##### Table of Contents



As filed with the U.S. Securities and Exchange Commission on June 16, 2006
   UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 20-F/A
 AMENDMENT NO. 1
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period            to
 Commission file number 001-15012
 
 hanarotelecomChushikHoesa
  hanarotelecom
incorporated
 (Translation of Registrants name into English)
 The Republic of Korea
(Jurisdiction of incorporation or organization)
 17-7, Yeouido-dong
Yeoungdeungpo-gu, Seoul 150-874
Korea
(Address of principal executive offices)
   Title of each class
    
    Name of each exchange on which registeredCommon shares, par value Won 5,000 per share
    
    The KRX KOSDAQ MarketAmerican depositary shares, each of which represents one common share
    
    The NASDAQ National Market
     þ o
  o þ




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##### 



TABLE OF CONTENTS
 PageExplanatory Note
    
    
    3Item 3. Key Information
    
    
    4Item 5. Operating and Financial Review and Prospects
    
    
    17Item 15. Controls and Procedures
    
    
    31Item 18. Financial Statements
    
    
    31Item 19. Exhibits
    
    
    31Consolidated
Financial Statements
    
    
    F-1EX-12.1 SECTION 302 CERTIFICATION OF CEOEX-12.2 SECTION 302 CERTIFICATION OF CFOEX-13.1 SECTION 906 CERTIFICATIONS
  2




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Explanatory Note
  3




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Item 3. Key Information.
 A. Selected Financial Data
   Year ended December 312000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(millions of Won, except number of shares and per share data)(as restated)Statements of Operations Data:Korean GAAP:Operating revenue
    
    Won
    342,804
    
    
    Won
    830,721
    
    
    Won
    1,417,854
    
    
    Won
    1,383,486
    
    
    Won
    1,449,569Voice revenue(1)
    
    
    34,089
    
    
    
    114,529
    
    
    
    210,664
    
    
    
    248,964
    
    
    
    291,186Leased line revenue(2)
    
    
    8,767
    
    
    
    17,706
    
    
    
    111,813
    
    
    
    37,992
    
    
    
    39,717Broadband revenue(3)
    
    
    284,159
    
    
    
    641,544
    
    
    
    969,635
    
    
    
    982,693
    
    
    
    985,428Other
    
    
    15,789
    
    
    
    56,942
    
    
    
    125,742
    
    
    
    113,837
    
    
    
    133,238Operating expenses
    
    
    663,009
    
    
    
    1,012,924
    
    
    
    1,396,426
    
    
    
    1,312,792
    
    
    
    1,335,639Operating income (loss)
    
    
    (320,205
    )
    
    
    (182,203
    )
    
    
    21,428
    
    
    
    70,694
    
    
    
    113,930Non-operating expenses, net
    
    
    (2,476
    )
    
    
    (78,194
    )
    
    
    (149,106
    )
    
    
    (231,606
    )
    
    
    (100,081
    )Ordinary income (loss) before
income tax
    
    
    (322,681
    )
    
    
    (260,397
    )
    
    
    (127,678
    )
    
    
    (160,912
    )
    
    
    13,849Income tax expense
    
    
    (57
    )
    
    
    (35
    )
    
    
    (1,083
    )
    
    
    (302
    )
    
    
    (495
    )Minority interest share of loss
(income)
    
    
    1,974
    
    
    
    2,941
    
    
    
    3,736
    
    
    
    (85
    )
    
    
    (308
    )Net income (loss)(7)
    
    Won
    (320,764
    )
    
    Won
    (257,491
    )
    
    Won
    (125,025
    )
    
    Won
    (161,299
    )
    
    Won
    13,046Weighted average number of shares
outstanding (in thousands)  Basic
    
    
    257,836
    
    
    
    285,440
    
    
    
    298,251
    
    
    
    321,310
    
    
    
    462,135Weighted average number of shares
outstanding (in thousands) 
Diluted
    
    
    257,836
    
    
    
    285,440
    
    
    
    298,251
    
    
    
    321,310
    
    
    
    462,135Basic and diluted earnings (loss)
per share of common share and
ADS(4)
    
    Won
    (1,244
    )
    
    Won
    (902
    )
    
    Won
    (419
    )
    
    Won
    (502
    )
    
    Won
    28Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    U.S. GAAP:Net income (loss)
    
    Won
    (317,413
    )
    
    Won
    (251,382
    )
    
    Won
    (167,179
    )
    
    Won
    (161,598
    )
    
    Won
    14,849Basic and diluted earnings (loss)
per share of common share and
ADS(4)
    
    Won
    (1,231
    )
    
    Won
    (881
    )
    
    Won
    (561
    )
    
    Won
    (503
    )
    
    Won
    32
 As of December 312000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(millions of Won)(as restated)Balance Sheet Data:Korean GAAP:Working capital(5)
    
    Won
    (40,488
    )
    
    Won
    (303,936
    )
    
    Won
    (855,808
    )
    
    Won
    (117,614
    )
    
    Won
    (90,529
    )Property and equipment, net
    
    
    2,438,865
    
    
    
    3,146,589
    
    
    
    3,134,314
    
    
    
    2,550,921
    
    
    
    2,372,845
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As of December 312000
    
    2001
    
    2002
    
    2003
    
    2004(millions of Won)Total assets
    
    
    3,351,246
    
    
    
    4,104,265
    
    
    
    4,104,785
    
    
    
    3,386,548
    
    
    
    3,185,250Net assets
    
    
    1,651,484
    
    
    
    1,541,209
    
    
    
    1,488,315
    
    
    
    1,730,720
    
    
    
    1,751,606Long-term indebtedness(6)
    
    
    1,008,401
    
    
    
    1,896,839
    
    
    
    2,128,703
    
    
    
    1,157,582
    
    
    
    1,034,739Capital stock
    
    
    1,320,000
    
    
    
    1,320,000
    
    
    
    1,396,613
    
    
    
    2,310,676
    
    
    
    2,310,676Total shareholders equity
    
    
    1,651,484
    
    
    
    1,541,209
    
    
    
    1,488,315
    
    
    
    1,730,720
    
    
    
    1,751,606U.S. GAAP:Property and equipment, net
    
    
    2,438,865
    
    
    
    2,727,091
    
    
    
    2,703,850
    
    
    
    2,554,089
    
    
    
    2,377,399Total assets
    
    
    3,384,218
    
    
    
    3,672,451
    
    
    
    3,678,342
    
    
    
    3,461,727
    
    
    
    3,232,290Total shareholders equity
    
    
    1,662,650
    
    
    
    1,450,686
    
    
    
    1,368,938
    
    
    
    1,757,035
    
    
    
    1,775,321
 
 (1)
    
    Voice revenue consists of revenue derived from services provided to fixed line customers.(2)
    
    Leased line revenue consists of revenue derived from services that give the subscriber the
right to use a private line exclusively.(3)
    
    Broadband revenue consists of revenue derived from high-speed data transmission services and
Internet access services.(4)
    
    Earnings (loss) per share is calculated by dividing net income (loss) by the weighted average
number of shares outstanding. For comparability purposes, the weighted average number of
common shares for the years ended December 31, 2001 and 2002 was recalculated to reflect the
issuance of new shares in 2003 at a price below market.(5)
    
    Working capital means current assets minus current liabilities.(6)
    
    Long-term indebtedness includes long-term debt in local and foreign currencies, debentures,
long-term obligations under capital leases, current portion of Asset-Backed Securities payable
and current maturities of long-term debt.(7)
    
    The restatement of certain lease and commission expenses from an invoice basis to an accrual
basis has been recorded as accrued expenses as of the end of 2004. The restatement of these
amounts under Korean GAAP in 2000 and 2001 were material due to the rapid growth in our
customer base, and accordingly, we restated our operating expenses under Korean GAAP for those
years. If we restated our expenses in 2002, 2003 and 2004 in the same manner, our net income
(loss) under Korean GAAP would have been restated as follows: net loss of Won 324,232 million
for 2000; net loss of Won 252,837 million for 2001; net loss of Won 129,679 million for 2002;
net loss of Won 156,909 million for 2003; and net income of Won 11,192 million for 2004. As ofAs of December 31,
    
    April 30,2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005Other Data:Residential subscribers
    
    
    1,274,327
    
    
    
    2,391,952
    
    
    
    3,544,001
    
    
    
    3,442,251
    
    
    
    3,825,777
    
    
    
    3,867,928Corporate subscribers
    
    
    208,682
    
    
    
    355,816
    
    
    
    273,377
    
    
    
    284,893
    
    
    
    336,430
    
    
    
    326,082Corporate leased lines(1)
    
    
    1,488
    
    
    
    3,216
    
    
    
    6,709
    
    
    
    6,480
    
    
    
    6,057
    
    
    
    6,353Employees
    
    
    1,501
    
    
    
    1,519
    
    
    
    1,576
    
    
    
    1,489
    
    
    
    1,532
    
    
    
    1,580Network route kilometers-owned(2)
    
    
    6,419
    
    
    
    8,804
    
    
    
    12,425
    
    
    
    15,317
    
    
    
    17,051
    
    
    
    17,406Network route kilometers-leased(3)
    
    
    2,887
    
    
    
    2,991
    
    
    
    5,487
    
    
    
    5,821
    
    
    
    7,429
    
    
    
    5,020Office buildings connected with fiber optic
lines
    
    
    1,304
    
    
    
    1,608
    
    
    
    2,978
    
    
    
    3,131
    
    
    
    3,216
    
    
    
    3,262Apartment complexes connected with fiber
optic lines
    
    
    3,827
    
    
    
    4,972
    
    
    
    6,470
    
    
    
    7,291
    
    
    
    7,899
    
    
    
    8,849Switches installed (voice)
    
    
    32
    
    
    
    37
    
    
    
    38
    
    
    
    38
    
    
    
    43
    
    
    
    43Switches installed (data)(4)
    
    
    143
    
    
    
    156
    
    
    
    161/140
    
    
    
    161/149
    
    
    
    161/168
    
    
    
    161/188
 
 (1)
    
    The 6,057 leased lines in service as of December 31, 2004 included 2,812 individual Internet
dedicated lines connected to corporate subscribers and 3,198 individual traditional leased
lines connected to corporate subscribers. The 6,353 leased lines in service as of April 30,
2005 included 2,809 individual Internet dedicated lines connected to corporate subscribers and
3,480 individual traditional leased lines connected to corporate subscribers.(2)
    
    Network route kilometers-owned includes owned fiber optic lines within cities we service,
including fiber optic last mile connections.(3)
    
    Network route kilometers-leased includes leased fiber optic lines within cities we service,
including portions of our backbone, but does not include inter-city connections. 5




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(4)
    
    Information as of December 31, 2002, 2003 and 2004 and April 30, 2005 represents the number
of ATM/routers installed. Exchange Rate Information
  Year ended December 31,
    
    At End of Period
    
    
    Average Rate(1)
    
    
    High
    
    
    Low(Won per U.S.$1.00)2000
    
    Won
    1,267.00
    
    
    Won
    1,140.00
    
    
    Won
    1,267.00
    
    
    Won
    1,105.502001
    
    
    1,313.50
    
    
    
    1,293.40
    
    
    
    1,369.00
    
    
    
    1,234.002002
    
    
    1,186.30
    
    
    
    1,242.00
    
    
    
    1,332.00
    
    
    
    1,160.602003
    
    
    1,192.00
    
    
    
    1,193.00
    
    
    
    1,262.00
    
    
    
    1,146.002004
    
    
    1,035.10
    
    
    
    1,139.30
    
    
    
    1,195.10
    
    
    
    1,035.102005 (through June 23)
    
    
    1,010.50
    
    
    
    1,009.02
    
    
    
    1,058.00
    
    
    
    997.00
 Month ending
    
    At end of period
    
    
    High
    
    
    Low(Won per U.S.$1.00)December 31, 2004
    
    Won
    1,035.10
    
    
    Won
    1,067.00
    
    
    Won
    1,035.10January 31, 2005
    
    
    1,026.85
    
    
    
    1,058.00
    
    
    
    1,024.00February 28, 2005
    
    
    1,000.85
    
    
    
    1,044.00
    
    
    
    1,000.85March 31, 2005
    
    
    1,015.40
    
    
    
    1,023.85
    
    
    
    997.50April 30, 2005
    
    
    997.00
    
    
    
    1,019.00
    
    
    
    997.00May 31, 2005
    
    
    1,005.00
    
    
    
    1,009.00
    
    
    
    997.00
 
 (1)
    
    The average of the noon buying rates on the last date of each month (or a portion thereof)
during the period. B. Capitalization and Indebtedness
  C. Reasons for the Offer and Use of Proceeds
  D. Risk Factors
 Investing in our securities involves a high degree of risk. You should carefully consider the
risks described below as well as all the other information in this Annual Report, including our
consolidated financial statements and related notes, Item 11. Quantitative and Qualitative
Disclosure about Market Risk.
 Our business, operating results and financial condition could be materially adversely affected
by any of the factors discussed below. The trading price of our securities could decline due to any
of these factors. This Annual Report also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including the risks faced by us
described below and elsewhere in this Annual Report. See Forward-Looking Statements.
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Risks Related to the Telecommunications Industry and Our Business
 We are subject to intense competition in all of the markets in which we operate, which may
subject us to intense price competition and could affect our revenues
    The acquisition of Thrunet or any other companies, businesses or technologies could result in
integration and other operational challenges and other harmful consequences relating to our overall
business and results of operations
  7




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
    
    potential disruptions of our ongoing business and the distraction of our
managements time and focus;
    
    difficulties in integrating the systems and technologies, back office functions,
personnel and customer base of Thrunet or any other acquired company with ours;
    
    impairment of relationships with customers, employees and strategic partners; and
    
    difficulties in integrating the accounting, management information, human resources
and other administrative systems, which will prevent us from realizing an effective
management structure.
  We may not have recourse under the Thrunet acquisition agreement for losses relating to the
acquisition
  Our Thrunet acquisition price may not be reflective of the true value of the Thrunet business
  Charges to earnings resulting from the application of the purchase method of accounting may
adversely affect our financial results and the market value of our common shares
  8




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We may not be able to maintain a high level of broadband subscriber growth because of Koreas
high broadband penetration rate
  The telecommunications industry is capital intensive and subject to rapid changes in
technology
  The Government has had, and continues to have, significant control and influence over the
development of the telecommunications industry in Korea
  9




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The finding by the Korean Fair Trade Commission that we are guilty of horizontal collusion
with other telecommunications companies could result in fines, other criminal and civil liabilities
and a significant change in our competitive environment
  10




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Our licenses from the MIC are subject to certain conditions and may be subject to future
conditions imposed by the MIC
  We outsource a significant portion of our sales force needs. Our lack of direct control over
our outsourced sales forces actions may materially affect our sales and marketing efforts
  Certain major shareholders have a significant influence over our management and operations
  The inability to lease networks from third parties could materially affect our ability to
provide services
   11




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Our networks may be vulnerable to security breaches, piracy and hacking
   We may not generate sufficient cash flow from operations or obtain adequate financing on
acceptable terms or at all to implement our business plan in the mid- to long-term
  We will be exposed to increased risks as we expand the range of our services
  12




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We may be liable for information disseminated over our Internet services network
  We could be adversely affected if we experience a failure of our equipment
  Risks Related to Korea
 There are unique economic and political risks associated with investing in Korean companies
    
    
    financial problems relating to chaebols, or their suppliers, and their potential
adverse impact on Koreas financial sector;
    
    adverse changes or volatility in foreign currency reserve levels, commodity prices
(including oil prices), exchange rates (including depreciation of the U.S. dollar or
Japanese yen), interest rates and stock markets;
    
    adverse developments in the economies of countries such as the United States, China
and Japan, to which Korea exports, or in emerging market economies in Asia or
elsewhere, which developments could result in a loss of confidence in the Korean
economy;
    
    social and labor unrest or declining consumer confidence or spending resulting from
layoffs, increasing unemployment and lower levels of income; and
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
    
    a deterioration in economic or diplomatic relations between Korea and its trading
partners or allies, including such deterioration resulting from trade disputes or
disagreements in foreign policy.
  Increased international tensions with North Korea could have an adverse effect on us and the
market value of our common shares
  Koreas new legislation allowing class action suits related to securities transactions may
expose us to additional litigation risk
  14




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Risks Related to Owning Our Shares or ADSs
 Rights of shareholders under Korean law may be different from those under the laws of
jurisdictions within the United States and other countries
  Restrictions on foreign ownership of our voting shares imposed by Korean law may depress the
price of our common shares
  Additional restrictions on acquiring a large stake in our common shares imposed by Korean law
may depress the market price of our common shares
  15




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Foreign exchange rate fluctuations may affect the dollar value of our ADSs and dividends
payable to holders of our ADSs
  As a holder of ADSs, you have fewer rights than a shareholder has, and you must act through
the depositary to exercise these rights
   Future sales of ADSs and common shares could lower our share price
  It may not be possible for investors to effect service of process within the United States
upon us or our directors or senior management, or to enforce against us or those persons judgments
obtained in U.S. courts predicated upon the civil liability provisions of the federal securities
laws of the United States
  16




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Item 5. Operating and Financial Review and Prospects.
 The following discussion is based on information derived from our consolidated financial
statements. Our consolidated financial statements have been prepared in accordance with Korean
GAAP, which differs in certain significant respects from U.S. GAAP. Our consolidated financial
statements for the years ended December 31, 2002, 2003 and 2004 have been reconciled to U.S. GAAP
(see note 26 to our consolidated financial statements included elsewhere in this Annual Report).
The following discussion also contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated in these forward
looking statements as a result of certain factors, including those set forth under Item 3.D. Risk
Factors and elsewhere in this document. You should read the following discussion together with
our audited consolidated financial statements and the related notes for the years ended December
31, 2002, 2003 and 2004, included elsewhere in this Annual Report.
 A. Operating Results
 Overview
   Year Ended December 31,2003
    
    
    2004(billions of Won)Revenue:Broadband
    
    Won 982.7
    
    
    Won 985.4Voice
    
    
    249.0
    
    
    
    291.2Leased Line
    
    
    38.0
    
    
    
    39.8Others
    
    
    113.8
    
    
    
    133.2Total
    
    Won 1,383.5
    
    
    Won 1,449.6
   17




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Significant Factors Affecting Our Results of Operations
 Factors Directly Affecting Revenues
  Subscriber Growth
 Broadband
 Voice
 Revenue per Subscriber
  Competition and Pricing
  18




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Customer Churn
  Extensive Governmental Regulation
   Rapid Technological Change
  19




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Critical Accounting Policies and Issues
  Revenue recognition
  Allowance for doubtful accounts
  Estimated useful lives of property and equipment
   Previous useful lives
    
    Revised useful livesBuildings and structures
    
    50 years
    
    40 yearsMachinery (duct lines)
    
    8 years
    
    15 yearsMachinery (terminal equipment)
    
    8 years
    
    6 yearsVehicles and other
    
    58 years
    
    4 years
  20




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Investments in non-listed equity securities and use of the equity method of accounting
   Impairment of goodwill
   U.S. GAAP Reconciliation
     the difference in the treatment of licensing costs; the difference in the treatment of interest capitalization;
 21




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 the difference in the treatment of affiliates and special-purpose entity; the difference in the treatment of loans to employees; the difference in the treatment of development cost; and the difference in the treatment of goodwill.
 Results of Operations
 Year ended December 31, 2004 compared to year ended December 31, 2003
 Operating Revenues
    Operating Expenses
   22




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Operating Income
  Non-Operating Income
  Non-Operating Expenses
  Net Income (Loss)
  Year ended December 31, 2003 compared to year ended December 31, 2002
 Operating Revenues
  23




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Operating Expenses
  Operating Income
  Non-Operating Income
  Non-Operating Expenses
  24




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Net Loss
  Impact of Inflation
  Impact of Foreign Currency Fluctuations
  B. Liquidity and Capital Resources
     25




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Cash Flows
  Year ended December 31,2002
    
    
    2003
    
    
    2004(in billions of Won)Cash flows from operating activities
    

Won   52.5
    
    

Won   303.0
    
    
    Won   469.9Cash flows from investing activities
    
    
    (297.6
    )
    
    
    (250.8
    )
    
    
    (209.2
    )Cash flows from financing activities
    
    
    253.3
    
    
    
    (135.1
    )
    
    
    (294.9
    )
     Equity Investment
  Long Term Indebtedness and Capital Lease Payments
  BalanceDecember
    
    
    
    
    
    
    Payments due during31,
    
    
    Years ended December 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009(in billions of Won and millions of U.S. dollars)Korean corporate debentures
    
    Won 496.0
    
    Won 306.0
    
    Won190.0
    
    Won 
    
    Won  
    
    Won  Information Promotion Fund loans
    
    
    66.7
    
    
    26.8
    
    
    22.6
    
    
    9.4
    
    
    6.3
    
    
    1.6
 26




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BalanceDecember
    
    
    
    
    
    
    Payments due during31,
    
    
    Years ended December 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009(in billions of Won and millions of U.S. dollars)Citibank Korea loan
    
    
    40.0
    
    
    
    40.0Syndicated loan:Won
    
    
    102.3
    
    
    
    
    
    
    
    15.4
    
    
    
    40.9
    
    
    
    46.0
    
    
    
    Dollar
    
    $
    258.6
    
    
    $
    
    
    
    $
    38.8
    
    
    $
    103.4
    
    
    $
    116.4
    
    
    $
    Capital leases
    
    Won
    79.9
    
    
    Won
    47.3
    
    
    Won
    23.5
    
    
    Won
    8.9
    
    
    Won
    0.2
    
    
    Won
    Total  Won
    
    Won
    784.9
    
    
    Won
    420.1
    
    
    Won
    251.5
    
    
    Won
    59.2
    
    
    Won
    52.5
    
    
    Won
    1.6 Dollar
    
    $
    258.6
    
    
    $
    
    
    
    $
    38.8
    
    
    $
    103.4
    
    
    $
    116.4
    
    
    $
    
  Korean Corporate Debentures
 Information Promotion Fund
 Citibank Korea Loan
 Senior Secured Credit Facility
 Capital Lease Agreements.
 Refinancing after December 31, 2004.
 
    
    U.S.$201.8 million principal amount U.S. dollar denominated term loan to be repaid
in installments from February 2006 to November 2008;
 27




---



##### Table of Contents




    
    Won 250.0 billion principal amount Korean Won denominated term loan to be repaid in
installments from February 2007 to May 2010; and
    
    U.S.$208.1 billion principal amount U.S. dollar denominated term loan to be repaid
in installments from February 2007 to May 2010.
  
    
    Won 120 billion aggregate principal amount of Korean corporate debentures,
including Won 70 billion of prepayments;
    
    all outstanding amounts under the Information Promotion Fund loan;
    
    the outstanding amounts under the Citibank Korea loan;
    
    all outstanding amounts under the previous senior secured credit facility; and
    
    Won 25.6 billion of lease obligations due under our capital lease agreements,
including Won 7.1 billion of prepayments.
 Other Financial Transactions
      28




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##### Table of Contents



Capital Expenditure
  Year ended December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004(in billions of Won)hanarotelecom:Backbone network
    
    Won 200.2
    
    
    Won 128.5
    
    
    Won 111.1
    
    
    Won 99.2Last mile connection
    
    
    348.9
    
    
    
    205.9
    
    
    
    191.7
    
    
    
    135.0Others
    
    
    50.5
    
    
    
    27.9
    
    
    
    34.7
    
    
    
    47.5Subtotal
    
    
    599.6
    
    
    
    362.3
    
    
    
    337.5
    
    
    
    281.7Consolidated subsidiaries
    
    
    1.5
    
    
    
    58.4
    
    
    
    0.3
    
    
    
    0.8Total
    
    Won 601.1
    
    Won 420.7
    
    Won 337.8
    
    Won 282.5
  29




---



##### Table of Contents



Other Contractual Obligations
     C. Research and Development, Patents and Licenses, etc.
  D. Trend Information
  E. Off-balance Sheet Arrangements
  30




---



##### Table of Contents



F. Tabular Disclosure of Contractual Obligations
  Payments due by periodLess than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    years(in billions of Won)Long-term debt obligations
    
    Won 972.6
    
    
    Won 372.8
    
    
    Won 598.2
    
    
    Won 1.6
    
    
    
    Capital lease obligations
    
    
    79.8
    
    
    
    47.3
    
    
    
    32.5
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    1.5
    
    
    
    0.9
    
    
    
    0.6
    
    
    
    
    
    
    
    Purchase obligations
    
    
    28.8
    
    
    
    28.8
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    Won 1,082.7
    
    
    Won 449.8
    
    
    Won 631.3
    
    
    Won 1.6
        
    
    
 
 Item 15. Controls and Procedures.
   
 Item 18. Financial Statements.
  
 Item 19. Exhibits.
  Exhibits
    
    Description12.1.
    
    Section 302 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)12.2.
    
    Section 302 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)13.1.
    
    Section 906 Certifications required by Rule 13a-14(b) and 18 U.S.C. Section 1350
 31




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##### Table of Contents



Signature
  hanarotelecom incorporatedBy:
Name:
    
    /s/ Janice Lee

Janice LeeTitle:
    
    Executive Vice Presidentand Chief Financial OfficerDate: June 16, 2006
 32




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##### Table of Contents



hanarotelecom incorporated
(formerly, HANARO TELECOM, INC.)
AND SUBSIDIARIES
 
 CONSOLIDATED FINANCIAL STATEMENTS 
        FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004
        AND REPORT OF INDEPENDENT REGISTERED PUBLIC
        ACCOUNTING FIRM
 F-1




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##### Table of Contents



F-2




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##### Table of Contents



hanarotelecom incorporated (FORMERLY HANARO TELECOM, INC.)  AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 AS OF DECEMBER 31, 2003 AND 2004
 Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)2003
    
    
    2004
    
    
    2004As restated
    
    
    As restated
    
    
    As restated(In millions)
    
    
    (In thousands)ASSETSCURRENT ASSETS:Cash and cash equivalents (Note 3)
    
    W
    199,548
    
    
    W
    168,346
    
    
    $
    162,637Short-term financial instruments (Notes 4 and 5)
    
    
    219,872
    
    
    
    193,716
    
    
    
    187,147Short-term investment securities (Note 6)
    
    
    389
    
    
    
    1,121
    
    
    
    1,083Trade receivables, net of allowance for doubtful
accounts of W37,510 million in 2003 and W62,216
million in 2004
    
    
    208,503
    
    
    
    205,600
    
    
    
    198,628Short-term loans, net of discount on present value of
W596 million in 2003 and W209 million in 2004
(Note 9)
    
    
    14,458
    
    
    
    7,631
    
    
    
    7,372Accounts receivable-other, net of allowance for
doubtful accounts of W2,899 million in 2003 and W55
million
in 2004
    
    
    2,820
    
    
    
    1,306
    
    
    
    1,262Accrued income
    
    
    6,313
    
    
    
    2,083
    
    
    
    2,012Prepaid expenses (Note 10)
    
    
    21,935
    
    
    
    13,240
    
    
    
    12,791Prepaid income tax
    
    
    2,353
    
    
    
    3,037
    
    
    
    2,934Advanced payments
    
    
    1,577
    
    
    
    26,853
    
    
    
    25,942Forward exchange contracts
    
    
    173
    
    
    
    
    
    
    
    Inventories
    
    
    1,295
    
    
    
    1,864
    
    
    
    1,802679,236
    
    
    
    624,797
    
    
    
    603,610NON-CURRENT ASSETS:Long-term financial instruments (Notes 4 and 5)
    
    
    7
    
    
    
    68
    
    
    
    66Long-term investment securities (Note 7)
    
    
    23,764
    
    
    
    28,816
    
    
    
    27,839Investment securities using the equity method (Note 8)
    
    
    9,565
    
    
    
    
    
    
    
    Long-term trade receivables, net of allowance for
doubtful accounts of W680 million in 2003 and W535
million in 2004
    
    
    1,038
    
    
    
    1,083
    
    
    
    1,046Long-term loans, net of discount on present value of
W2,525 million in 2003 and W2,709 million in 2004
(Note 9)
    
    
    13,483
    
    
    
    16,086
    
    
    
    15,541Key-money deposits
    
    
    43,928
    
    
    
    72,193
    
    
    
    69,745Long-term prepaid expenses (Note 10)
    
    
    12,893
    
    
    
    12,352
    
    
    
    11,933Deferred income tax assets (Note 21)
    
    
    232
    
    
    
    745
    
    
    
    720Property and equipment, net (Notes 11, 13 and 24)
    
    
    2,550,921
    
    
    
    2,372,845
    
    
    
    2,292,382Intangibles (Notes 12 and 24)
    
    
    51,481
    
    
    
    56,265
    
    
    
    54,3572,707,312
    
    
    
    2,560,453
    
    
    
    2,473,629Total Assets
    
    W
    3,386,548
    
    
    W
    3,185,250
    
    
    $
    3,077,239
  F-3




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##### Table of Contents



hanarotelecom incorporated (FORMERLY HANARO TELECOM, INC.)  AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS (CONTINUED)
 AS OF DECEMBER 31, 2003 AND 2004
 Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)2003
    
    
    2004
    
    
    2004As restated
    
    
    As restated
    
    
    As restated(In millions)
    
    
    (In thousands)LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Trade payables
    
    W
    32,951
    
    
    W
    28,803
    
    
    $
    27,826Other accounts payable
    
    
    116,632
    
    
    
    138,443
    
    
    
    133,748Short-term borrowings (Note 14)
    
    
    163,000
    
    
    
    
    
    
    
    Advances received
    
    
    3,321
    
    
    
    9,983
    
    
    
    9,644Accrued expenses
    
    
    87,165
    
    
    
    81,490
    
    
    
    78,727Withholdings
    
    
    21,210
    
    
    
    16,263
    
    
    
    15,712Income tax payable
    
    
    179
    
    
    
    653
    
    
    
    631Current portion of Asset Backed Securities payable
(Note 16)
    
    
    32,510
    
    
    
    
    
    
    
    Current maturities of long-term debt, net of discount
on debentures of W3,476 million in 2003 and W6,543
million in 2004, and present value discount of W1,698
million in 2003 (Notes 13 and 15)
    
    
    352,226
    
    
    
    413,526
    
    
    
    399,503Forward exchange contracts (Note 17)
    
    
    
    
    
    
    33,802
    
    
    
    32,656Interest swap (Note 17)
    
    
    13,058
    
    
    
    17,623
    
    
    
    17,025Deposits received
    
    
    1,781
    
    
    
    1,924
    
    
    
    1,860824,033
    
    
    
    742,510
    
    
    
    717,332LONG-TERM LIABILITIES:Long-term debt, net of current portion (Note 15)
    
    
    242,523
    
    
    
    399,154
    
    
    
    385,619Debentures, net (Note 15)
    
    
    481,753
    
    
    
    189,518
    
    
    
    183,091Long-term obligation under capital lease (Note 13)
    
    
    48,570
    
    
    
    32,541
    
    
    
    31,438Long-term advances received
    
    
    14,315
    
    
    
    13,142
    
    
    
    12,696Accrued severance indemnities, net (Note 2)
    
    
    23,876
    
    
    
    32,932
    
    
    
    31,815Long-term deposits received
    
    
    20,711
    
    
    
    23,709
    
    
    
    22,906Deferred income tax liabilities (Note 21)
    
    
    47
    
    
    
    138
    
    
    
    133831,795
    
    
    
    691,134
    
    
    
    667,698Total Liabilities
    
    
    1,655,828
    
    
    
    1,433,644
    
    
    
    1,385,030COMMITMENTS AND CONTINGENCIES (Note 23)SHAREHOLDERS EQUITY :Capital stock (Note 18)
    
    
    2,310,676
    
    
    
    2,310,676
    
    
    
    2,232,322Capital surplus (Note 18)
    
    
    340,777
    
    
    
    341,033
    
    
    
    329,469Other capital surplus
    
    
    (8,557
    )
    
    
    
    
    
    
    Accumulated deficit
    
    
    (898,797
    )
    
    
    (887,158
    )
    
    
    (857,075
    )Capital adjustments:Stock compensation (Note 19)
    
    
    5,916
    
    
    
    7,227
    
    
    
    6,982Valuation loss on available-for-sale securities, net
(Note 7)
    
    
    (6,806
    )
    
    
    (5,764
    )
    
    
    (5,569
    )Valuation loss on available-for-sale securities
using the equity method
    
    
    (7
    )
    
    
    
    
    
    
    Valuation loss on interest swap (Note 17)
    
    
    (13,058
    )
    
    
    (17,623
    )
    
    
    (17,025
    )Foreign-based operations translation debit
    
    
    (22
    )
    
    
    
    
    
    
    Minority interests
    
    
    598
    
    
    
    3,215
    
    
    
    3,105Total Shareholders Equity
    
    
    1,730,720
    
    
    
    1,751,606
    
    
    
    1,692,209Total Liabilities and Shareholders Equity
    
    W
    3,386,548
    
    
    W
    3,185,250
    
    
    $
    3,077,239
  F-4




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##### Table of Contents



hanarotelecom incorporated (FORMERLY HANARO TELECOM, INC.)  AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
 Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)2002
    
    
    2003
    
    
    2004
    
    
    2004(In thousands, except(In millions, except per share amount)
    
    
    per share amount)OPERATING REVENUE (Notes 22 and 24)
    
    W
    1,417,854
    
    
    W
    1,383,486
    
    
    W
    1,449,569
    
    
    $
    1,400,414OPERATING EXPENSES (Note 20)
    
    
    1,396,426
    
    
    
    1,312,792
    
    
    
    1,335,639
    
    
    
    1,290,348OPERATING INCOME
    
    
    21,428
    
    
    
    70,694
    
    
    
    113,930
    
    
    
    110,066NON-OPERATING INCOME:Interest income
    
    
    32,761
    
    
    
    18,465
    
    
    
    18,497
    
    
    
    17,870Dividend income
    
    
    2,935
    
    
    
    
    
    
    
    
    
    
    
    Gain on disposal of short-term investment securities
    
    
    1,718
    
    
    
    315
    
    
    
    
    
    
    
    Gain on disposal of long-term investment securities
    
    
    2,658
    
    
    
    145
    
    
    
    109
    
    
    
    105Gain on disposal of property and equipment
    
    
    93
    
    
    
    1,102
    
    
    
    885
    
    
    
    855Gain on foreign currency transactions
    
    
    1,560
    
    
    
    267
    
    
    
    1,404
    
    
    
    1,356Gain on foreign currency translation
    
    
    17,064
    
    
    
    19
    
    
    
    33,823
    
    
    
    32,676Gain on early redemption of debentures (Note 15)
    
    
    
    
    
    
    870
    
    
    
    
    
    
    
    Gain on valuation of forward exchange contract
(Note 17)
    
    
    
    
    
    
    173
    
    
    
    
    
    
    
    Gain on transaction of forward exchange contract
(Note 17)
    
    
    186
    
    
    
    343
    
    
    
    242
    
    
    
    234Gain on disposal of intangible assets
    
    
    1,646
    
    
    
    
    
    
    
    
    
    
    
    Gain on realization of negative goodwill (Note 12)
    
    
    3,093
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    6,651
    
    
    
    5,273
    
    
    
    7,215
    
    
    
    6,97170,365
    
    
    
    26,972
    
    
    
    62,175
    
    
    
    60,067NON-OPERATING EXPENSES:Interest expense (Note 15)
    
    
    169,412
    
    
    
    139,330
    
    
    
    100,882
    
    
    
    97,461Asset Backed Securities payable expense (Note 16)
    
    
    22,293
    
    
    
    9,028
    
    
    
    490
    
    
    
    473Loss on foreign currency transactions
    
    
    428
    
    
    
    764
    
    
    
    354
    
    
    
    342Loss on foreign currency translation
    
    
    260
    
    
    
    138
    
    
    
    11
    
    
    
    11Loss on disposal of short-term investment securities
    
    
    
    
    
    
    2,117
    
    
    
    86
    
    
    
    83Loss on disposal of long-term investment securities
    
    
    1,149
    
    
    
    
    
    
    
    1
    
    
    
    1Loss on valuation of trading securities
    
    
    2,838
    
    
    
    307
    
    
    
    
    
    
    
    Impairment loss on short-term investment securities
(Note 6)
    
    
    600
    
    
    
    940
    
    
    
    450
    
    
    
    435Impairment loss on long-term investment securities
(Note 7)
    
    
    6,357
    
    
    
    3,385
    
    
    
    2,539
    
    
    
    2,453Donations
    
    
    335
    
    
    
    800
    
    
    
    306
    
    
    
    296Loss on early redemption of debentures (Note 15)
    
    
    5,072
    
    
    
    308
    
    
    
    
    
    
    
    Loss on valuation using the equity method (Note 8)
    
    
    
    
    
    
    23,142
    
    
    
    
    
    
    
    Loss on disposal of property and equipment
    
    
    5,606
    
    
    
    1,326
    
    
    
    1,246
    
    
    
    1,204Loss on disuse of property and equipment (Note 11)
    
    
    
    
    
    
    61,333
    
    
    
    20,726
    
    
    
    20,023Loss on valuation of forward exchange contract
(Note 17)
    
    
    1,888
    
    
    
    
    
    
    
    33,975
    
    
    
    32,823Loss on transaction of forward exchange contract
(Note 17)
    
    
    
    
    
    
    
    
    
    
    173
    
    
    
    167Other (Note 2 and 12)
    
    
    3,233
    
    
    
    15,660
    
    
    
    1,017
    
    
    
    982219,471
    
    
    
    258,578
    
    
    
    162,256
    
    
    
    156,754ORIDINARY INCOME (LOSS) BEFORE INCOME TAX
    
    
    (127,678
    )
    
    
    (160,912
    )
    
    
    13,849
    
    
    
    13,379INCOME TAX EXPENSE (Note 21)
    
    
    (1,083
    )
    
    
    (302
    )
    
    
    (495
    )
    
    
    (478
    )MINORITY INTEREST SHARE OF LOSS (INCOME)
    
    
    3,736
    
    
    
    (85
    )
    
    
    (308
    )
    
    
    (297
    )NET INCOME (LOSS)
    
    W
    (125,025
    )
    
    W
    (161,299
    )
    
    W
    13,046
    
    
    $
    12,604BASIC AND DILUTED INCOME (LOSS) PER SHARE (Note 2)
    
    W
    (419
    )
    
    W
    (502
    )
    
    W
    28
    
    
    $
    0.03
  F-5




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##### Table of Contents



hanarotelecom incorporated (FORMERLY HANARO TELECOM, INC.)  AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
 Korean Won (In millions)RetainedEarningsCommon
    
    
    Capital
    
    
    (Deficit)
    
    
    Capital
    
    
    Minority
    
    
    TotalStock
    
    
    Surplus
    
    
    As restated
    
    
    Adjustments
    
    
    Interests
    
    
    As restatedBalance at December 31, 2001
    
    W
    1,320,000
    
    
    W
    689,432
    
    
    W
    (617,548
    )
    
    W
    2,227
    
    
    W
    147,098
    
    
    W
    1,541,209Net loss for 2002
    
    
    
    
    
    
    
    
    
    
    (125,025
    )
    
    
    
    
    
    
    (3,736
    )
    
    
    (128,761
    )Issuance of common stock by
exercise of stock warrants
    
    
    76,613
    
    
    
    (390
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,223Effect of changes in
consolidated subsidiaries
    
    
    
    
    
    
    (207
    )
    
    
    4,586
    
    
    
    
    
    
    
    
    
    
    
    4,379Effect of changes in ownership
interest
    
    
    
    
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    2,115
    
    
    
    2,231Disposal of investment
securities in subsidiaries
    
    
    
    
    
    
    807
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    807Compensation expense related to
stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,651
    
    
    
    
    
    
    
    1,651Valuation loss on
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,761
    )
    
    
    
    
    
    
    (3,761
    )Loss on valuation of interest
swap (Note 17)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,633
    )
    
    
    
    
    
    
    (5,633
    )Foreign-based operations
translation debit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    (30
    )Balance at December 31, 2002
    
    
    1,396,613
    
    
    
    689,758
    
    
    
    (737,987
    )
    
    
    (5,546
    )
    
    
    145,477
    
    
    
    1,488,315Issuance of common stock
    
    
    914,063
    
    
    
    (348,173
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    565,890Net loss for 2003
    
    
    
    
    
    
    
    
    
    
    (161,299
    )
    
    
    
    
    
    
    85
    
    
    
    (161,214
    )Effect of changes in
consolidated subsidiaries
    
    
    
    
    
    
    (808
    )
    
    
    489
    
    
    
    
    
    
    
    (144,964
    )
    
    
    (145,283
    )Compensation expense related to
stock options (Note 19)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,375
    
    
    
    
    
    
    
    1,375Valuation loss on
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,376
    )
    
    
    
    
    
    
    (2,376
    )Valuation loss on
available-for-sale securities using
the equity method
    
    
    
    
    
    
    (8,557
    )
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    (8,564
    )Loss on valuation of interest
swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,425
    )
    
    
    
    
    
    
    (7,425
    )Foreign-based operations
translation debit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Balance at December 31, 2003
    
    
    2,310,676
    
    
    
    332,220
    
    
    
    (898,797
    )
    
    
    (13,977
    )
    
    
    598
    
    
    
    1,730,720Net income for 2004
    
    
    
    
    
    
    
    
    
    
    13,046
    
    
    
    
    
    
    
    308
    
    
    
    13,354Effect of changes in
consolidated subsidiaries
    
    
    
    
    
    
    256
    
    
    
    (300
    )
    
    
    22
    
    
    
    2,309
    
    
    
    2,287Compensation expense related to
stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,311
    
    
    
    
    
    
    
    1,311Valuation gain on
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,042
    
    
    
    
    
    
    
    1,042Effect of changes in
investment securities using the equity
method
    
    
    
    
    
    
    8,557
    
    
    
    (1,107
    )
    
    
    7
    
    
    
    
    
    
    
    7,457Loss on valuation of interest
swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,565
    )
    
    
    
    
    
    
    (4,565
    )Balance at December 31, 2004
    
    W
    2,310,676
    
    
    W
    341,033
    
    
    W
    (887,158
    )
    
    W
    (16,160
    )
    
    W
    3,215
    
    
    W
    1,751,606Translation into U.S. Dollars
(In thousands) (Note 2)
    
    $
    2,232,322
    
    
    $
    329,469
    
    
    $
    (857,075
    )
    
    $
    (15,612
    )
    
    $
    3,105
    
    
    $
    1,692,209
  F-6




---



##### Table of Contents



hanarotelecom incorporated (FORMERLY HANARO TELECOM, INC.)  AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
 Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)2002
    
    
    2003
    
    
    2004
    
    
    2004(In millions)
    
    
    
    
    
    
    (In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    W
    (125,025
    )
    
    W
    (161,299
    )
    
    W
    13,046
    
    
    $
    12,604Addition of expenses not involving cash outflows:Stock compensation expense
    
    
    1,651
    
    
    
    1,375
    
    
    
    1,278
    
    
    
    1,235Provision for severance indemnities
    
    
    13,646
    
    
    
    13,444
    
    
    
    14,095
    
    
    
    13,617Amortization of discount on debentures
    
    
    26,787
    
    
    
    18,857
    
    
    
    10,698
    
    
    
    10,335Amortization of discount on long-term debt
    
    
    
    
    
    
    408
    
    
    
    4,983
    
    
    
    4,814Recognition of long-term accrued interest
    
    
    8,246
    
    
    
    6,171
    
    
    
    
    
    
    
    Employee fringe benefits
    
    
    2,070
    
    
    
    944
    
    
    
    1,302
    
    
    
    1,258Depreciation and amortization
    
    
    433,555
    
    
    
    428,528
    
    
    
    442,312
    
    
    
    427,313Loss on foreign currency translation
    
    
    260
    
    
    
    138
    
    
    
    11
    
    
    
    11Provision for doubtful accounts
    
    
    16,589
    
    
    
    25,744
    
    
    
    29,933
    
    
    
    28,918Loss on valuation of trading securities
    
    
    2,838
    
    
    
    307
    
    
    
    
    
    
    
    Loss on disposal of property and equipment
    
    
    5,606
    
    
    
    1,326
    
    
    
    1,246
    
    
    
    1,204Impairment loss on short-term investment securities
    
    
    600
    
    
    
    940
    
    
    
    450
    
    
    
    435Impairment loss on long-term investment securities
    
    
    6,357
    
    
    
    3,385
    
    
    
    2,539
    
    
    
    2,453Loss on disposal of short-term investment securities
    
    
    
    
    
    
    2,117
    
    
    
    86
    
    
    
    83Loss on disposal of long-term investment securities
    
    
    1,149
    
    
    
    
    
    
    
    1
    
    
    
    1Loss on valuation using the equity method
    
    
    
    
    
    
    23,142
    
    
    
    
    
    
    
    Loss on disuse of property and equipment
    
    
    
    
    
    
    61,333
    
    
    
    20,726
    
    
    
    20,023Loss on early redemption of debentures
    
    
    5,072
    
    
    
    308
    
    
    
    
    
    
    
    Loss on valuation of forward exchange contract
    
    
    1,888
    
    
    
    
    
    
    
    33,975
    
    
    
    32,823Minority interest income
    
    
    
    
    
    
    85
    
    
    
    308
    
    
    
    297Ordinary development cost and other
    
    
    13
    
    
    
    643
    
    
    
    634
    
    
    
    612526,327
    
    
    
    589,195
    
    
    
    564,577
    
    
    
    545,432Deduction of revenues not involving cash inflows:Gain on disposal of short-term investment securities
    
    
    1,718
    
    
    
    315
    
    
    
    
    
    
    
    Amortization of present value discount
    
    
    3,746
    
    
    
    2,019
    
    
    
    1,506
    
    
    
    1,455Gain on valuation of forward exchange contract
    
    
    
    
    
    
    173
    
    
    
    
    
    
    
    Gain on disposal of property and equipment
    
    
    93
    
    
    
    1,102
    
    
    
    885
    
    
    
    855Gain on disposal of intangibles
    
    
    1,646
    
    
    
    
    
    
    
    
    
    
    
    Gain on disposal of long-term investment securities
    
    
    2,658
    
    
    
    145
    
    
    
    109
    
    
    
    105Gain on foreign currency translation
    
    
    17,064
    
    
    
    19
    
    
    
    33,823
    
    
    
    32,676Gain on realization of negative goodwill
    
    
    3,093
    
    
    
    
    
    
    
    
    
    
    
    Gain on early redemption of debentures
    
    
    
    
    
    
    870
    
    
    
    
    
    
    
    Minority interest loss
    
    
    3,736
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    27
    
    
    
    56
    
    
    
    224
    
    
    
    21733,781
    
    
    
    4,699
    
    
    
    36,547
    
    
    
    35,308Changes in assets and liabilities resulting from
operations:Increase in trade receivables
    
    
    (91,397
    )
    
    
    (37,260
    )
    
    
    (24,643
    )
    
    
    (23,807
    )Decrease in long-term trade receivables
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    96Decrease (Increase) in accounts receivable-other
    
    
    (2,816
    )
    
    
    2,693
    
    
    
    6,494
    
    
    
    6,274Decrease (Increase) in accrued income
    
    
    1,643
    
    
    
    (1,263
    )
    
    
    4,243
    
    
    
    4,099Decrease (Increase) in prepaid expenses
    
    
    22,260
    
    
    
    5,710
    
    
    
    (1,629
    )
    
    
    (1,574
    )Decrease (Increase) in prepaid income tax
    
    
    1,305
    
    
    
    1,367
    
    
    
    (671
    )
    
    
    (648
    )Increase in advanced payments
    
    
    (11,860
    )
    
    
    (1,370
    )
    
    
    (25,529
    )
    
    
    (24,663
    )Increase in inventories
    
    
    (55,892
    )
    
    
    (32,218
    )
    
    
    (30,929
    )
    
    
    (29,880
    )Decrease in prepaid V.A.T.
    
    
    5,905
    
    
    
    
    
    
    
    
    
    
    
    
  F-7




---



##### Table of Contents



hanarotelecom incorporated (FORMERLY HANARO TELECOM, INC.)  AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
 Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)2002
    
    
    2003
    
    
    2004
    
    
    2004(In millions)
    
    
    
    
    
    
    (In thousands)Changes in assets and liabilities resulting from operations:Decrease (Increase) in forward exchange contract
    
    W
    2,519
    
    
    W
    (1,888
    )
    
    W
    
    
    
    $
    Decrease in long-term prepaid expenses
    
    
    6,961
    
    
    
    1,097
    
    
    
    541
    
    
    
    523Decrease (Increase) in deferred income tax assets
    
    
    100
    
    
    
    (51
    )
    
    
    (402
    )
    
    
    (388
    )Decrease in trade payables
    
    
    (27,016
    )
    
    
    (38,320
    )
    
    
    (7,316
    )
    
    
    (7,068
    )Increase (Decrease) in other accounts payable
    
    
    (186,839
    )
    
    
    (28,698
    )
    
    
    20,347
    
    
    
    19,657Increase in advances received
    
    
    2,487
    
    
    
    347
    
    
    
    4,129
    
    
    
    3,989Increase (Decrease) in accrued expenses
    
    
    7,361
    
    
    
    18,512
    
    
    
    (6,948
    )
    
    
    (6,712
    )Increase (Decrease) in withholdings
    
    
    10,365
    
    
    
    7,314
    
    
    
    (6,441
    )
    
    
    (6,223
    )Increase (Decrease) in income tax payable
    
    
    1,749
    
    
    
    (1,436
    )
    
    
    474
    
    
    
    458Decrease in long-term advances received
    
    
    
    
    
    
    (1,189
    )
    
    
    (1,173
    )
    
    
    (1,133
    )Increase (Decrease) in deposits received
    
    
    7,756
    
    
    
    893
    
    
    
    (77
    )
    
    
    (74
    )Increase (Decrease) in long-term deposits received
    
    
    (4,306
    )
    
    
    1,013
    
    
    
    3,219
    
    
    
    3,110Increase (Decrease) in deferred income tax liabilities
    
    
    407
    
    
    
    (1
    )
    
    
    90
    
    
    
    87Increase (Decrease) in foreign based operations
translation credit
    
    
    (30
    )
    
    
    2
    
    
    
    
    
    
    
    Decrease in payments to National Pension
    
    
    76
    
    
    
    140
    
    
    
    23
    
    
    
    22Payments of severance indemnities
    
    
    (5,786
    )
    
    
    (15,556
    )
    
    
    (5,090
    )
    
    
    (4,917
    )(315,048
    )
    
    
    (120,162
    )
    
    
    (71,188
    )
    
    
    (68,772
    )Net cash flows provided by operating activities
    
    
    52,473
    
    
    
    303,035
    
    
    
    469,888
    
    
    
    453,956CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from disposal of short-term investment securities
    
    
    101,908
    
    
    
    34,143
    
    
    
    303
    
    
    
    293Collection of short-term financial instruments
    
    
    483,510
    
    
    
    842,882
    
    
    
    778,170
    
    
    
    751,782Redemption of short-term loans
    
    
    1,150
    
    
    
    6,771
    
    
    
    6,320
    
    
    
    6,106Redemption of long-term loans
    
    
    16,044
    
    
    
    2,734
    
    
    
    1,280
    
    
    
    1,237Proceeds from disposal of long-term investment securities
    
    
    8,528
    
    
    
    406
    
    
    
    9,002
    
    
    
    8,697Withdrawal of long-term financial instruments
    
    
    1,220
    
    
    
    
    
    
    
    3
    
    
    
    3Refund of key-money deposits
    
    
    16,039
    
    
    
    18,152
    
    
    
    14,642
    
    
    
    14,145Proceeds from disposal of property and equipment
    
    
    4,494
    
    
    
    9,304
    
    
    
    8,218
    
    
    
    7,939Proceeds from disposal of intangibles
    
    
    1,800
    
    
    
    
    
    
    
    
    
    
    
    Withdrawal of severance insurance deposits
    
    
    1,673
    
    
    
    1,009
    
    
    
    99
    
    
    
    96Acquisition of short-term financial instruments
    
    
    (484,050
    )
    
    
    (929,616
    )
    
    
    (751,564
    )
    
    
    (726,079
    )Purchase of short-term investment securities
    
    
    (70,098
    )
    
    
    (17,807
    )
    
    
    
    
    
    
    Extension of short-term loans
    
    
    (572
    )
    
    
    (614
    )
    
    
    (417
    )
    
    
    (403
    )Purchase of long-term investment securities
    
    
    (3,348
    )
    
    
    (1,132
    )
    
    
    (190
    )
    
    
    (184
    )Acquisition of long-term financial instruments
    
    
    (85
    )
    
    
    (2
    )
    
    
    (131
    )
    
    
    (127
    )Extension of long-term loans
    
    
    (2,854
    )
    
    
    (5,404
    )
    
    
    (2,755
    )
    
    
    (2,662
    )Payment of key-money deposits
    
    
    (9,111
    )
    
    
    (2,324
    )
    
    
    (42,083
    )
    
    
    (40,656
    )Acquisition of investment securities using the equity
method
    
    
    
    
    
    
    
    
    
    
    (3,734
    )
    
    
    (3,607
    )Acquisition of property and equipment
    
    
    (342,643
    )
    
    
    (196,053
    )
    
    
    (212,522
    )
    
    
    (205,315
    )Payment of intangibles
    
    
    (18,447
    )
    
    
    (13,118
    )
    
    
    (12,163
    )
    
    
    (11,751
    )Payment of severance insurance deposits
    
    
    (2,764
    )
    
    
    (124
    )
    
    
    (1,659
    )
    
    
    (1,603
    )Net cash flows used in investing activities
    
    
    (297,606
    )
    
    
    (250,793
    )
    
    
    (209,181
    )
    
    
    (202,089
    )
  F-8




---



##### Table of Contents



hanarotelecom incorporated (FORMERLY HANARO TELECOM, INC.)  AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
 Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)2002
    
    
    2003
    
    
    2004
    
    
    2004(In millions)
    
    
    
    
    
    
    (In thousands)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from short-term borrowings
    
    W
    63,000
    
    
    W
    338,000
    
    
    W
    
    
    
    $
    Proceeds from long-term debt
    
    
    236,424
    
    
    
    148,329
    
    
    
    322,549
    
    
    
    311,611Proceeds from issuance of debentures
    
    
    603,972
    
    
    
    261,013
    
    
    
    
    
    
    
    Proceeds from issuance of common stock
    
    
    76,223
    
    
    
    565,889
    
    
    
    
    
    
    
    Proceeds from Asset Backed Securities
    
    
    81,000
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from long-term deposits received
    
    
    
    
    
    
    1,487
    
    
    
    
    
    
    
    Increase in minority interests
    
    
    702
    
    
    
    
    
    
    
    
    
    
    
    Repayment of short-term borrowings
    
    
    (64,695
    )
    
    
    (230,000
    )
    
    
    (163,000
    )
    
    
    (157,473
    )Repayment of current portion of long-term debt
    
    
    (77,332
    )
    
    
    
    
    
    
    
    
    
    
    Repayment of long-term debt
    
    
    (507,548
    )
    
    
    (1,096,800
    )
    
    
    (421,961
    )
    
    
    (407,652
    )Decrease in Asset Backed Securities payable
    
    
    (117,207
    )
    
    
    (122,972
    )
    
    
    (32,510
    )
    
    
    (31,408
    )Repayment of bonds with warrants
    
    
    (39,348
    )
    
    
    
    
    
    
    
    
    
    
    Repayment of deposits received
    
    
    (1,899
    )
    
    
    
    
    
    
    
    
    
    
    Net cash flows provided by (used in) financing
activities
    
    
    253,292
    
    
    
    (135,054
    )
    
    
    (294,922
    )
    
    
    (284,922
    )INCREASE (DECREASE) FROM CHANGES IN
CONSOLIDATED SUBSIDIARIES
    
    
    (733
    )
    
    
    (23,758
    )
    
    
    3,013
    
    
    
    2,911NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
    
    
    7,426
    
    
    
    (106,570
    )
    
    
    (31,202
    )
    
    
    (30,144
    )CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR
    
    
    298,692
    
    
    
    306,118
    
    
    
    199,548
    
    
    
    192,781CASH AND CASH EQUIVLAENTS, END OF YEAR
    
    W
    306,118
    
    
    W
    199,548
    
    
    W
    168,346
    
    
    $
    162,637
  F-9




---



##### Table of Contents



hanarotelecom incorporated (FORMERLY HANARO TELECOM, INC.)  AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)2002
    
    
    2003
    
    
    2004
    
    
    2004(In millions)
    
    
    
    
    
    
    (In thousands)CASH PAID FOR INTEREST
    
    W
    143,755
    
    
    W
    125,291
    
    
    W
    82,453
    
    
    $
    79,657CASH REFUNDED (PAID) FOR INCOME TAX
    
    
    2,289
    
    
    
    (1,030
    )
    
    
    (1,348
    )
    
    
    (1,302
    )TRANSACTIONS NOT INVOLVING CASH:Transfer of long-term loans to current portion
    
    
    6,842
    
    
    
    13,830
    
    
    
    4,759
    
    
    
    4,598Transfer of inventories to property and equipment
    
    
    59,374
    
    
    
    41,801
    
    
    
    31,480
    
    
    
    30,413Transfer of debentures to current portion
    
    
    849,330
    
    
    
    264,688
    
    
    
    306,000
    
    
    
    295,624Transfer of long-term debt to current portion
    
    
    187,454
    
    
    
    103,271
    
    
    
    72,956
    
    
    
    70,482Transfer of long-term obligation under capital
lease to current portion
    
    
    38,376
    
    
    
    87,297
    
    
    
    53,108
    
    
    
    51,307Transfer of Asset Backed Securities payable to
current portion
    
    
    146,024
    
    
    
    32,510
    
    
    
    
    
    
    
    Recognition of loss on valuation of
available-for-sale securities as capital
adjustments
    
    
    (3,761
    )
    
    
    (3,496
    )
    
    
    (681
    )
    
    
    (658
    )Transfer of construction in progress to property
and equipment
    
    
    152,918
    
    
    
    125,045
    
    
    
    70,698
    
    
    
    68,301Transfer of construction in progress to intangibles
    
    
    16,429
    
    
    
    
    
    
    
    
    
    
    
    Increase of long-term loans accompanied by
long-term debt
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of property and equipment under long-
term lease obligation
    
    
    20,526
    
    
    
    98,230
    
    
    
    37,731
    
    
    
    36,452Transfer of other current liabilities to long-term
deposits received
    
    
    
    
    
    
    17,121
    
    
    
    
    
    
    
    Transfer of short-term loans to long-term loans
    
    
    10,028
    
    
    
    
    
    
    
    
    
    
    
    
  F-10




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##### Table of Contents



hanarotelecom incorporated (FORMERLY HANARO TELECOM, INC.)  AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2002, 2003 AND 2004
 GENERAL:
       Number of
    
    
    Percentage ofshares
    
    
    ownership (%)Newbridge Asia HT, L.P.
    
    
    49,535,799
    
    
    
    10.72AIF II NT, Ltd.
    
    
    38,456,250
    
    
    
    8.32Korea Investment Trust Co., Ltd
    
    
    28,540,408
    
    
    
    6.18AOF NT, Ltd.
    
    
    24,721,875
    
    
    
    5.35SK Telecom
    
    
    22,090,000
    
    
    
    4.78United Classic Investment Limited
    
    
    20,392,746
    
    
    
    4.41Dacom Corporation
    
    
    14,570,565
    
    
    
    3.15HT Holding IX, L.P.
    
    
    12,818,750
    
    
    
    2.77Daewoo Securities Co., Ltd.
    
    
    12,000,000
    
    
    
    2.60Employee stock ownership association
    
    
    2,673,628
    
    
    
    0.58Others
    
    
    236,335,159
    
    
    
    51.14462,135,180
    
    
    
    100.00
   F-11




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##### Table of Contents



Year
    
    Ownershipcontrol was
    
    percentage (%)Subsidiaries
    
    obtained
    
    2003
    
    2004
    
    Primary businessHanaro Realty Development &
Management Co., Ltd.
    
    1999
    
    99.99
    
    99.99
    
    Property management for hanarotelecom incorporatedHanaro Telephone & Internet
Information, Inc.
    
    2002
    
    99.99
    
    99.99
    
    Customer Q & A and serviceHanaro
WEB(n) TV
    
    2000
    
    90.91
    
    49.00
    
    Broadcasting & telecommunicationMedia Holdings, Inc.
    
    2004
    
    
    
    100.00
    
    Investment in broadcasting companyHanaro Telecom America, Inc.
    
    2000
    
    100.00
    
    
    
    Telecommunication serviceHanaro Dream, Inc.
    
    2004
    
    
    
    57.02
    
    Distribution of internet digital contents
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 Basis of Presentation
  W
  F-12




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##### Table of Contents



Adoption of Newly Effective Statements of Korea Accounting Standards
  Use of Estimates
  Revenue Recognition
  Cash and Cash Equivalents
  Short-term Financial Instruments
  Allowance for Doubtful Accounts
    2002
    
    
    2003
    
    
    2004Beginning of year
    
    W
    5,022
    
    
    W
    21,170
    
    
    W
    41,089Provision
    
    
    16,589
    
    
    
    25,744
    
    
    
    29,933Write-offs
    
    
    (440
    )
    
    
    (1,569
    )
    
    
    (8,969
    )Changes in consolidated subsidiaries
    
    
    (1
    )
    
    
    (4,256
    )
    
    
    753End of year
    
    W
    21,170
    
    
    W
    41,089
    
    
    W
    62,806
  W
 F-13




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##### Table of Contents



Inventories
  Investment Securities Other than those Accounted for Using the Equity Method
        F-14




---



##### Table of Contents



Investment Securities Using the Equity Method
  Valuation of Assets and Liabilities at Present Value
  Property and Equipment
  Estimated useful livesBuildings, building facilities and structures
    
    40~50  yearsMachinery
    
    5~15  yearsVehicles and other
    
    4~8 years
 W
 Previous useful lives
    
    
    Revised useful livesBuildings and structures
    
    50 years
    
    40 yearsMachinery (duct line)
    
    8 years
    
    15 yearsMachinery (terminal equipment)
    
    8 years
    
    6 yearsVehicles and other
    
    5~8 years
    
    4 years
 Long-Lived Assets
  F-13




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##### Table of Contents



Capitalization of Financing Costs
  Leases
  Intangibles
  Estimated Useful LivesGoodwill
    
    5 yearsIndustrial property rights
    
    5-10 yearsCable line usage rights
    
    20 yearsLand rights
    
    20 yearsDevelopment costs
    
    1 yearOther intangibles
    
    3-5 years
 Discounts on Debentures
  Accrued Severance Indemnities
 W W
 W W
 W W
 F-16




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##### Table of Contents



2002
    
    
    2003
    
    
    2004Beginning of year
    
    W
    21,419
    
    
    W
    28,027
    
    
    W
    25,649Severance payments
    
    
    (5,786
    )
    
    
    (15,556
    )
    
    
    (5,090
    )Provision
    
    
    13,646
    
    
    
    15,224
    
    
    
    15,116Changes in consolidated subsidiaries
    
    
    (1,252
    )
    
    
    (2,046
    )
    
    
    67328,027
    
    
    
    25,649
    
    
    
    36,348National Pension Fund for employees
    
    
    (295
    )
    
    
    (149
    )
    
    
    (127
    )Severance insurance deposits
    
    
    (3,638
    )
    
    
    (1,624
    )
    
    
    (3,289
    )End of year
    
    W
    24,094
    
    
    W
    23,876
    
    
    W
    32,932
 W
 Accounting for Foreign Currency Transactions and Translation
 W W W
 Income Tax
  Stock Compensation Expense
  Net Income (Loss) Per Share
  F-17




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##### Table of Contents



2002
    
    
    2003
    
    
    2004Net income (loss) (won in millions)
    
    W
    (125,025
    )
    
    W
    (161,299
    )
    
    W
    13,046Weighted average number of common
shares outstanding (In thousands)
    
    
    298,251
    
    
    
    321,310
    
    
    
    462,135Basic and diluted income (loss)
per share (won)
    
    W
    (419
    )
    
    W
    (502
    )
    
    W
    28
  CASH AND CASH EQUIVALENTS:
  Interest rate per annum (%)2004
    
    2003
    
    
    2004Cash on hand
    
    
    
    W
    5
    
    
    W
    7Current deposit
    
    
    
    
    
    
    
    
    50Passbook accounts
    
    0.1
    
    
    3,797
    
    
    
    4,045Time deposits
    
    3.35 ~ 3.55
    
    
    
    
    
    
    37,000Commercial paper
    
    2.85 ~ 4.1
    
    
    194,234
    
    
    
    11,586Money Market Funds
    
    3.2 ~ 3.53
    
    
    
    
    
    
    96,762Repurchase agreements
    
    3.5
    
    
    
    
    
    
    5,000Certificate of deposit
    
    3.4
    
    
    
    
    
    
    10,000Money Market Deposit Account
    
    2.2 ~ 3.6
    
    
    1,512
    
    
    
    3,896W
    199,548
    
    
    W
    168,346
 SHORT-TERM AND LONG-TERM FINANCIAL INSTRUMENTS
  Interest rate per annum (%)2004
    
    2003
    
    
    2004Time deposits
    
    2.9 ~ 4.6
    
    W
    186,120
    
    
    W
    144,005Repurchase agreements
    
    3.43 ~ 4.7
    
    
    7,000
    
    
    
    29,521Money Market Deposit
Account
    
    
    
    
    26,752
    
    
    
    Commercial paper
    
    2.85
    
    
    
    
    
    
    5,190Certificate of deposit
    
    3.4 ~ 3.5
    
    
    
    
    
    
    15,000W
    219,872
    
    
    W
    193,716
  Interest rate per annum(%)2004
    
    2003
    
    
    2004Deposits for checking accounts
    
    
    
    W
    7
    
    
    W
    68
 F-18




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##### Table of Contents



RESTRICTED DEPOSITS:
  2003
    
    
    2004Short-term financial instruments
    
    W
    212,272
    
    
    W
    117,267Long-term financial instruments
    
    
    7
    
    
    
    68W
    212,279
    
    
    W
    117,335
 SHORT-TERM INVESTMENT SECURITIES:
  2003
    
    
    2004Acquisition cost
    
    
    Book value
    
    
    Acquisition cost
    
    
    Book valueTrading securities:Money market funds
    
    W
    579
    
    
    W
    273
    
    
    W
    
    
    
    W
    Held-to-maturity securities:Collateralized bond obligation
    
    
    1,540
    
    
    
    
    
    
    
    1,570
    
    
    
    1,120Government bonds
    
    
    116
    
    
    
    116
    
    
    
    1
    
    
    
    11,656
    
    
    
    116
    
    
    
    1,571
    
    
    
    1,121W
    2,235
    
    
    W
    389
    
    
    W
    1,571
    
    
    W
    1,121
 W W W
 LONG-TERM INVESTMENT SECURITIES:
 (1)
    
    Long-term investment securities as of December 31, 2003 and 2004 consist of the following
(won in millions):
 2003
    
    
    2004Ownership
    
    
    
    
    
    
    Ownershippercentage (%)
    
    
    Amount
    
    
    percentage (%)
    
    
    AmountAvailable-for-sale securities:Listed equity securities:LG Telecom, Ltd.
    
    
    0.37
    
    
    W
    3,764
    
    
    
    0.37
    
    
    W
    4,143Summit Technology Co., Ltd.
    
    
    0.63
    
    
    
    11
    
    
    
    
    
    
    
    Netsecure Technology, Inc.
    
    
    2.35
    
    
    
    108
    
    
    
    0.38
    
    
    
    18C.C.S., Inc.
    
    
    7.22
    
    
    
    1,894
    
    
    
    7.22
    
    
    
    1,6985,777
    
    
    
    
    
    
    
    5,859Non-listed equity securities:Korea Information Assurance, Inc.
    
    
    0.47
    
    
    
    100
    
    
    
    0.47
    
    
    
    100Dreamline Corporation
    
    
    
    
    
    
    
    
    
    
    14.18
    
    
    
    16,935CCR Inc.
    
    
    2.08
    
    
    
    484
    
    
    
    2.08
    
    
    
    484Dauinternet, Inc.
    
    
    0.71
    
    
    
    28
    
    
    
    0.71
    
    
    
    28Korea Digital Cable Media Center
    
    
    12.35
    
    
    
    550
    
    
    
    4.75
    
    
    
    550others
    
    
    
    
    
    
    3,310
    
    
    
    
    
    
    
    2,0984,472
    
    
    
    
    
    
    
    20,195
 F-19




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##### Table of Contents



2003
    
    
    2004Ownership
    
    
    
    
    
    
    Ownershippercentage (%)
    
    
    Amount
    
    
    percentage (%)
    
    
    AmountInvestments in funds:Engineering Benevolent Association
    
    
    0.03
    
    
    W
    14
    
    
    
    0.03
    
    
    W
    14KDBC Hanaro Interventure Fund
    
    
    31.00
    
    
    
    3,100
    
    
    
    31.00
    
    
    
    2,598Others
    
    
    
    
    
    
    61
    
    
    
    
    
    
    
    1303,175
    
    
    
    
    
    
    
    2,74213,424
    
    
    
    
    
    
    
    28,796Held-to-maturity securities:Investments in funds:Hana Dream Limited Co.
    
    
    5.00
    
    
    
    1
    
    
    
    
    
    
    
    Hanafos Securitization Specialty Co., Ltd.
    
    
    2.00
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Debt securities:Government and municipal bond
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    18G.P.S. Korea Inc.
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Hanafos Securitization Specialty Co., Ltd.
    
    
    
    
    
    
    9,000
    
    
    
    
    
    
    
    Best Pool Securitization Specialty Co., Ltd.
    
    
    
    
    
    
    201
    
    
    
    
    
    
    
    New KB STAR Guarantee ABS Specialty Co.,
Ltd.
    
    
    
    
    
    
    1,120
    
    
    
    
    
    
    
    10,339
    
    
    
    
    
    
    
    2010,340
    
    
    
    
    
    
    
    20W
    23,764
    
    
    
    
    
    
    W
    28,816
  2003
    
    
    2004Acquisition cost
    
    
    Fair value
    
    
    Acquisition cost
    
    
    Fair valueLG Telecom Co., Ltd.
    
    W
    5,396
    
    
    W
    3,764
    
    
    W
    5,396
    
    
    W
    4,143Summit Technology Co.,
Ltd.
    
    
    800
    
    
    
    11
    
    
    
    
    
    
    
    Netsecure Technology, Inc.
    
    
    1,399
    
    
    
    108
    
    
    
    1,399
    
    
    
    18C.C.S., Inc.
    
    
    4,740
    
    
    
    1,894
    
    
    
    4,740
    
    
    
    1,698W
    12,335
    
    
    W
    5,777
    
    
    W
    11,535
    
    
    W
    5,859
  (3)
    
    Non-listed equity securities as of December 31, 2003 and 2004 are as follows (won in
millions):
 2003
    
    
    2004Acquisition
    
    
    Net asset
    
    
    Book
    
    
    Acquisition
    
    
    Net asset
    
    
    Bookcost
    
    
    value
    
    
    value
    
    
    cost
    
    
    value
    
    
    valueKorea Information Assurance,
Inc.
    
    W
    100
    
    
    W
    85
    
    
    W
    100
    
    
    W
    100
    
    
    W
    81
    
    
    W
    100Dreamline Corporation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,530
    
    
    
    18,837
    
    
    
    16,935CCR Inc.
    
    
    1,780
    
    
    
    484
    
    
    
    484
    
    
    
    1,780
    
    
    
    277
    
    
    
    484Dauinternet, Inc.
    
    
    1,100
    
    
    
    28
    
    
    
    28
    
    
    
    1,100
    
    
    
    20
    
    
    
    28Korea Digital Cable Media Center
    
    
    550
    
    
    
    399
    
    
    
    550
    
    
    
    550
    
    
    
    469
    
    
    
    550Others
    
    
    13,261
    
    
    
    2,373
    
    
    
    3,310
    
    
    
    8,172
    
    
    
    1,351
    
    
    
    2,098W
    16,791
    
    
    W
    3,369
    
    
    W
    4,472
    
    
    W
    51,232
    
    
    W
    21,035
    
    
    W
    20,195
 W W W
 F-20




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##### Table of Contents



(4)
    
    Debt securities as of December 31, 2003 and 2004 are as follows (won in millions):
 2003
    
    
    2004Acquisition cost
    
    
    Book value
    
    
    Acquisition cost
    
    
    Book valueGovernment and municipal bonds:
    
    W
    16
    
    
    W
    16
    
    
    W
    18
    
    
    W
    18Corporate bonds:G.P.S. Korea Inc.
    
    
    2
    
    
    
    2
    
    
    
    2
    
    
    
    2Subordinate debt investments:Hanafos Securitization
Specialty Co., Ltd.
    
    
    9,000
    
    
    
    9,000
    
    
    
    
    
    
    
    Best Pool Securitization
Specialty Co., Ltd.
    
    
    450
    
    
    
    201
    
    
    
    
    
    
    
    New KB STAR Guarantee ABS
Specialty Co., Ltd.
    
    
    1,120
    
    
    
    1,120
    
    
    
    
    
    
    
    W
    10,588
    
    
    W
    10,339
    
    
    W
    20
    
    
    W
    20
 INVESTMENT SECURITIES USING THE EQUITY METHOD:
 (1)
    
    Investment securities using the equity method as of December 31, 2003 and 2004 are as follows
(won in millions):
 2003
    
    
    2004Ownership
    
    
    
    
    
    
    Ownershippercentage (%)
    
    
    Book value
    
    
    percentage (%)
    
    
    Book valueDreamline Corporation
    
    
    26.28
    
    
    W
    9,565
    
    
    
    
    
    
    W
    
  (2)
    
    Loss on valuation using the equity method for the year ended December 31, 2003 is as follows
(won in millions):
 Loss on valuation
    
    Changes inNet asset
    
    
    
    using the equity
    
    consolidated
    
    Capital
    
    Book2003
    
    Acquisition cost
    
    Value
    
    Beginning of period
    
    method
    
    subsidiaries
    
    adjustment
    
    ValueDreamline Corporation
    
    W
    39,530
    
    
    W
    24,894
    
    
    W                    
    
    W
    (23,142
    )
    
    W
    41,272
    
    
    W
    (8,565
    )
    
    W
    9,565
 LOANS TO EMPLOYEES:
  Interest per
    
    
    2003
    
    
    2004annum (%)
    
    
    Short-term
    
    
    Long-term
    
    
    Short-term
    
    
    Long-termLoans to employees for share ownership
    
    
    
    
    
    W
    8,808
    
    
    W
    4,588
    
    
    W
    4,486
    
    
    W
    8,634Loans to employees for housing
    
    
    2.0
    
    
    
    1,382
    
    
    
    8,226
    
    
    
    1,524
    
    
    
    8,450Other
    
    
    
    
    
    
    98
    
    
    
    41
    
    
    
    128
    
    
    
    6710,288
    
    
    
    12,855
    
    
    
    6,138
    
    
    
    17,151Less: discount on present value
    
    
    
    
    
    
    (401
    )
    
    
    (2,069
    )
    
    
    (149
    )
    
    
    (2,495
    )W
    9,887
    
    
    W
    10,786
    
    
    W
    5,989
    
    
    W
    14,656
 F-21




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##### Table of Contents



PREPAID EXPENSES AND LONG-TERM PREPAID EXPENSES:
  PROPERTY AND EQUIPMENT:
  Changes inBeginning of
    
    
    
    
    
    
    
    
    
    
    consolidated2003:
    
    year
    
    
    Increase
    
    
    Decrease
    
    
    subsidiaries
    
    
    End of yearLand
    
    W
    157,962
    
    
    W
    385
    
    
    W
    70
    
    
    W
    (315
    )
    
    W
    157,962Buildings
    
    
    256,692
    
    
    
    49,593
    
    
    
    163
    
    
    
    (1,373
    )
    
    
    304,749Structures
    
    
    3,607
    
    
    
    2
    
    
    
    
    
    
    
    (3,363
    )
    
    
    246Machinery
    
    
    3,589,543
    
    
    
    342,692
    
    
    
    117,412
    
    
    
    (520,961
    )
    
    
    3,293,862Vehicles
    
    
    788
    
    
    
    33
    
    
    
    283
    
    
    
    (107
    )
    
    
    431Other
    
    
    57,901
    
    
    
    5,619
    
    
    
    611
    
    
    
    (15,900
    )
    
    
    47,009Construction in progress
    
    
    85,121
    
    
    
    64,961
    
    
    
    125,045
    
    
    
    (1,189
    )
    
    
    23,848Machinery in transit
    
    
    461
    
    
    
    69
    
    
    
    469
    
    
    
    
    
    
    
    614,152,075
    
    
    
    463,354
    
    
    
    244,053
    
    
    
    (543,208
    )
    
    
    3,828,168Less: Accumulated depreciationBuildings
    
    
    16,613
    
    
    
    6,548
    
    
    
    9
    
    
    
    (83
    )
    
    
    23,069Structures
    
    
    319
    
    
    
    12
    
    
    
    
    
    
    
    (293
    )
    
    
    38Machinery
    
    
    971,848
    
    
    
    406,957
    
    
    
    47,200
    
    
    
    (103,039
    )
    
    
    1,228,566Vehicles
    
    
    403
    
    
    
    76
    
    
    
    199
    
    
    
    (82
    )
    
    
    198Other
    
    
    28,578
    
    
    
    6,316
    
    
    
    270
    
    
    
    (9,248
    )
    
    
    25,3761,017,761
    
    
    
    419,909
    
    
    
    47,678
    
    
    
    (112,745
    )
    
    
    1,277,247W
    3,134,314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    W
    2,550,921
 Changes inBeginning of
    
    
    
    
    
    
    
    
    
    
    consolidated2004:
    
    year
    
    
    Increase
    
    
    Decrease
    
    
    subsidiaries
    
    
    End of yearLand
    
    W
    157,962
    
    
    W
    7,584
    
    
    W
    
    
    
    W
    
    
    
    W
    165,546Buildings
    
    
    304,749
    
    
    
    7,999
    
    
    
    177
    
    
    
    
    
    
    
    312,571Structures
    
    
    246
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    246Machinery
    
    
    3,293,862
    
    
    
    259,718
    
    
    
    52,121
    
    
    
    1,973
    
    
    
    3,503,432Vehicles
    
    
    431
    
    
    
    47
    
    
    
    38
    
    
    
    
    
    
    
    440Other
    
    
    47,009
    
    
    
    8,107
    
    
    
    9,831
    
    
    
    1,150
    
    
    
    46,435Construction in progress
    
    
    23,848
    
    
    
    69,551
    
    
    
    70,698
    
    
    
    
    
    
    
    22,701Machinery in transit
    
    
    61
    
    
    
    394
    
    
    
    194
    
    
    
    
    
    
    
    2613,828,168
    
    
    
    353,400
    
    
    
    133,059
    
    
    
    3,123
    
    
    
    4,051,632Less: Accumulated depreciationBuildings
    
    
    23,069
    
    
    
    8,544
    
    
    
    15
    
    
    
    
    
    
    
    31,598Structures
    
    
    38
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    51Machinery
    
    
    1,228,566
    
    
    
    408,119
    
    
    
    24,102
    
    
    
    273
    
    
    
    1,612,856Vehicles
    
    
    198
    
    
    
    202
    
    
    
    38
    
    
    
    
    
    
    
    362Other
    
    
    25,376
    
    
    
    16,384
    
    
    
    8,314
    
    
    
    474
    
    
    
    33,9201,277,247
    
    
    
    433,262
    
    
    
    32,469
    
    
    
    747
    
    
    
    1,678,787W
    2,550,921
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    W
    2,372,845
 W W
 F-22




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##### Table of Contents



W W
 W W
 12.
    
    INTANGIBLES:
 (1)
    
    Intangibles as of December 31, 2003 and 2004 are as follows (won in millions):
 2003
    
    
    2004Goodwill
    
    W
    3,287
    
    
    W
    5,775Industrial property rights
    
    
    15
    
    
    
    47Cable line usage rights
    
    
    45,397
    
    
    
    47,748Development costs
    
    
    2,716
    
    
    
    1,466Land rights
    
    
    66
    
    
    
    62Other intangibles
    
    
    
    
    
    
    1,167W
    51,481
    
    
    W
    56,265
 W
 (2)
    
    Amortization of intangibles for the years ended December 31, 2002, 2003 and 2004 is as
follows (won in millions):
 2002
    
    
    2003
    
    
    2004Goodwill
    
    W
    481
    
    
    W
    3,455
    
    
    W
    3,855Industrial property rights
    
    
    7
    
    
    
    17
    
    
    
    22Cable line usage rights
    
    
    1,825
    
    
    
    2,415
    
    
    
    2,609Development costs
    
    
    6,886
    
    
    
    3,346
    
    
    
    2,625Land rights
    
    
    4
    
    
    
    4
    
    
    
    4Other intangibles
    
    
    510
    
    
    
    
    
    
    
    323W
    9,713
    
    
    W
    9,237
    
    
    W
    9,438
 (3)
    
    Changes in development costs (intangibles) for the years ended December 31, 2002, 2003 and
2004 are as follows (won in millions):
 2002
    
    
    2003
    
    
    2004Beginning of year
    
    W
    3,113
    
    
    W
    999
    
    
    W
    2,716Increase
    
    
    6,633
    
    
    
    5,063
    
    
    
    1,375Amortization
    
    
    (6,886
    )
    
    
    (3,346
    )
    
    
    (2,625
    )Changes in
consolidated
subsidiaries
    
    
    (1,861
    )
    
    
    
    
    
    
    End of year
    
    W
    999
    
    
    W
    2,716
    
    
    W
    1,466
 (4)
    
    W 4,784 million, W 4,891 million and W 3,960 million of ordinary research and development
costs were charged to expense as incurred for the years ended December 31, 2002, 2003 and
2004, respectively.
 (5)
    
    Negative goodwill of W 29,938 million accounted for in accordance with the purchase method on
December 24, 2001 was excluded from the Company as of December 31, 2003 due to the decrease of
hanaros percentage ownership in Dreamline Corporation from 32.18% to 26.28%.
 F-23




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##### Table of Contents



Changes in negative goodwill for the years ended December 31, 2002, 2003 and 2004 are as follows
(won in millions):
 2002
    
    
    2003
    
    
    2004Beginning of year
    
    W
    29,938
    
    
    W
    26,845
    
    
    W
    Changes in
consolidated
subsidiaries
    
    
    
    
    
    
    (26,845
    )
    
    
    Amortization
    
    
    (3,093
    )
    
    
    
    
    
    
    End of year
    
    W
    26,845
    
    
    W
    
    
    
    W
    
 13.
    
    LEASES:
 (1)
    
    The Company has operating lease agreements for the rights to use automobiles. The payment
schedule for the operating leases is as follows (won in millions):
 Year
    
    Amount2005
    
    W
    8942006
    
    
    4942007
    
    
    75W
    1,463
 (2)
    
    The Company also has capital lease agreements with Korea HP Financial Service Co., LG Card
Services Corp., Star Leases Co., Ltd., Korea Development Leases Co., Ltd. and Cisco Systems
Capital Korea Ltd. for certain machinery and equipment. As of December 31, 2003 and 2004, the
acquisition cost of machinery and equipment under capital lease was W 193,959 million and
W 175,336 million, respectively, and depreciation expenses related to the these capital leases
for the years ended December 31, 2002, 2003 and 2004 amount to W 11,071 million, W 20,071
million and W 19,719 million, respectively.The future annual payments under these capital lease agreements as of December 31, 2004 are as
follows (won in millions and dollar in thousands):
 Year
    
    Principal
    
    
    Interest
    
    
    Total2005
    
    W
    47,313
    
    
    W
    3,516
    
    
    W
    50,8292006
    
    
    23,497
    
    
    
    1,200
    
    
    
    24,6972007
    
    
    8,899
    
    
    
    226
    
    
    
    9,1252008
    
    
    145
    
    
    
    3
    
    
    
    14879,854
    
    
    W
    4,945
    
    
    W
    84,799Less: Current portion
    
    
    (47,313
    )W
    32,541
 14.
    
    SHORT-TERM BORROWINGS:
  Interest rate per annum (%)2004
    
    
    2003
    
    
    2004General loans
    
    
    
    
    
    W
    3,000
    
    
    W
    Syndication loans
    
    
    
    
    
    
    60,000
    
    
    
    Issuance of commercial paper
    
    
    
    
    
    
    100,000
    
    
    
    W
    163,000
    
    
    W
    
 F-24




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##### Table of Contents



15.
    
    LONG-TERM DEBT AND DEBENTURES:(1)
    
    Long-term debt in local currency as of December 31, 2003 and 2004 is as follows (won in
millions):
 Interest rate per annum (%)
    
    
    Amount2004
    
    
    2003
    
    
    2004Information promotion fund
    
    
    3.78 ~ 7.25
    
    
    W
    163,813
    
    
    W
    66,651General loans
    
    
    6.99
    
    
    
    55,000
    
    
    
    40,000Syndication loans
    
    
    6.61 ~ 6.80
    
    
    
    24,952
    
    
    
    102,304Asset backed loan (ABL)
    
    
    
    
    
    
    25,902
    
    
    
    269,667
    
    
    
    208,955Less: Current portion
    
    
    
    
    
    
    (98,970
    )
    
    
    (66,756
    )Discount on present value
    
    
    
    
    
    
    (844
    )
    
    
    (2,691
    )W
    169,853
    
    
    W
    139,508
 On April 18, 2002, the Company transferred the beneficiary certificates of W  207,000
million for the trust amount of W  226,800 million issued by Kookmin Bank to Hana Dream
Limited Co.(Hanadream) in exchange for the right to have some of the Companys future
trade receivables, which are expected to be incurred from April 2002 to April 2004.
Hanadream issued Asset Backed Loans (ABL) amounting to W  207,000 million on April 25,
2002, of which the subordinate loan of W 7,000 million was loaned by the Company and W
200,000 million was loaned by the banks. The proceeds of W 200,000 million were remitted
to the Company. In relation to the issuance of ABL, the Company recognizes the difference
between the trade receivables and the reduced long-term debt as interest expense. W 11,864
million, W 7,538 million and W 398 million were recorded as interest expense for the years
ended December 31, 2002, 2003 and 2004, respectively. ABL repayment was completed during
2004.(2)
    
    Long-term debt in foreign currency as of December 31, 2003 and 2004 is as follows (won in
millions, dollar in thousands):
 Interest rateper annum(%)
    
    
    U.S. dollars
    
    
    Won equivalent2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004Syndication loans
    
    
    5.54
    
    
    $
    63,065
    
    
    $
    258,568
    
    
    W
    75,212
    
    
    W
    267,618Less: Discount on
present value
    
    
    
    
    
    
    (2,131
    )
    
    
    (7,703
    )
    
    
    (2,542
    )
    
    
    (7,972
    )$
    60,934
    
    
    $
    250,865
    
    
    W
    72,670
    
    
    W
    259,646
 (3)
    
    On November 13, 2003, the Company entered into a syndication loan agreement with Development
Bank of Singapore, JP Morgan Chase, ABN Amro, Korea Exchange Bank, Korea Development Bank and
other financial institutions. The loan amount approximated W 720 billion (won currency loan of
W 224,684 million and US$ currency loan of US$ 416,232 thousand), which includes a term loan
of W 660 billion with a maturity of five years and a revolving loan of W 60 billion. The
outstanding balance of this syndication loan as of December 31, 2004 is W 369,922 million
(long-term debt in local currency of W 102,304 million and long-term debt in foreign currency
of W 267,618 million).In relation to the above syndication loans, the Companys buildings are pledged as collateral up
to W 531,411 million; machinery of which book value is W 1,702,960 million as of September 30,
2004 are provided as assignable mortgage; some intellectual property rights are pledged as
collateral.
 F-25




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##### Table of Contents



(4)
    
    Debentures as of December 31, 2003 and 2004 are as follows (won in millions):
 Interest rate per annum (%)
    
    
    Due
    
    
    2003
    
    
    200415th
    
    
    
    
    
    
    2001~2004
    
    
    W
    15,000
    
    
    W
    17-1st
    
    
    
    
    
    
    2002~2004
    
    
    
    60,000
    
    
    
    17-2nd
    
    
    
    
    
    
    2002~2004
    
    
    
    40,000
    
    
    
    19-1st
    
    
    
    
    
    
    2002~2004
    
    
    
    80,000
    
    
    
    19-2nd
    
    
    6.00
    
    
    
    2002~2005
    
    
    
    20,000
    
    
    
    20,00020th
    
    
    5.42
    
    
    
    2002~2005
    
    
    
    100,000
    
    
    
    100,00021st
    
    
    6.00
    
    
    
    2002~2005
    
    
    
    170,000
    
    
    
    170,00023rd
    
    
    6.00
    
    
    
    2003~2006
    
    
    
    190,000
    
    
    
    190,00024th
    
    
    8.59
    
    
    
    2003~2005
    
    
    
    16,000
    
    
    
    16,000691,000
    
    
    
    496,000Less: Current portion
    
    
    
    
    
    
    
    
    
    
    (195,000
    )
    
    
    (306,000
    )Discount on present
value
    
    
    
    
    
    
    
    
    
    
    (14,247
    )
    
    
    (482
    )W
    481,753
    
    
    W
    189,518
 The Company early repaid the full amount of the 13thand the 25thbonds
with warrants and recognized a loss on early redemption of W 5,072 million in 2002. During
2003, the Company early repaid W 20,000 million of 1st debenture to reduce interest
expense burden and recorded W 308 million of loss on early redemption of debentures.On September 2, 2003, the Company early repaid bonds with stock warrants (18th
debenture) and recorded W 870 million of gain on early redemption of debentures. The warrants
on the bonds with stock warrants carry the rights to buy US$ 15,000,000 of stock (3,963,600
shares) and may be exercised until January 26, 2007. The exercise price is W 5,000 at an
exchange rate of W 1,321.20 to US$1.00.As of December 31, 2004, for the warrants on the bonds with stock warrants (13th
debenture), US$ 62,000 thousand (15,322,680 shares) has been exercised and US$ 38,000 thousand
(9,391,320 shares) remains unexercised and exercisable until February 6, 2006.According to the covenants, debentures of 19-2nd, 20th, 21st
and 23rd require the Company to keep the debt ratio lower than 250 percent ~ 300
percent and the Company should not dispose of its property and equipment more than the amount of
W 750 billion ~W 1,000 billion in each fiscal year. The Company complies with the covenants
requirements as of December 31, 2004.(5)
    
    The schedule of principal payments of debentures and long-term debt (excluding capital lease
obligations explained in Note 13) as of December 31, 2004 is as follows (won in millions and
dollar in thousands):
 Long-term debt
    
    
    Long-term debt in foreign currencyYear
    
    Debentures
    
    
    in local currency
    
    
    U.S. dollar
    
    
    Won equivalent
    
    
    Total2005
    
    W
    306,000
    
    
    W
    66,756
    
    
    $
    
    
    
    W
    
    
    
    W
    372,7562006
    
    
    190,000
    
    
    
    37,877
    
    
    
    38,785
    
    
    
    40,143
    
    
    
    268,0202007
    
    
    
    
    
    
    50,360
    
    
    
    103,427
    
    
    
    107,047
    
    
    
    157,4072008
    
    
    
    
    
    
    52,377
    
    
    
    116,356
    
    
    
    120,428
    
    
    
    172,8052009
    
    
    
    
    
    
    1,585
    
    
    
    
    
    
    
    
    
    
    
    1,585W
    496,000
    
    
    W
    208,955
    
    
    $
    258,568
    
    
    W
    267,618
    
    
    W
    972,573
 (6)
    
    Other than collateral provided to the syndication loan consortium described in the Note
15(3), property and equipment of W 80,566 million and short-term financial instruments of
W 34,410 million are pledged as collateral for short-term borrowings, long-term debt and
debentures as of December 31, 2004.
 F-26




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##### Table of Contents



ASSET BACKED SECURITIES PAYABLE:
 W W W W W W W W W
 W st W W W W W
 DERIVATIVES:
 (1)
    
    Swap Contract
In relation to the Companys issuance of the 20th debenture (Floating Rate Note) and
syndication loan in foreign currency, the Company entered into swap contracts (fixed interest
rate) with Industrial Bank of Korea (IBK) and Korea Development Bank (KDB) to hedge the risk of
floating interest rates. As a result of the valuation of this swap contract, the Company
recorded W13,058 million and W17,623 million of valuation loss as capital adjustments and
liability as of December 31, 2003 and 2004, respectively (won in millions and dollar in
thousands).
 Valuation lossFinancial
    
    
    
    
    
    
    
    
    
    Fixed rate
    
    
    
    
    
    
    on interest swapinstitution
    
    Contract period
    
    
    Floating rate (%)
    
    
    (%)
    
    
    Contract Amount
    
    
    2003
    
    
    2004IBK
    
    
    2002.5~2005.5
    
    
    Government bond
    
    
    9.90
    
    
    $
    100,000
    
    
    W
    4,419
    
    
    W
    1,496rate+1.95KDB
    
    
    2003.12~2008.11
    
    
    LIBOR+3.25
    
    
    7.72
    
    
    $
    63,065
    
    
    
    8,639
    
    
    
    4,556KDB
    
    
    2004.2~2008.11
    
    
    LIBOR+3.25
    
    
    7.60
    
    
    $
    138,744
    
    
    
    
    
    
    
    9,325KDB
    
    
    2004.9~2008.11
    
    
    LIBOR+3.25
    
    
    6.70
    
    
    $
    56,759
    
    
    
    
    
    
    
    2,246W
    13,058
    
    
    W
    17,623
 (2)
    
    Forward Exchange ContractThe Company entered into foreign currency forward contracts, relating to time deposits and
syndication loan in foreign currency, with Development Bank of Singapore (DBS) and Korea
Development Bank (KDB) to hedge the exposure to changes in the foreign currency exchange rate.
The Company recorded W33,975 million of loss on forward exchange valuation for the year ended
December 31, 2004 and W33,802 million of forward exchange contracts (current liabilities) as
of December 31, 2004 (dollar in thousands).
 Contract period
    
    Fixed exchange rate
    
    
    Contract amount2003.12~2008.11
    
    W
    1,190.00 /$
    
    
    US$
    63,0652004.2~2008.11
    
    W
    1,166.20 /$
    
    
    
    138,7442004.9~2008.11
    
    W
    1,146.70 /$
    
    
    
    56,759US$
    258,568
 F-27




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##### Table of Contents



Also, the Company recorded W186 million, W343 million and W242 million of gain on
transaction of forward exchange contract for the years ended December 31, 2002, 2003 and 2004,
respectively, and W173 million of
loss on transaction of forward exchange contract for the year ended December 31, 2004.
 SHAREHOLDERS EQUITY:
 W
 STOCK OPTION PLAN:
  Number of
    
    
    ExerciseGrant company
    
    Grant date
    
    
    shares
    
    
    price/share
    
    
    Methods
    
    
    Exercise periodhanarotelecom
    
    
    1999. 3. 1
    
    
    
    50,000
    
    
    W
    5,630
    
    
    New stock issue
    
    
    2002.3.1~2007.2.28incorporated
    
    
    1999.10. 1
    
    
    
    120,000
    
    
    
    19,910
    
    
    New stock issue
    
    
    2002.10.1~2007.9.302000. 3.17
    
    
    
    1,551,153
    
    
    
    17,750
    
    
    New stock issue
    
    
    2003.3.18~2008.3.17New stock issue or2004.12.16
    
    
    
    19,772,890
    
    
    
    5,000
    
    
    cash payment
    
    
    2006.12.17~2011.12.16Hanaro Dream, Inc.
    
    
    2003.1.16
    
    
    
    30,000
    
    
    
    8,000
    
    
    New stock issue
    
    
    2005.1.16~2007.1.15
 W W W
  2002
    
    
    2003
    
    
    2004Ordinary income (loss)
    
    W
    (130,060
    )
    
    W
    (162,657
    )
    
    W
    12,695Net income (loss)
    
    W
    (127,406
    )
    
    W
    (163,044
    )
    
    W
    11,893Ordinary income (loss) per share
    
    W
    (436
    )
    
    W
    (506
    )
    
    W
    27Net income (loss) per share
    
    W
    (427
    )
    
    W
    (507
    )
    
    W
    26
 W
 F-28




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##### Table of Contents



OPERATING EXPENSES:
  2002
    
    
    2003
    
    
    2004Salaries and wages
    
    W
    97,715
    
    
    W
    92,370
    
    
    W
    103,030Provision for severance indemnities
    
    
    11,959
    
    
    
    13,444
    
    
    
    14,095Welfare
    
    
    22,274
    
    
    
    19,380
    
    
    
    24,994Rent
    
    
    19,624
    
    
    
    14,746
    
    
    
    6,075Depreciation
    
    
    433,475
    
    
    
    428,528
    
    
    
    442,312Advertising
    
    
    42,487
    
    
    
    27,457
    
    
    
    39,514Ordinary research and development cost
    
    
    4,784
    
    
    
    4,891
    
    
    
    3,960Utilities
    
    
    17,578
    
    
    
    19,487
    
    
    
    22,023Telecommunication equipment lease expenses
    
    
    188,867
    
    
    
    165,716
    
    
    
    140,820Bad debt
    
    
    13,690
    
    
    
    25,744
    
    
    
    29,933Maintenance
    
    
    46,274
    
    
    
    42,583
    
    
    
    51,451Selling expenses
    
    
    47,259
    
    
    
    6,408
    
    
    
    6,791Sales commissions
    
    
    220,336
    
    
    
    195,997
    
    
    
    178,380Interconnection charges
    
    
    95,883
    
    
    
    131,114
    
    
    
    141,964Commissions
    
    
    83,874
    
    
    
    70,859
    
    
    
    68,460Outsourcing services
    
    
    15,607
    
    
    
    20,519
    
    
    
    24,722Other
    
    
    34,740
    
    
    
    33,549
    
    
    
    37,115W
    1,396,426
    
    
    W
    1,312,792
    
    
    W
    1,335,639
 INCOME TAX AND DEFERRED INCOME TAXES:
 Income Tax
  2002
    
    
    2003
    
    
    2004Income taxes currently payable
    
    W
    577
    
    
    W
    341
    
    
    W
    806Changes in temporary differences
    
    
    506
    
    
    
    (39
    )
    
    
    (311
    )Income tax expense
    
    W
    1,083
    
    
    W
    302
    
    
    W
    495
 Deferred Income Taxes
  F-29




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##### Table of Contents



2003
    
    
    2004Accrued severance indemnities
    
    W
    16,796
    
    
    W
    22,154Valuation loss on marketable securities
    
    
    307
    
    
    
    Bad debts
    
    
    37,851
    
    
    
    59,500Present value discount
    
    
    (1,963
    )
    
    
    (7,745
    )Valuation loss on investment securities
    
    
    13,809
    
    
    
    39,489Loss on valuation of forward exchange contract
    
    
    
    
    
    
    33,975Forward contracts
    
    
    (173
    )
    
    
    Valuation loss on investment securities using
the equity method
    
    
    21,400
    
    
    
    Loss on disuse of property and equipment
    
    
    61,333
    
    
    
    13,840Accrued income
    
    
    (6,313
    )
    
    
    (2,067
    )Depreciation
    
    
    259
    
    
    
    1Severance insurance deposits and other
    
    
    (1,155
    )
    
    
    (4,664
    )142,151
    
    
    
    154,483Loss carryforward
    
    
    659,846
    
    
    
    703,694Less: Unrecognized
    
    
    (801,373
    )
    
    
    (855,970
    )624
    
    
    
    2,207Tax rate (%)
    
    
    29.7
    
    
    
    27.5Deferred income tax assets, net
    
    W
    185
    
    
    W
    607
 As of December 31, 2003 and 2004, hanaro did not recognize deferred income tax assets due to
the uncertainty of future realization of the deferred tax benefits.
 RELATED PARTY TRANSACTIONS
 (1)
    
    Significant transactions between hanaro and its subsidiaries during 2003 and 2004 are as
follows (won in millions):
 2003
    
    Revenue
    
    
    Expenses
    
    
    Key-money deposits
    
    
    PayablesHanaro Realty Development &
Management Co., Ltd.
    
    W
    166
    
    
    W
    20,153
    
    
    W
    1,522
    
    
    W
    1,809Hanaro Telephone & Internet
Information, Inc.
    
    
    106
    
    
    
    28,881
    
    
    
    102
    
    
    
    1,958Hanaro Web(n)TV
    
    
    150
    
    
    
    3,153
    
    
    
    223
    
    
    
    9Hanaro Telecom America, Inc.
    
    
    
    
    
    
    6,987
    
    
    
    
    
    
    
    623Dreamline Corporation
    
    
    3,368
    
    
    
    8,646
    
    
    
    1,404
    
    
    
    469Hanaro Dream, Inc.
    
    
    6,013
    
    
    
    20,198
    
    
    
    583
    
    
    
    2,574W
    9,803
    
    
    W
    88,018
    
    
    W
    3,834
    
    
    W
    7,442
 2004
    
    Revenue
    
    
    Expenses
    
    
    Key-money deposits
    
    
    PayablesHanaro Realty Development &
Management Co., Ltd.
    
    W
    183
    
    
    W
    19,181
    
    
    W
    1,551
    
    
    W
    799Hanaro Telephone & Internet
Information, Inc.
    
    
    13
    
    
    
    34,457
    
    
    
    
    
    
    
    3,235Hanaro Web(n)TV
    
    
    155
    
    
    
    3,980
    
    
    
    227
    
    
    
    176Hanaro Telecom America, Inc.
    
    
    
    
    
    
    512
    
    
    
    
    
    
    
    Hanaro Dream, Inc.
    
    
    3,300
    
    
    
    14,438
    
    
    
    636
    
    
    
    3,660W
    3,651
    
    
    W
    72,568
    
    
    W
    2,414
    
    
    W
    7,870
 F-30




---



##### Table of Contents



(2)
    
    Transactions with shareholders for the years ended December 31, 2003 and 2004 are as follows
(won in millions):
 Revenues:
 Transaction
    
    
    2003
    
    
    2004Samsung
    
    Service fee
    
    W
    44
    
    
    W
    45Dacom
    
    
    
    
    
    
    18,320
    
    
    
    18,472SK Telecom
    
    
    
    
    
    
    9,239
    
    
    
    12,844LG
    
    
    
    
    
    
    2,669
    
    
    
    3,058W
    30,272
    
    
    W
    34,419
 Purchases:
 Transaction
    
    
    2003
    
    
    2004Samsung
    
    Purchase of machinery and equipment, other
    
    W
    7,285
    
    
    W
    10,789Dacom
    
    Interconnection charges, other
    
    
    31,831
    
    
    
    25,896SK Telecom
    
    Interconnection charges, other
    
    
    38,236
    
    
    
    42,367LG
    
    Purchase of machinery and equipment, other
    
    
    20,371
    
    
    
    24,853W
    97,723
    
    
    W
    103,905
  Assets
    
    
    Liabilities2003
    
    
    2004
    
    
    2003
    
    
    2004Samsung
    
    W
    
    
    
    W
    
    
    
    W
    5,156
    
    
    W
    7,784Dacom
    
    
    
    
    
    
    783
    
    
    
    308
    
    
    
    1,015SK Telecom
    
    
    783
    
    
    
    2,457
    
    
    
    6,889
    
    
    
    8,186LG
    
    
    234
    
    
    
    288
    
    
    
    4,593
    
    
    
    12,064W
    1,017
    
    
    W
    3,528
    
    
    W
    16,946
    
    
    W
    29,049
 COMMITMENTS AND CONTINGENCIES
 (1)
    
    The Company has been provided US$ 1,000 thousand of payment guarantees by the Korea Exchange
Bank in connection with the issuance of letters of credit.(2)
    
    The Company has provided three blank promissory notes as collateral to KDB Capital Corp. and
LG Card Services Corp. in connection with its borrowings and lease agreements.(3)
    
    The Company has entered into the network supply agreements for the right to use various
underground facilities to house its fiber-optic cable network, leased lines and
telecommunication equipments with Seoul Metropolitan Subway Corporation, Seoul Metropolitan
Rapid Transit Corp., Powercomm Corp., Dacom Corp., KEPCO, Dreamline Corp. and others, and the
related rental expenditure is recorded as telecommunication equipment lease expenses.
 F-31




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##### Table of Contents



SEGMENT INFORMATION:
  Segment information for the years ended December 31, 2002, 2003 and 2004 is as follows (won in
millions):
 2002
    
    Voice
    
    
    Leased Line
    
    
    Broadband
    
    
    Others
    
    
    TotalRevenue
    
    W
    210,664
    
    
    W
    111,813
    
    
    W
    969,635
    
    
    W
    125,742
    
    
    W
    1,417,854Operating income (loss)
    
    
    (12,822
    )
    
    
    7,498
    
    
    
    29,094
    
    
    
    (2,342
    )
    
    
    21,428Tangible and intangible assets
    
    
    161,178
    
    
    
    311,798
    
    
    
    2,519,596
    
    
    
    163,925
    
    
    
    3,156,497Capital expenditures and
advanced payments for
property and equipment
    
    
    77,827
    
    
    
    56,703
    
    
    
    285,878
    
    
    
    35,000
    
    
    
    455,408Depreciation and amortization
    
    
    46,969
    
    
    
    37,540
    
    
    
    311,733
    
    
    
    37,233
    
    
    
    433,475
 2003
    
    Voice
    
    
    Leased Line
    
    
    Broadband
    
    
    Others
    
    
    TotalRevenue
    
    W
    248,964
    
    
    W
    37,992
    
    
    W
    982,693
    
    
    W
    113,837
    
    
    W
    1,383,486Operating income (loss)
    
    
    (8,577
    )
    
    
    4,986
    
    
    
    118,937
    
    
    
    (44,652
    )
    
    
    70,694Tangible and intangible assets
    
    
    558,446
    
    
    
    16,652
    
    
    
    1,743,778
    
    
    
    283,526
    
    
    
    2,602,402Capital expenditures and
advanced payments for
property and equipment
    
    
    56,581
    
    
    
    6,064
    
    
    
    245,711
    
    
    
    42,603
    
    
    
    350,959Depreciation and amortization
    
    
    60,298
    
    
    
    5,657
    
    
    
    315,208
    
    
    
    47,365
    
    
    
    428,528
 2004
    
    Voice
    
    
    Leased Line
    
    
    Broadband
    
    
    Others
    
    
    TotalRevenue
    
    W
    291,186
    
    
    W
    39,717
    
    
    W
    985,428
    
    
    W
    133,238
    
    
    W
    1,449,569Operating income (loss)
    
    
    (23,552
    )
    
    
    2,775
    
    
    
    150,978
    
    
    
    (16,271
    )
    
    
    113,930Tangible and intangible assets
    
    
    452,215
    
    
    
    66,963
    
    
    
    1,627,321
    
    
    
    282,611
    
    
    
    2,429,110Capital expenditures and
advanced payments for
property and equipment
    
    
    48,392
    
    
    
    10,042
    
    
    
    208,122
    
    
    
    28,113
    
    
    
    294,669Depreciation and amortization
    
    
    49,710
    
    
    
    8,889
    
    
    
    323,676
    
    
    
    60,037
    
    
    
    442,312
 W W W
 EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
 (1)
    
    On February 1, 2005, the Company issued foreign bonds of US$ 500,000,000 with a maturity of
seven years at annual interest rate of 7.00% for the repayment of existing debt and the
acquisition of Korea Thrunet Co., Ltd. (Thrunet).(2)
    
    At the board of directors meeting on February 3, 2005, the Company resolved to acquire
Thrunets newly issued shares of stock of W248,100 million (99,240,000 shares, W2,500 per
share) and corporate bonds of W223,290 million.
 F - 32




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##### Table of Contents



RESTATEMENT OF PREVIOUSLY REPORTED KOREAN GAAP INFORMATION:
 W
 RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES:
     Korean WonEffect ofAs previous
    
    restatement2002:
    
    reported
    
    Under U.S.GAAP
    
    As restated(In millions)Net loss under U.S. GAAP
    
    W
    (162,525
    )
    
    W
    (4,654
    )
    
    W
    (167,179
    )Basic and diluted loss per share
under U.S.GAAP (in Korean won)
    
    W
    (545
    )
    
    W
    (16
    )
    
    W
    (561
    )Shareholders equity under U.S. GAAP
    
    W
    1,399,589
    
    
    W
    (30,651
    )
    
    W
    1,368,938
 Korean WonEffect ofAs previous
    
    restatement2003:
    
    reported
    
    Under U.S.GAAP
    
    As restated(In millions)Net loss under U.S. GAAP
    
    W
    (165,988
    )
    
    W
    4,390
    
    
    W
    (161,598
    )Basic and diluted loss per share
under U.S.GAAP (in Korean won)
    
    W
    (517
    )
    
    W
    14
    
    
    W
    (503
    )Shareholders equity under U.S. GAAP
    
    W
    1,783,296
    
    
    W
    (26,261
    )
    
    W
    1,757,035
 F-33




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##### Table of Contents



Korean WonEffect ofAs previous
    
    restatement2004:
    
    reported
    
    Under U.S.GAAP
    
    As restated(In millions)Net loss under U.S. GAAP
    
    W
    16,703
    
    
    W
    (1,854
    )
    
    W
    14,849Basic and diluted loss per share
under U.S.GAAP (in Korean won)
    
    W
    36
    
    
    W
    (4
    )
    
    W
    32Shareholders equity under U.S. GAAP
    
    W
    1,803,436
    
    
    W
    (28,115
    )
    
    W
    1,775,321
  Korean WonEffect ofAs previous
    
    
    restatement2003:
    
    reported
    
    
    Under U.S.GAAP
    
    
    As restated(In millions)Current assets
    
    W
    712,736
    
    
    W
    274
    
    
    W
    713,010Non-current assets
    
    
    2,748,717
    
    
    
    
    
    
    
    2,748,717Total assets based on U.S.GAAP
    
    
    3,461,453
    
    
    
    274
    
    
    
    3,461,727Current liabilities
    
    
    827,755
    
    
    
    26,535
    
    
    
    854,290Long-term liabilities
    
    
    849,784
    
    
    
    
    
    
    
    849,784Total liabilities based on U.S.GAAP
    
    
    1,677,539
    
    
    
    26,535
    
    
    
    1,704,074Minority interests based on U.S.GAAP
    
    W
    618
    
    
    W
    -
    
    
    W
    618
 Korean WonEffect ofAs previous
    
    
    restatement2004:
    
    reported
    
    
    Under U.S.GAAP
    
    
    As restated(In millions)Current assets
    
    W
    624,179
    
    
    W
    
    
    
    W
    624,179Non-current assets
    
    
    2,608,111
    
    
    
    
    
    
    
    2,608,111Total assets based on U.S.GAAP
    
    
    3,232,290
    
    
    
    
    
    
    
    3,232,290Current liabilities
    
    
    719,082
    
    
    
    28,115
    
    
    
    747,197Long-term liabilities
    
    
    706,557
    
    
    
    
    
    
    
    706,557Total liabilities based on U.S.GAAP
    
    
    1,425,639
    
    
    
    28,115
    
    
    
    1,453,754Minority interests based on U.S.GAAP
    
    W
    3,215
    
    
    W
    
    
    
    W
    3,215
  F-34




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##### Table of Contents



Current assets
    
    W
    75,120Non-current assets
    
    
    505,350Total assets
    
    W
    580,470Current liabilities
    
    W
    284,523Non-current liabilities
    
    
    82,824Total liabilities
    
    W
    367,347Net assets
    
    W
    213,123Operating revenue
    
    W
    192,934Operating income
    
    
    16,417Net loss
    
    
    (6,523
    )
     Current assets
    
    W
    42,314Non-current assets
    
    
    58,201Total assets
    
    W
    100,515Current liabilities
    
    W
    86,104Non-current liabilities
    
    
    17,417Total liabilities
    
    W
    103,521Net assets
    
    W
    (3,006
    )Operating revenue
    
    W
    15,742Operating income
    
    
    (2,566
    )Net loss
    
    
    (1,697
    )
 F-35




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##### Table of Contents



Year
    
    Amount2005
    
    W
    2006
    
    
    2007
    
    
    172008
    
    
    2009
    
    
    482010~2014
    
    
    88
   W
   F-36




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##### Table of Contents



(i)
    
    Debt securities that a company has the positive intent and ability to hold to maturity are
classified as held-to-maturity securities and reported at amortized cost.
 (ii)
    
    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
the unrealized gains and losses included in current operations.
 (iii)
    
    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
the unrealized gains and losses excluded from income and reported as a separate component of
shareholders equity.
   Korean wonUnrealized gains
    
    
    Unrealized lossesAcquisition
    
    
    Over 12
    
    
    Under 12
    
    
    Over 12
    
    
    Under 122003:
    
    cost
    
    
    months
    
    
    months
    
    
    months
    
    
    months
    
    
    Fair value(In millions)(1) Short-term investment
securitiesTrading securities
    
    W
    580
    
    
    W
    
    
    
    W
    
    
    
    W
    
    
    
    W
    307
    
    
    W
    273Debt securities
    
    
    1,056
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    940
    
    
    
    1161,636
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,247
    
    
    
    389(2) Long-term investment
securitiesAvailable-for-sale securities
    
    
    32,251
    
    
    
    2,541
    
    
    
    
    
    
    
    14,285
    
    
    
    7,083
    
    
    
    13,424Debt securities
    
    
    10,588
    
    
    
    
    
    
    
    
    
    
    
    249
    
    
    
    
    
    
    
    10,33942,839
    
    
    
    2,541
    
    
    
    
    
    
    
    14,534
    
    
    
    7,083
    
    
    
    23,763W
    44,475
    
    
    W
    2,541
    
    
    W
    
    
    
    W
    14,534
    
    
    W
    8,330
    
    
    W
    24,152
 F-37




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##### Table of Contents



Korean wonUnrealized gains
    
    
    Unrealized lossesAcquisition
    
    
    Over 12
    
    
    Under 12
    
    
    Over 12
    
    
    Under 122004:
    
    cost
    
    
    months
    
    
    months
    
    
    months
    
    
    months
    
    
    Fair value(In millions)(1) Short-term investment
securitiesTrading securities
    
    W
    
    
    
    W
    
    
    
    W
    
    
    
    W
    
    
    
    W
    
    
    
    W
    Debt securities
    
    
    1,571
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450
    
    
    
    1,1211,571
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450
    
    
    
    1,121(2) Long-term investment
securitiesAvailable-for-sale securities
    
    
    65,509
    
    
    
    2,541
    
    
    
    378
    
    
    
    36,797
    
    
    
    2,835
    
    
    
    28,796Debt securities
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2065,529
    
    
    
    2,541
    
    
    
    378
    
    
    
    36,797
    
    
    
    2,835
    
    
    
    28,816W
    67,100
    
    
    W
    2,541
    
    
    W
    378
    
    
    W
    36,797
    
    
    W
    3,285
    
    
    W
    29,937
       Intangible assets with finite lives
    
    Intellectual proprietary rightsCable line usage rightsLand rightOtherIntangible assets with indefinite lives
    
    GoodwillLicensing cost [see Note 27 (5)]
    F-38




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##### Table of Contents



Korean Won2002
    
    
    2003
    
    
    2004As restated
    
    
    As restated
    
    
    As restated(In millions)Reported net income (loss) under U.S. GAAP
    
    W
    (167,179
    )
    
    W
    (161,598
    )
    
    W
    14,849Stock-based employee compensation
expense included in reported net
income (loss)
    
    
    2,890
    
    
    
    
    
    
    
    Adjusted net income (loss) under U.S. GAAP
    
    W
    (164,289
    )
    
    W
    (161,598
    )
    
    W
    14,849




---



##### Table of Contents



2002
    
    
    2003
    
    
    2004Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-average
    
    
    
    
    
    
    average
    
    
    
    
    
    
    averageShares
    
    
    exercise price
    
    
    Shares
    
    
    exercise price
    
    
    Shares
    
    
    exercise priceOutstanding at beginning
of year
    
    
    1,810,642
    
    
    W
    17,558
    
    
    
    1,810,642
    
    
    W
    17,558
    
    
    
    1,721,153
    
    
    W
    17,549Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,772,890
    
    
    
    5,000Cancelled
    
    
    
    
    
    
    
    
    
    
    (89,489
    )
    
    
    17,750
    
    
    
    
    
    
    
    Outstanding at end of year
    
    
    1,810,642
    
    
    
    17,558
    
    
    
    1,721,153
    
    
    
    17,549
    
    
    
    21,494,043
    
    
    
    6,005Options exercisable at
year-end
    
    
    170,000
    
    
    
    
    
    
    
    1,721,153
    
    
    
    
    
    
    
    1,721,153Weighted-average fair
value of
options granted during
the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    457
  2002
    
    
    2003
    
    
    2004Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-average
    
    
    
    
    
    
    average
    
    
    
    
    
    
    averageShares
    
    
    exercise price
    
    
    Shares
    
    
    exercise price
    
    
    Shares
    
    
    exercise priceOutstanding at beginning
of year
    
    
    
    
    
    W
    
    
    
    
    
    
    
    W
    
    
    
    
    80,000
    
    
    W
    8,000Granted
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    8,000
    
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,000
    )
    
    
    8,000Outstanding at end of year
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    8,000
    
    
    
    30,000
    
    
    
    8,000Options exercisable at
year-end
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average fair
value of
options granted during
the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,108
    
    
    
    
    
    
    
    
   Number of
    
    
    Weighted-average remaining
    
    
    Weighted-averageRanges of exercise price
    
    
    options outstanding
    
    
    contractual life (years)
    
    
    exercise priceW5,000
    
    
    
    19,772,890
    
    
    
    2.4
    
    
    W
    5,000W5,630
    
    
    
    50,000
    
    
    
    0.0
    
    
    
    5,630W17,750 to W19,910
    
    
    
    1,671,153
    
    
    
    0.7
    
    
    
    17,905W5,000 to W19,910
    
    
    
    21,494,043
    
    
    
    2.2
    
    
    
    6,005
  Number of
    
    
    Weighted-average remaining
    
    
    Weighted-averageRanges of exercise price
    
    
    options outstanding
    
    
    contractual life (years)
    
    
    exercise priceW8,000
    
    
    
    8,000
    
    
    
    0.0
    
    
    W
    8,000
    F-40




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##### Table of Contents



Korean Won2002
    
    
    2003
    
    
    2004As restated
    
    
    As restated
    
    
    As restated(In millions)Net income (loss) in accordance with U.S.GAAP
    
    W
    (167,179
    )
    
    W
    (161,598
    )
    
    W
    14,849Other comprehensive income (loss), net of tax :Unrealized gains (losses) on investments
    
    
    (2,121
    )
    
    
    (1,062
    )
    
    
    2,087Less : reclassification adjustment
    
    
    (1,640
    )
    
    
    (1,321
    )
    
    
    (1,038
    )Net unrealized gains (losses) on investments
    
    
    (3,761
    )
    
    
    (2,383
    )
    
    
    1,049Foreign-based operations translation credit (debit)
    
    
    (30
    )
    
    
    2
    
    
    
    44Less : reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    (22
    )Net foreign-based operations translation credit (debit)
    
    
    (30
    )
    
    
    2
    
    
    
    22Net interest rate swap
    
    
    (5,633
    )
    
    
    (7,425
    )
    
    
    (4,565
    )Comprehensive income (loss) in accordance with U.S.GAAP
    
    W
    (176,603
    )
    
    W
    (171,404
    )
    
    W
    11,355
 F-41




---



##### Table of Contents



Korean Won2002
    
    
    2003
    
    
    2004As restated
    
    
    As restated
    
    
    As restated(In millions)Net cash provided by (used in):Operating activities
    
    W
    (47,849
    )
    
    W
    306,198
    
    
    W
    444,230Investing activities
    
    
    (277,007
    )
    
    
    (269,837
    )
    
    
    (183,523
    )Financing activities
    
    
    341,966
    
    
    
    (118,106
    )
    
    
    (294,921
    )Decrease due to changes in consolidated
subsidiaries
    
    
    (700
    )
    
    
    
    
    
    
    (39,278
    )Increase (decrease) in cash and cash equivalents
    
    
    16,410
    
    
    
    (81,745
    )
    
    
    (73,492
    )Cash and cash equivalents, beginning of year
    
    
    307,173
    
    
    
    323,583
    
    
    
    241,838Cash and cash equivalents, end of year
    
    W
    323,583
    
    
    W
    241,838
    
    
    W
    168,346
     F-42




---



##### Table of Contents



(i)
    
    Cash and cash equivalents, short-term investment securities, short-term borrowings:
  (ii)
    
    Other investments:
  (iii)
    
    Long-term debt, debentures and long-term obligation under capital lease:
  F-43




---



##### Table of Contents



Korean Won2003
    
    
    2004Carrying amount
    
    
    Fair value
    
    
    Carrying amount
    
    
    Fair value(In millions)Cash and cash equivalents and
short-term investment securities
    
    W
    199,937
    
    
    W
    199,937
    
    
    W
    169,467
    
    
    W
    169,467Short-term financial instruments
    
    
    219,872
    
    
    
    219,872
    
    
    
    193,716
    
    
    
    193,716Long-term financial instruments
    
    
    7
    
    
    
    7
    
    
    
    68
    
    
    
    68Long-term investment securities
    
    
    23,764
    
    
    
    22,661
    
    
    
    28,816
    
    
    
    29,656Short-term borrowings
    
    
    163,000
    
    
    
    163,000
    
    
    
    
    
    
    
    Long-term debt, including current
portion
    
    
    339,795
    
    
    
    342,307
    
    
    
    465,910
    
    
    
    466,922Debentures, including current portion
    
    
    673,277
    
    
    
    678,257
    
    
    
    488,975
    
    
    
    502,972Long-term obligations under capital
lease, including current portion
    
    
    112,000
    
    
    
    109,528
    
    
    
    79,854
    
    
    
    79,285Interest rate swap
    
    
    13,058
    
    
    
    13,058
    
    
    
    17,623
    
    
    
    17,623
   26-
  F-44




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##### Table of Contents



Translation intoU.S. Dollars (Note 2)Korean Won
    
    
    20042002
    
    
    2003
    
    
    2004
    
    
    As restatedAs restated
    
    
    As restated
    
    
    As restated

    
    
    (In thousands, except(In millions, except per share amount)
    
    
    per share amount)Net income (loss) under Korean GAAP
    
    W
    (125,025
    )
    
    W
    (161,299
    )
    
    W
    13,046
    
    
    $
    12,604Adjustments:Development costs
    
    
    252
    
    
    
    (1,717
    )
    
    
    1,250
    
    
    
    1,208Interest capitalization
    
    
    
    
    
    
    3,168
    
    
    
    1,387
    
    
    
    1,340Stock compensation expense
    
    
    (2,890
    )
    
    
    
    
    
    
    
    
    
    
    Revenue recognition
    
    
    346
    
    
    
    346
    
    
    
    282
    
    
    
    272Bonds with stock warrants
    
    
    (37,328
    )
    
    
    (7,066
    )
    
    
    
    
    
    
    Changes in consolidated subsidiaries
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    Consolidation of SPE
    
    
    1,689
    
    
    
    155
    
    
    
    
    
    
    
    Amortization of goodwill
    
    
    425
    
    
    
    425
    
    
    
    738
    
    
    
    713Error corrections
    
    
    (4,654
    )
    
    
    4,390
    
    
    
    (1,854
    )
    
    
    (1,791
    )Deferred tax effect of current
years U.S.GAAP adjustments
    
    
    11,084
    
    
    
    89
    
    
    
    (2,545
    )
    
    
    (2,459
    )Valuation allowance against
deferred tax assets created by
U.S.GAAP adjustments
    
    
    (11,084
    )
    
    
    (89
    )
    
    
    2,545
    
    
    
    2,459(42,154
    )
    
    
    (299
    )
    
    
    1,803
    
    
    
    1,742Net loss under U.S.GAAP
    
    W
    (167,179
    )
    
    W
    (161,598
    )
    
    W
    14,849
    
    
    $
    14,346Basic and diluted income (loss) per
share under U.S.GAAP (in Korean won
and U.S. dollars)
    
    W
    (561
    )
    
    W
    (503
    )
    
    W
    32
    
    
    $
    0.031Shareholders equity under Korean GAAP
    
    W
    1,488,315
    
    
    W
    1,730,720
    
    
    W
    1,751,606
    
    
    $
    1,692,209Adjustments:Licensing cost paid by shareholders
    
    W
    35,250
    
    
    W
    35,250
    
    
    W
    35,250
    
    
    $
    34,055Development costs
    
    
    (999
    )
    
    
    (2,716
    )
    
    
    (1,466
    )
    
    
    (1,416
    )Interest capitalization
    
    
    
    
    
    
    3,168
    
    
    
    4,556
    
    
    
    4,401Loans to employees
    
    
    (12,900
    )
    
    
    (12,574
    )
    
    
    (12,067
    )
    
    
    (11,658
    )Bonds with stock warrants
    
    
    7,066
    
    
    
    
    
    
    
    
    
    
    
    Changes in consolidated subsidiaries
    
    
    (786
    )
    
    
    
    
    
    
    
    
    
    
    Consolidation of SPE
    
    
    2,159
    
    
    
    2,314
    
    
    
    
    
    
    
    Revenue recognition
    
    
    (628
    )
    
    
    (282
    )
    
    
    
    
    
    
    Goodwill
    
    
    425
    
    
    
    850
    
    
    
    1,589
    
    
    
    1,535Error corrections
    
    
    (3,468
    )
    
    
    922
    
    
    
    (932
    )
    
    
    (900
    )Deferred tax effect of U.S.GAAP
adjustments
    
    
    (11,823
    )
    
    
    (11,728
    )
    
    
    (10,724
    )
    
    
    (10,360
    )Valuation allowance against
deferred tax assets created by
U.S.GAAP adjustments
    
    
    11,823
    
    
    
    11,728
    
    
    
    10,724
    
    
    
    10,360Changes in minority interest
applying U.S.GAAP
    
    
    (145,477
    )
    
    
    (598
    )
    
    
    (3,215
    )
    
    
    (3,106
    )Minority interests under U.S.GAAP
    
    
    (19
    )
    
    
    (19
    )
    
    
    
    
    
    
    (119,377
    )
    
    
    26,315
    
    
    
    23,715
    
    
    
    22,911Shareholders equity under U.S.GAAP
    
    W
    1,368,938
    
    
    W
    1,757,035
    
    
    W
    1,775,321
    
    
    $
    1,715,120
 F-45




---



##### Table of Contents



Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)2003
    
    
    2004
    
    
    2004As restated
    
    
    As restated
    
    
    As restated(In millions)
    
    
    (In thousands)Current assetsCurrent assets under Korean GAAP
    
    W
    679,236
    
    
    W
    624,797
    
    
    $
    603,610U.S. GAAP adjustments:Short-term loans
    
    
    (9,618
    )
    
    
    (4,373
    )
    
    
    (4,225
    )Accrued income
    
    
    (5,036
    )
    
    
    
    
    
    
    Prepaid expenses
    
    
    5,041
    
    
    
    3,585
    
    
    
    3,463Consolidation of SPEs
    
    
    42,314
    
    
    
    
    
    
    
    Deferred income tax assets
    
    
    1,073
    
    
    
    170
    
    
    
    164Current assets under U.S. GAAP
    
    
    713,010
    
    
    
    624,179
    
    
    
    603,012Non-current assetsNon-current assets under Korean GAAP
    
    
    2,707,312
    
    
    
    2,560,453
    
    
    
    2,473,629U.S. GAAP adjustments:Long-term loans
    
    
    (4,135
    )
    
    
    (7,693
    )
    
    
    (7,431
    )Long-term prepaid expenses
    
    
    6,442
    
    
    
    4,210
    
    
    
    4,067Intangibles
    
    
    33,385
    
    
    
    35,374
    
    
    
    34,174Interest capitalization
    
    
    3,168
    
    
    
    4,554
    
    
    
    4,400Consolidation of SPEs
    
    
    (9,000
    )
    
    
    
    
    
    
    Deferred income tax assets
    
    
    11,545
    
    
    
    11,213
    
    
    
    10,833Non-current assets under U.S. GAAP
    
    
    2,748,717
    
    
    
    2,608,111
    
    
    
    2,519,672Total assets based on U.S.GAAP
    
    W
    3,461,727
    
    
    W
    3,232,290
    
    
    $
    3,122,684Current liabilitiesCurrent liabilities under Korean GAAP
    
    W
    824,033
    
    
    W
    742,510
    
    
    $
    717,332U.S.GAAP adjustments:Unearned income
    
    
    5,322
    
    
    
    3,585
    
    
    
    3,463Consolidation of SPEs
    
    
    24,784
    
    
    
    
    
    
    
    Error corrections
    
    
    (922
    )
    
    
    932
    
    
    
    900Deferred income tax liabilities
    
    
    1,073
    
    
    
    170
    
    
    
    164Current liabilities under U.S. GAAP
    
    
    854,290
    
    
    
    747,197
    
    
    
    721,859Long-term liabilitiesLong-term liabilities under Korean GAAP
    
    
    831,795
    
    
    
    691,134
    
    
    
    667,698U.S.GAAP adjustments:Unearned income
    
    
    6,444
    
    
    
    4,210
    
    
    
    4,068Deferred income tax liabilities
    
    
    11,545
    
    
    
    11,213
    
    
    
    10,833Long-term liabilities under U.S. GAAP
    
    
    849,784
    
    
    
    706,557
    
    
    
    682,599Total liabilities based on U.S.GAAP
    
    W
    1,704,074
    
    
    W
    1,453,754
    
    
    $
    1,404,458Minority interests based on U.S.GAAP
    
    W
    618
    
    
    W
    3,215
    
    
    $
    3,106
 F-46




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##### Table of Contents



Korean Won2003
    
    
    2004Current
    
    
    
    
    
    
    Current(As restated)
    
    
    Non-current
    
    
    (As restated)
    
    
    Non-current(In millions)Deferred tax assets:Development costs
    
    W
    807
    
    
    W
    
    
    
    W
    403
    
    
    W
    Revenue recognition
    
    
    84
    
    
    
    
    
    
    
    
    
    
    
    Error correction
    
    
    
    
    
    
    
    
    
    
    256
    
    
    
    Total deferred income tax assets
    
    
    891
    
    
    
    
    
    
    
    659
    
    
    
    Valuation allowance
    
    
    182
    
    
    
    11,545
    
    
    
    (489
    )
    
    
    11,213Net deferred income tax assets
    
    
    1,073
    
    
    
    11,545
    
    
    
    170
    
    
    
    11,213Deferred tax liabilities:License fee
    
    
    
    
    
    
    (10,469
    )
    
    
    
    
    
    
    (9,694
    )Consolidation of SPEs
    
    
    (681
    )
    
    
    
    
    
    
    
    
    
    
    Interest capitalization
    
    
    (118
    )
    
    
    (823
    )
    
    
    (170
    )
    
    
    (1,082
    )Goodwill
    
    
    
    
    
    
    (253
    )
    
    
    
    
    
    
    (437
    )Error correction
    
    
    (274
    )
    
    
    
    
    
    
    
    
    
    
    Total deferred income tax liabilities
    
    
    (1,073
    )
    
    
    (11,545
    )
    
    
    (170
    )
    
    
    (11,213
    )Net deferred income tax assets
    
    W
    
    
    
    W
    
    
    
    W
    
    
    
    W
    
 W W
  Korean Won2002
    
    
    2003
    
    
    2004(In millions)Income tax currently payable
    
    W
    323
    
    
    W
    354
    
    
    W
    806Deferred income taxes
    
    
    127
    
    
    
    (52
    )
    
    
    (311
    )Income tax expense
    
    W
    450
    
    
    W
    302
    
    
    W
    495
  F-47




---



##### Table of Contents



Korean Won2002
    
    
    2003
    
    
    2004(In millions)Income tax benefit at statutory Korean
corporate income tax rate of 29.7% in 2002,
2003 and 2004
    
    W
    (48,113
    )
    
    W
    (49,184
    )
    
    W
    5,199Non-deductible meals and entertainment and other
    
    
    708
    
    
    
    1,143
    
    
    
    576Change in valuation allowance
    
    
    45,957
    
    
    
    47,692
    
    
    
    (4,928
    )Other
    
    
    1,898
    
    
    
    651
    
    
    
    (352
    )Actual income tax expense
    
    W
    450
    
    
    W
    302
    
    
    W
    495
 F-48




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##### Table of Contents



EXHIBIT INDEX
 Exhibits
    
    Description12.1.
    
    Section 302 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)12.2.
    
    Section 302 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)13.1.
    
    Section 906 Certifications required by Rule 13a-14(b) and 18 U.S.C. Section 1350