##### Table of Contents



As filed with the Securities and Exchange Commission on June 29, 2006
   UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 ___________________
 FORM 20-F
 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, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 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
Yeongdeungpo-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  ̈
   ̈ þ
   þ  ̈
  þ  ̈  ̈
   ̈ þ
   ̈ þ




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##### 



TABLE OF CONTENTS
 PageForward-Looking Statements
    
    
    3Item 1. Identity of Directors, Senior Management and Advisers
    
    
    4Item 2. Offer Statistics and Expected Timetable
    
    
    4Item 3. Key Information
    
    
    4Item 4. Information on the Company
    
    
    16Item 4A. Unresolved Staff Comments
    
    
    39Item 5. Operating and Financial Review and Prospects
    
    
    39Item 6. Directors, Senior Management and Employees
    
    
    56Item 7. Major Shareholders and Related Party Transactions
    
    
    64Item 8. Financial Information
    
    
    67Item 9. The Offer and Listing
    
    
    69Item 10. Additional Information
    
    
    72Item 11. Quantitative and Qualitative Disclosures about Market Risk
    
    
    91Item 12. Description of Securities Other Than Equity Securities
    
    
    92Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    93Item 14. Material Modifications of the Rights of Security Holders and Use of Proceeds
    
    
    93Item 15. Controls and Procedures
    
    
    93Item 16. [Reserved]
    
    
    93Item 16A. Audit Committee Financial Expert
    
    
    93Item 16B. Code of Ethics
    
    
    93Item 16C. Principal Accountant Fees and Services
    
    
    93Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    94Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    95Item 17. Financial Statements
    
    
    96Item 18. Financial Statements
    
    
    96Item 19. Exhibits
    
    
    96Glossary
    
    
    98Consolidated Financial Statements
    
    
    F-1EX-1.1 Articles of IncorporationEX-4.1 Memorandum dated Feb 6, 2006EX-4.2 Business Cooperation AgreementEX-11.1 Code of EthicsEX-12.1 Section 302 Certification of CEOEX-12.2 Section 302 Certification of CFOEX-13.1 Section 906 Certifications of Sec 1350
    2




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Forward-Looking Statements
      3




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PART I
 
 Item 1. Identity of Directors, Senior Management and Advisers.
  
 Item 2. Offer Statistics and Expected Timetable.
  
 Item 3. Key Information.
 A. Selected Financial Data
   Year ended December 312001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(millions of Won, except number of shares and per share data)Statements of Operations Data:Korean GAAP:Operating revenue
    
    Won
    830,721
    
    
    Won
    1,417,854
    
    
    Won
    1,383,486
    
    
    Won
    1,449,569
    
    
    Won
    1,589,345Voice revenue(1)
    
    
    114,529
    
    
    
    210,664
    
    
    
    248,964
    
    
    
    291,186
    
    
    
    375,253Leased line revenue(2)
    
    
    17,706
    
    
    
    111,813
    
    
    
    37,992
    
    
    
    39,717
    
    
    
    44,255Broadband revenue(3)
    
    
    641,544
    
    
    
    969,635
    
    
    
    982,693
    
    
    
    985,428
    
    
    
    1,074,387Other
    
    
    56,942
    
    
    
    125,742
    
    
    
    113,837
    
    
    
    133,238
    
    
    
    95,450Operating expenses
    
    
    1,012,924
    
    
    
    1,396,426
    
    
    
    1,312,792
    
    
    
    1,335,639
    
    
    
    1,550,823Operating income (loss)
    
    
    (182,203
    )
    
    
    21,428
    
    
    
    70,694
    
    
    
    113,930
    
    
    
    38,522Non-operating expenses, net
    
    
    (78,194
    )
    
    
    (149,106
    )
    
    
    (231,606
    )
    
    
    (100,081
    )
    
    
    (230,309
    )Ordinary income (loss) before
income tax
    
    
    (260,397
    )
    
    
    (127,678
    )
    
    
    (160,912
    )
    
    
    13,849
    
    
    
    (210,805
    )Income tax expense
    
    
    (35
    )
    
    
    (1,083
    )
    
    
    (302
    )
    
    
    (495
    )
    
    
    (434
    )Minority interest share of loss
(income)
    
    
    2,941
    
    
    
    3,736
    
    
    
    (85
    )
    
    
    (308
    )
    
    
    1,921Net income (loss)
    
    Won
    (257,491
    )
    
    Won
    (125,025
    )
    
    Won
    (161,299
    )
    
    Won
    13,046
    
    
    Won
    (209,318
    )Weighted average number of
shares outstanding (in
thousands)  Basic
    
    
    285,440
    
    
    
    298,251
    
    
    
    321,310
    
    
    
    462,135
    
    
    
    462,135Weighted average number of
shares outstanding (in
thousands)  Diluted
    
    
    285,440
    
    
    
    298,251
    
    
    
    321,310
    
    
    
    462,135
    
    
    
    462,135Basic and diluted earnings
(loss) per share of common
share and ADS(4)
    
    Won
    (902
    )
    
    Won
    (419
    )
    
    Won
    (502
    )
    
    Won
    28
    
    
    Won
    (453
    )Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    U.S. GAAP:Net income (loss)
    
    Won
    (251,382
    )
    
    Won
    (167,179
    )
    
    Won
    (161,598
    )
    
    Won
    14,849
    
    
    Won
    (203,212
    )Basic and diluted earnings
(loss) per share of common share
and ADS(4)
    
    Won
    (1,762
    )
    
    Won
    (1,122
    )
    
    Won
    (1,006
    )
    
    Won
    64
    
    
    Won
    (879
    )
 4




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As of December 312001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(millions of Won)Balance Sheet Data:Korean GAAP:Working capital(5)
    
    Won
    (331,119
    )
    
    Won
    (882,991
    )
    
    Won
    (144,797
    )
    
    Won
    (117,713
    )
    
    Won
    (191,802
    )Property and equipment, net
    
    
    3,146,589
    
    
    
    3,134,314
    
    
    
    2,550,921
    
    
    
    2,372,845
    
    
    
    2,337,884Total assets
    
    
    4,104,265
    
    
    
    4,104,785
    
    
    
    3,386,548
    
    
    
    3,185,112
    
    
    
    3,034,260Net assets
    
    
    1,541,209
    
    
    
    1,488,315
    
    
    
    1,730,720
    
    
    
    1,751,606
    
    
    
    1,573,080Long-term indebtedness(6)
    
    
    1,896,839
    
    
    
    2,128,703
    
    
    
    1,157,582
    
    
    
    1,034,739
    
    
    
    993,690Capital stock
    
    
    1,320,000
    
    
    
    1,396,613
    
    
    
    2,310,676
    
    
    
    2,310,676
    
    
    
    2,310,676Total shareholders equity
    
    
    1,541,209
    
    
    
    1,488,315
    
    
    
    1,730,720
    
    
    
    1,751,606
    
    
    
    1,573,080Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    U.S. GAAP:Property and equipment, net
    
    
    2,727,091
    
    
    
    2,703,850
    
    
    
    2,554,089
    
    
    
    2,377,399
    
    
    
    2,343,979Total assets
    
    
    3,672,451
    
    
    
    3,678,342
    
    
    
    3,461,727
    
    
    
    3,232,152
    
    
    
    3,086,105Total shareholders equity
    
    
    1,450,686
    
    
    
    1,368,938
    
    
    
    1,757,035
    
    
    
    1,775,321
    
    
    
    1,601,800
 
 (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. Basic and diluted earnings (loss) per
share under U.S. GAAP for the years ended December 31, 2001, 2002, 2003, 2004 and 2005,
respectively, were calculated reflecting the effect from the reverse stock split that occurred
on May 3, 2006.(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. As of December 31,
    
    
    As ofApril 30,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006Other Data:Subscribers(1)
    
    
    2,747,768
    
    
    
    3,817,378
    
    
    
    3,727,144
    
    
    
    4,162,207
    
    
    
    4,294,276
    
    
    
    5,157,881Corporate leased lines(2)
    
    
    3,216
    
    
    
    6,709
    
    
    
    6,480
    
    
    
    6,057
    
    
    
    7,958
    
    
    
    8,080Employees
    
    
    1,519
    
    
    
    1,576
    
    
    
    1,489
    
    
    
    1,532
    
    
    
    1,461
    
    
    
    1,467Network route kilometers-owned(3).
    
    
    8,804
    
    
    
    12,425
    
    
    
    15,317
    
    
    
    17,051
    
    
    
    19,826
    
    
    
    20,258Network route kilometers-leased(4)
    
    
    2,991
    
    
    
    5,487
    
    
    
    5,821
    
    
    
    7,429
    
    
    
    5,485
    
    
    
    9,487Office buildings connected with fiber optic
lines
    
    
    1,608
    
    
    
    2,978
    
    
    
    3,131
    
    
    
    3,216
    
    
    
    3,466
    
    
    
    3,544Apartment complexes connected with fiber
optic lines
    
    
    4,972
    
    
    
    6,470
    
    
    
    7,291
    
    
    
    7,899
    
    
    
    9,028
    
    
    
    9,109Switches installed (voice)
    
    
    37
    
    
    
    38
    
    
    
    38
    
    
    
    43
    
    
    
    45
    
    
    
    45Switches installed (data)(5)
    
    
    156
    
    
    
    161/140
    
    
    
    161/149
    
    
    
    161/168
    
    
    
    161/161
    
    
    
    161/267
 
 (1)
    
    Subscribers include broadband Internet and voice subscriber numbers. As of the end of 2005,
the number of residential and corporate subscribers was 3,986,462 and 307,814, respectively.
Since 2006, we have counted subscribers without classifying
them into residential and corporate subscribers. Subscriber numbers for previous years reflect
this new counting method. 5




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(2)
    
    The 7,958 leased lines in service as of December 31, 2005 included 3,060 individual Internet
dedicated lines connected to corporate subscribers and 4,898 individual traditional leased
lines connected to corporate subscribers. The 8,080 leased lines in service as of April 30,
2006 included 3,215 individual Internet dedicated lines connected to corporate subscribers and
4,865 individual traditional leased lines connected to corporate subscribers.(3)
    
    Network route kilometersowned includes owned fiber optic lines within cities we service,
including fiber optic last-mile connections.(4)
    
    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)
    
    Information as of December 31, 2002, 2003, 2004, 2005 and April 30, 2006 represents the
number of ATM/routers installed. The 267 routers as of April 30, 2006 included 110 routers
previously used by Thrunet, with which we merged on January 1, 2006. Exchange Rate Information
  Year ended December 31,
    
    At End of Period
    
    
    Average Rate(1)
    
    
    High
    
    
    Low(Won per U.S.$1.00)2001
    
    Won
    1,313.50
    
    
    Won
    1,293.40
    
    
    Won
    1,369.00
    
    
    Won
    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
    
    
    1,010.00
    
    
    
    1,023.20
    
    
    
    1,059.80
    
    
    
    997.002006 (through June 26)
    
    
    959.20
    
    
    
    958.08
    
    
    
    1,002.90
    
    
    
    927.40
 Month ending
    
    At end of period
    
    
    High
    
    
    Low(Won per U.S.$1.00)December 31, 2005
    
    Won
    1,010.00
    
    
    Won
    1,036.90
    
    
    Won
    1,009.00January 31, 2006
    
    
    958.90
    
    
    
    1,002.90
    
    
    
    958.90February 28, 2006
    
    
    970.90
    
    
    
    976.30
    
    
    
    962.00March 31, 2006
    
    
    971.40
    
    
    
    981.95
    
    
    
    966.80April 30, 2006
    
    
    942.80
    
    
    
    970.40
    
    
    
    939.60May 31, 2006
    
    
    945.30
    
    
    
    951.50
    
    
    
    927.40
 
 (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
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financial statements and related notes and 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.
 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
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Targeted benefits from our merger with Korea Thrunet Co., Ltd., or Thrunet, may not be
achieved if the remaining integration work does not proceed as planned or if an unexpected change
in the regulatory environment occurs
  We may not be able to maintain our current broadband subscriber base which amounts to about
3.6 million subscribers because of severe competition in Koreas broadband market
  The telecommunications industry is capital intensive and subject to rapid changes in
technology
  8




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The Government has had, and continues to have, significant control and influence over the
development of the telecommunications industry in Korea
    Our licenses from the MIC are subject to certain conditions and may be subject to future
conditions imposed by the MIC
  9




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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
   10




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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
  We may be liable for information disseminated over our Internet services network
  11




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We could be adversely affected if we experience a failure of our equipment
  We could be subject to liability and regulatory action arising from claims or other actions
relating to our handling of subscriber information.
   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;
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
    
    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
    
    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
  13




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Koreas new legislation allowing class action suits related to securities transactions may
expose us to additional litigation risk
  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
  14




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Additional restrictions on acquiring a large stake in our common shares imposed by Korean law
may depress the market price of our common shares
  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
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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
  
 Item 4. Information on the Company.
 A. History and Development of the Company.
   
    
    In October 1997, we received our perpetual license to provide fixed-link local
telephone service on a nationwide basis in Korea.
    
    In June 1998, we registered as a specific service provider to resell or provide the
same type of telecommunications services as those of domestic or foreign network
service providers.
    
    In April 1999, we launched our local call and high-speed Internet access services
in Seoul, Busan, Inchon and Ulsan.
    
    In March 2000, we successfully completed a global offering of our ADSs on the
NASDAQ National Market.
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
    
    In January 2003, we received a perpetual license to provide long distance telephony
services, including inter-city and international services.
    
    In June 2003, we commenced providing fixed line number portability service.
    
    In November 2003, we issued new shares to a consortium of investors led by AIG,
Newbridge and TVG having an aggregate value of Won 585 billion, as a result of which
they acquired an aggregate of 39.6% equity interest in us. AIF II NT, Ltd. and its
affiliate became our largest shareholder holding a 13.67% equity interest in us.
Following such new share issuance, there was a change in certain members of our
management. See Item 6. Directors, Senior Management and Employees.
    
    In July 2004, we launched hanarotelecom as our new corporate identity.
    
    On January 1, 2006, we completed an acquisition of Thrunet common shares
representing 96.22% of Thrunets outstanding common shares.
    
    On May 3, 2006, as a result of a reverse stock split (2:1) without payment to
shareholders, the number of our outstanding shares decreased to 231,767,506 shares.
   B. Business Overview.
 General
    17




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Recent Acquisitions and New Services
 Thrunet Acquisition
    TV-Portal Service
   18




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Our Services
  As of December 31,
    
    
    As of2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    May 31, 2006Broadband:VDSL
    
    
    
    
    
    
    165,134
    
    
    
    272,900
    
    
    
    344,988
    
    
    
    374,354ADSL
    
    
    1,294,368
    
    
    
    1,051,891
    
    
    
    823,539
    
    
    
    569,604
    
    
    
    508,578Cable Modem
    
    
    1,539,690
    
    
    
    1,459,319
    
    
    
    1,439,792
    
    
    
    1,416,744
    
    
    
    2,109,756Fiber optic LAN(1)
    
    
    
    
    
    
    
    
    
    
    157,808
    
    
    
    396,088
    
    
    
    589,862B-WLL
    
    
    43,468
    
    
    
    49,419
    
    
    
    54,895
    
    
    
    45,735
    
    
    
    9,432Subtotal
    
    
    2,877,526
    
    
    
    2,725,763
    
    
    
    2,748,934
    
    
    
    2,773,159
    
    
    
    3,591,982Voice lines
    
    
    939,852
    
    
    
    1,001,381
    
    
    
    1,413,273
    
    
    
    1521,117
    
    
    
    1,599,467Leased lines
    
    
    6,709
    
    
    
    6,480
    
    
    
    6,057
    
    
    
    7,958
    
    
    
    8,200Total
    
    
    3,824,087
    
    
    
    3,733,624
    
    
    
    4,168,264
    
    
    
    4,302,234
    
    
    
    5,199,649
 
 (1)
    
    Fiber optic LAN subscribers were counted as ADSL subscribers until 2005, since which they
have been counted separately.(2)
    
    Since 2006, we have counted broadband subscribers without classifying them into residential
and corporate subscribers. Subscriber numbers for previous years reflect this new counting
method.(3)
    
    The number of subscribers for 2005 (residential and corporate subscribers are counted
separately); As of December 31, 2005Broadband:Residential:VDSL
    
    
    344,871ADSL
    
    
    551,128Cable Modem
    
    
    1,415,900Fiber optic LAN
    
    
    396,088Corporate:VDSL
    
    
    117ADSL
    
    
    18,476Cable Modem
    
    
    844B-WLL
    
    
    11,482WLAN
    
    
    34,253Subtotal
    
    
    2,773,159Voice lines
    
    
    1521,117Leased lines
    
    
    7,958Total
    
    
    4,302,234
  Year ended December 31,2002
    
    
    2003
    
    
    2004
    
    
    2005(billions of Won)Broadband
    
    Won
    969.6
    
    
    Won
    982.7
    
    
    Won
    985.4
    
    
    Won
    1074.4Voice
    
    
    210.7
    
    
    
    249.0
    
    
    
    291.2
    
    
    
    375.2Leased line
    
    
    111.8
    
    
    
    38.0
    
    
    
    39.8
    
    
    
    44.2Others
    
    
    125.8
    
    
    
    113.8
    
    
    
    133.2
    
    
    
    95.5Total
    
    Won
    1,417.9
    
    
    Won
    1,383.5
    
    
    Won
    1,449.6
    
    
    Won
    1589.3
 19




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##### Table of Contents



Broadband
   Monthly ServiceService Package
    
    Technology
    
    Max Speed
    
    Charge(1)hanafos V Dream II
    
    VDSL
    
    50 Mbps
    
    Won
    43,000hanafos V Dream I
    
    VDSL
    
    20 Mbps
    
    
    40,000hanafos V Pro xDSL
    
    ADSL
    
    13 Mbps
    
    
    38,000hanafos Fiber LAN
    
    LAN
    
    100 Mbps
    
    
    33,000hanafos V Pro CATV
    
    Cable Modem
    
    10 Mbps
    
    
    34,000hanafos V Lite
    
    ADSL, Cable Modem
    
    4 Mbps
    
    
    28,000
 
 (1)
    
    There is a one-time installation fee of Won 30,000. Cable or DSL modems are rented for a
monthly fee of Won 8,000. Discounts on the monthly service charge are given to long-term
subscribers and range from 3.0% to 11.0%. Modem rental fees have in some circumstances been
waived or discounted by up to 40.0%. DSL (ADSL and VDSL) Services
  Fiber Optic LAN
  Cable Modem Services
  20




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##### Table of Contents



Wireless Services
  Voice
  Local Telephony
   Voice over Internet Protocol (VoIP) Services
  21




---



##### Table of Contents



Long Distance Telephony
  Leased Line Services
  Other
 Internet Data Center
  Internet and Related Support Services
  22




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##### Table of Contents



Sales, Marketing and Customer Service
 Sales
  Residential
  
    
    Customer Centers. We have agreements with 92 customer centers and 9 service
centers, most of which are located in Seoul. Service centers serve areas with
population densities that are lower than the areas served by the customer centers.
These customer and service centers sell our services exclusively and contributed to
approximately 30% of our total sales in 2005. These centers receive a commission for
each service contract and installation contract secured. In addition, we pay these
centers for the maintenance and repair work that they perform for our subscribers.
Customer and service centers often enter into sub-contracts with smaller distribution
outlets within their area to increase their sales coverage and sell through
telemarketing.
    
    Cable Television Network System Operators and Relay Operators. As of April 30,
2005, we have arrangements to sell our services with 50 cable television network
system operators and 30 relay operators. These arrangements form part of the
strategic alliances we have formed with these cable television network system
operators and relay operators (see CompetitionBroadband). The cable television
network system operators and relay operators in each of the areas covered by our cable
network leasing arrangements have the right to sell our services within their
respective areas. In the event a potential subscriber elects a non-cable service
(such as ADSL) that is available in that service area, the subscriber is referred to
one of our customer centers.
    
    Strategic Sales Distribution Channels.As of April 30, 2006, we have agreements
with 67 strategic sales distribution channels that own nationwide sales channels.
Sales through these channels accounted for 28% of our total sales in 2005. Strategic
sales distribution channels engage in sales activities for hanarotelecom using various
channels such as telemarketers and street vendors, and receive sales commissions based
on their sales performance. Currently, we are running a task force to improve the
sales channel management and the commission system, which is aimed at enhancing the
credibility and loyalty of sales distribution channels.
    
    Other Agents. We use individual sales agents and small sales agencies to sell our
services in our coverage areas. Our agents receive a sales commission for each new
subscriber.
 Corporate
  23




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##### Table of Contents



Others
  Marketing
  Broadband
 
    
    Strengthening service competitiveness by offering bundled services incorporating
broadband, voice and value-added services, as well as providing media content through
the TV-Portal service
    
    Occupying the 100Mbps market by accelerating network upgrades
    
    Overhauling our distribution channels by building up distribution channel capacity,
expanding direct acquisition channels and securing new distribution channels, which
will lead to a decrease in subscriber acquisition cost
 Voice
 
    
    Focusing on target marketing for about 2 million HFC subscribers of Hanaro and
Thrunet by utilizing fixed line number portability
    
    Planning to launch digital wired/wireless integrated voice services which support a
variety of value-added services including SMS in the third quarter of 2006
 General
 
    
    Achieving customer stabilization and business performance by raising brand
awareness and credibility through an integrated brand of Hanaro and Thrunet
    
    Improving service quality by increasing our call center response rate, improving
the customer complaint handling process and expanding operating hours
  Customer Service
  24




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##### Table of Contents



Relationship with Dreamline
  Information Systems and Billing
 Information Systems
    25




---



##### Table of Contents



Billing
   Competition
 Broadband
   26




---



##### Table of Contents



DSL (ADSL & VDSL)
  Cable Modem
  Voice
  27




---



##### Table of Contents



Leased Line Services
  Other
  28




---



##### Table of Contents



Licenses
 NSP License
  
    
    The licenses require us to make annual contributions to the Information Promotion
Fund for the purpose of research and development pursuant to the Telecommunications
Business Law. Only the NSPs whose total broadband, voice and leased line services
revenue amount for the preceding year was more than Won 30.0 billion (provided that
broadband revenue will only be counted towards this threshold from 2005 onwards), and
that realized a net profit in the preceding year, are required to make annual payments
for the purpose of research and development in the amount of 0.5% of the total
broadband, voice and leased line services revenue, to the extent that the amount of
such payment does not exceed the amount of the net profit for the preceding year. In
the case of a dominant operator, the amount is 0.75% of such revenue. The net
profit which the MIC will use in its determination of the amount of our contribution
is calculated using MIC accounting standards which differ in certain respects from
Korean GAAP.
    
    We must comply with the business plan submitted to the MIC in all material
respects. If necessary, the business plan may be revised in accordance with the
procedures set out in the Guidelines for Handling of Change of Business Plan of
Network Service Provider. The initial service fee must be in compliance with the
business plan. We must report to the MIC the general terms (including the service fee
of each service) together with supporting documentation.
  SSP License
  
    
    By utilizing our own switching facilities and other telecommunications facilities
owned by NSPs, resell or provide the same types of telecommunications services as
those of domestic NSPs.
 29




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##### Table of Contents




    
    By leasing telecommunications facilities owned by other NSPs without its own
switching facilities, resell the same types of telecommunications services as those of
domestic NSPs.
    
    By utilizing our own facilities, provide telecommunications services within a
specific building.
   Cable TV Network Operator License
   Wireless Frequency Allocation
 International Common Carrier Authorization in the United States
 Interconnection
  30




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##### Table of Contents



Type
    
    Name of ProvidersLocal
    
    KT; DacomDomestic long distance
    
    KT; Dacom; Onse Telecom; SK TelinkInternational
    
    KT; Dacom; Onse Telecom; SK TelinkInternet telephony
    
    KT; Dacom; SK Telink; SK Networks; DreamlineCellular
    
    SK TelecomInternet access(1)
    
    KT; Dacom; Onse Telecom; SK Networks; Dreamline; EPNPersonal communication service providers
    
    KT Freetel Co., Ltd.; LG Telecom Co., Ltd.
 
  Korean Telecommunications Laws and Regulations
 Overview
  Telecommunications Laws
   31




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##### Table of Contents




    
    type 1 reseller licenses for entities that have their own switching facilities and
resell or provide the Network Services;
    
    type 2 reseller licenses for entities that do not have their own switching
facilities and resell the Network Services; and
    
    intra-building telecommunications service provider licenses for entities that
provide telecommunications services within a specific building area through their own
facilities.
 Ownership Restrictions
  
    
    a foreign government or a foreigner may not own more than 49.0% of the aggregate
number of the entitys issued and outstanding voting shares, including
stock-equivalents and investment securities having voting powers such as depositary
receipts. For this purpose, an entity whose voting shares are held by a foreigner or
a foreign government that, together with specially-related parties, is the largest
shareholder and holds 15.0% or more of the total number of voting shares issued and
outstanding, is also deemed a foreigner; provided, that if such entity owned by a
foreigner or a foreign government holds less than 1.0% shares in the relevant NSP, it
is not regarded as a foreigner. In the event a foreign government or a foreigner
owns shares in excess of the shareholding restriction, the holders of shares in excess
of such limitations cannot exercise the voting rights with respect to the shares
exceeding such limitations, and the MIC may require the
foreigner who has acquired shares in violation of such restriction, the violating NSP or the shareholder of the
violating foreign entity to take corrective measures to comply with such restriction
within a grace period of six months. The MIC may also impose on a non-compliant
violator a mandatory performance fee within 3/1000th of the purchase price of the
share per day (or up to Won 0.1 billion for cases that do not relate to shareholding);
and
    
    under the Telecommunications Business Law, if an NSP that is subject to mandatory
interconnection requirement (currently, KT and SK Telecom), together with specially
related person(s), acquire shares in another NSP, which is subject to a mandatory
interconnection requirement, in excess of 5%, the acquiring NSP cannot exercise the
voting rights with respect to the shares exceeding such limitation, subject to certain
exceptions.
  
    
    owning 15% or more of total outstanding shares of the NSP in concert with
specially-related person(s);
    
    a change in the largest shareholder of the NSP;
 32




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##### Table of Contents




    
    the NSP or its shareholder entering into an agreement with a foreign government or
a foreigner on important business management matters, such as the appointment of
representative directors or officers of the NSP, the transfer of the NSPs business or
engaging in a new Network Service by the NSP; or
    
    an agreement by shareholders of the NSP (none of which is the largest shareholder)
to exercise their voting rights in concert so that there is a de facto change in the
management of the NSP.
   Authority of the MIC and the Communications Commission
    33




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Designation of a Dominant Operator
    Licensing
  Frequency Allocation
  Bundling of Services
  34




---



##### Table of Contents



Other Laws
   Monopoly Regulation and Fair Trade
    Intellectual Property
  C. Organizational Structure
  35




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##### Table of Contents



Percentage ofOwnership andVoting Interestheld byJurisdiction of
    
    
    hanarotelecom as ofName
    
    Incorporation
    
    
    May 31, 2006Hanaro Realty Development & Management Co., Ltd
    
    Korea
    
    
    99.99
    %Hanaro T&I
    
    Korea
    
    
    99.99Hanaro Dream(1)
    
    Korea
    
    
    57.02Hanaromedia(2)
    
    Korea
    
    
    65.00
 
 (1)
    
    In July 2004, we purchased 57.02% of Hanaro Dreams total issued and outstanding shares from
Dreamline and other major shareholders of Hanaro Dream.(2)
    
    On March 13, 2006, we purchased shares of CelrunTV for Won 5.5 billion , and on May 2, 2006,
acquired additional shares of CelrunTV for Won 6.5 billion. CelrunTV changed its name to
hanaromedia, Inc.   D. Property, Plants and Equipment
 Facilities
     36




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##### Table of Contents



Network
  Backbone Network
  Deployment of Gigabit IP Network over WDM Backbone Systems
 CCS7 Signaling Method
 V5.2 Protocol to Increase Voice Network Efficiency
   37




---



##### Table of Contents



Bandwidth CapacityConnecting Points
    
    Providers
    
    Quantity
    
    Acquisition Cost(billions of Won ormillions of U.S. dollars)Korea  US
    
    Iljin C2C Ltd.; Onse Telecom; Asia
    
    30 x STM-1
    
    $49Global Crossing; Dacom Crossing;
    
    6 x STM-4Flag Telecom; DacomKorea  Japan
    
    Iljin C2C; Teleglobe Dacom;
    
    14 x STM-1
    
    $19.8Teleglobe Onse Telecom
    
    1 x E-1Korea  Hong Kong
    
    Onse Telecom
    
    19,158km
    
    $1.2HGC
    
    
    
    $2.5Japan  US
    
    Teleglobe; Metromedia Fiber Network
    
    3 x STM-1
    
    $1.3Japan  US
    
    Cable Network
    
    2 x STM-1
    
    $5.8Korea  Vietnam
    
    Dacom
    
    2 x Half E-1
    
    Won0.2Korea  Belgium
    
    Dacom
    
    2 x Half E-1
    
    Won0.2Korea  Singapore
    
    Iljin C2C
    
    1 x Half STM-1
    
    $0.4Korea  China
    
    Enterprise Networks
    
    1 x Half STM-1
    
    $1.0US  UK
    
    France Telecom; British Telecom;
    
    4 x STM-1
    
    $0.9Onse Telecom; FLAG Telecom
    
    1 x DS-31 x STM-4
 
 (1)
    
    Each STM-1 represents a bandwidth capacity of 155 Mbps.(2)
    
    Each E-1 represents a bandwidth capacity of 2 Mbps.(3)
    
    Each STM-4 represents a bandwidth capacity of 622 Mbps.    Fiber to the Office and the Curb
  DSL
 Ethernet (LAN)
 38




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##### Table of Contents



Internet Direct service
 Hybrid Fiber Coaxial
    Wireless Connections
   
 Item 4A. Unresolved Staff Comments.
  
 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 differ in significant respects from U.S. GAAP. Our consolidated financial statements
for the years ended December 31, 2003, 2004 and 2005 have been reconciled to U.S. GAAP (see note 28
to our
 39




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##### Table of Contents



consolidated financial statements included 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, 2003, 2004 and 2005,
included in this Annual Report.
 A. Operating Results
 Overview
   Year Ended December 31,2004
    
    
    2005Revenue:Broadband
    
    
    68.0
    %
    
    
    67.6
    %Voice
    
    
    20.1
    
    
    
    23.6Leased Line
    
    
    2.7
    
    
    
    2.8Others
    
    
    9.2
    
    
    
    6.0Total
    
    
    100.0
    %
    
    
    100.0
    %
     40




---



##### Table of Contents



Significant Factors Affecting Our Results of Operations
 Factors Directly Affecting Revenues
  Subscriber Growth
 Broadband
 Voice
 Revenue per Subscriber
  Competition and Pricing
  41




---



##### Table of Contents



Customer Churn
  Extensive Governmental Regulation
   Rapid Technological Change
  Critical Accounting Estimates and Judgments
  42




---



##### Table of Contents



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
  Impairment of investments in non-listed equity securities
  43




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##### Table of Contents



Impairment of goodwill
   U.S. GAAP Reconciliation
         Results of Operations
 Year ended December 31, 2005 compared to year ended December 31, 2004
 Operating Revenues
   44




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##### Table of Contents



Year Ended December 31,2004
    
    
    2005Revenue:
    
    (billions of Won)Broadband
    
    Won
    985.4
    
    
    Won
    1,074.4Voice
    
    
    291.2
    
    
    
    375.3Leased Line
    
    
    39.8
    
    
    
    44.3Others
    
    
    133.2
    
    
    
    95.5Total
    
    Won
    1,449.6
    
    
    Won
    1,589.3
    Operating Expenses
   Year Ended December 31,2004
    
    
    2005(billions of Won)Salaries and wages
    
    Won
    103.0
    
    
    Won
    122.8Provision for severance indemnities
    
    
    14.1
    
    
    
    14.9Welfare
    
    
    25.0
    
    
    
    26.0Rent
    
    
    6.1
    
    
    
    9.3Taxes and dues
    
    
    7.4
    
    
    
    8.2Depreciation
    
    
    442.3
    
    
    
    498.1Advertising
    
    
    39.5
    
    
    
    30.1Ordinary research and development cost
    
    
    4.0
    
    
    
    4.4Utilities
    
    
    22.0
    
    
    
    26.8Telecommunication equipment lease expenses
    
    
    140.8
    
    
    
    164.4Bad debt
    
    
    29.9
    
    
    
    19.1Maintenance
    
    
    51.5
    
    
    
    59.3Selling expenses
    
    
    6.8
    
    
    
    10.8Sales commissions
    
    
    178.4
    
    
    
    249.7Interconnection charges
    
    
    142.0
    
    
    
    164.7Commissions
    
    
    68.5
    
    
    
    84.6Outsourcing services
    
    
    24.7
    
    
    
    30.8Other
    
    
    29.7
    
    
    
    26.7Total
    
    Won
    1,335.6
    
    
    Won
    1,550.8
  45




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##### Table of Contents



Operating Income
  Non-Operating Income
   Year Ended December 31,2004
    
    
    2005Non-Operating Income:
    
    (billions of Won)Interest income
    
    Won
    18.5
    
    
    Won
    16.6Gain on disposal of short-term investment securities
    
    
    
    
    
    
    Gain on disposal of long-term investment securities
    
    
    0.1
    
    
    
    0.4Gain on disposal of investment securities using the equity method
    
    
    
    
    
    
    25.4Gain on disposal of property and equipment
    
    
    0.9
    
    
    
    4.0Gain on foreign currency transactions
    
    
    1.4
    
    
    
    8.9Gain on foreign currency translation
    
    
    33.8
    
    
    
    11.7Gain on early redemption of debentures
    
    
    
    
    
    
    Gain on valuation of forward exchange contract
    
    
    
    
    
    
    Gain on transaction of forward exchange contract
    
    
    0.2
    
    
    
    Other
    
    
    7.2
    
    
    
    16.2Total
    
    Won
    62.2
    
    
    Won
    83.2
  46




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##### Table of Contents



Non-Operating Expenses
   Year Ended December 31,2004
    
    
    2005Non-Operating Expenses:
    
    (billions of Won)Interest expense
    
    Won
    100.9
    
    
    Won
    98.8Asset Backed Securities payable expense
    
    
    0.5
    
    
    
    Loss on foreign currency transactions
    
    
    0.4
    
    
    
    0.3Loss on foreign currency translation
    
    
    0.0
    
    
    
    1.1Loss on disposal of short-term investment securities
    
    
    0.9
    
    
    
    0.0Loss on disposal of long-term investment securities
    
    
    0.0
    
    
    
    1.4Loss on valuation of trading securities
    
    
    
    
    
    
    Impairment loss on short-term investment securities
    
    
    0.5
    
    
    
    1.1Impairment loss on long-term investment securities
    
    
    2.5
    
    
    
    4.0Donations
    
    
    0.3
    
    
    
    0.3Loss on early redemption of debentures
    
    
    
    
    
    
    0.2Loss on early redemption of long-term debt
    
    
    
    
    
    
    2.2Loss on redemption of long-term obligation under capital leases
    
    
    
    
    
    
    0.0Loss on valuation using the equity method
    
    
    
    
    
    
    Loss on disposal of property and equipment
    
    
    1.2
    
    
    
    2.2Loss on disuse of property and equipment
    
    
    20.7
    
    
    
    60.6Loss on valuation of forward exchange contract
    
    
    34.0
    
    
    
    19.8Loss on transaction of forward exchange contract
    
    
    0.2
    
    
    
    Impairment loss on intangibles
    
    
    0.0
    
    
    
    79.6Other bad debt
    
    
    
    
    
    
    12.1Non-operating expenseother
    
    
    
    
    
    
    22.0Other
    
    
    0.9
    
    
    
    7.6Total
    
    Won
    162.3
    
    
    Won
    313.5
     Net Income (Loss)
  47




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##### Table of Contents



Year ended December 31, 2004 compared to year ended December 31, 2003
 Operating Revenues
   Year Ended December 31,2003
    
    
    2004Revenue:
    
    (billions of Won)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
    Operating Expenses
   Year Ended December 31,2003
    
    
    2004(billions of Won)Salaries and wages
    
    Won
    92.4
    
    
    Won
    103.0Provision for severance indemnities
    
    
    13.4
    
    
    
    14.1Welfare
    
    
    19.4
    
    
    
    25.0Rent
    
    
    14.7
    
    
    
    6.1Taxes and dues
    
    
    8.3
    
    
    
    7.4Depreciation
    
    
    428.5
    
    
    
    442.3Advertising
    
    
    27.5
    
    
    
    39.5
 48




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##### Table of Contents



Year Ended December 31,2003
    
    
    2004(billions of Won)Ordinary research and development cost
    
    Won
    4.9
    
    
    Won
    4.0Utilities
    
    
    19.5
    
    
    
    22.0Telecommunication equipment lease expenses
    
    
    165.7
    
    
    
    140.8Bad debt
    
    
    25.7
    
    
    
    29.9Maintenance
    
    
    42.6
    
    
    
    51.5Selling expenses
    
    
    6.4
    
    
    
    6.8Sales commissions
    
    
    196.0
    
    
    
    178.4Interconnection charges
    
    
    131.1
    
    
    
    142.0Commissions
    
    
    70.9
    
    
    
    68.5Outsourcing services
    
    
    20.5
    
    
    
    24.7Other
    
    
    25.3
    
    
    
    29.7Total
    
    Won
    1312.8
    
    
    Won
    1335.6
   Operating Income
  Non-Operating Income
   Year Ended December 31,2003
    
    
    2004Non-Operating Income:
    
    (billions of Won)Interest income
    
    Won
    18.5
    
    
    Won
    18.5Gain on disposal of short-term investment securities
    
    
    0.3
    
    
    
    Gain on disposal of long-term investment securities
    
    
    0.1
    
    
    
    0.1Gain on disposal of investment securities using the equity method
    
    
    
    
    
    
    Gain on disposal of property and equipment
    
    
    1.1
    
    
    
    0.9Gain on foreign currency transactions
    
    
    0.3
    
    
    
    1.4Gain on foreign currency translation
    
    
    0.0
    
    
    
    33.8Gain on early redemption of debentures
    
    
    0.9
    
    
    
    Gain on valuation of forward exchange contract
    
    
    0.2
    
    
    
    Gain on transaction of forward exchange contract
    
    
    0.3
    
    
    
    0.2Other
    
    
    5.3
    
    
    
    7.2Total
    
    Won
    27.0
    
    
    Won
    62.2
 49




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##### Table of Contents



Non-Operating Expenses
   Year Ended December 31,2003
    
    
    2004Non-Operating Expenses:
    
    (billions of Won)Interest expense
    
    
    Won 139.3
    
    
    
    Won 100.9Asset Backed Securities payable expense
    
    
    9.0
    
    
    
    0.5Loss on foreign currency transactions
    
    
    0.8
    
    
    
    0.4Loss on foreign currency translation
    
    
    0.1
    
    
    
    0.0Loss on disposal of short-term investment securities
    
    
    2.1
    
    
    
    0.9Loss on disposal of long-term investment securities
    
    
    
    
    
    
    0.0Loss on valuation of trading securities
    
    
    0.3
    
    
    
    Impairment loss on short-term investment securities
    
    
    0.9
    
    
    
    0.5Impairment loss on long-term investment securities
    
    
    3.4
    
    
    
    2.5Donations
    
    
    0.8
    
    
    
    0.3Loss on early redemption of debentures
    
    
    0.3
    
    
    
    Loss on early redemption of long-term debt
    
    
    
    
    
    
    Loss on redemption of long-term obligation under capital leases
    
    
    
    
    
    
    Loss on valuation using the equity method
    
    
    23.1
    
    
    
    Loss on disposal of property and equipment
    
    
    1.3
    
    
    
    1.2Loss on disuse of property and equipment
    
    
    61.3
    
    
    
    20.7Loss on valuation of forward exchange contract
    
    
    
    
    
    
    34.0Loss on transaction of forward exchange contract
    
    
    
    
    
    
    0.2Impairment loss on intangibles
    
    
    
    
    
    
    0.1Other bad debt
    
    
    
    
    
    
    Non-operating expense-other
    
    
    4.5
    
    
    
    Other
    
    
    11.1
    
    
    
    0.9Total
    
    
    Won 258.6
    
    
    
    Won 162.3
  Net Income (Loss)
  50




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##### Table of Contents



Impact of Inflation
  Impact of Foreign Currency Fluctuations
  B. Liquidity and Capital Resources
     Cash Flows
  Year ended December 31,2003
    
    
    2004
    
    
    2005(in billions of Won)Cash flows from operating activities
    
    
    Won 303.0
    
    
    
    Won 469.9
    
    
    
    Won 489.1Cash flows from investing activities
    
    
    (250.8
    )
    
    
    (209.2
    )
    
    
    (574.6
    )Cash flows from financing activities
    
    
    (135.1
    )
    
    
    (294.9
    )
    
    
    (48.4
    )
 51




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##### Table of Contents



Equity Investment
  Long Term Indebtedness and Capital Lease Payments
  Balance
    
    
    Payments due duringDecember 31,
    
    
    Year ended December 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010(in billions of Won and millions of U.S. dollars)Korean corporate debentures
    
    Won
    190.0
    
    
    Won
    190.0.
    
    
    Won
    
    
    
    Won
    
    
    
    Won
    
    
    
    Won
    Global corporate debentures(1)
    
    $
    500.0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Syndicated loan:Won
    
    
    79.8
    
    
    
    
    
    
    
    19.2
    
    
    
    22.3
    
    
    
    25.5
    
    
    
    12.8Dollar
    
    $
    201.8
    
    
    $
    30.3
    
    
    $
    80.7
    
    
    $
    90.8
    
    
    $
    
    
    
    $
    Capital leases
    
    Won
    39.4
    
    
    Won
    26.7
    
    
    Won
    12.3
    
    
    Won
    0.4
    
    
    Won
    
    
    
    Won
    Total  Won
    
    Won
    309.2
    
    
    Won
    216.7
    
    
    Won
    31.5
    
    
    Won
    22.7
    
    
    Won
    25.5
    
    
    Won
    12.8 Dollar
    
    $
    701.8
    
    
    $
    30.3
    
    
    $
    80.7
    
    
    $
    90.8
    
    
    $
    
    
    
    $
    
 
 (1)
    
    The maturity for the $500 million aggregate principal amount of global bond is February 2012.  52




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##### Table of Contents



Korean Corporate Debentures
 Global Corporate Debentures
 Senior Secured Credit Facility
 Capital Lease Agreements.
  
    
    Won 120 billion aggregate principal amount of Korean corporate debentures,
including Won 100 billion of prepayments;
    
    all outstanding amounts under the Information Promotion Fund loan amounting to Won
66.7 billion;
    
    Won 39.0 billion of the Won 40.0 billion outstanding amount 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
   53




---



##### Table of Contents



Capital Expenditures
  Year ended December 31,2002
    
    
    2003
    
    
    2004
    
    
    2005(in billions of Won)hanarotelecom:Backbone network
    
    
    Won 128.5
    
    
    
    Won 111.1
    
    
    
    Won 99.2
    
    
    
    Won 73.5Last mile connection
    
    
    205.9
    
    
    
    191.7
    
    
    
    135.0
    
    
    
    183.1Others
    
    
    27.9
    
    
    
    34.7
    
    
    
    47.5
    
    
    
    54.7Subtotal
    
    
    362.3
    
    
    
    337.5
    
    
    
    281.7
    
    
    
    311.3Consolidated subsidiaries
    
    
    58.4
    
    
    
    0.3
    
    
    
    0.8
    
    
    
    15.5Total
    
    
    Won 420.7
    
    
    
    Won 337.8
    
    
    
    Won 282.5
    
    
    
    Won 326.8
  54




---



##### Table of Contents



Other Contractual Obligations
     C. Research and Development, Patents and Licenses, etc.
  D. Trend Information
  E. Off-balance Sheet Arrangements
  55




---



##### Table of Contents



F. Tabular Disclosure of Contractual Obligations
  Payments due by periodTotal
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than 5 years(in billions of Won)Long-term debt obligations
    
    Won
    974.8
    
    
    Won
    220.4
    
    
    Won
    213.8
    
    
    Won
    38.3
    
    
    Won
    502.3Capital lease obligations
    
    
    39.4
    
    
    
    26.7
    
    
    
    12.7
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    0.8
    
    
    
    0.6
    
    
    
    0.2
    
    
    
    
    
    
    
    Purchase obligations
    
    
    30.3
    
    
    
    30.3
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    Won
    1,045.3
    
    
    Won
    278.0
    
    
    Won
    226.7
    
    
    Won
    38.3
    
    
    Won
    502.3
 G. Safe Harbor
  
 Item 6. Directors, Senior Management and Employees.
 A. Directors and Senior Management
  Name
    
    Age
    
    Position
    
    Nominated byByung-Moo Park
    
    
    44
    
    
    Representative
Director and Chief
Executive OfficerWilfried Kaffenberger
    
    
    61
    
    
    Non-standing Director
    
    AIG Asian Infrastructure Fund IIDavid Yeung
    
    
    56
    
    
    Non-standing Director
    
    AIG Asian Opportunity FundPaul Chen
    
    
    41
    
    
    Outside Director
    
    Outside Director Candidate Nominating CommitteeVarun Bery
    
    
    48
    
    
    Outside Director
    
    Outside Director Candidate Nominating CommitteeSung Kyou Park
    
    
    67
    
    
    Outside Director &
Chairman of Audit
Committee
    
    Outside Director Candidate Nominating CommitteeSun Woo Kim
    
    
    65
    
    
    Outside Director &
Member of Audit
Committee
    
    Outside Director Candidate Nominating CommitteeSteven J. Schneider
    
    
    47
    
    
    Outside Director
    
    Outside Director Candidate Nominating CommitteeAfshin Mohebbi
    
    
    43
    
    
    Outside Director
    
    Outside Director Candidate Nominating CommitteePeter Whang
    
    
    39
    
    
    Non-standing
Director & Member of
Audit Committee
    
    AIG Asian Infrastructure Fund II
 Byung-Moo Park
 Wilfried Kaffenberger
 56




---



##### Table of Contents



David Yeung
 Paul Chen
 Varun Bery
 Sung Kyou Park
 Sun Woo Kim
 Steven J. Schneider
 Afshin Mohebbi
 Peter Whang
 57




---



##### Table of Contents



Name
    
    Age
    
    PositionJin Ha Kim
    
    
    50
    
    
    Senior Executive Vice President and Chief Technology OfficerDominic A. Gomez
    
    
    51
    
    
    Senior Executive Vice President and Chief Operating OfficerSoon Man Hong
    
    
    47
    
    
    Senior Executive Vice President and Head of the Convergence HeadquartersEric Choi
    
    
    49
    
    
    Senior Executive Vice President and Head of the Sales Channel
Management HeadquartersMark D. Pitchford
    
    
    42
    
    
    Executive Vice President and Chief Marketing OfficerJanice Lee
    
    
    44
    
    
    Senior Executive Vice President and Chief Financial OfficerMatt Lee
    
    
    48
    
    
    Executive Vice President and Chief Business OfficerKyu Shik Shin
    
    
    49
    
    
    Executive Vice President and Head of the Corporate Business HeadquartersChong Hoon Park
    
    
    41
    
    
    Executive Vice President and Head of the External
Collaboration/Strategy HeadquartersYoung Bo Chang
    
    
    47
    
    
    Senior Vice PresidentGeon Jun Park
    
    
    48
    
    
    Senior Vice PresidentSang Hwan Oh
    
    
    48
    
    
    Senior Vice PresidentSeok Ho Lee
    
    
    52
    
    
    Senior Vice PresidentMyong Heon Choi
    
    
    48
    
    
    Senior Vice PresidentSang Jin Jeun
    
    
    41
    
    
    Senior Vice PresidentMarshall J. Cochrane
    
    
    63
    
    
    Senior Vice President and Chief Procurement OfficerKyoung Yu Min
    
    
    46
    
    
    Senior Vice PresidentYeon Ho Kim
    
    
    42
    
    
    Senior Vice PresidentMyung Joo Ko
    
    
    42
    
    
    Senior Vice PresidentBaeky Rhee
    
    
    45
    
    
    Senior Vice President
 Jin Ha Kim
 Dominic A. Gomez
 Soon Man Hong
 Eric Choi
 Mark D. Pitchford
 58




---



##### Table of Contents



Janice Lee
 Matt Lee
 Kyu Shik Shin
 Chong Hoon Park
 Young Bo Chang
 Geon Jun Park
 Sang Hwan Oh
 Seok Ho Lee
 Myung Heon Choi
 59




---



##### Table of Contents



Sang Jin Jeun
 Marshall J. Cochrane
 Kyung Yu Min
 Yeon Ho Kim
 Myung Ju Ko
 Baeky Rhee
   B. Compensation
   60




---



##### Table of Contents



C. Board Practices
 Board of Directors
 General
 Shareholders Agreement
  Audit Committee
  Remuneration Committee
 61




---



##### Table of Contents



Outside Directors.
   D. Employees
  As of December 31,2003
    
    2004
    
    2005Planning and management.
    
    
    169
    
    
    
    258
    
    
    
    171Information technology
    
    
    54
    
    
    
    55
    
    
    
    57Marketing and sales
    
    
    565
    
    
    
    480
    
    
    
    479Network and engineering.
    
    
    647
    
    
    
    684
    
    
    
    711Research and development
    
    
    54
    
    
    
    55
    
    
    
    43Total
    
    
    1,489
    
    
    
    1,532
    
    
    
    1,461
      62




---



##### Table of Contents



E. Share Ownership
  Stock Option Plan
       63




---



##### Table of Contents



Stock Ownership Association
   
 Item 7. Major Shareholders and Related Party Transactions.
 A. Major Shareholders
  Shares Beneficially Owned as ofDecember 31, 2005Name
    
    Number
    
    PercentAIG-Newbridge-TVG Consortium
    
    
    182,812,500
    
    
    
    39.56
    %SK Telecom
    
    
    22,090,000
    
    
    
    4.78Dacom and its affiliated companies
    
    
    18,727,291
    
    
    
    4.05Korea Investment and Trust Management Co., Ltd.
    
    
    15,993,227
    
    
    
    3.46Daewoo Securities
    
    
    12,000,000
    
    
    
    2.60Credit Suisse Financial
    
    
    6,054,513
    
    
    
    1.31
 64




---



##### Table of Contents



Shares Beneficially Owned as ofDecember 31, 2005Name
    
    Number
    
    PercentNTC-SAUDI ARAB MASTER FU
    
    
    4,999,155
    
    
    
    1.08
       B. Related Party Transactions
 Relationship with AIG-Newbridge-TVG Consortium
   Investors Rights Agreement
  65




---



##### Table of Contents



Management Rights Agreement
  Relationship with Dacom
   Relationship with SK chaebol
   Relationship with Cable Television Network System Operators
   66




---



##### Table of Contents



Relationship with Dreamline
  C. Interests of Experts and Counsel
  
 Item 8. Financial Information.
 A. Consolidated Statements and Other Financial Information
  Legal Proceedings
 Legal Proceeding related to Horizontal Collusion with other Telecommunications Companies
  67




---



##### Table of Contents



Legal Proceedings related to Internet Outage
     Legal Proceedings against CJ corporation
  68




---



##### Table of Contents



Other Legal Proceedings
  Dividend Policy
  B. Significant Changes
  
 Item 9. The Offer and Listing
 A. Offer and Listing Details
 Market Price Information
   69




---



##### Table of Contents



Price per share of
    
    
    Average dailyour common shares
    
    
    trading volume of
    
    
    KOSDAQ
    
    
    KOSPIHigh
    
    
    Low
    
    
    our shares
    
    
    High
    
    
    Low
    
    
    High
    
    
    LowYear ended December 312001
    
    Won
    5,580
    
    
    Won
    1,930
    
    
    
    6,508,725
    
    
    
    876.50
    
    
    
    460.50
    
    
    
    704.50
    
    
    
    468.762002
    
    
    7,850
    
    
    
    3,120
    
    
    
    5,082,647
    
    
    
    943.00
    
    
    
    436.70
    
    
    
    937.61
    
    
    
    584.042003
    
    
    4,420
    
    
    
    2,100
    
    
    
    6,339,993
    
    
    
    535.00
    
    
    
    346.40
    
    
    
    822.16
    
    
    
    515.242004
    
    
    3,650
    
    
    
    2,345
    
    
    
    2,073,122
    
    
    
    491.53
    
    
    
    324.71
    
    
    
    936.06
    
    
    
    719.592005
    
    
    3,585
    
    
    
    2,380
    
    
    
    3,471,167
    
    
    
    747.96
    
    
    
    390.40
    
    
    
    1379.37
    
    
    
    870.84Quarter EndedMarch 31, 2004
    
    
    3,650
    
    
    
    3,205
    
    
    
    1,956,487
    
    
    
    458.40
    
    
    
    420.28
    
    
    
    907.43
    
    
    
    821.26June 30, 2004
    
    
    3,350
    
    
    
    2,345
    
    
    
    2,623,955
    
    
    
    491.53
    
    
    
    361.17
    
    
    
    936.06
    
    
    
    728.98September 30, 2004
    
    
    3,325
    
    
    
    2,370
    
    
    
    1,798,398
    
    
    
    383.84
    
    
    
    324.71
    
    
    
    857.15
    
    
    
    719.59December 31, 2004
    
    
    3,640
    
    
    
    3,165
    
    
    
    1,930,121
    
    
    
    382.71
    
    
    
    350.70
    
    
    
    895.92
    
    
    
    808.14March 31, 2005
    
    
    3,585
    
    
    
    2,865
    
    
    
    3,192,942
    
    
    
    515.04
    
    
    
    390.40
    
    
    
    1,022.79
    
    
    
    870.84June 30, 2005
    
    
    2,880
    
    
    
    2,380
    
    
    
    2,049,783
    
    
    
    503.21
    
    
    
    423.30
    
    
    
    1,010.80
    
    
    
    911.30September 30, 2005
    
    
    2,920
    
    
    
    2,400
    
    
    
    5,136,015
    
    
    
    571.95
    
    
    
    492.66
    
    
    
    1,231.22
    
    
    
    1,018.02December 31, 2005
    
    
    2,860
    
    
    
    2,515
    
    
    
    3,443,690
    
    
    
    747.96
    
    
    
    573.19
    
    
    
    1,379.37
    
    
    
    1,140.72March 31, 2006
    
    
    3,000
    
    
    
    2,345
    
    
    
    5,240,090
    
    
    
    754.97
    
    
    
    601.33
    
    
    
    1,421.79
    
    
    
    1,297.43June 30, 2006 (through May 31)
    
    
    6,270
    
    
    
    2,600
    
    
    
    4,617,081
    
    
    
    704.57
    
    
    
    620.20
    
    
    
    1,464.70
    
    
    
    1,295.76Month EndedDecember 31, 2005
    
    
    2,665
    
    
    
    2,515
    
    
    
    3,666,427
    
    
    
    747.96
    
    
    
    688.23
    
    
    
    1,379.37
    
    
    
    1,305.98January 31, 2006
    
    
    3,000
    
    
    
    2,510
    
    
    
    7,593,154
    
    
    
    754.97
    
    
    
    601.33
    
    
    
    1,421.79
    
    
    
    1,297.43February 28, 2006
    
    
    2,720
    
    
    
    2,395
    
    
    
    5,895,930
    
    
    
    682.36
    
    
    
    639.92
    
    
    
    1,375.97
    
    
    
    1,303.84March 31, 2006
    
    
    2,690
    
    
    
    2,345
    
    
    
    2,397,764
    
    
    
    679.19
    
    
    
    637.41
    
    
    
    1,367.70
    
    
    
    1,309.83April 30, 2006
    
    
    3,090
    
    
    
    2,600
    
    
    
    5,218,837
    
    
    
    704.57
    
    
    
    677.28
    
    
    
    1,452.53
    
    
    
    1,379.75May 31, 2006
    
    
    6,270
    
    
    
    5,710
    
    
    
    3,187,909
    
    
    
    691.89
    
    
    
    620.20
    
    
    
    1,464.70
    
    
    
    1,295.76
    70




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##### Table of Contents



Average dailyPrice per share of our ADS
    
    
    trading volume ofHigh
    
    
    Low
    
    
    our sharesYear ended December 312001
    
    $
    8.40
    
    
    $
    2.84
    
    
    
    19,9702002
    
    
    11.36
    
    
    
    5.00
    
    
    
    4,4492003
    
    
    7.54
    
    
    
    3.48
    
    
    
    9,9812004
    
    
    8.76
    
    
    
    3.82
    
    
    
    19,8602005
    
    
    7.26
    
    
    
    4.50
    
    
    
    5,420Quarter EndedMarch 31, 2004
    
    
    8.76
    
    
    
    5.30
    
    
    
    40,812June 30, 2004
    
    
    5.74
    
    
    
    4.12
    
    
    
    15,710September 30, 2004
    
    
    5.98
    
    
    
    3.82
    
    
    
    16,844December 31, 2004
    
    
    6.88
    
    
    
    5.72
    
    
    
    6,598March 31, 2005
    
    
    7.26
    
    
    
    5.46
    
    
    
    7,016June 30, 2005
    
    
    5.80
    
    
    
    4.66
    
    
    
    7,495September 30, 2005
    
    
    5.80
    
    
    
    4.70
    
    
    
    2,842December 31, 2005
    
    
    5.36
    
    
    
    4.50
    
    
    
    4,384March 31, 2006
    
    
    6.00
    
    
    
    4.58
    
    
    
    3,903June 30, 2006 (through May 31)
    
    
    6.30
    
    
    
    4.58
    
    
    
    4,963Month Ended:December 31, 2005
    
    
    5.10
    
    
    
    4.50
    
    
    
    6,939January 31, 2006
    
    
    6.00
    
    
    
    4.80
    
    
    
    5,526February 28, 2006
    
    
    5.60
    
    
    
    4.62
    
    
    
    2,352March 31, 2006
    
    
    5.22
    
    
    
    4.58
    
    
    
    3,775April 30, 2006
    
    
    6.30
    
    
    
    5.20
    
    
    
    6,085May 31, 2006
    
    
    5.85
    
    
    
    4.58
    
    
    
    2,437
 B. Plan of Distribution
  C. Markets
   Description of KOSDAQ
  71




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##### Table of Contents



D. Selling Shareholders
  E. Dilution
  F. Expenses of the Issue
  
 Item 10. Additional Information.
 A. Share Capital
  B. Memorandum and Articles of Incorporation
  Objectives
  
    
    to play a leading role in the nations efforts to accomplish a society of
multimedia super-highway telecommunications industry by efficient performance of
telecommunications business;
    
    to establish and operate the nations second basic communication service network,
as a preparation against any national disaster or calamity, by establishing
diversified communication channels and an automatic recovery system; and
    
    to enhance the improvement of end users convenience and public welfare.
 72




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##### Table of Contents



General
   Directors
  Dividends
    Distribution of Free Shares
  73




---



##### Table of Contents



Preemptive Rights and Issuance of Additional Shares
     General Meeting of Shareholders
  
    
    as necessary;
    
    at the request of holders of an aggregate of 3% or more of our outstanding shares;
    
    at the request of shareholders holding an aggregate of 1.5% or more of our
outstanding shares for at least six months; or
    
    at the request of our audit committee.
  74




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##### Table of Contents



Voting Rights
   
    
    amending our Articles of Incorporation;
    
    removing a director;
    
    effecting a capital reduction;
    
    effecting any dissolution, merger or consolidation with respect to us;
    
    transferring all or any significant part of our business;
    
    the acquisition of all of the business of any other company;
    
    the acquisition of a part of the business of any other company, which significantly
affects our business;
    
    lease of entire business, delegation of business operations, or the execution,
modification or cancellation of agreements from which profit/losses shall affect both
parties;
    
    issuing new shares at a price below par value; or
    
    any other matters for which a resolution is required under relevant laws and regulations.
   75




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Rights of Dissenting Shareholders
  Register of Shareholders and Record Dates
   Annual Report
   Transfer of Shares
   76




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##### Table of Contents



Acquisition of Shares by hanarotelecom
   Liquidation Rights
  Inspection of Books and Records
  Effect of Korean Law
  B. Material Contracts
 Thrunet Acquisition Agreement
   77




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##### Table of Contents



Investment Agreement between hanarotelecom and an Investment Consortium led by AIG, Newbridge
and TVG
  Investors Rights Agreement
  Management Rights Agreement
  Indenture relating to 7% Notes due 2012
  Principal, Maturity and Interest
 78




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##### Table of Contents



Ranking
 Covenants
 Redemption
  Events of Default
  Secured Credit Facility Agreement
  
    
    a U.S. dollar denominated term loan facility in an aggregate amount equal to
U.S.$201,809,520, referred to as the Facility A Loan below,
 79




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##### Table of Contents




    
    a Korean Won denominated term loan facility in the aggregate amount equal to Won
250,047,620,000, referred to as the Facility B1 Loan below,
    
    a U.S. dollar denominated term loan facility in the aggregate amount equal to
U.S.$208,142,860, referred to as the Facility B2 Loan below, and
    
    a revolving credit facility in the aggregate amount equal to Won 60,000,000,000,
referred to as the Facility C Loan below.
 Repayment of Term Loans
 Change of Control
 Voluntary Cancellation
 Voluntary Prepayments
 
    
    First, towards prepayment of outstanding amounts under the Facility B1 Loan and
Facility B2 Loan on a pro rata basis according to their respective outstanding
amounts,
    
    Second, towards prepayment of outstanding amounts under the Facility A Loan, and
    
    Finally, towards prepayment of outstanding amounts under the Facility C Loan.
  Interest and Expenses
 Base Rate
    
    Margin(1)Facility A Loan
    
    3-month LIBOR
    
    
    1.850
    %Facility B1 Loan
    
    3-year A+-rated corporate bond base rate
    
    
    2.050
    %
 80




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##### Table of Contents



Base Rate
    
    Margin(1)Facility B2 Loan
    
    3-month LIBOR
    
    
    2.050
    %Facility C Loan
    
    91-day CD base rate
    
    
    2.075
    %
 
 (1)
    
    The margins may be adjusted by up to 0.75 percentage points if our credit rating is upgraded. Ranking
 Events of Default
 Covenants
 TV-Portal and IP-TV Business Cooperation Agreement among hanarotelecom, Celrun Co., Ltd. and
CelrunTV
   Provision of services.
 Exclusive use and provision of services.
 81




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##### Table of Contents



D. Exchange Controls
 General
   Reporting Requirements for Holders of Substantial Interests
   Restrictions Applicable to ADSs
   82




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Restrictions Applicable to Shares
  
    
    odd-lot trading of shares;
    
    acquisition of shares by exercise of warrant, conversion right under equity-linked
securities or withdrawal right under depositary receipts issued outside of Korea by a
Korean company (Converted Shares);
    
    acquisition of shares by foreign companies as a result of merger;
    
    acquisition of shares as a result of inheritance, donation, bequest or exercise of
shareholders rights, including preemptive rights or rights to participate in free
distributions and receive dividends;
    
    acquisition of shares offered and subscribed overseas for listing on foreign
securities exchanges;
    
    over-the-counter transactions between foreigners of a class of shares for which the
ceiling on aggregate acquisition by foreigners, as explained below, has been reached
or exceeded;
    
    acquisition of underlying shares by an overseas depositary in relation to the
issuance of depositary receipts;
    
    disposition of shares through the exercise of dissenting shareholders appraisal
right;
    
    acquisition of shares by direct investment pursuant to the Foreign Investment
Promotion Act and disposition of shares so acquired;
    
    acquisition or disposition of shares through a tender offer; and
    
    acquisition or disposition of shares through the electronic over-the-counter market
brokerage companies.
   83




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E. Taxation
 Korean Tax Considerations
  Dividends on the Shares or ADSs
  
    
    are an individual U.S. resident, a U.S. corporation or a partnership or trust to
the extent your income is subject to taxation in the United States as the income of a
U.S. resident;
    
    are not also a resident of Korea for purposes of the tax treaty between the United
States and Korea;
    
    are not subject to any anti-treaty shopping article that applies in limited
circumstances; and
 85




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
    
    do not hold ADSs in connection with the conduct of business in Korea through a
permanent establishment or the performance of independent personal services in Korea
through a fixed base.
   Taxation of Capital Gains
     86




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Inheritance Tax and Gift Tax
  Securities Transaction Tax
     U.S. Federal Income Tax Considerations
  87




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##### Table of Contents



Cash Distributions
   88




---



##### Table of Contents



Sale of Common Shares and ADSs
  89




---



##### Table of Contents



Securities Tax
  Backup Withholding
  Estate and Gift Tax
  F. Dividends and Paying Agents
  G. Statement by Experts
  H. Documents on Display
  90




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##### Table of Contents



I. Subsidiary Information.
  
 Item 11. Quantitative and Qualitative Disclosures about Market Risk.
  Interest Rate Risk
      Foreign Currency Risk
   91




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##### Table of Contents



Third Party Credit Risk
  
 Item 12. Description of Securities Other Than Equity Securities.
  92




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##### Table of Contents



PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies.
  
 Item 14. Material Modifications of the Rights of Security Holders and Use of Proceeds.
  
 Item 15. Controls and Procedures.
   
 Item 16. [Reserved]
 
 Item 16A. Audit Committee Financial Expert
   
 Item 16B. Code of Ethics
  
 Item 16C. Principal Accountant Fees and Services
  93




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2004
    
    
    2005(millions of Won)(a) Audit Fees(1)
    
    

    Won 370
    
    
    
    Won 410(b) Audit-Related Fees(2)
    
    
    85
    
    
    
    40(c) Tax Fees(3)
    
    
    
    
    

    (d) All Other Fees(4)
    
    
    
    
    
    
    50
 
 (1)
    
    Audit Fees consist of aggregate fees billed by Deloitte HanaAnjin LLC in connection with the
audit of our annual financial statements and the review of our interim financial statements.(2)
    
    Audit-related Fees consist of aggregate fees billed by Deloitte HanaAnjin LLC for advisory
services relating to analyses of multiple accounting issues .(3)
    
    Tax Fees consist of aggregate fees billed by Deloitte HanaAnjin LLC for the preparation of
income tax return and tax advisory services (of which there were none for 2004 and 2005).(4)
    
    All Other Fees include fees billed by Deloitte HanaAnjin LLC principally for due diligence
services relating to our call center and accounting assistance (of which there were none for
2004).  
 Item 16D. Exemptions from the Listing Standards for Audit Committees
     94




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Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  95




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PART III
 
 Item 17. Financial Statements.
  
 Item 18. Financial Statements.
  
 Item 19. Exhibits.
  Exhibits
    
    Description1.1.
    
    
    Articles of Incorporation, as amended on March 24, 2006 (English translation)4.1.
    
    
    Memorandum of Understanding between Celrun Inc. and Kim Young-min, hanarotelecom Inc. and
CelrunTV Inc., dated February 6, 2006 (English translation)4.2.
    
    
    Business Cooperation Agreement among hanarotelecom, inc., Celrun Co., Ltd. and CelrunTV,
dated March 6, 2006 (English translation)8.1.
    
    
    List of hanarotelecoms significant subsidiaries. (See Item 4.C. Organizational Structure.)11.1.
    
    
    Code of Ethics (English translation)12.1.
    
    
    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
 96




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##### Table of Contents



Signature
  hanarotelecom incorporatedBy:
    
    /s/ Janice LeeName:
    
    Janice LeeTitle:
    
    Senior Executive Vice Presidentand Chief Financial Officer
  97




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Glossary
  ADSL
    
    Asymmetric Digital Subscriber Line. ADSL is a technology
that allows more data to be sent over existing copper
telephone lines. ADSL supports data rates of 1.5 to 9.0
Mbps when receiving data (known as the downstream rate),
and 16 to 640 Kbps when sending data (known as the
upstream rate). ADSL requires a special ADSL modem.ATM
    
    Asynchronous Transfer Mode. ATM is a high bandwidth,
low-delay, high-speed transmission technology. ATM is a
communication standard that provides for information
transfer in the form of fixed-length cells of 53 bytes
each. The ATM format can be used to deliver voice, video
and data traffic at varying rates.backbone
    
    A centralized high-speed network that interconnects
smaller, independent networks.bandwidth
    
    The number of bits of information which can move over a
communication medium in a given amount of time. Typically
measured in Kbps and Mbps.bps
    
    Bits per second. A measure of digital information
transmission rates. A rate of one bps can transmit one
bit in a second.cable modem
    
    A modem designed to operate over HFC lines. Because HFC
lines generally provide much greater bandwidth than
telephone lines, a cable modem can be used to achieve
faster access to the world wide web.dedicated line
    
    Telecommunication lines dedicated or reserved for use by
particular subscribers along predetermined routes.DSL
    
    Digital Subscriber Line. DSL is a technology for bringing
high bandwidth information to homes and small businesses
over ordinary copper telephone lines.Gbps
    
    Gigabits per second. A measure of digital information
transmission rates. One Gbps equals l,000 Mbps, one
million Kbps, or one billion bps.GHz
    
    Gigahertz. A unit of frequency denoting one billion
cycles per second, used to measure band and bandwidth.HFC
    
    Hybrid Fiber Coaxial. HFC cable is used in broadband
telecommunication systems. HFC can transmit between 500
MHz to 1,000 MHz of bandwidth in both directions.IDC
    
    Internet data center. IDC provides services such as
co-location, dedicated server hosting, security, backup,
storage hosting and network equipment rental services.
 98




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##### Table of Contents



IMT-2000
    
    International Mobile Telecommunications 2000. IMT-2000,
or 3G, is an initiative of the International
Telecommunication Union to unify the diverse
second-generation systems in the global wireless industry
that are currently largely incompatible by establishing
certain global standards for third-generation systems that
will provide a common air interface capable of offering
wireless multimedia service globally at transmission
speeds of up to 348 Kbps on the move and 2 Mbps when
stationary or indoors.Internet
    
    A global network connecting millions of computers. More
than 100 countries are linked into exchanges of data, news
and opinions.ISP
    
    Internet Service Provider. An ISP is a company that
provides access to the Internet. For a monthly fee, the
service provider provides a software package, user name,
password and access phone number. Equipped with a modem,
the user can then log on to the Internet and browse the
world wide web.Kbps
    
    Kilobits per second. A measure of digital information
transmission rates. One Kbps equals 1,000 bps.KHz
    
    Kilohertz. A unit of frequency denoting one thousand
cycles per second, used to measure band and bandwidth.LAN
    
    Local Area Network. A LAN is a group of computers and
associated devices that share a common communications line
and typically share the resources of a single processor or
server within a small geographic area (for example, within
an office building). Usually, the server has applications
and data storage that are shared in common by multiple
computer users.leased line
    
    A permanent telephone connection between two points set up
by a network service provider. Typically, leased lines
are used by business to connect geographically distant
offices. The fee for the connection is usually a fixed
monthly rate.Mbps
    
    Megabits per second. A measure of digital information
transmission rates. One Mbps equals 1,000 Kbps or one
million bps.MHz
    
    Megahertz. A unit of frequency denoting one million
cycles per second, used to measure band and bandwidth.MIC
    
    Ministry of Information and Communication of Korea.NSP
    
    Network Service Provider.remote terminal
    
    A system that multiplexes voice and data signals into
synchronous data streams and transmits them as optical
signals.router
    
    A device that forwards data packets between interconnected
network segments.
 99




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##### Table of Contents



VDSL
    
    Very high bit rate Digital Subscriber Line. VDSL is a
technology that allows final delivery of data over
existing copper telephone lines. VDSL supports data rates
of up to 52 Mbps when receiving data (known as the
downstream rate).VoIP
    
    Voice over Internet Protocol (that is, voice delivered
using the Internet Protocol) is a term used in Internet
Protocol telephony for a set of facilities for managing
the delivery of voice information using the Internet
Protocol. This means sending voice information in digital
form in discrete packets rather than in the traditional
circuit-committed protocols of the public switched
telephone network.WiBro
    
    A 2.3 GHz wireless broadband technology.WLL
    
    Wireless Local Loop. A local loop using fixed radio
access technology to provide low to medium speed Internet
services.
 100




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hanarotelecom incorporated AND SUBSIDIARIES
 
 CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2005
AND REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
 F-1




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Report of Independent Registered Public Accounting Firm
 
       
 F-2




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##### Table of Contents



Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)ASSETS
    
    2004
    
    
    2005
    
    
    2005(In millions)
    
    
    (In thousands)CURRENT ASSETS:Cash and cash equivalents (Note 3)
    
    W
    168,346
    
    
    W
    154,918
    
    
    $
    153,384Short-term financial instruments (Notes 4 and 5)
    
    
    193,716
    
    
    
    23,350
    
    
    
    23,119Short-term investment securities (Note 6)
    
    
    1,121
    
    
    
    
    
    
    
    Trade receivables, net of allowance for doubtful accounts
of W62,216 million in 2004 and W99,387
million in 2005
    
    
    205,600
    
    
    
    221,259
    
    
    
    219,068Short-term loans, net of discount on present value of
W209 million in 2004 and
W400 million in 2005 (Note 9)
    
    
    7,631
    
    
    
    10,260
    
    
    
    10,158Accounts receivable-other, net of allowance for doubtful
accounts of W55 million in 2004 and W27,000 million in
2005, and discount on present value of nil in 2004 and
W273 million in 2005 (Note 20)
    
    
    1,306
    
    
    
    8,820
    
    
    
    8,733Accrued income
    
    
    2,083
    
    
    
    758
    
    
    
    750Prepaid expenses
    
    
    13,240
    
    
    
    23,537
    
    
    
    23,304Refundable income tax
    
    
    3,037
    
    
    
    3,224
    
    
    
    3,192Advanced payments
    
    
    26,853
    
    
    
    114
    
    
    
    113Inventories
    
    
    1,864
    
    
    
    134
    
    
    
    133624,797
    
    
    
    446,374
    
    
    
    441,954NON-CURRENT ASSETS:Long-term financial instruments (Notes 4 and 5)
    
    
    68
    
    
    
    1,622
    
    
    
    1,606Long-term investment securities (Note 7)
    
    
    28,816
    
    
    
    31,471
    
    
    
    31,159Long-term trade receivables, net of allowance for
doubtful accounts of W535 million in 2004 and W981
million in 2005
    
    
    1,083
    
    
    
    2,349
    
    
    
    2,326Long-term loans, net of allowance for doubtful accounts
of nil in 2004 and W2,487 million in 2005, and discount
on present value of W2,709 million in 2004 and W1,570
million in 2005 (Note 9)
    
    
    16,086
    
    
    
    9,234
    
    
    
    9,143Long-term non-trade receivables, net of allowance for
doubtful accounts of nil in 2004 and W1,069 million in
2005, and discount on present value of nil in 2004 and
W145 million in 2005
    
    
    
    
    
    
    7,203
    
    
    
    7,132Key-money deposits (Note 20)
    
    
    72,193
    
    
    
    76,359
    
    
    
    75,603Long-term prepaid expenses
    
    
    12,352
    
    
    
    12,729
    
    
    
    12,603Deferred income tax assets (Note 19)
    
    
    607
    
    
    
    195
    
    
    
    193Property and equipment, net (Notes 10, 11, 13 and 24)
    
    
    2,372,845
    
    
    
    2,337,884
    
    
    
    2,314,737Intangibles (Notes 12, 13 and 24)
    
    
    56,265
    
    
    
    108,840
    
    
    
    107,7622,560,315
    
    
    
    2,587,886
    
    
    
    2,562,264Total Assets
    
    W

    3,185,112
    
    
    W

    3,034,260
    
    
    $
    3,004,218
  F-3




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##### Table of Contents



Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)LIABILITIES AND SHAREHOLDERS' EQUITY
    
    2004
    
    
    2005
    
    
    2005(In millions)
    
    
    (In thousands)CURRENT LIABILITIES:Trade payables (Note 20)
    
    W

    28,803
    
    
    W

    30,319
    
    
    $
    30,019Other accounts payable
    
    
    138,443
    
    
    
    138,051
    
    
    
    136,684Advances received
    
    
    9,983
    
    
    
    11,564
    
    
    
    11,450Accrued expenses (Notes 20 and 28)
    
    
    81,490
    
    
    
    144,479
    
    
    
    143,049Withholdings
    
    
    16,263
    
    
    
    19,715
    
    
    
    19,520Income tax payable
    
    
    653
    
    
    
    92
    
    
    
    91Current maturities of long-term debt, net of
discount on debentures of W6,543 million in 2004
and W482 million in 2005, and discount on present
value of nil in 2004 and W3,844 million in 2005
(Notes 11 and 13)
    
    
    413,526
    
    
    
    242,801
    
    
    
    240,397Forward exchange contracts (Note 15)
    
    
    33,802
    
    
    
    47,420
    
    
    
    46,950Interest swap (Note 15)
    
    
    17,623
    
    
    
    1,859
    
    
    
    1,841Deferred income tax liabilities (Note 19)
    
    
    
    
    
    
    20
    
    
    
    19Deposits received
    
    
    1,924
    
    
    
    1,856
    
    
    
    1,838742,510
    
    
    
    638,176
    
    
    
    631,858LONG-TERM LIABILITIES:Long-term debt, net of current portion (Note 13)
    
    
    399,154
    
    
    
    244,979
    
    
    
    242,554Debentures, net (Note 13)
    
    
    189,518
    
    
    
    493,206
    
    
    
    488,323Long-term obligation under capital leases (Note 11)
    
    
    32,541
    
    
    
    12,704
    
    
    
    12,578Long-term advances received
    
    
    13,142
    
    
    
    11,969
    
    
    
    11,850Accrued severance indemnities, net (Note 2)
    
    
    32,932
    
    
    
    32,698
    
    
    
    32,374Long-term deposits received
    
    
    23,709
    
    
    
    27,448
    
    
    
    27,176690,996
    
    
    
    823,004
    
    
    
    814,855Total Liabilities
    
    
    1,433,506
    
    
    
    1,461,180
    
    
    
    1,446,713COMMITMENTS AND CONTINGENCIES (Note 21)SHAREHOLDERS EQUITY (Note 1):Capital stock (Note 16)
    
    
    2,310,676
    
    
    
    2,310,676
    
    
    
    2,287,799Paid-in capital in excess of par value
    
    
    341,033
    
    
    
    340,917
    
    
    
    337,542Accumulated deficit (Note 28)
    
    
    (887,158
    )
    
    
    (1,096,222
    )
    
    
    (1,085,368
    )Capital adjustments:Stock compensation (Note 17)
    
    
    7,227
    
    
    
    11,465
    
    
    
    11,351Valuation
gain (loss) on available-for-sale
securities, net
    
    
    (5,764
    )
    
    
    3,183
    
    
    
    3,151Valuation loss on interest swap (Note 15)
    
    
    (17,623
    )
    
    
    (1,859
    )
    
    
    (1,841
    )Minority interests
    
    
    3,215
    
    
    
    4,920
    
    
    
    4,871Total Shareholders Equity
    
    
    1,751,606
    
    
    
    1,573,080
    
    
    
    1,557,505Total Liabilities and Shareholders Equity
    
    W

    3,185,112
    
    
    W

    3,034,260
    
    
    $
    3,004,218
  F-4




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##### Table of Contents



Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)2003
    
    
    2004
    
    
    2005
    
    
    2005(In millions, except per share amount)
    
    
    (In thousands, exceptper share amount)OPERATING REVENUE (Notes 20 and 24)
    
    W
    1,383,486
    
    
    W
    1,449,569
    
    
    W
    1,589,345
    
    
    $
    1,573,609OPERATING EXPENSES (Notes 18 and 20)
    
    
    1,312,792
    
    
    
    1,335,639
    
    
    
    1,550,823
    
    
    
    1,535,468OPERATING INCOME (Note 24)
    
    
    70,694
    
    
    
    113,930
    
    
    
    38,522
    
    
    
    38,141NON-OPERATING INCOME:Interest income
    
    
    18,465
    
    
    
    18,497
    
    
    
    16,637
    
    
    
    16,472Gain on disposal of short-term investment securities
    
    
    315
    
    
    
    
    
    
    
    
    
    
    
    Gain on disposal of long-term investment securities
    
    
    145
    
    
    
    109
    
    
    
    439
    
    
    
    435Gain on disposal of investment securities using the
equity method
    
    
    
    
    
    
    
    
    
    
    25,391
    
    
    
    25,140Gain on disposal of property and equipment
    
    
    1,102
    
    
    
    885
    
    
    
    3,962
    
    
    
    3,923Gain on foreign currency transactions
    
    
    267
    
    
    
    1,404
    
    
    
    8,881
    
    
    
    8,793Gain on foreign currency translation
    
    
    19
    
    
    
    33,823
    
    
    
    11,699
    
    
    
    11,583Gain on early redemption of debentures (Note 13)
    
    
    870
    
    
    
    
    
    
    
    
    
    
    
    Gain on valuation of forward exchange contract
    
    
    173
    
    
    
    
    
    
    
    
    
    
    
    Gain on transaction of forward exchange contract
(Note 15)
    
    
    343
    
    
    
    242
    
    
    
    
    
    
    
    Other
    
    
    5,273
    
    
    
    7,215
    
    
    
    16,188
    
    
    
    16,02726,972
    
    
    
    62,175
    
    
    
    83,197
    
    
    
    82,373NON-OPERATING EXPENSES:Interest expense (Note 13)
    
    
    139,330
    
    
    
    100,882
    
    
    
    98,814
    
    
    
    97,836Asset Backed Securities payable expense (Note 14)
    
    
    9,028
    
    
    
    490
    
    
    
    
    
    
    
    Loss on foreign currency transactions
    
    
    764
    
    
    
    354
    
    
    
    264
    
    
    
    261Loss on foreign currency translation
    
    
    138
    
    
    
    11
    
    
    
    1,092
    
    
    
    1,081Loss on disposal of short-term investment securities
    
    
    2,117
    
    
    
    86
    
    
    
    29
    
    
    
    28Loss on disposal of long-term investment securities
    
    
    
    
    
    
    1
    
    
    
    1,381
    
    
    
    1,367Loss on valuation of trading securities
    
    
    307
    
    
    
    
    
    
    
    
    
    
    
    Impairment loss on short-term investment securities
(Note 6)
    
    
    940
    
    
    
    450
    
    
    
    1,120
    
    
    
    1,109Impairment loss on long-term investment securities
(Note 7)
    
    
    3,385
    
    
    
    2,539
    
    
    
    4,045
    
    
    
    4,005Donations
    
    
    800
    
    
    
    306
    
    
    
    312
    
    
    
    309Loss on early redemption of debentures (Note 13)
    
    
    308
    
    
    
    
    
    
    
    165
    
    
    
    163Loss on early redemption of long-term debt (Note 13)
    
    
    
    
    
    
    
    
    
    
    2,235
    
    
    
    2,213Loss on redemption of long-term obligation under
capital leases (Note 11)
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    57Loss on valuation using the equity method (Note 8)
    
    
    23,142
    
    
    
    
    
    
    
    
    
    
    
    Loss on disposal of property and equipment
    
    
    1,326
    
    
    
    1,246
    
    
    
    2,154
    
    
    
    2,133Loss on disuse of property and equipment (Note 10)
    
    
    61,333
    
    
    
    20,726
    
    
    
    60,586
    
    
    
    59,986Loss on valuation of forward exchange contract
(Note 15)
    
    
    
    
    
    
    33,975
    
    
    
    19,842
    
    
    
    19,646Loss on transaction of forward exchange contract
(Note 15)
    
    
    
    
    
    
    173
    
    
    
    
    
    
    
    Impairment loss on intangibles (Note 12)
    
    
    
    
    
    
    86
    
    
    
    79,641
    
    
    
    78,852Other bad debt
    
    
    
    
    
    
    
    
    
    
    12,127
    
    
    
    12,007Non-operating expense-other (Note 2)
    
    
    4,513
    
    
    
    
    
    
    
    22,039
    
    
    
    21,821Other
    
    
    11,147
    
    
    
    931
    
    
    
    7,602
    
    
    
    7,528258,578
    
    
    
    162,256
    
    
    
    313,506
    
    
    
    310,402
  F-5




---



##### Table of Contents



Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)2003
    
    
    2004
    
    
    2005
    
    
    2005(In millions, except per share amount)
    
    
    (In thousands, exceptper share amount)ORDINARY INCOME (LOSS)
    
    W
    (160,912)
    
    
    W
    13,849
    
    
    W
    (191,787)
    
    
    $
    (189,888
    )EXTRAORDINARY ITEMS (Note 25)
    
    
    
    
    
    
    
    
    
    
    (19,018
    )
    
    
    (18,830
    )INCOME (LOSS) BEFORE INCOME TAX
    
    
    (160,912
    )
    
    
    13,849
    
    
    
    (210,805
    )
    
    
    (208,718
    )INCOME TAX EXPENSE (Note 19)
    
    
    (302
    )
    
    
    (495
    )
    
    
    (434
    )
    
    
    (430
    )MINORITY INTEREST SHARE OF LOSS (INCOME)
    
    
    (85
    )
    
    
    (308
    )
    
    
    1,921
    
    
    
    1,902NET INCOME (LOSS)
    
    W
    (161,299)
    
    
    W
    13,046
    
    
    W
    (209,318)
    
    
    $
    (207,246
    )BASIC AND DILUTED ORDINARY INCOME
(LOSS) PER SHARE (Note 2)
    
    W
    (502)
    
    
    W
    28
    
    
    W
    (412)
    
    
    $
    (0.41
    )BASIC AND DILUTED NET INCOME (LOSS)
PER SHARE (Note 2)
    
    W
    (502)
    
    
    W
    28
    
    
    W
    (453)
    
    
    $
    (0.45
    )
  F-6




---



##### Table of Contents



Korean Won (In millions)Common
    
    
    Capital
    
    
    Accumulated
    
    
    Capital
    
    
    Minoritystock
    
    
    surplus
    
    
    deficit
    
    
    adjustments
    
    
    interests
    
    
    TotalBalance at December 31, 2002
    
    W
    1,396,613
    
    
    W
    689,758
    
    
    W
    (737,987)
    
    
    W
    (5,546)
    
    
    W
    145,477
    
    
    W
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,375
    
    
    
    
    
    
    
    1,375Net unrealized loss on
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,376
    )
    
    
    
    
    
    
    (2,376
    )Net unrealized loss on
investment 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
    
    
    
    
    
    
    
    1,311Net
recognized gain included in earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,037
    
    
    
    
    
    
    
    1,037Net
unrealized gain on
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5Effect 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
    
    
    2,310,676
    
    
    
    341,033
    
    
    
    (887,158
    )
    
    
    (16,160
    )
    
    
    3,215
    
    
    
    1,751,606Net loss for 2005
    
    
    
    
    
    
    
    
    
    
    (209,318
    )
    
    
    
    
    
    
    (1,921
    )
    
    
    (211,239
    )Effect of changes in consolidated
subsidiaries
    
    
    
    
    
    
    (116
    )
    
    
    254
    
    
    
    1,160
    
    
    
    3,626
    
    
    
    4,924Compensation expense related to
stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,238
    
    
    
    
    
    
    
    4,238Net
recognized gain included in earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,643
    
    
    
    
    
    
    
    5,643Net unrealized gain on
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,144
    
    
    
    
    
    
    
    2,144Gain on valuation of interest swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,764
    
    
    
    
    
    
    
    15,764Balance at December 31, 2005
    
    W
    2,310,676
    
    
    W
    340,917
    
    
    W
    (1,096,222)
    
    
    W
    12,789
    
    
    W
    4,920
    
    
    W
    1,573,080Translation into U.S. Dollars (In
thousands) (Note 2)
    
    $
    2,287,799
    
    
    $
    337,542
    
    
    $
    (1,085,368
    )
    
    $
    12,661
    
    
    $
    4,871
    
    
    $
    1,557,505
  F-7




---



##### Table of Contents



Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)2003
    
    
    2004
    
    
    2005
    
    
    2005(In millions)
    
    
    (In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    W
    (161,299)
    
    
    W
    13,046
    
    
    W
    (209,318)
    
    
    $
    (207,246
    )Addition of expenses not involving cash outflows:Stock compensation expense
    
    
    1,375
    
    
    
    1,278
    
    
    
    4,238
    
    
    
    4,195Provision for severance indemnities
    
    
    13,444
    
    
    
    14,095
    
    
    
    14,918
    
    
    
    14,770Amortization of discount on debentures
    
    
    18,857
    
    
    
    10,698
    
    
    
    7,631
    
    
    
    7,555Amortization of discount on present value of
long-term debt
    
    
    408
    
    
    
    4,983
    
    
    
    5,800
    
    
    
    5,743Recognition of long-term accrued interest
    
    
    6,171
    
    
    
    
    
    
    
    669
    
    
    
    662Employee fringe benefits
    
    
    944
    
    
    
    1,302
    
    
    
    638
    
    
    
    632Depreciation and amortization
    
    
    428,528
    
    
    
    442,312
    
    
    
    498,087
    
    
    
    493,155Loss on foreign currency translation
    
    
    138
    
    
    
    11
    
    
    
    1,092
    
    
    
    1,081Provision for doubtful accounts
    
    
    25,744
    
    
    
    29,933
    
    
    
    19,065
    
    
    
    18,876Loss on valuation of trading securities
    
    
    307
    
    
    
    
    
    
    
    
    
    
    
    Loss on disposal of property and equipment
    
    
    1,326
    
    
    
    1,246
    
    
    
    2,154
    
    
    
    2,133Impairment loss on short-term investment securities
    
    
    940
    
    
    
    450
    
    
    
    1,120
    
    
    
    1,109Impairment loss on long-term investment securities
    
    
    3,385
    
    
    
    2,539
    
    
    
    4,045
    
    
    
    4,005Loss on disposal of short-term investment securities
    
    
    2,117
    
    
    
    86
    
    
    
    29
    
    
    
    28Loss on disposal of long-term investment securities
    
    
    
    
    
    
    1
    
    
    
    1,381
    
    
    
    1,367Loss on valuation using the equity method
    
    
    23,142
    
    
    
    
    
    
    
    
    
    
    
    Loss on disuse of property and equipment
    
    
    61,333
    
    
    
    20,726
    
    
    
    60,586
    
    
    
    59,986Loss on early redemption of debentures
    
    
    308
    
    
    
    
    
    
    
    165
    
    
    
    163Loss on early redemption of long-term debt
    
    
    
    
    
    
    
    
    
    
    2,235
    
    
    
    2,213Loss on early redemption of long-term obligation
under capital leases
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    57Loss on valuation of forward exchange contract
    
    
    
    
    
    
    33,975
    
    
    
    19,842
    
    
    
    19,646Impairment loss on intangibles
    
    
    
    
    
    
    86
    
    
    
    79,641
    
    
    
    78,852Other bad debt
    
    
    
    
    
    
    
    
    
    
    12,127
    
    
    
    12,007Extraordinary loss
    
    
    
    
    
    
    
    
    
    
    12,870
    
    
    
    12,743Minority interest income
    
    
    85
    
    
    
    308
    
    
    
    
    
    
    
    Ordinary development cost and other
    
    
    643
    
    
    
    548
    
    
    
    3,330
    
    
    
    3,300589,195
    
    
    
    564,577
    
    
    
    751,721
    
    
    
    744,278Deduction of revenues not involving cash inflows:Gain on disposal of short-term investment securities
    
    
    315
    
    
    
    
    
    
    
    
    
    
    
    Amortization of present value discount
    
    
    2,019
    
    
    
    1,506
    
    
    
    1,656
    
    
    
    1,640Gain on valuation of forward exchange contract
    
    
    173
    
    
    
    
    
    
    
    
    
    
    
    Gain on disposal of property and equipment
    
    
    1,102
    
    
    
    885
    
    
    
    3,962
    
    
    
    3,923Gain on disposal of long-term investment securities
    
    
    145
    
    
    
    109
    
    
    
    439
    
    
    
    435Gain on disposal of investment securities using the
equity method
    
    
    
    
    
    
    
    
    
    
    25,391
    
    
    
    25,140Gain on foreign currency translation
    
    
    19
    
    
    
    33,823
    
    
    
    11,699
    
    
    
    11,583Gain on early redemption of debentures
    
    
    870
    
    
    
    
    
    
    
    
    
    
    
    Minority interest loss
    
    
    
    
    
    
    
    
    
    
    1,921
    
    
    
    1,902Other
    
    
    56
    
    
    
    224
    
    
    
    1,593
    
    
    
    1,5774,699
    
    
    
    36,547
    
    
    
    46,661
    
    
    
    46,200
  F-8




---



##### Table of Contents



Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)2003
    
    
    2004
    
    
    2005
    
    
    2005(In millions)
    
    
    (In thousands)Changes in assets and liabilities resulting from operations:Decrease (Increase) in trade receivables
    
    W
    (37,260)
    
    
    W
    (24,643)
    
    
    W
    5,726
    
    
    $
    5,669Decrease in long-term trade receivables
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    Decrease in accounts receivable-other
    
    
    2,693
    
    
    
    6,494
    
    
    
    8,116
    
    
    
    8,036Decrease (Increase) in accrued income
    
    
    (1,263
    )
    
    
    4,243
    
    
    
    2,065
    
    
    
    2,045Decrease (Increase) in prepaid expenses
    
    
    5,710
    
    
    
    (1,629
    )
    
    
    (17,786
    )
    
    
    (17,610
    )Decrease (Increase) in refundable income tax
    
    
    1,367
    
    
    
    (671
    )
    
    
    (2,723
    )
    
    
    (2,696
    )Decrease (Increase) in advanced payments
    
    
    (1,370
    )
    
    
    (25,529
    )
    
    
    548
    
    
    
    543Increase in inventories
    
    
    (32,218
    )
    
    
    (30,929
    )
    
    
    (16,319
    )
    
    
    (16,157
    )Increase in forward exchange contract
    
    
    (1,888
    )
    
    
    
    
    
    
    
    
    
    
    Decrease (Increase) in long-term prepaid expenses
    
    
    1,097
    
    
    
    541
    
    
    
    (377
    )
    
    
    (373
    )Decrease (Increase) in deferred income tax assets
    
    
    (51
    )
    
    
    (402
    )
    
    
    203
    
    
    
    201Increase (Decrease) in trade payables
    
    
    (38,320
    )
    
    
    (7,316
    )
    
    
    1,565
    
    
    
    1,550Increase (Decrease) in other accounts payable
    
    
    (28,698
    )
    
    
    20,347
    
    
    
    (5,404
    )
    
    
    (5,350
    )Increase in advances received
    
    
    347
    
    
    
    4,129
    
    
    
    4,349
    
    
    
    4,306Increase (Decrease) in accrued expenses
    
    
    18,512
    
    
    
    (6,948
    )
    
    
    35,569
    
    
    
    35,217Increase (Decrease) in withholdings
    
    
    7,314
    
    
    
    (6,441
    )
    
    
    1,536
    
    
    
    1,521Decrease in forward exchange contract
    
    
    
    
    
    
    
    
    
    
    (6,224
    )
    
    
    (6,162
    )Increase (Decrease) in income tax payable
    
    
    (1,436
    )
    
    
    474
    
    
    
    (208
    )
    
    
    (206
    )Decrease in long-term advances received
    
    
    (1,189
    )
    
    
    (1,173
    )
    
    
    (1,173
    )
    
    
    (1,161
    )Increase (Decrease) in deposits received
    
    
    893
    
    
    
    (77
    )
    
    
    167
    
    
    
    165Increase in long-term deposits received
    
    
    1,013
    
    
    
    3,219
    
    
    
    3,326
    
    
    
    3,292Increase (Decrease) in deferred income tax liabilities
    
    
    (1
    )
    
    
    90
    
    
    
    (14
    )
    
    
    (13
    )Increase in foreign based operations translation credit
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Decrease in payments to National Pension
    
    
    140
    
    
    
    23
    
    
    
    45
    
    
    
    44Payments of severance indemnities
    
    
    (15,556
    )
    
    
    (5,090
    )
    
    
    (19,666
    )
    
    
    (19,472
    )(120,162
    )
    
    
    (71,188
    )
    
    
    (6,679
    )
    
    
    (6,611
    )Net cash flows provided by operating activities
    
    
    303,035
    
    
    
    469,888
    
    
    
    489,063
    
    
    
    484,221CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from disposal of short-term investment
securities
    
    
    34,143
    
    
    
    303
    
    
    
    472
    
    
    
    467Collection of short-term financial instruments
    
    
    842,882
    
    
    
    778,170
    
    
    
    354,499
    
    
    
    350,989Redemption of short-term loans
    
    
    6,771
    
    
    
    6,320
    
    
    
    3,051
    
    
    
    3,021Redemption of long-term loans
    
    
    2,734
    
    
    
    1,280
    
    
    
    4,569
    
    
    
    4,524Proceeds from disposal of long-term investment
securities
    
    
    406
    
    
    
    9,002
    
    
    
    6,826
    
    
    
    6,758Proceeds from disposal of investments in consolidated
subsidiaries
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    4,950Withdrawal of long-term financial instruments
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    Refund of key-money deposits
    
    
    18,152
    
    
    
    14,642
    
    
    
    25,741
    
    
    
    25,486Proceeds from disposal of property and equipment
    
    
    9,304
    
    
    
    8,218
    
    
    
    4,447
    
    
    
    4,403Withdrawal of severance insurance deposits
    
    
    1,009
    
    
    
    99
    
    
    
    1,438
    
    
    
    1,424Acquisition of short-term financial instruments
    
    
    (929,616
    )
    
    
    (751,564
    )
    
    
    (182,133
    )
    
    
    (180,330
    )Purchase of short-term investment securities
    
    
    (17,807
    )
    
    
    
    
    
    
    (500
    )
    
    
    (495
    )Extension of short-term loans
    
    
    (614
    )
    
    
    (417
    )
    
    
    (694
    )
    
    
    (687
    )Purchase of long-term investment securities
    
    
    (1,132
    )
    
    
    (190
    )
    
    
    (198,447
    )
    
    
    (196,482
    )
  F-9




---



##### Table of Contents



Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)2003
    
    
    2004
    
    
    2005
    
    
    2005(In millions)
    
    
    (In thousands)CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of long-term financial instruments
    
    W
    (2)
    
    
    W
    (131)
    
    
    W
    (870)
    
    
    $
    (861
    )Extension of long-term loans
    
    
    (5,404
    )
    
    
    (2,755
    )
    
    
    (1,449
    )
    
    
    (1,435
    )Extension of long-term non-trade receivables
    
    
    
    
    
    
    
    
    
    
    (613
    )
    
    
    (607
    )Payment of key-money deposits
    
    
    (2,324
    )
    
    
    (42,083
    )
    
    
    (20,130
    )
    
    
    (19,931
    )Acquisition of consolidated subsidiaries
    
    
    
    
    
    
    (3,734
    )
    
    
    (249,110
    )
    
    
    (246,644
    )Acquisition of property and equipment
    
    
    (196,053
    )
    
    
    (212,522
    )
    
    
    (311,676
    )
    
    
    (308,589
    )Payment of intangibles
    
    
    (13,118
    )
    
    
    (12,163
    )
    
    
    (13,268
    )
    
    
    (13,137
    )Payment of severance insurance deposits
    
    
    (124
    )
    
    
    (1,659
    )
    
    
    (1,778
    )
    
    
    (1,760
    )Net cash flows used in investing activities
    
    
    (250,793
    )
    
    
    (209,181
    )
    
    
    (574,625
    )
    
    
    (568,936
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from short-term borrowings
    
    
    338,000
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from long-term debt
    
    
    148,329
    
    
    
    322,549
    
    
    
    281,697
    
    
    
    278,908Proceeds from issuance of debentures
    
    
    261,013
    
    
    
    
    
    
    
    503,544
    
    
    
    498,558Proceeds from issuance of common stock
    
    
    565,889
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from long-term deposits received
    
    
    1,487
    
    
    
    
    
    
    
    
    
    
    
    Repayment of short-term borrowings
    
    
    (230,000
    )
    
    
    (163,000
    )
    
    
    
    
    
    
    Repayment of long-term debt
    
    
    (1,096,800
    )
    
    
    (421,961
    )
    
    
    (833,607
    )
    
    
    (825,353
    )Decrease in Asset Backed Securities payable
    
    
    (122,972
    )
    
    
    (32,510
    )
    
    
    
    
    
    
    Net cash flows used in financing activities
    
    
    (135,054
    )
    
    
    (294,922
    )
    
    
    (48,366
    )
    
    
    (47,887
    )INCREASE (DECREASE) FROM CHANGES IN
CONSOLIDATED SUBSIDIARIES
    
    
    (23,758
    )
    
    
    3,013
    
    
    
    120,500
    
    
    
    119,307NET DECREASE IN CASH AND CASH
EQUIVALENTS
    
    
    (106,570
    )
    
    
    (31,202
    )
    
    
    (13,428
    )
    
    
    (13,295
    )CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR
    
    
    306,118
    
    
    
    199,548
    
    
    
    168,346
    
    
    
    166,679CASH AND
CASH EQUIVALENTS, END OF YEAR
    
    W
    199,548
    
    
    W
    168,346
    
    
    W
    154,918
    
    
    $
    153,384
  F-10




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##### Table of Contents



Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)2003
    
    
    2004
    
    
    2005
    
    
    2005(In millions)
    
    
    (In thousands)CASH PAID FOR INTEREST
    
    W
    125,291
    
    
    W
    82,453
    
    
    W
    78,573
    
    
    $
    77,795CASH PAID FOR INCOME TAX
    
    
    1,030
    
    
    
    1,348
    
    
    
    186
    
    
    
    184TRANSACTIONS NOT INVOLVING CASH:Transfer of long-term loans to current portion
    
    
    13,830
    
    
    
    4,759
    
    
    
    10,032
    
    
    
    9,933Transfer of inventories to property and equipment
    
    
    41,801
    
    
    
    31,480
    
    
    
    19,242
    
    
    
    19,051Transfer of debentures to current portion
    
    
    264,688
    
    
    
    306,000
    
    
    
    190,000
    
    
    
    188,119Transfer of long-term debt to current portion
    
    
    103,271
    
    
    
    72,956
    
    
    
    40,948
    
    
    
    40,543Transfer of long-term obligation under capital
lease to current portion
    
    
    87,297
    
    
    
    53,108
    
    
    
    39,255
    
    
    
    38,866Transfer of Asset Backed Securities payable to
current portion
    
    
    32,510
    
    
    
    
    
    
    
    
    
    
    
    Recognition of loss on valuation of
available-for-sale securities as capital
adjustments
    
    
    3,496
    
    
    
    681
    
    
    
    
    
    
    
    Recognition of income on valuation of
available-for-sale securities as capital
adjustments
    
    
    
    
    
    
    
    
    
    
    3,738
    
    
    
    3,701Transfer of construction in progress to property
and equipment
    
    
    125,045
    
    
    
    70,698
    
    
    
    130,869
    
    
    
    129,573Acquisition of property and equipment under long-term lease obligation
    
    
    98,230
    
    
    
    37,731
    
    
    
    
    
    
    
    Transfer of construction in progress to intangibles
    
    
    
    
    
    
    
    
    
    
    3,479
    
    
    
    3,445Transfer of short-term loans to long-term loans
    
    
    
    
    
    
    
    
    
    
    4,855
    
    
    
    4,807Transfer of trade receivables to long-term trade
receivables
    
    
    
    
    
    
    
    
    
    
    2,142
    
    
    
    2,121Transfer of advanced payments to inventories
    
    
    
    
    
    
    
    
    
    
    1,193
    
    
    
    1,181Transfer of advanced payments to long-term
investment securities
    
    
    
    
    
    
    
    
    
    
    24,940
    
    
    
    24,693Transfer of refundable income tax to accounts
receivables-other
    
    
    
    
    
    
    
    
    
    
    3,012
    
    
    
    2,982Transfer of advances received from proceeds from
disposal of investments in consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    3,200
    
    
    
    3,168Receivable from disposal of consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    23,800
    
    
    
    23,564Transfer of prepaid expenses to long-term present
value discount
    
    
    
    
    
    
    10,561
    
    
    
    7,317
    
    
    
    7,245Transfer of provision for severance indemnities to
construction in progress
    
    
    
    
    
    
    620
    
    
    
    790
    
    
    
    782Transfer of other current liabilities to long-term
deposits received
    
    
    17,121
    
    
    
    
    
    
    
    
    
    
    
    
  F-11




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##### Table of Contents



GENERAL:
      Number of
    
    Percentage ofshares
    
    ownership (%)Newbridge Asia HT, L.P.
    
    
    49,535,799
    
    
    
    10.72AIF II NT, Ltd.
    
    
    38,456,250
    
    
    
    8.32SSB - AOF NT, Ltd.
    
    
    24,721,875
    
    
    
    5.35United Classic Investment Limited
    
    
    20,392,746
    
    
    
    4.41HT Holding V, L.P.
    
    
    9,418,330
    
    
    
    2.04HT Holdings VI, L.P.
    
    
    7,325,000
    
    
    
    1.59HT Holdings VII, L.P.
    
    
    9,156,250
    
    
    
    1.98HT Holdings VIII, L.P.
    
    
    10,987,500
    
    
    
    2.38HT Holdings IX, L.P.
    
    
    12,818,750
    
    
    
    2.77SK Telecom
    
    
    22,090,000
    
    
    
    4.78Daewoo Securities Co., Ltd.
    
    
    12,000,000
    
    
    
    2.60Dacom Corporation
    
    
    8,964,561
    
    
    
    1.94Hong Kong & Shanghai Banking Corp.
    
    
    7,630,778
    
    
    
    1.65Credit Suisse Financial
    
    
    6,054,513
    
    
    
    1.31LG Telecom
    
    
    5,397,574
    
    
    
    1.17NTC-SAUDI ARAB MON
    
    
    4,999,155
    
    
    
    1.08Employee stock ownership association
    
    
    2,229,232
    
    
    
    0.48Others
    
    
    209,956,867
    
    
    
    45.43462,135,180
    
    
    
    100.00
  F-12




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##### Table of Contents



Year
    
    Ownershipcontrol was
    
    percentage (%)Subsidiaries
    
    obtained
    
    2004
    
    2005
    
    Primary businessHanaro Realty Development &
    
    1999
    
    
    99.99
    
    
    
    99.99
    
    
    Property management ofManagement Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    
    hanarotelecom incorporatedHanaro Telephone & Internet
    
    2002
    
    
    99.99
    
    
    
    99.99
    
    
    Customer Q & A and serviceInformation, Inc.Hanaro WEB(n)TV
    
    2000
    
    
    49.00
    
    
    
    
    
    
    Broadcasting & telecommunicationMedia Holdings, Inc.
    
    2004
    
    
    100.00
    
    
    
    
    
    
    Investment in broadcasting companyHanaro Dream, Inc.
    
    2004
    
    
    57.02
    
    
    
    57.02
    
    
    Distribution industry of internetdigital contentsKorea Thrunet Co., Ltd.
    
    2005
    
    
    
    
    
    
    96.22
    
    
    Internet and multimedia accessservice
  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 Basis of Presentation
  W
  F-13




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##### Table of Contents



Use of Estimates
  Revenue Recognition
  Cash and Cash Equivalents
  Short-term Financial Instruments
  Allowance for Doubtful Accounts
   2003
    
    
    2004
    
    
    2005Beginning of year
    
    W
    21,170
    
    
    W
    41,089
    
    
    W
    62,806Provision
    
    
    25,744
    
    
    
    29,933
    
    
    
    31,192Write-offs
    
    
    (1,569
    )
    
    
    (8,969
    )
    
    
    (27,219
    )Changes in consolidated subsidiaries
    
    
    (4,256
    )
    
    
    753
    
    
    
    64,145End of year
    
    W
    41,089
    
    
    W
    62,806
    
    
    W
    130,924
  W
 Inventories
  F-14




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##### Table of Contents



Investment Securities Other than those Accounted for Using the Equity Method
        F-15




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##### 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
    
    3~15 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
 F-16




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##### Table of Contents



Capitalization of Financing Costs
  Long-Lived Assets
  Leases
  Intangibles
  Estimated Useful LivesGoodwill
    
    4~5 yearsProperty rights of industry
    
    5~10 yearsCable line usage rights
    
    15~20 yearsLand rights
    
    20 yearsDevelopment costs
    
    1 yearOther intangibles
    
    3~5 years
 Discounts on Debentures
  Accrued Severance Indemnities
 W W
 W W
 F-17




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##### Table of Contents



W W
  2003
    
    
    2004
    
    
    2005Beginning of year
    
    W
    28,027
    
    
    W
    25,649
    
    
    W
    36,348Severance payments
    
    
    (15,556
    )
    
    
    (5,090
    )
    
    
    (19,666
    )Provision
    
    
    15,224
    
    
    
    15,116
    
    
    
    16,142Changes in consolidated subsidiaries
    
    
    (2,046
    )
    
    
    673
    
    
    
    3,19825,649
    
    
    
    36,348
    
    
    
    36,022National Pension Fund for employees
    
    
    (149
    )
    
    
    (127
    )
    
    
    (82
    )Severance insurance deposits
    
    
    (1,624
    )
    
    
    (3,289
    )
    
    
    (3,242
    )End of year
    
    W
    23,876
    
    
    W
    32,932
    
    
    W
    32,698
 W W
 Accounting for Foreign Currency Transactions and Translation
 W W
 Income Tax Expense
  Stock Compensation Expense
  F-18




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##### Table of Contents



Net Income (Loss) per Share and Ordinary Income (Loss) per Share
   2003
    
    
    2004
    
    
    2005Net income (loss)
    
    W
    (161,299
    )
    
    W
    13,046
    
    
    W
    (209,318
    )Dividend for preferred stock
    
    
    
    
    
    
    
    
    
    
    Net income (loss) for common stock
    
    W
    (161,299
    )
    
    W
    13,046
    
    
    W
    (209,318
    )Extraordinary item
    
    
    
    
    
    
    
    
    
    
    (19,018
    )Ordinary income (loss) for common stock
    
    W
    (161,299
    )
    
    W
    13,046
    
    
    W
    (190,300
    )The weighted average number of common shares
    
    
    321,309,739
    
    
    
    462,135,180
    
    
    
    462,135,180Basic and diluted net income (loss) per share
    
    W
    (502
    )
    
    W
    28
    
    
    W
    (453
    )Basic and diluted ordinary income (loss) per
share
    
    W
    (502
    )
    
    W
    28
    
    
    W
    (412
    )
  Adoption of Newly Effective Statements of Korea Accounting Standards
   CASH AND CASH EQUIVALENTS:
  Interest rate per annum (%)
    
    
    Amount2005
    
    
    2004
    
    
    2005Cash on hand
    
    
    
    
    
    W
    7
    
    
    W
    5Current deposits
    
    
    
    
    
    
    50
    
    
    
    Passbook accounts
    
    
    0.1
    
    
    
    4,045
    
    
    
    6,291Specified fund trusts
    
    
    3.1 ~ 5.5
    
    
    
    
    
    
    
    5,557Time deposits
    
    
    3.64
    
    
    
    37,000
    
    
    
    1,000Commercial paper
    
    
    
    
    
    
    11,586
    
    
    
    Money Market Funds
    
    
    3.4 ~ 4.05
    
    
    
    96,762
    
    
    
    119,321Money Market Deposit Accounts
    
    
    1.6 ~ 3.0
    
    
    
    3,896
    
    
    
    7,698Repurchase agreements
    
    
    3.65
    
    
    
    5,000
    
    
    
    5,046Certificate of deposits
    
    
    3.8
    
    
    
    10,000
    
    
    
    10,000W
    168,346
    
    
    W
    154,918
 F-19




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##### Table of Contents



SHORT-TERM AND LONG-TERM FINANCIAL INSTRUMENTS
  Interest rate per annum (%)
    
    
    Amount2005
    
    
    2004
    
    
    2005Time deposits
    
    
    3.3 ~ 4.4
    
    
    W
    144,005
    
    
    W
    17,255Repurchase agreements
    
    
    3.4 ~ 4.6
    
    
    
    29,521
    
    
    
    6,095Commercial paper
    
    
    
    
    
    
    5,190
    
    
    
    Certificate of deposits
    
    
    
    
    
    
    15,000
    
    
    
    W
    193,716
    
    
    W
    23,350
  Interest rate per annum (%)
    
    
    Amount2005
    
    
    2004
    
    
    2005Deposits for checking accounts
    
    
    
    
    
    W
    8
    
    
    W
    14Repurchase agreements
    
    
    3.75
    
    
    
    
    
    
    
    504Time deposits
    
    
    3.05 ~ 4.6
    
    
    
    60
    
    
    
    1,104W
    68
    
    
    W
    1,622
 RESTRICTED DEPOSITS:
  Amount2004
    
    
    2005Short-term financial instruments
    
    W
    117,267
    
    
    W
    22,709Long-term financial instruments
    
    
    68
    
    
    
    1,445W
    117,335
    
    
    W
    24,154
 SHORT-TERM INVESTMENT SECURITIES:
  2004
    
    
    2005Acquisition cost
    
    
    Book value
    
    
    Acquisition cost
    
    
    Book valueHeld-to-maturity securities:Collateralized bond obligation
    
    W
    1,570
    
    
    W
    1,120
    
    
    W
    1,120
    
    
    W
    Government bonds
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    W
    1,571
    
    
    W
    1,121
    
    
    W
    1,120
    
    
    W
    
 W W
 F-20




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##### Table of Contents



LONG-TERM INVESTMENT SECURITIES:
  2004
    
    
    2005Ownership
    
    
    
    
    
    
    Ownershippercentage (%)
    
    
    Amount
    
    
    percentage (%)
    
    
    AmountAvailable-for-sale securities:Listed equity securities:LG Telecom, Ltd.
    
    
    0.37
    
    
    W
    4,143
    
    
    
    
    
    
    W
    Netsecure Technology, Inc.
    
    
    0.38
    
    
    
    18
    
    
    
    
    
    
    
    C.C.S., Inc.
    
    
    7.22
    
    
    
    1,698
    
    
    
    7.22
    
    
    
    3,842Dong Bu Securities Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    0.67
    
    
    
    1,3455,859
    
    
    
    
    
    
    
    5,187Non-listed equity securities:Dreamline Corp.
    
    
    14.18
    
    
    
    16,935
    
    
    
    11.54
    
    
    
    16,935Korea Information Assurance, Inc.
    
    
    0.47
    
    
    
    100
    
    
    
    0.47
    
    
    
    100CCR Inc.
    
    
    2.08
    
    
    
    484
    
    
    
    2.08
    
    
    
    185Dauinternet, Inc.
    
    
    0.71
    
    
    
    28
    
    
    
    0.71
    
    
    
    18Korea Digital Cable Media Center
    
    
    4.75
    
    
    
    550
    
    
    
    4.21
    
    
    
    500HeyAnita Korea Inc.
    
    
    
    
    
    
    
    
    
    
    15.58
    
    
    
    828Saeronet Broadcasting Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    8.18
    
    
    
    1,151Powercomm Corporation
    
    
    
    
    
    
    
    
    
    
    0.06
    
    
    
    1,000CJ Cablenet Haeundae-Kijjang Corp.
    
    
    
    
    
    
    
    
    
    
    20.00
    
    
    
    1,118Rent House Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    20.00
    
    
    
    21Korea.com Communications Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    53.47
    
    
    
    TG Edunet Co., Ltd
    
    
    
    
    
    
    
    
    
    
    27.59
    
    
    
    Others
    
    
    
    
    
    
    2,099
    
    
    
    
    
    
    
    1,28020,196
    
    
    
    
    
    
    
    23,136Money Market Funds:Dong Yang Investment Bank
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34Prudential Investment & Securities Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145
    
    
    
    
    
    
    
    179Investments in funds:Engineering Benevolent Association
    
    
    0.03
    
    
    W
    14
    
    
    
    0.03
    
    
    W
    14KDBC Hanaro Interventure Fund
    
    
    31.00
    
    
    
    2,598
    
    
    
    31.00
    
    
    
    2,598MIC99-7 Venture Investment Association
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134Korea Equipment Financial Cooperative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67Information & Communication Financial
Cooperative
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    16Electric Contractors Financial Cooperative
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    53Korea Electric Engineers Association
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    24Korea Specialty Contractor Financial
Cooperative
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    502,741
    
    
    
    
    
    
    
    2,95628,796
    
    
    
    
    
    
    
    31,458Held-to-maturity securities:Government and municipal bond
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    11G.P.S. Korea Inc.
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    220
    
    
    
    
    
    
    
    13W
    28,816
    
    
    
    
    
    
    W
    31,471
 F-21




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##### Table of Contents



2004
    
    
    2005Acquisition cost
    
    
    Fair value
    
    
    Acquisition cost
    
    
    Fair valueLG Telecom Co., Ltd.
    
    W
    5,396
    
    
    W
    4,143
    
    
    W
    
    
    
    W
    Netsecure Technology, Inc.
    
    
    1,399
    
    
    
    18
    
    
    
    
    
    
    
    C.C.S., Inc.
    
    
    4,740
    
    
    
    1,698
    
    
    
    4,740
    
    
    
    3,842Dong Bu Securities Co.,
Ltd.
    
    
    
    
    
    
    
    
    
    
    201
    
    
    
    1,345W
    11,535
    
    
    W
    5,859
    
    
    W
    4,941
    
    
    W
    5,187
 W
  2004
    
    
    2005Acquisition
    
    
    Net asset
    
    
    Book
    
    
    Acquisition
    
    
    Net asset
    
    
    Bookcost
    
    
    value
    
    
    value
    
    
    cost
    
    
    value
    
    
    valueDreamline Corporation
    
    W
    39,530
    
    
    W
    18,837
    
    
    W
    16,935
    
    
    W
    39,530
    
    
    W
    18,165
    
    
    W
    16,935Korea Information Assurance, Inc.
    
    
    100
    
    
    
    81
    
    
    
    100
    
    
    
    100
    
    
    
    63
    
    
    
    100CCR Inc.
    
    
    1,780
    
    
    
    277
    
    
    
    484
    
    
    
    1,780
    
    
    
    185
    
    
    
    185Dauinternet, Inc.
    
    
    1,100
    
    
    
    20
    
    
    
    28
    
    
    
    1,100
    
    
    
    18
    
    
    
    18Korea Digital Cable Media Center
    
    
    550
    
    
    
    469
    
    
    
    550
    
    
    
    500
    
    
    
    384
    
    
    
    500HeyAnita Korea Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,568
    
    
    
    828
    
    
    
    828Saeronet Broadcasting Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,719
    
    
    
    1,151
    
    
    
    1,151Powercomm Corporation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    1,000CJ Cablenet Haeundae-Kijjang Corp.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,118
    
    
    
    1,118
    
    
    
    1,118Rent House Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    420
    
    
    
    21
    
    
    
    21Korea.com Communications Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,000
    
    
    
    
    
    
    
    TG Edunet Co., Ltd
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,400
    
    
    
    
    
    
    
    Others
    
    
    8,172
    
    
    
    1,351
    
    
    
    2,099
    
    
    
    13,204
    
    
    
    1,150
    
    
    
    1,280W
    51,232
    
    
    W
    21,035
    
    
    W
    20,196
    
    
    W
    100,439
    
    
    W
    24,083
    
    
    W
    23,136
  W W W
     F-22




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##### Table of Contents



2004
    
    
    2005Acquisition cost
    
    
    Book value
    
    
    Acquisition cost
    
    
    Book valueDong Yang Investment Bank
    
    W
    
    
    
    W
    
    
    
    W
    29
    
    
    W
    34Prudential Investment &
Securities Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    134
    
    
    
    145W
    
    
    
    W
    
    
    
    W
    163
    
    
    W
    179
   2004
    
    
    2005Acquisition cost
    
    
    Book value
    
    
    Acquisition cost
    
    
    Book valueGovernment and municipal bonds:
    
    W
    18
    
    
    W
    18
    
    
    W
    11
    
    
    W
    11Corporate bonds:G.P.S. Korea Inc.
    
    
    2
    
    
    
    2
    
    
    
    2
    
    
    
    2W
    20
    
    
    W
    20
    
    
    W
    13
    
    
    W
    13
 INVESTMENT SECURITIES USING THE EQUITY METHOD:
   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:
  2004
    
    
    2005Interest perannum (%)
    
    
    Short-term
    
    
    Long-term
    
    
    Short-term
    
    
    Long-termLoans to employees for stock purchase
    
    
    
    
    
    W
    4,486
    
    
    W
    8,634
    
    
    W
    8,087
    
    
    W
    1,742Loans to employees for housing
    
    
    2
    
    
    
    1,524
    
    
    
    8,450
    
    
    
    1,409
    
    
    
    7,210Other
    
    
    
    
    
    
    128
    
    
    
    67
    
    
    
    135
    
    
    
    426,138
    
    
    
    17,151
    
    
    
    9,631
    
    
    
    8,994Less: discount on present value
    
    
    
    
    
    
    (149
    )
    
    
    (2,495
    )
    
    
    (366
    )
    
    
    (1,361
    )W
    5,989
    
    
    W
    14,656
    
    
    W
    9,265
    
    
    W
    7,633
 F-23




---



##### Table of Contents



PROPERTY AND EQUIPMENT:
  2004:
 Changes inBeginning of
    
    
    
    
    
    
    
    
    
    
    consolidatedyear
    
    
    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
 2005:
 Changes inBeginning of
    
    
    
    
    
    
    
    
    
    
    consolidatedyear
    
    
    Increase
    
    
    Decrease
    
    
    subsidiaries
    
    
    End of yearLand
    
    W
    165,546
    
    
    W
    1,234
    
    
    W
    
    
    
    W
    11,386
    
    
    W
    178,166Buildings
    
    
    312,571
    
    
    
    4,847
    
    
    
    
    
    
    
    15,894
    
    
    
    333,312Structures
    
    
    246
    
    
    
    
    
    
    
    
    
    
    
    (54
    )
    
    
    192Machinery
    
    
    3,503,432
    
    
    
    323,020
    
    
    
    409,052
    
    
    
    615,752
    
    
    
    4,033,152Vehicles
    
    
    440
    
    
    
    
    
    
    
    273
    
    
    
    (134
    )
    
    
    33Other
    
    
    46,435
    
    
    
    5,983
    
    
    
    19,919
    
    
    
    6,990
    
    
    
    39,489Construction in progress
    
    
    22,701
    
    
    
    127,755
    
    
    
    137,920
    
    
    
    4,522
    
    
    
    17,058Machinery in transit
    
    
    261
    
    
    
    89
    
    
    
    350
    
    
    
    
    
    
    
    4,051,632
    
    
    
    462,928
    
    
    
    567,514
    
    
    
    654,356
    
    
    
    4,601,402Less: Accumulated
depreciationBuildings
    
    
    31,598
    
    
    
    8,890
    
    
    
    
    
    
    
    2,004
    
    
    
    42,492Structures
    
    
    51
    
    
    
    5
    
    
    
    
    
    
    
    (31
    )
    
    
    25Machinery
    
    
    1,612,856
    
    
    
    469,988
    
    
    
    339,016
    
    
    
    449,162
    
    
    
    2,192,990Vehicles
    
    
    362
    
    
    
    
    
    
    
    273
    
    
    
    (56
    )
    
    
    33Other
    
    
    33,920
    
    
    
    4,778
    
    
    
    17,362
    
    
    
    6,642
    
    
    
    27,9781,678,787
    
    
    
    483,661
    
    
    
    356,651
    
    
    
    457,721
    
    
    
    2,263,518W
    2,372,845
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    W
    2,337,884
 W W
 W W
 W W W
 F-24




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##### Table of Contents



LEASES
 (1)
    
    The Company has operating lease agreements for the rights to use automobiles with Avis Rent A
Car Co. The payment schedule for the operating leases is as follows (Won in millions):
 Year
    
    Amount2006
    
    W
    6232007
    
    
    1862008
    
    
    23W
    832
 (2)
    
    The Company also has capital lease agreements with Korea HP Financial Service Co., LG Card
Services Corp., and Cisco Systems Capital Korea Ltd. for certain machinery and equipment. As
of December 31, 2004 and 2005, the acquisition cost of machinery and equipment under capital
leases was W175,336 million and W108,719 million, respectively, and depreciation expense
related to these capital leases for the years ended December 31, 2003, 2004 and 2005 amounts
to W20,071 million, W19,719 million and W13,590 million, respectively.The Company early repaid a portion of capital leases and recorded W58 million of loss on early
redemption of obligations under capital leases for the year ended December 31, 2005.The future annual payments under these capital lease agreements as of December 31, 2005 are as
follows (Won in millions):
 AmountYear
    
    Principal
    
    
    Interest
    
    
    Total2006
    
    W
    26,719
    
    
    W
    1,447
    
    
    W
    28,1662007
    
    
    12,271
    
    
    
    323
    
    
    
    12,5942008
    
    
    433
    
    
    
    4
    
    
    
    43739,423
    
    
    W
    1,774
    
    
    W
    41,197Less: Current portion
    
    
    (26,719
    )W
    12,704
 In relation to these lease agreements, the Company has provided one blank promissory note as
collateral to LG Card Services Corp. (See Note 21).
 INTANGIBLES:
 (1)
    
    Intangibles as of December 31, 2004 and 2005 are as follows (Won in millions):
 2004:
 Acquisition cost
    
    
    Amortization
    
    
    Impairment
    
    
    Book valueGoodwill
    
    W
    23,619
    
    
    W
    17,844
    
    
    W
    
    
    
    W
    5,775Property rights of industry
    
    
    172
    
    
    
    125
    
    
    
    
    
    
    
    47Cable line usage rights
    
    
    55,967
    
    
    
    8,219
    
    
    
    
    
    
    
    47,748Land rights
    
    
    78
    
    
    
    16
    
    
    
    
    
    
    
    62Development costs
    
    
    36,775
    
    
    
    35,309
    
    
    
    
    
    
    
    1,466Other intangibles
    
    
    2,184
    
    
    
    931
    
    
    
    86
    
    
    
    1,167W
    118,795
    
    
    W
    62,444
    
    
    W
    86
    
    
    W
    56,265
 2005:
 Acquisition cost
    
    
    Amortization
    
    
    Impairment
    
    
    Book valueGoodwill
    
    W
    136,704
    
    
    W
    14,851
    
    
    W
    79,168
    
    
    W
    42,685Property rights of industry
    
    
    161
    
    
    
    142
    
    
    
    
    
    
    
    19Cable line usage rights
    
    
    75,255
    
    
    
    14,850
    
    
    
    
    
    
    
    60,405Land rights
    
    
    78
    
    
    
    20
    
    
    
    
    
    
    
    58Development costs
    
    
    40,079
    
    
    
    38,402
    
    
    
    
    
    
    
    1,677Other intangibles
    
    
    6,101
    
    
    
    1,546
    
    
    
    559
    
    
    
    3,996W
    258,378
    
    
    W
    69,811
    
    
    W
    79,727
    
    
    W
    108,840
 F-25




---



##### Table of Contents



(2)
    
    Changes in intangibles for the years ended December 31, 2004 and 2005 are as follows (Won in
millions):
 2004:
 Changes inBeginning
    
    
    
    
    
    
    
    
    
    
    consolidatedof year
    
    
    Acquisition
    
    
    Amortization
    
    
    subsidiaries
    
    
    End of yearGoodwill
    
    W
    3,287
    
    
    W
    6,343
    
    
    W
    3,855
    
    
    W
    
    
    
    W
    5,775Property rights of industry
    
    
    15
    
    
    
    1
    
    
    
    22
    
    
    
    53
    
    
    
    47Cable line usage rights
    
    
    45,397
    
    
    
    4,969
    
    
    
    2,609
    
    
    
    (9
    )
    
    
    47,748Land rights
    
    
    66
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    62Development costs
    
    
    2,716
    
    
    
    1,375
    
    
    
    2,625
    
    
    
    
    
    
    
    1,466Other intangibles
    
    
    
    
    
    
    347
    
    
    
    323
    
    
    
    1,143
    
    
    
    1,167W
    51,481
    
    
    W
    13,035
    
    
    W
    9,438
    
    
    W
    1,187
    
    
    W
    56,265
 2005:
 Changes inBeginning
    
    
    
    
    
    
    
    
    
    
    consolidatedof year
    
    
    Acquisition
    
    
    Amortization
    
    
    subsidiaries
    
    
    End of yearGoodwill
    
    W
    5,775
    
    
    W
    128,233
    
    
    W
    91,323
    
    
    W
    
    
    
    W
    42,685Property rights of industry
    
    
    47
    
    
    
    2
    
    
    
    26
    
    
    
    (4
    )
    
    
    19Cable line usage rights
    
    
    47,748
    
    
    
    3,845
    
    
    
    3,526
    
    
    
    12,338
    
    
    
    60,405Land rights
    
    
    62
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    58Development costs
    
    
    1,466
    
    
    
    3,304
    
    
    
    3,093
    
    
    
    
    
    
    
    1,677Other intangibles
    
    
    1,167
    
    
    
    3,918
    
    
    
    1,089
    
    
    
    
    
    
    
    3,996W
    56,265
    
    
    W
    139,302
    
    
    W
    99,061
    
    
    W
    12,334
    
    
    W
    108,840
 (3)
    
    The Company recorded W86 million and W79,641 million of impairment on intangibles for the
years ended December 31, 2004 and 2005, respectively.
 (4)
    
    W4,891 million, W3,960 million and W4,403 million of ordinary research and development
costs were charged to expense as incurred for the years ended December 31, 2003, 2004 and
2005, respectively.
 LONG-TERM DEBT AND DEBENTURES:
 (1)
    
    Long-term debt in local currency as of December 31, 2004 and 2005 is as follows (Won in
millions):
 Interest rate per annum (%)
    
    
    Amount2005
    
    
    2004
    
    
    2005Information promotion fund
    
    
    
    
    
    W
    66,651
    
    
    W
    General loans
    
    
    
    
    
    
    40,000
    
    
    
    Syndication loans
    
    
    6.36
    
    
    
    102,304
    
    
    
    79,847208,955
    
    
    
    79,847Less: Current portion
    
    
    
    
    
    
    (66,756
    )
    
    
    Discount on present value
    
    
    
    
    
    
    (2,691
    )
    
    
    (3,362
    )W
    139,508
    
    
    W
    76,485
 On April 18, 2002, the Company transferred the beneficiary certificates of W207,000
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 receive certain 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 W7,000 million was loaned by the Company and W
200,000 million was loaned by the banks. The proceeds of W200,000 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. The ABL
repayment was completed as of December 31, 2004 and W398 million was recorded as interest
expense for the year ended December 31, 2004.
 F-26




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##### Table of Contents



(2)
    
    Long-term debt in foreign currency as of December 31, 2004 and 2005 is as follows (Won in
millions, dollar in thousands):
 Interest rateper annum (%)
    
    
    U.S. dollars
    
    
    Won equivalent2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005Syndication loans
    
    
    6.18
    
    
    $
    258,568
    
    
    $
    201,809
    
    
    W
    267,618
    
    
    W
    202,718Less: Current
portion
    
    
    
    
    
    
    
    
    
    
    (30,271
    )
    
    
    
    
    
    
    (30,408
    )Discount
on
present
value
    
    
    
    
    
    
    (7,703
    )
    
    
    (3,798
    )
    
    
    (7,972
    )
    
    
    (3,816
    )$
    250,865
    
    
    $
    167,740
    
    
    W
    259,646
    
    
    W
    168,494
 The Company early repaid a portion of long-term debt and recorded W2,235 million of loss on
early redemption of long-term debt for the year ended December 31, 2005.
  Amount2004
    
    
    2005Interest rate per annum (%)
    
    
    Due
    
    
    Won
    
    
    U.S. dollars
    
    
    Won equivalent19-2nd
    
    
    
    
    
    
    2002~2005
    
    
    
    20,000
    
    
    $
    
    
    
    
    20th
    
    
    
    
    
    
    2002~2005
    
    
    
    100,000
    
    
    
    
    
    
    
    21st
    
    
    
    
    
    
    2002~2005
    
    
    
    170,000
    
    
    
    
    
    
    
    23rd
    
    
    6.00
    
    
    
    2003~2006
    
    
    
    190,000
    
    
    
    
    
    
    
    190,00024th
    
    
    
    
    
    
    2003~2005
    
    
    
    16,000
    
    
    
    
    
    
    
    Foreign currency
    
    
    7.00
    
    
    
    2005~2012
    
    
    
    
    
    
    
    500,000
    
    
    
    502,250496,000
    
    
    
    500,000
    
    
    
    692,250Less: Current portion
    
    
    
    
    
    
    
    
    
    
    (306,000
    )
    
    
    
    
    
    
    (190,000
    )Discount on
present value
    
    
    
    
    
    
    
    
    
    
    (482
    )
    
    
    (8,880
    )
    
    
    (9,044
    )W
    189,518
    
    
    $
    491,120
    
    
    W
    493,206
 According to the covenants, debentures of 23rd require the Company to keep the debt
ratio lower than 300 percent and the Company should not dispose of its property and equipment
more than the W1,000 billion in each fiscal year. The Company complied with the covenants
requirements as of December 31, 2005.As of December 31, 2005, 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.The warrants on the bonds with stock warrants (18th debenture) is US$ 15,000
thousand (3,963,600 shares) and are exercisable until January 26, 2007. The exercise price per
one share is W5,000 at an exchange rate of W1,321.20 to US$1.00.The Company early repaid a portion of debentures and recorded W308 million and W165 million of
loss on early redemption of debentures for the years ended December 31, 2003 and 2005. Also,
The Company recorded W870 million of gain on early redemption of debentures for the year ended
December 31, 2003.
 F-27




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##### Table of Contents



(4)
    
    The repayment schedule of debentures and long-term debt as of December 31, 2005 is as follows
(Won in millions and dollar in thousands):
 Debentures in
    
    
    
    
    
    
    Long-term debt inDebentures
    
    
    foreign currency
    
    
    Long-term
    
    
    foreign currencyin local
    
    
    
    
    
    
    Won
    
    
    debt in local
    
    
    
    
    
    
    WonYear
    
    currency
    
    
    U.S. Dollar
    
    
    equivalent
    
    
    currency
    
    
    U.S. Dollar
    
    
    equivalent
    
    
    Total2006
    
    W
    190,000
    
    
    $
    
    
    
    W
    
    
    
    W
    
    
    
    $
    30,271
    
    
    W
    30,408
    
    
    W
    220,4082007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,163
    
    
    
    80,724
    
    
    
    81,087
    
    
    
    100,2502008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,357
    
    
    
    90,814
    
    
    
    91,223
    
    
    
    113,5802009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,551
    
    
    
    
    
    
    
    
    
    
    
    25,5512010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,776
    
    
    
    
    
    
    
    
    
    
    
    12,7762012
    
    
    
    
    
    
    500,000
    
    
    
    502,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    502,250W
    190,000
    
    
    $
    500,000
    
    
    W
    502,250
    
    
    W
    79,847
    
    
    $
    201,809
    
    
    W
    202,718
    
    
    W
    974,815
 (5)
    
    On April 21, 2005, the Company entered into a syndicated loan agreement with Development Bank
of Singapore, JP Morgan Chase, Deutsche Bank, Korea Development Bank and other financial
institutions. The loan agreement approximates W720 billion (Won currency loan of W310,048
million and US$ currency loan of US$ 409,952 thousand), which includes a term loan of W660
billion with a maturity of five years and a revolving loan of W60 billion. The outstanding
balance of this syndicated loan as of December 31, 2005 is W282,564 million (long-term debt
in local currency of W79,847 million and long-term debt in foreign currency of W202,718
million).
 (6)
    
    In relation to the above syndicated loan up to W720 billion, the Companys buildings are
pledged as collateral up to W542,799 million; machinery of which book value is W1,702,960
million as of September 30, 2004 are provided as assignable mortgage and some intellectual
property rights are pledged as collateral.
 ASSET BACKED SECURITIES PAYABLE:
 W W W W W
 DERIVATIVES:
 W W
 Valuation lossFinancial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    on interest swapinstitution
    
    Contract period
    
    
    Floating rate (%)
    
    Fixed rate (%)
    
    
    Contract amount
    
    
    2004
    
    
    2005IBK
    
    
    2002.5~2005.5
    
    
    Government bond rate+1.95
    
    
    9.90
    
    
    W
    100,000
    
    
    W
    1,496
    
    
    W
    KDB
    
    
    2003.12~2008.11
    
    
    LIBOR+3.25
    
    
    7.72
    
    
    $
    63,065
    
    
    
    4,556
    
    
    
    691KDB etc
    
    
    2004.2~2008.11
    
    
    LIBOR+3.25
    
    
    7.60
    
    
    $
    138,744
    
    
    
    9,325
    
    
    
    1,168KDB etc
    
    
    2004.9~2008.11
    
    
    LIBOR+3.25
    
    
    6.70
    
    
    $
    56,759
    
    
    
    2,246
    
    
    
    W
    17,623
    
    
    W
    1,859
 F-28




---



##### Table of Contents



W W W W
 Contract period
    
    Fixed exchange rate
    
    
    Contract amount2003.12~2008.11
    
    
    1,190.00
    
    
    $
    63,0652004.2~2008.11
    
    
    1,166.20
    
    
    
    138,7442005.2~2012.2
    
    
    1,026.5~1,035.0
    
    
    
    500,000$
    701,809
 W W W
 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
    
    
    
    1,413,591
    
    
    
    17,750
    
    
    New stock issue
    
    2003.3.18~2008.3.172004.12.16
    
    
    
    19,772,890
    
    
    
    5,000
    
    
    New stock issue or
cash payment
    
    2006.12.17~2011.12.162005.3.25
    
    
    
    610,000
    
    
    
    5,000
    
    
    New stock issue or
cash payment
    
    2007.3.26~2012.3.25Hanaro Dream, Inc.
    
    
    2003.1.16
    
    
    
    30,000
    
    
    
    8,000
    
    
    New stock issue
    
    2005.1.16~2007.1.15
 W W W W W W
 F-29




---



##### Table of Contents



Year
    
    AmountCarried forward from prior period
    
    W
    7,2272005.1 ~ 2005.12
    
    
    4,2382006.1 ~ 2006.12
    
    
    3,7742007.1 ~ 2007.12
    
    
    1,5932008.1 ~ 2008.12
    
    
    352009.1 ~ 2009.12
    
    
    5W
    16,872
  Granted in 2000
    
    
    Granted in 2004
    
    
    Granted in 2005Risk-free interest rate (%)
    
    
    9.0
    
    
    
    3.35 ~ 3.43
    
    
    
    4.11 ~ 4.38Expected lives (years)
    
    
    3 ~ 7
    
    
    
    2 ~ 3
    
    
    
    2 ~ 4Expected forfeitures per year (%)
    
    
    3.0
    
    
    
    2.09
    
    
    
    2.09Volatility (%)
    
    
    
    
    
    
    53.8 ~ 85.7
    
    
    
    34.3 ~ 50.4Weighted-average exercise price
(won)
    
    W
    17,750
    
    
    W
    5,000
    
    
    W
    5,000Weighted-average fair value (won)
    
    W
    
    
    
    W
    457
    
    
    W
    385
  2003
    
    
    2004
    
    
    2005Ordinary income (loss)
    
    W
    (162,657
    )
    
    W
    12,695
    
    
    W
    (192,489
    )Net income (loss)
    
    W
    (163,044
    )
    
    W
    11,893
    
    
    W
    (210,020
    )Ordinary income (loss) per share
    
    W
    (506
    )
    
    W
    27
    
    
    W
    (417
    )Net income (loss) per share
    
    W
    (507
    )
    
    W
    26
    
    
    W
    (455
    )
 W
 F-30




---



##### Table of Contents



OPERATING EXPENSES:
  2003
    
    
    2004
    
    
    2005Salaries and wages
    
    W
    92,370
    
    
    W
    103,030
    
    
    W
    122,839Provision for severance indemnities
    
    
    13,444
    
    
    
    14,095
    
    
    
    14,918Welfare
    
    
    19,380
    
    
    
    24,994
    
    
    
    25,971Rent
    
    
    14,746
    
    
    
    6,075
    
    
    
    9,339Taxes and dues
    
    
    8,272
    
    
    
    7,449
    
    
    
    8,245Depreciation
    
    
    428,528
    
    
    
    442,312
    
    
    
    498,087Advertising
    
    
    27,457
    
    
    
    39,514
    
    
    
    30,110Ordinary research and development cost
    
    
    4,891
    
    
    
    3,960
    
    
    
    4,403Utilities
    
    
    19,487
    
    
    
    22,023
    
    
    
    26,800Telecommunication equipment lease expenses
    
    
    165,716
    
    
    
    140,820
    
    
    
    164,439Bad debt
    
    
    25,744
    
    
    
    29,933
    
    
    
    19,065Maintenance
    
    
    42,583
    
    
    
    51,451
    
    
    
    59,255Selling expenses
    
    
    6,408
    
    
    
    6,791
    
    
    
    10,821Sales commissions
    
    
    195,997
    
    
    
    178,380
    
    
    
    249,740Interconnection charges
    
    
    131,114
    
    
    
    141,964
    
    
    
    164,677Commissions
    
    
    70,859
    
    
    
    68,460
    
    
    
    84,618Outsourcing services
    
    
    20,519
    
    
    
    24,722
    
    
    
    30,816Other
    
    
    25,277
    
    
    
    29,666
    
    
    
    26,680W
    1,312,792
    
    
    W
    1,335,639
    
    
    W
    1,550,823
 INCOME TAX EXPENSE AND DEFERRED INCOME TAXES:
 Income Tax Expense
  2003
    
    
    2004
    
    
    2005Income taxes currently payable
    
    W
    341
    
    
    W
    806
    
    
    W
    245Changes in temporary differences
    
    
    (39
    )
    
    
    (311
    )
    
    
    189Income tax expense
    
    W
    302
    
    
    W
    495
    
    
    W
    434
 Deferred Income Taxes
  F-31




---



##### Table of Contents



Amount2004
    
    
    2005Accrued severance indemnities
    
    W
    22,154
    
    
    W
    26,402Bad debts
    
    
    59,500
    
    
    
    96,789Present value discount
    
    
    2,918
    
    
    
    2,387Impairment loss on long-term investment securities
    
    
    39,489
    
    
    
    96,183Accrued expenses
    
    
    
    
    
    
    22,690Loss on disuse of property and equipment
    
    
    13,840
    
    
    
    41,800Loss on valuation of forward exchange contract
    
    
    33,975
    
    
    
    19,842Depreciation
    
    
    1
    
    
    
    48,771Impairment loss on intangibles
    
    
    
    
    
    
    1,109Unearned income
    
    
    (2,067
    )
    
    
    (758
    )Valuation gain on available-for-sale securities, net
    
    
    
    
    
    
    (3,184
    )Present value discount
    
    
    (10,663
    )
    
    
    (11,022
    )Loss on foreign currency translation
    
    
    
    
    
    
    (5,887
    )Severance insurance deposits and other
    
    
    (4,665
    )
    
    
    (2,710
    )154,482
    
    
    
    332,412Loss carryforward
    
    
    703,695
    
    
    
    1,289,173Less: Temporary differences excluded
    
    
    (855,970
    )
    
    
    (1,620,949
    )2,207
    
    
    
    636Tax rate (%)
    
    
    27.5
    %
    
    
    27.5
    %Deferred income tax assets, net
    
    W
    607
    
    
    W
    175
 The Company(excluding subsidiary) did not recognize deferred income tax assets for temporary
differences due to the uncertainty of future realization of the deferred tax benefits of
W855,970 million and W1,620,949 million as of December 31, 2004 and 2005, respectively.
 RELATED PARTY TRANSACTIONS
 (1)
    
    Significant transactions and outstanding balances with subsidiaries for the years ended and
as of December 31, 2004 and 2005 are as follows (Won in millions):
 2004
    
    
    
    
    
    
    
    
    
    Receivables
    
    
    PayablesKey-money
    
    
    Accounts
    
    
    Trade
    
    
    AccruedRevenue
    
    
    Expenses
    
    
    deposits
    
    
    Receivables
    
    
    payables
    
    
    expensesHanaro Realty Development &
Management Co., Ltd.
    
    W
    183
    
    
    W
    19,181
    
    
    W
    1,409
    
    
    W
    142
    
    
    W
    433
    
    
    W
    366Hanaro Telephone & Internet
Information, Inc.
    
    
    13
    
    
    
    34,457
    
    
    
    
    
    
    
    
    
    
    
    188
    
    
    
    3,047Hanaro Web(n)TV
    
    
    155
    
    
    
    3,980
    
    
    
    98
    
    
    
    129
    
    
    
    176
    
    
    
    Hanaro Telecom America, Inc.
    
    
    
    
    
    
    512
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    HanaroDream Inc.
    
    
    3,300
    
    
    
    14,438
    
    
    
    
    
    
    
    636
    
    
    
    2,360
    
    
    
    1,300W
    3,651
    
    
    W
    72,568
    
    
    W
    1,507
    
    
    W
    907
    
    
    W
    3,157
    
    
    W
    4,713
 F-32




---



##### Table of Contents



2005
    
    
    
    
    
    
    
    
    
    Receivables
    
    
    PayablesKey-money
    
    
    Accounts
    
    
    Trade
    
    
    AccruedRevenue
    
    
    Expenses
    
    
    deposits
    
    
    Receivables
    
    
    payables
    
    
    expensesHanaro Realty
Development &
Management Co., Ltd.
    
    W
    165
    
    
    W
    20,568
    
    
    W
    509
    
    
    W
    142
    
    
    W
    339
    
    
    W
    398Hanaro Telephone &
Internet Information,
Inc.
    
    
    18
    
    
    
    35,194
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,939Korea Thrunet Co., Ltd.
    
    
    13,352
    
    
    
    4,126
    
    
    
    
    
    
    
    6,837
    
    
    
    1,339
    
    
    
    626HanaroDream Inc.
    
    
    5,361
    
    
    
    27,507
    
    
    
    
    
    
    
    624
    
    
    
    821
    
    
    
    1,448W
    18,896
    
    
    W
    87,395
    
    
    W
    509
    
    
    W
    7,603
    
    
    W
    2,499
    
    
    W
    5,411
 (2)
    
    Transactions with shareholders for the years ended December 31, 2004 and 2005 are as follows
(won in millions):Revenues:
 Transaction
    
    
    2004
    
    
    2005Samsung
    
    Service fee
    
    W
    45
    
    
    W
    Dacom Corporation
    
    
    
    
    18,472
    
    
    
    15,656SK Telecom
    
    
    
    
    12,844
    
    
    
    20,581LG
    
    
    
    
    3,058
    
    
    
    4,090W
    34,419
    
    
    W
    40,327
 Purchases:
 Transaction
    
    2004
    
    
    2005Samsung
    
    Purchase of machinery and equipment, other
    
    W
    10,789
    
    
    W
    Dacom Corporation
    
    Interconnection charges, other
    
    
    25,896
    
    
    
    15,780SK Telecom
    
    Interconnection charges, other
    
    
    42,367
    
    
    
    45,530LG
    
    Purchase of machinery and equipment, other
    
    
    24,853
    
    
    
    26,346W
    103,905
    
    
    W
    87,656
 Balances with shareholders as of December 31, 2004 and 2005 are as follows (won in millions):
 Assets
    
    
    Liabilities2004
    
    
    2005
    
    
    2004
    
    
    2005Samsung
    
    W
    
    
    
    W
    
    
    
    W
    7,784
    
    
    W
    Dacom Corporation
    
    
    783
    
    
    
    530
    
    
    
    1,015
    
    
    
    447SK Telecom
    
    
    2,457
    
    
    
    4,237
    
    
    
    8,186
    
    
    
    7,496LG
    
    
    288
    
    
    
    666
    
    
    
    12,064
    
    
    
    7,342W
    3,528
    
    
    W
    5,433
    
    
    W
    29,049
    
    
    W
    15,285
 COMMITMENTS AND CONTINGENCIES
 (1)
    
    The Company has been provided US$ 100 thousand, as a maximum, of payment guarantees by the
Korea Exchange Bank in connection with the international telephone service arrangement
contract with SingTel.(2)
    
    The Company has been provided US$ 1,000 thousand of payment guarantees by the National
Agriculture Cooperative Federation in connection with the issuance of letters of credit.(3)
    
    The Company has provided one blank promissory note as collateral to LG Card Services Corp. in
connection with its lease agreements (See Note 11).
 F-33




---



##### Table of Contents



(4)
    
    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, telecommunication
equipments with Seoul Metropolitan Subway Corporation, Seoul Metropolitan Rapid Transit Corp.,
Powercomm Corp., Dacom Corp., Korea Electric Power Corporation, Dreamline Corp. and others,
and the related rental expenditure is recorded as telecommunication equipment lease expenses.(5)
    
    The Company has to comply with the covenants requirements in relation to its debentures (See
Note 13).
 SUPPLEMENTARY INFORMATION FOR COMPUTATION OF VALUE ADDED:
  2003
    
    
    2004
    
    
    2005Ordinary income (loss)
    
    W
    (160,912
    )
    
    W
    13,849
    
    
    W
    (191,787
    )Salaries and wages
    
    
    92,370
    
    
    
    103,030
    
    
    
    122,839Provisions for severance indemnities
    
    
    13,444
    
    
    
    14,095
    
    
    
    14,918Employee benefits
    
    
    19,380
    
    
    
    24,994
    
    
    
    25,971Interest, net
    
    
    120,865
    
    
    
    82,386
    
    
    
    82,177Rent
    
    
    14,746
    
    
    
    6,075
    
    
    
    9,339Taxes and dues
    
    
    8,272
    
    
    
    7,449
    
    
    
    8,245Depreciation
    
    
    428,528
    
    
    
    442,312
    
    
    
    498,087W
    536,693
    
    
    W
    694,190
    
    
    W
    569,789
 LITIGATIONS:
 W W
 SEGMENT INFORMATION:
   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
 F-34




---



##### Table of Contents



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
 2005
    
    Voice
    
    Leased Line
    
    Broadband
    
    Others
    
    TotalRevenue
    
    W
    375,253
    
    
    W
    44,255
    
    
    W
    1,074,387
    
    
    W
    95,450
    
    
    W
    1,589,345Operating income (loss)
    
    
    (76,581
    )
    
    
    (2,376
    )
    
    
    125,147
    
    
    
    (7,668
    )
    
    
    38,522Tangible and intangible assets
    
    
    581,981
    
    
    
    65,482
    
    
    
    1,638,395
    
    
    
    160,866
    
    
    
    2,446,724Capital expenditures and
advanced payments for
property and equipment
    
    
    194,393
    
    
    
    3,416
    
    
    
    135,976
    
    
    
    7,711
    
    
    
    341,496Depreciation and amortization
    
    
    96,696
    
    
    
    12,371
    
    
    
    347,410
    
    
    
    41,610
    
    
    
    498,087
 W W
 EXTRAORDINARY ITEMS
 W W
 MERGER
     hanarotelecom
    
    Korea ThrunetDate of establishment
    
    September          26, 1997
    
    July 30, 1996Chief executive officer
    
    Soon-Yub Kwon
    
    Soon-Yub KwonLocation
    
    Yoido-dong, Youngdeungpo,
    
    Yoido-dong, Youngdeungpo,Seoul
    
    SeoulType of the company
    
    Public company (listed in
    
    Non-listed companyKOSDAQ)Number of outstanding
shares
    
    462,135,180 shares
    
    103,134,426 sharesCapital stock
    
    W2,310,676 million
    
    W257,836 millionClosing date
    
    December 31
    
    December 31Number of investment
shares
    
    
    
    99,240,000 sharesOwnership percentage
    
    
    
    96.22%Status
    
    Surviving company
    
    Extinct company
 F-35




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##### Table of Contents



hanarotelecom
    
    Korea ThrunetAsset value (appraisal value)
    
    W
    3,826
    
    
    W
    1,366Exchange rate of stock
    
    
    1
    
    
    
    0.3570308Face value of the stock
    
    W
    5,000
    
    
    W
    2,500
   (1)
    
    Contract date of company valuation: September 5, 2005(2)
    
    Resolution date of board of directors meeting: September 14, 2005(3)
    
    Date of merger contract: September 22, 2005(4)
    
    Submission date of merger application: September 14, 2005(5)
    
    Confirm date of shareholders for general meeting of shareholders for approving the merger: September 7, 2005(6)
    
    Shareholders meeting date for approving the merger: November 7, 2005(7)
    
    Effective date of the merger: January 1, 2006(8)
    
    Registration date of merger: January 9, 2006(9)
    
    Listing date of newly issued shares: January 18, 2006
  New stock
    
    GrantNew stock (shares)
    
    
    1,217,832
    
    
    
    Increase of common stock
    
    W
    6,089
    
    
    
    
    AmountFair value of net assets
    
    W
    126,666Cost of purchasing
    
    
    249,221Goodwill
    
    W
    122,555
   AmountCurrent assets
    
    W
    167,030Tangibles
    
    
    190,479Goodwill
    
    
    122,555Other assets
    
    
    28,780Total assets acquired
    
    W
    508,844Total liabilities assumed
    
    
    (259,623
    )Net assets acquired
    
    W
    249,221
 F-36




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##### Table of Contents



Summarized balance sheets
 hanarotelecom
    
    
    Korea ThrunetCurrent assets:Quick assets
    
    W
    609,293
    
    
    W
    149,348Inventories
    
    
    1,841
    
    
    
    611,134
    
    
    
    149,348Non-current assets:Investments
    
    
    144,348
    
    
    
    17,389Tangible assets
    
    
    2,362,686
    
    
    
    233,596Intangible assets
    
    
    54,266
    
    
    
    14,3832,561,300
    
    
    
    265,368Total assets
    
    W
    3,172,434
    
    
    W
    414,716Current liabilities
    
    W
    737,081
    
    
    W
    94,525Long-term liabilities
    
    
    687,140
    
    
    
    401,492Total liabilities
    
    
    1,424,221
    
    
    
    496,017Capital stock
    
    
    2,310,676
    
    
    
    19,507Paid-in capital in excess of par value
    
    
    344,642
    
    
    
    388,578Accumulated deficit
    
    
    (891,264
    )
    
    
    (489,472
    )Capital adjustments
    
    
    (15,841
    )
    
    
    86Total shareholders equity
    
    
    1,748,213
    
    
    
    (81,301
    )Total liabilities & shareholders equity
    
    W
    3,172,434
    
    
    W
    414,716
 Summarized balance sheets
 hanarotelecom
    
    
    Korea ThrunetCurrent assets:Quick assets
    
    W
    343,654
    
    
    W
    102,292Inventories
    
    
    116
    
    
    
    343,770
    
    
    
    102,292Non-current assets:Investments
    
    
    384,881
    
    
    
    12,849Tangible assets
    
    
    2,188,805
    
    
    
    141,807Intangible assets
    
    
    62,645
    
    
    
    12,4932,636,331
    
    
    
    167,149Total assets
    
    W
    2,980,101
    
    
    W
    269,441Current liabilities
    
    W
    595,691
    
    
    W
    47,734Long-term liabilities
    
    
    816,823
    
    
    
    145,354Total liabilities
    
    
    1,412,514
    
    
    
    193,088Capital stock
    
    
    2,310,676
    
    
    
    257,836Paid-in capital in excess of par value
    
    
    344,642
    
    
    
    397,146Accumulated deficit
    
    
    (1,100,104
    )
    
    
    (579,325
    )Capital adjustments
    
    
    12,373
    
    
    
    696Total shareholders equity
    
    
    1,567,587
    
    
    
    76,353Total liabilities & shareholders equity
    
    W
    2,980,101
    
    
    W
    269,441
 F-37




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##### Table of Contents



Summarized statements of operations
 hanarotelecom
    
    
    Korea ThrunetOperating revenue
    
    W
    1,436,485
    
    
    W
    349,772Operating expenses
    
    
    1,322,464
    
    
    
    346,927Operating income
    
    
    114,021
    
    
    
    2,845Non-operating income
    
    
    61,903
    
    
    
    30,724Non-operating expenses
    
    
    (165,431
    )
    
    
    (107,642
    )Ordinary income (loss)
    
    
    10,493
    
    
    
    (74,073
    )Extraordinary items
    
    
    
    
    
    
    153,403Income before income tax
    
    
    10,493
    
    
    
    79,330Income tax expense
    
    
    
    
    
    
    Net income
    
    W
    10,493
    
    
    W
    79,330
 Summarized statements of operations
 hanarotelecom
    
    
    Korea ThrunetOperating revenue
    
    W
    1,444,411
    
    
    W
    298,411Operating expenses
    
    
    1,391,183
    
    
    
    315,305Operating income (loss)
    
    
    53,228
    
    
    
    (16,894
    )Non-operating income
    
    
    92,457
    
    
    
    22,146Non-operating expenses
    
    
    (348,377
    )
    
    
    (82,235
    )Ordinary loss
    
    
    (202,692
    )
    
    
    (76,983
    )Extraordinary items
    
    
    (6,148
    )
    
    
    (12,870
    )Loss before income tax
    
    
    (208,840
    )
    
    
    (89,853
    )Income tax expense
    
    
    
    
    
    
    Net loss
    
    W
    (208,840
    )
    
    W
    (89,853
    )
 EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
 (1)
    
    At the board of directors meeting on January 31, 2006, the Company resolved to acquire the
Celrun TVs stocks for W5,500 million (780,000 shares, 65% of ownership), and acquired in
March.(2)
    
    At the board of directors meeting on February 8, 2006, the Company resolved to issue
26th local debentures of W 100,000 million for the refinancing of current debt,
and issued in February.(3)
    
    At the board of directors meeting on February 22, 2006, the Company declared equal (2:1)
capital reduction to improve financial structure with the effective date on May 2, 2006.(4)
    
    At the board of directors meeting on February 22, 2006, the Company resolved to have its
stocks in United States of America delisted as the average daily trading volume of its stocks
in NASDAQ has became so low.
 F-38




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##### Table of Contents



RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES:
      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
    )
  W
  F-39




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##### Table of Contents



Korean wonUnrealized gains
    
    
    Unrealized losses
    
    
    Impaired lossesAcquisition
    
    
    Over 12
    
    
    Under 12
    
    
    Over 12
    
    
    Under 12
    
    
    Over 12
    
    
    Under 12
    
    
    Faircost
    
    
    months
    
    
    months
    
    
    months
    
    
    months
    
    
    months
    
    
    months
    
    
    value(In millions)2004:(1) Short-term investment securitiesDebt securities
    
    W
    1,571
    
    
    W
    
    
    
    W
    
    
    
    W
    
    
    
    W
    
    
    
    W
    
    
    
    W
    450
    
    
    W
    1,1211,571
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450
    
    
    
    1,121(2) Long-term investment securitiesAvailable-for-sale securitiesListed
    
    
    11,535
    
    
    
    
    
    
    
    82
    
    
    
    5,758
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,859Non-listed
    
    
    51,232
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,497
    
    
    
    2,539
    
    
    
    20,196Other
    
    
    2,741
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,74165,508
    
    
    
    
    
    
    
    82
    
    
    
    5,758
    
    
    
    
    
    
    
    28,497
    
    
    
    2,539
    
    
    
    28,796Debt securities
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2065,528
    
    
    
    
    
    
    
    82
    
    
    
    5,758
    
    
    
    
    
    
    
    28,497
    
    
    
    2,539
    
    
    
    28,816W
    67,099
    
    
    W
    
    
    
    W
    82
    
    
    W
    5,758
    
    
    W
    
    
    
    W
    28,497
    
    
    W
    2,989
    
    
    W
    29,937
 Korean wonUnrealized gains
    
    
    Unrealized losses
    
    
    Impaired lossesAcquisition
    
    
    Over 12
    
    
    Under 12
    
    
    Over 12
    
    
    Under 12
    
    
    Over 12
    
    
    Under 12
    
    
    Faircost
    
    
    months
    
    
    months
    
    
    months
    
    
    months
    
    
    months
    
    
    months
    
    
    value(In millions)2005:(1) Short-term investment securitiesDebt securities
    
    W
    1,120
    
    
    W
    
    
    
    W
    
    
    
    W
    
    
    
    W
    
    
    
    W
    
    
    
    W
    1,120
    
    
    W
    1,120
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,120
    
    
    
    (2) Long-term investment securitiesAvailable-for-sale securitiesListed
    
    
    4,941
    
    
    
    164
    
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,187Non-listed
    
    
    100,439
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,267
    
    
    
    1,036
    
    
    
    23,136MMF
    
    
    163
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179Other
    
    
    2,956
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,956108,499
    
    
    
    164
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    76,267
    
    
    
    1,036
    
    
    
    31,458Debt securities
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13108,512
    
    
    
    164
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    76,267
    
    
    
    1,036
    
    
    
    31,471W
    109,632
    
    
    W
    164
    
    
    W
    98
    
    
    W
    
    
    
    W
    
    
    
    W
    76,267
    
    
    W
    2,156
    
    
    W
    31,471
  F-40




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##### Table of Contents



Intangible assets with finite lives
    
    Property rights of industryCable line usage rightsLand rightOtherIntangible assets with indefinite lives
    
    GoodwillLicensing cost [see Note 28(2)]
    F-41




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##### Table of Contents



2003
    
    2004
    
    2005Weighted-
    
    
    
    
    
    Weighted-
    
    
    
    
    
    Weighted-Shares
    
    average
    
    Shares
    
    average
    
    Shares
    
    averageexercise price
    
    
    
    
    
    exercise price
    
    
    
    
    
    exercise priceOutstanding at beginning
of year
    
    
    1,810,642
    
    
    W
    17,558
    
    
    
    1,721,153
    
    
    W
    17,549
    
    
    
    21,494,043
    
    
    W
    6,005Granted
    
    
    
    
    
    
    
    
    
    
    19,772,890
    
    
    
    5,000
    
    
    
    610,000
    
    
    
    5,000Cancelled
    
    
    (89,489
    )
    
    
    17,750
    
    
    
    
    
    
    
    
    
    
    
    (137,562
    )
    
    
    17,750Outstanding at end of year
    
    
    1,721,153
    
    
    
    17,549
    
    
    
    21,494,043
    
    
    
    6,005
    
    
    
    21,966,481
    
    
    
    5,903Options exercisable at
year-end
    
    
    1,721,153
    
    
    
    
    
    
    
    1,721,153
    
    
    
    
    
    
    
    1,583,591Weighted-average fair
value of options
granted during
the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    457
    
    
    
    
    
    
    
    385
  2003
    
    2004
    
    2005Weighted-
    
    
    
    
    
    Weighted-
    
    
    
    
    
    Weighted-Shares
    
    average
    
    Shares
    
    average
    
    Shares
    
    averageexercise price
    
    
    
    
    
    exercise price
    
    
    
    
    
    exercise priceOutstanding at beginning
of year
    
    
    
    
    
    W
    
    
    
    
    80,000
    
    
    W
    8,000
    
    
    
    30,000
    
    
    W
    8,000Granted
    
    
    80,000
    
    
    
    8,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    
    
    
    
    (50,000
    )
    
    
    8,000
    
    
    
    
    
    
    
    Outstanding at end of year
    
    
    80,000
    
    
    
    8,000
    
    
    
    30,000
    
    
    
    8,000
    
    
    
    30,000
    
    
    
    8,000Options exercisable at
year-end
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,000Weighted-average fair
value of options
granted during
the year
    
    
    
    
    
    
    1,108
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   Weighted-averageRanges of exercise
    
    Number of
    
    remaining contractual
    
    Weighted-averageprice
    
    options outstanding
    
    life (years)
    
    exercise priceW5,000
    
    
    20,382,890
    
    
    
    1.4
    
    
    W
    5,000W5,630
    
    
    50,000
    
    
    
    0.0
    
    
    
    5,630W17,750 to W19,910
    
    
    1,533,591
    
    
    
    0.0
    
    
    
    17,905W5,000 to W19,910
    
    
    21,966,481
    
    
    
    1.3
    
    
    
    5,903
  Weighted-averageRanges of exercise
    
    Number of
    
    remaining contractual
    
    Weighted-averageprice
    
    options outstanding
    
    life (years)
    
    exercise priceW8,000
    
    
    30,000
    
    
    
    0.0
    
    
    W
    8,000
 F-42




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##### Table of Contents



F-43




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##### Table of Contents



Korean Won2003
    
    
    2004
    
    
    2005(In millions)Net income (loss) in accordance with U.S.GAAP
    
    W
    (161,598
    )
    
    W
    14,849
    
    
    W
    (203,212
    )Other comprehensive income (loss), net of tax :Unrealized gains (losses) on investments
    
    
    (1,062
    )
    
    
    2,087
    
    
    
    14,591Less : reclassification adjustment
    
    
    (1,321
    )
    
    
    (1,038
    )
    
    
    (5,643
    )Net unrealized gains (losses) on investments
    
    
    (2,383
    )
    
    
    1,049
    
    
    
    8,948Foreign-based operations translation credit (debit)
    
    
    2
    
    
    
    44
    
    
    
    Less : reclassification adjustment
    
    
    
    
    
    
    (22
    )
    
    
    Net foreign-based operations translation credit (debit)
    
    
    2
    
    
    
    22
    
    
    
    Net interest rate swap
    
    
    (7,425
    )
    
    
    (4,565
    )
    
    
    15,763Comprehensive income (loss) in accordance with U.S.GAAP
    
    W
    (171,404
    )
    
    W
    11,355
    
    
    W
    (178,501
    )
    Korean Won2003
    
    
    2004
    
    
    2005(In millions)Net cash provided by (used in):Operating activities
    
    W
    306,198
    
    
    W
    444,230
    
    
    W
    496,833Investing activities
    
    
    (269,837
    )
    
    
    (183,523
    )
    
    
    (582,395
    )Financing activities
    
    
    (118,106
    )
    
    
    (294,922
    )
    
    
    (48,366
    )Decrease due to changes in consolidated
subsidiaries
    
    
    
    
    
    
    (39,277
    )
    
    
    120,500Decrease in cash and cash equivalents
    
    
    (81,745
    )
    
    
    (73,492
    )
    
    
    (13,428
    )Cash and cash equivalents, beginning of year
    
    
    323,583
    
    
    
    241,838
    
    
    
    168,346Cash and cash equivalents, end of year
    
    W
    241,838
    
    
    W
    168,346
    
    
    W
    154,918
   F-44




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##### Table of Contents



(i)
    
    Cash and cash equivalents, short-term investment securities, short-term borrowings:The carrying amount approximates fair value because of the nature or short maturity of those
instruments.(ii)
    
    Other investments:The fair value of market-traded investments is estimated based on the
quoted market prices for those or similar investments. For other investments
for which there are no quoted market prices, net asset value proportionate to
the Companys ownership percentage is used as estimated fare value. However, a
reasonable estimate of fair value could not be made without incurring excessive
costs. Additional information pertinent to the fair value of unquoted
investments is provided below.(iii)
    
    Long-term debt, debentures and long-term obligation under capital lease:The fair values of long-term debt and debentures are estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered for the debt of the same remaining maturities.
 F-45




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##### Table of Contents



Korean Won2004
    
    2005Carrying amount
    
    Fair value
    
    Carrying amount
    
    Fair value(In millions)Cash and cash equivalents and short-term
investment securities
    
    W
    169,467
    
    
    W
    169,467
    
    
    W
    154,918
    
    
    W
    154,918Short-term financial instruments
    
    
    193,716
    
    
    
    193,716
    
    
    
    23,350
    
    
    
    23,350Long-term financial instruments
    
    
    68
    
    
    
    68
    
    
    
    1,622
    
    
    
    1,622Long-term investment securities
    
    
    28,816
    
    
    
    29,655
    
    
    
    31,471
    
    
    
    32,418Long-term debt, including current portion
    
    
    465,910
    
    
    
    466,922
    
    
    
    271,061
    
    
    
    271,061Debentures, including current portion
    
    
    488,975
    
    
    
    502,972
    
    
    
    683,206
    
    
    
    684,496Long-term obligations under capital
lease, including current portion
    
    
    79,854
    
    
    
    79,285
    
    
    
    39,423
    
    
    
    38,110Interest rate swap
    
    
    17,623
    
    
    
    17,623
    
    
    
    1,859
    
    
    
    1,859
   Translation intoKorean Won
    
    
    U.S. Dollars(Note 2)2003
    
    
    2004
    
    
    2005
    
    
    2005(In millions)
    
    
    
    
    
    
    (In thousands)Operating income based on
Korean GAAP
    
    W
    70,694
    
    
    W
    113,930
    
    
    W
    38,522
    
    
    $
    38,141U.S. GAAP adjustments:Gain on disposal
of property and
equipment
    
    
    1,102
    
    
    
    885
    
    
    
    3,962
    
    
    
    3,923Donations
    
    
    (800
    )
    
    
    (306
    )
    
    
    (312
    )
    
    
    (309
    )Loss on disposal
of property and
equipment
    
    
    (1,326
    )
    
    
    (1,246
    )
    
    
    (2,154
    )
    
    
    (2,133
    )Loss on disuse of
property and
equipment
    
    
    (61,333
    )
    
    
    (20,726
    )
    
    
    (60,586
    )
    
    
    (59,986
    )Other adjustments
    
    
    3,444
    
    
    
    416
    
    
    
    11,326
    
    
    
    11,214Operating income(loss)
based on U.S. GAAP
    
    W
    11,781
    
    
    W
    92,953
    
    
    W
    (9,242
    )
    
    $
    (9,150
    )
    F-46




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##### Table of Contents



Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)2003
    
    
    2004
    
    
    2005
    
    
    2005(In millions, except per share amount)
    
    
    (In thousands, exceptper share amount)Net income (loss) under Korean GAAP
    
    W
    (161,299
    )
    
    W
    13,046
    
    
    W
    (209,318
    )
    
    $
    (207,246
    )Adjustments:Development costs
    
    
    (1,717
    )
    
    
    1,250
    
    
    
    (211
    )
    
    
    (209
    )Interest capitalization
    
    
    3,168
    
    
    
    1,387
    
    
    
    1,541
    
    
    
    1,526Revenue recognition
    
    
    346
    
    
    
    282
    
    
    
    
    
    
    
    Bonds with stock warrants
    
    
    (7,066
    )
    
    
    
    
    
    
    
    
    
    
    Consolidation of SPE
    
    
    155
    
    
    
    
    
    
    
    
    
    
    
    Amortization of goodwill
    
    
    425
    
    
    
    738
    
    
    
    1,767
    
    
    
    1,750Error corrections
    
    
    4,390
    
    
    
    (1,854
    )
    
    
    
    
    
    
    Losses on impairment of investment securities
    
    
    
    
    
    
    
    
    
    
    3,009
    
    
    
    2,979Deferred tax effect of current
years U.S. GAAP adjustments
    
    
    89
    
    
    
    (2,545
    )
    
    
    (852
    )
    
    
    (844
    )Valuation allowance against
deferred tax assets created by
U.S. GAAP adjustments
    
    
    (89
    )
    
    
    2,545
    
    
    
    852
    
    
    
    844(299
    )
    
    
    1,803
    
    
    
    6,106
    
    
    
    6,046Net loss under U.S. GAAP
    
    W
    (161,598
    )
    
    W
    14,849
    
    
    W
    (203,212
    )
    
    $
    (201,200
    )Basic and diluted net income (loss) per
share under U.S. GAAP (in Korean
won and U.S. dollars)
    
    W
    (1,006
    )
    
    W
    64
    
    
    W
    (879
    )
    
    $
    (0.871
    )Basic and diluted ordinary income
(loss) per share under U.S. GAAP (in
Korean won and U.S. dollars)
    
    W
    (1,006
    )
    
    W
    64
    
    
    W
    (879
    )
    
    $
    (0.871
    )Shareholders equity under Korean GAAP
    
    W
    1,730,720
    
    
    W
    1,751,606
    
    
    W
    1,573,080
    
    
    $
    1,557,505Adjustments:Licensing cost paid by shareholders
    
    W
    35,250
    
    
    W
    35,250
    
    
    W
    35,250
    
    
    $
    34,900Development costs
    
    
    (2,716
    )
    
    
    (1,465
    )
    
    
    (1,676
    )
    
    
    (1,659
    )Interest capitalization
    
    
    3,168
    
    
    
    4,555
    
    
    
    6,096
    
    
    
    6,036Loans to employees
    
    
    (12,574
    )
    
    
    (12,067
    )
    
    
    (9,386
    )
    
    
    (9,293
    )Consolidation of SPE
    
    
    2,314
    
    
    
    
    
    
    
    
    
    
    
    Revenue recognition
    
    
    (282
    )
    
    
    
    
    
    
    
    
    
    
    Goodwill
    
    
    850
    
    
    
    1,589
    
    
    
    3,356
    
    
    
    3,323Error corrections
    
    
    922
    
    
    
    (932
    )
    
    
    
    
    
    
    Deferred tax effect of U.S. GAAP
adjustments
    
    
    (11,728
    )
    
    
    (10,724
    )
    
    
    (11,832
    )
    
    
    (11,715
    )Valuation allowance against
deferred tax assets created by
U.S. GAAP adjustments
    
    
    11,728
    
    
    
    10,724
    
    
    
    11,832
    
    
    
    11,715Changes in minority interest
applying U.S. GAAP
    
    
    (598
    )
    
    
    (3,215
    )
    
    
    (4,920
    )
    
    
    (4,871
    )Minority interests under U.S. GAAP
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    26,315
    
    
    
    23,715
    
    
    
    28,720
    
    
    
    28,436Shareholders equity under U.S. GAAP
    
    W
    1,757,035
    
    
    W
    1,775,321
    
    
    W
    1,601,800
    
    
    $
    1,585,941
  F-47




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##### Table of Contents



Translation intoKorean Won
    
    
    U.S. Dollars (Note 2)2004
    
    
    2005
    
    
    2005(In millions)
    
    
    (In thousands)Current assetsCurrent assets under Korean GAAP
    
    W
    624,797
    
    
    W
    446,374
    
    
    $
    441,954U.S. GAAP adjustments:Short-term loans
    
    
    (4,373
    )
    
    
    (7,757
    )
    
    
    (7,680
    )Prepaid expenses
    
    
    3,585
    
    
    
    2,424
    
    
    
    2,400Deferred income tax assets
    
    
    170
    
    
    
    244
    
    
    
    242Current assets under U.S. GAAP
    
    
    624,179
    
    
    
    441,285
    
    
    
    436,916Non-current assetsNon-current assets under Korean GAAP
    
    
    2,560,315
    
    
    
    2,587,886
    
    
    
    2,562,264U.S. GAAP adjustments:Long-term loans
    
    
    (7,694
    )
    
    
    (1,629
    )
    
    
    (1,613
    )Long-term prepaid expenses
    
    
    4,210
    
    
    
    3,488
    
    
    
    3,453Intangibles
    
    
    35,374
    
    
    
    36,930
    
    
    
    36,564Interest capitalization
    
    
    4,555
    
    
    
    6,096
    
    
    
    6,036Deferred income tax assets
    
    
    11,213
    
    
    
    12,049
    
    
    
    11,930Non-current assets under U.S. GAAP
    
    
    2,607,973
    
    
    
    2,644,820
    
    
    
    2,618,634Total assets based on U.S. GAAP
    
    W
    3,232,152
    
    
    W
    3,086,105
    
    
    $
    3,055,550Current liabilitiesCurrent liabilities under Korean GAAP
    
    W
    742,510
    
    
    W
    638,176
    
    
    $
    631,858U.S. GAAP adjustments:Unearned income
    
    
    3,585
    
    
    
    2,424
    
    
    
    2,400Error corrections
    
    
    932
    
    
    
    
    
    
    
    Deferred income tax liabilities
    
    
    170
    
    
    
    244
    
    
    
    242Current liabilities under U.S. GAAP
    
    
    747,197
    
    
    
    640,844
    
    
    
    634,500Long-term liabilitiesLong-term liabilities under Korean GAAP
    
    
    690,996
    
    
    
    823,004
    
    
    
    814,855U.S. GAAP adjustments:Unearned income
    
    
    4,210
    
    
    
    3,488
    
    
    
    3,453Deferred income tax liabilities
    
    
    11,213
    
    
    
    12,049
    
    
    
    11,930Long-term liabilities under U.S. GAAP
    
    
    706,419
    
    
    
    838,541
    
    
    
    830,238Total liabilities based on U.S. GAAP
    
    W
    1,453,616
    
    
    W
    1,479,385
    
    
    $
    1,464,738Minority interests based on U.S. GAAP
    
    W
    3,215
    
    
    W
    4,920
    
    
    $
    4,871
 F-48




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##### Table of Contents



Korean Won2004
    
    
    2005Current
    
    
    Non-current
    
    
    Current
    
    
    Non-current(In millions)Deferred tax assets:Development costs
    
    W
    403
    
    
    W
    
    
    
    W
    461
    
    
    W
    Error correction
    
    
    256
    
    
    
    
    
    
    
    
    
    
    
    Total deferred income tax assets
    
    
    659
    
    
    
    
    
    
    
    461
    
    
    
    Valuation allowance
    
    
    (489
    )
    
    
    11,213
    
    
    
    (217
    )
    
    
    12,049Net deferred income tax assets
    
    
    170
    
    
    
    11,213
    
    
    
    244
    
    
    
    12,049Deferred tax liabilities:License fee
    
    
    
    
    
    
    (9,694
    )
    
    
    
    
    
    
    (9,694
    )Interest capitalization
    
    
    (170
    )
    
    
    (1,082
    )
    
    
    (244
    )
    
    
    (1,432
    )Goodwill
    
    
    
    
    
    
    (437
    )
    
    
    
    
    
    
    (923
    )Total deferred income tax liabilities
    
    
    (170
    )
    
    
    (11,213
    )
    
    
    (244
    )
    
    
    (12,049
    )Net deferred income tax assets
    
    W
    
    
    
    W
    
    
    
    W
    
    
    
    W
    
 W W
  Korean Won2003
    
    
    2004
    
    
    2005(In millions)Income tax currently
payable
    
    W
    354
    
    
    W
    806
    
    
    W
    245Deferred income taxes
    
    
    (52
    )
    
    
    (311
    )
    
    
    189Income tax expense
    
    W
    302
    
    
    W
    495
    
    
    W
    434
  F-49




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##### Table of Contents



Korean Won2003
    
    
    2004
    
    
    2005(In millions)Income tax benefit at statutory Korean
corporate income tax rate of 29.7%, 29.7% and
27.5% in 2003, 2004 and 2005, respectively
    
    W
    (49,184
    )
    
    W
    5,199
    
    
    W
    (57,120
    )Non-deductible meals and entertainment and other
    
    
    1,143
    
    
    
    576
    
    
    
    42,241Change in valuation allowance
    
    
    47,692
    
    
    
    (4,928
    )
    
    
    15,325Other
    
    
    651
    
    
    
    (352
    )
    
    
    (12
    )Actual income tax expense
    
    W
    302
    
    
    W
    495
    
    
    W
    434
 F-50




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##### Table of Contents



EXHIBIT INDEX
 Exhibits
    
    Description1.1.
    
    
    Articles of Incorporation, as amended on March 24, 2006 (English translation)4.1.
    
    
    Memorandum of Understanding with between Celrun Inc. and Kim Young-min, hanarotelecom Inc.
and CelrunTV Inc., dated February 6, 2006 (English translation)4.2.
    
    
    Business Cooperation Agreement among hanarotelecom, inc., Celrun Co., Ltd. and CelrunTV,
dated March 6, 2006 (English translation)8.1.
    
    
    List of hanarotelecoms significant subsidiaries (See Item 4.C. Organizational Structure.)11.1
    
    
    Code of Ethics (English translation)12.1.
    
    
    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