
third parties, the changes in the Company’s proportionate
equity of investees were accounted for as capital transactions.
Effective January 1, 2005, such transactions are accounted
for as income statement treatment, pursuant to adoption of SKAS
No. 15, “Investments: Equity Method”. As a result
of adopting SKAS No. 15, net income for the year ended
December 31, 2005 increased by
W
6,262 million (net of tax effect of
W
2,375 million).
—
Through 2004, tax effects of temporary differences related to
capital surplus or capital adjustments were excluded in
determining the deferred tax assets or liabilities. Effective
January 1, 2005, such tax effects of temporary differences
are included in determining the deferred tax assets or
liabilities, pursuant to adoption of SKAS No. 16
“Income Taxes”. Accordingly, adjustments made directly
to capital surplus or capital adjustments, which result in
temporary differences, are recorded net of related tax effects.
In addition, effective January 1, 2005, deferred income tax
assets and liabilities which were presented on the balance sheet
as a single non-current net number through 2004, are separated
into current and non-current portions. As a result of adopting
SKAS No. 16, total assets and total liabilities as of
December 31, 2005 increased by
W
67,612 million and
W
97,768 million, respectively, and total
stockholders’ equity as of December 31, 2005 decreased
by
W
30,156 million, which was directly
reflected in capital surplus or capital adjustments
(see Note 18).
—
Through 2004, provisions were recorded at nominal value.
Effective January 1, 2005, provisions are recorded at the
present value when the effect of the time value of money is
material, pursuant to adoption of SKAS No. 17
“Provisions, Contingent Liabilities and Contingent
Assets”. SKAS No. 17 is prospectively applied and as a
result of adopting such accounting standard, total liabilities
as of December 31, 2005 decreased by
W
7,415 million and ordinary income and net
income for the year ended December 31, 2005 increased by
W
5,376 million (see Note 25).
Table of Contents
z.
Reclassifications
3.
INVENTORIES
2003
2004
2005
W
494
W
164
W
863
11,319
19,286
766
4,216
7,019
—
7,442
14,791
493
8,045
11,061
6,301
31,516
52,321
8,423
—
—
(639
)
W
31,516
W
52,321
W
7,784
4.
INVESTMENT SECURITIES
a.
Trading Securities
Acquisition Cost
Fair Value at
Carrying Amount
at December 31,
December 31,
2005
2005
2003
2004
2005
W
11
W
12
W
—
W
368
W
12
—
—
18,499
—
—
—
—
4,383
—
—
777,460
777,460
870,335
654,411
777,460
W
777,471
W
777,472
W
893,217
W
654,779
W
777,472
Table of Contents
b.
Long-term Investment Securities
2003
2004
2005
W
824,392
W
896,508
W
923,821
14,315
5,158
296,273
126,347
50,144
115
965,054
951,810
1,220,209
(85,861
)
(3,709
)
(1
)
W
879,193
W
948,101
W
1,220,208
Table of Contents
Ownership
Acquisition
Percentage (%)
Cost at
Fair Value
Carrying Amount
Number of
at Dec. 31,
Dec. 31,
at Dec. 31,
Shares
2005
2005
2005
2003
2004
2005
2,890,630
7.8
W
5,781
W
5,796
W
2,847
W
2,023
W
5,796
22,090,000
4.8
121,677
56,440
26,838
71,019
56,440
234,150
4.4
1,171
2,646
2,669
2,178
2,646
2,481,310
2.9
332,662
501,225
404,454
464,005
501,225
59,473
0.4
1,695
83
—
152
83
752,692
3.8
2,258
2,408
—
—
2,408
—
—
—
(note a
)
1,877
2,418
—
—
—
—
(note a
)
—
590
—
—
—
—
(note a
)
—
1,600
—
465,244
438,685
543,985
568,598
7,500,000
5.0
240,243
77,130
68,407
71,565
77,130
54,000
7.3
27,332
(note d
)
42,517
27,332
27,332
398,722
8.3
5,981
(note c
)
5,981
—
—
423,244
4.0
14,438
(note c
)
14,438
—
—
—
—
—
(note a
)
14,890
14,890
—
144,000
14.1
3,600
(note d
)
4,593
4,593
4,593
—
—
—
(note e
)
3,188
3,188
—
2,792,759
13.8
13,964
(note d
)
2,077
2,077
13,964
121,290
(notes d and f
)
33,210
32,472
32,212
426,848
189,301
156,117
155,231
(note d
)
190,000
190,000
190,000
(notes d and g
)
6,406
6,406
9,992
196,406
196,406
199,992
W
824,392
W
896,508
W
923,821
(note a)
The investments in common stock of SK Securities Co., Ltd.,
SINJISOFT Corporation, Cowon Systems, Inc. and Mirae Asset Life
Insurance Co., Ltd. were all sold for the year ended
December 31, 2005.
(note b)
The Company recorded its investments in common stock of
Powercomm Co., Ltd. at its fair value, which was estimated by an
outside professional valuation company using the present value
of expected future cash flow, and the unrealized loss on
valuation of investments amounting to
W
171,836 million,
W
168,678 million and
W
163,113 million as of December 31,
2003, 2004 and 2005, respectively, were recorded as a capital
adjustment.
Table of Contents
(note c)
Due to the impairment of the Company’s investments in
common stock of Real Telecom Co., Ltd. and Enterprise
Networks Co., Ltd., the Company recorded impairment losses
of
W
20,419 million for the year ended
December 31, 2004.
(note d)
As a reasonable estimate of fair value could not be made, the
investment is stated at acquisition cost. The investments in
common stock of Eonex Technologies Inc. was reclassified to
available-for-sale securities from equity securities accounted
for using the equity method during 2003, as the Company’s
ownership in such investees decreased to less than 20% and the
Company lost significant influence. Such securities were
transferred to available-for-sale securities at the carrying
amount valued using the equity method of accounting prior to the
reclassification.
(note e)
The investment in common stock of WiderThan Co., Ltd. was
reclassified to equity securities accounted for using the equity
method during 2005. Although the Company’s ownership in
WiderThan Co., Ltd. is less than 20%, the Company exercises
significant influence on the selection of directors and the
investee has significant transactions with the Company.
(note f)
Due to the impairment of their investments in common stock of
CCK Van, Biznet Tech, Hanse Telecom, Cybird Korea and Venture
Korea in 2003, Mobilewelcom Co., Ltd., CXP Inc., LoveHunt Inc.
and others in 2004 and TeleMerc.com, Fibernett Co., Ltd.
and others in 2005, the Company and certain subsidiaries
recorded impairment losses of
W
5,749 million,
W
2,580 million and
W
3,057 million for the years ended
December 31, 2003, 2004 and 2005, respectively.
(note g)
Due to the impairment of their investments in cinema projects,
the Company and certain subsidiaries recorded impairment losses
of
W
235 million for the year ended
December 31, 2005.
Acquisition
Cost at
Carrying Amount
December 31,
Maturity
2005
2003
2004
2005
(note a
)
W
1,599
W
971
W
1,328
W
1,599
(note b
)
294,891
—
—
294,674
March 2004
10,655
9,514
—
—
January 2005
—
3,600
3,600
—
—
230
230
—
14,315
5,158
296,273
(9,514
)
(3,700
)
—
W
4,801
W
1,458
W
296,273
W
735 million,
W
391 million and
W
914 million, respectively.
Table of Contents
(note a)
The maturities of public bonds as of December 31, 2003,
2004 and 2005 are as follows (in millions of Korean won):
Maturity
2003
2004
2005
W
857
W
904
W
1,238
114
424
361
W
971
W
1,328
W
1,599
(note b)
The maturities of currency stabilization bonds as of
December 31, 2003, 2004 and 2005 are as follows (in
millions of Korean won):
Maturity
2003
2004
2005
W
—
W
—
W
294,674
(note c)
The convertible bonds of Real Telecom Co., Ltd. with a principal
amount of
W
10,655 million can be converted
into 371,018 shares of common stock of Real Telecom Co.,
Ltd. at
W
28,721 per share over the period
from September 29, 2004 to March 28, 2007. Due to the
impairment in such bonds, the Company recorded an impairment
loss of
W
10,655 million for the year ended
December 31, 2004.
(note d)
The convertible bonds of Eonex Technologies, Inc. were all
settled in cash during the year ended December 31, 2005.
Acquisition
Cost at
Carrying Amount
December 31,
Maturity
2005
2003
2004
2005
(note a
)
W
115
W
—
W
144
W
115
(note b
)
—
50,000
50,000
—
May 2004
—
27,464
—
—
September 2004
—
25,393
—
—
December 2004
—
23,490
—
—
126,347
50,144
115
(76,347
)
(9
)
(1
)
W
50,000
W
50,135
W
114
W
6,504 million,
W
15,692 million and
W
3,755 million, respectively.
Table of Contents
(note a)
The maturities of public bonds as of December 31, 2005 is
as follows (in millions of Korean won):
Maturity
2005
W
1
82
32
W
115
(note b)
The Subordinated bonds of Mirae Asset Life Insurance Co., Ltd.
(formerly SK Life Insurance Co., Ltd.) were all early repaid
during 2005.
W
577,253 million,
W
549,256 million and
W
498,426 million, respectively, of
accounts receivable resulting from its mobile phone dealer
financing plan to Nate Third Special Purpose Company, Nate
Fourth Special Purpose Company and Nate Fifth Special Purpose
Company, respectively, in asset-backed securitization
transactions. In the course of these transactions, the Company
acquired subordinate bonds issued by such special purpose
companies, in order to supplement the creditworthiness of bonds
issued by them. All such subordinated bonds were repaid in 2004.
For the Year Ended December 31, 2003
Beginning
Increase/
Transferred to
Ending
Balance
(Decrease)
Realized Gain (Loss)
Balance
W
(3,353
)
W
419
W
—
W
(2,934
)
(101,788
)
46,320
—
(55,468
)
1,522
(24
)
—
1,498
—
71,792
—
71,792
—
(171,836
)
—
(171,836
)
(498
)
(3,176
)
—
(3,674
)
W
(104,117
)
W
(56,505
)
W
—
W
(160,622
)
Table of Contents
For the Year Ended December 31, 2004
Beginning
Increase/
Transferred to
Ending
Balance
(Decrease)
Realized Gain (Loss)
Balance
W
(2,934
)
W
(824
)
W
—
W
(3,758
)
(55,468
)
4,811
—
(50,657
)
1,498
(491
)
—
1,007
71,792
59,551
—
131,343
—
(1,543
)
—
(1,543
)
—
460
—
460
(171,836
)
3,158
—
(168,678
)
—
2,011
—
2,011
—
(27
)
—
(27
)
(3,674
)
541
—
(3,133
)
W
(160,622
)
W
67,647
W
—
W
(92,975
)
For the Year Ended December 31, 2005
Transferred
Minority Interest in
Beginning
Increase/
to Realized
Equity of Consolidated
Tax Effect
Ending
Balance
(Decrease)
Gain (Loss)
Subsidiaries
(Note)
Balance
W
(3,758
)
W
3,772
W
—
W
—
W
(4
)
W
10
(50,657
)
(14,580
)
—
—
17,940
(47,297
)
1,007
468
—
—
(406
)
1,069
131,343
37,220
—
—
(46,355
)
122,208
(1,543
)
(68
)
—
—
443
(1,168
)
—
150
—
(94
)
(15
)
41
(3,133
)
3,610
(477
)
—
—
—
460
—
(460
)
—
—
—
—
585
(585
)
—
—
—
(168,678
)
5,565
—
—
44,856
(118,257
)
2,011
—
—
—
(553
)
1,458
(27
)
27
—
—
—
—
—
(217
)
—
—
60
(157
)
W
(92,975
)
W
36,532
W
(1,522
)
W
(94
)
W
15,966
W
(42,093
)
(note)
Represents adjustments to reflect the tax effect of temporary
differences directly charged or credited to unrealized gains
(losses) on valuation of long-term investment securities, which
are capital adjustment items, in accordance with SKAS
No. 16 “Income Taxes”, which is effective
January 1, 2005.
Table of Contents
5.
EQUITY SECURITIES ACCOUNTED FOR USING THE EQUITY METHOD
Number of
Ownership
Acquisition
Net Asset
Shares at
Percentage (%)
Cost at
Value at
Carrying Amount
December 31,
at December 31,
December 31,
December 31,
2005
2005
2005
2005
2003
2004
2005
(formerly SK Teletech Co., Ltd.)
25,570,306
22.7
W
26,309
W
54,939
(note a)
W
—
W
—
W
55,732
300,000
30.0
19,071
163,374
92,844
201,484
168,244
1,600,000
21.9
8,000
8,379
7,086
7,477
8,379
12,922,266
29.6
64,611
31,350
(note b)
—
34,592
32,343
—
—
—
—
(note c)
1,048
—
—
600,000
38.1
300
966
(note d)
300
940
966
2,000,000
10.1
1,000
11,503
(note e)
3,188
—
11,503
8,000,000
21.6
14,440
8,488
(note f)
—
—
14,755
225,000
21.2
3,375
1,128
(note g)
—
3,375
2,530
1,756,000
28.6
2,159
4,786
3,401
3,713
4,786
28,160
20.7
3,195
1,571
1,683
830
485
50,000,000
50.0
163,600
102,272
(note h)
—
—
102,272
49
49.0
3,184
3,279
(note d)
3,184
3,056
3,279
—
—
—
5,901
5,146
—
50.0
6,415
5,290
5,960
5,281
5,290
40,286,825
50.0
75,680
40,810
49,444
25,117
40,810
—
—
—
—
—
1,151
—
500,000
100.0
4,466
3,252
(note i)
—
—
726
3,036,353
20.5
3,095
1,005
—
—
2,586
17,709
(note j)
9,670
11,866
17,193
W
416,609
W
183,709
W
304,028
W
471,879
(note a)
60% equity interest in SK Teletech Co., Ltd. were sold to
Curitel Communications, Inc. and the Company recorded a gain of
W
178,689 million for the year ended
December 31, 2005. As the Company’s ownership in SK
Teletech Co., Ltd. decreased from 89.1% to 29.1%, SK Teletech
Co., Ltd. was excluded from the consolidation, effective
July 1, 2005. And, the investments in common stock of SK
Teletech Co., Ltd. were accounted for using the equity method of
accounting for the six months ended December 31, 2005. In
addition, effective December 1, 2005, SK Teletech Co., Ltd
was merged into Pantech Co., Ltd. and the Company’s
ownership interest decreased from 29.1% to 22.7%. The difference
between the Company’s portion of the merged company’s
equity and the carrying amount at the date of merger of
W
269 million was recorded as a loss on
disposal of investment assets.
(note b)
As the Company’s ownership in TU Media Corp. decreased
from 100% to 28.5% in 2004, TU Media Corp. was excluded
from the consolidation, effective January 1, 2004. And, the
investments in common stock of TU Media Corp. are accounted
for using the equity method of accounting.
(note c)
The investments in common stock of VCASH Co., Ltd. were
sold to Korea Railway Transportation Promotion Foundation
in 2004.
Table of Contents
(note d)
Effective January 1, 2004, the Company recorded its
investments in Aircross Co., Ltd. and SK USA, Inc. using
the equity method of accounting as changes in the Company’s
portion of such investees’ equity amounts resulting from
applying the equity method of accounting is material.
(note e)
Effective January 1, 2005, the investment in common stock
of WiderThan Co., Ltd. was reclassified to equity securities
accounted for using the equity method. Although the
Company’s ownership in WiderThan Co., Ltd. is less than
20%, the Company exercises significant influences on the
selection of directors and the investee has significant
transactions with the Company.
(note f)
In February 2005, the Company acquired 8,000,000 shares of
IHQ, Inc., an entertainment management company, for
W
1,805 per share with an option to
purchase an additional 5,000,000 shares at the previously
agreed upon price during the period from March 15, 2006 to
April 30, 2006, in order to secure high-quality content for
the Company’s wireless internet services.
(note g)
Effective January 1, 2005, the Company recorded its
investments in Harex Info Tech, Inc. using the equity method of
accounting as changes in the Company’s portion of such
investees’ equity amounts resulting from applying the
equity method of accounting is material.
(note h)
In the first quarter of 2005, the Company incorporated
SK Telecom USA Holdings, Inc. with an initial investment of
US$83 million in order to invest in and manage
HELIO, LLC, a joint venture company in the Untied States of
America, which was established in order to provide wireless
telecommunication services in the United States of America (see
Note 29. (b)).
(note i)
Even though the Company and its subsidiary’s ownership
interest is 100%, Cyworld Japan Co., Ltd. is excluded from the
consolidation and accounted for using the equity method as its
total assets at the beginning of the fiscal year were less than
W
7 billion, in accordance with Korean GAAP.
(note j)
As allowed under Korean GAAP, investments in equity securities
of SK Telecom Europe Limited and certain others were not
accounted for using the equity method of accounting, as changes
in the Company’s portion of shareholders’ equity of
such investees were not expected to be material.
(note a)
Effective January 1, 2003, the Company’s investees
including STIC Ventures Co., Ltd. and VCASH Co., Ltd., adopted
SKAS No. 3, “Intangible Assets”. This statement
requires that organization cost be
Table of Contents
charged to expenses as incurred and the unamortized organization
costs at January 1, 2003 be offset against the beginning
retained earnings. To reflect the Company’s portion of the
decrease in the beginning retained earnings of the investees,
the Company reduced its beginning retained earnings of 2003.
(note b)
Investments in common stock of Eonex Technologies, Inc. were
reclassified to available-for-sale securities as the
Company’s ownership in Eonex Technologies, Inc. decreased
to 16.1% from 22.5% during the first quarter of 2003.
(note c)
The other decrease in investments in equity securities of CDMA
Mobile Phone Center represents a translation loss incurred from
translating the foreign currency financial statements of SLD
Telecom PTE Ltd., an overseas subsidiary of the Company, which
makes investments in CDMA Mobile Phone Center, into Korean won.
(note a)
As their total assets at the beginning of 2004 were over
W
7 billion, effective January 1,
2004, investments in equity securities of SK USA, Inc. and
Aircross Co., Ltd. are accounted for using the equity method of
accounting.
(note b)
As the Company’s ownership in WiderThan Co., Ltd. decreased
to 14.3% form 20% in 2004, investments in common stock of
WiderThan Co., Ltd. are reclassified to available-for-sale
securities in 2004.
(note c)
SLD Telecom PTE Ltd. (“SLD”), an oversea subsidiary of
the Company, accounted for the in-kind contribution of network
equipment to CDMA Mobile Phone Center as an increase in the
investment securities and the reimbursement in the amount equal
to depreciation of such network equipment in accordance with the
Business Co-Operation Contract between SLD and Saigon Post and
Telecommunication Service Corp., a Vietnamese counterparty, was
accounted for as a decrease in the investment. During the year
ended December 31, 2004, SLD got such reimbursement of
W
4,046 million from CDMA Mobile Phone
Center and decreased the investment in CDMA Mobile Phone Center
by the same amount. In addition, translation loss of
W
4,609 million incurred from translating
the foreign currency financial statement of SLD Telecom PTE Ltd.
into Korean won was accounted for as a decrease in the
investment in CDMA Mobile Phone Center.
Table of Contents
For the Year Ended December 31, 2005
Equity in
Capital
Equity in
Surplus and
Other
Beginning
Earnings
Capital
Dividend
Increase
Ending
Balance
Acquisition
(Losses)
Adjustments
Received
(Decrease)
Balance
(note a)
W
—
W
—
W
93
W
(183
)
W
—
W
55,822
W
55,732
(note b)
201,484
—
18,102
(50,742
)
(600
)
—
168,244
(note c)
7,477
—
(779
)
317
—
1,364
8,379
34,592
25,611
(27,852
)
(8
)
—
—
32,343
940
—
26
—
—
—
966
(note d)
—
—
868
7
—
10,628
11,503
(note c)
—
14,440
(197
)
410
—
102
14,755
(note e)
3,375
—
(845
)
—
—
—
2,530
(note b)
3,713
—
1,377
(120
)
(184
)
—
4,786
830
—
(295
)
(50
)
—
—
485
(note f)
—
123,586
(21,550
)
—
—
236
102,272
3,056
—
316
(93
)
—
—
3,279
(note g)
5,146
—
—
—
—
(5,146
)
—
5,281
—
167
(158
)
—
—
5,290
(note h)
25,116
33,950
(13,376
)
—
—
(4,880
)
40,810
(note i)
1,151
14,213
(2,566
)
(22
)
—
(12,776
)
—
—
4,466
(3,867
)
127
—
—
726
—
3,095
(498
)
(11
)
—
—
2,586
W
292,161
W
219,361
W
(50,876
)
W
(50,526
)
W
(784
)
W
45,350
W
454,686
(note a)
The other increase in investments in equity securities of
Pantech Co., Ltd. is net of the carrying amount of the
investment in equity securities of SK Teletech Co., Ltd.
amounting to
W
56,091 million reclassified
to equity securities accounted for using the equity method as a
result of the decrease in the Company’s ownership in SK
Teletech Co., Ltd. to less than 50% and the dilution of the
Company’s equity portion of
W
269 million as a result of the merger
between Pantech Co., Ltd. and SK Teletech Co., Ltd.
(note b)
The Company received dividends from SK C&C Co., Ltd. and
Skytel Co., Ltd. and the corresponding amount was deducted from
its equity method securities.
(note c)
The other increases in investments in equity securities of STIC
Ventures Co., Ltd. and IHQ, Inc. represent gains on disposal of
investments in equity securities resulting from the dilution of
the Company’s ownership as a result of the fact that
investees sold its unissued shares to third parties directly.
(note d)
The other increase in investments in equity securities of
WiderThan Co., Ltd. represents the carrying amount of the
investment in equity securities of WiderThan Co., Ltd. amounting
to
W
3,188 million reclassified to equity
securities accounted for using the equity method from
available-for-sale securities and gains on disposal of
investments in equity method investee of
W
7,440 million resulting from the dilution
of the Company’s ownership as a result of the fact that
investees sold its unissued shares to third parties directly.
(note e)
Effective January 1, 2005, the Company recorded its
investments in Harex Info Tech, Inc. using the equity method of
accounting as changes in the Company’s portion of such
investees’ equity amounts resulting from applying the
equity method of accounting is material.
Table of Contents
(note f)
The increase in investments in equity securities of HELIO, LLC
represents a translation gain incurred from translating the
financial statements of SK Telecom USA Holdings, Inc.
denominated in foreign currency, which makes investments in
HELIO, LLC, into Korean won.
(note g)
Investment was fully liquidated due to dissolution of SKT-QC
Wireless Development Fund during the year ended
December 31, 2005.
(note h)
During the year ended December 31, 2005, SLD got the
reimbursement of
W
3,956 million from CDMA
Mobile Phone Center and decreased the investment in CDMA Mobile
Phone Center by the same amount. In addition, translation loss
of
W
924 million incurred from translating
the foreign currency financial statement of SLD Telecom
PTE Ltd. into Korean won was accounted for as a decrease in
the investment in CDMA Mobile Phone Center.
(note i)
Effective January 1, 2005, SK Mobile became an equity
method investee of SK Teletech Co., Ltd., a former
subsidiary of the Company as changes in SK Teletech Co.,
Ltd.’s portion of such investee’s equity amounts
resulting from applying the equity method of accounting was
material. Effective July 1, 2005, the investment in equity
securities of SK Teletech Co., Ltd. was reclassified to
equity securities accounted for using the equity method, which
resulted in the exclusion of SK Mobile from equity
securities accounted for using the equity method.
For the Year Ended December 31, 2003
Beginning
Ending
Balance
Increase
Amortization
Balance
W
6,088
W
—
W
(406
)
W
5,682
For the Year Ended December 31, 2004
Beginning
Ending
Balance
Increase
Amortization
Balance
W
5,682
W
—
W
(406
)
W
5,276
For the Year Ended December 31, 2005
Beginning
Ending
Balance
Increase
Amortization
Balance
W
—
W
820
W
(27
)
W
793
5,276
—
(406
)
4,870
—
1,045
(52
)
993
—
7,377
(1,110
)
6,267
—
1,752
(350
)
1,402
—
1,914
(333
)
1,581
W
5,276
W
12,908
W
(2,278
)
W
15,906
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For the Year Ended December 31, 2004
Beginning
Ending
Balance
Increase
Decrease
Balance
W
—
W
1,086
W
—
W
1,086
For the Year Ended December 31, 2005
Beginning
Ending
Balance
Increase
Decrease
Balance
W
1,086
W
—
W
—
W
1,086
—
2,569
(43
)
2,526
W
1,086
W
2,569
W
(43
)
W
3,612
Market Price
per Share (in
Shares Owned
Market
Korean Won)
by the Company
Price
W
5,900
25,570,306
W
150,865
15,408
2,000,000
30,816
9,220
8,000,000
73,760
Total
Net Income
Total Assets
Liabilities
Revenue
(Loss)
W
843,996
W
604,118
W
655,089
W
(21,745
)
1,544,980
1,000,400
1,002,668
61,693
57,040
18,755
11,845
(3,347
)
393,945
287,966
21,550
(96,487
)
12,178
9,642
15,240
69
155,388
37,773
78,467
4,052
65,487
24,661
50,123
6,235
5,977
648
1,173
(2,337
)
23,812
6,387
13,580
4,824
8,121
536
1,849
(1,423
)
225,322
20,733
24,812
(43,100
)
8,387
1,695
8,139
646
10,584
5
342
333
110,468
28,847
27,359
(26,750
)
4,689
1,914
9
(1,594
)
14,814
9,898
14,042
(5,739
)
Table of Contents
2003
2004
2005
W
33,788
W
22,546
W
14,586
8,587
8,859
4,799
W
42,375
W
31,405
W
19,385
Useful
Lives
(Years)
2003
2004
2005
W
449,377
W
466,459
W
466,562
15, 30
1,081,134
1,445,593
1,484,360
3-6
8,440,624
9,584,526
10,510,486
3-4
19,741
21,710
21,680
3-4
794,495
791,829
825,133
323,490
138,002
264,309
11,108,861
12,448,119
13,572,530
(6,467,314
)
(7,744,197
)
(8,909,161
)
W
4,641,547
W
4,703,922
W
4,663,369
W
396,103 million,
W
404,385 million and
W
419,698 million, respectively.
Table of Contents
8.
INTANGIBLE ASSETS
Acquisition
Accumulated
Accumulated
Cost at
Amortization at
Impairment at
Carrying Amounts
December 31,
December 31,
December 31,
2005
2005
2005
2003
2004
2005
W
2,409,303
W
(540,301
)
W
(70
)
W
2,129,980
W
1,994,339
W
1,868,932
1,384,433
(200,141
)
—
1,251,278
1,163,319
1,184,292
230,439
(163,947
)
(501
)
137,810
105,955
65,991
623,545
(288,445
)
(1,426
)
155,876
259,290
333,674
W
4,647,720
W
(1,192,834
)
W
(1,997
)
W
3,674,944
W
3,522,903
W
3,452,889
Table of Contents
For the Year Ended December 31, 2003
Beginning
Ending
Balance
Acquisition
Disposal
Transfer
Amortization
Balance
W
2,255,868
W
9,374
W
—
W
(111
)
W
(135,151
)
W
2,129,980
91,337
26,665
—
56,512
(36,704
)
137,810
1,259,253
—
—
—
(7,975
)
1,251,278
114,777
28,982
(7,275
)
54,371
(34,979
)
155,876
W
3,721,235
W
65,021
W
(7,275
)
W
110,772
W
(214,809
)
W
3,674,944
For the Year Ended December 31, 2004
Beginning
Ending
Balance
Acquisition
Disposal
Transfer
Amortization
Impairment
Balance
W
2,129,980
W
647
W
—
W
—
W
(136,288
)
W
—
W
1,994,339
137,810
6,235
(3,349
)
10,545
(45,244
)
(42
)
105,955
1,251,278
—
—
7,800
(95,759
)
—
1,163,319
155,876
65,494
(865
)
93,514
(54,729
)
—
259,290
W
3,674,944
W
72,376
W
(4,214
)
W
111,859
W
(332,020
)
W
(42
)
W
3,522,903
For the Year Ended December 31, 2005
Beginning
Ending
Balance
Acquisition
Disposal
Transfer
Amortization
Impairment
Balance
W
1,994,339
W
—
W
—
W
9,223
W
(134,630
)
W
—
W
1,868,932
1,163,319
117,380
—
—
(96,407
)
—
1,184,292
105,955
1,472
—
—
(41,436
)
—
65,991
259,290
80,642
(342
)
64,522
(70,178
)
(260
)
333,674
W
3,522,903
W
199,494
W
(342
)
W
73,745
W
(342,651
)
W
(260
)
W
3,452,889
Amount
Description
Residual Useful Lives
W
1,820,884
14 years and 3 months
1,059,871
(note a
)
117,000
(note b
)
7,421
10 years and 6 months
65,991
1-5 years
(note a)
Amortization of the IMT license commenced when the Company
started its commercial IMT 2000 service in December 2003, using
the straight-line method over the estimated useful life
(13 years) of the IMT license which expires in December
2016.
(note b)
The Company purchased the WiBro license from MIC on
March 20, 2005. The license period is seven years from that
date. Amortization of the WiBro license will be on a straight
line basis over the remaining useful life from the commencement
date of the Company’s commercial WiBro services.
Table of Contents
Maturity
Annual Interest
Year
Rate (%)
2003
2004
2005
2004
5.0-7.0
W
1,120,000
W
—
W
—
2005
6.0
500,000
500,000
—
2006
5.0-6.0
800,000
800,000
800,000
2007
5.0-6.0
700,000
700,000
700,000
2008
5.0
300,000
300,000
300,000
2009
5.0
—
300,000
300,000
2010
4.0
—
—
200,000
2011
3.0
—
200,000
200,000
2004
7.75
239,653
—
—
2011
4.25
—
313,140
303,900
2009
—
—
385,885
385,885
warrants (US$4,000)
2006
6M Libor-0.3
4,791
—
—
3,664,444
3,499,025
3,189,785
(47,553
)
(51,467
)
(40,016
)
—
(82,245
)
(65,218
)
491
24,808
24,808
3,617,382
3,390,121
3,109,359
(1,355,514
)
(498,278
)
(795,151
)
W
2,261,868
W
2,891,843
W
2,314,208
W
5,000.
W
235,625 per share of the
Company’s common stock which was greater than market value
at the date of issuance and do not change, except under
antidilution protection, subject to certain redemption rights.
Subsequently, the initial conversion price was changed to
W
225,518 per share in accordance with
antidilution protection. The Company may redeem their principal
amount after 3 years from the issuance date if the market
price exceeds 130% of the conversion price during a
predetermined period. On the other hand, the bond holders may
redeem their notes at 103.81% of the principal amount on
May 27, 2007 (3 years from the issuance date). The
conversion right may be exercised during the period from
July 7, 2004 to May 13, 2009 and the number of common
shares to be converted
Table of Contents
Final
Maturity
Annual Interest Rate
Lender
Year
(%)
2003
2004
2005
2004
3M Libor + 3.45
US$4,478
US$—
US$—
2005
Floating rate + 0.2
4,089
—
—
2008
3.50~3.90
¥—
¥—
¥14,802
2009
3.11
—
—
12,800
US$8,567
US$—
US$—
¥—
¥—
¥27,602
W
10,262
W
—
W
237
(8,629
)
—
(82
)
W
1,633
W
—
W
155
11.
SUBSCRIPTION DEPOSITS
Deposit per
Service type
Subscriber
2003
2004
2005
W
200,000
W
44,197
W
31,440
W
23,770
Table of Contents
12.
LEASES
W
250 million,
W
37 million and nil, respectively. For the
year ended December 31, 2005, all capital leases were
terminated and the Company acquired the related leased machinery
free of charge.
W
24,543 million. Depreciation expense for
the year ended December 31, 2005 was
W
871 million. The Company’s minimum
future lease payments as of December 31, 2005 are as
follows (in millions of Korean won):
Annual Lease
Payments
Interest
Principal
W
15,328
W
989
W
14,339
8,846
352
8,494
1,734
24
1,710
W
25,908
W
1,365
24,543
(14,339
)
W
10,204
W
1,774 million and
W
261 million, respectively. All the
operating leases were terminated in 2004.
13.
ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES
Foreign Currencies
Korean Won Equivalent
2003
2004
2005
2003
2004
2005
US$24,407
US$4,875
US$11,826
W
29,234
W
5,088
W
11,980
¥8
¥6
—
—
—
—
EUR17
—
EUR3
26
—
3
GBP5
—
—
10
—
—
—
—
VND902,819
—
—
58
—
—
SG$30
—
—
18
US$31,492
—
—
37,721
—
—
US$8,627
US$19,284
US$31,334
10,333
20,129
31,741
SG$743
—
—
522
—
—
—
—
EUR248
—
—
298
Table of Contents
Foreign Currencies
Korean Won Equivalent
2003
2004
2005
2003
2004
2005
US$12,844
US$2,989
US$3,364
15,385
3,120
3,408
—
—
VND6,173,479
—
—
394
US$193
US$142
—
232
149
—
¥16,337
¥15,756
¥16,156
183
159
139
W
93,646
W
28,645
W
48,039
S$15,432
US$17,406
US$28,360
W
18,485
W
18,169
W
28,728
¥555,277
¥26,240
—
6,217
266
—
US$26,853
US$19,392
—
32,164
20,241
—
¥2,255,431
¥438,499
—
25,252
4,438
—
EUR 7
EUR 207
—
10
294
—
—
GBP260
—
—
522
—
US$35,759
US$13,539
US$15,737
42,832
14,132
15,942
¥20,606
¥60,678
¥8,498
231
614
73
HK$267
HK$217
HK$254
41
29
33
CNY140
CNY1
—
20
—
—
GBP304
GBP 118
GBP453
648
237
791
SG$5
SG$5
SG$22
3
3
13
EUR10
EUR348
EUR504
15
495
604
AU$1
—
—
1
—
—
CHF4
—
CHF19
4
—
15
—
—
CAD2
—
—
2
—
—
VND11,823,640
—
—
755
US$71
US$84
—
86
88
—
¥1,300
—
—
15
—
—
EUR 23
—
—
1
—
—
US$101
—
—
121
—
—
W
126,146
W
59,528
W
46,956
14.
CAPITAL STOCK AND CAPITAL SURPLUS
W
500. The
number of authorized, issued and outstanding common shares as of
December 31, 2003, 2004 and 2005 are as follows:
2003
2004
2005
220,000,000
220,000,000
220,000,000
82,276,711
82,276,711
82,276,711
73,614,308
73,614,296
73,614,296
Table of Contents
Number of
Capital
Shares Issued
Common Stock
Surplus
89,152,670
W
44,576
W
2,884,382
—
—
(230
)
(7,002,235
)
—
—
126,276
63
31,809
—
—
58
—
—
(4,463
)
82,276,711
44,639
2,911,556
—
—
(77
)
—
—
67,279
—
—
(10,457
)
82,276,711
44,639
2,968,301
—
—
(18,502
)
—
—
1,533
—
—
3,508
82,276,711
W
44,639
W
2,954,840
(note a)
During the years ended December 31, 2003 and 2004, the
Company paid
W
230 million and
W
77 million, respectively, to certain
former shareholders of Shinsegi Telecomm, Inc. in accordance
with the ruling of the court and deducted it from capital
surplus in accordance with Korean GAAP.
(note b)
The Company retired 4,457,635 shares and
2,544,600 shares of treasury stock on January 3, 2003
and August 20, 2003, respectively, and reduced
unappropriated retained earnings in accordance with the Korean
Commercial Laws.
(note c)
The excess of acquired net assets over the par value of
W
63 million for the issuance of
126,276 shares of new common stock to minority shareholders
of SK IMT Co., Ltd. upon the merger dated May 1, 2003, was
added to capital surplus in accordance with Korean GAAP.
(note d)
The Company issued zero coupon convertible bonds in the
principal amount of US$329,450,000 at US$324,923,469 with an
initial conversion price of
W
235,625 per
share of the Company’s common stock on May 27, 2004
and the considerations for conversion right of
W
67,279 million was added to capital
surplus in accordance with Korean GAAP (see Note 2(j)).
(note e)
The tax effect of temporary difference related to consideration
for conversion rights was deducted directly from related
components of stockholders’ equity, pursuant to adoption of
SKAS No. 16 for the year ended December 31, 2005 (see
Note 2(x)).
(note f)
During the year ended December 31, 2005, the exercisable
period for the stock options representing 17,800 shares, of
which recognized compensation costs was
W
1,533 million, expired and the related
stock options of
W
1,533 million in capital
adjustments were transferred to capital surplus in accordance
with Korean GAAP.
Table of Contents
15.
RETAINED EARNINGS
2003
2004
2005
W
4,743,822
W
4,733,936
W
5,470,701
396,089
1,418,962
1,796,948
W
5,139,911
W
6,152,898
W
7,267,649
2003
2004
2005
W
22,288
W
22,320
W
22,320
33,000
33,000
33,000
221,197
477,182
477,182
559,198
776,296
822,061
3,908,139
3,425,138
4,116,138
W
4,743,822
W
4,733,936
W
5,470,701
a.
Legal Reserve
b.
Reserve for Improvement of Financial Structure
c.
Reserves for Loss on Disposal of Treasury Stock and Research
and Manpower Development
d.
Reserve for Business Expansion
Table of Contents
16.
TREASURY STOCK
W
6,108 million
through 2003. In addition, the Company acquired
7,452,810 shares of treasury stock in the market or through
the trust funds for
W
1,771,507 million
through 2003 in order to stabilize the market price of its stock.
W
1,853,643 million.
W
584,646 million.
W
1,008,882 million including the tax
effect of
W
9,373 million, in accordance
with the Korean Commercial Laws.
W
525,174 million during the period
from June 30, 2003 to August 11, 2003 and retired such
treasury shares on August 20, 2003, which reduced the
unappropriated retained earnings by
W
537,138 million including the tax effect
of
W
11,964 million, in accordance with
Korean Commercial Laws.
W
2 million which resulted from the merger
with SK IMT Co., Ltd.
17.
STOCK OPTIONS
W
424,000 per share, 43,820 shares
at an exercise price of
W
211,000 per share
and 65,730 shares at an exercise price of
W
267,000 per share. The stock options will
become exercisable after three years from the date of grant and
shall be exercisable for two years from the first exercisable
date. Upon exercise of stock options, the Company will issue its
common stock. If the employee leaves the Company within three
years after the grant of stock options, such employee forfeits
the unvested stock options awarded. During the year ended
December 31, 2004, stock options representing
530 shares, of which total compensation cost was
W
3 million, were forfeited.
W
500 per share for 2000, 2001 and 2002.
Under these assumptions, total compensation cost, the recognized
compensation cost (included in labor cost) for the years ended
December 31, 2003, 2004 and 2005, the compensation cost to
be recognized for the following period after December 31,
2005
Table of Contents
Recognized
Total
Compensation Cost
Compensation
Stock Option in Capital Adjustment
Compensation
Cost to be
Grant Date
Cost
2003
2004
2005
Recognized
2003
2004
2005
W
1,533
W
128
W
—
W
—
W
—
W
1,533
W
1,533
W
—
234
79
10
—
—
224
234
234
3,246
1,082
1,082
180
—
1,984
3,066
3,246
W
5,013
W
1,289
W
1,092
W
180
W
—
W
3,741
W
4,833
W
3,480
(note a)
During the year ended December 31, 2005, the exercisable
period for stock options representing 17,800 shares, for
which the Company had recognized compensation cost of
W
1,533 million, expired and the related
stock options of
W
1,533 million in capital
adjustments were transferred to capital surplus.
2003
2004
2005
W
2,751,221
W
2,121,238
W
2,561,268
26,145
20,234
25,439
1,962,986
1,489,542
1,872,680
26,145
20,234
25,439
18.
INCOME TAXES
2003
2004
2005
W
668,180
W
551,405
W
685,541
120,879
78,356
7,718
W
789,059
W
629,761
W
693,259
Table of Contents
2003
2004
2005
W
743,671
W
573,257
W
640,391
74,367
57,326
64,039
(83,826
)
(89,080
)
(100,160
)
13,685
13,736
18,838
38,213
35,382
35,382
(5,909
)
11,011
4,846
(20,204
)
—
—
15,327
28,581
12,973
13,735
(452
)
16,950
W
789,059
W
629,761
W
693,259
28.65
%
29.66
%
27.06
%
(note a)
Pursuant to a revision in the Korean Corporate Income Tax Law
during 2003, statutory corporate income tax rate including
resident surtax is changed from 29.5% to 27.5%, effective
January 1, 2005. Such change in statutory corporate income
tax rate resulted in a decrease in deferred tax liabilities as
of December 31, 2003 by
W
20,204 million.
Table of Contents
2003
2004
2005
W
—
W
—
W
39,334
—
—
9,239
—
—
(1,229
)
—
—
17
—
—
89
—
—
18,623
—
—
66,073
22,039
19,649
—
9,587
9,764
—
(2,026
)
(2,463
)
—
1
(561
)
—
3,712
(40,220
)
(47,472
)
30,757
32,851
32,959
—
11,480
—
774
—
—
(6,593
)
(12,671
)
(10,244
)
(3,364
)
(9,434
)
13,732
(182,518
)
(195,103
)
(211,208
)
(130,373
)
(130,372
)
(130,372
)
—
—
3,642
—
—
5,377
—
—
(18,502
)
—
—
(21,967
)
29,575
25,371
24,108
1,162
5,003
—
39,693
18,510
15,091
(187,574
)
(268,196
)
(344,856
)
—
(5,321
)
(6,022
)
(29,575
)
(24,980
)
(23,523
)
(8,880
)
(7,555
)
(25,260
)
W
(226,029
)
W
(306,052
)
W
(399,661
)
(note a)
Effective January 1, 2005, deferred income tax assets and
liabilities which were presented on the balance sheet as a
single non-current net number through 2004, are separated into
current and non-current portions, pursuant to adoption of SKAS
No. 16 “Income Taxes”. Such newly adopted
accounting
Table of Contents
standards are prospectively applied as allowed by SKAS
No. 16. As a result, the deferred income tax liabilities at
December 31, 2003 and 2004 were not separated into current
and non-current portions to reflect the effect of such new
adoption of SKAS No. 16.
Net Operating Loss
Tax Credit
Year Ending December 31,
Carryforwards
Carryforwards
W
62
W
89
2,302
—
14,520
—
52,892
—
19,542
—
W
89,318
W
89
W
(18,502
)
15,966
(24,119
)
5,377
2
W
(21,276
)
19.
INCOME PER SHARE
2003
2004
2005
W
1,966,100
W
1,491,479
W
1,872,978
75,078,219
73,614,297
73,614,296
W
26,187
W
20,261
W
25,443
Table of Contents
Weighted
Weighted
Number of
Number of
Number of
Date
Shares
Days
Shares
—
89,152,670
365/365
89,152,670
—
(9,310,607
)
365/365
(9,310,607
)
Jan. 10
(3,809,288
)
356/365
(3,715,360
)
Feb. 3
(52
)
332/365
(47
)
May 1
(91
)
233/365
(58
)
May 1
126,276
233/365
80,609
(note a)
(2,544,600
)
—
(1,128,988
)
73,614,308
75,078,219
—
82,276,711
366/366
82,276,711
—
(8,662,403
)
366/366
(8,662,403
)
Feb. 20
(12
)
316/366
(11
)
73,614,296
73,614,297
—
82,276,711
365/365
82,276,711
—
(8,662,415
)
365/365
(8,662,415
)
73,614,296
73,614,296
(note a)
Such treasury stock was acquired or disposed of on several
different dates in 2003, and the weighted number of shares was
calculated according to each transaction date.
2003
2004
2005
W
1,966,100
W
1,498,797
W
1,886,033
75,078,219
74,596,777
75,332,996
W
26,187
W
20,092
W
25,036
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Average Weighted
Per-share
Net Income
Number of Shares
Amount
(In millions of
(In Korean Won)
Korean Won)
W
1,966,100
75,078,219
W
26,187
—
—
W
1,966,100
75,078,219
W
26,187
W
1,491,479
73,614,297
W
20,261
—
—
7,318
982,480
W
1,498,797
74,596,777
W
20,092
W
1,872,978
73,614,296
W
25,443
—
—
13,055
1,718,700
W
1,886,033
75,332,996
W
25,036
(note a)
In the years ended December 31, 2003, 2004 and 2005, the
assumed exercise of stock options was not reflected in diluted
earnings per share because the exercise of stock options would
not dilute the earnings per share.
(note b)
The effect of convertible bonds are increase in net income
related to interest expense that would not have incurred, and
increase in the weighted average number of common shares
outstanding related to common shares that would have been
issued, assuming the conversion of convertible bonds issued on
May 27, 2004 (see Note 9).
Table of Contents
Fiscal
Number of
Face
Dividend
Year
Dividend Type
Shares Outstanding
Value
Ratio
Dividends
Cash dividends
73,614,308
W
500
1,100%
W
404,878
Cash dividends (interim)
73,614,308
W
500
200%
W
73,614
Cash dividends (year-end)
73,614,296
W
500
1,860%
W
684,613
Total
W
758,227
Cash dividends (interim)
73,614,296
W
500
200%
W
73,614
Cash dividends (year-end)
73,614,296
W
500
1,600%
W
588,915
Total
W
662,529
2003
2004
2005
W
404,878
W
758,227
W
662,529
1,966,100
1,491,479
1,872,978
20.59
%
50.84
%
35.37
%
2003
2004
2005
W
5,500
W
10,300
W
9,000
199,000
197,000
181,000
2.76
%
5.23
%
4.97
%
W
43 million,
and deposits totaling
W
10,000 million from
which the interest incurred is restricted for use for the
interest of the public until August 10, 2006 (due date).
W
1,137 million is kept in escrow accounts
in accordance with the Escrow Agreement, which is restricted for
use until November 16, 2007 (final settlement date) and
recorded as long-term bank deposits.
W
323,000 million. At December 31,
2005, the borrowings under these credit lines were nill and the
net availability under these credit lines was
W
323,000 million. In addition, Seoul
Records, Inc., a subsidiary of the Company, has credit lines
with Kiup Bank related to opening the letter of credit up to
US$750,000.
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W
7,384 million
are secured for payment guarantee of short-term borrowing,
accounts payable and other.
W
332 million.
W
4,118 million as a collateral for its
foreign currency long-term borrowings. In addition, Seoul
Record, Inc. has provided Universal Music Ltd. with a note
amounting to
W
292 million as a collateral
for its leasehold key money received from Universal Music Ltd.
W
760 million. A
judgement is in process. The ultimate outcome of the above
lawsuit cannot presently be determined. SK Communications Co.,
Ltd. and Seoul Records, Inc. believe that any liability that may
be subject to thereunder will not be material.
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Asset
Risk
Book Value
Coverage
US$68,000
Fire and comprehensive liability
W
3,754,241
W
7,395,950
Description
2003
2004
2005
324,260
419,871
257,823
7,662
6,148
6,593
776
1,348
2,580
3,853
3,144
7,220
—
—
2,800
214,101
411,053
432,967
491,978
1,177,249
279,197
3,831
4,071
1,302
35,612
55,921
48,266
5,370
8,826
9,243
188,111
188,822
294,829
1,717
3,102
7,410
385
879
575
204,694
899,260
219,767
18
—
—
3,120
2,192
13,316
747
584
32
35,225
23,776
13,652
314
4,337
2,109
8,969
296
218
Table of Contents
Description
2003
2004
2005
22,643
3,780
13,248
49,939
82,380
98,211
665
2,216
2,277
182,774
130,243
249,633
284,319
295,562
322,856
8,200
7,918
7,853
92
76
97
63,442
135,213
21,326
90
408
942
107,782
216,412
1,787
113
113
113
63,641
20,047
22,237
719
955
2,700
1,571
4,843
1,643
103,720
103,720
37,703
2,911
20,165
6,914
10,194
10,194
6,174
50
53
3
33,904
51,954
65,819
53,680
15,549
—
—
10,266
—
93,383
115,839
—
25,640
15,199
6,100
1,069
2,138
2,138
30
102
61
9,762
9,847
17,398
245
480
91
72,715
77,871
174,884
346
346
346
Table of Contents
(note a)
The Company is a party to several contracts with SK Engineering
and Construction Co., Ltd. related to the construction of its
new corporate headquarters in Ulchiro 2-ga, Chongro-gu, Seoul.
Construction of its new headquarters was completed at the end of
2004. The total payment to SK Engineering &
Construction Co., Ltd. for the demolition of existing buildings
on the site and construction of the new building was
W
209 billion.
(note b)
The Company and certain subsidiaries are party to an agreement
with SK C&C Co., Ltd., pursuant to which SK C&C Co.,
Ltd. provides them with information technology services, dated
as of December 28, 1998 and amended as of November 1,
1999. This agreement will expire on December 31, 2009, but
may be terminated by the Company and certain subsidiaries
without cause on a six months notice. The agreement provides
that the parties will agree annually on the specific services to
be provided and the monthly fees to be paid by the Company and
certain subsidiaries. The Company and certain subsidiaries also
enter into agreements with SK C&C Co., Ltd. from time
to time for specific information technology-related projects.
(note c)
On December 19, 2000, the Company entered into an agreement
with SK Corporation for the sale and leaseback of the
Company’s head office with the lease period from
December 19, 2000 to March 31, 2004. Under the lease
agreement, in January 2001 the Company deposited refundable
leasehold key money of
W
80,113 million
and, as a result there will be no rent payment for the remaining
lease period. On January 30, 2003, the Company prolonged
the lease term to February 28, 2005 and deposited
additional refundable leasehold key money of
W
20,027 million. In addition, in December
2003, the Company deposited additional refundable leasehold key
money of
W
3,580 million. When such lease
agreement was terminated in February 2005, the Company collected
all leasehold key money of
W
103,720 million. Under another lease
agreement with SK Corporation, the Company deposited refundable
leasehold key money of
W
768 million in
2005. And SK Communications Co., Ltd., a subsidiary of the
Company, has entered into an agreement with SK Corporation Co.,
Ltd. for the lease of its head office with the lease period from
January 13, 2005 to January 31, 2007 and deposited
refundable leasehold key money of
W
36,935 million. As a result, the
refundable leasehold key money to SK Corporation as of
December 31, 2005 totaled
W
37,703 million.
W
103,679 million,
W
61,596 million and
W
52,172 million, respectively, and was
recorded as accrued expenses.
2003
2004
2005
W
86,139
W
103,679
W
61,596
—
—
(7,415
)
32,145
34,283
7,265
(14,605
)
(76,366
)
(9,274
)
W
103,679
W
61,596
W
52,172
(note a)
Effective January 1, 2005, pursuant to adoption of SKAS
No. 17 (see Note 2(m)), Rainbow Points provision is
recorded at the present value, which was recorded at nominal
value through 2004.
Table of Contents
W
14,177 million (excluding tax effect
totaling
W
5,377 million and foreign
exchange translation gain arising from US dollar denominated
bonds totaling
W
40,652 million) was
accounted for as a capital adjustment.
W
15,789 million for the year ended
December 31, 2004 and a gain on valuation of currency swap
of
W
2,545 million for the year ended
December 31, 2005 were charged to current operations. As of
December 31, 2005, fair values of above derivatives
totaling
W
73,450 million are recorded in
long-term liabilities.
Fair Value
Designated
Duration of
as Cash
Not
Type
Hedged Item
Face Amount
Contract
Flow Hedge
Designated
Total
US dollar denominated bonds
US$
300,000
March 23, 2004- April 1, 2011
W
60,206
W
—
W
60,206
US dollar denominated convertible bond
US$
100,000
May 27, 2004- May 27, 2009
—
13,244
13,244
W
60,206
W
13,244
W
73,450
W
6,146 million.
27.
MERGERS AND ACQUISITIONS
a.
Merger with SK IMT Co., Ltd.
W
27,400 per share, totaling
W
604,958 million, before the completion of
the merger with the Company. The exchange ratio of common stock
between the Company and SK IMT Co., Ltd. was
0.11276 share of the Company’s common stock with a par
value of
W
500 to 1 share of common stock
of SK IMT Co., Ltd. with a par value of
W
5,000.
Using such exchange ratio, the Company distributed
126,276 shares of new issued common stock to minority
shareholders of SK IMT Co., Ltd. and the Company retired all
shares of SK IMT Co., Ltd. owned by the Company and SK IMT
Table of Contents
W
63 million) for the
distribution of 126,276 shares of newly issued common stock
to minority shareholders of SK IMT Co., Ltd. upon on the
merger dated May 1, 2003, amounting to
W
31,809 million, was recorded as an
increase in capital surplus in accordance with Korean GAAP.
b.
Merger with Cyworld Co., Ltd.
W
500) and Cyworld Co., Ltd. (par value:
W
5,000) was 55.04697 to 1. Using such
exchange ratio, SK Communications Corp. issued
12,770,877 shares of new common stock.
W
9,374 million as follows (in millions of
Korean won):
W
152
W
8,429
1,097
9,526
W
9,374
(note)
The direct costs related to the merger are the liquidation
income tax of
W
1,067 million paid for
Cyworld Co., Ltd., and service fees of
W
30 million related to the merger.
W
781 million,
W
1,875 million and
W
1,875 million, respectively.
Aug. 1, 2003
Dec. 31, 2002
W
1,200
W
129
615
1,175
W
1,815
W
1,304
W
1,586
W
850
77
432
1,663
1,282
1,160
1,160
4,208
4,208
(5,216
)
(5,346
)
152
22
W
1,815
W
1,304
Table of Contents
Period from
Jan. 1, 2003 to
Year Ended
Jul. 31, 2003
Dec. 31, 2002
W
1,930
W
1,823
(2,244
)
(2,694
)
(314
)
(871
)
606
37
(163
)
(721
)
W
129
W
(1,555
)
c.
Acquisition of Seoul Records, Inc.
In Millions of
Korean Won
W
23,796
4,078
W
27,874
W
408 million.
28.
NETWORK INTERCONNECTION CHARGES
W
1,017.1 billion,
W
849.4 billion and
W
898.6 billion, respectively, while
aggregate interconnection expenses amounted to
W
771.5 billion,
W
913.7 billion and
W
989.4 billion, respectively.
29.
SUBSTANTIAL CHANGES IN THE BUSINESS ENVIRONMENT AND
SUBSEQUENT EVENTS
a.
Acquisition of WiBro License
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W
117 billion and
received the WiBro license from the Ministry of Information and
Technology in March 2005, which was recorded as an intangible
asset.
b.
Establishment of HELIO, LLC., a Joint Venture Company in the
U.S.
c.
Acquisition of and Merger with Etoos Group Inc.
d.
Additional Acquisition of SLD Telecom PTE Ltd.
e.
Handset Subsidies to Long-term Mobile Subscribers
f.
Request for the conversion of the convertible bond and the
delivery of the treasury stock
W
218,098 (standard foreign currency ratio of
W
1,176.50 for US$1 based on the related
indenture).
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g.
Resolution to acquire equity interest in IHQ, Inc.
W
5,740.49 on June 6, 2006 in order to
strengthen the Company’s communication service and platform
business. As a result, the Company’s ownership in IHQ, Inc.
will increase from 21.6% to 34.9%.
h.
Fine for improper payment of handset subsidies.
W
13.8 billion and
W
7.8 billion, respectively, for
improper payment of handset subsidies.
30.
RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
a.
Deferred Income Taxes (see Note 2)
W
27,030 million and
W
30,857 million as of December 31,
2003 and 2004, respectively, had been recognized for Korean GAAP
purposes.
b.
Deferred Charges (see Note 2)
c.
Leases
Table of Contents
d.
Marketable Securities and Investments Securities (see
Note 2)
•
Debt securities that the Company has the positive intent and
ability to hold to maturity are classified as
held-to
-maturity
securities and reported at amortized cost.
•
Debt and equity securities that are bought and held principally
for the purpose of selling them in the near term are classified
as trading securities and reported at fair value, with
unrealized gains and losses included in income.
•
Debt and equity securities not classified as either
held-to
-maturity
securities or trading securities are classified as
available-for-sale securities and reported at fair value, with
unrealized gains and losses excluded from income and reported in
other comprehensive income.
W
945,854 million,
W
343,723 million and
W
71,308 million for the years ended
December 31, 2003, 2004 and 2005, respectively. Gross
realized gains for the years ended December 31, 2003, 2004
and 2005 were
W
2,122 million,
W
1,342 million and
W
5,638 million, respectively. Gross
realized losses for the years ended December 31, 2003, 2004
and 2005 were
W
614 million,
W
517 million and
W
37 million, respectively.
Gross
Gross
Cost
Unrealized
Unrealized
(Amortized Cost)
Gains
Losses
Fair Value
W
895,401
W
—
W
(2,184
)
W
893,217
W
450
W
—
W
(82
)
W
368
652,372
2,039
—
654,411
W
652,822
W
2,039
W
(82
)
W
654,779
W
11
W
1
W
—
W
12
777,460
—
—
777,460
W
777,471
W
1
W
—
W
777,472
Table of Contents
Gross
Gross
Cost (amortized
unrealized
unrealized
Impairment
cost)
gains
losses
losses
Fair value
W
427,472
W
73,290
W
(6,608
)
W
(55,469
)
W
438,685
64,315
—
—
—
64,315
W
491,787
W
73,290
W
(6,608
)
W
(55,469
)
W
503,000
W
470,266
W
137,621
W
—
W
(63,902
)
W
543,985
65,957
—
—
(10,655
)
55,302
W
536,223
W
137,621
W
—
W
(74,557
)
W
599,287
W
465,244
W
173,960
W
(9,768
)
W
(60,838
)
W
568,598
307,490
—
(217
)
(10,885
)
296,388
W
772,734
W
173,960
W
(9,985
)
W
(71,723
)
W
864,986
W
6,608 million
and
W
9,985 million at December 31,
2003 and 2005, respectively, for which impairment has not been
recognized, have been in a continuous unrealized loss position
for less than twelve months.
W
353,168 million at
December 31, 2005. Investments with an aggregate cost of
W
85,994 million were not evaluated for
impairment because (a) the Company did not estimate the
fair value of those investments in accordance with
paragraphs 14 and 15 of Statement 107 and (b) the
Company did not identify any events or changes in circumstances
that may have had a significant adverse effect on the fair value
of those investments. The Company estimated that the fair value
exceeded the cost of investments (that is, the investments were
not impaired) for the remaining
W
267,174 million of cost method
investments.
e.
Impairment of Investment Securities and Recoveries
W
21,716 million,
W
8,434 million and
W
68 million, respectively, when compared
to those under Korean GAAP. And, as certain available-for-sale
securities for which the impairment losses had been recognized
for the years ended December 31, 2002 and 2004 for
U.S. GAAP purposes, but not for Korean GAAP purposes, were
sold in 2003 and 2005, some portion of losses of disposal of
such available-for-sale securities that were recognized for the
years ended December 31, 2003 and 2005 for Korean GAAP
purposes, amounting to
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W
46,443 million and
W
3,133 million in 2003 and 2005,
respectively, were reversed respectively, for U.S. GAAP
purposes.
f.
Comprehensive Income
g.
Business Combinations and Intangible Assets
h.
Determination of Acquisition Cost of Equity Interest in
Subsidiary
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W
64,052 million,
W
44,455 million and
W
28,358 million, respectively, when
compared to those under Korean GAAP.
i.
Additional Equity Investment in Subsidiaries
W
955,865 million,
W
965,102 million and
W
965,351 million, respectively, when
compared to those under Korean GAAP.
j.
Capitalization of Foreign Exchange Losses (or Gains) and
Interest Expenses
k.
Nonrefundable Activation Fees
l.
Gain or Loss on Disposal of Subsidiary’s Stock
m.
Employee Stock Option Compensation Plan
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W
210,000 per share,
W
120,070 per share and
W
48,724 per share, respectively.
n.
Loans Receivable for Stock Issued to Employee
o.
Discount on Leasehold Deposits
p.
Asset Securitization Transactions
•
The transferred assets have been isolated from the transferor
and put beyond the reach of the transferor, or any consolidated
affiliated of the transferor, and their creditors even in the
event of bankruptcy or receivership of the transferor or any
consolidated affiliate.
•
The transferee is a qualifying special-purpose entity
(“QSPE”) and each holder of its beneficial interests
(including both debt and equity securities) has the right to
pledge, or the right to exchange its interests. If the issuing
vehicle is not a QSPE, then sale accounting is only permitted if
the issuing vehicle itself has the right to pledge or the right
to exchange the transferred assets.
•
The transferor does not effectively maintain control over the
transferred assets either through;
(a) an agreement that calls for the transferor to
repurchase the transferred assets (or to buy back securities of
a QSPE held by third-party investors) before their
maturity or
(b) the ability to unilaterally cause the SPE or QSPE to
return specific assets; other than through a cleanup call.
q.
Considerations for Conversion Right
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W
66,835 million and
W
52,685 million, respectively.
r.
Currency Swap
s.
Foreign Currency Translation
t.
Sale of Stock by Equity Method Investee
u.
Subscription Payable
W
40,014 million, respectively, when
compared to those under Korean GAAP. However, such differences
do not have an effect on either consolidated net income or
shareholders’ equity.
Table of Contents
v.
Equity Instrument to Be Received in Conjunction with
Providing Services
W
2,055 million, when compared to those
under the Korean GAAP. However, such differences do not have an
effect on either consolidated net income or shareholder’s
equity.
w.
Consolidation of Variable Interest Entities
x.
Remeasurement of Stock Option
y.
Presentation of Minority Interest as a Component of
Shareholders’ Equity
z.
Consolidated Subsidiary
W
7 billion. Generally,
substantial control is deemed to exist when the investor is the
largest shareholder and owns more than 30 percent of total
outstanding voting stock. However, U.S. GAAP generally
requires that all majority-owned subsidiaries be consolidated
and that any entity of which the Company owns twenty to fifty
percent of total outstanding voting stock not be consolidated;
rather that entity should be accounted for under the equity
method. The Company’s consolidated financial statements did
not reflect an adjustment in the U.S. GAAP reconciliation
for this difference in accounting as the impact is immaterial.
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Year Ended December 31,
2003
2004
2005
W
1,966,100
W
1,491,479
W
1,872,978
(7,342
)
(3,827
)
30,857
(15,036
)
22,515
(4,717
)
2,660
(60
)
(2,037
)
(906
)
1,534
(925
)
(22,303
)
(18,546
)
(16,046
)
135,557
136,694
137,389
21,617
24,454
3,231
427
5,285
5,272
(46,962
)
(36,048
)
(34,681
)
58
—
—
(3,114
)
(1,938
)
49
7,437
(14,476
)
—
24,727
(8,434
)
3,065
—
(49,452
)
29,898
(286
)
422
230
—
1,016
14,044
—
2,458
(2,458
)
115
—
—
—
—
(8,637
)
—
—
38
W
2,062,749
W
1,553,076
W
2,027,550
75,078,219
73,614,297
73,614,296
W
27,475
W
21,097
W
27,543
W
27,475
W
20,918
W
27,089
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December 31,
2003
2004
2005
W
6,093,847
W
7,205,744
W
8,327,540
(45,317
)
(70,067
)
—
136,517
159,032
101,130
60
—
(2,037
)
239
1,773
847
1,019,951
1,009,591
993,547
273,598
410,292
547,681
19,842
44,294
47,522
(68,945
)
(63,660
)
(58,388
)
(239,174
)
(275,222
)
(309,903
)
(33,788
)
(22,546
)
(14,586
)
(155,985
)
(98,198
)
(108,927
)
14,476
—
—
(653
)
(231
)
—
—
(66,263
)
(52,220
)
—
2,458
—
—
—
228
W
7,014,668
W
8,236,997
W
9,472,434
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Year Ended December 31,
2003
2004
2005
W
6,356,176
W
7,014,668
W
8,236,997
2,062,749
1,553,076
2,027,550
(151,739
)
(478,492
)
(758,227
)
31,053
—
—
50,033
55,156
23,042
50,166
89,448
(63,370
)
(20,598
)
—
—
(1,379,337
)
(2
)
—
(356
)
(11,128
)
(1,792
)
4,403
3,030
274
12,118
11,241
7,960
W
7,014,668
W
8,236,997
W
9,472,434
(note a)
This line item consists of the adjustments to the carrying
amount of equity method investments based on the Company’s
proportionate pickup in affiliates using the equity method of
accounting, which are directly adjusted to stockholders’
equity of affiliates, such as unrealized gains or losses on
valuation of available-for-sale securities, foreign-based
operations’ translation adjustments in affiliates and stock
transactions by affiliates.
Table of Contents
December 31,
2003
2004
2005
W
4,069,525
W
4,390,693
W
4,598,580
—
(4,123
)
(3,249
)
73,500
51,344
—
(8,297
)
25,234
31,381
5,777
1,119
—
478,298
—
—
—
—
(4,889
)
4,618,823
4,464,267
4,621,823
9,748,692
9,892,665
10,106,192
(33,788
)
(18,423
)
(11,337
)
1,015,801
1,004,774
988,729
273,598
410,292
547,681
(6,430
)
(1,349
)
—
34
34
34
9,129
9,129
8,571
3,301
1,773
847
19,842
44,294
47,522
(68,945
)
(63,660
)
(58,388
)
6,154
12,969
7,933
—
—
40,014
—
—
(2,055
)
—
—
53,626
10,967,388
11,292,498
11,729,369
W
15,586,211
W
15,756,765
W
16,351,192
Table of Contents
December, 31
2003
2004
2005
W
4,530,910
W
3,066,893
W
2,863,373
31
—
—
68,665
86,082
114,111
463,822
—
—
886
—
—
—
(26
)
—
—
—
40,014
—
—
(525
)
—
—
17,671
5,064,314
3,152,949
3,034,644
3,193,460
4,010,721
3,513,859
5,844
12,969
9,970
179,638
198,269
204,363
3,062
—
—
118,837
123,911
—
(149,597
)
(141,080
)
(74,532
)
—
66,263
52,220
—
(2,432
)
—
—
—
(1,530
)
—
—
631
3,351,244
4,268,621
3,704,981
W
8,415,558
W
7,421,570
W
6,739,625
W
155,985
W
98,198
W
108,927
—
—
30,206
W
155,985
W
98,198
W
139,133
Table of Contents
2003
2004
2005
W
3,329,391
W
2,516,807
W
3,404,105
(47,496
)
469,883
—
(137,618
)
240,204
(122,710
)
—
—
12,444
W
3,144,277
W
3,226,894
W
3,293,839
W
(1,415,053
)
W
(1,470,292
)
W
(1,938,187
)
(8,080
)
76,347
—
137,618
(240,204
)
122,710
—
—
(1,004
)
W
(1,285,515
)
W
(1,634,149
)
W
(1,816,481
)
W
(2,261,039
)
W
(968,570
)
W
(1,429,038
)
55,576
(546,230
)
—
—
—
(10,243
)
W
(2,205,463
)
W
(1,514,800
)
W
(1,439,281
)
W
317,488
W
370,630
W
378,426
—
—
1,197
W
317,488
W
370,630
W
379,623
Table of Contents
2003
2004
W
3,281,274
W
2,985,935
621
755
(137,618
)
240,204
W
3,144,277
W
3,226,894
W
(1,422,512
)
W
(1,393,190
)
(621
)
(755
)
137,618
(240,204
)
W
(1,285,515
)
W
(1,634,149
)
31.
ADDITIONAL DISCLOSURES REQUIRED BY U.S. GAAP
a.
Income Taxes
Year Ended December 31,
2003
2004
2005
W
668,180
W
551,405
W
685,541
143,257
59,669
(18,422
)
W
811,437
W
611,074
W
667,119
Year Ended December 31,
2003
2004
2005
W
776,030
W
584,843
W
670,776
77,603
58,484
67,078
(83,826
)
(89,080
)
(100,160
)
13,685
13,736
18,850
(5,909
)
11,011
4,846
(7,943
)
—
—
20,719
28,705
19,637
21,078
3,375
(13,908
)
W
808,892
W
611,074
W
667,119
28.23
%
28.21
%
24.86
%
Table of Contents
December 31,
2003
2004
2005
W
22,039
W
19,649
W
39,334
9,587
9,764
9,239
1
(561
)
—
(2,026
)
(2,463
)
(1,229
)
—
—
17
—
—
89
35,622
50,189
50,004
65,223
76,578
97,454
3,935
(34,371
)
(58,745
)
—
11,480
—
74,928
58,419
32,959
774
—
—
(6,593
)
(12,671
)
(7,471
)
(3,364
)
(9,434
)
13,732
(182,518
)
(195,103
)
(211,208
)
(130,373
)
(130,372
)
(130,372
)
1,162
5,003
—
—
25,371
24,108
46,780
(7,205
)
11,867
(195,269
)
(288,883
)
(325,130
)
W
(130,046
)
W
(212,305
)
W
(227,676
)
(note)
Unrealized gain on valuation of investment securities as of
December 31, 2003, 2004 and 2005 were recorded as a
separate component of shareholders’ equity, net of tax
effect of
W
18,287 million,
W
39,210 million and
W
48,019 million, respectively.
Table of Contents
Table of Contents
2003
2004
2005
Carrying
Carrying
Carrying
Amount
Amount
Amount
(Note a)
Fair Value
(Note a)
Fair Value
(Note a)
Fair Value
W
472,410
W
472,410
W
383,360
W
383,360
W
486,215
W
486,215
893,217
893,217
654,779
654,779
777,472
777,472
3,000,918
3,000,918
3,126,754
3,126,754
3,038,936
3,038,936
41,933
41,933
51,232
51,232
62,290
62,290
503,000
503,000
599,287
599,287
864,986
864,986
385,707
N/A
352,523
N/A
353,168
N/A
352
352
10,351
10,351
1,479
1,479
13,947
10,460
12,019
9,014
7,093
5,320
W
5,311,484
W
5,190,305
W
5,591,639
W
1,317,162
W
1,317,162
W
1,205,682
W
1,205,682
W
1,094,855
W
1,094,855
1,236,197
1,236,197
425,496
425,496
4,614
4,614
4,201,707
4,283,402
4,044,258
4,211,926
3,763,135
3,825,813
W
6,755,066
W
9,234,563
W
4,862,604
(note b)
Investments in non — listed equity include the
investments in the common stock of Powercomm Co., Ltd.
(“Powercomm”). Korea Electric Power Corp.
(“KEPCO”), the parent company of Powercomm, sold to
Dacom Corporation 45.5% interest in Powercomm at
W
12,000 per share in 2002. Based on this
transaction, the fair value of the Company’s investments in
the common stock of Powercomm was determinable and the
impairment loss on the investment of
W
150,243 million was recognized in 2002.
The fair value of common stock of Powercomm as of
December 31, 2003, 2004 and 2005 was estimated by an
outside professional valuation company using the present value
of expected future cash flows; and the additional impairment
loss of
W
21,593 million was recognized in
2003. As of December 31, 2004 and 2005, unrealized gain on
valuation of investment in Powercomm of
W
3,158 million and
W
8,723 million have been recorded as other
comprehensive income, respectively.
Table of Contents
2003
2004
2005
W
2,062,749
W
1,553,076
W
2,027,550
93,738
67,645
34,915
(24,727
)
8,434
(3,065
)
(18,978
)
(20,923
)
(8,808
)
50,033
55,156
23,042
(356
)
(11,128
)
(1,792
)
49,677
44,028
21,250
W
2,112,426
W
1,597,104
W
2,048,800
2003
2004
2005
W
3,400,110
W
3,400,155
W
3,408,989
(16,437
)
—
—
16,482
8,834
9,223
—
—
—
W
3,400,155
W
3,408,989
W
3,418,212
Table of Contents
December 31, 2003
December 31, 2004
December 31, 2005
Accumulated
Gross
Gross
Gross
Amortization
Carrying
Accumulated
Carrying
Accumulated
Carrying
and
Amount
Amortization
Amount
Amortization
Amount
Impairment
W
1,188,547
W
(7,548
)
W
1,188,547
W
(98,183
)
W
1,188,547
W
(188,193
)
99,783
(64,088
)
99,783
(83,686
)
99,783
(99,783
)
552,279
(258,802
)
718,291
(354,021
)
1,036,165
(455,505
)
W
1,840,609
W
(330,438
)
W
2,066,621
W
(535,890
)
W
2,324,495
W
(743,481
)
W
103,914 million,
W
209,991 million and
W
221,275 million respectively. It is
estimated to be
W
233,361 million,
W
225,199 million,
W
207,741 million,
W
175,964 million and
W
148,388 million for the years ending
December 31, 2006, 2007, 2008, 2009 and 2010, respectively,
primarily related to the IMT license, customer lists
and other.
f.
Operating Revenue
2003
2004
2005
W
8,401,021
W
8,762,376
W
9,148,363
1,017,056
849,407
898,621
611,981
649,809
294,557
180,306
272,974
359,911
W
10,210,364
W
10,534,566
W
10,701,452
Table of Contents
g.
Segment
h.
New Accounting Pronouncements
Table of Contents
Table of Contents
SK TELECOM CO., LTD.
(Registrant)
/s/
Shin Bae Kim
(Signature)
Shin Bae Kim
Chief Executive Officer and
Representative Director
(Name/ Title)
Table of Contents
Number
Description
1
.1
Memorandum and Articles of Association
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
4
.1
Telecommunications Basic Law of 1983, as amended (English
translation)
4
.2
Enforcement Decree of the Telecommunications Basic Law, as
amended (English translation)
4
.3
Telecommunications Business Law of 1983, as amended (English
translation)
4
.4
Enforcement Decree of the Telecommunications Business Law
(English translation)***
4
.5
Korean Commercial Code (together with English translation)*
4
.6
Amendment to Korean Commercial Code dated December 29, 2001
(together with English translation)**
4
.7
Korean Securities and Exchange Act, as amended (English
translation)
8
.1
List of Subsidiaries of SK Telecom Co., Ltd.
11
.1
Code of Ethics 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
99
.1
Consent of Deloitte Anjin LLC
Filed previously as exhibits to our Form 20-F filed on
June 30, 2000.
Filed previously as exhibits to our Form 20-F filed on
June 28, 2002.
Filed previously as exhibits to our Form 20-F filed on
May 31, 2005.