##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 20-F/A AMENDMENT NO. 1
 ANNUAL REPORT PURSUANT TOSECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004 COMMISSION FILE NUMBER 1-14418 SK Telecom Co., Ltd.(Exact name of Registrant as specified in its charter) SK TELECOM CO., LTD.(Translation of Registrants name into English) THE REPUBLIC OF KOREA(Jurisdiction of incorporation or organization) 11, EULJIRO2-GA
JUNG-GU
SEOUL, KOREA(Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act Title of Each Class
    
    Name of Each Exchange on Which RegisteredAMERICAN DEPOSITARY SHARES,
    
    NEW YORK STOCK EXCHANGE, INC.EACH REPRESENTING ONE-NINTH OFONE SHARE OF COMMON STOCKCOMMON STOCK, PAR VALUE
    
    NEW YORK STOCK EXCHANGE, INC.*WON 500 PER SHARE
 Securities registered or to be registered pursuant to Section 12(g) of the Act. NONE (Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. NONE (Title of Class) Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report. 82,276,711 SHARES OF COMMON STOCK, PAR VALUE WON 500 PER SHARE Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes   o No Indicate by check mark which financial statement item the registrant has elected to follow. o Item 17   þ Item 18 * Not for trading, but only in connection with the registration of the American Depositary
Shares.




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TABLE OF CONTENTS PageExplanatory Note
    
    
    5Item. 1              Identity of Directors, Senior Management and Advisers
    
    
    5Item. 2              Offer Statistics and Expected Timetable
    
    
    5Item. 3              Key Information
    
    
    5Item. 4              Information on the Company
    
    
    23Item. 5              Operating and Financial Review and Prospects
    
    
    54Item. 6              Directors, Senior Management and Employees
    
    
    76Item. 7              Major Shareholders and Related Party Transactions
    
    
    83Item. 8              Financial Information
    
    
    88Item. 9              The Offer and Listing
    
    
    93Item. 10             Additional Information
    
    
    101Item. 11             Quantitative and Qualitative Disclosures about Market Risk
    
    
    123Item. 12             Description of Securities other than Equity Securities
    
    
    125Item. 13             Defaults, Dividend Arrearage and Delinquencies
    
    
    125Item. 14             Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    125Item. 15             Controls and Procedures
    
    
    125Item. 16A          Audit Committee Financial Expert
    
    
    125Item. 16B           Code of Ethics
    
    
    126Item. 16C           Principal Accountant Fees and Services
    
    
    126Item. 16D          Exemptions from the Listing Standards for Audit Committees
    
    
    127Item. 16E           Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    127Item. 17             Financial Statements
    
    
    128Item. 18             Financial Statements
    
    
    128INDEX TO FINANCIAL STATEMENTS
    
    
    F-1Item. 19             Exhibits
    
    
    E-1SignaturesEX-12.1 CERTIFICATION OF CEO PURSUANT TO SECTION 302EX-12.2 CERTIFICATION OF CFO PURSUANT TO SECTION 302EX-13.1 CERTIFICATION OF CEO PURSUANT TO SECTION 906EX-13.2 CERTIFICATION OF CFO PURSUANT TO SECTION 906EX-99.1 CONSENT OF DELOITTE HANA ANJIN LLC
 1




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EXPLANATORY NOTE SK Telecom Co., Ltd. (SK Telecom) is filing this amendment no. 1 to its annual report on Form
20-F/A (the Amendment No. 1) for the fiscal year ended December 31, 2004 in order to correct
certain typographical errors contained in its annual report on Form 20-F filed on May 31, 2005 (the
Original Annual Report). This Amendment No. 1 does not reflect events occurring after the filing
of the Original Annual Report and does not modify or update the disclosure therein in any way other
than as required to reflect the amendments described herein and reflected below. No other changes
have been made to the Original Annual Report. The filing of this Amendment No. 1 should not be
understood to mean that any statements contained herein are true or complete as of any date
subsequent to the date of the original filing of the Original Annual Report. This report on Form 20-F/A shall be deemed
to be incorporated by reference in the prospectuses included in Registration Statements on Form F-3
(File No. 333-126120) filed with the Securities and Exchange Commission and to be a part thereof from the date on
which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished. OVERVIEW OF THE COMPANYS WIRELESS NETWORK We are Koreas leading wireless telecommunications services provider and a pioneer in the
commercial development and provision of high-speed wireless data and Internet services. We had
approximately 19.1 million subscribers as of April 30, 2005 and our share of the Korean wireless
market was approximately 51.2%, based on the number of subscribers. We currently provide the
following core services:  

Cellular services  we provide digital cellular services to our subscribers using CDMA
(code division multiple access) technology, with our network covering approximately 99%
of the Korean population;  

Wireless Internet services  we provide to subscribers of our wireless Internet
services the ability to access the Internet over our networks using laptops, personal
digital assistants and other devices; and  

Internet content and Internet access  under our NATE brand name, we allow our
wireless subscribers to access various websites designed for cellular use, such as access
to information and on-line banking services. In addition, we provide various services outside of Korea, including in China, Mongolia,
Vietnam and the United States. We provide our core services through our CDMA networks and we currently have 2 x 25 MHz
of spectrum (i.e., 25 MHz for transmissions from handsets to cell sites and 25 MHz for
transmissions from cell sites to handsets) in the 800 MHz range. In October 2000, we became the
worlds first wireless operator to commercially launch CDMA 1xRTT technology, a CDMA-based advanced
radio transmission technology for high-speed wireless data and wireless Internet services. This
technology allows transmission of data at speeds of up to 144 Kbps, compared to the 64 Kbps
possible over our original CDMA network. In addition to higher data transfer speeds, CDMA 1xRTT
technology uses packet-based data transmission technology, which permits more efficient use of the
existing wireless spectrum and packet-based pricing of data services. Beginning in 2002, we launched an upgrade of our CDMA 1xRTT network to employ more
advanced CDMA 1xEV/DO technology, and as of December 31, 2004, our upgrade has been completed in 84
cities in Korea. CDMA 1xEV/DO is a more advanced CDMA-based technology which enables data to be
transmitted at speeds of up to 2.4 Mbps. This technology allows us to provide advanced wireless
data services such as streaming video and audio services. We are also in the process of installing our wide-band code division multiple access, or
W-CDMA network. We were one of the two wireless telecommunications providers to receive a W-CDMA
license from the MIC in 2001. W-CDMA, which is commonly referred to as 3G, is a digital cellular
technology which uses a 2 × 20 MHz of radio frequency spectrum in the 2 GHz band. We expect that
once fully implemented, this new network will allow our subscribers to access a wider range of
services, including multimedia content and communications, as this technology enables data to be
transmitted at significantly higher data transmission speeds than our principal data network. We
are continuing to improve our W-CDMA services in the Seoul metropolitan area and are continuing to
build out our W-CDMA network in other metropolitan areas of Korea. In March 2004, the MIC assigned us frequency for satellite digital multimedia
broadcasting, or DMB, a service which allows broadcasting of multimedia content by satellite to
various mobile devices including satellite DMB handsets. In October 2004, we granted the rights to
our satellite, satellite orbit and frequency to TU Media Corp., one of our affiliates, which
received a license from the MIC as a satellite DMB provider on December 30, 2004. On May 1, 2005,
TU Media Corp. began to provide satellite DMB services. We have also received a license from the MIC to provide wireless broadband, or WiBro
services, which we believe will serve as a complementary solution to our existing networks and
technologies. WiBro is a portable Internet which is expected to deliver broadband connections to
users. Once implemented, WiBro will offer subscribers wireless Internet services at a competitive
price in the metropolitan areas of Korea where there is a high demand for high-speed and large
packet data services. We established our telecommunications business in March 1984 under the name of Korea Mobile
Telecommunications Services Co., Ltd., under the laws of Korea. We changed our name to Korea Mobile
Telecommunications Co., Ltd. in 1988. We changed our name to SK Telecom Co., Ltd. effective March
21, 1997. Our registered office is at 11, Euljiro 2-ga, Jung-gu, Seoul 100-999, Korea and our
telephone number is 82-2-6100-1563. In this report, we refer to third generation or 3G mobile communications systems. Second
generation systems or 2G systems were designed primarily with voice communications in mind. 3G
systems are designed to facilitate voice, high speed data and multimedia service. CERTAIN DEFINED TERMS AND CONVENTIONS USED IN THIS REPORT All references to Korea contained in this report shall mean The Republic of Korea. All
references to the Government shall mean the government of The Republic of Korea. All references
to we, us, our or the Company shall mean SK Telecom Co., Ltd. and its consolidated
subsidiaries. References to SK Telecom shall mean SK Telecom Co., Ltd., but shall not include its
consolidated subsidiaries. All references to U.S. shall mean the United States of America. Unless
otherwise indicated, from April 1, 2000 onwards, all references to our number of subscribers shall
include subscribers attributable to Shinsegi Telecomm, Inc. All references to KHz contained in this report shall mean kilohertz, a unit of frequency
denoting one thousand cycles per second, used to measure band and bandwidth. All references to
MHz shall mean 2




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megahertz, a unit of frequency denoting one million cycles per second. All references to GHz
shall mean gigahertz, a unit of frequency denoting one billion cycles per second. All references to
Kbps shall mean one thousand binary digits, or bits, of information per second. All references to
Mbps shall mean one million bits of information per second. Any discrepancies in any table
between totals and the sums of the amounts listed are due to rounding. All
references to Won, (Won) or W in this report are to the currency of Korea, all references to
Dollars, $ or US$ are to the currency of the United States of America and all references to
Yen or ¥ are to the currency of Japan. Unless otherwise indicated, all financial information in this report is presented in
accordance with Korean generally accepted accounting principles (Korean GAAP). Unless otherwise indicated, translations of Won amounts into Dollars in this report were made
at the noon buying rate in The City of New York for cable transfers in Won per US$1.00 as certified
for customs purposes by the Federal Reserve Bank of New York. Unless otherwise stated, the
translations of Won into Dollars were made at the noon buying rate in effect on December 31, 2004,
which was Won 1,035.1 to US$1.00. On December 31, 2003, the noon buying rate was Won 1,192.0 to
US$1.00. On May 25, 2005, the noon buying rate was Won 1,000.0 to US$1.00. See Item 3. Key
Information  Exchange Rates. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements, as defined in Section 27A of the U.S.
Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as
amended, that are based on our current expectations, assumptions, estimates and projections about
our company and our industry. The forward-looking statements are subject to various risks and
uncertainties. Generally, these forward-looking statements can be identified by the use of
forward-looking terminology such as anticipate, believe, considering, depends, estimate,
expect, intend, plan, planning, planned, project and similar expressions, or that
certain events, actions or results will, may, might, should or could occur, be taken or
be achieved. Forward-looking statements in this annual report include, but are not limited to, the
following:  

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

our implementation of CDMA 1xEV/ DO technology and other technologies such as W-CDMA, which is commonly referred to as third
generation, or 3G, wireless technology;  

our plans to spend approximately Won 1.6 trillion for capital expenditures in 2005 for a range of projects, including
expansion and improvement of our wireless networks, investments in our Internet-related businesses and expansion of our
W-CDMA network and our expected future capital expenditures on various initiatives;  

our efforts to make significant investments to build, develop and broaden our businesses, including developing and providing
wireless data, multimedia, mobile commerce and Internet services;  

our ability to comply with governmental rules and regulations, including the regulations of the Ministry of Information and
Communication, or the MIC, related to telecommunications providers, rules related to our status as a market-dominating
business entity under the Korean Monopoly Regulation and Fair Trade Act, or the Fair Trade Act, and the effectiveness of
steps we have taken to comply with such regulations;  

our ability to manage effectively our bandwidth and to implement timely and efficiently new bandwidth-efficient technologies;  

our expectations and estimates related to interconnection fees; tariffs charged by our competitors; regulatory fees;
operating costs and expenditures; working capital requirements; principal repayment obligations with respect to long-term
borrowings, bonds and obligations under capital leases; and research and development expenditures and other financial
estimates; 3




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

the effect of the number portability system that allows wireless subscribers to switch wireless service
operators while retaining the same mobile phone number and the use of the common prefix identification
system;  

the success of our various joint ventures and investments in other telecommunications service providers; and  

the growth of the telecommunications industry in Korea and other markets in which we do business and the
effect that economic, political or social conditions have on our number of subscribers, call volumes and
results of operations. We caution you that reliance on any forward-looking statement involves risks and
uncertainties, and that although we believe that the assumptions on which our forward-looking
statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as
a result, the forward-looking statements based on those assumptions could be incorrect. Risks and
uncertainties associated with our business, include but are not limited to, risks related to
changes in the regulatory environment; technology changes; potential litigation and governmental
actions; changes in the competitive environment; political changes; foreign exchange currency
risks; foreign ownership limitations; credit risks and other risks and uncertainties that are more
fully described under the heading Key Information  Risk Factors beginning on page 12 of this
report, and elsewhere in this report. In light of these and other uncertainties, you should not
conclude that we will necessarily achieve any plans and objectives or projected financial results
referred to in any of the forward-looking statements. We do not undertake to release the results of
any revisions of these forward-looking statements to reflect future events or circumstances. ENFORCEABILITY OF CIVIL LIABILITIES We are a corporation with limited liability organized under the laws of Korea. All of our
directors and officers and certain other persons named in this annual report reside in Korea, and
all or a significant portion of the assets of the directors and officers and certain other persons
named in this annual report and substantially all of our assets are located in Korea. As a result,
it may not be possible for you to effect service of process within the United States upon such
persons or to enforce against them or against us in U.S. courts judgments predicated upon the civil
liability provisions of the federal securities laws of the United States. There is doubt as to the
enforceability in Korea, either in original actions or in actions for enforcement of judgments of
U.S. courts, of civil liabilities predicated on the U.S. federal securities laws. 4




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PART I 
 Item. 1Identity of Directors, Senior Management and Advisers Not applicable. 
 Item. 2Offer Statistics and Expected Timetable Not applicable. 
 Item. 3Key Information SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA You should read the selected consolidated financial and operating data below in conjunction
with the consolidated financial statements and the related notes included elsewhere in this report.
The selected consolidated financial data for the five years ended December 31, 2004 are derived
from our audited consolidated financial statements and related notes thereto. Information as of and
for the years ended December 31, 2000 and 2001 includes information as of and for the nine months
ended December 31, 2000 and the year ended December 31, 2001, respectively, for Shinsegi unless
otherwise specified. Shinsegi was merged into SK Telecom in January 2002. Our consolidated financial statements are prepared in accordance with Korean GAAP, which
differ in certain respects from U.S. GAAP. For more detailed information you should refer to notes
30 and 31 of the notes to our audited consolidated financial statements included in this annual
report. As of or for the Year Ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2004*(In billions of Won and millions of Dollars, except per share and percentage data)INCOME STATEMENT DATAKorean GAAP:Total Operating
Revenue(1)
    
    (Won)
    7,423.1
    
    
    (Won)
    8,371.9
    
    
    (Won)
    9,324.0
    
    
    (Won)
    10,272.1
    
    
    (Won)
    10,570.6
    
    
    US$
    10,212.2Cellular
Service(1)
    
    7,245.1
    
    
    8,203.0
    
    
    9,156.8
    
    
    10,091.8
    
    
    10,297.6
    
    
    
    9,948.4Paging
Service(2)
    
    57.7
    
    
    8.8
    
    
    
    
    
    
    
    
    
    
    
    
    Other(3)
    
    120.3
    
    
    160.1
    
    
    167.2
    
    
    180.3
    
    
    273.0
    
    
    
    263.8Operating Expenses
    
    5,927.6
    
    
    6,047.4
    
    
    6,526.4
    
    
    7,167.0
    
    
    8,130.9
    
    
    
    7,855.2Operating Income
    
    1,495.5
    
    
     2,324.5
    
    
     2,797.6
    
    
     3,105.1
    
    
     2,439.7
    
    
    
    2,357.0Income before Income Taxes
and Minority Interest
    
     1,287.8
    
    
     1,976.7
    
    
     2,218.8
    
    
     2,754.3
    
    
     2,123.2
    
    
    
    2,051.2Income before Minority
Interest
    
     920.5
    
    
     1,126.4
    
    
     1,520.3
    
    
     1,965.3
    
    
     1,493.4
    
    
    
    1,442.8Net Income
    
     972.3
    
    
     1,146.0
    
    
     1,487.2
    
    
     1,966.1
    
    
     1,491.5
    
    
    
    1,440.9Income per Share of Common
Stock(4)
    
     11,146
    
    
     13,242
    
    
     17,647
    
    
     26,187
    
    
     20,261
    
    
    
    19.57Diluted Net Income per
Share of Common
Stock(4)
    
     11,146
    
    
     13,242
    
    
     17,647
    
    
     26,187
    
    
     20,095
    
    
    
    19.41Dividends per Share of
Common Stock(5)
    
     540
    
    
     690
    
    
     1,800
    
    
     5,500
    
    
     10,300
    
    
    
    9.95Weighted Average Number of
Shares
    
    
    87,226,559
    
    
    
    86,545,041
    
    
    
    84,270,450
    
    
    
    75,078,219
    
    
    
    73,614,297
    
    
    
    73,614,297U.S. GAAP:Net Income
    
    (Won)
    895.4
    
    
    (Won)
    1,111.6
    
    
    (Won)
    1,301.1
    
    
    (Won)
    2,062.7
    
    
    (Won)
    1,553.1
    
    
    US$
    1,500.4Income per Share of Common
Stock(4)
    
    
    10,265
    
    
    
    12,844
    
    
    
    15,440
    
    
    
    27,475
    
    
    
    21,097
    
    
    
    20.38Diluted Net Income per
Share of Common
Stock(4)
    
     10,265
    
    
     12,844
    
    
     15,439
    
    
     27,475
    
    
     20,921
    
    
    
    20.21Dividends per Share of
Common Stock(5)
    
     540
    
    
     690
    
    
     1,800
    
    
     5,500
    
    
     10,300
    
    
    
    9.95Weighted Average Number of
Shares
    
     87,226,559
    
    
     86,545,041
    
    
     84,270,450
    
    
     75,078,219
    
    
     73,614,297
    
    
    
    73,614,297
 5




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As of or for the Year Ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2004*(In billions of Won and millions of Dollars, except per share and percentage data)BALANCE SHEET DATAKorean GAAP:Working Capital
(Deficiency)(6)
    
    (Won)
    (374.6
    )
    
    (Won)
    668.2
    
    
    (Won)
    (189.7
    )
    
    (Won)
    (461.4
    )
    
    (Won)
    1,323.8
    
    
    US$
    1,278.9Fixed AssetsNet
    
    
    4,543.2
    
    
    
    4,174.7
    
    
    
    4,569.4
    
    
    
    4,641.5
    
    
    
    4,703.9
    
    
    
    4,544.4Total Assets
    
    
    11,044.2
    
    
    
    13,326.3
    
    
    
    14,228.7
    
    
    
    13,818.2
    
    
    
    14,283.4
    
    
    
    13,799.1Long-term
Liabilities(7)
    
    
    1,727.2
    
    
    
    3,498.4
    
    
    
    3,693.4
    
    
    
    3,193.5
    
    
    
    4,010.7
    
    
    
    3,874.7Total Shareholders Equity
    
    
    6,142.7
    
    
    
    6,149.3
    
    
    
    6,231.9
    
    
    
    6,093.8
    
    
    
    7,205.7
    
    
    
    6,961.4U.S. GAAP:Working Capital
(Deficiency)
    
    
    (332.5
    )
    
    
    729.6
    
    
    
    (108.2
    )
    
    
    (445.5
    )
    
    
    1,311.3
    
    
    
    1,266.8Total Assets
    
    
    11,182.8
    
    
    
    13,841.0
    
    
    
    15,720.7
    
    
    
    15,586.2
    
    
    
    15,576.8
    
    
    
    15,048.6Total Shareholders Equity
    
    
    6,117.9
    
    
    
    5,820.1
    
    
    
    6,356.2
    
    
    
    7,014.7
    
    
    
    8,237.0
    
    
    
    7,957.7OTHER FINANCIAL DATAKorean GAAP:EBITDA(8)
    
    (Won)
    2,941.7
    
    
    (Won)
    3,932.4
    
    
    (Won)
    3,954.1
    
    
    (Won)
    4,706.4
    
    
    (Won)
    4,085.8
    
    
    US$
    3,947.3Capital
Expenditures(9)
    
    
    2,241.1
    
    
    
    1,382.1
    
    
    
    2,024.7
    
    
    
    1,647.6
    
    
    
    1,704.3
    
    
    
    1,646.5R&D Expenses(10)
    
    
    117.1
    
    
    
    153.7
    
    
    
    253.3
    
    
    
    300.7
    
    
    
    336.1
    
    
    
    324.7Internal R&D
    
    
    78.8
    
    
    
    130.7
    
    
    
    194.3
    
    
    
    235.8
    
    
    
    267.1
    
    
    
    258.0External R&D
    
    
    38.3
    
    
    
    23.0
    
    
    
    59.0
    
    
    
    64.9
    
    
    
    69.0
    
    
    
    66.7Depreciation and
Amortization
    
    
    1,456.4
    
    
    
    1,759.6
    
    
    
    1,543.3
    
    
    
    1,646.3
    
    
    
    1,741.6
    
    
    
    1,682.5Cash Flow from Operating
Activities
    
    
    3,043.5
    
    
    
    2,423.9
    
    
    
    4,267.8
    
    
    
    3,328.8
    
    
    
    2,516.1
    
    
    
    2,430.8Cash Flow from Investing
Activities
    
    
    (4,667.8
    )
    
    
    (1,972.8
    )
    
    
    (3,063.4
    )
    
    
    (1,414.4
    )
    
    
    (1,469.5
    )
    
    
    (1,419.7
    )Cash Flow from Financing
Activities
    
    
    1,629.3
    
    
    
    331.2
    
    
    
    (1,418.2
    )
    
    
    (2,261.0
    )
    
    
    (968.6
    )
    
    
    (935.8
    )Margins (% of total sales):EBITDA
Margin(8)
    
    
    39.6
    %
    
    
    47.0
    %
    
    
    42.4
    %
    
    
    45.8
    %
    
    
    38.7
    %
    
    
    38.7
    %Operating Margin
    
    
    20.1
    
    
    
    27.8
    
    
    
    30.0
    
    
    
    30.2
    
    
    
    23.1
    
    
    
    23.1Net Margin
    
    
    13.1
    
    
    
    13.7
    
    
    
    15.9
    
    
    
    19.1
    
    
    
    14.1
    
    
    
    14.1U.S. GAAP:EBITDA(8)
    
    
    2,930.5
    
    
    
    3,859.1
    
    
    
    3,620.7
    
    
    
    4,679.1
    
    
    
    3,970.4
    
    
    
    3,835.8Capital
Expenditures(9)
    
    
    2,241.1
    
    
    
    1,382.1
    
    
    
    2,024.7
    
    
    
    1,647.6
    
    
    
    1,704.3
    
    
    
    1,646.5Cash Flow from Operating
Activities
    
    
    3,043.5
    
    
    
    2,423.8
    
    
    
    3,708.9
    
    
    
    3,281.3
    
    
    
    2,985.9
    
    
    
    2,884.7Cash Flow from Investing
Activities
    
    
    (4,667.8
    )
    
    
    (1,972.8
    )
    
    
    (2,995.2
    )
    
    
    (1,422.5
    )
    
    
    (1,393.2
    )
    
    
    (1,346.0
    )Cash Flow from Financing
Activities
    
    
    1,629.3
    
    
    
    331.2
    
    
    
    (927.5
    )
    
    
    (2,205.5
    )
    
    
    (1,514.8
    )
    
    
    (1,463.4
    )
 As of or for the Year Ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004SELECTED OPERATING DATAPopulation of Korea
(millions)(11)
    
    
    47.0
    
    
    
    47.4
    
    
    
    47.6
    
    
    
    47.9
    
    
    
    48.2Our Wireless
Penetration(12)
    
    
    30.7
    %
    
    
    32.0
    %
    
    
    36.1
    %
    
    
    38.2
    %
    
    
    39.0
    %Number of Employees(13)
    
    
    7,279
    
    
    
    5,693
    
    
    
    6,241
    
    
    
    6,286
    
    
    
    7,353Total Sales per Employee (millions)
    
    (Won)
    1,019.8
    
    
    (Won)
    1,470.6
    
    
    (Won)
    1,494.0
    
    
    (Won)
    1,634.1
    
    
    (Won)
    1,437.6Wireless Subscribers(14)
    
    
    14,452,683
    
    
    
    15,179,163
    
    
    
    17,219,562
    
    
    
    18,313,315
    
    
    
    18,783,338Average Monthly Outgoing Voice
Minutes per
Subscriber(15)
    
    
    148
    
    
    
    172
    
    
    
    191
    
    
    
    197
    
    
    
    194Average Monthly Revenue per
Subscriber(16)
    
    (Won)
    32,906
    
    
    (Won)
    36,400
    
    
    (Won)
    38,383
    
    
    (Won)
    39,739
    
    
    (Won)
    39,689Average Monthly Churn
Rate(17)
    
    
    2.8
    %
    
    
    1.4
    %
    
    
    1.4
    %
    
    
    1.2
    %
    
    
    1.7
    %Digital Cell Sites(18)
    
    
    7,008
    
    
    
    6,056
    
    
    
    7,384
    
    
    
    8,309
    
    
    
    9,458
   *
    
    The conversion into Dollars was made at the rate of Won 1,035.1 to US$1.00. See note 2(a)
of the notes to our consolidated financial statements. 6




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##### Table of Contents



(1)
    
    Includes Won 494.0 billion for 2000, Won 702.4 billion for 2001, Won 534.0 billion for 2002,
Won 612.0 billion for 2003 and Won 649.8 billion for 2004 from the sale of digital handsets by
our subsidiary, SK Teletech Co., Ltd., and Won 1,312.4 billion for 2000, Won 1,339.9 billion
for 2001, Won 1,043.2 billion for 2002, Won 1,017.1 billion for 2003 and Won 849.4 billion for
2004 of interconnection revenue (including interconnection revenue in respect of calls between
mobile users starting in 2000). Shinsegi was merged into us on January 13, 2002. See
BusinessInterconnection.(2)
    
    In March 2001, we transferred our paging business to Real Telecom Co., Ltd. (formerly known
as INTEC Telecom Co., Ltd.) in exchange for 9.9% of Real Telecoms newly issued shares and
bonds with a principal amount of Won 9.5 billion that can be converted into an additional 7.8%
interest in Real Telecom. Consequently, the results of the paging business are no longer
included in our revenues after such date.(3)
    
    For more information about our other revenue, see Operating and Financial Review and
Prospects and Business.(4)
    
    Income per share of common stock is calculated by dividing net income by the weighted average
number of shares outstanding during the period, giving effect to the 10-for-1 stock split of
our common shares which became effective on April 21, 2000 and resulted in the par value of
each share being reduced from Won 5,000 to Won 500.(5)
    
    Dividend per share of common stock has been adjusted to give effect to the 10-for-1 stock
split of our common shares of common stock which became effective on April 21, 2000. On
January 1, 2002, we adopted Statement of Korea Accounting Standards (SKAS) No. 6, Events
Occurring after Balance Sheet Date. This statement requires that proposed cash dividends be
reflected on the balance sheet when the appropriations are approved by shareholders which is
similar to U.S. GAAP. In order to reflect this accounting change, our prior years financial
statements have been restated accordingly. See note 2(w) of the notes to our consolidated
financial statements.(6)
    
    Working capital means current assets minus current liabilities.(7)
    
    Our monetary assets and liabilities denominated in foreign currencies are valued at the
exchange rate of Won 1,260 to US$1.00 as of December 31, 2000, Won 1,326 to US$1.00 as of
December 31, 2001, Won 1,200 to US$1.00 as of December 31, 2002, Won 1,198 to US$1.00 as of
December 31, 2003 and Won 1,044 to US$1.00 as of December 31, 2004, the rates of exchange
permitted under Korean GAAP as of those dates. See note 2(s) of the notes to our consolidated
financial statements.(8)
    
    EBITDA refers to income before interest income, interest expense, taxes, depreciation and
amortization. EBITDA is commonly used in the telecommunications industry to analyze companies
on the basis of operating performance, leverage and liquidity. Since the telecommunications
business is a very capital intensive business, capital expenditures and level of debt and
interest expenses may have a significant impact on net income for companies with similar
operating results. Therefore, for a telecommunications company such as ourselves, we believe
that EBITDA provides a useful reflection of our operating results. We use EBITDA as a
measurement of operating performance because it assists us in comparing our performance on a
consistent basis as it removes from our operating results the impact of our capital structure,
which includes interest expense from our outstanding debt, and our asset base, which includes
depreciation and amortization of our property and equipment. However, EBITDA should not be
construed as an alternative to operating income or any other measure of performance determined
in accordance with Korean GAAP or U.S. GAAP or as an indicator of our operating performance,
liquidity or cash flows generated by operating, investing and financing activities. Other
companies may define EBITDA differently than we do. EBITDA under U.S. GAAP is computed using interest income, interest
expense, depreciation, amortization and income taxes under U.S. GAAP which may differ from
Korean GAAP for these items.(9)
    
    Consists of investments in property, plant and equipment.(10)
    
    Includes donations to Korean research institutes and educational organizations. See
Operating and Financial Review and ProspectsResearch and Development.(11)
    
    Population estimates based on historical data published by the National Statistical Office of
Korea.(12)
    
    Wireless penetration is determined by dividing subscribers by total estimated population, as
of the end of the period.(13)
    
    Includes regular employees and temporary employees. See Employees. Includes 1,687 and 1,332
Shinsegi employees as of December 31, 2000 and 2001, respectively.(14)
    
    Wireless subscribers include those subscribers who are temporarily deactivated, including (1)
subscribers who voluntarily deactivate temporarily for a period of up to three months no more
than twice a year and (2) subscribers with delinquent accounts who may be involuntarily
deactivated up to two months before permanent deactivation, which we determine based on
various factors, including prior payment history. Wireless subscribers also include 3,517,831
Shinsegi subscribers as of December 31, 2000 and 3,311,874 as of December 31, 2001. Shinsegi
was merged into SK Telecom on January 13, 2002.(15)
    
    The average monthly outgoing voice minutes per subscriber is computed by dividing the total
minutes of outgoing voice usage for the period by the monthly weighted average number of
subscribers for the period and dividing the quotient by the number of months in the period.
The monthly weighted average number of subscribers is the sum of the average number of
subscribers for the month, calculated by taking the simple average number of subscribers at
the beginning of the month and at the end of the month, divided by the number of months in the
period. Shinsegis subscribers and outgoing voice minutes are included from April 1, 2000.(16)
    
    The average monthly revenue per subscriber excludes interconnection revenue and is computed
by dividing total initial connection fees, monthly access fees, usage charges for voice and
data, international charges, value-added service fees; and interest on overdue accounts (net
of telephone tax) for the period by the monthly weighted average number of subscribers for the
period and dividing the quotient by the number of months in the period. Including
interconnection revenue, consolidated average monthly revenue per subscriber was Won 43,958
for 2002, Won 44,546 for 2003 and Won 43,542 for 2004. Shinsegis subscribers and revenue are
included from April 1, 2000. For information about the average monthly revenue per subscriber
of SK Telecom and Shinsegi on a stand-alone basis, see Operating and Financial Review and
ProspectsOverview.(17)
    
    The average monthly churn rate for a period is the number calculated by dividing the sum of
voluntary and involuntary deactivations during the period by the simple average of the number
of subscribers at the beginning and end of the period and dividing the quotient by the number
of months in the period. Churn includes subscribers who upgrade to CDMA lxRTT or CDMA 1xEV/
DO-capable handsets by terminating their service and opening a new subscriber account.(18)
    
    Includes 2,532 cell sites of Shinsegi as of December 31, 2000 and 1,685 cell sites as of
December 31, 2001. As a measure of our operating performance, we believe that the most directly comparable U.S.
and Korean GAAP measure to EBITDA is net income. The following table reconciles our net income
under U.S. GAAP to our definition of EBITDA on a consolidated basis for the five years ended
December 31, 2000, 2001, 2002, 2003 and 2004. 7




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##### Table of Contents



RECONCILIATION OF NET INCOME TO EBITDA UNDER U.S. GAAP As of or for the Year Ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2004*(In billions of Won and millions of Dollars)Net Income
    
    (Won)
    895.4
    
    
    (Won)
    1,111.6
    
    
    (Won)
    1,301.1
    
    
    (Won)
    2,062.7
    
    
    (Won)
    1,553.1
    
    
    US$
    1,500.4ADD: Interest income
    
    
    (67.6
    )
    
    
    (101.8
    )
    
    
    (90.8
    )
    
    
    (93.9
    )
    
    
    (86.7
    )
    
    
    (83.8
    )Interest expense
    
    
    215.1
    
    
    
    274.4
    
    
    
    396.6
    
    
    
    387.1
    
    
    
    291.0
    
    
    
    281.2Taxes
    
    
    408.5
    
    
    
    791.3
    
    
    
    585.0
    
    
    
    811.5
    
    
    
    611.1
    
    
    
    590.4Depreciation
and
Amortization
    
    
    1,479.1
    
    
    
    1,783.6
    
    
    
    1,428.8
    
    
    
    1,511.7
    
    
    
    1,601.9
    
    
    
    1,547.6EBITDA
    
    (Won)
    2,930.5
    
    
    (Won)
    3,859.1
    
    
    (Won)
    3,620.7
    
    
    (Won)
    4,679.1
    
    
    (Won)
    3,970.4
    
    
    US$
    3,835.8
   *
    
    The conversion into Dollars was made at the rate of Won 1,035.1 to US$1.00. See note 2(a)
of the notes to our consolidated financial statements. The following table reconciles our net income under Korean GAAP to our definition of EBITDA on
a consolidated basis for the five years ended December 31, 2000, 2001, 2002, 2003 and 2004. RECONCILIATION OF NET INCOME TO EBITDA UNDER KOREAN GAAP As of or for the Year Ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2004*(In billions of Won and millions of Dollars)Net Income
    
    (Won)
    972.3
    
    
    (Won)
    1,146.0
    
    
    (Won)
    1,487.2
    
    
    (Won)
    1,966.1
    
    
    (Won)
    1,491.5
    
    
    US$
    1,440.9ADD: Interest income
    
    
    (67.6
    )
    
    
    (97.4
    )
    
    
    (86.0
    )
    
    
    (86.5
    )
    
    
    (80.5
    )
    
    
    (77.7
    )Interest expense
    
    
    213.3
    
    
    
    273.9
    
    
    
    311.1
    
    
    
    391.5
    
    
    
    303.4
    
    
    
    293.1Taxes
    
    
    367.3
    
    
    
    850.3
    
    
    
    698.5
    
    
    
    789.0
    
    
    
    629.8
    
    
    
    608.5Depreciation
and
Amortization
    
    
    1,456.4
    
    
    
    1,759.6
    
    
    
    1,543.3
    
    
    
    1,646.3
    
    
    
    1,741.6
    
    
    
    1,682.5EBITDA
    
    (Won)
    2,941.7
    
    
    (Won)
    3,932.4
    
    
    (Won)
    3,954.1
    
    
    (Won)
    4,706.4
    
    
    (Won)
    4,085.8
    
    
    US$
    3,947.3
   *
    
    The conversion into Dollars was made at the rate of Won 1,035.1 to US$1.00. See note 2(a)
of the notes to our consolidated financial statements. 8




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##### Table of Contents



EXCHANGE RATES The following table sets forth, for the periods and dates indicated, certain information
concerning the noon buying rate in The City of New York for cable transfers in Won per US$1.00 as
certified for customs purposes by the Federal Reserve Bank of New York. We make no representation
that the Won or Dollar amounts we refer to in this report could have been or could be converted
into Dollars or Won, as the case may be, at any particular rate or at all. At End
    
    
    AverageYear Ended December 31,
    
    Of Period
    
    
    Rate(1)
    
    
    High
    
    
    Low(Won per US$1.00)2000
    
    
    1,267
    
    
    
    1,140
    
    
    
    1,267
    
    
    
    1,1062001
    
    
    1,314
    
    
    
    1,293
    
    
    
    1,369
    
    
    
    1,2342002
    
    
    1,186
    
    
    
    1,250
    
    
    
    1,332
    
    
    
    1,1612003
    
    
    1,192
    
    
    
    1,193
    
    
    
    1,262
    
    
    
    1,1462004
    
    
    1,035
    
    
    
    1,145
    
    
    
    1,195
    
    
    
    1,035
 Past Six Months
    
    High
    
    
    Low(Won per US$1.00)November 2004
    
    
    1,119
    
    
    
    1,046December 2004
    
    
    1,067
    
    
    
    1,035January 2005
    
    
    1,058
    
    
    
    1,024February 2005
    
    
    1,044
    
    
    
    1,001March 2005
    
    
    1,024
    
    
    
    998April 2005
    
    
    1,019
    
    
    
    997through May 25, 2005
    
    
    1,009
    
    
    
    997
   (1)

The average rates for the annual periods were calculated based on the
average noon buying rate on the last day of each month (or portion
thereof) during the period. The average rate for the monthly periods
were calculated based on the average noon buying rate of each day of
the month (or portion thereof). On May 25, 2005, the noon buying rate was Won 1,000 to US$1.00. 9




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##### Table of Contents



RISK FACTORS An investment in our American Depositary Shares, or ADSs, and our debt securities involves
various risks. If you own or are considering purchasing our ADSs or our debt securities, you should
carefully review the information contained in this report. You should particularly refer to the
following: Competition may reduce our market share and harm our results of operation and financial condition. We face substantial competition in the wireless telecommunications sector in Korea. We expect
competition to intensify as a result of consolidation of market leaders and the development of new
technologies, products and services. We expect that such trends will continue to put downward
pressure on the prevailing tariffs we can charge our subscribers. Also, continued competition from
the other wireless and fixed-line service providers has resulted in, and may continue to result in,
a substantial level of deactivations among our subscribers. Subscriber deactivations, or churn, may
significantly harm our business and results of operations. In addition, increased competition may
cause our marketing expenses to increase as a percentage of sales, reflecting higher advertising
expenses and other costs of new marketing activities, which may need to be introduced to attract
and retain subscribers. Prior to April 1996, we were the only wireless telecommunications service provider in
Korea. Since then, several new providers have entered the market, offering wireless voice and data
services that compete directly with our own. Together, these providers had a market share of
approximately 48.9%, in terms of numbers of wireless service subscribers, as of April 30, 2005.
Furthermore, in 2001, the Government awarded to three companies licenses to provide high-speed
third generation, or 3G, wireless telecommunications services. One of these licenses was awarded to
SK Telecoms former subsidiary, SK IMT Co., Ltd., which was merged into SK Telecom on May 1, 2003,
and the other two licenses were awarded to consortia led by or associated with KT Corporation,
Koreas principal fixed-line operator and the parent of KTF, one of our principal wireless
competitors, and to LGT. In addition, our wireless voice businesses compete with Koreas fixed-line
operators, and our wireless data and Internet businesses compete with providers of fixed-line data
and Internet services. Beginning in 2000, there has been considerable consolidation in the wireless
telecommunications industry resulting in the emergence of stronger competitors. In 2000, KT
Corporation acquired a 47.9% interest in Hansol M.Com (formerly Hansol PCS Co., Ltd.), which was
the fifth largest wireless operator in terms of numbers of wireless service subscribers at such
time. Hansol M.Com subsequently changed its name to KT M.Com and merged into KTF in May 2001. In
May 2002, the Government sold its remaining 28.4% stake in KT Corporation. KT Corporation had a
48.7% interest in KTF as of December 31, 2004. It is widely believed that KT Corporation is likely
to operate more efficiently and be managed more effectively and profitably following its
privatization. Such consolidation has created large, well-capitalized competitors with substantial
financial, technical, marketing and other resources to respond to our business offerings. Future
business combinations and alliances in the telecommunications industry may also create significant
new competitors and could harm our business and results of operations. We expect competition to intensify as a result of such consolidation and as a result of the
rapid development of new technologies, products and services. Our ability to compete successfully
will depend on our ability to anticipate and respond to various competitive factors affecting the
industry, including new services that may be introduced, changes in consumer preferences, economic
conditions and discount pricing strategies by competitors. 10




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##### Table of Contents



Inability to successfully implement or adapt our network and technology to meet
the continuing technological advancements affecting the wireless industry will
likely have a material adverse effect on our financial condition, results of
operation and business. The telecommunications industry has been characterized by continuous improvement and advances
in technology and this trend is expected to continue. For example, we and our competitors have
introduced new network technology upgrades from our basic CDMA network to a more advanced high-speed
wireless telecommunications network based on CDMA 1xRTT and CDMA 1xEV/DO technology. Recently,
Korean wireless telecommunications companies, including us, have begun to implement even newer
technologies such as W-CDMA and CDMA2000, both of which are commonly referred to as 3G technology.
W-CDMA service is also known as IMT-2000 service in Korea. Such new networks are expected to
support data transmission services with more advanced features and significantly higher data
transmission speeds than our principal data network. We commenced provision of our W-CDMA services
on a limited basis in Seoul at the end of 2003. We are continuing to improve our W-CDMA services in
the Seoul metropolitan area and are continuing to build-out our W-CDMA network in other
metropolitan areas of Korea. The successful introduction and operation of a 3G network by a
competitor could materially and adversely affect our existing wireless businesses as well as the
returns on future investments we may make in our 3G network or our other businesses. In addition,
although it is in its very nascent stages, it is our understanding that many industry participants,
both in Korea and elsewhere, including us, are developing what is known as 4G technologies, which
when developed, is intended to provide even greater speeds and capacity than that offered by the
current 3G technologies. We could be harmed if we fail to adapt to technological or other changes
in the telecommunications sector in a timely manner. For a description of some of the difficulties
that we are facing with respect to W-CDMA, see W-CDMA technology may require significant capital
and other expenditures for implementation which we may not recoup and may be difficult to integrate
with our other businesses. In March 2005, we obtained a license from the MIC to provide WiBro services, which will offer
high-speed and large packet data services at a competitive price and serve as a complementary
solution to the existing mobile communication services such as W-CDMA. We currently plan to invest
approximately Won 800 billion to provide WiBro services; however, our investment plans may change
depending on the market demand for such services, competitors offering similar services and
development of competing technologies. We cannot assure you, however, that there will be sufficient
demand for our WiBro services as a result of competition or otherwise. W-CDMA technology may require significant capital and other expenditures for
implementation which we may not recoup and such technology may be difficult to
integrate with our existing technology and business. W-CDMA is a high-speed wireless communication technology that we believe will allow us to
offer even more sophisticated wireless data transmission services at faster speeds than our current
CDMA 1xRTT network or our CDMA 1xEV/DO network. Under the terms of our W-CDMA license received in
2001 from the MIC, we were required to commence provision of W-CDMA services by the end of 2003. We
commenced our W-CDMA based services on a limited basis in Seoul at the end of 2003. We are
continuing to improve our W-CDMA services in the Seoul metropolitan area and are continuing to
build out our W-CDMA network in other metropolitan areas of Korea. Although we developed and
launched in March 2005 dual band/dual mode handsets, one of the prerequisites for a nationwide
deployment of W-CDMA, the actual scope and timing of the full nationwide roll-out of our W-CDMA
network will depend on various other factors, including the availability of network equipment,
ability to overcome technical problems currently affecting W-CDMA performance, regulatory
decisions, our assessment of the market opportunities for W-CDMA technology-based services and the
competitive landscape in the Korean wireless market. We cannot assure you that we will be able to construct a nationwide W-CDMA network or
provide W-CDMA services in a timely, effective and cost-efficient manner. Several companies in
other countries have announced delays in the roll-out of their 3G services as a result of
technological problems and difficulties with software, equipment and handset supply. We believe
that we may be vulnerable to similar problems, and if such problems are not resolved effectively as
they arise, our financial condition or results of operations could be adversely affected. In
addition, the MIC is empowered to take various measures against us ranging from the suspension of
our business to the revocation of our W-CDMA license if we fail to comply with the terms of our
W-CDMA license. We believe that we are currently in compliance with all material terms of the
license. Also, even if we complete our W-CDMA network in a timely basis, we cannot assure you that there will be sufficient demand for our W-CDMA services, as a result of
competition or otherwise, to permit us to recoup or profit from our investment in the W-CDMA
license and network. In addition, demand for our W-CDMA services will depend in part on the
availability of attractive content and services. We cannot assure you that such content and
services will become available in a timely manner, or at all. We expect that the build-out of our W-CDMA network may require external financing, and we
cannot assure you that such financing will be available at a cost acceptable to us, or at all.
Also, we cannot assure you that we will be able to successfully integrate W-CDMA services into our
existing businesses in a timely or cost-effective manner or that the W-CDMA business will not
adversely affect our current wireless businesses, including the services currently provided on our
existing networks. 11




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##### Table of Contents



Our growth strategy calls for significant investments in new businesses and
regions, including businesses and regions in which we have limited experience. As a part of our growth strategy, we plan to seek business opportunities abroad. For example,
we recently entered into a joint venture project with China Unicom in February 2005 to market and
offer wireless Internet service in China and have established a joint venture with EarthLink in the
United States, to provide voice and data services as a mobile virtual network operator in the
United States. We also have ongoing projects in Vietnam and Mongolia and will continue to seek
other opportunities to expand our business abroad as circumstances present themselves. Entering
these new businesses and regions, in which we have limited experience, may require us to make
substantial investments and no assurance can be given that we will be successful in our efforts. Due to the existing high penetration rate of wireless services in Korea and the
Korean governments prohibition on handset subsidies, we are unlikely to
maintain our subscriber growth rate, which could adversely affect our results
of operations. According to data published by the MIC and our population estimates based on historical data
published by the National Statistical Office of Korea, the penetration rate for the Korean wireless
telecommunications service industry as of April 30, 2005 was approximately 77.1%, which is high
compared to many industrialized countries. It is unlikely that the penetration rates for wireless
telecommunications service will grow at the same pace as it has in the past given such high
penetration rates. Slowed growth in penetration rates without a commensurate increase in revenues
through the introduction of new services and increased use of our services by existing subscribers
would likely have a material adverse effect on our financial condition and results of operations. In the past, wireless telecommunications service providers provided handsets at below
retail prices to attract new subscribers, offsetting a significant portion of the cost of handsets.
The rapid growth in penetration rate in recent years can, at least in part, be attributed to such
subsidies on handsets given to new subscribers. The MIC prohibited all wireless telecommunications
service providers, subject to certain exceptions stipulated in the Telecommunications Business Act,
from providing any such handset subsidies beginning June 1, 2000. The MIC has, on several occasions
between March 2002 and May 2005, imposed various types of sanctions and fines against us and the
other wireless service providers for violating restrictions on providing handset subsidies and other activities which were deemed to be
disruptive to fair competition. We paid the fines and believe that we have complied in all material
respects with the other sanctions imposed by the MIC. For details on these and other government
penalties, see Legal Proceedings. On May 25, 2004, a policy advisory committee to the MIC announced the results of its
review of the merger conditions related to our acquisition of Shinsegi in January 2002 and stated
that the committee believed that our market dominance may significantly restrict competition in the
telecommunications market and that we had violated a merger condition by providing subsidies to
handset buyers. On the same day, we voluntarily undertook to limit our market share through the end
of 2005 to 52.3% of the wireless telecommunications market, the level of our market share at the
time of the approval of our merger with Shinsegi in January 2002. On June 7, 2004, the MIC imposed
a Won 11.9 billion fine on us and extended the post-merger monitoring period until January 2007 in
accordance with the policy advisory committees recommendation. On the same day, the MIC also
issued a suspension that prohibited us from acquiring new subscribers for a period of 40 days
beginning August 20, 2004. The MIC also issued suspensions to three other telecommunications
companies that prohibited them from acquiring new subscribers for periods ranging from 20 to 30
days. KTF was issued a 30-day suspension beginning July 21, 2004; LGT was issued a 30-day
suspension beginning on June 21, 2004; and KT Corporation was issued a 20-day suspension beginning
July 21, 2004. These suspensions resulted from MICs determination that we violated the ban on
providing subsidies to handset purchasers. During the suspensions, each company was able to
continue regular business activities, including replacement of handsets, changes in user names,
changes in mobile phone numbers and changes in tariff plans applicable to the existing subscribers.
Because of the length and timing of our suspension relative to our competitors, we believe the
suspension had a negative impact on the number of new subscribers to our services in August and
September of 2004. As a result of the already high penetration rates in Korea for wireless services, our large
market share, the MICs handset subsidy regulation and the steps we have taken to comply with such
regulation, we expect our subscriber growth rate to decrease, which could adversely affect our
results of operations. 12




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Our business and results of operations may be adversely affected if we fail to
acquire adequate additional spectrum or use efficiently our bandwidth to
accommodate subscriber growth and subscriber usage. One of the principal limitations on a wireless networks subscriber capacity is the amount of
spectrum available for use by the system. We have been allocated 2 x 25 MHz of spectrum in the 800
MHz band. As a result of bandwidth constraints, our CDMA 1xRTT network is currently operating near
its capacity in the Seoul metropolitan area and although capacity constraints are not as severe on
our CDMA 1xEV/DO network, this network generally operates at high utilization rates. While we
believe that we can address this through system upgrades and efficient allocation of bandwidth,
inability to address such capacity constraints in a timely manner may adversely affect our business
and results of operations. The growth of our wireless data businesses has increased our utilization of our bandwidth,
since wireless data applications are generally more bandwidth-intensive than voice services. This
trend has been offset in part by the implementation of our CDMA 1xRTT network and CDMA 1xEV/DO
network, which use bandwidth more efficiently for voice and data traffic than our CDMA networks. If
the current trend of increased data transmission use by our subscribers continues, our bandwidth
capacity requirements are likely to increase. Growth of our wireless business will depend in part
upon our ability to manage effectively our bandwidth capacity and to implement timely and
efficiently new bandwidth-efficient technologies if they become available. We cannot assure you
that bandwidth constraints will not adversely affect the growth of our wireless business. We may have to make further financing arrangements to meet our capital expenditure requirements and debt payment obligations. As a network-based wireless telecommunications provider, we have had in the past and expect to
continue to have significant capital expenditure requirements, as we continue to build-out and
maintain our networks. We estimate that we will spend approximately Won 1.6 trillion for capital
expenditures in 2005 for a range of projects, including expansion and improvement of our wireless
networks, investments in our Internet-related businesses and expansion of our W-CDMA network. We
currently plan to invest Won 600 billion on expansion of our W-CDMA network in 2005. For a more
detailed discussion of our capital expenditure plans and a discussion of other factors which may
affect our future capital expenditures, see Operating and Financial Review and Prospects 
Liquidity and Capital Resources. At December 31, 2004, we had approximately Won 500.0 billion in
contractual payment obligations due in 2005 of which almost all involve repayment of debt
obligations. See Operating and Financial Review and Prospects  Contractual Obligation &
Commitments. We have not arranged firm financing for all of our current or future capital expenditure plans and
contractual payment obligations. We have in the past obtained funds for our proposed capital
expenditure and payment obligations from various sources, including our cash flow from operations
as well as from financings, primarily debt and equity financings. Although we believe that we have
sufficient capital resources from operations and financings to meet our capital expenditure
requirements and debt payment obligations in the near term, inability to fund such capital
expenditure requirements may have a material adverse effect on our financial condition, results of
operations and business. In addition, although we currently anticipate that the capital expenditure
levels estimated by us will be adequate to meet our business needs, such estimates may need to be
adjusted based on developments in technology and markets. No assurance can be given that we will be
able to meet any such increased expenditure requirements or obtain adequate financing for such
requirements, on terms acceptable to us, or at all. 13




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Termination or impairment of our relationship with a small number of key
suppliers for network equipment and for lease lines could adversely affect our
results of operations. We purchase wireless network equipment from a small number of suppliers. We purchase our
principal wireless network equipment from Samsung Electronics Co., Ltd. and LG Electronics Inc. To
date, we have purchased substantially all of the equipment for our CDMA 1xRTT and CDMA 1xEV/DO
networks from Samsung Electronics. Samsung Electronics also currently manufactures more than 40% of
the wireless handsets sold to our subscribers. Although other manufacturers sell the equipment we
require, sourcing such equipment from other manufacturers could result in delays and additional
costs in our roll-out or expansion of the CDMA 1xRTT and CDMA 1xEV/DO networks. With respect to the
introduction of 3G services, various wireless telecommunications service providers globally have
had difficulty in obtaining adequate quantities of various types of 3G equipment, including
handsets, from suppliers. Inability to obtain the needed equipment for our networks in a timely
manner may have an adverse effect on our business, financial condition and results of operations. In addition, we rely on KT Corporation and SK Networks to provide a substantial majority
of our leased lines used for our wireless services. In 2004, KT Corporation and SK Networks
provided approximately 21% and 65%, respectively, of our leased lines. We cannot assure you that we
will be able to continue to obtain the necessary equipment from one or more of our suppliers. Any
discontinuation or interruption in the availability of equipment from our suppliers for any reason
could have an adverse effect on our results of operations. Inability to lease adequate lines, at
commercially reasonable rates may impact the quality of the services we offer and may result in
damaging our reputation and our business. Our businesses are subject to extensive government regulation and any change in
government policy relating to the telecommunications industry could have a
material adverse effect on our results of operations and financial condition. All of our businesses are subject to extensive government supervision and regulation. The MIC
has periodically reviewed the tariffs charged by wireless operators and has from time to time,
suggested tariff reductions. Although these suggestions are not binding, we have in the past implemented some
level of tariff reductions in response to these suggestions. After discussions with the MIC,
effective January 1, 2003, we reduced our standard rate plans monthly access fee by Won 1,000,
increased our free air time from 7 minutes to 10 minutes per month and reduced our peak usage
charges from Won 21 to Won 20 per minute. After discussions with the MIC, in October 2003, we
reduced our monthly charges for caller ID service from Won 2,000 to Won 1,000. In addition, after
discussions with the MIC, effective September 1, 2004, we reduced our monthly basic charge by 7.1%
from Won 14,000 to Won 13,000. The Korean government plays an active role in the selection of technology to be used by
telecommunications operators in Korea. The MIC has adopted the W-CDMA and CDMA2000 technologies as
the only standards available in Korea for implementing 3G services. The MIC may impose similar
restrictions on the choice of technology used in future telecommunications services and we can give
no assurance that the technologies promoted by the Government will provide the best commercial
returns for us. Our wireless telecommunications services depend, in part, on our interconnection arrangements
with domestic and international fixed-line and other wireless networks. Charges for interconnection
affect our revenues and operating results. The MIC determines the basic framework for
interconnection arrangements, including interconnection policies relating to interconnection rates
in Korea and has changed this framework several times in the past. We cannot assure you that we
will not be adversely affected by future changes in the MICs interconnection policies. See
Information on the Company  Interconnection  Domestic Calls. In January 2003, the MIC announced its plan to implement number portability with respect to
wireless telecommunications service in Korea. The number portability system allows wireless
subscribers to switch wireless service operators while retaining the same mobile phone number. In
accordance with the plan published by the MIC, the number portability system was adopted by SK
Telecom first, starting from January 1, 2004. KTF and LGT were required to introduce number
portability starting from July 1, 2004 and January 1, 2005, respectively. In addition, in order to
manage the availability of phone numbers efficiently and to secure phone number resources for the
new services, the MIC has required all new subscribers to be given numbers with the 010 prefix
starting January 2004, and it has been gradually retracting the mobile service identification
numbers which had been unique to each wireless telecommunications service provider, including 011
for our cellular services. 14




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We believe that the use of the common prefix identification system may pose a greater risk to
us compared to the other wireless telecommunications providers because 011 has a very high brand
recognition in Korea as the premium wireless telecommunications service. The MICs adoption of the
number portability system could also result in a deterioration of our market share as a result of
weakened customer loyalty, increased competition among wireless service providers and higher costs
of marketing as a result of maintaining the number portability system, increased subscriber
deactivations, increased churn rate and higher marketing costs, all of which had, and may continue
to have, an adverse effect on our results of operations. See Operating and Financial Review and Prospects. See Information on the Company  Law and Regulation  Number
Portability. In December 2002, the MIC implemented a wireless Internet network co-share system that permits
the wireless application protocol gateway, or WAP gateway, of a fixed-line operator to connect to a
wireless network service providers IWF (inter-working function) device. IWF is a device that
connects cellular network with an IP (Internet Protocol) network while WAP Gateway converts
hypertext transfer protocol, or HTTP protocol, into WAP protocol. This co-share system would allow subscribers of a wireless
network service provider to have access to wireless Internet content provided by a fixed-line
operator. In December 2002, KT Corporation connected to our IWF but has not yet commenced service.
In July 2003, the MIC approved the basic terms regarding the implementation of a network co-system.
In January 2004, we entered into a memorandum of understanding with Onse to establish a co-share
system, under which we plan on launching these services in June 2005. Currently, our subscribers can access portals
provided by outside parties. In addition, the MIC has requested that a third party oversee wireless
operators customer billing procedures with respect to third-party content providers who are
seeking to provide their content directly to subscribers without going through an individual
operators portal, as third-party content providers have experienced difficulties in the past in
providing their content service directly to subscribers due to the lack of resources for billing
users. We believe that such a co-share system, if widely adopted, will have the effect of giving
our users access to a wide variety of content using their handsets which may in turn increase
revenues attributable to our data services. However, this system could also place significant
competitive pressure on the revenues and profits attributable to our NATE wireless portal. We are subject to additional regulation as a result of our market position, which could harm our ability to compete effectively. The MICs policy is to promote competition in the Korean telecommunications markets through
measures designed to prevent the dominant service provider in a telecommunications market from
exercising its market power to prevent the emergence and development of viable competitors. We are
currently designated by the MIC as a market dominant service provider in respect of our wireless
telecommunications business. As such, we are subject to additional regulation to which our
competitors are not subject. For example, under current government regulations, we must obtain
prior approval from the MIC to change our existing rates or introduce new rates while our
competitors may generally change their rates or introduce new rates at their discretion. See
Information on the Company  Law and Regulation  Rate Regulation. As of April 30, 2005, our
standard peak usage charge rate was approximately 11.1% higher than those charged by our
competitors. We could also be required by the MIC to charge higher usage rates than our competitors
for future services. In addition, we were required to introduce number portability earlier than our
competitors, KTF and LGT. 15




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In addition, when the MIC approved the merger of Shinsegi into us in January 2002, the MIC
imposed certain conditions on us. The MIC periodically reviews our compliance with the conditions
related to our merger with Shinsegi. On May 25, 2004, a policy advisory committee to the MIC
announced the results of its review and stated that the committee believed that our market
dominance may significantly restrict competition in the telecommunications market and that we have
violated the conditions related to our merger with Shinsegi by providing subsidies to handset
buyers. In June 2004, the MIC imposed a Won 11.9 billion fine on us and extended the post-merger
monitoring period until January 2007 pursuant to the policy advisory committees recommendation. On
May 25, 2004, we voluntarily undertook to limit our market share through the end of 2005 to 52.3%
of the wireless telecommunications market, the level of our market share at the time of the
approval of our merger with Shinsegi in January 2002. We can give no assurance that the MIC will
not take action that may have a material adverse effect on our business, operations and financial
condition. See Risk Factors  Our businesses are subject to extensive Government regulation and any
change in Government policy relating to the telecommunications industry could have a material
adverse effect on our results of operations and financial condition. In addition, we qualify as a market-dominating business entity under the Fair Trade
Act. The Fair Trade Commission of Korea, or the FTC, approved our acquisition of Shinsegi on
various conditions, one of which was that SK Telecoms and Shinsegis combined market share of the
wireless telecommunications market, based on numbers of subscribers, be less than 50.0% as of June
30, 2001. In order to satisfy this condition, we reduced the level of our subscriber activations
and adopted more stringent involuntary subscriber deactivation policies beginning in 2000 and
ceased accepting new subscribers from April 1, 2001 through June 30, 2001. We complied with this
requirement by reducing our market share to approximately 49.7% as of June 30, 2001. We are not
currently subject to any market share limitations; however, on May 25, 2004, we voluntarily
undertook to limit our market share through the end of 2005 to 52.3% of the wireless telecommunications market, the level of our market share at the time of
the approval of our merger with Shinsegi in January 2002. We can give no assurances that the
Government will not impose restrictions on our market share in the future or that we will not
undertake to voluntarily restrict our market share in the future. If we are subject to market share
limitations in the future, our ability to compete effectively will be impeded. The FTC, also as a
condition to the Shinsegi acquisition, imposed a maximum limit of 1,200,000 on the number of
digital handsets we may purchase annually from our subsidiary, SK Teletech Co., Ltd., until
December 31, 2005. The limitation on the number of handsets we may purchase annually from SK
Teletech does not apply to W-CDMA handsets. The additional regulation to which we are subject has affected our competitiveness in the past
and may hurt our profitability and impede our ability to compete effectively against our
competitors in the future. Financial difficulties and charges of financial statement irregularities at our
affiliate, SK Networks (formerly SK Global), may cause disruptions in our
business. Charges of financial statement irregularities by certain directors and executives at SK
Networks have culminated in the resignation of four of our board members and executives, although
none of these resignations were related to any allegations of wrongdoing in connection with their
role in our business. SK Telecom was not implicated in any of the charges against SK Networks
management. Furthermore, continuing financial difficulties at SK Networks could result in our
having to look for alternative sources for handset distribution and fixed network line needs. In
February 2004, Mr. Kil Seung Son and Mr. Tae Won Chey, who both received prison terms of three
years in the court of first instance and appealed to the Seoul High Court in connection with
allegations of financial misconduct at SK Networks, resigned from our board of directors, along
with Mr. Moon Soo Pyo, our president and Mr. Jae Won Chey, our executive vice president. See
Directors, Senior Management and Employees  Certain Legal Proceedings. 16




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The financial future of SK Networks remains uncertain. In March 2003, the principal creditor
banks of SK Networks commenced corporate restructuring procedures against SK Networks after the
company announced that its financial statements understated its total debt by Won 1.1 trillion and
overstated its profits by Won 1.5 trillion. These banks agreed to a temporary rollover of
approximately Won 6.6 trillion of SK Networks debt until June 18, 2003 and subsequently decided to
put SK Networks into corporate restructuring. In October 2003, SK Networks foreign and domestic
creditors agreed to a restructuring plan which, among other things, allowed the foreign creditors
to have their debts repaid at a buyout rate of 43% of the face value of the outstanding debt owed
to them. In November 2003, SK Networks underwent a capital reduction and sold approximately Won 1
trillion of its assets as part of its restructuring plan, and SK Corporation approved a Won 850
billion debt-for-equity swap. SK Networks is still under the joint management of its domestic
creditors in accordance with its business normalization plan. SK Networks is the exclusive distributor of all of the handsets sold by our subsidiary,
SK Teletech, to our nationwide network of dealers. SK Networks also serves as a distributor of
handsets manufactured by third parties to our nationwide network of dealers. Samsung Electronics
Co. Ltd., LG Electronics Inc., Motorola Korea, Inc. and Pantech & Curitel suspended their supply of
handsets to SK Networks from the beginning of April 2003 for two to three weeks because of the
credit risk of SK Networks. In May 2003, all suppliers resumed their supply of handsets on the
condition that payment on their mobile phones be made in cash within one week of delivery. Although
we believe that we will be able to find another distributor to replace SK Networks, in the event SK
Networks is no longer able to distribute handsets, we may encounter difficulties in efficiently
distributing the handsets to our subscribers and other customers in the short term. In addition, in 2004, we leased approximately 65% of our fixed network lines, which connect
our various cell sites and switching stations, from SK Networks. If there is a material disruption
of SK Networks ability to maintain and operate this business due to its financial difficulties, we
may need to seek alternative sources. Although we do not believe that this will have a materially
adverse effect on our business, this may result in a disruption of our services in the short term. Concerns that radio frequency emissions may be linked to various health
concerns could adversely affect our business and we could be subject to
litigation relating to these health concerns. In the past, allegations that serious health risks may result from the use of wireless
telecommunications devices or other transmission equipment have adversely affected share prices of
some wireless telecommunications companies in the United States. We cannot assure you that these
health concerns will not adversely affect our business. Several class action and personal injury
lawsuits have been filed in the United States against several wireless phone manufacturers and
carriers, asserting product liability, breach of warranty and other claims relating to radio
transmissions to and from wireless phones. Certain of these lawsuits have been dismissed. We could
be subject to liability or incur significant costs defending lawsuits brought by our subscribers or
other parties who claim to have been harmed by or as a result of our services. In addition, the
actual or perceived risk of wireless telecommunications devices could have an adverse effect on us
by reducing our number of subscribers or our usage per subscriber. Our businesses may be adversely affected by developments affecting the Korean economy. We generate substantially all of our revenue from operations in Korea. Our future performance
will depend in large part on Koreas future economic growth. Adverse developments in Koreas
economy or in political or social conditions in Korea may have an adverse effect on our number of
subscribers, call volumes and results of operations, which could have an adverse effect on our
business. 17




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In 1997 and 1998, Korea experienced a significant increase in the number and size of
companies filing for corporate reorganization and protection from their creditors. As a result of
these corporate failures, high levels of short-term foreign currency borrowings from foreign
financial institutions and the consideration of non-market oriented factors in making lending
decisions, Koreas financial institutions experienced a sharp increase in non-performing loans and
a deterioration in their capital adequacy ratios. These developments led to a substantial increase
in the number of unemployed workers, reducing the purchasing power of consumers in Korea. These
developments also led international credit rating agencies to downgrade the credit ratings of Korea
and various companies and financial institutions in Korea to below investment grade, although
S&P and
Moodys raised the credit rating of Korea back to investment
grade levels in early 1999. The current long-term foreign currency
rating of Korea by S&P is A and
the current foreign currency rating on bond obligations of Korea by Moodys is A3. Prompted by
heightened security concerns stemming from nuclear weapons program of Democratic Peoples Republic
of Korea, or North Korea, Moodys had lowered the outlook on the long-term ratings of Korea from
positive to negative in February 2003 before raising it to stable in June 2004 in response to a
series of six party talks involving Korea, the United States, North Korea, China, Japan and Russia
that suggested lessened tension over the nuclear weapons program of North Korea. Although the Korean economy began to experience a recovery in 1999, the pace of the recovery
has since slowed and has been volatile. The economic indicators in 2001, 2002, 2003 and 2004 have
shown mixed signs of recovery and uncertainty, and future recovery or growth of the economy is
subject to many factors beyond our control. Events related to terrorist attacks in the United
States that took place on September 11, 2001, recent developments in the Middle East, including the
war in Iraq, higher oil prices and the general weakness of the global economy have increased the
uncertainty of world economic prospects in general and continue to have an adverse effect on the
Korean economy. Any future deterioration of the Korean economy would adversely affect our financial condition and results of operations. Developments that
could hurt Koreas economy in the future include:  

financial problems relating to Korean conglomerates, or chaebols, or their
suppliers, and their potential adverse impact on Koreas financial sector, including as a
result of recent investigations relating to unlawful political contributions by chaebols;  

failure of restructuring of large troubled companies, including LG Card and other
troubled credit card companies and financial institutions;  

adverse changes or volatility in foreign currency reserve levels, commodity prices
(including oil prices), exchange rates (including depreciation of the Dollar or Yen),
interest rates and stock markets;  

increased reliance on exports to service foreign currency debts, which could cause
friction with Koreas trading partners;  

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 that
could result in a loss of confidence in the Korean economy;  

the continued emergence of China, to the extent its benefits (such as increased exports
to China) are outweighed by its costs (such as competition in export markets or for
foreign investment and the relocation of the manufacturing base from Korea to China;  

social and labor unrest or declining consumer confidence or spending resulting from
lay-offs, increasing unemployment and lower levels of income;  

another widespread outbreak of severe acute respiratory syndrome, or SARS, or any
similar contagion, in Asia and other parts of the world; 18




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

a decrease in tax revenues and a substantial increase in the Korean governments
expenditures for unemployment compensation and other social programs that, together, lead
to an increased government budget deficit;  

political uncertainty or increasing strife among or within political parties in Korea;
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. Any developments that could adversely affect Koreas economic recovery will likely also
decrease demand for our services and adversely affect our financial condition and results of
operations. Depreciation of the value of the Won against the Dollar and other major foreign
currencies may have a material adverse effect on our results of operations and
on the prices of our common stock and the ADSs. Substantially all of our revenues are denominated in Won. Depreciation of the Won may
materially affect our results of operations because, among other things, it causes:  

an increase in the amount of Won required by us to make interest and principal payments
on our foreign currency-denominated debt, which accounted for approximately 18.7% of our
total consolidated long-term debt, including current portion, as of December 31, 2004;
and  

an increase, in Won terms, of the costs of equipment that we purchase from overseas
sources which we pay for in Dollars or other foreign currencies. Fluctuations in the exchange rate between the Won and the Dollar will affect the Dollar
equivalent of the Won price of the shares of our common stock on the KRX Stock Market. These
fluctuations also will affect the amounts a registered holder or beneficial owner of ADSs will
receive from the ADR depositary in respect of:  

dividends, which will be paid in Won to the ADR depositary and converted by the ADR
depositary into Dollars;  

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

the secondary market price of the ADSs. For historical exchange rate information, see Key Information  Exchange Rate. Increased tensions with North Korea could have an adverse effect on us and the prices of our common stock and the ADSs. Relations between Korea and North Korea have been tense over most of Koreas history. The
level of tension between Korea and North Korea has fluctuated and may increase or change abruptly
as a result of current and future events, including ongoing contacts at the highest levels of the
governments of Korea and North Korea and increasing hostility between North Korea and the United
States. In December 2002, North Korea removed the seals and surveillance equipment from its
Yongbyon nuclear power plant and evicted inspectors from the United Nations International Atomic
Energy Agency, and has reportedly resumed activity at its Yongbyon power plant. In January 2003,
North Korea announced its intention to withdraw from the Nuclear Non-Proliferation Treaty,
demanding that the United States sign a non-aggression pact as a condition to North Korea
dismantling its nuclear program. In August 2003, representatives of Korea, the United States, North
Korea, China, Japan and Russia held multilateral talks in an effort to resolve issues relating to
the nuclear weapons program of North Korea. While the talks concluded without resolution,
participants in the August meeting indicated that further negotiations may take place in the future
and, in February 2004, six party talks resumed in Beijing, China. Since the last six party talks in
June 2004, however, the talks involving the six countries aimed at dismantling the North Koreas
nuclear programs have been stalled. In February 2005, North Korea claimed that it had nuclear
weapons and was pulling 19




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out of the six party talks. Any further increase in tensions, resulting for example from a
break-down in contacts, test of long-range nuclear missiles coupled with continuing nuclear
programs by North Korea or an outbreak in military hostilities, could hurt our business, results of
operations and financial condition and could lead to a decline in the market value of our common
stock and the ADSs. If SK Corporation causes us to breach the foreign ownership limitations on
shares of our common stock, we may experience a change of control. There is currently a 49% limit
on the aggregate foreign ownership of our issued shares. Under a newly adopted amendment to the
Telecommunications Business Law, which became effective on May 9, 2004, a Korean entity, such as
SK Corporation, is deemed to be a foreign entity if its largest shareholder (determined by aggregating
the shareholdings of such shareholder and its related parties) is a foreigner and such shareholder
(together with the shareholdings of its related parties) holds 15% or more of the issued voting
stock of the Korean entity. As of December 31, 2004, SK Corporation owned 17,663,127 shares of our
common stock, or approximately 21.47%, of our issued shares. If SK Corporation were considered a
foreign shareholder of SK Telecom, then its shareholding in SK Telecom would be included in the
calculation of the aggregate foreign shareholding of SK Telecom and the aggregate foreign shareholding
in SK Telecom (based on our foreign ownership level as of December 31, 2004, which we believe was 48.33%)
would exceed the 49% ceiling on foreign shareholding. As of December 31, 2004, a foreign investment fund
and its related parties collectively held a 14.85% stake in SK Corporation. We could breach the foreign
ownership limitations if the number of shares of our common stock or ADSs owned by other foreign
persons significantly increases. If the aggregate foreign shareholding limit in SK Telecom is exceeded, the MIC may issue a
corrective order to SK Telecom, the breaching shareholder (including SK Corporation if the breach
is caused by an increase in foreign ownership of SK Corporation) and the foreign investment fund
and its related parties who own in the aggregate 15% or more of SK Corporation. Furthermore, if SK
Corporation is considered a foreign shareholder, it may not exercise its voting rights with respect
to the shares held in excess of the 49% ceiling, which may result in a change in control of us. In
addition, the MIC may refuse to grant us licenses or permits necessary for entering into new
telecommunications businesses until the aggregate foreign shareholding of SK Telecom is reduced to
below 49%. If a corrective order is issued to us by the MIC arising from the violation of the
foregoing foreign ownership limit, and we do not comply within the prescribed period under such
corrective order, the MIC may (1) suspend all or part of our business, or (2) if the suspension of
business is deemed to result in significant inconvenience to our customers or be detrimental to the
public interest, impose a one-time administrative penalty of up to 3% of our sales revenues. The
amendment to the Telecommunications Business Law in May 2004 also authorizes the MIC to assess
monetary penalties of up to 0.3% of the purchase price of the shares for each day the corrective
order is not complied with, as well as a prison term of up to one year and a penalty of Won 50
million. For a description of further actions that the MIC could take, see Information on the
Company  Law and Regulation  Foreign Ownership and Investment Restrictions and Requirements. If our convertible notes are converted by foreign holders and the conversion
would cause a violation of the foreign ownership restrictions of the
Telecommunications Business Law, or in certain other circumstances, we may have
to sell common stock in order to settle the converting holders conversion
rights in cash rather than by issuing common stock to them, and these sales
might adversely affect the market price of our common stock or ADRs. In May 2004, we sold US$329.5 million in zero coupon convertible notes due 2009. These
convertible notes are convertible by the holders into shares of our common stock at the rate of Won
235,625 per share. These notes are held principally by foreign holders. If (1) the exercise by the
holder of the conversion right would be prohibited by Korean law or we reasonably conclude that the
delivery of common stock upon conversion of these notes would result in a violation of applicable
Korean law or (2) we do not have a sufficient number of shares of 20




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our common stock to satisfy the conversion right, then we will pay a converting holder a cash
settlement payment. In such situations, we intend to sell such number of treasury shares held in
trust for us that corresponds to the number of shares of common stock that would have been
deliverable in the absence of the 49% foreign shareholding restrictions imposed by the Telecommunications Law or other legal
restrictions. The number of shares sold in these circumstances might be substantial. We cannot
assure you that such sales would not adversely affect the market prices of our common stock or
ADSs. Sales of SK Telecom shares by companies in the SK Group, POSCO and/or other
large shareholders may adversely affect the prices of SK Telecoms common stock
and the ADSs. Sales of substantial amounts of shares of our common stock, or the perception that such sales
may occur, could adversely affect the prevailing market price of the shares of our common stock or
the ADSs or our ability to raise capital through an offering of our common stock. As of December 31, 2004, POSCO owned 4.98% of our issued common stock. POSCO has not agreed to
any restrictions on its ability to dispose of our shares. See Major Shareholders and Related Party
Transactions  Major Shareholders. Companies in the SK Group, which collectively owned 24.03% of
our issued common stock as of December 31, 2004, may sell their shares of our common stock in order
to comply with the Fair Trade Acts limits on the total investments that companies in a large
business group, such as the SK Group, may hold in other domestic companies. See Information on the
Company  Business Overview  Law and Regulation  Competition Regulation. We understand that SK
Networks, which owned 2.55% of our shares as of December 31, 2004, has agreed with its creditors in
connection with its corporate restructuring to sell certain of its assets, which may include our
shares. We can make no prediction as to the timing or amount of any sales of our common stock. We
cannot assure you that future sales of shares of our common stock, or the availability of shares of
our common stock for future sale, will not adversely affect the market prices of the shares of our
common stock or ADSs prevailing from time to time. Koreas new legislation allowing class action suits related to securities transactions may expose us to additional litigation risk. A new law enacted on January 12, 2004 allows class action suits to be brought by shareholders
of companies (including us) listed on the KRX Stock Market for losses incurred in connection with
purchases and sales of securities and other securities transactions arising from (i) false or
inaccurate statements provided in the registration statements, prospectuses, business reports and
audit reports; (ii) insider trading and (iii) market manipulation. This law became effective
starting from January 1, 2005 with respect to companies whose total assets are equal to or greater
than Won 2.0 trillion as of the end of the fiscal year immediately preceding January 1, 2005.
However, in the event that certain elements of a financial statement for the fiscal year ended
before January 1, 2005, were not in compliance with the then effective accounting standards, this
law does not apply, if such non-compliance is cured or addressed in the financial statements for
the fiscal year ending on December 31, 2006, and such corrected information is submitted to the
Financial Supervisory Commission or the Korea Exchange Inc., or the KRX, or made publicly
available. This law permits 50 or more shareholders who collectively hold 0.01% of the shares of a
company to bring a class action suit against, among others, the issuer and its directors and
officers. It is uncertain how the courts will apply this law. Litigation can be time-consuming and
expensive to resolve, and can divert management time and attention from the operation of a
business. We are not aware of any basis under which such suit may be brought against us, nor are
any such suits pending or threatened. Any such litigation brought against us could have a material
adverse effect on our business, financial condition and results of operations. If an investor surrenders his ADSs to withdraw the underlying shares, he may not be allowed to deposit the shares again to obtain ADSs. Under the deposit agreement, holders of shares of our common stock may deposit those shares
with the ADR depositarys custodian in Korea and obtain ADSs, and holders of ADSs may surrender
ADSs to the ADR depositary and receive shares of our common stock. However, under the terms of the deposit
agreement, as amended, the depositary bank is required to obtain our prior consent to any such
deposit if, after giving effect to such deposit, the total number of shares of our common stock on
deposit, which was 22,514,442 shares as of April 30, 2005, exceeds a specified maximum, subject to
adjustment under certain circumstances. In addition, the depositary bank or the custodian may not
accept deposits of our common shares for issuance of ADSs under certain circumstances, including
(1) if it has been determined by us that we should block the deposit to prevent a violation of
applicable Korean laws and regulations or our articles of incorporation or (2) if a person
intending to make a deposit has been identified as a holder of at least 3% of our common stock on
October 7, 2002. See Additional Information  Description of American Depositary Shares. It is
possible that we may not give the consent. Consequently, an investor who has surrendered his ADSs
and withdrawn the underlying shares may not be allowed to deposit the shares again to obtain ADSs. 21




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

a registration statement filed by us under the U.S. Securities Act of 1933, as amended, is in effect with respect to those shares; or  

the offering and sale of those shares is exempt from, or is not subject to, the registration requirements of the U.S. Securities Act. We are under no obligation to file any registration statement with respect to any ADSs. If a
registration statement is required for an ADS holder to exercise preemptive rights but is not filed
by us, the ADS holder will not be able to exercise his preemptive rights for additional shares. As
a result, ADS holders may suffer dilution of their equity interest in us. Short selling of our ADSs by purchasers of securities convertible or
exchangeable into our ADSs could materially adversely affect the market price
of our ADSs. SK Corporation, through one or more special purpose vehicles, has engaged and may in the
future engage in monetization transactions relating to its ownership interest in us. These
transactions have included and may include offerings of securities that are convertible or
exchangeable into our ADSs. Many investors in convertible or exchangeable securities seek to hedge
their exposure in the underlying equity securities at the time of acquisition of the convertible or
exchangeable securities, often through short selling of the underlying equity securities or through
similar transactions. Since a monetization transaction could involve debt securities linked to a
significant number of our ADSs, we expect that a sufficient quantity of ADSs may not be immediately
available for borrowing in the market to facilitate settlement of the likely volume of short
selling activity that would accompany the commencement of a monetization transaction. This short
selling and similar hedging activity could place significant downward pressure on the market price
of our ADSs, thereby having a material adverse effect on the market value of ADSs owned by you. After the exchange of ADSs into the underlying common shares of SK Telecom,
seller or purchasers of the underlying common shares may have to pay securities
transaction tax upon the transfer of the shares. Under Korean tax law, transfer of a companys common shares after the exchange of ADSs into
the underlying common shares of SK Telecom will be subject to securities transaction tax (including
an agricultural and fishery special tax) at the rate of 0.3% of the sales price if traded on the
KRX Stock Market. Securities transaction tax, if applicable, generally must be paid by the transferor of
the shares or the person transferring rights to subscribe to such shares. When the transfer is
effected through a securities settlement company, such settlement company is generally required to
withhold and pay the tax to the tax authority. When such transfer is made through a securities
company, such securities company is required to withhold and pay the tax. In case the sale takes
place outside the KRX Stock Market, without going through a securities settlement company or a
securities company, between two non-residents or between a non-resident seller and a Korean
resident purchaser, the purchaser will have to withhold securities transaction tax at the rate of
0.5% of the sales price of the common shares. Failure to pay the securities transaction tax will result in a penalty of 10% of the tax due.
The penalty is imposed on the party responsible for paying the securities transaction tax or, if
the securities transaction tax is to be paid via withholding, the penalty is imposed on the party
that has the withholding obligation. See Additional Information  Taxation  Korean Taxation. 22




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We are generally subject to Korean corporate governance and disclosure standards, which may differ from those in other countries. Companies in Korea, including us, are subject to corporate governance standards applicable to
Korean public companies, which may differ in some respects from standards applicable in other
countries, including the United States. As a reporting company registered with the Securities and
Exchange Commission and listed on the New York Stock Exchange, we are, and in the future will be,
subject to certain corporate governance standards as mandated by the Sarbanes-Oxley Act of 2002.
However, foreign private issuers, including us, are exempt from certain corporate governance
requirements under the Sarbanes-Oxley Act or under the rules of the New York Stock Exchange. There
may also be less publicly available information about Korean companies, such as us, than is
regularly made available by public or non-public companies in other countries. Such differences in
corporate governance standards and less public information could result in corporate governance
practices or disclosures that are perceived as less than satisfactory by investors in certain
countries. 
 Item. 4Information on the Company HISTORY AND DEVELOPMENT OF THE COMPANY Introduction We are Koreas leading wireless telecommunications services provider and a pioneer in the
commercial development and provision of high-speed wireless data and Internet services. We served
approximately 19.1 million subscribers throughout Korea as of April 30, 2005, including 18.4
million subscribers who owned data-capable handsets. As of April 30, 2005, our share of the Korean
wireless market was approximately 51.2%, based on the number of subscribers. We provide our services principally through networks using CDMA technology. In October 2000,
we became the worlds first wireless operator to commercially launch CDMA 1xRTT, a CDMA-based
advanced radio transmission technology for high-speed wireless data and wireless Internet services.
CDMA 1xRTT allows transmission of data at speeds of up to 144 Kbps, compared to the 64 Kbps
possible over our CDMA network. In addition to higher data transfer speeds, CDMA 1xRTT technology
uses packet-based data transmission, which permits more efficient use of wireless spectrum and packet-based pricing
of data services. As of April 30, 2005, approximately 17.7 million of our subscribers had handsets
capable of accessing our CDMA 1xRTT network. In the first half of 2002, we launched an upgrade of our CDMA 1xRTT network in 26 cities in
Korea to CDMA 1xEV/ DO. CDMA 1xEV/ DO is a more advanced CDMA-based technology which enables data
to be transmitted at speeds of up to 2.4 Mbps. CDMA 1xEV/DO technology allows us to provide
advanced wireless data services such as streaming video and audio services. CDMA 1xEV/DO-capable
handsets became available in Korea in June 2002. As of December 31, 2004, CDMA 1xEV/DO network
upgrade has been completed in 84 cities in Korea. In December 2001, we acquired a license to develop, construct and operate a wide-band code
division multiple access, or W-CDMA, digital cellular network using 2 × 20 MHz of radio frequency
spectrum (i.e., 20 MHz for transmissions from handsets to cell sites and 20 MHz for transmissions
from cell sites to handsets) in the 2 GHz band. In May 2003, we merged SK IMT, a subsidiary
established for the principal purpose of 23




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operating and developing our W-CDMA services, into SK Telecom because we felt that we could better
manage the technology, marketing and operations of the W-CDMA business as one entity. We have
commenced construction of the W-CDMA network and began providing W-CDMA service on a limited basis
in Seoul at the end of 2003. In January 2002, we acquired the remaining 29.6% interest in Shinsegi, the second wireless
operator to introduce wireless voice services in Korea, which we did not yet own, and merged
Shinsegi into SK Telecom. As a result of this merger, we now have a combined 2 × 25 MHz of spectrum
in the 800 MHz range. In 2003, we commenced construction of our W-CDMA network and began providing W-CDMA service on
a limited basis in Seoul at the end of 2003. We are continuing to improve our W-CDMA services in the Seoul
metropolitan area and are continuing to build out our W-CDMA network in other metropolitan areas of Korea. In March 2004, we were assigned by the MIC frequency for satellite DMB. In October 2004, we
granted the right to use such satellite, satellite orbit and frequency to TU Media Corp., one of
our affiliates, which received a license from the MIC as a satellite DMB provider on December 30,
2004. In April 2005, SK Teletech launched its own brand handsets for use in connection with
satellite DMB services. On May 1, 2005, TU Media Corp. began to provide satellite DMB services. In March 2005, we obtained a license from the MIC to provide WiBro services, which will serve
as a complementary solution to the existing mobile communication services such as W-CDMA. WiBro
will offer wireless Internet services at a competitive price in the metropolitan areas where there
is a high demand for high-speed and large packet data services. In April 2005, we were assigned by
the MIC a 27 MHz of spectrum in the 2.3GHz (2,300,2,327MHz) range in connection with WiBro
services. On May 24, 2005, we had a market capitalization of approximately Won 14.5 trillion (US$14.4
billion, as translated at the noon buying rate of May 23, 2005) or approximately 3.01% of the total
market capitalization on the KRX Stock Market, making us the sixth largest company listed on the
KRX Stock Market based on market capitalization on that date. Our ADSs, each representing one-ninth
of one share of our common stock, have traded on the New York Stock Exchange since June 27, 1996. We established our telecommunications business in March 1984 under the name of Korea Mobile
Telecommunications Co., Ltd., under the laws of Korea. We changed our name to SK Telecom Co., Ltd.,
effective March 21, 1997. Our registered office is at 11, Euljiro 2-ga, Jung-gu, Seoul 100-999, Korea and our telephone
number is 82-2-6100-1639. Our Business Strategy We believe that trends in the Korean telecommunications industry during the next decade will
mirror those in the global market and that the industry will be characterized by rapid
technological change, reduced regulatory barriers and increased competition. Our business strategy
is to enhance shareholder value by maintaining and consolidating our leading position in the Korean
market for wireless services, including voice, data and Internet services. As the Korean market
continues to mature, we will continue to focus on these core businesses in order to expand and
enhance the range and quality of our wireless telecommunications services. Our principal strategies
are to:  

Enhance the technical capabilities of our wireless networks to improve
data transmission rates and service quality and to enable us to offer
an increased range of services.We are expanding the geographic
coverage and subscriber capacity of our existing CDMA 1xRTT network
and are progressively upgrading this network to employ CDMA 1xEV/DO
technology, capable of data transmission at speeds of up to 2.4 Mbps.  

Offer a broad range of new and innovative wireless data and Internet
services.Through our integrated wireless and on-line portal, NATE, we
plan to continue expanding the range of our wireless data and Internet
services with a view to increasing revenue from these services. Our
strategy includes the introduction of sophisticated multimedia
services (such as June, a premium wireless data service that provides
streaming multimedia video content through our CDMA 1xEV/DO
technology), mobile commerce services (such as Moneta and Liquid
Screen Small Payment Service, wireless credit and payment systems
which allow subscribers to provide merchants with credit card
information and payment authorization using chips embedded in their
wireless handsets), mobile community portal services (such as Mobile
Cyworld, which allows subscribers to enjoy Cyworld, our on-line
community portal service, through their cellular phone) and mobile
finance services (such as M BANK, M-Stock and Moneta Card) that can be
accessed using handsets and other devices, including personal
computers, personal digital assistants and vehicle mounted terminals. 24




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

Retain and capitalize on our large, high-quality wireless subscriber
base.With approximately 19.1 million subscribers as of April 30,
2005, we have the largest wireless subscriber base in Korea. We focus
on maintaining and expanding our high-quality subscriber base through
the provision of enhanced wireless services, particularly advanced
wireless data and Internet-based applications, at higher speeds than
previously available. As part of this strategy, we encourage our CDMA
subscribers to migrate to our more advanced CDMA 1xRTT and CDMA
1xEV/DO networks.  

Position ourselves to be a leader in implementing new and improved
wireless technologies.We pursue a research and development program
designed to allow us to implement new wireless technologies as market
opportunities arise. We operate a network research and development
center which is focused on wireless network design, digital cellular
technologies and wireless telecommunications applications. This center
includes a research team that is helping to develop fourth generation,
or 4G, wireless technology, which is expected to enable wireless data
transmission at speeds of up to 155 Mbps, 70 times faster than 3G
technology. We acquired a license to develop and operate a W-CDMA
network using 2 × 20 MHz of spectrum in the 2 GHz band. We have
commenced provision of our IMT-2000 services based on our W-CDMA
network on a limited basis in Seoul at the end of 2003. We are
continuing to improve our W-CDMA services in the Seoul metropolitan
area and are continuing to build out our W-CDMA network in other
metropolitan areas of Korea. In the first half of 2006, we plan to
start deploying high speed download packet access (HSDPA), also
known as 3.5G technology, which enables data to be transmitted at
speeds of up to two to three times faster than 1xEV/DO. We have
commenced testing of the system that will enable such upgrade to HSDPA
by simply upgrading applicable software and without requiring any new
infrastructure.  

Take initiative in transitioning to what is being referred to as a
convergent and ubiquitous era in mobile communications.We are
striving to satisfy our customers needs by launching such new
services as Telematics, Broadband Convergence Networks and Digital
Home. In particular, we obtained a 2.3Ghz portable Internet (WiBro)
service license in March of 2005. This service will be deployed in a
way that will maximize its synergistic effect with conventional mobile
phone services. We are actively implementing new businesses with an
objective of achieving significant synergies between our subsidiary
and affiliate companies. In this regard, TU Media Corp., one of our
affiliates, successfully launched satellite DMB service in May 2005.
TU Medias satellite DMB service became commercially operational on
May 1, 2005 and had surpassed 30,000 subscribers as of May 22, 2005.
From July 2005, TU Media will additionally provide DMB services to KT
Freetel Co., Ltd., or KTF, and LG Telecom, Ltd., or LGT, subscribers.  

New business expansion into the wireless Internet contents sector such
as music.In May 2005, we announced the acquisition of a 60% stake in
YBM Seoul Records Inc., Koreas largest music recording company in
terms of records released and revenues, for Won 29.2 billion. The
acquisition of YBM Seoul Records secures a larger content pool to
provide subscribers through our MelOn digital music service. We
currently plan to have YBM distribute and invest in digital music.
Also in May 2005, we announced the formation of a Won 30 billion fund
co-investing with local Korean investment companies to produce and
distribute music products, seek strategic partnerships with other
recording companies, and vitalize Koreas music industry. Furthermore,
in May 2005, we announced our plan to invest in a Won 20 billion fund
to strengthen our ability to obtain movie contents.  

Continue to expand into overseas markets.We have been seeking to
expand into various overseas markets. Through the launch of a joint
venture company with China Unicom in February 2004, we began extending
our wireless Internet service in China. We are also providing a CDMA
cellular service in the Vietnamese market. In addition, we have been
exporting what we refer to as our coloring solution, which allows
the calling party to hear music or an audio clip selected by a
subscriber instead of the standard ringback tone that is heard until
the call is connected, and wireless Internet platforms and solutions,
to countries such as Taiwan and Thailand. We established a joint
venture with EarthLink, Inc., a Delaware corporation, the third
largest Internet service provider in the U.S., to launch voice and
data services across the U.S. as a mobile virtual network operator
(MVNO) in 2005. In May 2005 we announced our pending entry into the
European GSM market with the global positioning systembased safety
service for children called i-Kids. We signed a contract to sell the
GSM-based i-Kids solution to SF-Alert, a mobile security firm in the
Netherlands. In connection with this transaction, we acquired a 20%
stake in SF-Alert in April 2005. Merger with Shinsegi In a series of transactions between December 1999 and April 2000, we acquired a 51.2% interest
in the common stock of Shinsegi. In subsequent transactions between March and September 2001, we
increased our interest to 70.4%. On January 13, 2002, Shinsegi merged into SK Telecom. 25




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The attractiveness of our merger with Shinsegi derived in large measure from the
synergies, growth opportunities and cost savings we hoped to achieve by integrating Shinsegis
operations and customer base with those of SK Telecom and our plans to reallocate the spectrum used
by Shinsegi to SK Telecoms networks. In 2001, we began integrating Shinsegis operations with those of SK Telecom. In 2002, we
completed the following steps to realize additional benefits from our merger with Shinsegi:  

Decommissioned Shinsegis former network and transferred Shinsegis subscribers to SK
Telecoms networks. We have allowed transferred subscribers to continue receiving
services under their existing rate plans. However, after the merger, no new subscribers
have been accepted under Shinsegis plans and further marketing efforts have been limited
to the SK Telecom brands. Shinsegis subscribers do not have to purchase new handsets,
are allowed to use the same mobile telephone numbers and have access to the same services
as before the merger.  

Re-allocated the spectrum formerly used by Shinsegis network to SK Telecoms CDMA and
CDMA 1xRTT networks.  

Redeployed a portion of Shinsegis former network equipment to SK Telecoms CDMA
network or sold it to wireless operators outside of Korea. The remainder of Shinsegis
network equipment was discarded and written off and we recorded an impairment loss of Won
185.8 billion in 2002. We also identified and implemented other cost saving measures, such as the elimination of
redundant distribution centers. Shinsegis business has been fully integrated into our business. KOREAN TELECOMMUNICATIONS INDUSTRY Until April 1996, we were the sole provider of wireless telecommunications services in
Korea. Beginning in the early 1990s, the Government began to introduce competition into the
fixed-line and wireless telecommunications services markets. In the early 1990s, the Government
allowed new competitors to enter the fixed-line sector, sold a controlling stake in us to the SK
Group, and granted a cellular license to our first competitor, Shinsegi. In October 1997, three
additional companies, KTF, LGT, and Hansol PCS, began providing wireless services under government
licenses granting them the right to provide wireless telecommunications services. In 2000 and 2001, the Korean wireless telecommunications market experienced significant
consolidation. In January 2002, Shinsegi was merged into SK Telecom. Additionally, two of the other
wireless telecommunications services operators merged. See Business  Competition. Thus, there are
currently three providers of wireless voice telecommunications services in Korea, ourselves
(including Shinsegi), KTF, which is a subsidiary of KT Corporation, and LGT. As of April 30, 2005,
SK Telecom had 51.2% market share of the Korean wireless telecommunications market in terms of
subscribers, while KTF and LGT had market shares of 32.4% and 16.5%, respectively. On December 15, 2000, the MIC awarded to two companies the right to receive a license to
provide 3G services using W-CDMA, an extension of the Global System for Mobile Communication
standard for wireless telecommunications which is the most widely used wireless technology
globally. These rights were awarded to two consortia of companies, one led by SK Telecoms former
subsidiary, SK IMT Co., Ltd., and the other to a consortium that included KT Corporation (formerly
known as Korea Telecom Corp.). SK IMT Co., Ltd. was merged into SK Telecom on May 1, 2004. The
right to acquire an additional license to operate a network using CDMA2000 technology was awarded
to LGT in August 2001. A one-way mobile number portability (MNP) system was first implemented in the beginning
of January 2004 when our subscribers were allowed to transfer to KTF and LGT. From July 2004, a
two-way MNP was implemented so that KTF subscribers could transfer to SK Telecom and LGT. A
three-way MNP has been in effect since January 2005 so that subscribers from each of the wireless
service providers may transfer to any other wireless service provider. During the entire year of
2004, approximately 2.1 million of our subscribers transferred to our competitors, and 567,413 of
KTFs subscribers moved to our service during the same period. In January 2005, the government decided to grant to KT Corporation and us a license to
offer a new high-speed wireless Internet service called WiBro, which will provide mobile Internet
users a more stable connection at speeds which are much higher than currently available. According
to the MIC report titled Introduction and Use of WiBro Service, published on March 11, 2005, the
number of WiBro subscribers is expected to rise to more than 9 million subscribers within the next
six years. Telecommunications industry growth in Korea has been among the most rapid in the world,
with fixed-line penetration increasing from under 5 lines per 100 population in 1978 to 47.6 lines
per 100 population as of December 31, 2004, and wireless penetration increasing from 7.0
subscribers per 100 population in 1996 to 76.1 subscribers per 100 population as of December 31,
2004. The table below sets forth certain subscription and penetration information regarding the
Korean telecommunications industry as of the dates indicated: As of December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(In thousands, except forper population amounts)Population of Korea(1)
    
    
    47,008
    
    
    
    47,354
    
    
    
    47,615
    
    
    
    47,849
    
    
    
    48,082Wireless Subscribers(2)
    
    
    26,816
    
    
    
    29,046
    
    
    
    32,342
    
    
    
    33,592
    
    
    
    36,586Wireless Subscribers per 100 Population
    
    
    57.0
    
    
    
    61.3
    
    
    
    67.9
    
    
    
    70.2
    
    
    
    76.1Telephone Lines in Service(2)
    
    
    21,932
    
    
    
    22,725
    
    
    
    23,490
    
    
    
    22,877
    
    
    
    22,871Telephone Lines per 100 Population
    
    
    46.7
    
    
    
    48.0
    
    
    
    49.3
    
    
    
    47.8
    
    
    
    47.6
   (1)
    
    Source: National Statistical Office of Korea(2)
    
    Source: MIC 26




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The Korean telecommunications industry is one of the most developed in Asia in terms of
wireless penetration, and in terms of the growth of the wireless data and Internet services
markets. The wireless penetration rate, which is calculated by dividing the number of wireless
subscribers by the population, is 77.1% as of April 30, 2005 and the number of wireless subscribers
has increased from approximately 3.2 million in 1996 to approximately 37.2 million as of April 30,
2005.

The following graph sets forth the wireless penetration rates for countries in the
Asia/Pacific region as of December 31, 2004.

Asia/Pacific wireless
penetration rates as of December 31, 2004(1)

(BAR CHART)



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|Source: IDC Market Analysis Asia/Pacific. |  |                                                                                
|----------------------------------------- |  | -------------------------------------------------------------------------------
|                                         
|(1)                                       |  | Percentages may differ depending on method selected for determining population.

Since the introduction of text messaging in 1998, Koreas wireless data market has grown
rapidly. Wireless Internet service in Korea has grown rapidly since its introduction in the second
half of 1999. All of the Korean wireless operators have developed extensive wireless data and
Internet service portals. In Korea, SK Telecom launched the worlds first CDMA 1xRTT network, which
enabled it to provide advanced data services, in November 2000. As of April 30, 2005, approximately
35.9 million of Korean wireless subscribers owned Internet-enabled handsets capable of accessing
advanced wireless data and Internet services. The table below sets forth certain penetration
information regarding the ownership of Internet-enabled handsets by Korean wireless subscribers as
of the dates indicated:

2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(In thousands)Wireless Internet Enabled Handsets
    
    
    15,785
    
    
    
    23,874
    
    
    
    29,085
    
    
    
    31,431
    
    
    
    35,016WAP/ME Type
    
    
    8,820
    
    
    
    18,190
    
    
    
    25,981
    
    
    
    29,804
    
    
    
    34,220I-SMS Type
    
    
    6,965
    
    
    
    5,684
    
    
    
    3,104
    
    
    
    1,627
    
    
    
    797Total Number of Wireless Subscribers
    
    
    26,816
    
    
    
    29,046
    
    
    
    32,342
    
    
    
    33,592
    
    
    
    36,586Penetration of Advanced Handsets
    
    
    58.9
    %
    
    
    82.2
    %
    
    
    89.9
    %
    
    
    93.6
    %
    
    
    95.7
    %


Source: MIC.

In addition to its well-developed wireless telecommunications sector, Korea has one of
the largest Internet markets in the Asia/Pacific region. According to the Korean Network
Information Center (KNIC), the number of Internet subscribers in Korea increased from approximately
3.1 million at the end of 1998 to approximately 31.6 million at the end of 2004, a 47.2% compound
annual growth rate. From the end of 2000 to the end of 2004, the number of broadband Internet
access subscribers increased from approximately 3.9 million to approximately 12.0 million, a 32.5%
annual growth rate. The table below sets forth certain information regarding Internet users and
broadband subscribers as of the dates indicated:

2000.12.
    
    
    2001.12.
    
    
    2002.12.
    
    
    2003.12.
    
    
    2004.12.(In thousands)


Number of Internet Users(1)
    
    19,040
    
    
    24,380
    
    
    26,270
    
    
    29,220
    
    
    31,580Number of Broadband Subscribers(2)
    
    3,870
    
    
    7,806
    
    
    10,405
    
    
    11,172
    
    
    11,921   (1)

Source: Korea Network Information Center (KRNIC).  (2)

Source: MIC. Broadband service includes xDSL (Digital Subscriber Line), Cable Modem,
Apartment LAN (Local Area Network) and Satellite. 27




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BUSINESS OVERVIEW Cellular Services SK Telecom was the sole provider of cellular services in Korea from 1988, when we began
network operations, to April 1996, when Shinsegi began operating a digital cellular system in
several regions of Korea. In October 1997, three additional companies commenced providing wireless
telecommunications services. As a result of consolidation in the wireless telecommunications
industry in Korea since 2000, there are currently three providers of wireless telecommunications
services in Korea, namely us, KTF and LGT. We introduced our digital cellular service using CDMA technology in the Seoul
metropolitan area in January 1996 and substantially completed the geographic build-out of our
network in 1998. On December 31, 1999, we terminated our analog service. Our digital network
provides wireless telecommunications service to an area covering approximately 99% of the Korean
population. We continue to increase the capacity of our wireless networks to keep pace with the
growth of our subscriber base and the resulting increase in usage of voice and wireless data
services by our subscribers. To complement the services we provide to our subscribers in Korea, we have entered into
roaming service agreements with various foreign wireless telecommunications service providers,
including Verizon Wireless, Sprint and Alltel in the United States, KDDI in Japan, Telstra in
Australia, China Unicom in China, Hutchison Telecom in Hong Kong, Telecom New Zealand in New
Zealand, Telus Mobility and Bell Mobility in Canada, Guamcell in Guam and Saipan, Hutchison CAT
Wireless Multimedia in Thailand, Iuacell in Mexico, VIVO in Brazil, Telefonica Moviles del Peru in
Peru, Pelephone in Israel, Asia Pacific Broadband Wireless in Taiwan, and Mobile 8 in Indonesia. In order to enhance our ability to provide wireless data services to our customers, we
continue to expand our existing wireless network based on CDMA 1xRTT technology. Subscribers to our
CDMA 1xRTT based services, in addition to having access to our wireless data services at higher
speeds, also have access to other enhanced wireless data applications, such as the ability to
download music videos from the Internet to their handsets. To enjoy these services, subscribers
must purchase CDMA 1xRTT-capable handsets. As of April 30, 2005, approximately 17.7 out of 19.1
million of our subscribers owned handsets capable of accessing our CDMA 1xRTT network. Over time,
we intend to continue migrating our existing CDMA subscribers to this network or to our even more
advanced networks. 28




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Beginning in 2002, we launched an upgrade of our CDMA 1xRTT network in 26 cities in Korea
to an advanced technology called CDMA 1xEV/DO. CDMA 1xEV/DO technology enables data to be
transmitted to CDMA 1xEV/DO-capable handsets, which became available in Korea in June 2002, at
speeds up to 2.4 Mbps, which is 16 times faster than CDMA 1xRTTs maximum transmission speed. CDMA
1xEV/DO technology allows us to provide advanced wireless data services such as streaming video and
audio services. As of December 31, 2004, we completed our CDMA 1xEV/DO network upgrade in 84 cities
in Korea. CDMA 1xEV/DO technology allows us to provide advanced wireless data services, as well as
allow us to use our spectrum more efficiently. In December 2001, we acquired a license from the MIC to develop, construct and operate a
W-CDMA network using 2 X 20 MHz of spectrum in the 2 GHz band. W-CDMA is a 3G level high capacity
wireless communication system that enables us to offer a wider range of telecommunications
services, including cellular, paging, data communications, video-conferencing, multimedia services
and satellite communications. We commenced provision of our IMT-2000 services based on our W-CDMA
network on a limited basis in Seoul at the end of 2003. We are continuing to improve our W-CDMA
services in the Seoul metropolitan area and are continuing to build-out our W-CDMA network in other
metropolitan areas of Korea. On Line Services and Internet Access We offer a wide variety of Internet content and services in addition to providing our wireless
subscribers access to the Internet. Under our brand name NATE, we offer our wireless subscribers access to the Internet,
where subscribers can access a wide variety of content including current news and stock quotes and
other information, as well as gain access to a wide variety of services including securities
trading and on-line banking services. Subscribers can purchase goods and services through their
wireless devices, send and receive e-mail and gain access to various third party Internet websites
configured to work with wireless technology. Subscribers access NATE using WAP technology. WAP
technology allows wireless data transmission and has been adopted by over 200 major
telecommunications operators worldwide. As of April 30, 2005, approximately 18.2 million, or 95.5%,
of our subscribers owned WAP-enabled handsets capable of accessing our CDMA 1xRTT network. Under our NATE.com brand name, we offer a portal service at our website, www.NATE.com.
NATE.com includes information and content formerly offered under our Netsgo brand as well as the
content and services formerly available on Lycos Korea, which our subsidiary, SK Communications
Co., Ltd., acquired in 2002. NATE.com offers a wide variety of content and services, including an
Internet search engine as well as access to free e-mail accounts. During the month of April 2005,
approximately 23.3 million unique users visited this website. We offer an instant messaging service to our Nate.com and NATE users. This service, which we
call NATE-ON, allows users to chat on-line through a variety of devices, including personal
computers, wireless handsets and personal digital assistants. As of April 30, 2005, the number of
NATE-ON subscribers reached approximately 10.3 million, surpassing that of MSN Messenger of
Microsoft Corporation in Korea, making us the market leader in terms of number of subscribers in
Korea in the instant messaging service market according to a survey conducted by an independent
consulting firm. We continue to seek to introduce new wireless data services and innovations with a
view to increasing revenue from these businesses. 29




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Global Business Provision of Wireless Internet Platforms and Cellular Network Solutions to Foreign CDMA
Network Operators We are seeking to expand our global business through sales of our wireless Internet
platforms and cellular network solutions, as well as sales of consulting services in the field of
mobile communications. In April 2002, we entered into an agreement with Pelephone Communications
Ltd., an Israeli CDMA operator, to supply our NATE wireless Internet platform to Pelephone on a
turnkey basis. In May 2002, we entered into a memorandum of understanding with Openwave of the
United States, a wireless Internet-based communication software and application provider, to form a
strategic alliance in order to carry out co-marketing of our NATE wireless Internet platform
solutions in overseas markets. In December 2002, we entered into an agreement with Asia Pacific
Broadband Wireless Communications (APBW), one of five companies licensed to offer 3G mobile
services in Taiwan, to provide a wireless Internet solution on a turn-key basis. Under the
agreement, APBW was granted a license to use certain of our software and wireless Internet
solutions for mobile Internet access and multimedia services. We also signed a contract with TA
Orange, a GSM-based mobile communications operator in Thailand, in July of 2004 to provide wireless
Internet platforms, including the NATE portal platform and NATE service solutions and contents. In
addition, we have also been successful in sales of our other cellular network solutions, such as
our color mail solution, which is a messaging service that allows subscribers to send messages
containing various multimedia files such as background music, phone camera photos and videos to
other handsets. Overseas Operations We have been expanding our business operations in overseas markets, including U.S.A.,
China, Vietnam and Mongolia. U.S.A.On March 24, 2005, we and EarthLink completed the formation of SK-EarthLink
(www.SK-EarthLink.com) to market wireless voice and data services in the United States. We have
committed to invest $220 million over the next three years, of which $83 million had been invested
as of March 24, 2005, and EarthLink has committed to invest $220 million over the next three years,
of which $83 million had been invested as of the same date. SK-EarthLink is a non-facilities-based
nationwide mobile virtual network operator (MVNO) offering cellular voice and data services to
wireless consumers located in the United States. SK-EarthLink expects to enter into the previously
under-served but rapidly growing wireless data, entertainment, and voice market in the United
States. SK-EarthLink will leverage our expertise in developing and implementing 3G technology and
other cutting-edge applications and EarthLinks established sales channels, Wi-Fi experience,
network data centers and billing capabilities. We and EarthLink each have a 50 percent voting and
economic ownership interest in SK-EarthLink. Beginning in December 2004, we have been offering our coloring solution to Verizon
Wireless, a major mobile phone service provider in the United States. As an application service
provider, we receive an agreed percentage of Verizons coloring service related revenues. China.In February 2004, we and China Unicom, the second largest telecom operator and the
only CDMA service provider in China, established a joint venture company called UNISK Information
Technology Co., Ltd. (UNISK), with an aggregate initial investment of approximately $6 million.
We own a 49% stake of UNISK and China Unicom holds a 51% stake. UNISK offers wireless Internet
service in China under a brand name that means community of young elites in Chinese. As of
December 31, 2004, UNISK had over 75,000 subscribers. In July 2004, we acquired ViaTech, an Internet portal service provider in China, to
enhance our wireless Internet contents and expand our service area. 30




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Vietnam.In October 2000, with an aim toward commercializing CDMA cellular service in
Vietnam, we, LG Electronics and Dongah Elecomm established a joint venture company named SLD
Telecom. On July 1, 2003, the company started its own commercial CDMA cellular service, the first
of its kind in Vietnam. The S-Fone (SLD Telecoms operator in Vietnam) service is now being
offered in 13 major provinces in Vietnam, including HoChiMin and Hanoi, and has been increasing its
subscriber base through clear call quality, customized tariff plans and value-added services. The
number of S-Fone subscribers had surpassed 165,000 as of December 2004. As only approximately 5% of
Vietnams population of approximately 82 million had subscribed to cellular service as of December
31, 2004, we believe that the Vietnamese mobile communication market offers significant opportunity
for future growth. Mongolia.In July 1999, we acquired a 27.8% equity interest in Skytel, Mongolias
second-largest cellular service provider, by providing approximately Won 1.5 billion worth of
analog infrastructure. As of December 31, 2004, Skytel had approximately 76,000 subscribers. We,
together with Skytel, have been providing cellular service in Mongolia since July 1999, and CDMA
service since February 2001. In April 2001, we completed installation of the equipment necessary to
provide WAP service. In December 2002, we increased our equity interest in Skytel to 28.6% through
the subscription of newly issued common shares in return for an additional investment of
approximately $500,000. As of December 31, 2004, our equity interest in Skytel was 28.6%. As we have in the past, we expect to continue to seek opportunities to create value utilizing
our core competencies abroad. We are currently studying various opportunities overseas, in
particular in Asian countries such as Vietnam and India. We will continue to seek opportunities for
additional capital contributions in our investee companies or for new investments in a disciplined
manner, consistent with our core values and philosophies. M-Commerce In April 2002, we introduced Moneta, a wireless credit and payment system, which allows
holders of mobile credit cards to provide merchants with credit card information and payment
authorization using chips embedded in their wireless handsets instead of a traditional plastic
credit card with a magnetic strip. The wireless handset contains an infrared transmitter which transmits transaction information
to the merchants reader system. Users do not need to manually enter their credit card number when
they make payments using this system. The system is based on an international technological
standard developed by Europay, Mastercard and Visa. We receive a fee from the card issuer for each
card issued and a transaction fee, based on the transaction value, for each transaction effected
using the mobile commerce card. In May 2002, we entered into a technological cooperation agreement
with Visa pursuant to which Visa has agreed to adopt our wireless credit and payment system as the
international standard for Visas worldwide operations. In addition, we have established payment
systems with major department stores and discount stores (such as E-Mart) and affiliated merchant
stores (such as Starbucks and TGI). We expanded the commercial use of the Moneta payment system to
68% of affiliated merchant stores as of the end of 2004. We are also developing other uses for
mobile credit card technology to provide other services, such as payment for transportation and to
serve as a secure means of identification. In October 2002, we acquired Paxnet, an on-line financial portal offering services
related to securities trading. We expect to expand our services provided through Paxnet to include
an array of financial services relating to insurance, real estate, personal asset management and
investment trust funds. In August and November 2003, we launched Mobile Trading System and Stock Investment
Information Service, respectively. Unlike other trading services where customers have to use stock
trading programs and terminals designated by securities firms, the Mobile Trading System service
provides a program that permits customers to carry out a variety of stock trading, including
futures, options and ECN trading transactions. As of May 26, 2005, we provide chip-based mobile banking services in conjunction with 16 banks
in Korea. Through this mobile banking services, we offer e-bankbook services as well as a variety
of e-commerce services. Multimedia In November 2002, we introduced June, a wireless data service that provides streaming content
using our CDMA 1xEV/DO technology. Content provided through the June service includes Video on
Demand (VOD), Music on Demand (MOD), television programs and multimedia messaging. June allows
subscribers to view real-time news aired by a Korean news channel and permits subscribers to view
on their cellular phones television programs aired by the four main domestic broadcasting stations.
In addition, subscribers to June can access the Internet through NATE, our wired and wireless
integrated Internet platform. As of April 30, 2005, June had 4.3 million subscribers. 31




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In September 2003, we also invested in a satellite-based DMB business, a service which
allows broadcasting of multimedia content through transmission by satellite to various mobile
devices, including to satellite DMB handsets. This technology allows our subscribers to view
satellite television broadcasts on their cellular handsets or from video monitors enabled to
receive DMB transmission installed in their cars. We launched the satellite in March 2004. In
October 2004, we granted the right to use our satellite, satellite orbit and frequency to TU Media
Corp., an affiliate of ours of which we owned 28.5% at December 31, 2004. TU Media Corp. received a
license from the MIC as a satellite DMB provider on December 30, 2004. On May 1, 2005, TU Media
Corp. began to provide satellite DMB services. We believe that this business will enable us to
improve the breadth of services that we already offer and remain competitive in the face of
increasing convergence in the telecommunications, finance and broadcasting industries. In November 2004, we introduced a music portal service called MelOn, a new music service
concept from a combined wireless and wired network. This service allows subscribers to access
digital music through cellular phones on a wireless network, while paying airtime charges and
monthly flat rates. This service also offers real-time streaming from on-line web sites, and
digital music through MP3 phones and MP3 once downloaded from personal computers. In addition, the
service presented a new method of promoting the digital music market by protecting the rights of
music copyright holders using Digital Right Management, or DRM, technology. The technology prevents
the illegal distribution and use of digital music content. We had revenue of Won 5.5 billion from
the MelOn service in the first quarter of 2005 and had 320,000 subscribers as of March 31, 2005. We
expect demand for this service to grow. Other Products and Services Handset Manufacturing Through our subsidiary, SK Teletech, we design, market and sell digital handsets under the
brand name Sky. The handsets are principally manufactured by third parties under contracts with
SK Teletech. We established SK Teletech together with Kyocera Corporation of Japan, which held a
significant minority interest in SK Teletech before selling all of its interest in SK Teletech to
us in March 2004. We increased our stake in SK Teletech to 89.1% in March 2004. On May 3, 2005, our
board of directors approved the sale of 60% of the total issued and outstanding shares common stock
of SK Teletech to Pantech & Curitel, a handset maker in Korea. Once such transfer is consummated,
our ownership in SK Teletech will decrease from 89.1% to 29.1%. Currently, all of SK Teletechs
domestic sales of digital handsets are to our affiliate, SK Networks, which distributes them
principally to our network of dealers for sale to our subscribers and other consumers. Due to an
FTC-imposed condition to our acquisition of Shinsegi, which will remain in effect until the end of
2005, SK Teletech may not sell more than 1,200,000 handsets (excluding W-CDMA handsets) per year to
SK Telecom and its affiliates. We initially believed that to ensure the availability of handsets
which would be capable of accessing the services that we offer, we needed to control handset
manufacturing. Increasingly, handsets are becoming complicated consumer electronic devices, for
which manufacturing scale is critical. We therefore believe that control by Pantech & Curitel will
benefit SK Teletech. Our retained 29.1% stake will allow us to continue to exert some influence at
SK Teletech. International Calling Services Through our 90.8% owned subsidiary, SK Telink Co., Ltd., we provide international
telecommunications services, including direct-dial as well as pre- and post-paid card calling
services, bundled services for corporate customers, voice services using Internet protocol,
Web-to-phone services, and data services. SK Telink handled approximately 788 million total call
minutes in 2004, which generated Won 133.9 billion in revenues. SK Telink obtained a domestic long
distance telephone service business license in July 2004 and began commercial service of providing
domestic long distance service in Korea in February 2005. SK Telinks efforts will be directed at
continuing to reinforce its existing core businesses such as international and domestic long
distance telephone service and seeking to create new sources of revenue. 32




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In 2000, we established SK Telink America, Inc., to extend our international
telecommunications service to the United States. We closed down business operations at SK Telink
America, Inc. in June 2003 because the business proved to be unprofitable. We recorded US$1.2
million in losses relating to impairment of our investment in common stock of SK Telink America,
Inc. in our consolidated financial statements for 2003. We dissolved the company as of May 28,
2004. Telematics In February 2002, we introduced a telematics service called NATE Drive. NATE Drive is an
interactive communication service designed to guide vehicle drivers using a satellite-based global
positioning system (GPS) and a wireless network to provide drivers with real-time location and
traffic information. In April 2002, we entered into an agreement with Renault Samsung Motors and
Samsung Electronics to jointly develop a Telematics business and launched a commercial product in
September 2003. Pursuant to the agreement, we provide the cellular phone network and NATE Drive
service, Samsung Electronics provides Telematics terminals for vehicles and Renault Samsung Motors
installs Telematics-enabled terminals in the vehicles it sells. In an effort to further promote the
Telematics business, in February 2005, we entered into a memorandum of understanding with Renault
Samsung Motors under which we and Renault Samsung agreed to focus on improving the Telematics
service platform and infrastructure. We plan to launch new handsets equipped with autonomous GPS
for NATE Drive service in June 2005. Also, in cooperation with the MIC and Jeju islands joint
effort to establish Jeju island as a model city for Telematics service, we launched Telematics
services in Jeju Island on a pilot basis in December 2004 and began providing Telematics on a
commercial basis in May 2005. W-CDMA Network In December 2000, the MIC awarded a consortium we lead the right to acquire a license to
operate a W-CDMA network using 2 X 20 MHz of spectrum in the 2 GHz band. W-CDMA is a high-speed
wireless communication technology that we believe will allow us to offer even more sophisticated
data transmission services at speeds faster than our current CDMA 1xRTT and CDMA 1xEV/DO networks.
In March 2001, we incorporated SK IMT to hold the license and develop our W-CDMA business and we,
together with Shinsegi, invested Won 985.2 billion for a 61.6% interest in SK IMT. In December
2001, we disposed of 144,000 shares of SK IMT worth Won 3.9 billion. On May 1, 2003, SK IMT merged
into SK Telecom. The W-CDMA license was awarded by the MIC to SK IMT on December 4, 2001. The total
license cost to SK IMT was Won 1.3 trillion. SK IMT paid Won 650 billion of this amount in March
2001, and we are required to pay the remainder of the license cost in annual installments from 2007
through 2011. For more information, see note 2(i) of the notes to our consolidated financial
statements. In accordance with the terms of the license, we commenced provision of our IMT-2000
services based on our W-CDMA network on a limited basis in Seoul at the end of 2003. We are
continuing to improve our W-CDMA services in the Seoul metropolitan area and are continuing to
build-out our W-CDMA network in other metropolitan areas of Korea.
See Risk Factors  W-CDMA
technology may require significant capital and other expenditures for implementation which we may
not recoup and may be difficult to integrate with our other businesses. We believe that we are
currently in compliance with all material terms of the license. On April 30, 2003, the MIC approved the proposed merger of SK IMT into SK Telecom,
subject to the satisfaction of certain conditions imposed by the MIC to ensure fair competition and
to protect customer interests. We believe that we have satisfied these conditions. In addition, if
such merger is determined by the MIC to seriously impair fair market competition or harm
subscribers due to factors such as increased market share or discrimination between cellular
subscribers and W-CDMA service subscribers, the MIC may implement additional measures to remedy
such situation. We developed and launched in March 2005 dual band/dual mode handsets, one of the key
factors in a nationwide deployment of W-CDMA. However, the actual scope and timing of the full
nationwide roll-out of our W-CDMA network will depend on other several factors, including the
availability of network equipment, ability to overcome technical problems currently affecting
W-CDMA performance, regulatory decisions, our assessment of the market opportunities for W-CDMA
technology-based services and the competitive landscape in the Korean wireless market. See Risk
Factors  W-CDMA technology may require significant capital and other expenditures for implementation
which we may not recoup and may be difficult to integrate with our other businesses. 33




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Revenues, Rates and Facility Deposits Our wireless revenues are generated principally from initial connection fees, monthly
access fees, usage charges for outgoing calls and wireless data, interconnection fees and access
fees for value-added services. The following table sets forth information regarding our cellular
revenues (net of taxes) and facility deposits for the periods indicated: As of and For the Year EndedDecember 31,2002
    
    
    2003
    
    
    2004(In billions of Won)Initial Connection Fees
    
    (Won)   230.4
    
    
    (Won)     176.6
    
    
    (Won)     198.4Monthly Access Fees
    
    
    3,055.4
    
    
    
    3,132.2
    
    
    
    3,266.1Usage Charges
    
    
    3,415.6
    
    
    
    3,615.1
    
    
    
    5,300.7Interconnection Revenue
    
    
    1,043.2
    
    
    
    1,017.1
    
    
    
    849.4Revenue from Sales of Digital Handsets(1)
    
    
    534.0
    
    
    
    612.0
    
    
    
    649.8Other Revenue(2)
    
    
    878.2
    
    
    
    1,538.8
    
    
    
    33.2Total
    (Won)9,156.8
    
    (Won)10,091.8
    
    (Won)10,297.6Additional Facility Deposits
    
    (Won)     11.0
    
    (Won)         5.0
    
    (Won)       31.8Refunded Facility Deposits
    
    
    20.6
    
    
    
    7.7
    
    
    
    44.6Facility Deposits at Period End
    
    
    46.9
    
    
    
    44.2
    
    
    
    31.4
   (1)
    
    Our revenue from handset sales consists of sales by our subsidiary, SK Teletech.(2)
    
    Other revenue includes revenue from value-added services, including voice-activated
dialing, caller ID, call forwarding, call waiting and three-way calling. On their initial subscription, we charge our new customers an initial connection fee for
service activation. After their initial connection, we require our customers to pay a monthly
access fee and usage, or airtime, charges for outgoing calls and access to wireless data services.
Prior to April 1, 1999, all network service providers had mandatory subscription periods. However,
since April 1, 1999, in accordance with MIC guidelines, new wireless service subscribers cannot be
subjected to any mandatory subscription periods. We do not charge our customers for incoming calls,
although we do receive interconnection charges from KT Corporation and other companies for calls
from the fixed-line network terminating on our networks and, since 2000, interconnection revenues
from other wireless network operators. See
Business  Interconnection. Monthly access fees for some
plans include free airtime and/or discounts for designated calling numbers. SK Telecom currently offers four basic types of service plans: the Standard rate plans,
the TTL plans, the Ting plans and the long-term contract discount plans. We also offer June plans,
designed for multimedia wireless data service using CDMA 1xEV/DO technology, and Free plans
offering free airtime on weekends or between 12 a.m. and 6 a.m. on weekdays for an additional
monthly fee of Won 10,000 to Won 15,000. Higher rate plans generally include a fixed monthly amount of usage time while the lower
rate plans are generally usage-based. The monthly access fees for the Standard plans range from Won
11,000 to Won 16,000, and generally target the adult market segment. The monthly access fees for
the TTL plans range from Won 16,000 to Won 22,000 and target young adults between the ages of 19
and 24. The monthly access fees for the Ting plans range from Won 13,500 to Won 27,000 and
generally target youths between the ages of 13 and 18. In February 2005, we simplified our 26 different types of June plans into four types of
flat fee based plans. The monthly access fees range from Won 3,500 to 15,000 and any unused minutes
are carried over to the following month. 34




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In January 2004, we introduced discount plans for subscribers committing to long-term
contracts with a duration of 18 months or 24 months based on usage levels. Subscribers with the
highest usage per month (whose monthly charges are above Won 70,000) and on a two-year contract
benefit from the highest level of discount. With the approval of the MIC, effective from January 1, 2003, we reduced our Speed011
Standard rate plans monthly access fee by Won 1,000, included 10 minutes of free air time per
month and reduced our peak usage charges from Won 21 to Won 20 per minute. Subsequently, in October
2003, we reduced our monthly charges for caller ID service from Won 2,000 to Won 1,000, and,
effective September 1, 2004, we reduced our tariffs by 3.7% and reduced our monthly basic charges
from Won 14,000 to Won 13,000. See Operating and Financial
Review and Prospects  Overview. For all calls made from our subscribers handsets in Korea to any destination in Korea,
we charge usage fees based on the subscribers cellular rate plan (as described in the table
below). The fees are the same whether the call is local or long distance. With respect to international calls placed by
a subscriber, we bill the subscriber the international rate charged by the Korean international
telephone service provider through which the call is routed. We remit to that provider the
international charge less our usage charges. See
Business  Interconnection. The following table summarizes some of SK Telecoms cellular rate plans as of December
31, 2004: Peak Usage
    
    
    Off-Peak Usage
    
    
    Night-Time UsageMonthly Access
    
    
    Included Airtime/
    
    
    Charges
    
    
    Charges
    
    
    ChargesFee
    
    
    Discount(1)(2)
    
    
    (per 10 seconds)(2)
    
    
    (per 10 seconds)(2)
    
    
    (per 10 seconds)StandardRegular
    
    (Won)
13,000
    
    
10 minutes
    

    
    (Won)     20
    

    
    (Won)     13
    

    

    (Won)     10Slim
    
    
    12,500
    
    
    
    19
    
    
    
    19
    
    
    
    19
    
    
    
    19Family
    
    
    13,000
    
    
    5 minutes
    

    
    18
    
    
    
    12
    
    
    
    9Silver(3)
    
    
    11,000
    
    
    30 minutes
    

    
    38
    
    
    
    38
    
    
    
    38TTL PlansTTL
Discount(4)
    
    
    15,500-22,000
    
    
    7 minutes
    
    
    9-21
    
    
    
    9-20
    
    
    
    9-12Ting PlansTing
    
    
    12,500-15,000
    
    
    70 minutes
    
    
    12-37
    
    
    
    12-24
    
    
    
    9-18Data Free Plan(5)
    
    
    26,000Free PlansFree Holiday
    
    
    
    (6)Free Eleven
    
    
    
    (7)
   (1)
    
    Discounts may include free text messages, ring tone downloads, coloring and NATE minutes.(2)
    
    Excludes a 5% discount on domestic calls for customers who have subscribed to our cellular
services for over 1 year; a 10% discount for customers who have subscribed to our cellular
services over 2 years; a 15% discount for customers who have subscribed to our cellular
services over 3 years and a 20% discount for customers who have subscribed to our cellular
services over 5 years.(3)
    
    Subscribers must be 65 years old or older and each subscriber is limited to one silver
Plan.(4)
    
    Includes TTL plan for designated numbers, designated area and TTL plan for couples.(5)
    
    Includes unlimited use of data service. Plan will be offered until September 30, 2005 and
offer is effective until June 30, 2005.(6)
    
    11 hours of free weekend airtime for an additional Won 10,000 per month.(7)
    
    11 hours of free airtime exceeding the average number of minutes used in November and
December 2003 for an additional Won 15,000 per month. We offer a variety of value-added services including voice-activated calling, voice mail,
text messaging, caller ID and call waiting. Depending on the rate plan selected by the subscriber,
the monthly fee may or may not include these value-added services. 35




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We offer wireless data services to our subscribers through NATE. Subscribers using SK
Telecoms CDMA network may elect to pay a monthly fee, which includes a fixed amount of airtime or
data packets, or may elect to pay on a per-use basis. Standard rates for NATE range from Won 7 to
Won 15 for ten seconds of airtime. Since April 23, 2001, subscribers using our CDMA 1xRTT and CDMA
1xEV/DO networks are charged based on the amount of data that is transmitted to the subscribers
handset. The data transmitted is measured in packets of 512 bytes. We charge Won 6.5 per text
packet and Won 1.3 per multimedia packet. Prior to April 23, 2001, our CDMA 1xRTT subscribers were
charged time-based fees. We offer wireless multimedia data services through June. In February 2005, we simplified
our 26 different types of June plans into four types of flat fee based plans. The monthly access
fees range from Won 3,500 to 15,000 and any unused minutes are carried over to the following month.
For a limited time until the end of June 2005, subscribers may elect to pay a fixed monthly fee of
Won 26,000 for unlimited use of data service. We generally require new subscribers (other than some corporate and government
subscribers) to pay a non-interest bearing facility deposit of Won 200,000, which we may utilize to
offset a defaulting subscribers outstanding account balance. In lieu of paying the facility
deposit, subscribers who meet the credit qualifications required by the Seoul Guarantee Insurance
Company may elect to be covered under insurance provided by the Seoul Guarantee Insurance Company.
We pay a Won 10,000 premium to the Seoul Guarantee Insurance Company on behalf of such subscribers.
Seoul Guarantee Insurance Company reimburses us up to Won 350,000 for each insured subscriber that
defaults on any payment obligations. We refund the facility deposit to any existing subscriber who
had initially made a facility deposit and later elects the facility insurance option. We bill
subscribers on a monthly basis and subscribers may make payment at a bank, post office, any of our
regional headquarters or sales offices, or at any of our authorized dealers. As a result of the
facility insurance program, we have refunded a substantial amount of facility deposits, and
facility deposits decreased from Won 61.8 billion as of December 31, 2000 to Won 31.4 billion as of
December 31, 2004. We do not expect to have to refund a significant amount of facility deposits in
the future, because we believe that most of our subscribers who wish to be covered by the Seoul
Guarantee Insurance Company have already elected to so. Because we have been designated by the MIC as a market dominant service provider, our
establishment or amendment of fees, charges, and terms and conditions of service, including
promotional rates and facility deposits, requires prior approval by the MIC. In December 2000, with effect from September 1, 2001, the National Assembly abolished the
10.0% telephone tax previously charged to our customers as part of their monthly service charges.
Since September 1, 2001, we have instead charged our customers a 10.0% value-added tax. We can
offset the value-added tax we collect from our customers against value-added tax refundable to us
by the Korean tax authorities. We remit taxes we collect from our customers to the Korean tax
authorities. We record revenues in our financial statements net of such taxes. Subscribers We had 19.1 million subscribers as of April 30, 2005, representing a market share of 51.2%,
the largest market share among Korean wireless service providers. We believe that, historically,
our subscriber growth has been due to many factors, including:  

our expansion and technical enhancement of our digital network, including with
high-speed data capabilities;

increasing consumer awareness of the benefits of wireless telecommunications;

until June 2000, when the MIC prohibited subsidies on handset sales, the decline in
handset prices in Korea through the payment of subsidies to subscribers, which
effectively lowered the cost of initiating service;

an effective marketing strategy;

our focus on customer service; 36




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##### Table of Contents





the introduction of new, value-added services, such as voicemail services,
call-forwarding, caller ID, three-way calling and wireless data and Internet services
provided by NATE; and

our acquisition of Shinsegi. The following table sets forth selected historical information about our subscriber base
for the periods indicated: As of or for the Year Ended December 31,2002
    
    
    2003
    
    
    2004Subscribers
    
    
    17,219,562
    
    
    
    18,313,153
    
    
    
    18,783,338Subscribers Growth Rate
    
    
    13.4
    %
    
    
    6.4
    %
    
    
    2.6
    %Activations
    
    
    4,769,612
    
    
    
    3,688,312
    
    
    
    4,407,087Deactivations
    
    
    2,729,113
    
    
    
    2,594,721
    
    
    
    3,936,884Average Monthly Churn Rate(1)
    
    
    1.4
    %
    
    
    1.2
    %
    
    
    1.7
    %
   (1)
    
    Average monthly churn rate for a period is the number calculated by dividing the sum of
deactivations during the period by the simple average of the number of subscribers at the
beginning and end of the period and dividing the quotient by the number of months in the
period. Churn includes subscribers who upgrade to CDMA 1xRTT or CDMA lxEV/DO-capable handsets
by terminating their service and opening a new subscriber account. We had 18.1 million subscribers as of December 31, 2004. For the year ended December 31,
2004, we had 4,407,087 activations and 936,884 deactivations, representing an average monthly churn
rate of 1.7% during the same period. Our subscribers include those subscribers who are temporarily
deactivated, including (1) subscribers who voluntarily deactivate temporarily for a period of up to
three months no more than twice a year and (2) subscribers with delinquent accounts who may be
involuntarily deactivated up to two months before permanent deactivation, which we determine based
on various factors, including prior payment history. Our subscriber growth rate was adversely affected by actions we took to comply with
certain requirements of the FTC regarding our acquisition of Shinsegi. The FTC approved our
acquisition of Shinsegi on the condition that SK Telecoms and Shinsegis combined market share of
the wireless telecommunications market, based on numbers of subscribers, be less than 50.0% as of
June 30, 2001. In order to satisfy this condition, we reduced the level of our subscriber
activations and adopted more stringent involuntary subscriber deactivation policies beginning in
2000 and ceased accepting new subscribers from April 1, 2001 through June 30, 2001. We complied
with this requirement by reducing our market share to approximately 49.7% as of June 30, 2001. We
are not currently subject to any market share limitations; however, on May 25, 2004, we voluntarily
undertook to limit our market share through the end of 2005 to 52.3% of the wireless
telecommunications market, which was the combined market share held by SK Telecom and Shinsegi at
the time of the approval of SK Telecoms merger with Shinsegi in January 2002. We can give no
assurances that the Government will not impose restrictions on our market share in the future. If
we are subject to market share limitations in the future, our ability to compete effectively will
be impeded, and our subscriber growth rate may decline. Prior to January 2003, Koreas wireless telecommunications system was based on a
network-specific prefix system in which a unique prefix was assigned to all the phone numbers of a
specific network operator. We were assigned the 011 prefix, and all of our subscribers mobile
phone numbers began with 011 (former Shinsegi subscribers use the 017 prefix) and our
subscribers could not change their wireless phone service to another wireless operator and keep
their existing numbers. In January 2003, the MIC announced its plan to implement number portability
with respect to wireless telecommunications services in Korea, which allows wireless subscribers to
switch wireless service operators while retaining the same mobile phone number. However,
subscribers who switch operators must purchase a new handset, as each operator utilizes a different frequency. In accordance with the plan published by the
MIC, the number portability system was adopted by SK Telecom starting from January 1, 2004. We were
required to adopt the number portability system earlier than our competitors, allowing our
customers to transfer their numbers to our competitors but not allowing our competitors customers
to transfer their number to our service. KTF and LGT introduced number portability beginning July
1, 2004 and January 1, 2005, respectively. Subscribers who choose to transfer to a different
wireless operator have the right to return to their original service provider without paying any
penalties within 14 days of their initial transfer. 37




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The following table sets forth the number of subscribers of the three wireless mobile
telecommunications operators who transferred from one operator to another during each month
following the implementation of the number portability system: Month
    
    SKT®KTF
    
    
    SKT®LGT
    
    
    KTF®SKT
    
    
    KTF®LGT
    
    
    LGT®SKT
    
    
    LGT®KTF
    
    
    TotalJanuary 2004
    
    
    203,853
    
    
    
    101,414
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    305,267February 2004
    
    
    102,282
    
    
    
    81,594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183,876March 2004
    
    
    111,077
    
    
    
    103,155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    214,232April 2004
    
    
    139,508
    
    
    
    122,146
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    261,654May 2004
    
    
    167,228
    
    
    
    92,414
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    259,642June 2004
    
    
    137,489
    
    
    
    73,100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    210,589July 2004
    
    
    53,611
    
    
    
    23,116
    
    
    
    277,751
    
    
    
    20,504
    
    
    
    
    
    
    
    
    
    
    
    374,982August 2004
    
    
    29,698
    
    
    
    60,240
    
    
    
    67,743
    
    
    
    45,724
    
    
    
    
    
    
    
    
    
    
    
    203,405September 2004
    
    
    90,075
    
    
    
    49,959
    
    
    
    5,744
    
    
    
    42,995
    
    
    
    
    
    
    
    
    
    
    
    188,773October 2004
    
    
    64,563
    
    
    
    46,169
    
    
    
    62,131
    
    
    
    39,701
    
    
    
    
    
    
    
    
    
    
    
    212,564November 2004
    
    
    74,478
    
    
    
    56,135
    
    
    
    59,578
    
    
    
    51,802
    
    
    
    
    
    
    
    
    
    
    
    241,993December 2004
    
    
    97,210
    
    
    
    47,635
    
    
    
    94,466
    
    
    
    41,773
    
    
    
    
    
    
    
    
    
    
    
    281,084January 2005
    
    
    145,295
    
    
    
    71,142
    
    
    
    135,862
    
    
    
    75,069
    
    
    
    115,197
    
    
    
    106,024
    
    
    
    649,589February 2005
    
    
    120,638
    
    
    
    32,654
    
    
    
    106,099
    
    
    
    33,629
    
    
    
    49,159
    
    
    
    57,555
    
    
    
    399,734March 2005
    
    
    125,453
    
    
    
    43,690
    
    
    
    112,711
    
    
    
    47,696
    
    
    
    48,823
    
    
    
    56,743
    
    
    
    435,116April 2005
    
    
    120,781
    
    
    
    69,318
    
    
    
    131,266
    
    
    
    72,072
    
    
    
    55,483
    
    
    
    47,863
    
    
    
    496,783Total
    
    
    1,783,239
    
    
    
    1,073,881
    
    
    
    1,053,351
    
    
    
    470,965
    
    
    
    268,662
    
    
    
    268,185
    
    
    
    4,919,283
 In addition, in order to manage the availability of phone numbers efficiently and to
secure phone number resources for the services, the MIC has begun to integrate mobile telephone
identification numbers into a common prefix identification number 010 and to gradually retract
the current mobile service identification numbers which had been unique to each wireless
telecommunications service provider, including 011 for our cellular services, starting from 2004.
All new subscribers were given the 010 prefix starting January 2004. 38




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The following table sets forth, based on data from the MIC, new subscribers for each
major wireless cellular provider following the adoption of the 010 prefix in January 2004: New Wireless SubscribersMonth
    
    SK Telecom
    
    
    KTF
    
    
    LGTNumber of
    
    
    Percentage
    
    
    Number of
    
    
    Percentage
    
    
    Number of
    
    
    PercentageSubscribers
    
    
    of Total
    
    
    Subscribers
    
    
    of Total
    
    
    Subscribers
    
    
    of TotalJanuary 2004
    
    
    382,420
    
    
    
    42.1
    
    
    
    375,181
    
    
    
    41.3
    
    
    
    149,737
    
    
    
    16.5February 2004
    
    
    422,816
    
    
    
    43.6
    
    
    
    329,066
    
    
    
    33.9
    
    
    
    218,435
    
    
    
    22.5March 2004
    
    
    405,199
    
    
    
    39.0
    
    
    
    356,003
    
    
    
    34.3
    
    
    
    276,537
    
    
    
    26.6April 2004
    
    
    448,997
    
    
    
    41.2
    
    
    
    330,441
    
    
    
    30.3
    
    
    
    309,736
    
    
    
    28.4May 2004
    
    
    499,799
    
    
    
    48.1
    
    
    
    353,389
    
    
    
    34.0
    
    
    
    186,011
    
    
    
    17.9June 2004
    
    
    327,863
    
    
    
    43.7
    
    
    
    305,488
    
    
    
    40.7
    
    
    
    117,594
    
    
    
    15.7July 2004
    
    
    332,833
    
    
    
    63.5
    
    
    
    132,141
    
    
    
    25.2
    
    
    
    59,151
    
    
    
    11.3August 2004
    
    
    185,687
    
    
    
    42.2
    
    
    
    112,455
    
    
    
    25.5
    
    
    
    142,308
    
    
    
    32.3September 2004
    
    
    28,626
    
    
    
    6.7
    
    
    
    256,558
    
    
    
    60.3
    
    
    
    140,351
    
    
    
    33.0October 2004
    
    
    276,359
    
    
    
    48.3
    
    
    
    169,364
    
    
    
    29.6
    
    
    
    125,994
    
    
    
    22.0November 2004
    
    
    278,694
    
    
    
    45.7
    
    
    
    183,200
    
    
    
    30.0
    
    
    
    148,562
    
    
    
    24.3December 2004
    
    
    240,306
    
    
    
    43.6
    
    
    
    200,054
    
    
    
    36.3
    
    
    
    110,269
    
    
    
    20.0January 2005
    
    
    233,921
    
    
    
    40.6
    
    
    
    209,182
    
    
    
    36.3
    
    
    
    132,639
    
    
    
    23.0February 2005
    
    
    248,073
    
    
    
    43.1
    
    
    
    231,803
    
    
    
    40.3
    
    
    
    95,236
    
    
    
    16.6March 2005
    
    
    257,062
    
    
    
    43.0
    
    
    
    229,202
    
    
    
    38.4
    
    
    
    111,036
    
    
    
    18.6April 2005
    
    
    214,949
    
    
    
    45.5
    
    
    
    148,820
    
    
    
    31.5
    
    
    
    108,962
    
    
    
    23.0
 Marketing and Service Distribution We market our services and provide after-sales service support to customers through 29 sales
centers, 45 branch offices and a network of 1,492 authorized exclusive dealers located throughout
Korea. Our dealers are connected via computer to our database and are capable of assisting
customers with account information. In addition, approximately 200,000 independent retailers
(principally handset dealers) assist new subscribers to complete activation formalities, including processing subscription
applications and accepting facility deposits or arranging for insurance with Seoul Guarantee
Insurance Company. Currently, authorized dealers are entitled to an initial commission for each new
subscriber registered by the dealer as well as an average ongoing commission calculated as a
percentage of that subscribers monthly access and usage charges from domestic calls for the first
four years. In order to strengthen our relationships with our exclusive dealers, we offer a dealer
financing plan, pursuant to which we provide to dealers an interest-free or low-interest loan of up
to Won 1.0 billion with a repayment period of up to three years. We operate a customer information system designed to provide us with an extensive
customer database. Our customer information system includes a billing system which provides us with
comprehensive account information for internal purposes and enables us to efficiently respond to
customer requests. In May 2000, we launched 011e-station.co.kr, a website through which SK Telecom
customers can change their service plans, verify the charges accrued on their accounts, receive
their bills on-line and send text messages to our other subscribers. When we were the only cellular service provider in Korea, we were able to maintain a low
level of marketing and advertising expenses. Over the last several years, competition in the
wireless telecommunications business has caused us to increase significantly our marketing and
advertising expenses and, with continuing competition, we expect that such expenses will remain
high. We have implemented a range of marketing measures, including more extensive promotions to
attract new customers as well as to encourage loyalty of our existing subscribers and discourage
migration to other service providers. In 2001, advertising expenditures as a percentage of revenues
amounted to 4.1%, principally for promotion of our voice and wireless data services. Our marketing
expenses were lowered during the first half of 2001 due to the elimination of handset subsidies and
our efforts to satisfy the FTC-imposed condition that SK Telecoms and Shinsegis combined market
share of the wireless telecommunications market, based on numbers of subscribers, be less than
50.0% as of June 30, 2001. We complied with this requirement by reducing our market share to
approximately 49.7% as of June 30, 2001, and this market share limitation no longer applies,
although we are voluntarily limiting our market share through the end of 2005 to 52.3% of the
wireless telecommunications market. In 2002, 2003 and 2004 advertising expenditures amounted to
4.8%, 3.7% and 3.3% of our revenues, respectively. 39




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In March 2004, we entered into a Won 120 billion agreement with IBM Business Consulting
Services for a term of two years in connection with our efforts to improve our marketing system.
IBM has been implementing a new process and application infrastructure consisting of a new customer
relationship management system, as well as billing, partner relationship management and content
management systems. In May 2005, we and IBM decided to terminate the March 2004 agreement with an
understanding that another system integration company is better suited for our needs in light of
the enhanced features of the new systems to cover data for our customers of newly launched
services. Until the date of termination, we had paid Won 60.1 billion to IBM for their services and
expect to pay an additional Won 19.6 billion during the third quarter of 2005. We are currently
searching for other firms to replace IBM and expect to enter into an agreement with one or more
firms for such services before the end of July of 2005. Interconnection Our networks interconnect with the public switched telephone networks operated by KT
Corporation, Hanaro Telecom, DACOM and Onse, as well as the networks of the other wireless
telecommunications service providers in Korea. These connections enable our subscribers to make and
receive calls from telephones outside our networks. Under Korean law, service providers are
required to permit other service providers to interconnect to their networks. If a new service
provider desires interconnection with the networks of an existing service provider but the parties
are unable to reach an agreement within 90 days, the new service provider can appeal to the Korea
Communications Commission, a government agency under the MIC. We estimate that approximately 39.7%
in 2002, approximately 37.9% in 2003 and approximately 34.0% in 2004 of our incoming and outgoing
calls originated from or were routed to the networks of KT Corporation and Hanaro Telecom or the
international gateways of KT Corporation, DACOM and Onse. With respect to the interconnection arrangement for calls from fixed-line networks to
wireless networks, for the years 2000 through 2001, fixed-line operators payments to wireless
network service providers were calculated based on the actual imputed costs in 1998 of the leading
wireless network service provider, which was us. For 2002, these payments were calculated based on
each wireless operators actual imputed costs in 2001. This change reduced the interconnection
revenue we received from each call made from a fixed-line network terminating on our network,
adversely affecting our interconnection revenue compared to previous years. For 2003, pursuant to a
new MIC policy, an operators interconnection fees were derived from that operators actual
interconnection fees for 2001 and actual imputed costs for 2001. Interconnection charges for calls
between wireless service providers, first implemented by the MIC beginning in January 2000, were
also reduced beginning in January 2002 and in January 2003, affecting both our revenue and our
expenses. On July 9, 2004, the MIC introduced a new method of calculating interconnection payments,
based on the terminators long-run incremental cost in 2004 and the competitive market situation in
the telecommunication service industry of Korea. The long-run incremental cost method has been
adopted by other countries such as the United States, the United Kingdom and Japan. The new
interconnection rates paid to each wireless network service provider are as follows: Year
    
    SK Telecom
    
    
    KTF
    
    
    LGT(Won/Minute)2003
    
    
    41.02
    
    
    
    47.99
    
    
    
    52.892004
    
    
    31.81
    
    
    
    47.66
    
    
    
    58.552005
    
    
    31.19
    
    
    
    46.70
    
    
    
    54.98
 40




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The new rates had a negative impact on our operations in 2004 in the amount of
approximately Won 289.2 billion, resulting from an estimated Won 168.7 billion reduction in revenue
and Won 120.5 billion increase in interconnection expenses. The Won 120.5 billion increase in
interconnection expenses includes the increase in the land-to-mobile interconnection expenses that
were paid to fixed-line service providers. See Operating and Financial Review and
ProspectsOverviewRevenue. For 2003, our total interconnection revenues were Won 1,017.1 billion and our total
interconnection expenses were Won 771.5 billion. For 2004, our total interconnection revenues were
Won 849.4 billion and our total interconnection expenses were Won 913.7 billion. Domestic Calls Guidelines issued by the MIC require that all interconnection charges levied by a
regulated carrier take into account (i) the actual costs to that carrier of carrying a call or (ii)
imputed costs. The interconnecting parties are required to calculate the relevant imputed costs on
an annual basis. In the event of a dispute regarding the imputed costs, the Korea Communications
Commission is empowered to act as arbitrator. Wireless-to-Fixed-line.According to our interconnection arrangement with KT Corporation,
for a call from our wireless network to KT Corporations fixed-line network, we collect the usage
rate from our wireless subscriber and in turn pay KT Corporation the interconnection charges based
on KT Corporations imputed costs. Fixed-line-to-Wireless.The MIC determines interconnection arrangements for calls from a
fixed-line network to a wireless network. For a call initiated by a fixed-line user to one of our
wireless service subscribers, the fixed-line network operator collects our usage fee from the
fixed-line user and pay us an interconnection charge. Interconnection with KT Corporation accounts
for substantially all of our fixed-line-to-wireless interconnection revenue and expenses. For 2000, KT Corporations payments to network service providers were calculated based on
a discount of 7.76% to our actual imputed costs in 1998 and for 2001, a discount of 14.92%.
According to this calculation, KT Corporation was required to pay interconnection charges of Won
68.94 per minute (exclusive of value-added taxes) for fixed-line to mobile calls to network operators in 2000
and Won 63.59 per minute in 2001. In April 2002, the MIC announced new interconnection arrangements effective January 1,
2002 which reduced the interconnection fees payable among Korean wireless operators by between
10.2% and 28.1%, depending upon the operators involved. For 2002, KT Corporations payments to
network service providers were calculated based on a discount of 28.1% to our actual imputed costs
for 2000. According to this calculation, KT Corporation was required to pay interconnection charges
of Won 45.7 per minute (exclusive of value-added taxes). This was reduced to Won 41.0 per minute
for 2003. On July 9, 2004, the MIC introduced a new method of calculating interconnection payments,
based on the terminating networks long-term incremental cost for 2004 and the competitive market
situation in the telecommunication service industry of Korea. The new interconnection rates for us
under the new method are Won 31.8 per minute for 2004 and Won 31.2 per minute for 2005. The MIC
determines the charges and notifies the wireless operators. Wireless-to-Wireless.The MIC did not determine interconnection charges for calls between
wireless telephone networks in Korea prior to 2000; instead, the interconnection charges were
negotiated among the operators. The MIC implemented interconnection charges for such calls starting
in January 2000. Under these arrangements, the operator originating the call pays an
interconnection charge to the operator terminating the call. For all operators, the amount of the
charge is derived from SK Telecoms imputed cost, which was Won 45.7 per minute for 2002. This was
reduced to Won 41.0 per minute for 2003 and further reduced to Won 31.8 per minute and Won 31.2 per
minute for 2004 and 2005, respectively. The charge for 2006 has not been determined yet. Our
revenues from the wireless-to-wireless charge were Won 365.6 billion (including Won 86.1 billion
for Shinsegi) in 2000, Won 435.2 billion (including Won 86.6 billion for Shinsegi) in 2001, Won
350.9 billion in 2002, Won 412.2 billion in 2003 and Won 426.6 billion in 2004. Our expenses from
these charges were Won 429.6 billion (including Won 106.7 billion for Shinsegi), Won 496.0 billion
(including Won 105.5 billion for Shinsegi) in 2001, Won 482.7 billion in 2002, Won 518.2 billion in
2003 and Won 644.6 billion in 2004. The charges above were agreed among the parties involved and
confirmed by the MIC. 41




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International Calls With respect to international calls, if a call is initiated by a wireless subscriber, we
bill the wireless subscriber for the international charges of KT Corporation, DACOM or Onse, and we
receive interconnection charges from such operators. If an international call is received by our
subscriber, KT Corporation, DACOM or Onse pays interconnection charges to us based on our imputed
costs. International Roaming Arrangements We currently have CDMA automatic roaming agreements with several wireless
telecommunications service providers, including Verizon Wireless, Sprint and Alltel in the United
States, KDDI in Japan, Telstra in Australia, China Unicom in China, Hutchison Telecom in Hong Kong,
Telecom New Zealand in New Zealand, Telus Mobility and Bell Mobility in Canada, Guamcell in Guam
and Saipan, Hutchison CAT Wireless Multimedia in Thailand, Iuacell in Mexico, VIVO in Brazil,
Telefonica Moviles del Peru in Peru, Pelephone in Israel, Asia Pacific Broadband Wireless in Taiwan
and Mobile 8 in Indonesia. We plan to enter into similar arrangements with other wireless
telecommunications service providers. We have also begun to introduce inter-standard roaming, which allows subscribers from our
network to roam on networks employing GSM technology and vice-versa. From March 2002, we have
established a roaming arrangement with Telefonica Moviles Espana S.A. of Spain. Under this
arrangement, GSM subscribers can use their own SIM cards (Subscriber Information Module Card) with
CDMA handsets that are compatible with such GSM SIM cards by renting such CDMA handsets from us.
Roaming users are able to receive calls made to their normal mobile telephone numbers. We are
seeking to enter into these arrangements with many GSM operators worldwide. As of April 30, 2005,
we had entered into inter-standard roaming agreements with 180 operators in 90 nations. Digital Cellular Network We offer wireless voice and data telecommunications services throughout Korea using digital
wireless networks. SK Telecom operates a CDMA network which currently reaches approximately 99% of
the population, and a CDMA 1xRTT network which currently reaches approximately 90% of the
population. Shinsegi operated a CDMA network prior to its merger into SK Telecom that we completely
decommissioned by July 2002. CDMA Networks In January 1996, SK Telecom introduced a digital wireless network based on CDMA
technology. This network has been the core platform for our wireless telecommunications business.
CDMA technology is a continuous digital transmission technology that accommodates higher throughput
than analog technology by using various coding sequences to allow concurrent transmission of voice
and data signals for wireless communication. CDMA technology provides customers with a high degree
of call quality and security. CDMA technology is currently in commercial operation in several countries including
Korea, Hong Kong and the United States. A majority of the digital wireless networks currently in
use around the world are based on either the European Global System for Mobile Communication
standard or other time division multiple access technologies. Unlike the continuous digital
transmission method of CDMA technology, these technologies break voice signals into sequential
pieces of a defined length, place each piece into an information conduit at specific intervals and
then reconstruct the pieces at the end of the conduit. 42




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CDMA 1xRTT Network In October 2000, we began offering wireless voice and data services on our CDMA 1xRTT
network. CDMA 1xRTT is an advanced CDMA-based technology which allows transmission of data at
speeds of up to 144 Kbps (compared to a maximum of 64 Kbps for our CDMA networks) and constitutes
what is sometimes referred to as a 2.5G network. As of December 31, 2004, our CDMA 1xRTT network
covered 84 cities in Korea, or approximately 90% of the population. In areas where the CDMA 1xRTT
network is currently unavailable, CDMA 1xRTT-enabled handsets are capable of accessing the CDMA
network. Unlike our CDMA network, our CDMA 1xRTT network has been designed to be upgraded in step
with advances in wireless technology. In the first half of 2002, we launched an upgrade of our CDMA
1xRTT network in 26 cities in Korea to an advanced technology called CDMA 1xEV/DO. CDMA 1xEV/DO is
a CDMA-based technology, similar to CDMA 1xRTT, which enables data to be transmitted at speeds of
up to 2.4 Mbps. This speed permits interactive transmission of data required for videophone
services, a high-speed wireless Internet connection, as well as a multitude of multimedia services.
CDMA 1xEV/DO-capable handsets became available in Korea in June 2002. We are expanding our CDMA
1xEV/DO network and completed the upgrade in 84 cities in Korea as of the end of 2004. This network
permits 3G capabilities. A significant portion of our capital expenditures is expected to be used
for the future expansion and upgrading of our CDMA 1xRTT network as well as our CDMA 1xEV/DO
network. For details of our capital expenditure plans relating to CDMA 1xRTT and CDMA 1xEV/DO, see
Operating and Financial Review and ProspectsLiquidity and Capital Resources. W-CDMA Network W-CDMA is a 3G-level high capacity wireless communication system that is expected to
enable us to offer a wider range of telecommunications services, including cellular, paging, data
communications, video-conferencing, multimedia services and satellite communications. We commenced
provision of our IMT-2000 services based on our W-CDMA network on a limited basis in Seoul at the
end of 2003. Although we developed and launched in March 2005 dual band/dual mode handsets, one of
the key factors in a nationwide deployment of W-CDMA, the actual scope and timing of the full
nationwide roll-out of our W-CDMA network will depend on several other factors, including the
availability of network equipment, ability to overcome technical problems currently affecting
W-CDMA performance, regulatory decisions, our assessment of the market opportunities for W-CDMA
technology-based services and the competitive landscape in the Korean wireless market. We are
continuing to improve our W-CDMA services in the Seoul metropolitan area and are continuing to
build-out our W-CDMA network in other metropolitan areas of Korea. For more information about our
capital expenditure plans relating to W-CDMA, see Operating and Financial Review and ProspectsLiquidity and Capital Resources, and for more information
about risks relating to W-CDMA, see Risk FactorsW-CDMA technology may require significant capital
and other expenditures for implementation which we may not recoup and may be difficult to integrate
with our other businesses. In the first half of 2006, we plan to start deploying HSDPA, which enables data to be
transmitted at speeds of up to two to three times faster than 1xEV/DO. We have commenced testing of
the system that will enable such upgrade to HSDPA by simply upgrading applicable software and
without requiring any new infrastructure. Network infrastructure The principal components of our wireless networks are:  

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

base station transceiver subsystems,which manage the radio transmission by the
equipment located at one or more cell sites, including radio-channel management, message
transport and hand-off of calls between cell sites;

switching stations,which switch calls to the proper destinations; and 43




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
    
    leased lines, microwave links or other connectionswhich link the switching stations,
the cell sites and the public switched telephone networks of KT Corporation and Hanaro
Telecom. The following table sets forth some basic information about our wireless networks at
December 31, 2004: SwitchingCell Sites
    
    
    StationsCDMA Network (excluding CDMA lxRTT and CDMA 1xEV/DO)
    
    
    5,484
    
    
    
    56CDMA 1xRTT Network and CDMA 1xEV/DO
    
    
    3,348
    
    
    
    55W-CDMA
    
    
    626
    
    
    
    3
 We purchase our principal digital wireless equipment for our CDMA networks from LG
Electronics and Samsung Electronics. We have purchased from Samsung Electronics substantially all
of the equipment for our CDMA 1xRTT and CDMA 1xEV/DO networks. Several manufacturers, including
Samsung Electronics, Pantech & Curitel, LG Electronics and Motorola Korea, Inc., currently produce
handsets for use on our CDMA, CDMA 1xRTT network. Samsung Electronics, SK Teletech and Motorola
Korea, Inc. currently manufacture most of the handsets for use on our CDMA 1xEV/DO network. Under applicable Korean law, Korean fixed-line operators may not decline to provide
leased line services to us without reasonable cause. We have completed installation of
substantially all optical fiber lines between our switching stations. In addition, we own several
microwave links in areas to serve certain sections of the network formerly owned and operated by
Shinsegi. We have also installed optical fiber lines linking base stations with switching stations
and other base stations. Where we have not installed optical fiber lines, we continue to use lines
leased by us from SK Networks and KT Corporation. KT Corporations fixed charges for the leased
lines are based on line capacity, length and type. We use a cellular network surveillance system. This system oversees the operation of cell
sites and allows us to monitor our main equipment located throughout the country from one
monitoring station. The automatic inspection and testing provided to the cell sites lets the system
immediately rebalance to the most suitable setting, and the surveillance system provides automatic
dispatch of repair teams and quick recovery in emergency situations. Other Investments and Relationships We have investments in several other businesses and companies and have entered into various
business arrangements with other companies. Our principal investments fall into the following
categories: Wireless Application Developers and Content Providers.As part of our strategy to develop
additional applications and content for our wireless data services, we invest in companies which
develop wireless applications and provide Internet content, including content accessible by users
of our wireless networks. These investments include:  
    
    Information Technology and Content Providers.We hold investments in approximately 40
companies, with an aggregate book value of approximately Won 36.0 billion as of December
31, 2004, which develop technology and content for use in our fixed-line and wireless data
and Internet businesses and for continuing development of our multimedia platforms and
networks.
    
    Joint Ventures.We own a 50% interest in a joint venture with Hewlett-Packard Company to
support development of next generation wireless multi-media and mobile commerce services
and a 50% interest in a joint venture with Qualcomm Incorporated, formed for the purpose
of funding venture startup companies engaged in development and commercialization of new
applications or services utilizing CDMA technology. We have committed to invest US$5
million in each of these ventures. As of December 31, 2004, we invested Won 5.1 billion in
our joint venture with Qualcomm and Won 5.3 billion in our joint venture with
Hewlett-Packard. In addition, pursuant to an agreement entered into on March 20, 2003, we
established UNISK, a joint venture company with China Unicom in December 2003. See
Global BusinessOverseas Operations. In September 2003, we reached a business
cooperation agreement with Teliasonera for the purpose of jointly developing and
commercializing new businesses, cross-licensing, partnership exchange and joint
advancement into overseas markets. On September 16, 2003, we signed a memorandum of
understanding with Alcatel for joint development of a Mobile Payment Service by combining
our Nemo with Alcatels Prepayment Instant Billing System. 44




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
    
    Mobile Broadcasting Corporation.In September 2003, we entered into an agreement with
Mobile Broadcasting Corporation, a wireless multi-media company in Japan, for the purposes
of co-owning and launching a satellite for the satellite DMB business. MBCO is a developer
and provider of content and technology related to wireless multimedia services and has
developed new services in Satellite DMB. Under the terms of the agreement, SK Telecom is
committed to fund 34.7% of the cost of launching and maintaining the operations of the
satellite, which is approximately Won 100.8 billion. As of December 31, 2004, we had
invested a total of Won 27.3 billion and had a 7.3% interest in MBCO. We launched the
satellite in March 2004. In March 2004, the MIC assigned us a frequency for satellite DMB.
In October 2004, we granted the right to use our satellite, satellite orbit and frequency
to TU Media Corp., one of our affiliates, which received a license from the MIC as a
satellite DMB provider on December 30, 2004. On May 1, 2005, TU Media Corp. began to
provide satellite DMB services. See Multimedia.
    
    Mobile Data and Digital Content Market.In order to generate new revenue from the
growing mobile data and digital content market, we plan to increase our investment in the
entertainment sector, particularly in music, movies and games. As mobile data and digital
content market has become increasingly important in the growth of our business, we are
seeking to secure valuable mobile data and digital contents by making equity investments
in various content providers. In March 2005, we acquired 8 million shares, or 21.66% of
the issued and outstanding shares of iHQ Inc., for Won 14.44 billion, with an option to
purchase 5 million additional shares from Mr. Hun-Tak Jeong, a majority shareholder of iHQ
Inc., during the period starting March 15, 2006 and ending April 30, 2006. iHQ Inc. is an
entertainment management firm producing films, managing entertainers and operating on-line
game services. In addition, on May 3, 2005, our board of directors approved our investment
of up to Won 20 billion in one or more funds investing in the movie industry and on May
27, 2005 our investment of up to Won 29.7 billion in one or more funds investing in the
music industry, each in partnership with local investment companies, to expand our
business to media and entertainment. Once the funds are formed, we expect to hold a 26.7%
interest in the movie fund and a 99.0% interest in the music fund. On May 27, 2005, our
board of directors also approved a resolution to purchase a 60% interest in YBM Seoul
Records, the largest music recording company in Korea, whose music sources are critical in
our advancement into digital music business from the offline record label business, for
Won 29.2 billion. Other Investments.Our other investments include:  
    
    Hanaro Telecom.As of December 31, 2004, we owned a 4.8% interest in the outstanding
capital stock of Hanaro Telecom. On September 2, 2003, we purchased Won 120.0 billion of
Hanaro Telecom commercial paper in order to provide Hanaro Telecom with short-term
liquidity while it attempted to secure a foreign investor that would inject new capital
into the company. The decision to provide liquidity support to Hanaro Telecom was made to
protect the value of our stake in Hanaro Telecom. Following an investment in Hanaro
Telecom by a consortium led by AIG and Newbridge, we disposed of the Hanaro Telecom
commercial paper in December 2003. In May 2004, we purchased from Samsung Electronics Co.,
Ltd. 13,870,000 shares of Hanaro Telecom, representing 3.0% of the outstanding shares of
Hanaro, for Won 39.3 billion as part of our strategic efforts in consideration of
increasing convergence between wireless and fixed-line services. As a result of the
acquisition, our equity interest in Hanaro increased to 4.8% as of December 31, 2004, up
from 1.8% as of December 31, 2003.
    
    Powercomm.We currently own a 5.0% interest in Powercomm Corporation with a book value
as of December 31, 2004 of Won 71.6 billion. For more information, see note 3 of the notes
to our consolidated financial statements. Powercomm is an operator of fixed-line networks
that provides wholesale fixed-line network services, such as leased lines, to
telecommunications, Internet and cable television service providers in Korea. We have no
current plans to either increase or decrease our investment in Powercomm.
    
    SKC&C.We currently own a 30.0% equity interest in SKC&C Co., Ltd. with a book value as
of December 31, 2004 of Won 201.4 billion. SKC&C is an information technologies services
provider. Substantially all of SKC&Cs revenue is generated from services provided to
member companies of the SK Group, including us. We are party to several service contracts
with SKC&C related to development and maintenance of our information technologies systems.
See Certain Relationships and Related Party Transactions.
    
    SK Group Japan Co., Ltd.In December 2001, we invested Won 5.3 billion in SK Group Japan
Co., Ltd., a trading company. We held a 16.5% equity interest in SK Group Japan with an
acquisition cost of Won 16.4 billion, which was written off due to an impairment. SK Group
Japan was dissolved as of January 17, 2005.
    
    SK Communications.In August 2002, we purchased a 44.5% interest from Mirae Corporation
in Lycos Korea, one of Koreas leading Internet portals, for Won 12.3 billion.
Subsequently, we subscribed for additional shares in Lycos Korea and increased our
interest in Lycos Korea to 90.3%. Lycos Korea was renamed SK Communications after it
acquired Netsgo Co., Ltd. and business rights to Nate.com service in November 2002. SK
Communications subsequently consolidated services from Lycos and Nate.com to offer portal
service on-line. In February 2001, we transferred our paging business to Real Telecom and received a 9.9%
interest in Real Telecom, as well as convertible bonds with a principal amount of Won 9.5 billion.
Such convertible bonds and accrued interest were exchanged for bonds issued by Real Telecom in May
2003 with a principal amount of Won 10.6 billion which can be converted into 371,018 shares of
common stock of Real Telecom as of April 2004. On December 31, 2004, we wrote off Real Telecoms
debt on the bonds as it was very doubtful we would ever collect on the bonds. We have from time to time engaged in discussions with several wireless telecommunications
services providers including KDDI Corporation and Sprint PCS about strategic relationships of
various types. 45




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Competition SK Telecom was Koreas only provider of cellular telecommunications services until April 1996,
when Shinsegi began offering its CDMA service using 10 MHz of spectrum in the 800 MHz band under a
license issued in 1994. In 1996, the Government issued three additional licenses to KTF, LGT and
Hansol PCS to operate CDMA services, each using 10 MHz of spectrum in the 1700-1800 MHz band. Each
of KTF, LGT and Hansol PCS commenced operation of its CDMA service in October 1997. Beginning in 2000, there has been considerable consolidation in the wireless
telecommunications industry resulting in the emergence of stronger competitors. In 2000, KT
Corporation acquired 47.9% of Hansol M.Coms outstanding shares and renamed the company KT M.Com.
KT M.Com merged into KTF in May 2001. In May 2002, the Government sold its remaining 28.4% stake in
KT Corporation. It is widely believed that KT Corporation is likely to operate more efficiently and
be managed more effectively and profitably following its privatization. KT Corporation had a 48.7%
interest in KTF as of December 31, 2004. Significant advances in technology are occurring that may affect our businesses,
including the roll-out or the planned roll-out by us and our competitors of advanced high-speed
wireless telecommunications networks based on CDMA 1xEV/DO technology and other technologies such
as W-CDMA and CDMA2000. In October 2000, we launched the worlds first CDMA 1xRTT network, which
enables us to provide advanced data services. Since then one of our two principal competitors, KTF
has also launched a network using CDMA 1xRTT technology. As of December 31, 2004, our CDMA 1xEV/ DO
network upgrade had been completed in 84 cities in Korea. KTF has expanded its CDMA 1xEV/ DO
network to cover 75 cities in Korea as of December 31, 2004. In addition, we and our competitors
also have licenses to provide 3G services using W-CDMA technology (in the case of us and KTF) or
CDMA2000 technology (in the case of LGT). Such networks are expected to support data transmission
services with more advanced features and significantly higher data transmission rates than our
principal data network, which uses a technology called CDMA 1xRTT. We commenced provision of our
IMT-2000 services based on our W-CDMA network on a limited basis in Seoul at the end of 2003.
Although we, together with other manufacturers of mobile phones, developed and launched in March
2005 dual band/dual mode handsets, one of the key factors in a nationwide deployment of W-CDMA, the
actual scope and timing of the full nationwide roll-out of our W-CDMA network will depend on other
several factors, including the availability of network equipment, ability to overcome technical
problems currently affecting W-CDMA performance, regulatory decisions, our assessment of the market
opportunities for W-CDMA technology-based services and the competitive landscape in the Korean
wireless market. We are continuing to improve our W-CDMA services in the Seoul metropolitan area
and are continuing to build-out our W-CDMA network in other metropolitan areas of Korea. See Risk
FactorsCompetition may reduce our market share and harm our results of operations and financial
condition. As of April 30, 2005, according to the MIC, KTF and LGT had 12.0 million and 6.1 million
subscribers, respectively, representing approximately 32.4% and 16.5%, respectively, of the total
number of wireless subscribers in Korea on such date. As of April 30, 2005, we had 19.1 million
subscribers, representing a market share of approximately 51.2%. On May 25, 2004, we voluntarily
undertook to limit our market share through the end of 2005 to 52.3% of the wireless
telecommunications market, the level of our market share at the time of the approval of our merger
with Shinsegi in January 2002. 46




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For a description of the risks associated with the competitive environment in which we
operate, see Risk FactorsCompetition may reduce our market share and harm our results of
operations and financial condition. Under current government regulations, as the designated market dominant service provider
for wireless network services, we must obtain prior MIC approval for any change in our wireless
telecommunications service rates, although our competitors may change their rates at their
discretion. The MIC gave new entrants similar price advantages when DACOM started competing with KT
Corporation in international long distance service in 1991 and domestic long distance service in
1996. On April 9, 2003, the MIC announced its plan to adopt a reserved reporting system for
setting new rates as a measure to relax the stringent regulation on pricing. Under the reserved
reporting system, we would have to report our proposed new rate plan with the MIC in order to
change our rates. Unless the MIC objects to the proposed rate plan within a certain period of time,
such rates would be automatically adopted. We believe that this system, if implemented, would give
us greater flexibility in setting our wireless communications service rates in response to market
conditions in a timely manner, but we can give no assurance that such a system will be adopted as
currently contemplated, or at all, or that the rates allowed by such a system will allow us to
remain profitable. For a description of our rates and subscription plans, see Revenues, Rates and Facility
Deposits. In addition, the FTC approved our acquisition of Shinsegi on two conditions. First, the
FTC required that SK Telecoms and Shinsegis combined market share of the wireless
telecommunications market, based on numbers of subscribers, be less than 50.0% as of June 30, 2001.
As a result, we reduced the level of our subscriber activations and adopted more stringent
involuntary subscriber deactivation policies beginning in 2000 and ceased accepting new subscribers
for three months, from April 1, 2001 through June 30, 2001. We complied with this requirement by
reducing our market share to approximately 49.7% as of June 30, 2001, and this market share
limitation no longer applies. On May 25, 2004, we voluntarily undertook to limit our market share
through the end of 2005 to 52.3% of the wireless telecommunications market, the level of our market
share at the time of the approval of our merger with Shinsegi in January 2002. As of April 30,
2005, we had approximately 19.1 million subscribers, representing a market share of approximately
51.2%. Second, the FTC imposed a maximum limit of 1,200,000 on the number of digital handsets we
may purchase annually from our subsidiary, SK Teletech, until December 31, 2005. This restriction
does not apply to W-CDMA handsets. In February 1997, member governments of the World Trade Organization, or WTO, reached the
WTO Agreement on Basic Telecommunications Services, which became effective in November 1997. As
part of this agreement and to expedite the opening of the telecommunications market and promote
competition, the Government has amended the Telecommunications Business Law several times to, among
other things, increase the allowed foreign shareholding ownership threshold (up to an aggregate of
49.0%) and participation in telecommunications service providers, including us. While we believe that these measures will enable us to more easily take advantage of
opportunities for investments in overseas telecommunications projects, they have increased and may
in the future increase competition and the financial and technological resources of our competitors
in the domestic market. Law and Regulation Overview Koreas telecommunications industry is subject to comprehensive regulation by the MIC,
which is responsible for information and telecommunications policies, radio and broadcasting
management, postal services and postal finances. The MIC regulates and supervises a broad range of
communications issues, including:  
    
    entry into the telecommunications industry;
    
    scope of services provided by telecommunications service providers;
    
    allocation of radio spectrum;
    
    setting of technical standards and promotion of technical standardization;
    
    rates, terms and practices of telecommunications service providers;
    
    customer complaints;
    
    interconnection and revenue-sharing between telecommunications service providers;
    
    disputes between telecommunications service providers;
    
    research and development budgeting and objectives of telecommunications service providers; and
    
    competition among telecommunications service providers. 47




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Telecommunications service providers are currently classified into three categories:
network service providers, value-added service providers, and specific service providers. We are
classified as a network service provider because we provide telecommunications services with our
own telecommunications networks and related facilities. As a network service provider, we are
required to obtain a license from the MIC for each of the services we provide. Our licenses permit
us to provide cellular services and third generation wireless services using W-CDMA technology. Our
cellular license is valid for an indefinite term and our W-CDMA license is valid for 15 years
starting from 1999. The MIC may revoke our licenses or suspend any of our businesses if we fail to comply
with its rules, regulations and corrective orders, including the rules restricting beneficial
ownership and control and corrective orders issued in connection with any violation of rules
restricting beneficial ownership and control or any violation of the conditions of our licenses.
Alternatively, in lieu of suspension of our business, the MIC may levy a monetary penalty of up to
3% of our revenues. A network services provider that wants to cease its business or dissolve must
obtain MIC approval. The MIC has stated that its policy is to promote competition in the Korean
telecommunications market through measures designed to prevent the dominant service provider in any
such market from exercising its market power in such a way as to prevent the emergence and
development of viable competitors. While all network service providers are subject to MIC
regulation, we are subject to increased regulation because of our position as the dominant wireless
telecommunications services provider in Korea. Rate Regulation Most network service providers must report to the MIC the rates and contractual terms for
each type of service they provide, but generally they may set rates at their discretion. However,
as the dominant network services provider for specific services (based on having the largest market
share in terms of number of subscribers and meeting certain revenue thresholds), we must obtain
prior approval of our rates and terms of service from the MIC. In each of the years in which this
requirement has been applicable, the MIC has designated us for wireless telecommunications service,
and KT Corporation for local telephone service, as dominant network service providers subject to
this approval requirement. As a condition to its approval of SK Telecoms merger with SK IMT, the
MIC required that we submit the rates for our third generation mobile services using W-CDMA
technology to the MIC for approval prior to the launch of such services. The MICs policy is to
approve rates if they are appropriate, fair and reasonable and if they are calculated in a
transparent and appropriate manner. It may order changes if it deems the rates to be significantly
unreasonable or against public policy. Interconnection Dominant network service providers such as ourselves that own essential infrastructure
facilities or that possess a certain market share are required to provide interconnection of their
telecommunications network facilities to other service providers upon request. The MIC sets and
announces the standards for determining the scope, procedures, compensation and other terms and
conditions of such provision, interconnection or co-use. We have entered into interconnection
agreements with KT Corporation, DACOM, Onse and other network service providers permitting these
entities to interconnect with our network. We expect that we will be required to enter into
additional agreements with new operators as the MIC grants permits to additional telecommunications
service providers. Wireless Internet Network Co-Share In December 2002, the MIC implemented a wireless Internet network co-share system that
permits the WAP Gateway of a fixed-line operator to connect to a wireless network service
providers IWF (inter-working function) device. IWF is a device that connects a cellular network
with an IP (Internet Protocol) network, while WAP Gateway converts HTTP protocol into WAP protocol.
This co-share system would allow subscribers of a wireless network service provider to have access
to wireless Internet content provided by a fixed-line operator. In December 2002, KT Corporation
connected to our IWF in December 2002 but has not yet commenced service. In July 2003, the MIC
approved the basic terms regarding the implementation of a network co-system. In January 2004, we
entered into a memorandum of understanding with Onse to establish a co-share system, under which we
launched these services in June 2005. Currently, our subscribers can access portals provided by
outside parties. In addition, the MIC has requested that a third party oversee wireless operators
customer billing procedures with respect to third-party content providers who are seeking to
provide their content directly to subscribers without going through an individual operators
portal, as third-party content providers have experienced difficulties in providing their content
service directly to subscribers due to the lack of resources for billing users. We believe that
such a co-share system, if widely adopted, will have the effect of giving our users access to a
wide variety of content using their handsets, which may in turn increase revenues attributable to
our data services. However, this system could also place significant competitive pressure on the
services available on our NATE platform. 48




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Contributions to the Fund for Development of Information Telecommunications The MIC has the authority to recommend to network service providers that they provide
funds for national research and development of telecommunications technology and related projects.
For 2005, the MIC recommends that we contribute 0.75% of budgeted revenues (calculated pursuant to
MIC guidelines that differ from our accounting practices) to the Fund for Development of
Information Telecommunications operated by the MIC. Although these recommendations were not
mandatory prior to 2002, we have in the past contributed the recommended amounts. Our contribution
to this fund in 2000 was Won 38.3 billion (including Won 0.6 billion for Shinsegi) based on the MIC
recommendation of 1.5% of MIC-calculated revenues for 2000. Our contribution to this fund in 2001
was Won 23.0 billion (including nil for Shinsegi) based on the MIC-recommended minimum level of
contribution of 1.0% of MIC-calculated revenues for 2001. In May 2002, the MIC announced significant changes to the government contribution system.
Starting from 2002, the contributions became mandatory, and the annual contribution which was set
at 1.0% of total revenues for the previous year was lowered to 0.5% (0.75% for market dominant
service providers like us) of total revenues for the previous year, and will be applicable only to
those network service providers who have Won 30 billion in total sales and recorded net profits for
the previous year. Under the policy, the amount of the annual contribution does not need to exceed
the net profit of each company. Our contribution to this fund in 2002, 2003 and 2004 was Won 59.0
billion, Won 64.9 billion and Won 69.0 billion, respectively, based on the new MIC requirement of
0.75% of MIC-calculated revenues. Universal Service Obligation All telecommunications service providers other than value-added service providers,
specific service providers and regional paging service providers or any telecommunications service
providers whose net annual revenue is less than an amount determined by the MIC (currently set at
Won 30 billion) are required to provide universal telecommunications services including local
telephone services, local public telephone services, telecommunications services for remote islands
and wireless communication services for ships and telephone services for the handicapped and
low-income citizens, or contribute toward the supply of such universal services. The MIC designates
universal services and the service provider who is required to provide each service. Currently, we
are required to offer free subscription fee and 30% discount of our monthly fee for cellular
services to the handicapped and the low-income citizens. In addition to such universal services for
the handicapped and low-income citizens, we are also required to make certain monetary
contributions to compensate for other service providers costs for the universal services. The size
of a service providers contribution is based on its net annual revenue (calculated pursuant to MIC
guidelines which differ from our accounting practices). In 2002, we paid Won 28.9 billion, which
was our estimated contribution amount based on our net annual revenue for our fiscal year 2001 pursuant to MIC guidelines. We received a refund in the
amount of Won 1.8 billion from the MIC after calculating our required contribution amount based on
our net annual revenue for our fiscal year 2001, which effectively reduced our actual contribution
amount to Won 27.1 billion. In 2003, our contribution amount was Won 80.7 billion for our fiscal
year 2002. In 2004, our contribution amount was Won 46.6 billion for our fiscal year 2003. Our
contribution amount in 2005 for fiscal year 2004 has not yet been determined, but is expected to be
Won 48.2 billion. With the introduction of a new calculation method based on the long-run
incremental cost to be applicable to the calculation of our contribution for 2006, we anticipate
that our contribution amount in 2006 for fiscal year 2005 will be lower than that of the previous
year. As a wireless telecommunications services provider, we are not considered a provider of
universal telecommunications services and do not receive funds for providing universal service.
Other network service providers that do provide universal services make all or a portion of their
contribution in the form of expenses related to the universal services they provide. 49




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Frequency Allocation The MIC has the discretion to allocate and adjust the frequency band for each type of
service. Upon allocation of new frequency bands or adjustment of frequency bands, the MIC is
required to give a public notice. The MIC also regulates the frequency to be used by each radio
station, including our base stations, by the terms of its approval for each radio station. All of
our frequency allocations are for an indefinite term. We pay fees to the MIC for our frequency
usage which are determined based upon our number of subscribers, frequency usage by our networks
and other factors. For 2001, 2002, 2003 and 2004 the fee amounted to Won 78.9 billion, Won 119.2
billion, Won 129.5 billion and Won 143.0 billion, respectively. In addition, we have paid Won 650 billion of the Won 1.3 trillion cost of the W-CDMA
license in March 2001. We are required to pay the remainder of the license cost in annual
installments for a five-year period from 2007 through 2011. For more information, see note 2(i) of
the notes to our consolidated financial statements for the years ended December 31, 2002, 2003 and
2004. Competition Regulation The Korea Communications Commission is charged with ensuring that network service
providers engage in fair competition and has broad powers to carry out this goal. If a network
service provider is found to be in violation of the fair competition requirement, the Korea
Communications Commission may take corrective measures it deems necessary, including, but not
limited to, prohibiting further violations, requiring amendments to the articles of incorporation
or to service contracts with customers, and requiring the execution or performance of, or
amendments to, interconnection agreements with other network service providers. In addition, we qualify as a market-dominating business entity under the Fair Trade Act.
Accordingly, we are prohibited from engaging in any act of abuse, such as unreasonably determining,
maintaining or altering service rates, unreasonably controlling the rendering of services,
unreasonably interfering with business activities of other business entities, hindering unfairly
the entry of newcomers or substantially restricting competition to the detriment of the interests
of consumers. Under the Fair Trade Act, a company that is a member of a large business group as
designated by the FTC, such as ourselves, as a company in the SK Group, is generally required to
limit its total investments in other domestic companies to 25% of its non-consolidated net assets.
Investment in companies engaging in similar business is not included in calculating the 25% limit.
Depending on the time frame in which such a company acquired shares in excess of the 25% ceiling,
the FTC may issue corrective orders requiring, for example, the disposition of the shares held in
excess of the 25% ceiling or imposing limitations on the voting rights for such shares and/or
monetary sanctions. SK Telecoms total investments in other domestic companies (excluding
investments in Hanaro Telecom, Powercomm, SK Telink, Enterprise Networks and Real Telecom,
companies engaging in similar business) amounted to Won 787.4 billion as of March 31, 2005. Number Portability Previously, Koreas wireless telecommunications system was based on a network-specific
prefix system in which a unique prefix was assigned to all the phone numbers of a network operator.
We were assigned the 011 prefix, and all of our subscribers mobile phone numbers began with
011 (former Shinsegi subscribers use the 017 prefix). Our subscribers could not change their
wireless phone service to another wireless operator and keep their existing numbers. In January
2003, the MIC announced its plan to implement number portability with respect to wireless
telecommunications services in Korea. The number portability system allows wireless subscribers to
switch wireless service operators while retaining the same mobile phone number. However,
subscribers who switch operators must purchase a new handset, as we use a different frequency than
KTF and LGT. In accordance with the plan published by the MIC, the number portability system was
adopted by SK Telecom starting from January 1, 2004. KTF and LGT introduced number portability
beginning on July 1, 2004 and January 1, 2005, respectively. For details of the number of
subscribers who transferred to the services of our competitors following the implementation of the
number portability system, see BusinessSubscribers. 50




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In addition, in order to manage the availability of phone numbers efficiently and to
secure phone number resources for the new services, the MIC has begun to integrate mobile telephone
identification numbers into a common prefix identification number 010 and to gradually retract
the current mobile service identification numbers which had been unique to each wireless
telecommunications service provider, including 011 for our cellular services, starting from
January 1, 2004. All new subscribers have been given the 010 prefix starting January 2004. For
details of the number of new subscribers for each of the major wireless cellular providers
following the adoption of the 010 prefix January 2004, see BusinessSubscribers. For risks relating to number portability, see Risk FactorsOur businesses are subject to
extensive Government regulation and any change in Government policy relating to the
telecommunications industry could have a material adverse effect on our results of operations and
financial condition. Contribution to 114 Directory Service The MIC has been negotiating with network service providers on sharing the cost of
providing 114 directory services through KT Corporation. Prior to 1998, this cost was shared among
service providers through the NTS (Nontraffic Sensitive) Participation Program. The NTS
Participation Program included both the Universal Service Provider Program and contributions for
114 directory services before it came to a halt due to disagreements between network service
providers and the MIC. The MIC has determined SK Telecoms share of such costs for the period
between 1998 and 2001 to be Won 40.6 billion, based on the number of calls made to the 114
directory service through its network. KTF and LGT were charged Won 16.8 billion and Won 6.7
billion, respectively. This amount is to be paid in monthly installments over a 20-month period.
Contributions for the 114 directory service for 2002, 2003 and 2004 have not been determined yet. Foreign Ownership and Investment Restrictions and Requirements Because we are a network service provider, foreign governments, individuals, and entities
(including Korean entities that are deemed foreigners, as discussed below) are prohibited from
owning more than 49% of our voting stock. Effective from May 9, 2004, Korean entities where a
foreign government or a foreigner (together with any of its related parties) (i) is the largest
shareholder and (ii) owns 15% or more of the outstanding voting stock are deemed foreigners. If
this 49% ownership limitation is violated, certain of our foreign shareholders will not be
permitted to exercise voting rights in excess of the limitation and the MIC may require other
corrective action. As of December 31, 2004, SK Corporation owned 17,663,127 shares of our common stock, or
approximately 21.47% of our issued shares. As of April 4, 2005, a foreign investment fund and its
related parties collectively held a 14.9% stake in SK Corporation. Effective from May 9, 2004, if
the foreign investment fund and its related parties increase their shareholdings in SK Corporation
to 15% or more and such foreign investment fund and its related parties collectively constitute the
largest shareholder of SK Corporation, SK Corporation will be considered a foreign shareholder of
SK Telecom, and its shareholding in SK Telecom would be included in the calculation of the
aggregate foreign shareholding of SK Telecom. If SK Corporations shareholding in SK Telecom is
included in the calculation of the aggregate foreign shareholding of SK Telecom, then the aggregate
foreign shareholding in SK Telecom, assuming the foreign ownership level as of December 31, 2004
(which we believe was 48.36%), would reach 69.83%, exceeding the 49% ceiling on foreign
shareholding. 51




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If the aggregate foreign shareholding limit in SK Telecom is exceeded, the MIC may issue
a corrective order to SK Telecom, the breaching shareholder (including SK Corporation if the breach
is caused by an increase in foreign ownership of SK Corporation) and the foreign investment fund
and its related parties who own in the aggregate 15% or more of SK Corporation. Furthermore, SK
Corporation may not exercise its voting rights with respect to the shares held in excess of the 49%
ceiling, which may result in a change in control of us. In addition, the MIC may refuse to grant us
licenses or permits necessary for entering into new telecommunications businesses until the
aggregate foreign shareholding of SK Telecom is reduced to below 49%. If a corrective order is
issued to us by the MIC arising from the violation of the foregoing foreign ownership limit, and we
do not comply within the prescribed period under such corrective order, the MIC may (1) suspend all
or part of our business, or (2) if the suspension of business is deemed to result in significant
inconvenience to our customers or be detrimental to the public interest, impose a one-time
administrative penalty of up to 3% of our sales revenues. Additionally, an amendment to the
Telecommunications Business Law in May 2004 also authorizes the MIC to assess monetary penalties of
up to 0.3% of the purchase price of the shares for each day the corrective order is not complied
with, as well as a prison term of up to one year and a penalty of Won 50 million. See Risk
FactorsIf SK Corporation breaches the foreign ownership limitations on SK Telecom, it may result
in a change of control of us. We are required under the Foreign Exchange Transaction Act to file a report with a
designated foreign exchange bank or with the Ministry of Finance and Economy, or the MOFE, in
connection with any issue of foreign currency denominated securities by us in foreign countries.
Issuances of US$30 million or less require the filing of a report with a designated foreign
exchange bank, and issuances that are over US$30 million require the filing of a report with the
MOFE. A newly adopted amendment to the Telecommunications Business Law effective from May 9,
2004 provides for the creation of a Public Interest Review Committee under the MIC to review
investments in or changes in the control of network services providers. The following events would
be subject to review by the Public Interest Review Committee: (i) the acquisition by an entity (and
its related parties) of 15% or more of the equity of a network services provider, (ii) a change in
the largest shareholder of a network services provider, (iii) agreements by a network service
provider or its shareholders with foreign governments or parties regarding important business
matters of such network services provider, such as the appointment of officers and directors and
transfer of businesses and (iv) a change in the entity that actually controls a network services
provider. If the Public Interest Review Committee determines that any of the foregoing transactions
or events would be detrimental to the public interest, then the MIC may issue orders to stop the
transaction, amend any agreements, suspend voting rights, or divest the shares of the relevant
network services provider. Additionally, effective from May 9, 2004, if a dominant network services
provider (which would currently include us and KT Corporation), together with its specially related
persons (as defined under the Korean Securities and Exchange Act) holds more than 5% of the equity
of another dominant network services provider, the voting rights on the shares held in excess of
the 5% limit may not be exercised. Patents and Licensed Technology Access to the latest relevant technology is critical to our ability to offer the most advanced
wireless services and to design and manufacture competitive products. In addition to active
internal and external research and development efforts as described in Operating and Financial
Review and Prospects  Research and Development, our success depends in part on our ability to
obtain patents, licenses and other intellectual property rights covering our products. We own
numerous patents and trademarks worldwide, and have applications for patents pending in many
countries, including Korea, Japan, China, the United States, and Europe. Our patents are mainly
related to CDMA technology and wireless Internet applications. We also acquired a number of patents related to W-CDMA technology. We also license a number of patented processes and trademarks under cross-licensing, technical
assistance and other agreements. The most important agreement is with Qualcomm Inc. and relates
mainly to CDMA applications technology. This agreement generally grants us a non-exclusive license
to manufacture handsets in return for royalty payment or a sub-license to manufacture and sell
certain products both in Korea and overseas 52




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during a fixed, but usually renewable term. We consider our technical assistance and licensing
agreements to be important to our business and believe that we will be able to renew this agreement
on commercially reasonable terms that will not adversely affect our ability to use the relevant
technologies. We are not currently involved in any material litigation regarding patent infringement. Organizational Structure We are a member of the SK Group (formerly the Sunkyong Group), whose members owned in
aggregate 24.03% of the shares of our issued common stock as of December 31, 2004. The SK Group is
a diversified group of companies incorporated in Korea with interests in, among other things,
telecommunications, trading, energy, chemicals, engineering and leisure industries. Until mid-1994,
our largest shareholder was KT Corporation (formerly known as Korea Telecom Corp.), Koreas
principal fixed-line operator and the parent of KTF, one of our principal wireless competitors. Significant subsidiaries
 For information regarding our subsidiaries, see note 2(b) of the notes to our consolidated
financial statements. PROPERTY, PLANTS AND EQUIPMENT The following table sets forth certain information concerning our principal properties as of
May 20, 2005: Approximate Area
    
    
    
    Nature ofin Square Feet
    
    Primary Use
    
    InterestSeoul
Seoul
Seoul
Taegu
Taejon
Kwangju
Pusan
    
    
    988,654
607,246
162,406
153,623
565,773
265,610
363,422
    
    
    Corporate Headquarters
Regional Headquarters
Customer Service Center
Regional Headquarters
Regional Headquarters
Regional Headquarters
Regional Headquarters
    
    Ownership
Ownership
Ownership
Ownership
Ownership
Ownership
OwnershipSungnam
    
    
    482,783
    
    
    Central Research and
Development Laboratory
    
    OwnershipIchon
Wonju
Yongin
    
    
    279,550
116,562
589,625
    
    
    Training Center
Regional Headquarters
Training Center
    
    Ownership
Ownership
Ownership
 In December 2004, we constructed a new building with an area of approximately 82,624 square
feet, in which we have full ownership, for use as our corporate headquarters. We relocated our
corporate offices into the new building in January 2005. In addition, we own or lease various
locations for cell sites and switching equipment. We do not anticipate that we will need a
significant number of new cell sites in connection with the expansion of our CDMA networks which is
planned for 2005, and we expect to lease or acquire new sites as needed. We do expect that we will
need new cell sites in constructing our W-CDMA network. Our current plan is to share sites with our
existing network, and therefore, we do not at this time expect to have to obtain a significant
number of new cell site locations. We do not anticipate that we will encounter material
difficulties in meeting our future needs for any existing or prospective leased space for our cell
sites. See Cellular Services. In October 2004, we purchased certain land and building (including incidental movables)
of SK Life Insurance Co., Ltd. accounting for 589,625 square feet for Won 30 billion in order to
secure stable training facilities to enhance expertise and leadership of SK Telecoms employees as
required by its campaign of new value management. 53




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We maintain a range of insurance policies to cover our assets and employees, including our
directors and officers. We are insured against business interruption, fire, lightening, flooding,
theft, vandalism, public liability and certain other risks that may affect our assets and
employees. We believe that the types and amounts of our insurance are in accordance with general
business practices in Korea. 
 Item. 5Operating and Financial Review and Prospects You should read the following discussion together with our consolidated financial statements
and the related notes thereto which appear elsewhere in this annual report. We prepare our
financial statements in accordance with Korean GAAP, which differs in some respects from U.S. GAAP.
Notes 30 and 31 of the notes to our consolidated financial statements provide a description of the
significant differences between Korean GAAP and U.S. GAAP as they relate to us and provide a
reconciliation to U.S. GAAP of our net income and shareholders equity for fiscal years 2002, 2003
and 2004. In addition, you should read carefully the section titled  Critical Accounting
Policies, Estimates and Judgments as well as note 2 of the notes to our consolidated financial
statements which provide summaries of certain critical accounting policies that require our
management to make difficult, complex or subjective judgments relating to matters which are highly
uncertain and that may have a material impact on our financial conditions and results of
operations. Overview Revenue.We earn revenue principally from initial connection fees and monthly access
fees, usage charges and value-added service fees paid by subscribers to our wireless services,
interconnection fees paid to us by other telecommunications operators for use of our network by
their customers and subscribers and sales of wireless handsets by our subsidiary, SK Teletech. The
amount of our revenue depends principally upon the number of our wireless subscribers, the rates we
charge for our services, subscriber usage of our services and the terms of our interconnection with
other telecommunications operators. Government regulation also affects our revenues. The following table sets forth certain revenue information about our operations during
the periods indicated: Year Ended December 31,2002
    
    
    2003
    
    
    2004(In billions of Won, except percentages)Percentage
    
    
    
    
    
    
    Percentage
    
    
    
    
    
    
    Percentageof total
    
    
    
    
    
    
    of total
    
    
    
    
    
    
    of totalRevenue
    
    
    revenue
    
    
    Revenue
    
    
    revenue
    
    
    Revenue
    
    
    revenueCellular Revenue:Wireless Services(1)
    
    (Won) 7,579.6
    
    
    
    81.3
    
    
    (Won) 8,462.7
    
    
    
    82.4
    
    
    (Won) 8,798.4
    
    
    
    83.2Interconnection
    
    
    1,043.2
    
    
    
    11.2
    
    
    
    1,017.1
    
    
    
    9.9
    
    
    
    849.4
    
    
    
    8.0Digital Handset Sales(2)
    
    
    534.0
    
    
    
    5.7
    
    
    
    612.0
    
    
    
    5.9
    
    
    
    649.8
    
    
    
    6.2Total Cellular Revenue
    
    
    9,156.8
    
    
    
    98.2
    
    
    
    10,091.8
    
    
    
    98.2
    
    
    
    10,297.6
    
    
    
    97.4Other Revenue:International Calling Service(3)
    
    
    101.6
    
    
    
    1.1
    
    
    
    97.4
    
    
    
    1.0
    
    
    
    126.3
    
    
    
    1.2Portal Service(4)
    
    
    22.8
    
    
    
    0.2
    
    
    
    42.0
    
    
    
    0.4
    
    
    
    85.0
    
    
    
    0.8Miscellaneous
    
    
    42.8
    
    
    
    0.5
    
    
    
    40.9
    
    
    
    0.4
    
    
    
    61.7
    
    
    
    0.6Total Other Revenue
    
    
    167.2
    
    
    
    1.8
    
    
    
    180.3
    
    
    
    1.8
    
    
    
    273.0
    
    
    
    2.6Total Operating Revenue:
    
    (Won) 9,324.0
    
    
    
    100
    
    
    (Won) 10,272.1
    
    
    
    100
    
    
    (Won) 10,570.6
    
    
    
    100Total Operating Revenue Growth
    
    
    11.4
    %
    
    
    
    
    
    
    10.2
    %
    
    
    
    
    
    
    2.9
    %
 
 (1)
    
    Wireless services revenue includes initial connection fees, monthly access fees, usage
charges, international charges, wireless Internet service fees, value-added-service fees and
interest on overdue subscriber accounts (net of telephone tax). 54




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(2)
    
    Sales of digital handsets are made through our subsidiary, SK Teletech, of which we owned
89.1% at December 31, 2004. We entered into an agreement to sell 4,542,000 shares of SK
Teletech owned by us to Pantech & Curitel, Inc., a Korean mobile handset manufacturer, on May
6, 2005. Upon the consummation of such sale, we expect to own approximately 29.1% of the total
issued and outstanding shares of SK Teletech.(3)
    
    Provided by our 90.8%-owned subsidiary, SK Telink Co., Ltd.(4)
    
    Portal service revenue attributable to SK Communications Co., Ltd. and, since 2003, Paxnet
Co., Ltd. We have had a dominant market share position in terms of subscribers throughout our
history and we continue to be the market leader in terms of number of subscribers. Our wireless
subscriber base has continued to increase over the years, growing from approximately 10.1 million
subscribers at the end of 1999 to approximately 14.5 million subscribers (including approximately
3.5 million Shinsegi subscribers), 15.2 million subscribers (including approximately 3.3 million
Shinsegi subscribers), 17.2 million subscribers, 18.3 million subscribers and 18.8 million
subscribers at the end of 2000, 2001, 2002, 2003 and 2004, respectively. As a condition to its approval of our acquisition of Shinsegi, the FTC required that SK
Telecoms and Shinsegis combined market share of the wireless telecommunications market, based on
numbers of subscribers, be less than 50% as of June 30, 2001. As a result, we reduced the level of
our subscriber activations and adopted more stringent involuntary subscriber deactivation policies
beginning in 2000 and ceased accepting new subscribers for three months, from April 1, 2001 through
June 30, 2001. We complied with this requirement by reducing our market share to approximately
49.7% as of June 30, 2001. On May 25, 2004, a policy advisory committee to the MIC announced the
results of its review and stated that the committee believed that our market dominance may
significantly restrict competition in the telecommunications market and that we have violated a
merger condition related to our acquisition of Shinsegi by providing subsidies to handset buyers.
On the same day, we voluntarily undertook to limit our market share through the end of 2005 to
52.3% of the wireless telecommunications market, the level of our market share at the time of the
approval of our merger with Shinsegi in January 2002. On June 7, 2004, the MIC fined us Won 11.9
billion and extended the post-merger monitoring period until January 2007 pursuant to the policy
advisory committees recommendation. As of April 30, 2005, we had approximately 19.1 million
subscribers, representing a market share of approximately 51.2%. Prior to June 2000, wireless telecommunications service providers provided handsets at
below retail prices to attract new subscribers, offsetting a significant portion of the cost of
handsets. The MIC prohibited all wireless telecommunications service providers, subject to certain
exceptions stipulated in the Telecommunications Business Act, from providing handset subsidies
beginning June 1, 2000. In March 2002, the MIC concluded that certain incentive payments made to
wireless handset dealers by us and other wireless network service providers were being passed on to
purchasers of wireless handsets, and therefore constituted improper handset subsidies. On April 8,
2002, we, KTF, LGT and KT Corporation were fined an aggregate of Won 20.0 billion by the MIC in
respect of these incentive payments. We were assessed and have paid in full a fine of Won 10.0
billion. On November 15, 2002, we received an order from the MIC prohibiting us from signing on new
subscribers for 30 days (from November 21, 2002 through December 2002) for violating the MICs
handset subsidy regulation. KTF and LGT were also prohibited from signing on new subscribers for 20
days. In February 2004, the MIC imposed upon us a fine of Won 21.7 billion with respect to other
incentive payments that were deemed by the MIC to constitute improper handset subsidies and thereby
disrupt fair competition. We paid the fine in March 2004. In February 2004, KTF and KT Corporation
were also fined Won 7.5 billion and Won 4.1 billion, respectively, in respect of such incentive
payments. On March 21, 2005, the MIC ordered us, KTF and LGT, to pay fines of Won 1.4 billion, Won
360 million and Won 230 million, respectively, for changing calling plans and adding value-added
services to the subscribers without obtaining express consents of such subscribers. We paid such
fine in April 2005. In May 2005, the MIC ordered us to pay a fine of Won 23.1 billion with respect
to our payment of improper handset subsidies. LGT and KTF were also fined Won 2.7 billion and Won
1.1 billion, respectively, in respect of such subsidy payments. We were fined more heavily than KTF
and LGT as the MIC found that our efforts to take corrective measures were not sufficient and that
such incentive payments were a violation of a merger condition related to our acquisition of
Shinsegi in January 2002. 55




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As a result of the MICs handset subsidy regulation and steps we have taken as a result,
we experienced a significant reduction in our gross and net additions of new subscribers in April
and May 2002. The MICs November 2002 order also resulted in a reduction in our gross and net
additions of new subscribers in November and December 2002. We believe that our competitors have
also experienced similar reductions and our market share has not been adversely affected. We cannot
assure you that the elimination of dealer incentives will not continue to adversely affect the rate
at which we attract new subscribers or the rate at which existing subscribers upgrade their
wireless handsets to take advantage of the higher data transmission capabilities of our CDMA 1xRTT
and CDMA 1xEV/ DO network technologies. We also believe that beginning in March 2002, there was an
expectation among dealers that dealer incentives would soon be eliminated or reduced as a result of
the MICs actions. This expectation contributed to the unusually high number of gross and net
subscriber additions and the higher churn rate that we experienced in March 2002, which was 2.3%,
compared to 1.2% in January 2002 and 1.1% in February 2002. Churn rate increased in part because
many existing subscribers chose to upgrade their handsets by terminating their service and opening
a new subscriber account. For 2005, our churn rate has ranged from 1.7% to 2.3%, with churn rate
for May 2005 at 1.9%. We cannot assure you that our churn rates will not increase in the future. Prior to January 2003, Koreas wireless telecommunications system was based on a
network-specific prefix system in which a unique prefix was assigned to all the phone numbers of a
specific network operator. We were assigned the 011 prefix, and all of our subscribers mobile
phone numbers began with 011 (former Shinsegi subscribers use the 017 prefix) and our
subscribers could not change their wireless phone service to another wireless operator and keep
their existing numbers. In January 2003, the MIC announced its plan to implement number portability
with respect to wireless telecommunications services in Korea, which allows wireless subscribers to
switch wireless service operators while retaining the same mobile phone number. However,
subscribers who switch operators must purchase a new handset, as each operator utilizes a different
frequency. In accordance with the plan published by the MIC, the number portability system was
adopted by SK Telecom starting from January 1, 2004. We were required to adopt the number
portability system earlier than our competitors, allowing our customers to
transfer their numbers to our competitors but not allowing our competitors customers to
transfer their number to our service. KTF and LGT introduced number portability beginning July 1,
2004 and January 1, 2005, respectively. Subscribers who choose to transfer to a different wireless
operator have the right to return to their original service providers without paying any penalties
within 14 days of their initial transfer. In addition, in order to manage the availability of phone numbers efficiently and to
secure phone number resources for the new services, the MIC plans to integrate mobile telephone
identification numbers into a common prefix identification number 010 and to gradually retract
the current mobile service identification numbers which had been unique to each wireless
telecommunications service provider, including 011 for our cellular services, starting from
January 1, 2004. All new subscribers have been given the 010 prefix starting January 2004. For
details of the number of new subscribers for each of the major wireless cellular providers
following the adoption of the 010 prefix January 2004, see BusinessSubscribers. We believe that the adoption of the common prefix identification system may pose a
greater risk to us as compared to the other wireless telecommunications providers because 011 has
a very high brand recognition in Korea as the premium wireless telecommunications service. Adoption
of the number portability system could also result in a deterioration of our market share as a
result of weakened customer loyalty, increased competition among wireless service providers and
higher costs as a result of maintaining the number portability system, increased subscriber
deactivations, increased churn rate and higher marketing costs. See Risk FactorsOur businesses
are subject to extensive Government regulation and any change in Government policy relating to the
telecommunications industry could have a material adverse effect on our results of operations and
financial condition. In February 2004, the MIC imposed a total fine of Won 2.0 billion on us in
connection with our marketing efforts related to the number portability system. For details, see
Legal ProceedingsMIC Proceedings. 56




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For cellular services, we charge initial connection fees, monthly access fees, usage
charges, wireless Internet service fees and monthly charges for value-added services. Under current
regulations, we must obtain prior MIC approval of the terms on which we may offer our services,
including all rates and fees charged for these services. See BusinessLaw and RegulationRate
Regulation and Risk FactorsWe are subject to additional regulation as a result of our market
position, which could harm our ability to compete effectively. Generally, the rates we charge for
our services have been declining. In September 1997 and April 2000, we implemented revised rate
plans, which generally offer rates lower than our previous rates. Effective June 8, 1998, we have
been providing a 20% discount for calls made between our cellular customers. Effective May 1, 2001,
we implemented a new charge system based on the amount of data that is transmitted to the
subscribers handsets, with respect to subscribers using our CDMA 1xRTT network. CDMA 1xRTT is an
advanced CDMA-based technology which allows transmissions of data at speeds of up to 144 Kbps
(compared to a maximum of 64 Kbps for our CDMA networks). After discussions with the MIC, effective
January 1, 2003, we reduced our Standard rate plans monthly access fee by Won 1,000, included 10
minutes of free air time per month and reduced our peak usage charges from Won 21 to Won 20 per
minute. After discussions with the MIC, in October 2003, we reduced our monthly charges for caller
ID service from Won 2,000 to Won 1,000. As of April 30, 2005, our standard peak usage rate was
approximately 11% higher than those charged by our competitors. We can give no assurance that these
rate changes will not negatively affect our results of operations. For more information about the
rates we charge, see BusinessRevenues, Rates and Facility Deposits. Our wireless telecommunications services depend, in part, on our interconnection
arrangements with domestic and international fixed-line and other wireless networks. Charges for
interconnection affect our revenues and operating results. The MIC determines the basic framework
for interconnection arrangements in Korea and has changed this framework several times in the past.
We cannot assure you that we will not be adversely affected by future changes in the MICs
interconnection policies. Under our interconnection agreements, we are required to make payments in
respect of calls which originate from our networks and terminate in the networks of other Korean
telecommunications operators, and the other operators are required to make payments to us in
respect of calls which originate in their networks and terminate in our network. See
BusinessInterconnection. With respect to the interconnection arrangement for calls from
fixed-line networks to wireless networks, for the years 1999 through 2001, fixed-line operators
payments to wireless network service providers were calculated based on the actual imputed costs in
1998 of the leading wireless network service provider, which is us. For 2002, these payments were
calculated based on each wireless operators actual imputed costs in 2001. This change reduced the
interconnection revenue we received from each call made from a fixed-line network terminating on
our network, adversely affecting our interconnection revenue compared to previous years. For 2003,
pursuant to a new MIC policy, an operators interconnection fees are derived from that operators
actual interconnection fees for 2001 and actual imputed costs for 2001. The MIC also implemented
interconnection charges for calls between wireless network service providers beginning in January
2000, affecting both our revenue and our expenses. These charges were also reduced beginning in
January 2002 and in January 2003. On July 9, 2004, the MIC introduced a new method of calculating
interconnection payments, based on the terminators long-run incremental cost in 2004 and the
competitive market situation in the telecommunication service industry of Korea. The long-run
incremental cost method has been adopted by other countries such as the United States, the United
Kingdom and Japan. The new rates had a negative impact on our operations in 2004 in the amount of
approximately Won 289.2 billion, resulting in an estimated Won 168.7 billion reduction in revenue
and Won 120.5 billion increase in interconnection expenses. The Won 120.5 million increase in
interconnection expenses include the increase in the land-to-mobile interconnection expenses that
were paid to fixed-line service providers. For more information about our interconnection revenue
and expenses, see BusinessInterconnectionDomestic Calls. 57




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The following table sets forth selected information concerning our wireless
telecommunications network during the periods indicated: Year Ended December 31,2002(1)
    
    
    2003
    
    
    2004Outgoing Voice Minutes (In Thousands):(2)
    
    
    37,629,656
    
    
    
    42,175,874
    
    
    
    43,184,944Average Monthly Outgoing Voice Minutes Per Subscriber:(3)
    
    
    191
    
    
    
    197
    
    
    
    194Average Monthly Revenue Per Subscriber:(4)(5)
    
    (Won) 38,383
    
    
    (Won) 39,739
    
    
    (Won) 39,689
 
 (1)
    
    Excludes information relating to Shinsegi for a period of 12 days, from January 1, 2002 to
January 12, 2002. Shinsegi merged into SK Telecom on January 13, 2002.(2)
    
    Does not include minutes of incoming calls or minutes of use relating the use of text
messaging and data services.(3)
    
    The average monthly outgoing voice minutes per subscriber is computed by dividing the
total minutes of outgoing voice usage for the period by the monthly weighted average number of
subscribers for the period and dividing the quotient by the number of months in the period.
The monthly weighted average number of subscribers is the sum of the average number of
subscribers for the months calculated by taking the simple average number of subscribers at
the beginning of the month and at the end of the month, divided by the number of months in the
period.(4)
    
    The average monthly revenue per subscriber excludes interconnection revenue and is
computed by dividing total initial connection fees, monthly access fees, usage charges for
voice and data, international charges, value-added service fees and interest on overdue
subscriber accounts (net of telephone tax) for the period by the monthly weighted average
number of subscribers for the period and dividing the quotient by the number of months in the
period.(5)
    
    Including interconnection revenue, consolidated average monthly revenue per subscriber was
Won 43,958 for 2002, Won 44,546 for 2003 and Won 43,542 for 2004. Our average monthly outgoing minutes of voice traffic increased by 12.1% in 2003 and 5.8%
in 2004. We believe that this trend principally reflects generally lower overall tariff levels and
increased use of wireless telecommunications as a substitute for fixed-line communications. Due to
the existing high penetration rate of wireless services in Korea, we expect the rate of increase to
be comparatively lower in 2005 and the near future. Our consolidated average monthly revenue per subscriber increased by 3.5% to Won 39,739
in 2003 compared to Won 38,383 in 2002. Our consolidated average monthly revenue per subscriber
decreased by 0.13% to Won 39,689 in 2004 compared to Won 39,739 in 2003. These changes reflect the
net effect of several offsetting trends, including:  
    
    reduction of overall tariff by 3.7% in September 2004;
    
    decrease in minutes of use; and 58




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
    
    decrease in caller ID rates by 50% that took effect in October 2003. Operating Expenses and Operating Margins.Our operating expenses consist principally of
depreciation, commissions paid to authorized dealers, network interconnection and leased line
expenses, the cost of manufacturing handsets, advertising costs and labor costs. Operating income
represented 30.0% of operating revenue in 2002, 30.2% in 2003 and 23.1% in 2004. Our operating
margin increased slightly from 30.0% in 2002 to 30.2% in 2003, primarily due to the fact that our
operating revenues increased at a faster rate than our operating expenses. In 2004, our operating
margin decreased to 23.1% from 30.2% in 2003, primarily due to an increase in our marketing
expenses and interconnection charges we paid. We cannot assure you that our operating margin will
not decrease in future periods. Acquisition of Shinsegi.On April 27, 2000, we completed the acquisition of a 51.2%
interest in Shinsegi. In subsequent transactions between March and September 2001, we increased our
interest to 70.4%. The results of operations of Shinsegi have been consolidated with our results of
operations beginning in April 2000. Shinsegi accounted for 12.8% of our consolidated assets and
22.6% of our consolidated revenue as of and for the year ended December 31, 2001. In January 2002,
we acquired the remaining 29.6% interest in Shinsegi which we did not yet own, and merged Shinsegi
into SK Telecom on January 13, 2002. Industry Consolidation.Beginning in 2000, there has been considerable consolidation in
the wireless telecommunications industry resulting in the emergence of stronger competitors. In
July 2000, KT Corporation acquired a 47.9% interest in KT M.Com and merged KT M.Com into KTF in May
2001. In May 2002, the Government sold its remaining 28.4% stake in KT Corporation. It is widely
believed that KT Corporation is likely to operate more efficiently and be managed more effectively
and profitably as a privatized business following its privatization. Such consolidations have
created large, well-capitalized competitors with substantial financial, technical, marketing and
other resources to respond to our business offerings. See Risk FactorsCompetition may reduce our
market share and harm our results of operations and financial condition. On May 1, 2003, we merged with SK IMT, in accordance with a resolution of our board of
directors on December 20, 2002 and the approval of shareholders of SK IMT on February 21, 2003. The
exchange ratio of common stock between us and SK IMT was 0.11276 share of our common stock with a
par value of Won 500 shares to 1 share of common stock of SK IMT with a par value of Won 5,000.
Using such exchange ratio, we distributed 126,276 shares of new issued common stock to minority
shareholders of SK IMT and we cancelled all shares of SK
IMT owned by us and SK IMT upon the merger. The assets and liabilities transferred from SK IMT
were accounted for at the carrying amounts of SK IMT. See note 24 of the notes to our consolidated
financial statements. The SK IMT merger resulted in an increase in our cash and cash equivalents by
Won 328.9 billion and had no impact on our liabilities. Until the date of the merger, SK IMT was
not generating any revenue. On May 23, 2002, we acquired a 9.6% equity interest (29,808,333 shares of common stock)
in KT Corporation for Won 1,609 billion. Pursuant to the terms of an agreement between us and KT
Corporation dated November 14, 2002, we sold all of our shares of KT Corporation. Under the terms
of the agreement, we exchanged the 29,808,333 shares of KT Corporations common stock for 8,266,923
shares of our common stock that KT Corporation owned and settled the difference in the price in
cash on December 30, 2002 and January 10, 2003. The exchange was made at Won 50,900 per share of KT
Corporations common stock and Won 224,000 per share of our common stock. On September 2, 2003, we purchased Won 120.0 billion of Hanaro Telecom commercial paper
in order to provide Hanaro Telecom with short-term liquidity while it attempted to secure a foreign
investor that would inject new capital into the company. The decision to provide liquidity support
to Hanaro Telecom was made to protect the value of our stake in Hanaro Telecom, as we held a 1.8%
stake in Hanaro Telecom as of December 31, 2003. Following an investment in Hanaro Telecom by a
consortium led by AIG and Newbridge, we disposed of the Hanaro Telecom commercial paper in December
2003. In May 2004, we purchased from Samsung Electronics Co., Ltd. 13,870,000 shares of Hanaro
Telecom, representing 3.0% of the outstanding shares of Hanaro for Won 39.3 billion as part of our
strategic efforts in consideration of increasing convergence between wireless and fixed-line
services. As a result of the acquisition, our equity interest in Hanaro increased to 4.8% as of
December 31, 2004. 59




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##### Table of Contents



Results of Operations The following table sets forth selected income statement data, including data expressed
as a percentage of operating revenue, for the periods indicated: For the Year Ended December 31,2002
    
    
    2003
    
    
    2004(In billions of Won, except percentage data)Operating Revenue
    
    (Won) 9,324.0
    
    
    
    100.00
    %
    
    (Won) 10,272.1
    
    
    
    100.00
    %
    
    (Won) 10,570.6
    
    
    
    100.00
    %Operating Expenses
    
    
    6,526.4
    
    
    
    70.00
    
    
    
    7,167.0
    
    
    
    69.77
    
    
    
    8,130.9
    
    
    
    76.92Operating Income
    
    
    2,797.6
    
    
    
    30.00
    
    
    
    3,105.1
    
    
    
    30.23
    
    
    
    2,439.7
    
    
    
    23.08Other Income
    
    
    259.7
    
    
    
    2.79
    
    
    
    261.4
    
    
    
    2.54
    
    
    
    199.4
    
    
    
    1.89Other Expenses
    
    
    838.5
    
    
    
    8.99
    
    
    
    612.2
    
    
    
    5.96
    
    
    
    516.0
    
    
    
    4.88Income Before Income Taxes and Minority Interest
    
    
    2,218.8
    
    
    
    23.80
    
    
    
    2,754.3
    
    
    
    26.81
    
    
    
    2,123.1
    
    
    
    20.09Income Taxes
    
    
    698.5
    
    
    
    7.49
    
    
    
    789.0
    
    
    
    7.68
    
    
    
    629.7
    
    
    
    5.96Minority Interest
    
    
    (33.1
    )
    
    
    (0.35
    )
    
    
    0.8
    
    
    
    0.01
    
    
    
    (1.9
    )
    
    
    (0.02
    )Net Income
    
    
    1,487.2
    
    
    
    15.96
    %
    
    
    1,966.1
    
    
    
    19.14
    %
    
    
    1,491.5
    
    
    
    14.10
    %Depreciation and Amortization(1)
    
    (Won) 1,435.0
    
    
    
    15.39
    %
    
    (Won) 1,510.5
    
    
    
    14.70
    %
    
    
    1,607.5
    
    
    
    15.20
    %
 
 (1)
    
    Excludes the depreciation and amortization allocated to internal research and development
costs of Won 108.3 billion, Won 135.8 billion and Won 134.1 billion for the years ended
December 31, 2002, 2003 and 2004, respectively. 2004 Compared to 2003 Operating Revenue.Our operating revenue increased by 2.9% to Won 10,570.6 billion in
2004 from Won 10,272.1 billion in 2003 principally due to a 2.0% increase in our cellular revenue
to Won 10,297.6 billion in 2004 from Won 10,091.8 billion in 2003 and to a lesser extent due to a
102.4% increase in portal service revenues to Won 85.0 billion in 2004 from Won 42.0 billion in
2003 and a 29.7% increase in international call service revenues to Won 126.3 billion in 2004 from
Won 97.4 billion in 2003. The increase in our cellular revenue was principally due to an increase in our wireless
services revenue and to a lesser extent due to an increase in revenue attributable to sales of
digital handsets, which increases were offset in part by a decrease in interconnection revenue.
Wireless services revenue increased 4.0% to Won 8,798.4 billion in 2004 from Won 8,462.7 billion in
2003 as a result of a 2.7% increase in the number of our wireless subscribers to approximately 18.8
million subscribers as of December 31, 2004 from approximately 18.3 million subscribers as of
December 31, 2003, which was partially offset by a slight decrease in our consolidated average
monthly revenue per subscriber (excluding interconnection revenue) from Won 39,739 in 2003 to Won
39,689 in 2004. Such decrease was principally due to decreases in average monthly revenue per
subscriber from call charges and value-added services, which was mostly offset by an increase in
average monthly revenue per
subscriber from wireless Internet services. Our consolidated average monthly revenue per
subscriber from monthly fee and call charges decreased by 5.6% to Won 29,023 for the year ended
December 31, 2004 from Won 30,748 in the corresponding period in 2003. The decrease was primarily
due to the reduction in monthly fee effective September 1, 2004. Our consolidated average monthly
revenue per subscriber from wireless Internet services sales increased by 32.5% to Won 8,182 in
2004 from Won 6,177 in 2003. Our consolidated average monthly revenue per subscriber from
value-added services such as caller ID services and ring tone service and other sales decreased by
19.8% to Won 1,594 in 2004 from Won 1,988 in 2003. 60




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Value-added services and other sales decreased by 16.4% to Won 355.2 billion in 2004 from
Won 424.8 billion in 2003 primarily due to a decrease in caller ID rates from Won 2,000 to Won
1,000 that took effect in October 2003. Wireless Internet services sales increased by 38.1% to Won
1,823.4 billion in 2004 (representing 17.7% of our cellular revenue) from Won 1,320.1 billion in
2003, primarily due to the increased number of subscribers who use wireless Internet-enabled
handsets. Revenues attributable to sales of digital handsets increased by 6.2% to Won 649.8 billion
in 2004 from Won 612.0 billion in 2003 as a result of an increase in volume of handsets sold and a
higher portion of sales of high-end digital handsets, which generally are sold at higher retail
prices. Such increases in wireless service revenue and revenues attributable to sales of digital
handsets were partially offset by a 16.5% decrease in interconnection revenue to Won 849.4 billion
in 2004 from Won 1,017.1 billion in 2003. The decrease was due in part to the new adjusted
interconnection rates announced by the MIC on July 9, 2004, which were applied retroactively
beginning January 1, 2004, which was partially offset by an increase in the NATE service revenue
and the phone mail service revenue. See BusinessInterconnection. Our international calling service revenues increased as a result of increases in traffic
volume and our portal service revenues increased as a result of increased use by our subscribers of
our wireless Internet contents services, such as NATE and Cyworld. Operating Expenses.Our operating expenses in 2004 increased by 13.4% to Won 8,130.9
billion compared to Won 7,167.0 billion in 2003 primarily due to increases in commissions paid,
network interconnection expenses, depreciation and amortization expenses, labor costs, leased line
expenses, and miscellaneous operating expenses, which more than offset decreases in cost of goods
sold and advertising expenses. Commissions paid, including to our authorized dealers, increased by 21.5% to Won 2,812.3
billion in 2004 compared to Won 2,314.6 billion in 2003, primarily due our efforts to retain
existing subscribers and to acquire new subscribers. Commissions paid also increased due to our
efforts to counter the effects of number portability. In addition, commissions paid to our Internet
content providers increased as the wireless Internet usage increased. Network interconnection expenses increased by 18.4% to Won 913.7 billion in 2004 compared
to Won 771.6 billion in 2003, primarily due to an increase in interconnection rates and an increase
in the level of interconnection fees that we must pay to other operators for calls using their
networks. Mobile-to-mobile interconnection expenses increased by 22.7% to Won 644.6 billion in
2004, compared to Won 525.4 billion in 2003 primarily due to increased interconnection rates.
Mobile-to-land interconnection expenses increased by 0.6% to Won 214.2 billion in 2004, compared to
Won 212.9 billion in 2003. Depreciation and amortization expenses increased by 6.4% to Won 1,607.5 billion in 2004
compared to Won 1,510.5 billion in 2003. The increase in depreciation and amortization expenses was
primarily due to the continued expansion of our CDMA 1xRTT and 1xEV/DO networks. Labor costs increased by 14.1% to Won 464.8 billion in 2004 compared to Won 407.2 billion
in 2003. The increase was primarily due to an increase in performance bonuses and an increase in
salaries due to improving business performance over the period. Leased line expenses increased by 22.4% to Won 375.2 billion in 2004 compared to Won
306.5 billion in 2003 primarily due to an increase in the number of leased lines to handle higher
call volumes. Miscellaneous operating expenses increased by 22.4% to Won 1,125.2 billion in 2004
compared to Won 919.3 billion in 2003 primarily due to increases in taxes and other dues and rent
expenses. Cost of goods sold decreased by 14.5% to Won 479.3 billion in 2004 compared to Won 560.9
billion in 2003. The decrease was primarily due to a decrease in sales of wireless Internet
solutions (including software, hardware and service) following the completion of our obligation to
provide wireless Internet solutions to Asia Pacific Broadband Wireless Communications (APBW) at the
end of 2003. 61




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Advertising expenses decreased by 6.2% to Won 352.9 billion in 2004 compared to Won 376.4
billion in 2003, as we changed our focus from a mass advertising campaign to a marketing strategy
focused on certain high end, high volume user customers in order to mitigate the negative impact of
number portability on our subscriber base. Operating Income.Our operating income decreased by 21.4% to Won 2,439.7 billion in 2004
from Won 3,105.1 billion in 2003 because the increase in our operating expenses was greater than
the increase in our operating revenue. Other Income.Other income consists primarily of interest income, dividend income,
commission income and foreign exchange and translation gains. Other income decreased by 23.7% to
Won 199.4 billion in 2004 compared to Won 261.4 billion in 2003, primarily due to decreases in
commissions and to a lesser extent due to decreases in interest income and dividend income. Such
decrease was offset in part by an increase in foreign exchange and translation gains due to the
depreciation of the US Dollar against the Won. Other Expenses.Other expenses include interest and discount expenses, donations, loss in
impairment of long-term investment securities and loss on disposal of property, equipment and
intangible assets and loss on translation and valuation of currency swap. Other expenses decreased by 15.7% to Won 516.0 billion in 2004, compared to Won 612.2 billion in 2003. The
decrease was primarily due to decreases in interest and discounts and loss on disposal of
investment assets and to a lesser extent due to decreases in donations, foreign exchange and
translation losses and loss on disposal and valuation of trading securities. Such decreases were
offset in part by increases in loss on impairment of long-term investment securities and loss on
translation and valuation of currency swaps and equity in losses of affiliates. As a percentage of
operating revenue, other expenses decreased to 4.9% in 2004 from 6.0% in 2003. Income Tax.Provision for income taxes decreased by 20.2% to Won 629.7 billion in 2004
from Won 789.0 billion in 2003. Our effective tax rate in 2004 increased to 29.7% from an effective
tax rate of 28.7% in 2003. See note 17 of the notes to our consolidated financial statements. Net Income.Principally as a result of the factors discussed above, our net income
decreased by 24.1% to Won 1,491.5 billion in 2004 from Won 1,966.1 billion in 2003. Net income as a
percentage of operating revenues was 14.1% in 2004 as compared to 19.1% in 2003. 2003 Compared to 2002 Operating Revenue.Our operating revenue increased by 10.2% to Won 10,272.1 billion in
2003 from Won 9,324.0 billion in 2002 principally reflecting a 10.2% increase in our cellular
revenue to Won 10,091.8 billion in 2003 from Won 9,156.8 billion in 2002. The increase in our cellular revenue was principally due to an increase in our wireless
services revenue and revenue attributable to sales of digital handsets, which were offset in part
by a slight decrease in our interconnection revenues. Our wireless services revenue increased by 11.7% to Won 8,462.7 billion in 2003 from Won
7,579.6 billion in 2002. Such increase was due to increase in the number of our wireless
subscribers to approximately 18.3 million as of December 31, 2003 from approximately 17.2 million
as of December 31, 2002, as well as an increase in our consolidated average monthly revenue per
subscriber. Our consolidated average monthly revenue per subscriber (excluding interconnection
revenue) increased by 3.5% to Won 39,739 in 2003 from Won 38,383 in 2002. The increase is
principally due to increases in average monthly revenue per subscriber from wireless Internet
services sales and average monthly revenue per subscriber from value-added services and other
sales. Our consolidated average monthly revenue per subscriber from wireless Internet services
sales increased by 66.0% to Won 6,177 in 2003 from Won 3,720 in 2002. Our consolidated average
monthly revenue per subscriber from value-added services and other sales increased by 18.3% to Won
1,988 in 2003 from Won 1,681 in 2002. Our Wireless services revenue also increased as a result of
increase in our wireless Internet services sales, which increased by 80.1% to Won 1,320.1 billion
in 2003 (representing 13.1% of our cellular revenue) from Won 732.8 billion in 2002, primarily due
to the increased number of subscribers who use wireless Internet-enabled handsets. Also,
value-added services and other sales increased by 28.6% to Won 424.8 billion in 2003 from Won 330.4
billion in 2002 primarily due to the increased number of subscribers who use wireless
Internet-enabled handsets through which we can also provide value-added and other services. The increases in the number of subscribers and the consolidated average monthly revenue
per subscriber were partially offset by a reduction in the rates charged to our customers of
approximately 7.3% (based on a reduction in the standard rate plan) from January 2003. Our revenue attributable to digital handset sales increased 14.6% to Won 612.0 billion in
2003 from Won 534 billion in 2002. The increases in wireless services revenue and revenue attributable to digital handset
sales were offset in part by a 2.5% decrease in interconnection revenue. Interconnection revenue
decreased by 2.5% to Won 1,017.1 billion in 2003 from Won 1,043.2 billion in 2002. The decrease was
primarily due to lower interconnection rates in 2003 compared 2002 as a result of a 10.3% decrease
in interconnection rates in 2003 as compared to 2002. 62




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Operating Expenses.Our operating expenses in 2003 increased by 9.8% to Won 7,167.0
billion compared to Won 6,526.4 billion in 2002 primarily due to increases in commissions paid,
labor costs, depreciation and amortization expenses, cost of goods sold, leased line expenses,
network interconnection expenses and miscellaneous operating expenses, which more than offset
decreases in advertising expenses. Commissions paid, including to our authorized dealers, increased by 17.8% to Won 2,314.6
billion in 2003 compared to Won 1,964.8 billion in 2002, primarily due to the increase in average
number of subscribers by 8.7% during the period, increases in commissions paid to wireless Internet
content providers and retail agents and authorized dealers and an increase in the number of
handsets sold by our subsidiary SK Teletech Co., Ltd. Labor costs increased by 27.9% to Won 407.2 billion in 2003 compared to Won 318.3 billion
in 2002. The increase was primarily due to payment of performance bonuses to employees in 2003 and
salary increases. Depreciation and amortization expenses increased by 5.3% to Won 1,510.5 billion in 2003
compared to Won 1,435.0 billion in 2002. The increase in depreciation and amortization expenses was
primarily due to the continuing expansion of our CDMA 1xRTT and CDMA 1xEV/DO networks. Cost of goods sold increased by 10.2% in 2003 to Won 560.9 billion in 2003 compared to
Won 509.1 billion in 2002. The increase was primarily due to an increase in the sales of handsets
by SK Teletech. Leased line expenses increased by 9.4% to Won 306.5 billion in 2003 compared to Won 280.1
billion in 2002 primarily due to higher call volumes. Network interconnection expenses increased by 2.6% to Won 771.6 billion in 2003 compared
to Won 752.1 billion in 2002, primarily due to the higher subscriber numbers, which were only
partially offset by a decrease in interconnection rates and a decrease in the level of
interconnection fees that we must pay to other operators for calls using their networks.
Additionally, we reflected as an expense in the second quarter of 2003 all of the amounts due to be
paid to KT Corporation for the years 1998, 1999, 2000 and 2001 pursuant to a cost sharing
arrangement regarding the provision of directory assistance services by KT Corporation to our
subscribers. We are currently discussing with KT Corporation the amounts to be paid by us for
directory assistance services provided to our subscribers during 2002 and 2003. Other operating expenses increased by 12.4% to Won 919.3 billion in 2003 compared to Won
818.1 billion in 2002 primarily due to increases in research and development expenses, frequency
usage fees and communications expenses. Advertising expenses decreased by 16.1% to Won 376.4 billion in 2003 compared to Won
448.8 billion in 2002, primarily due to higher than normal marketing expenses incurred in 2002 as a
result of our promotions during the World Cup soccer tournament and the Asian Games, both of which
were held in Korea in 2002. Operating Income.Our operating income increased by 11.0% to Won 3,105.1 billion in 2003
from Won 2,797.6 billion in 2002 as the increase in our operating income was greater than the
increase in our operating expenses over the period. Other Income.Other income, consisting primarily of dividend income, commission income
and interest income, increased by 0.8% to Won 261.4 billion in 2003 compared to Won 259.2 billion
in 2002, primarily due to increases in dividends, commissions and other income, which were
partially offset by decreases in foreign exchange and translation gains and equity in earnings of
affiliates. 63




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##### Table of Contents



Other Expenses.Other expenses include interest and discounts, foreign exchange and
translation losses, loss on disposal and impairment of property, equipment and intangible assets,
donations, loss on impairment of long-term investment securities, loss on disposal of investment
assets, equity loss in affiliates and miscellaneous expenses. Other expenses decreased by 27.0% to
Won 612.2 billion in 2003 compared to Won 838.5 billion in 2002. The decrease was primarily due to
decreases on loss on disposal and impairment of property, equipment and intangible assets, loss on
impairment of long-term investment securities and donations, which more than offset an increase in
interest expense. As a percentage of operating revenue, other expenses decreased to 6.0% in 2003
from 9.0% in 2002. Income Tax.Provision for income taxes increased by 13.0% to Won 789.1 billion in 2003
from Won 698.5 billion in 2002. Our effective tax rate in 2003 decreased to 28.7% from an effective
tax rate of 31.5% in 2002. See note 18 of the notes to our consolidated financial statements. Net Income.Principally as a result of the factors discussed above, our net income
increased by 32.2% to Won 1,966.1 billion in 2003 from Won 1,487.2 billion in 2002, with net income
as a percentage of operating revenues at 19.1% in 2003 as compared to 16.0% in 2002. Liquidity and Capital Resources Liquidity We had a working capital (current assets minus current liabilities) deficit of Won 189.7
billion as of December 31, 2002, a working capital deficit of Won 461.4 billion as of December 31,
2003 and a working capital surplus of Won 1,323.8 billion as of December 31, 2004. We had cash, cash equivalents, short-term financial instruments and trading securities of
Won 1,621.2 billion as of December 31, 2002, Won 1,365.1 billion as of December 31, 2003 and Won
1,038.1 billion as of December 31, 2004. We had outstanding short-term borrowings of Won 687.3
billion as of December 31, 2002, Won 786.1 billion as of December 31, 2003 and Won 425.5 billion as
of December 31, 2004. As of December 31, 2004, we had availability under unused credit lines of
approximately Won 898.5 billion. Management believes all the above-mentioned sources provide adequate liquidity to SK
Telecom to meet its operation needs in the foreseeable future. Operating cash flow and debt financing have been our principal sources of liquidity. Cash
and cash equivalents increased by Won 53.1 billion to Won 370.6 billion in 2004 from Won 317.5
billion in 2003. 64




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Cash Flow Analysis Year Ended December 31,
    
    
    Change2002
    
    
    2003
    
    
    2004
    
    
    2002 to 2003
    
    
    2003 to 2004(In billions of Won except percentages)Net Cash Flow
from Operating
Activities
    
    (Won)
    4,267.8
    
    
    (Won)
    3,328.8
    
    
    (Won)
    2,516.0
    
    
    (Won)
    (939.0
    )
    
    
    (22.0
    )%
    
    (Won)
    (812.8
    )
    
    
    (24.4
    )%Net Cash Used in
Investing
Activities
    
    
    (3,063.4
    )
    
    
    (1,414.4
    )
    
    
    (1,469.5
    )
    
    
    1,649.0
    
    
    
    (53.8
    )%
    
    
    (55.1
    )
    
    
    (3.9
    )%Net Cash Used in
Financing
Activities
    
    
    (1,418.2
    )
    
    
    (2,261.0
    )
    
    
    (968.6
    )
    
    
    (842.8
    )
    
    
    59.4
    %
    
    
    1,292.4
    
    
    
    57.2
    %Net Cash Flow due
to Changes in
Consolidated
Subsidiaries
    
    
    10.7
    
    
    
    0.1
    
    
    
    (24.8
    )
    
    
    (10.6
    )
    
    
    (99.1
    )%
    
    
    (24.9
    )
    
    
    (249.0
    )%Increase (Decrease) in Cash and Cash Equivalents
    
    (Won)
    (203.2
    )
    
    (Won)
    (346.6
    )
    
    (Won)
    53.1
    
    
    (Won)
    143.4
    
    
    
    70.6
    %
    
    (Won)
    399.7
    
    
    
    115.3
    %Cash and Cash Equivalents at Beginning of Period
    
    
    867.3
    
    
    
    664.1
    
    
    
    317.5
    
    
    
    (203.2
    )
    
    
    (23.4
    )%
    
    
    (346.6
    )
    
    
    (52.2
    )%Cash and Cash
Equivalents at End
of Period
    
    (Won)
    664.1
    
    
    (Won)
    317.5
    
    
    (Won)
    370.6
    
    
    (Won)
    (346.6)
    
    
    
    (52.2
    )%
    
    (Won)
    53.1
    
    
    
    16.7
    %
 Net Cash Flow from Operating Activities.Net cash flow provided by operations was Won
4,267.8 billion in 2002, Won 3,328.8 billion in 2003 and Won 2,516.0 billion in 2004. Depreciation
and amortization were Won 1,435.0 billion in 2002, Won 1,510.5 billion in 2003 and Won 1,607.5
billion in 2004. Net Cash from Investing Activities.Net cash used in investing activities was Won 1,469.5
billion in 2004, Won 1,414.4 billion in 2003 and Won 3,063.4 billion in 2002. Cash inflows from
investing activities were Won 507.1 billion in 2004 compared to Won 1,024.3 billion in 2003 and Won
1,515.7 billion in 2002. The primary contributor to such inflows in the respective years related to
a decrease in trading securities of Won 240.2 billion in 2004 which resulted from sale of trading
securities in order to increase our cash balances and in 2002 and 2003, proceeds from the sale of
long-term investment securities which resulted from sales of our shares and convertible bonds of KT
Corporation in such years. Cash outflows for investing activities were Won 1,976.6 billion in 2004,
Won 2,438.7 billion in 2003 and Won 4,579.1 billion in 2002. The primary contributors to the
overall cash outflows for investing activities were expenditures related to the acquisition of
property and equipment, which were Won 1,631.9 billion in 2004, Won 1,647.6 billion in 2003 and Won
2,024.7 billion, all generally relating to expenditures in connection with the maintenance and
build-out of our wireless network, including upgrades from our CDMA network to 1xRTT, 1xEV/DO and
3G and acquisition of long-term investment securities, which were Won 54.1 billion in 2004, Won
437.1 billion in 2003 and Won 2,062.4 billion in 2002. Net Cash from Financing Activities.Net cash used in financing activities was Won 968.6
billion in 2004, Won 2,261.0 billion in 2003 and Won 1,418.2 billion in 2002. Cash inflows from
financing activities were primarily driven by issuances of bonds payable, which provided cash of
Won 1,205.7 billion in 2004, Won 688.7 billion in 2003 and Won 1,166.5 billion in 2002. Cash
outflows for financing activities included payment of short-terms borrowings, payments of current
portion of long-term debt and payment of dividends, among other items. Payment of short-term
borrowings were Won 359.1 billion in 2004, Won 12.1 billion in 2003 and Won 578.7 billion in 2002.
Payments of current portion of long-term debt were Won 1,370.6 billion in 2004, Won 939.2 billion
in 2003 and Won 719.8 billion in 2002. Payment of dividends were Won 478.3 billion in 2004, Won
151.7 billion in 2003 and Won 58.7 billion in 2002. Also, as a result of the issuance of
convertible bonds in 2004 by us in the amount of Won 385.9 billion, net increase in treasury stock
was Won 2 million in 2004 compared to Won 1,379.3 billion in 2003 and Won 1,351.2 in 2002. As of December 31, 2004, we had total long-term debt (excluding current portion and
facility deposits) outstanding of Won 2,891.8 billion and we did not have any bank or institutional
borrowings. We had facility deposits of Won 31.4 billion as of December 31, 2004. As of December
31, 2003, we had total long-term debt (excluding current portion and facility deposits) outstanding
of Won 2,263.5 billion. Our long-term debt as of December 31, 2003 included bonds in the amount of
Won 2,261.9 billion and bank and institutional borrowings in the amount of Won 1.6 billion. We had
long-term facility deposits of Won 44.2 billion as of December 31, 2003. As of December 31, 2002,
we had total long-term debt (excluding current portion and facility deposits) outstanding of Won
2,918.8 billion, which included bonds in the amount of Won 2,908.5 billion and bank and
institutional borrowings in the amount of Won 10.3 billion. For a description of our long-term
liabilities, see notes 8 and 9 of the notes to our consolidated financial statements. We had
long-term facility deposits of Won 46.9 billion as of December 31, 2002. 65




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As of December 31, 2004, substantially all of our foreign currency-denominated long-term
debt, which amounted to approximately 17.4% of our total outstanding long-term debt, including
current portion as of such date, was denominated in Dollars. Appreciation of the Won against the
Dollar will result in net foreign exchange and translation gains. Changes in foreign currency
exchange rates will also affect our liquidity because of the effect of such changes on the amount
of funds required for us to make interest and principal payments on our foreign
currency-denominated debt. In addition, in May, July, August and November 2002, we issued Won 500.0 billion, Won
200.0 billion, Won 200.0 billion and Won 300.0 billion principal amount of unsecured and
unguaranteed Won-denominated bonds, respectively. The Won 500.0 billion bonds, which had an annual
interest rate of 6%, matured in May 2005. The other bonds mature in July 2007, August 2007 and
November 2007, and have annual interest rates of 6%, 6% and 5%, respectively. We used the net proceeds from the sale of these
bonds to repay maturing long-term indebtedness. We issued Won-denominated bonds with a principal
amount of Won 300.0 billion, Won 150.0 billion and Won 250.0 billion in March, August and November
2003, respectively. These bonds mature in March 2008, August 2006 and November 2006, respectively,
and have an annual interest rate of 5.0%. In March, May and December 2004, we issued
Won-denominated bonds with a principal amount of Won 150.0 billion, Won 150.0 billion and Won 200
billion, respectively. These bonds will mature in April 2009, May 2009 and December 2011,
respectively, and have an annual interest rates of 5.0%, 5.0% and 3.0%, respectively. The proceeds
of the Won-denominated note offering in March, May and December 2004 were used for our operations.
See note 8 of the notes to our consolidated financial statements. In April 2004, we issued notes in the principal amount of US$300,000,000 with a maturity
of seven years and an interest rate of 4.25%. The proceeds from the offering in April 2004 were
used to pay maturing debt. In late May 2004, we issued zero coupon convertible notes with a maturity of five years
in the principal amount of US$329,450,000, with an initial conversion price of Won 235,625 per
share of our common stock, subject to certain redemption rights. In connection with the issuance of
the zero coupon convertible notes, we deposited 1,645,000 shares of our common stock with Korea
Securities Depository to be reserved and used to satisfy the note holders conversion rights. This
was deemed a sale of treasury stock and cancellation thereof for purposes of Korean law. We used
the proceeds of the zero coupon convertible notes for general corporate purposes, including for
measures to improve shareholders return in their investment in our common stock through payment of
dividends or share repurchase programs. On March 14, 2005, we filed a report with the Financial
Supervisory Service to disclose that we adjusted the conversion price of the convertible notes
issued in late May 2004 in the principal amount of US$329,450,000 from Won 235,625 to Won 226,566
and made an additional deposit of our common stock accordingly, so that the total number of shares
of common stock deposited with Korea Securities Depository to satisfy the note holders conversion
rights increased from 1,644,978 to 1,710,750. Such adjustment of conversion price was made as a
result of the payment of a cash dividend in excess of 1% of our market capitalization in fiscal
year 2004. On January 26, 2005, our board of directors resolved to recommend a cash dividend of Won
9,300 per common share, of which Won 4,100 is ordinary dividend (excluding interim dividend) and
Won 5,200 is special dividend. We also have long-term liabilities in respect of facility deposits received from
subscribers, which stood at Won 46.9 billion at December 31, 2002, Won 44.2 billion at December 31,
2003 and Won 31.4 billion at December 31, 2004. These non-interest bearing deposits are collected
from some subscribers when they initiate service and returned (less unpaid amounts due from the
subscriber for our services) when the subscribers service is deactivated. See BusinessRevenues,
Rates and Facility Deposits. In June 2002 and December 2002, we sold Won 631.4 billion and Won 650.6 billion,
respectively, of accounts receivable resulting from our mobile phone dealer financing plan to Nate
First Special Purpose Company and Nate Second Special Purpose Company, respectively, in
asset-backed securitization transactions and recorded a loss on disposal of accounts
receivable-other of Won 10.9 billion and Won 12.9 billion, respectively. Nate First Special Purpose
Company and Nate Second Special Purpose Company were liquidated in August 2003 and April 2004,
respectively. 66




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On May 2, 2003, September 4, 2003 and December 15, 2003, we sold Won 577.3 billion, Won
549.3 billion and Won 498.4 billion of accounts receivable resulting from our mobile phone dealer
financing plan to Nate Third Special Purpose Company, Nate Fourth Special Purpose Company and Nate
Fifth Special Purpose Company, respectively, in asset-backed securitization transactions and
recorded a loss on disposal of accounts receivable-other of Won 10.8 billion, Won 12.9 billion and
Won 9.9 billion, respectively. As of December 31, 2004, such special purpose companies had all been
liquidated. See note 3 of the notes to our consolidated financial statements. Capital Requirements and Resources The following table sets forth our actual capital expenditures for 2002, 2003 and 2004 as
well as our currently planned capital expenditures for 2005: Year Ended (Ending) December 31,2002
    
    
    2003
    
    
    2004
    
    
    2005(1)(In billions of Won)CDMA Network
    
    (Won) 175
    
    
    (Won) 96
    
    
    (Won) 
    
    
    (Won) CDMA 1xRTT Network(3)
    
    
    1,186
    
    
    
    641
    
    
    
    728
    (2)
    
    
    500
    (2)Wireless Data(4)
    
    
    221
    
    
    
    175
    
    
    
    92
    
    
    
    500W-CDMA(5)
    
    
    15
    
    
    
    204
    
    
    
    220
    
    
    
    600Other(4)(6)
    
    
    428
    
    
    
    532
    
    
    
    592
    
    
    
    Total
    
    (Won) 2,025
    
    
    (Won) 1,648
    
    
    (Won) 1,632
    
    
    (Won) 1,600
 
 (1)
    
    Capital expenditure amounts for 2005 are estimates only and actual results may differ from
such estimates for various reasons, including changes in the business and operating
environment, changes in technology, availability of financing alternatives and other factors,
some of which may be beyond our control.(2)
    
    Our capital expenditures for our CDMA network in 2004 and 2005 are included in our actual
and estimated capital expenditures, respectively, for our CDMA 1xRTT network.(3)
    
    Includes upgrades to CDMA 1xEV/DO Network technology which were Won 200 billion for 2002,
Won 36 billion for 2003 and Won 45.0 billion for 2004.(4)
    
    Consists principally of equipment necessary for the provision of data services. Our
estimated wireless data capital expenditures in 2005 include other miscellaneous capital
expenditures referred to in note (6) below.(5)
    
    Provision of W-CDMA services commenced on a limited basis in Seoul at the end of 2003.(6)
    
    Other capital expenditure amount includes investments in new process and application
infrastructure consisting of a new customer relationship management system, real estate for
our headquarters and information technology systems. Other capital expenditure amount also
includes actual capital expenditures of our consolidated subsidiaries which were Won 61
billion, Won 37 billion and Won 25 billion for 2002, 2003 and 2004, respectively. See note (4)
above. We set our capital expenditure budget for an upcoming year on an annual basis. Our actual
capital expenditures in 2002 were Won 2,025 billion, primarily for the expansion and upgrading of
our CDMA 1xRTT network and for the development and introduction of new wireless data services. Our
actual capital expenditures in 2003 were Won 1,648 billion, primarily for the expansion and
upgrading of our CDMA 1xRTT network, for our initial investment in the satellite-based digital
multimedia broadcasting (DMB) business and for the development and introduction of wireless data
services. Our actual capital expenditures in 2004 were Won 1,631.9 billion. Of such amount, we
spent Won 728.0 billion on capital expenditures related to expansion and improvement of our
existing CDMA and CDMA 1xRTT networks as well as our CDMA 1xEV/DO network; Won 219.7 billion on
capital expenditures related to construction of our W-CDMA network and provision of W-CDMA
services, which began service on a limited basis in Seoul at the end of 2003; and Won 684.8 billion
on other capital expenditures and projects. In addition, we paid Won 650 billion of the Won 1.3
trillion cost of the W-CDMA license in March 2001. We are required to pay the remainder of the cost
of our W-CDMA license in annual installments for a five-year period from 2007 through 2011. For
more information, see note 2(i) of the notes to our consolidated financial statements for the years
ended December 31, 2002, 2003 and 2004. We estimate that we will spend approximately Won 1.6 trillion for capital expenditures in
2005 for a range of projects, including primarily for the expansion and improvement of our wireless
networks, investments in our wireless Internet-related businesses and the build-out of our W-CDMA
network. The construction of our new headquarters was completed in December 2004. The total payment
to SK Engineering & Construction Co., Ltd., for the demolition of buildings on the site on which
our new headquarters was constructed and the construction of our new headquarters was Won 209
billion. See Certain Relationships and Related Party Transactions. We may also make additional
capital expenditure investments as opportunities arise. In addition, we may increase, reduce or
suspend our planned capital expenditures for 2005 or change the timing and area of our capital
expenditure spending from the estimates reflected in the table above in response to market
conditions or for other reasons. 67




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We currently plan to spend up to Won 600 billion in 2005 on capital expenditures related
to construction of our W-CDMA network and provision of W-CDMA services, which began commercial
service on a limited basis in Seoul at the end of 2003. Although we developed and launched in March
2005 dual band/dual mode handsets, one of the key factors in a nationwide deployment of W-CDMA, the
actual scope and timing of the full nationwide roll-out of our W-CDMA network will depend on other
several factors, including the availability of network equipment, ability to overcome technical
problems currently affecting W-CDMA performance, regulatory decisions, our assessment of the market
opportunities for W-CDMA technology-based services and the competitive landscape in the Korean
wireless market. We are continuing to improve our W-CDMA services in the Seoul metropolitan area
and are continuing to build-out our W-CDMA network in other metropolitan areas of Korea. At the
time we applied for the W-CDMA license, we estimated that the construction of a nationwide W-CDMA
network would require capital expenditures amounting to approximately Won 3.1 trillion over a
six-year period. We have not subsequently revised or updated this estimate. Accordingly, our actual
construction costs are likely to differ significantly from this original estimate. Our actual
capital expenditures for the construction of the W-CDMA network will depend upon many factors,
including the scope and timing of the network roll-out, whether W-CDMA technology is widely
implemented worldwide (which could lower the cost of network equipment) and other factors. In September 2003, we entered into an agreement with Mobile Broadcasting Corporation for
the purposes of co-owning and launching a satellite for the satellite DMB business. Under the terms
of the agreement, SK Telecom is committed to fund 34.7% of the cost of launching and maintaining
the operations of the satellite. The total cost is expected to be approximately Won 92.0 billion,
of which SK Telecoms committed amount is approximately Won 31.9 billion. We launched the satellite
in March 2004. In March 2004, we were assigned by the MIC frequency for satellite DMB. In October
2004, we granted the right to use our satellite, satellite orbit and frequency to TU Media Corp.,
one of our affiliates, which received a license from the MIC as a satellite DMB provider on
December 30, 2004. On May 1, 2005, TU Media Corp. began to provide satellite DMB services. On March 24, 2005, EarthLink and we completed the formation of SK-EarthLink LLC, a
Delaware limited liability company, to market wireless voice and data services in the U.S. It is
expected that SK-EarthLink (www.SK-EarthLink.com) will be capitalized with $440 million of partner
investments over the next three years. The joint-venture is a non-facilities-based nationwide
mobile virtual network operator (MVNO) offering cellular voice and data services to U.S.
consumers. SK-EarthLink expects to enter into a previously under-served, but rapidly growing
wireless data, entertainment, and voice market. SK-EarthLink will leverage our expertise in
developing and implementing 3G technology and other cutting-edge applications and EarthLinks
established sales channels, Wi-Fi experience, network data centers and billing capabilities. We and
EarthLink each have a 50 percent voting and economic ownership interest in SK-EarthLink. In May 2002, the Government sold its remaining 28.4% stake in KT Corporation. By
participating in this privatization, we acquired 9.6% of KT Corporations common stock and Won
332.0 billion aggregate principal amount of exchangeable bonds issued by KT Corporation
exchangeable at our option for 1.8% of KT Corporations common stock. We purchased 29,808,333
shares of common stock of KT Corporation for Won 1.6 trillion and bonds exchangeable into 5,589,666
shares of such common stock for Won 332.0 billion. We funded our investment in shares and bonds of
KT Corporation in May 2002 with Won 901.7 billion of cash and by incurring Won 1,040.0 billion of
short-term debt. On July 16, 2002, we sold all of the exchangeable bonds of KT Corporation which we
owned to several Korean institutional investors for an aggregate sale price of Won 340.3 billion.
We used the proceeds of the sale to repay our short-term debt and for general corporate purposes.
We exchanged 29,808,333 shares of KT Corporations common stock at Won 50,900 per share for
8,266,923 shares of our common stock at Won 224,000 per share and settled the difference of Won
334.5 billion between the aggregate sale and purchase prices in cash on December 30, 2002 and
January 10, 2003, under a mutual agreement on stock exchange between us and KT Corporation dated
November 14, 2002. Related to these stock exchanges, a loss on exchange of investments in
15,454,659 shares of KT Corporation for 4,457,635 shares of our common stock on December 31, 2002,
amounting to Won 47.9 billion, was recorded as a loss on disposal of investments during the year
ended December 31, 2002. An impairment loss amounting to Won 44.5 billion, which was related to the
investments in 14,353,674 shares of KT Corporations common stock as of December 31, 2002, was also
recorded during the year ended December 31, 2002. 4,457,635 shares were subsequently cancelled and
3,809,288 shares were designated as treasury stock for use in future mergers and acquisitions
transactions and strategic alliances or for other corporate purposes to be determined by us. As a
result of the share swap, all cross-shareholdings between KT Corporation and us have been
completely eliminated. On July 22, 2003, we acquired 2,481,310 shares of POSCO common stock held by SK
Corporation at a price of Won 134,000 per share in accordance with a resolution of our board of
directors dated July 22, 2003. We elected to purchase the shares for strategic reasons in order to
address the potentially negative impact on the price of our shares of common stock available for
sale in the marketplace arising from POSCOs ownership of our shares. As of December 31, 2004,
POSCO owned 4.98% of our shares. From time to time, we may make other investments in telecommunications or other
businesses, in Korea or abroad, where we perceive attractive opportunities for investment. From
time to time, we may also dispose of existing investments when we believe that doing so would be in
our best interest. As of December 31, 2004, our principal repayment obligations with respect to long-term
borrowings, bonds and obligations under capital leases outstanding were as follows for the periods
indicated: Year Ending December 31,
    
    Total(In billions of Won)2005
    
    
    W 500.02006
    
    
    800.02007
    
    
    700.0After 2007
    
    
    1,499.0
 Our research and development expenses have been influenced by the MIC, which makes annual
recommendations concerning the level of our research and development spending. Our research and
development expenses (including donations to research institutes and educational organizations)
equaled 2.7% in 2002, 2.9% in 2003 and 3.2% in 2004, respectively, of operating revenue. See
Operating and Financial Review and ProspectsResearch and Development. We anticipate that capital expenditures, repayment of outstanding debt and research and
development expenditures will represent our most significant use of funds in 2005 and thereafter.
To fund our scheduled debt repayment and planned capital expenditures over the next several years,
we intend to rely primarily on funds provided by operations, as well as bank and institutional
borrowings, and offerings of debt or equity in the domestic or international markets. We believe
that these sources will be sufficient to fund our planned capital expenditures for 2005. Our
ability to rely on these alternatives could be affected by the liquidity of the Korean financial
markets or by government policies regarding Won and foreign currency borrowings and the issuance of
equity and debt. Our failure to make needed expenditures would adversely affect our ability to
sustain subscriber growth and provide quality services and, consequently, our results of
operations. No commercial bank in Korea may extend credit (including loans, guarantees and purchase
of bonds) in excess of 20% of its shareholders equity to any one borrower. In addition, no
commercial bank in Korea may extend credit exceeding 25% of the banks shareholders equity to any
one borrower and to any person with whom the borrower shares a credit risk. We generally collect refundable, non-interest bearing deposits from our customers as a
condition to activating their service. Subject to the approval of the MIC, we set the amounts to be
collected for deposits for cellular services. Effective February 1, 1996, we generally require
cellular subscribers to pay a facility deposit of Won 200,000. These deposits were an important
source of interest-free capital for us and historically funded a substantial portion of our capital
expenditures. Since 1997, we have been offering existing and new cellular subscribers the option of
obtaining facility insurance from the Seoul Guarantee Insurance Company, instead of paying the
facility deposit. In order to obtain this facility insurance, subscribers must meet Seoul Guarantee
Insurance Companys credit requirements and pay a Won 10,000 premium for three years of coverage.
After three years, we pay the cost of such insurance on the subscribers behalf. For each
defaulting insured subscriber, Seoul Guarantee Insurance Company reimburses us up to Won 350,000.
We refund the facility deposit to any existing subscriber who elects to have facility 68




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insurance. As a result of the facility insurance program, we have refunded a substantial
amount of facility deposits, and facility deposits decreased from Won 46.9 billion as of December
31, 2002 to Won 44.2 billion as of December 31, 2003 and Won 31.4 billion as of December 31, 2004.
We do not expect to have a significant amount of facility deposits available for capital
expenditures in the future. On April 27, 2001, in accordance with the approval of our board of directors, we
announced a treasury stock purchase program to acquire 4% of our total outstanding common stock
during the period from May 2, 2001 to June 28, 2001 in order to stabilize our stock price. Pursuant
to this program, we acquired an aggregate of 3,566,100 shares of our common stock in 2001 for an
aggregate of purchase price of Won 789.7 billion. We acquired these shares at market prices on
different dates and hold them as treasury stock. On August 11, 2003, we concluded a stock buyback
program which we commenced on June 30, 2003. We acquired a total of 2,544,600 shares of our
outstanding common stock, all of which were cancelled on August 20, 2003. The total purchase price
for the stock buyback was Won 525.2 billion (or an average of approximately Won 206,388 per share),
with the price per share ranging from Won 192,000 (on July 24, 2003) to Won 216,000 (on July 15-16,
2003). As a result of the stock buyback and subsequent cancellation of shares, the total number of
our outstanding common stock declined from 82,993,404 as of December 31, 2001 to 73,614,308 as of
December 31, 2003. In October 2001, in accordance with the approval of our board of directors, we
established trust funds with four Korean banks with a total funding of Won 1.3 trillion for the
purpose of acquiring our shares at market prices plus or minus five percent. Each of the trust
funds has an initial term of three years but is terminable at our option six months after the
establishment of the trust fund and at the end of each succeeding six-month period thereafter.
While held by the trust funds, our shares are not entitled to voting rights or dividends. Upon
termination of the trust funds, we are required to resell the shares acquired by the trust funds.
On November 6, 2001, these funds purchased an aggregate of 2,674,580 of our shares of common stock,
or approximately 3.0% of our issued shares, from KT Corporation. On January 31, 2002, these funds
purchased from SK Networks an aggregate of 1,367,180 shares of our common stock, or approximately
1.5% of our issued shares. In December 2003, we terminated trust funds in the amount of Won 318
billion. In October 2004, we extended trust funds with a balance of Won 982 billion, for another
three years. The total accrued and unpaid retirement and severance benefits for all of our employees
as of December 31, 2004 of Won 81.0 billion was reflected in our consolidated financial statements
as a liability, which is net of deposits with insurance companies totaling Won 164.6 billion to
fund a portion of the employees severance indemnities. See Employees and note 2(m) of the notes
to our consolidated financial statements. Dividends declared on our common stock amounted to Won 151.7 billion, Won 404.9 billion
and Won 758.2 billion, respectively, in 2002, 2003 and 2004. In 2004, we amended our articles of
incorporation to permit payment of interim dividends in accordance with relevant laws. On July 23,
2004, our board of directors approved the interim dividend rate of Won 1,000 per common share for
the first half of fiscal year 2004. The shareholders who are registered in our shareholders
registry as of June 30, 2004 were entitled to receive the interim dividend. The interim dividend
was paid in August 2004. The total amount of the interim dividend paid was Won 73.6 billion. At the
ordinary shareholders meeting on March 11, 2005, our shareholders approved a cash dividend of Won
9,300 per common share, of which Won 4,100 is ordinary dividend (excluding interim dividend) and
Won 5,200 is special dividend. The cash dividend was paid in April 2005. The overall dividend
payout ratio with respect to dividends to be paid for 2005 is currently expected to be up to 35% of
net income from 2005. 69




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Substantially all of our revenue and operating expenses are denominated in Won. We
generally pay for imported capital equipment in Dollars. We did not have any outstanding swap or derivative transactions as of December 31, 2004
other than currency swap agreements entered into in the first quarter of 2004 to reduce our foreign
currency exposure with respect to our issuance of US$300 million notes on April 1, 2004 and a
fixed-to-fixed cross currency swap contract with Credit Suisse First Boston International to hedge
the foreign currency risk of unguaranteed Dollar denominated convertible bonds with face amounts of
US$329.5 million issued on May 27, 2004. See note 23 of the notes to our consolidated financial
statements. In April 2004, we issued unguaranteed Dollar denominated bonds due April 1, 2011 with
face amounts totaling US$300 million at an annual rate of 4.25% for US$297.8 million. In May 2004,
we sold US$329.5 million in zero coupon convertible notes due 2009. These convertible notes are
convertible by the holders into shares of our common stock at the rate of Won 235,625 per share. In
connection with the issuance of the zero coupon convertible notes, we deposited 1,645,000 shares of
our common stock with Korea Securities Depository to be reserved and used to satisfy the note
holders conversion rights. Such deposit is expected to be deemed a disposition of treasury stock
and cancellation thereof for the purposes of Korean law. On March 14, 2005, we filed a report with
the Financial Supervisory Service to disclose that we adjusted the conversion price of the
convertible notes issued in late May 2004 in the principal amount of US$329.5 million from Won
235,625 to Won 226,566 and made additional deposit of our common stock accordingly so that the
total number of shares of common stock deposited with Korea Securities Depository to satisfy the
note holders conversion rights increase from 1,644,978 to 1,710,750. Such adjustment of conversion
price has been made as a result of the payment of cash dividend in excess of 1% of the market
capitalization in the fiscal year of 2004. If (1) the exercise by the holder of the conversion
right would be prohibited by Korean law or we reasonably conclude that the delivery of common stock
upon conversion of these notes would result in a violation of applicable Korean law or (2) we do
not have a sufficient number of shares of our common stock to satisfy the conversion right, then we
will pay a converting holder a cash settlement payment. In such situations, we intend to sell such
number of treasury shares held in trust for us that corresponds to the number of shares of common
stock that would have been deliverable in the absence of the 49% foreign shareholding restrictions
imposed by the Telecommunications Law or other legal restrictions. As described in the preceding
paragraph, we entered into an agreement to reduce our exposure with respect to cash settlement
payments exceeding the proceeds from sales of treasury shares held in trust. We may consider in the future entering into additional currency swap agreements, currency
forward contracts transactions and other arrangements solely for hedging purposes. Contractual Obligations and Commitments The following summarizes our contractual cash obligations at December 31, 2004, and the
effect such obligations are expected to have on liquidity and cash flow in future periods: Payments Due by PeriodLess Than
    
    
    
    
    
    AfterTotal
    
    1 Year
    
    1-3 Years
    
4-5 Years
    
    
    5 Years(In billions of Won)Bonds
    
    (Won) 3,499.0
    
    

    (Won) 500.0
    
    
    (Won) 1,500.0
    
    
    (Won) 985.9
    
    
    (Won) 513.1Long-term Borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital lease Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Long-term Payables(1)
    
    
    650.0
    
    
    
    
    
    
    
    90.0
    
    
    
    240.0
    
    
    
    320.0Total Contractual Cash
Obligations(2)
    
    (Won) 4,149.0
    
    
    (Won) 500.0
    
    
    (Won) 1,590.0
    
    
    (Won) 1,225.9
    
    
    (Won) 833.1
 70




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(1)
    
    Related to acquisition of IMT license. See note 2(i) of the notes to our consolidated
financial statements.(2)
    
    This amount does not include our future investments in the CDMA market in Vietnam, which
we expect to make through our subsidiary SLD Telecom Pte. Ltd. under a business cooperation
contract with Saigon Post & Telecommunication Service Corporation. See Business OverviewOther
Investments and Relationships and Operating and Financial Review and ProspectsOff Balance
Sheet Arrangements. See note 20 of the notes to our consolidated financial statements for details related to
our other commitments and contingencies. Subsequent Note Obligations Unguaranteed Domestic Bonds due March 18, 2010 We issued unguaranteed domestic bonds with face amounts totaling Won 200 billion on March
18, 2005 at an annual rate of 4%. These domestic bonds will be repaid in full at its maturity on
March 18, 2010. Under the terms of certain of our debt obligations, our ability to grant security
interest in certain of our property is limited, which may affect our ability to borrow funds in the
future. Inflation We do not consider that inflation in Korea has had a material impact on our results of
operations in recent years. According to data published by The Bank of Korea, annual inflation in
Korea was 2.7% in 2002, 3.6% in 2003 and 3.0% in 2004. U.S. GAAP Reconciliation Our consolidated financial statements are prepared in accordance with Korean GAAP, which
differs in certain significant respects from U.S. GAAP. For a discussion of significant differences
between Korean GAAP and U.S. GAAP, see notes 30 and 31 of our notes to consolidated financial
statements. Our net income in 2002 under U.S. GAAP is lower than under Korean GAAP by Won 186.0
billion, primarily due to differences in the treatment of nonrefundable activation fees and loss on
impairment of investment securities which were partially off set by reversal of goodwill
amortization under U.S. GAAP. Our losses on impairment of investment securities for the year ended
December 31, 2002 were higher by Won 252.0 billion under U.S. GAAP due to differences in the
treatment of write-down for declines of fair value. Such write-downs were made in connection with
securities held in Powercomm and Hanaro Telecom. See note 3 of our notes to consolidated financial
statements. Our net income in 2003 under U.S. GAAP is higher than under Korean GAAP by Won 96.6
billion, primarily due to reversal of goodwill amortization under U.S. GAAP and the differing
treatment of a loss on impairment of investment securities and capitalization under U.S. GAAP of
foreign exchange loss and interest expense related to tangible assets, which were offset in part by
difference in treatment of non-refundable activation fees, intangible assets and deferred income
taxes. Our net income in 2004 under U.S. GAAP is higher than under Korean GAAP by Won 61.6 billion,
primarily due to reversal of goodwill amortization under U.S. GAAP, the differing treatment of loss
on impairment of investment securities and the tax
effect of the reconciling items which were partially offset by the differing treatment of loss
on valuation of currency swap and nonrefundable activation fees. 71




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Our shareholders equity at December 31, 2002 under U.S. GAAP is higher than under Korean
GAAP by Won 124.3 billion primarily due to increases from the differing treatment of intangible
assets, tax effect of the reconciling items and reversal of goodwill amortization, partially offset
by decreases from the differing treatment of minority interest in equity of consolidated
affiliates, nonrefundable activation fees and loss on impairment of investment securities. Our
shareholders equity at December 31, 2003 under U.S. GAAP is higher than under Korean GAAP by Won
920.8 billion primarily due to increases from differing treatment of intangible assets, reversal of
goodwill amortization and tax effect of the reconciling items, partially offset by decreases from
the differing treatment of nonrefundable activation fees and minority interest of equity in
consolidated affiliates. Our shareholders equity at December 31, 2004 under U.S. GAAP is higher
than under Korean GAAP by Won 1,031.3 billion primarily due to the same reasons as in 2003:
increases from the differing treatment of intangible assets, reversal of goodwill amortization and
tax effect of the reconciling items, partially offset by decreases from the differing treatment of
nonrefundable activation fees and minority interest of equity in consolidated affiliates. On January 17, 2003, the FASB issued Interpretation No. 46 (FIN 46)  Consolidation of
Variable Interest Entities, which addresses consolidation by business enterprises where equity
investors do not bear the residual economic risks and rewards. These entities have been commonly
referred to as Special purpose entities (SPEs). The underlying principle behind the new
Interpretation is that if a business enterprise has the majority financial interest in an entity,
which is defined in the guidance as a variable interest entity, the assets, liabilities and results
of the activities of the variable interest entity should be included in the consolidated financial
statements with those of the business enterprise. The Interpretation also explains how to identify
variable interest entities and how an enterprise should assess its interest in an entity when
deciding whether or not it will consolidate that entity. In December 2003, the FASB released a
revision of FIN No. 46 (FIN No. 46R) in which the calculation of expected losses and expected
residual returns have been altered to reduce the impact of decision maker and guarantor fees. In
addition, FIN No. 46R changes the definition of a variable interest. Certain special purpose
companies (SPC) established by us have been consolidated from the date of their establishment (See
note 30(p) of our consolidated financial statements for the years ended 2002, 2003 and 2004). We,
as a foreign private issuer, applied either FIN 46 or FIN 46R to variable interest entities
(VIEs) created after January 31, 2003 and we fully adopted FIN 46R as of June 30, 2004. The
adoption of this Interpretation did not have a significant impact on our consolidation financial
position or results of operations. In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an Amendment of ARB No.
43, Chapter 4. SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material. The Statement is effective for inventory
costs incurred during fiscal year beginning after June 15, 2005. Management does not expect this
statement will have a material impact on our consolidated financial position or results of
operations. In December 2004, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 123 (revised 2004), Share-Based Payments of SFAS 123R. This statement eliminates the option
to apply the intrinsic value measurement provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees to stock compensation awards issued to
employees. Rather, SFAS 123R requires companies to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-data fair value of the award.
That cost will be recognized over the period during which an employee is required to provide
services in exchange for the award (usually the vesting period). SFAS 123R applies to all awards
granted after the required effective date and to awards modified, repurchased, or cancelled after
that date. SFAS 123R will be effective for our fiscal year ending June 30, 2006. Management does
not expect that adoption of this statement will have a material impact on our consolidated
financial position or results of operations. In December 2004, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 153, Exchanges of Nonmonetary Assets  an amendment of APB Opinion No.
29 (SFAS 153), which amends Accounting Principles Board Opinion No. 29, Accounting for
Nonmonetary Transactions to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of nonmonetary assets that
do not have commercial substance. SFAS 153 is effective for nonmonetary assets exchanges occurring
in fiscal periods beginning after June 15, 2005. Management does not anticipate that the adoption
of this statement will have a material effect on our consolidated financial position or results of
operations. In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections
(SFAS 154) which replaces Accounting Principles Board Opinions No. 20 Accounting Changes and
SFAS No. 3, Reporting Accounting Changes in Interim Financial StatementsAn Amendment of APB
Opinion No. 28. SFAS 154 provides guidance on the accounting for and reporting of accounting
changes and error corrections. It establishes retrospective application, to the extent practicable,
as the required method for reporting a change in accounting principle and the reporting of a
correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005 and is required to be adopted by us in 2006. We
are currently evaluating the effect that the adoption of SFAS 154 will have on our consolidated
results of operations and financial condition but does not expect it to have a material impact. 72




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Significant Changes in Korean GAAP On January 1, 2003, we and our subsidiaries adopted SKAS No. 2 through No. 9, except for
SKAS No. 6, which was early adopted in 2002. As a result, we reclassified the accounts relating to
securities as explained in note 2(f) of our consolidated financial statements for the years ended
2002, 2003 and 2004, and changed the accounting policy for capitalization of interest and other
financing costs to charge such interest expense and other financing cost to current operations as
incurred as explained in notes 2(h) and 2(i) to our consolidated financial statements for the years
ended December 31, 2002, 2003 and 2004. If financing costs had been capitalized, our consolidated
net income for the year ended December 31, 2003 would have increased by Won 32.3 billion (net of
income tax effect of Won 13.6 billion). In addition, in accordance with the application of SKAS No.
3, Intangible Assets, effective from January 1, 2003 organization costs which were recorded in
intangible assets through 2002, are
charged to expenses as incurred and the cumulative effect of this accounting change was
charged to beginning retained earnings as of January 1, 2003. On January 1, 2004, we adopted SKAS No. 10, No. 12 and No. 13. Such adoptions of new SKAS
did not have an effect on our consolidated financial position as of December 31, 2004 or our
consolidated ordinary income and net income for the year ended December 31, 2004. Quantitative and Qualitative Disclosures about Market Risk Exchange Rate and Interest Rate Risks We are exposed to foreign exchange rate and interest rate risk primarily associated with
underlying liabilities. In the first quarter of 2004, we entered into currency swap agreements and
currency forward contracts with three banks to reduce our foreign currency exposure with respect to
our issuance of US$300 million notes on April 1, 2004. In addition, we have entered into a currency
swap contract with a bank to hedge the foreign currency risk of unguaranteed Dollar denominated
convertible bonds with face amount of US$329.5 million issued on May 27, 2004. See note 23 of the
notes to our consolidated financial statements. We may consider in the future entering into other
such transactions solely for hedging purposes. The following discussion and tables, which constitute forward looking statements that
involve risks and uncertainties, summarize our market-sensitive financial instruments including
fair value, maturity and contract terms. These tables address market risk only and do not present
other risks which we face in the normal course of business, including country risk, credit risk and
legal risk. Exchange Rate Risk Korea is our main market and, therefore, substantially all of our cash flow is
denominated in Won. We are exposed to foreign exchange risk related to foreign currency denominated
liabilities. These liabilities relate primarily to foreign currency denominated debt, all in
Dollars and Yen. A 10% change in the exchange rate between the Won and all foreign currencies would
result in a change in net liabilities (total monetary liabilities minus total monetary assets) of
approximately 9.1% or Won 66.4 billion as of December 31, 2004. Interest Rate Risk We are also subject to market risk exposure arising from changing interest rates. The
following table summarizes the carrying amounts and fair values, maturity and contract terms of our
exchange rate and interest sensitive short-term and long-term liabilities as of December 31, 2004: Maturities2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    Total
    
    Fair Value(In billions of Won, except for percentage data)Local currency:Fixed rate
    
    (Won) 898.3
    
    
    (Won) 788.8
    
    
    (Won) 687.7
    
    
    (Won) 297.0
    
    
    (Won) 297.2
    
    
    (Won) 187.8
    
    
    (Won) 3,156.8
    
    
    (Won) 3,277.0Average weighted rate(1)
    
    
    4.90
    %
    
    
    5.50
    %
    
    
    5.57
    %
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    3.00
    %Variable rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average weighted rate(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sub-total
    
    (Won) 898.3
    
    
    (Won) 788.8
    
    
    (Won) 687.7
    
    
    (Won) 297.0
    
    
    (Won) 297.2
    
    
    (Won) 187.8
    
    
    (Won) 3,156.8
    
    
    (Won) 3,277.0Foreign currency:Fixed rate
    

(Won)   25.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Won) 323.7
    
    
    (Won) 309.6
    
    
    (Won)
   658.8
    
    
    (Won)
   696.0Average weighted rate(1)
    
    
    2.51
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    4.25
    %Variable rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average weighted rate(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sub-total
    
    (Won)
  25.5
    
    
    (Won)
     
    
    
    (Won)
     
    
    
    
    
    
    
    (Won) 323.7
    
    
    (Won) 309.6
    
    
    (Won)
   658.8
    
    
    (Won)
   696.0Total
    
    (Won) 923.8
    
    
    (Won) 788.8
    
    
    (Won) 687.7
    
    
    (Won) 297.0
    
    
    (Won) 620.9
    
    
    (Won) 497.4
    
    
    (Won) 3,815.6
    
    
    (Won) 3,973.0
 
 (1)
    
    Weighted average rates of the portfolio at the period end. A 1.0% change in interest rates would result in a change of approximately 2.72% in the
fair value of our liabilities resulting in a Won 96.4 billion change in their value as of December
31, 2004 and a Won 255 million annualized change in interest expenses. Critical Accounting Policies, Estimates And Judgments Our consolidated financial statements are prepared in accordance with Korean GAAP. The
preparation of these financial statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of
contingent assets and liabilities. We continually evaluate our estimates and judgments including
those related to revenue recognition, allowances for doubtful accounts, inventories, useful lives
of property and equipment, investments, employee stock option compensation plans and income taxes.
We base our estimates and judgments on historical experience and other factors that are believed to
be reasonable under the circumstances. Actual results may differ from these estimates under
different assumptions or conditions. We also provide a summary of significant differences between
accounting principles followed by us and our subsidiaries and U.S. GAAP. We believe that of our
significant accounting policies, the following may involve a higher degree of judgment or
complexity: Revenue Recognition Our revenues are principally derived from telecommunications service revenue including
data services and wireless handset sales. Telecommunications service consists of fixed monthly
charges, usage-related charges and non-refundable activation fees. Fixed monthly charges are recognized in the period earned.
Usage-related charges are recognized at the time services are rendered. Non-refundable activation
fees and costs are recognized when the activation service was performed. Our subsidiaries also sell wireless handsets to customers and such sales are recognized
at the time products are delivered. Allowances for Doubtful Accounts An allowance for doubtful accounts is provided based on a review of the status of
individual receivable accounts at the end of the year. We maintain allowances for doubtful accounts
for estimated losses that result from the inability of our customers to make required payments. We
base our allowances on the likelihood of recoverability of accounts receivable based on past
experience and taking into account current collection trends that are expected to continue. If
economic or specific industry trends worsen beyond our estimates, we increase our allowances for
doubtful accounts by recording additional expenses. Inventories Inventories are stated at the lower of cost, determined using the moving average method,
or market value. Inventories consist of supplies for wireless telecommunications facilities,
handsets and raw materials for handsets. 73




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Estimated Useful Lives and Impairment of Long-lived Assets We estimate the useful lives of long-lived assets in order to determine the amount of
depreciation and amortization expense to be recorded during any reporting period. The useful lives
are estimated at the time the asset is acquired and are based on historical experience with similar
assets as well as taking into account anticipated technological or other changes. If technological
changes were to occur more rapidly than anticipated or in a different form than anticipated, the
useful lives assigned to these assets may need to be shortened, resulting in the recognition of
increased depreciation and amortization expense in future periods. Alternatively, these technological changes could result in the recognition of an
impairment charge to reflect the write-down in value of the asset. We review these types of assets
for impairment annually, or when events or circumstances indicate that the carrying amount may not
be recoverable over the remaining lives of the assets. In assessing impairments, we use cash flows
that take into account managements estimates of future operations. Impairment of Investment Securities When the declines in fair value of individual available-for-sale and held-to-maturity
securities below their acquisition cost are other than temporary and there is objective evidence of
impairment, the carrying value of the securities is adjusted to their fair value with the resulting
valuation loss charged to current operations. As part of this review, the investees operating results, net asset value and future
performance forecasts as well as general market conditions are taken into consideration. If we
believe, based on this review, that the market value of an equity security or a debt security may
realistically be expected to recover, the loss will continue to be classified as temporary. If
economies or specific industry trends worsen beyond our estimates, valuation losses previously
determined to be recoverable may need to be charged as an impairment loss in current operations. Significant management judgment is involved in the evaluation of declines in value of
individual investments. The estimates and assumptions used by management to evaluate declines in
value can be impacted by many factors, such as our financial condition, earnings capacity and
near-term prospects in which we have invested and, for publicly-traded securities, the length of
time and the extent to which fair value has been less than cost. The evaluation of these
investments is also subject to the overall condition of the economy and its impact on the capital
markets. Employee Stock Option Compensation Plan We adopted the fair value based method of accounting for the employee stock option
compensation plan. The plan was established, effective as of March 17, 2000, to reward the
performance of management who have contributed, or have the ability to contribute, significantly to
our company. Under the fair value based method, compensation cost is measured at the grant
date based on the value of the award and is recognized over the service period. For stock options,
fair value is determined using an option-pricing model that takes into account the stock price at
the grant date, the exercise price, the expected life of the option, the volatility of the
underlying stock, expected dividends and the current risk-free interest rate for the expected life
of the option. However, as permitted under Korean GAAP, we exclude the volatility factor in
estimating the value of our stock options, which results in measurement at minimum value. The total
compensation cost of an option estimated at the grant date is not subsequently adjusted for changes
in the price of the underlying stock or its volatility, the life of the option, dividends on the
stock, or the risk-free interest rate. Income Taxes Current tax expense is determined based on taxable income for the year computed using
prevailing tax rates. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax liabilities are recognized for all taxable
temporary differences and deferred tax assets are recognized for deductible temporary differences
to the extent that it is expected that taxable income will be available in future periods against
which the deductible temporary differences can be utilized. 74




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Deferred tax is calculated at the tax rates that have been enacted or substantively
enacted at the balance sheet date. Deferred tax is charged or credited in the statement of income,
except when it relates to items charged or credited directly to equity, in which case the deferred
tax is also charged or credited directly to equity. Deferred tax assets and liabilities are presented on the balance sheet as a non-current
number. Off Balance Sheet Arrangements We have sold certain receivables in 2002 and 2003 in five separate transactions described
under Liquidity and Capital ResourcesLiquidity to Nate First Special Purpose Company, Nate
Second Special Purpose Company, Nate Third Special Purpose Company, Nate Fourth Special Purpose
Company and Nate Fifth Special Purpose Company in asset-backed securitization transactions. Under
Korean GAAP, we accounted for these transactions as sales of the receivables to the special purpose
companies. See note 3 of the notes to our consolidated financial statements. Under U.S. GAAP, we
are required to consolidate these entities as these entities do not meet the qualifications for a
qualifying special purpose entity. See U.S. GAAP Reconciliation and note 30 of our notes to
consolidated financial statements. SLD Telecom, our overseas subsidiary, entered into a business cooperation contract with
Saigon Post & Telecommunication Services Corporation to establish cellular mobile communication
services and provide CDMA service throughout Vietnam. In accordance with this contract, in the
event that the cash inflow for the business is insufficient to cover the cash outflow necessary to
cover the joint expenditure of the business (cash shortfall), SLD Telecom and Saigon Post &
Telecommunication Services Corporation will contribute the necessary funds to the business and bear
additional cash shortfalls according to their gross profit sharing ratios at that time. With
respect to our involvement in the business, our maximum exposure to loss was approximately Won 59.8
billion as of December 31, 2004. In accordance with the resolution of our board of directors dated January 26, 2005, we and
EarthLink, an Internet service provider in the U.S., agreed to establish SK-EarthLink, a joint
venture company, in the U.S. in February 2005 in order to provide wireless telecommunication
services across the U.S. We have committed to invest $220 million over the next three years, of
which $83 million had been invested as of March 24, 2005, and EarthLink has committed to invest
$220 million over the next three years, of which $83 million had been invested as of the same date. Research and development Overview In conformity with the MICs guidance, we have maintained a high level of spending on
research and development activity. Prior to 1996, the majority of our research and development
expense consisted of MIC-directed donations to several Korean research institutes and educational
organizations. More recently, we have sharply increased our spending for our internal research
activity, resulting in such amounts exceeding our spending on external research. We believe that we
must maintain a substantial in-house technology capability to achieve our strategic goals. The following table sets forth our annual research and development expenses: As of and For the Year EndedDecember 31,2002
    
    
    2003
    
    
    2004(In billions of Won)Internal R&D Expenses
    
    (Won) 194.3
    
    
    (Won) 235.8
    
    
    (Won) 267.1External R&D Expenses
    
    
    59.0
    
    
    
    64.9
    
    
    
    69.0Total R&D Expenses
    
    (Won) 253.3
    
    
    (Won) 300.7
    
    
    (Won) 336.1
 The MIC has the statutory power to recommend levels of spending by telecommunications
service providers on research and development activity and the allocation of expenditures between
internal and external research. In practice, the MIC has issued guidelines regarding the amount and
allocation of research spending. In its May 1995 guidelines, the MIC recommended that that we
observe the following minimum levels of total research and development spending (set as a
percentage of budgeted revenue and calculated according to MIC guidelines which differ from our
accounting treatment of such expenses): 9.0% from 1995 through 1997; 9.5% for 1998; and 10.0% for
1999 through 2001. With respect to the level of contribution specifically for external research and
development, in July 1998, the MIC reduced the recommended minimum level of contribution to the
MIC-run Fund for Development of Information and Telecommunications from 2.0% to 1.5%. In 2001, the
recommended minimum level of contribution was further reduced to 1.0%. In 2002, the contribution
became mandatory, and the required minimum level of contribution was further reduced to 0.75%. In
2003 and 2004, the required minimum level of contribution was 0.75%, the same as 2002. We are not
obligated to make donations to any other external research institutes. Internal Research and Development The main focus of our internal research and development activity is the development of 3G
technologies and services and value-added technologies and services for our CDMA network, such as
wireless data communications. We spent approximately Won 267.1 billion on internal research and
development in 2004. Our internal research and development activity is centered at a research center with
state-of-the-art facilities and equipment established in January 1999 in Bundang-gu, Sungnam-si,
Kyunggi-do, Korea. As of December 31, 2004, our research center housed 522 research engineers
(including both full time and temporary research engineers). Their work focuses on planning of cell
sites, network management, digital wireless technologies, multimedia, information processing and
other wireless telecommunications areas. Although the technology is at its very early stages, our
research center includes a team that is helping to develop what is known as 4G wireless technology,
which if successfully completed is expected to enable wireless data transmissions at speeds of up
to 155 Mbps, which would be faster than the current W-CDMA technology. Each business unit has its own research team that can concentrate on specific short-term
research needs. Such research teams permit our research center to concentrate on long-term,
technology-intensive research projects. We aim to establish strategic alliances with selected
domestic and foreign companies with a view to exchanging or jointly developing technologies,
products and services. 75




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External Research and Development In addition to conducting research in our own facilities, we have been a major financial
supporter of other Korean research institutes, and we have helped coordinate the Governments
effort to commercialize the CDMA digital technology. We do not independently own intellectual
property rights in the technologies or products developed by any external research institute. 
 Item. 6Directors, Senior Management and Employees DIRECTORS AND SENIOR MANAGEMENT Our board of directors has ultimate responsibility for the management of our affairs. Under
our articles of incorporation, our board is to consist of at least three but no more than twelve
directors, more than a half of whom must be outside directors. We currently have a total of eleven
directors, seven of whom are outside directors. We elect our directors at a general meeting of
shareholders with the approval of at least a majority of those shares present or represented at
such meeting. Such majority must represent at least one-fourth of our total issued and outstanding
shares with voting rights. As required under relevant Korean laws and our articles of incorporation, we have a committee
for recommendation of outside directors within the board of directors, the Recommendation
Committee. Outside directors are appointed from among those candidates recommended by the
Recommendation Committee. 76




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##### Table of Contents



The term of offices for directors is until the close of the third annual general shareholders
meeting convened after he or she commences his or her term. Our directors may serve consecutive
terms. Our shareholders may remove them from office by a resolution at a general meeting of
shareholders adopted by the holders of at least two-thirds of the voting shares present or
represented at the meeting, and such affirmative votes also represent at least one-third of our
total voting shares then issued and outstanding. Representative directors are directors elected by the board of directors with the statutory
power to represent our company. The following are the names and positions of our standing and non-standing directors. The
business address of all of our directors is the address of our registered office at 11, Euljiro 2-ga, Jung-gu, Seoul 100-999, Korea. Standing directors are our full-time employees and executive officers, and they also comprise
the senior management, or the key personnel who manage us. Their names, dates of birth and
positions at our company and other positions are set forth below: Other PrincipalDirector
    
    Expiration
    
    
    
    Directorships andName
    
    Date of Birth
    
    Since
    
    of Term
    
    Position
    
    Positions
    
    Business ExperienceJung Nam Cho
    
    Nov. 20, 1941
    
    
    1995
    
    
    
    2007
    
    
    Vice-Chairman
and
Representative
Director
    
    
    
    President & COO, SK
TelecomShin Bae Kim
    
    Oct. 15, 1954
    
    
    2002
    
    
    
    2008
    
    
    CEO and
Representative
Director
    
    Chairman,
Korea
Association of
RFID/USN
    
    Head of Strategic Planning
Group, Shinsegi Telecomm,
Inc.; Director, SK Telecom;
Senior Vice President, SK
Telecom; Director,
KORMSBang Hyung Lee
    
    Aug. 20, 1955
    
    
    2005
    
    
    
    2008
    
    
    Executive Vice-
President, Chief
Marketing
Officer and
Head of
Business Center
    
    
    
    Head of Internet Business
Group, SK Telecom; Head
of Marketing Group, SK
Telecom; Senior
Accountant, Deloitte
Haskin & Sells, USASung Min Ha
    
    Mar. 24, 1957
    
    
    2004
    
    
    
    2007
    
    
    Senior Vice
President and
Chief Financial
Officer
    
    Representative
Director, SK
Capital
    
    Head of Strategic Planning
Group, SK Telecom;
Director, SK Telink;
Auditor, SK C&C;
Chairman and
Representative Director,
SLD Telecom; Auditor,
SK Teletech
 Our current non-standing directors are as set forth below: Other PrincipalDirector
    
    Expiration
    
    
    
    Directorships andName
    
    Date of Birth
    
    Since
    
    of Term
    
    Position
    
    Positions
    
    Business ExperienceDae Sik Kim
    
    Jan. 11, 1955
    
    
    2005
    
    
    
    2008
    
    
    Outside
Director
    
    Professor, Hanyang
University;
Committee
Member, MOFE
Advisory
Committee on
Financial
Development
    
    University of Pennsylvania,
MBA (1981), Ph.D. (1987)Yong Woon Kim
    
    Oct. 4, 1943
    
    
    2003
    
    
    
    2006
    
    
    Outside
Director
    
    Non-Standing
Auditor, Pohang
University of
Science and
Technology
    
    Senior Executive Vice
President (Legal Department,
Seoul Office, Investment and
Finance) and Director,
POSCO; Standing Advisor,
POSCO Research InstituteSang Koo Nam
    
    Aug. 20, 1946
    
    
    1998
    
    
    
    2007
    
    
    Outside
Director
    
    Professor, Korea
University
    
    University of Pennsylvania,
MBA (1975), Ph.D. (1981);
President, Korean Financial
AssociationDae Kyu Byun
    
    Mar. 8, 1960
    
    
    2005
    
    
    
    2008
    
    
    Outside
Director
    
    CEO &
Representative
Director, Humax
Co., Ltd.; Head
Vice-President,
Korea Venture
Business
Association
    
    Director, the Federation of
Korea Information Industries;
Representative Director, Guin
Co.; Co-founder, Venture
Leaders ClubSeung Taik Yang
    
    Oct. 24, 1939
    
    
    2005
    
    
    
    2008
    
    
    Outside
Director
    
    President, Tong-
Myung University
of Information
Technology
    
    Polytechnic Institute of
Brooklyn, Ph.D.; 7th Minister,
Ministry of Information and
CommunicationJae Seung Yoon
    
    Nov. 9, 1962
    
    
    2002
    
    
    
    2008
    
    
    Outside
Director
    
    CEO &
Representative
Director;
Daewoong
Pharmaceutical
Co., Ltd.; Vice-
president, Insung
Information Co.,
Ltd.
    
    Public Prosecutor, The
Seoul/Busan District Public
Prosecutors Office; Auditor
and Vice President, Daewoong
Pharmaceutical Co., Ltd.Sang C. Lee
    
    Jan. 24, 1941
    
    
    1999
    
    
    
    2008
    
    
    Outside
Director
    
    IT Consultant
    
    Chairman, Communication
Network Interface, Inc.;
Chairman and CEO, Spectron
Corp.; President, Scovill
Fasteners, Inc.; Director of
Organization, ITT Worldwide
Corp.; Vice President, ITT
Asia Pacific Corp.
 77




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INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS In February 2004, certain members of our board of directors and executive officers resigned
following a finding of accounting misconduct at SK Networks and the resulting movement to improve
corporate governance in companies in the SK Group. The resignations were tendered by Mr. Tae Won
Chey, former non-standing director of SK Telecom and chairman and CEO of SK Corporation, Mr. Kil
Seung Son, former Chairman, Chief Executive Officer and Representative Director of SK Telecom and
representative director of SK Networks and non-standing director of SK Corporation, Mr. Jae Won
Chey, former executive vice president of SK Telecom and Mr. Moon Soo Pyo, former president of SK
Telecom. None of these resignations were related to any allegations of wrongdoing in connection
with their role in our business, and SK Telecom was not implicated in any of the charges against SK
Networks management. For details of the charges against Mr. Tae Won Chey and
Mr. Kil Seung Son, see Key Information  Risk Factors  Financial difficulties and charges of
financial irregularities at our affiliate, SK Networks (formerly SK Global), may cause disruptions
in our business. COMPENSATION OF DIRECTORS AND OFFICERS The aggregate of the remuneration paid and in-kind benefits granted to the directors (both
standing directors, who also serve as our executive officers, and non-standing directors) during
the year ended December 31, 2004 totaled approximately Won 4.3 billion. 78




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Remuneration for the directors is determined by shareholder resolutions. Severance allowances
for directors are determined by the board of directors in accordance with our regulation on
severance allowances for officers, which was adopted by shareholder resolutions. The regulation
provides for monthly salary, performance bonus, severance payment and fringe benefits. The amount
of performance bonuses is independently decided by a resolution of the board of directors. In March 2001 and 2002, pursuant to resolutions of the shareholders, and in accordance
with our articles of incorporation, certain of our directors and officers were granted options to
purchase our common shares. In 2001 and 2002, 42 and 70 officers, respectively, were granted options to purchase 43,820 and 65,730 common shares. The exercise price for the
shares are Won 211,000 and Won 267,000, respectively, for 2001 and 2002. Each stock option
agreement also provides for adjustments to the amount and exercise price of the shares in cases
where the share price may become diluted as a result of issuance of new shares, stock dividends or
mergers. The officers may exercise their options during a two-year period starting from March 2004
(for shares granted in 2001) or from March 2005 (for shares granted in 2002). The board of
directors may, by resolution, cancel any directors or officers stock options under certain
circumstances. Since 2003, none of our directors and officers have been granted options
to purchase our common shares. The following table shows the share allotment for the directors under our 2001 and 2002 stock
option program. There has been no stock option program since 2003. Number of SharesAllottedNumber ofOptionsName
    
    Position
    
    2002
    
    
    2003
    
    
    2004
    
    
    ExercisedJung Nam Cho
    
    Director
    
    
    6,150
    
    
    
    0
    
    
    
    0
    
    
    
    0Shin Bae Kim
    
    Director
    
    
    1,650
    
    
    
    0
    
    
    
    0
    
    
    
    0Bang Hyung Lee
    
    Director
    
    
    1,620
    
    
    
    0
    
    
    
    0
    
    
    
    0Sung Min Ha
    
    Director
    
    
    690
    
    
    
    0
    
    
    
    0
    
    
    
    0Dae Sik Kim
    
    Outside Director
    
    
    1,000
    
    
    
    0
    
    
    
    0
    
    
    
    0Yong Woon Kim
    
    Outside Director
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Sang Koo Nam
    
    Outside Director
    
    
    1,000
    
    
    
    0
    
    
    
    0
    
    
    
    0Dae Kyu Byun
    
    Outside Director
    
    
    1,000
    
    
    
    0
    
    
    
    0
    
    
    
    0Seung Taik Yang
    
    Outside Director
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Jae Seung Yoon
    
    Outside Director
    
    
    1,000
    
    
    
    0
    
    
    
    0
    
    
    
    0Sang C. Lee
    
    Outside Director
    
    
    1,000
    
    
    
    0
    
    
    
    0
    
    
    
    0Other Officers
    
    
    
    
    49,620
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    
    
    
    65,730
    
    
    
    0
    
    
    
    0
    
    
    
    0
 BOARD PRACTICES Termination of Directors, Services Directors are given a retirement and severance payment upon termination of employment in
accordance with our internal regulations on severance payments. Upon retirement, directors who have
made significant contributions to our company during their term may be appointed to serve either as
an advisor to us or as an officer of an affiliate company. Audit Committee Under relevant Korean laws and our articles of incorporation, we are required to have an audit
committee under the board of directors. The committee is composed of at least three members,
two-thirds of whom must be 79




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outside directors independent with respect to applicable rules. The members of the audit committee
are appointed annually by a resolution of the board of directors. They are required to:  
    
    examine the agenda for the general meeting of shareholders;
    
    examine financial statements and other reports to be submitted by the board of directors to the general meeting of shareholders;
    
    review the administration by the board of directors of our affairs; and
    
    examine the operations and asset status of us and our subsidiaries. In addition, the audit committee must appoint independent certified public accountants to
examine our financial statements. An audit and review by certified public accountants of our
financial statements is required for the purposes of a securities report. Listed companies must
provide such report on an annual, semi-annual and quarterly basis to the Financial Supervisory
Commission of Korea and the KRX Stock Market. Our audit committee is composed of three outside directors: Sang Koo Nam, Dae Sik Kim and Yong
Woon Kim, each of whom must be financially literate and independent under the rules of the New York
Stock Exchange as applicable. The board of directors has determined that Dae Sik Kim is an audit
committee financial expert as defined under the applicable rules of the Securities and Exchange
Commission. See Audit Committee Financial Expert. Outside Director Nomination Committee This committee is devoted to recommending outside directors for the board of directors. The
objective of the committee is to help promote fairness and transparency in the nomination of
candidates for these positions. The board of directors decides from time to time who will comprise
the members of this committee. Capex Review Committee This committee is responsible for reviewing our business plan (including the budget). It also
examines major capital expenditure revisions, and routinely monitors capital expenditure decisions
that have already been executed. The board of directors decides from time to time who will comprise
the members of this committee. Compensation Review Committee This committee oversees our overall compensation scheme for the Chief Executive Officer and
directors. The committee consists of three outside directors and is in charge of reviewing the
criteria for and levels of directors compensation packages and benefits. The board of directors
decides from time to time who will comprise the members of this committee. Remuneration We do not have an independent internal remuneration committee. Remuneration for the directors
and officers is determined by shareholder resolutions. Severance allowances for directors are
determined by the board of directors in accordance with our internal regulation on remuneration of
officers, which was also adopted by shareholder resolutions and provides for monthly salary,
performance bonus, severance payment and fringe benefits. The amount of performance bonuses is
independently decided by a resolution of the board of directors. The regulation on payment of
remuneration to company officers also provides for a special contribution bonus upon retirement, in
addition to the basic severance package, for any officer or director who during his or her term of
service makes special contributions to the company. We may also reimburse our outside directors for
expenses they incurred in performance of their services. See Compensation of Directors and
Officers. We are currently receiving consulting services on creating a remuneration committee
under the Board of Directors. 80




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Differences in Corporate Governance Practices Pursuant to the rules of the New York Stock Exchange applicable to foreign private issuers
like us that are listed on the New York Stock Exchange, we are required to disclose significant
differences between the New York Stock Exchanges corporate governance standards and those that we
follow under Korean law. The following is a summary of such significant differences. NYSE Corporate Governance Standards
    
    SK Telecom Corporate Governance PracticeDirector IndependenceListed companies must have a majority of independent
directors.
    
    Of the 11 members of our board of directors,
7 are independent directors.Executive SessionListed companies must hold meetings solely attended
by non-management directors to more effectively
check and balance management directors.
    
    Our Audit Committee, which is comprised
solely of three independent directors, holds
meetings whenever there are matters related
to management directors, and such meetings
are generally held once every month.Nomination/Corporate Governance CommitteeListed companies must have a nomination/corporate
governance committee composed entirely of
independent directors.
    
    Although we do not have a separate
nomination/ corporate governance committee,
we maintain an Independent Director
Recommendation Committee composed of
independent directors and management
directors.
 NYSE Corporate Governance Standards
    
    SK Telecom Corporate Governance PracticeAudit CommitteeListed companies must have an audit committee that
satisfies the requirements of Rule 10A-3 under the
Exchange Act.
    
    We maintain an Audit Committee comprised solely of
three independent directors.Audit Committee Additional RequirementsListed companies must have an audit committee that is
composed of more than three directors.
    
    Our Audit Committee has three independent directors.Shareholder Approval of Equity Compensation PlanListed companies must allow its shareholders to
exercise their voting rights with respect to any material
revision to the companys equity compensation plan.
    
    We currently have two equity compensation plans: a
stock option plan for officers and directors and
employee stock ownership plan for employees
(ESOP). Our Articles of Incorporation provide for
all the relevant matters relating to such
compensation scheme, amendment of which is subject
to shareholder approval, even though matters
relating to ESOP are not subject to such approval
under Korean law.Corporate Governance GuidelinesListed companies must adopt and disclose corporate
governance guidelines.
    
    Although we do not maintain separate corporate
governance guidelines, we are in compliance with
the Korean Commercial Law in connection with such
matters, including the governance of the board of
directors.
 81




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##### Table of Contents



NYSE Corporate Governance Standards
    
    SK Telecom Corporate Governance PracticeCode of Business Conduct and EthicsListed companies must adopt and disclose a code of
business conduct and ethics for directors, officers and
employees and promptly disclose any waivers of the
code for directors or executive officers.
    
    We have adopted a Code of Business Conduct and
Ethics for all of our directors, officers and
employees, and such code is also available on our
website at www.sktelecom.com.
 EMPLOYEES The following table sets forth the numbers of our regular employees, temporary employees and
total employees as of the dates indicated: Regular
    
    
    TemporaryEmployees
    
    
    Employees
    
    
    TotalDecember 31, 2002
    
    
    4,641
    
    
    
    1,600
    
    
    
    6,241December 31, 2003
    
    
    5,447
    
    
    
    1,474
    
    
    
    6,921December 31, 2004
    
    
    6,421
    
    
    
    932
    
    
    
    7,353April 30, 2005
    
    
    7,111
    
    
    
    951
    
    
    
    8,062
 The number of our regular employees increased in 2001 and 2002 due to periodic hiring of
new employees. The following table sets forth numbers of our regular employees and temporary employees
by categories of activity as of April 30, 2005: NewMarketing
    
    
    Production
    
    
    Research
    
    
    Support
    
    

Business
    
    
    TotalRegular Employees
    
    
    2,282
    
    
    
    1,873
    
    
    
    1,135
    
    
    
    1,105
    
    
    
    716
    
    
    
    7,111Temporary Employees
    
    
    623
    
    
    
    139
    
    
    
    29
    
    
    
    146
    
    
    
    14
    
    
    
    951Total
    
    
    2,905
    
    
    
    2,012
    
    
    
    1,164
    
    
    
    1,251
    
    
    
    730
    
    
    
    8,062
 As of December 31, 2004, we had a company union comprised of 2,887 regular employees. We
have never experienced a work stoppage of a serious nature. Every two years, the union and
management negotiate and enter into a new collective bargaining agreement that has a two-year
duration, which is focused on employee benefits and welfare, except for employee wages, which are
separately negotiated on an annual basis. Our wage negotiations completed on May 24, 2004 resulted
in an average wage rate increase of 3.4% for 2004 from 2003. We have begun wage discussions with
the Companys union for 2005. Since April 1999, we have been required to contribute an amount equal to 4.5% of employee
wages toward a national pension plan. Employees are eligible to participate in an employee stock
ownership association. We are not required to, and we do not, make any contributions to the
employee stock ownership association, although through the Employee Welfare Fund we subsidize the
employee stock ownership association by providing low interest rate loans to employees desiring to
purchase our stock through the plan in the case of a capitalization by the association. As of
December 31, 2004, the employee stock ownership association owned approximately 0.46% of our issued
common stock. We are required to pay a severance amount to eligible employees who voluntarily or
involuntarily cease working for us, including through retirement. This severance amount is based
upon the employees length of service with us and the employees salary level at the time of
severance. As of December 31, 2004, the accrued and unpaid retirement and severance benefits of Won
236.2 billion for all of our employees are reflected in our non-consolidated financial statements
as a liability, of which a total of Won 155.2 billion was funded. Under Korean laws and
regulations, we are prevented from involuntarily terminating a full-time employee except under
certain limited circumstances. In September 82




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2002, we entered into an employment stabilization agreement with the union. Among other
things, this agreement provides for a one-year guarantee of the same wage level in the event that
we reorganize a department into a separate entity or we outsource an employee to a separate entity
where the wage is lower. If the new entity is a subsidiary of which we own at least a 50% stake,
employment is guaranteed for three years. We are also required by law to contribute up to 5% of our annual earnings before tax for
employee welfare. We contributed 3% of our revenues annually for years prior to 2002. Beginning in
2003, we have decided to negotiate an exact amount each year as necessary. In 2003 and 2004, we did
not negotiate contribution amounts for year 2002 and 2003, respectively. We expect to negotiate the
contribution amount for 2004 in the latter half of 2005. We consider our relations with our employees to be good. SHARE OWNERSHIP The following table sets forth the share ownership by our standing and non-standing directors
as of April 30, 2005: Number
    
    
    Percentageof
    
    
    of Total
    
    
    SpecialShares
    
    
    Shares
    
    
    VotingName
    
    Position
    
    Owned
    
    
    Outstanding
    
    
    Rights
    
    
    OptionsStanding DirectorsJung Nam Cho
    
    Vice-Chairman and Representative Director
    
    
    
    
    
    
    
    
    
    None
    
    
    16,500Shin Bae Kim
    
    CEO and Representative Director
    
    
    1,270
    
    
    
    
    *
    
    None
    
    
    1,650Bang Hyung Lee
    
    Executive Vice-President
    
    
    1,630
    
    
    
    
    *
    
    None
    
    
    3,390Sung Min Ha
    
    Chief Financial Officer
    
    
    738
    
    
    
    
    *
    
    None
    
    
    690Non-Standing DirectorsDae Sik Kim
    
    Outside Director
    
    
    30
    
    
    
    
    *
    
    None
    
    
    2,500Yong Woon Kim
    
    Outside Director
    
    
    
    
    
    
    
    
    
    None
    
    
    0Sang Koo Nam
    
    Outside Director
    
    
    
    
    
    
    
    
    
    None
    
    
    2,500Dae Kyu Byun
    
    Outside Director
    
    
    50
    
    
    
    
    *
    
    None
    
    
    2,000Seung Taik Yang
    
    Outside Director
    
    
    
    
    
    
    
    
    
    None
    
    
    Jae Seung Yoon
    
    Outside Director
    
    
    200
    
    
    
    
    *
    
    None
    
    
    1,000Sang C. Lee
    
    Outside Director
    
    
    
    
    
    
    
    
    
    None
    
    
    2,500
 
 *
    
    Less than 1.0% 
 Item. 7Major Shareholders and Related Party Transactions MAJOR SHAREHOLDERS As of December 31, 2004, approximately 51.6% of our issued shares were held in Korea by
approximately 20,000 shareholders. The following table sets forth certain information as of the
close of our shareholders registry on December 31, 2004 with respect to any person known to us to
be the beneficial owner of more than 5.0% of the shares of our common stock and with respect to the
total amount of such shares owned by our employees and our officers and directors, as a group: 83




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Percentage
    
    
    PercentageTotal
    
    
    TotalNumber of
    
    
    Shares
    
    
    SharesShareholder/Category
    
    Shares
    
    
    Issued
    
    
    OutstandingDomestic ShareholdersSK Group(1)
    
    
    19,772,914
    
    
    
    24.03
    %
    
    
    26.86
    %POSCO
    
    
    4,098,496
    
    
    
    4.98
    
    
    
    5.57Employees(2)
    
    
    480,586
    
    
    
    0.58
    
    
    
    0.65Treasury shares(3)
    
    
    8,662,415
    
    
    
    10.53
    
    
    
    N/AOfficers and Directors(4)
    
    
    2,608
    
    
    
    
    
    
    
    Other Domestic Shareholders
    
    
    9,467,103
    
    
    
    11.52
    
    
    
    13.76Foreign Shareholders(5)
    
    
    39,792,589
    
    
    
    48.36
    %
    
    
    54.06
    %Total Issued Shares
    
    
    82,276,711
    
    
    
    100.00
    %
    
    
    100.00
    %
 
 (1)
    
    The SK Groups ownership interest consists of the following as of December 31, 2004: Percentage
    
    
    PercentageTotal
    
    
    TotalNumber of
    
    
    Shares
    
    
    SharesSK Group Member
    
    Shares
    
    
    Issued
    
    
    OutstandingSK Corporation
    
    
    17,663,127
    
    
    
    21.47
    %
    
    
    23.99
    %SK Securities Co., Ltd.
    
    
    7
    
    
    
    0.00
    
    
    
    0.00SK Networks
    
    
    2,097,740
    
    
    
    2.55
    
    
    
    2.85SK Life Insurance Co., Ltd.
    
    
    12,040
    
    
    
    0.01
    
    
    
    0.0219,772,914
    
    
    
    24.03
    %
    
    
    26.86
    %
 The SK Group is a group of affiliated entities. As of December 31, 2004, the ownership
interests among the SK Group included, among others:  
    
    SK Corporation owned: 21.47% of SK Telecom Co., Ltd., 41.32% of SK Networks, 47.27% of
SKC and 72.13% of SK Shipping Co., Ltd.
    
    SK Networks owned 2.55% of SK Telecom Co., Ltd., 17.71% of SK Shipping, 15% of SK
Computer & Communications Co., Ltd., and 28.95% of SK Securities Co., Ltd.
    
    SK Chemicals owned 2.39% of SK Corporation and 39.40% of SK Engineering and Construction.
    
    SKC owned 6.2% of SK Chemicals and 10.16% of SK Shipping Co., Ltd.
    
    SK Shipping Co., Ltd. owned 30.94% of SK Engineering and Construction.
    
    SK Computer & Communications Co., Ltd. owned 11.22% of SK Corporation.
    
    We owned 30.0% of SK Computer & Communications Co., Ltd.  (2)
    
    Represents shares owned by our employee stock ownership association. See Employees.(3)
    
    Treasury shares do not have any voting rights; includes 1,710,750 treasury shares that were
deposited with Korea Securities Depository to be reserved and used to satisfy the conversion
rights of the holders of US$329.5 million in zero coupon convertible notes that were sold in
May 2004.(4)
    
    Less than 0.01%.(5)
    
    Includes 5,445,282 shares of our common stock, or approximately 6.62% of our issued common
stock, represented by American Depositary Shares (ADSs) held by Momenta (Cayman), a special
purpose vehicle incorporated in the Cayman Islands. 84




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The following table sets forth significant changes in the percentage ownership held by
our major shareholders during the past three years: As of December 31,Shareholder
    
    2002
    
    
    2003
    
    
    2004(As a percentage of total issued shares)(1)SK Group
    
    
    24.43
    %
    
    
    24.60
    %
    
    
    24.03
    %SK Corporation(2)
    
    
    19.81
    
    
    
    21.47
    
    
    
    21.47SK Life Insurance
    
    
    0.00
    
    
    
    0.01
    
    
    
    0.01SK Investment Trust Management
    
    
    0.07
    
    
    
    0.06
    
    
    
    SK Networks(3)
    
    
    4.53
    
    
    
    3.06
    
    
    
    2.55KT Corporation(4)
    
    
    9.27
    
    
    
    0.00
    
    
    
    0.00POSCO(5)
    
    
    6.50
    
    
    
    4.98
    
    
    
    4.98
 
 (1)
    
    Includes 4,852,972, 8,662,403 and 8,662,415 shares held in treasury as of December 31,
2002, 2003 and 2004, respectively. The treasury share amount as of December 31, 2002 excludes
4,465,635 shares of the Companys common stock acquired from KT Corporation pursuant to a
stock swap on December 30, 2002.(2)
    
    On July 25, 2002, SK Corporation sold our ADSs representing 5,117,500 shares of our common
stock to Momenta (Cayman), which in turn sold bonds exchangeable initially into such ADSs. On
the same day, SK Corporation sold 1,122,223 shares of our common stock represented by ADRs to
foreign investors.(3)
    
    On January 4, 2002, SK Networks issued bonds exchangeable into an aggregate of 1,730,104
shares of our common stock. On January 31, 2002, bank trust funds controlled by us purchased
from SK Networks an aggregate of 1,367,180 shares of our common stock, or approximately 1.5%
of our outstanding common stock. On July 25, 2002, SK Networks sold 1,100,000 shares of our
common stock represented by ADRs to foreign investors. SK Networks sold 418,000 shares in
January 2004 and currently owns 2,097,740 shares.(4)
    
    On April 15, 2002, KT Corporation sold an aggregate of 1,000,000 shares, or approximately
1.1%, of our outstanding common stock to investors. On December 30, 2002, KT Corporation sold
an aggregate of 4,457,635 shares, or approximately 5.0%, of our outstanding common stock to
us. On January 10, 2003, KT Corporation sold its remaining stake in us, an aggregate of
3,809,288 shares, or approximately 4.3%, of our outstanding common stock to us. On May 23,
2002, we acquired a 9.6% equity interest (29,808,333 shares of common stock) in KT Corporation
for Won 1,609 billion. Pursuant to the terms of an agreement between us and KT Corporation
dated November 14, 2002, we sold all of our shares of KT Corporation. Under the terms of the
agreement, we exchanged 29,808,333 shares of KT Corporations common stock for 8,266,923
shares of our common stock and settled the difference in the price in cash on December 30,
2002 and January 10, 2003. The exchange was made at Won 50,900 per share of KT Corporations
common stock and Won 224,000 per share of our common stock.(5)
    
    POSCO acquired these shares in connection with our acquisition of a 27.7% equity interest in
Shinsegi. Other than companies in the SK Group and POSCO, no other persons or entities known by us
to be acting in concert, directly or indirectly, jointly or severally, own in excess of 3.0% of our
total shares outstanding or exercise control or could exercise control over our business. On
January 4, 2002, in transactions exempt from registration under the U.S. Securities Act, SK
Networks issued bonds exchangeable into an aggregate of 1,730,104 shares of our common stock,
subject to anti-dilution adjustments. By December 31, 2004, most of these bonds had been exchanged
in an aggregate of 1,520,200 shares of our common stock and the rest was settled in cash. On January 31, 2002, bank trust funds controlled by us purchased from SK Networks an
aggregate of 1,367,180 shares of our common stock, or approximately 1.5% of our outstanding common
stock. On July 25, 2002, in transactions exempt from registration under the U.S. Securities Act,
SK Corporation sold our ADSs representing 5,117,500 shares of our common stock to Momenta (Cayman),
a special purpose vehicle incorporated in the Cayman Islands, which in turn sold bonds exchangeable
initially into such ADSs. The bonds are guaranteed by SK Corporation. The 5,244,450 shares of our
common stock, or approximately 6.62% of our issued common stock, held by Momenta (Cayman) are
reflected on the foreign shareholders line in the first table under this section. Pursuant to the
terms and conditions of such bonds, if investors do not otherwise exchange the bonds for our ADSs,
all or a portion of such ADSs may ultimately be returned to SK Corporation. On the same day, SK
Corporation and SK Networks each sold 1,122,223 and 1,100,000 shares, respectively, of our common
stock represented by ADRs to foreign investors. 85




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Although no announcements have been made, SK Corporation and SK Networks may dispose of
additional shares of our common stock in one or more transactions. As of December 31, 2004, SK
Corporation held 21.47% of our shares of common stock. For a description of our foreign ownership
limitation, see Key Information  Risk Factors  If SK Corporation breaches the foreign ownership
limitations on SK Telecom, it may result in a change of control of us. and Information on the
Company  Law and Regulation  Foreign Ownership and Investment Restrictions and Requirements. As
a result of significant financial difficulties and prosecutors discovery of alleged fraudulent
accounting practices at SK Networks, SK Networks sold 418,000 of the shares it owns in SK Telecom
in January 2004. As a result of such sale, SK Networks currently owns 2.55% of our shares. In the
event that either SK Corporation or SK Networks announces plans of a sale of our shares, we expect
to be able to discuss the details of such sale with them in advance and will endeavor to minimize
any adverse effects on our share prices as a result of such sale. There is currently a 49% limit on the aggregate foreign ownership of our issued shares. As of
December 31, 2004, SK Corporation owns 17,663,127 shares of our common stock, or approximately
21.47%, of our issued shares. As of December 31, 2004, a foreign investment fund and its related
parties collectively held a 14.85% stake in SK Corporation. Under a newly adopted amendment to the
Telecommunications Business Law, which became effective on May 9, 2004, a Korean entity, such as SK
Corporation, is deemed to be a foreign entity if its largest shareholder (determined by aggregating
the shareholdings of such shareholder and its related parties) is a foreigner and such shareholder
(together with the shareholdings of its related parties) holds 15% or more of the outstanding
voting stock of the Korean entity. Thus, effective from May 9, 2004, if the foreign investment fund
and its related parties increased their shareholdings in SK Corporation to 15% or more and such
foreign investment fund and its related parties collectively constituted the largest shareholder of
SK Corporation, SK Corporation would have been considered a foreign shareholder of SK Telecom, and
its shareholding in SK Telecom would have been included in the calculation of the aggregate foreign
shareholding of SK Telecom. If SK Corporations shareholding in SK Telecom were included in the calculation of the
aggregate foreign shareholding of SK Telecom, then the aggregate foreign shareholding in SK Telecom
assuming foreign ownership level as of December 31, 2004 (which we believe was 48.33%), would have
reached 69.8%, exceeding the 49% ceiling on foreign shareholding. If the aggregate foreign
shareholding limit in SK Telecom is exceeded, the MIC may issue a corrective order to SK Telecom,
the breaching shareholder (including SK Corporation if the breach is caused by an increase in
foreign ownership of SK Corporation) and any foreign investment fund and its related parties who
may own in the aggregate 15% or more of SK Corporation. Furthermore, SK Corporation may not
exercise its voting rights with respect to the shares held in excess of the 49% ceiling, which may
result in a change in control of us. In addition, the MIC may refuse to grant us licenses or
permits necessary for entering into new telecommunications businesses until the aggregate foreign
shareholding of SK Telecom is reduced to below 49%. If a corrective order is issued to us by the MIC arising from the violation of the foregoing
foreign ownership limit, and we do not comply within the prescribed period under such corrective
order, the MIC may (1) suspend all or part of our business, or (2) if the suspension of business is
deemed to result in significant inconvenience to our customers or be detrimental to the public
interest, impose a one-time administrative penalty of up to 3% of our sales revenues. The amendment
to the Telecommunications Business Law in May 2004 also authorizes the MIC to assess monetary
penalties of up to 0.3% of the purchase price of the shares for each day the corrective order is
not complied with, as well as a prison term of up to one year and a penalty of Won 50 million. See
Key Information  Risk Factors  If SK Corporation breaches the foreign ownership limitations on
SK Telecom, it may result in a change of control of us. and Information on the Company  Law and
Regulation  Foreign Ownership and Investment Restrictions and Requirements. 86




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On August 11, 2003 we concluded a stock buyback program which we had commenced on June 30,
2003. We acquired a total of 2,544,600 shares of our then-outstanding common stock, all of which
were cancelled on August 20, 2003. The total purchase price for the stock buyback was Won 524.4
billion (or an average of approximately Won 206,078.6 per share), with the price per share ranging
from Won 192,000 (on July 24, 2003) to Won 216,000 (on July 15-16, 2003). As a result of the stock
buyback and subsequent cancellation of shares, the total number of our outstanding common stock
declined from 84,821,311 to 82,276,711 as of December 31, 2003. Other than as disclosed herein, there are no other arrangements, to the best of our knowledge,
which would result in a material change in the control of us. Our major shareholders do not have
different voting rights. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS SK Networks We are a party to several contracts with SK Networks, including:  
    
    A series of real property sale and purchase contracts in November 2000
pursuant to which we purchased from SK Networks the building and land
where our new corporate headquarters is located. The aggregate
purchase price was Won 114.4 billion; and
    
    A series of sale and purchase agreements pursuant to which we and our
subsidiary, SK Teletech, sell handsets to SK Networks. The aggregate
sales to SK Networks pursuant to these contracts were Won 381.9
billion in 2002, Won 481.2 billion in 2003 and Won 581.6 billion in
2004. If SK Networks is required to sell off its leased line business, this may result in a
disruption of the service provided to us. However, we currently believe that it is not likely that
its creditors will require SK Networks to sell this business unit. In 2004, KT Corporation and SK
Networks provided approximately 21.0% and 65.0%, respectively, of our leased lines. SK Networks also serves as our distributor of handsets to a network of dealers. Samsung
Electronics Co., Ltd., LG Electronics Inc, Motorola
Korea, Inc. and Pantech & Curitel suspended their supply of handsets to SK Networks on April 7,
2003. In May 2003, all suppliers resumed their supply of handsets on the condition that payment on
their mobile phones be made in cash within one week of delivery. Previously, SK Networks issued
three-month promissory notes for payment to handset suppliers. As of December 31, 2004, we had Won 108.8 billion of accounts receivables from SK Network,
including receivables from handset sales of our subsidiary, SK Teletech. As of the same date, we
had Won 20.0 billion of accounts payable to SK Networks, mainly consisting of leased line charges
and commissions to dealers owned by SK Networks. For more information on SK Networks, see Key
Information  Risk Factors  Financial difficulties and charges of financial statement
irregularities at our affiliate, SK Networks (formerly SK Global), may have a material adverse
impact on our business and financial condition. Other Related Parties We are party to several contracts with SK Engineering and Construction related to the
construction of our new headquarters. The construction of our new headquarters was completed at the
end of 2004. The total paid to SK Engineering & Construction Co., Ltd., for the demolition of
buildings on the site on which our new headquarters was constructed and the construction of our new
headquarters was Won 209 billion. On July 22, 2003, we acquired 2,481,310 shares of POSCO common stock held by SK Corporation at
a price of Won 134,000 per share in accordance with a resolution of our board of directors dated
July 22, 2003. We 87




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decided to purchase the shares for strategic reasons in order to address overhang concerns arising
from POSCOs ownership of our shares. As of December 31, 2004, POSCO owned 4.98% of our shares. We are party to an agreement with SKC&C pursuant to which SKC&C provides us with information
technology services. This agreement will expire on December 31, 2009 but may be terminated by us at
any time without cause on six months prior notice. The agreement provides that the parties will
agree annually on the specific services to be provided and the monthly fees to be paid by us. We
also enter into agreements with SKC&C from time to time for specific information technology-related
projects. The aggregate fees we paid to SKC&C for information technology services amounted to Won
231.5 billion for 2002, Won 284.3 billion for 2003 and Won 295.6 billion for 2004. We also purchase
various information technology-related equipment from SKC&C from time to time. The total amount of
such purchases was Won 197.3 billion for 2002, Won 182.8 billion for 2003 and Won 130.2 billion for
2004. We are part of the SK Group of affiliated companies. See Major Shareholders and Related Party
Transactions  Major Shareholders. As disclosed in note 22 of our consolidated financial
statements, we had related party transactions with a number of affiliated companies of the SK Group
during the year ended December 31, 2004. In October 2003, the FTC ordered us to pay a fine of Won
5.1 billion in connection with our payment of advertisements on behalf of certain companies in the
SK Group. We paid the fine in December 2003. In September 1994, we provided DSS Mobile Communications, Ltd., a guarantee of a loan from
Sumitomo Bank in the amount of US$18,118,863. We paid the loan obligation of DSS Mobile
Communications, Ltd. to Sumitomo Bank in 2001 and have a claim against DSS Mobile Communications,
Ltd. for such payment. All other loans were made in the ordinary course of business, on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and did not involve more than the normal risks of
non-collection or present other unfavorable features. 
 Item. 8Financial Information CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION See Financial Statements and pages F-1 through F-68. LEGAL PROCEEDINGS FTC Proceedings On July 22, 2002, members of the SK Group (including SK Telecom, SK Corporation and SK
Networks), concurrently with several other large Korean conglomerates, received a notice from the
FTC requesting that these companies submit certain information, including financial statements and
information about related party transactions, to the FTC by August 3, 2002. This deadline was
extended to August 9, 2002, and we
provided the requested information to the FTC on that date. After concluding its
investigation, on October 29, 2002, the FTC ordered us to pay a fine of Won 175 million for
violating the disclosure rules concerning related party transactions, which we paid in full. On November 7, 2002, the FTC ordered us to pay a fine of Won 1.0 billion in connection
with certain misleading advertisements relating to Moneta, our mobile credit card. We, along with
LGT and KTF, advertised that there would be a Won 100,000 to Won 300,000 discount on the purchase
of wireless handsets when paid with a mobile credit card, such as Moneta. The advertisements were
found to be misleading by the FTC because the FTC concluded that we did not duly inform the
subscribers of an annual interest rate up to 9% to be accrued on the credit amount. KTF and LGT
were also fined Won 672 million and Won 384 million, respectively, for similar violations. The FTC
also ordered us to make a public announcement of such violation. We made such payment and the
public announcement of such violation as directed by the FTC in December 2002. 88




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In October 2003, the FTC ordered us, SK Corporation and SKC&C to pay fines of Won 1.0
billion, Won 0.9 billion and Won 0.9 billion, respectively, in connection with loans extended to SK
Life. FTC charged that the interest on the loans was below market-price. We paid the fine in
December 2003. However, we have filed an appeal, as we believe that the interest on the loans was
not below the interest rates customarily charged in the market. The appeal is currently pending. In October 2003, the FTC ordered us to pay a fine of Won 4.1 billion in connection with
our payment of advertisements on behalf of certain companies in the SK Group. We paid the fine in
December 2003. In March 2004, the FTC ordered us to pay a fine of Won 228 million for certain allegedly
misleading advertisements made by us with respect to our competition and the nature of our
services, which we paid in full in May 2004. LGT and KTF were also fined in connection with related
offenses. MIC Proceedings In March 2002, the MIC indicated its belief that certain incentive payments made to wireless
handset dealers by us and other wireless network service providers were being passed on to
purchasers of wireless handsets and therefore constituted improper handset subsidies. Consequently,
beginning in April 2002, we eliminated such incentives, and we believe that other wireless network
service providers also eliminated such incentives. On April 8, 2002, we, KTF, LGT and KT
Corporation were fined an aggregate of Won 20.0 billion by the MIC in respect of these incentive
payments. We paid in full a fine of Won 10.0 billion in April 2002. See Operating and Financial
Review and Prospects  Overview  Revenue. In July 2002, the MIC imposed on us (i) a total fine of Won 30 million for our and two of our
branches refusal (a fine of Won 10 million for each) to comply with the MICs request for
documents during the MICs spot investigations of possible handset subsidies, and (ii) a fine of
Won 1 billion for a temporary stoppage of KT Corporations short messaging service on our networks
for 17 hours without prior notice. We paid the fine in full in September 2002. On November 15, 2002, we received an order from the MIC prohibiting us from signing on
new subscribers for 30 days (from November 21, 2002 through December 20, 2002) for violating MICs
handset subsidy regulation. KTF and LGT were each prohibited from signing on new subscribers for 20
days. On March 26, 2003, we were ordered by the MIC to pay a fine of Won 300 million and to
make public announcements in four major newspapers for violating certain provisions of the
Telecommunications Business Act by not entering into written contracts with and checking personal
identification of subscribers for subscription of pre-paid wireless handsets, which is required to
prevent handsets from being used for criminal purposes. KTF and LGT were also fined Won 200 million
and Won 120 million, respectively, for the same violations. We made such payment and such public
announcements in April 2003. In February 2004, the MIC imposed a total fine of Won 2.0 billion on us in connection
with our marketing efforts related to the number portability system that was adopted by us in
January 2004. The fine was imposed in response to (i) the adoption of a voice recording identifying
our network upon connection of each outgoing call made on our network without the consent of our
subscribers and (ii) reverse-marketing calls made between January 1, 2004 and January 9, 2004
informing our subscribers of benefits that they would lose by switching to another operator. We
were ordered to make public announcements of these violations in major newspapers in Korea. In
February 2004, the MIC also imposed fines of Won 250 million and Won 150 million on KTF and LGT,
respectively, for their failure to accept cancellations of service by certain of their subscribers.
We made such payment in March 2004. In February 2004, the MIC imposed upon us a fine of Won 21.7 billion with respect to
other incentive payments that were deemed by the MIC to constitute improper handset subsidies and
thereby disrupt fair competition. We paid the fine in March 2004. In February 2004, KTF and KT
Corporation were also fined Won 7.5 billion and Won 4.1 billion, respectively, in respect of such
incentive payments. We filed an appeal, but the MIC upheld the fine in April 2004. 89




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In April 2004, the MIC ordered us, KTF, KT Corporation and LGT, to pay fines of Won 650
million, Won 170 million, Won 20 million and Won 100 million, respectively, for failing to
establish sufficient safeguards against the execution of telecommunications service contracts by
users using false names. We were found to have conveyed payment delinquency information to credit
rating companies without confirming that the names on the service contracts belonged to the actual
users of our services. We, along with KTF, KT Corporation and LGT, were ordered to publish the
violations in newspapers. We complied with such order and made such payment. In addition, when the MIC approved the merger of Shinsegi into us in January 2002, the MIC
imposed certain conditions on us. The MIC
periodically reviews our compliance with the conditions related to our merger with Shinsegi. On May
25, 2004, a policy advisory committee to the MIC announced the results of its review and stated
that the committee believed that our market dominance may significantly restrict competition in the
telecommunications market and that we have violated the conditions related to our merger with
Shinsegi by providing subsidies to handset buyers. In June 2004, the MIC imposed a Won 11.9 billion
fine on us and extended the post-merger monitoring period until January 2007 pursuant to the policy
advisory committees recommendation. On May 25, 2004, we voluntarily undertook to limit our market
share through the end of 2005 to 52.3% of the wireless telecommunications market, the level of our
market share at the time of the approval of our merger with Shinsegi in January 2002. We can give
no assurance that the MIC will not take action that may have a material adverse effect on our
business, operations and financial condition. See Key Information  Risk Factors  Our businesses
are subject to extensive Government regulation and any change in Government policy relating to the
telecommunications industry could have a material adverse effect on our results of operations and
financial condition. On June 7, 2004, the MIC prohibited us from acquiring new subscribers for a period of 40 days
beginning on August 20, 2004. The MIC also prohibited other telecommunications companies from
acquiring new subscribers for periods ranging from 20 to 30 days. KTF was issued a 30-day
suspension beginning on July 21, 2004; LGT was issued a 30-day suspension beginning on June 21,
2004; and KT Corporation was issued a 20-day suspension beginning on July 21, 2004. These
suspensions resulted from MICs determination that we violated the ban on providing subsidies to
handset purchasers. During the suspensions, each company was able to continue regular business
activities, including replacement of handsets, changes in user names, changes in mobile phone
numbers and changes in tariff plans applicable to the existing subscribers. On December 29, 2004, the MIC ordered us, KTF and LGT to pay fines of Won 7.5 billion,
Won 2 billion and Won 600 million, respectively, with respect to our payment of improper handset
subsidies. We were more heavily fined than the other two companies as the FTC found that our
efforts to remedy such violations were not sufficient and that our payment of such subsidies was in
violation of the conditions related to our merger with Shinsegi in January 2002. We made such
payment in January 2005. On March 21, 2005, the MIC ordered us, KTF and LGT to pay fines of Won 1.4 billion, Won
360 million and Won 230 million, respectively, for changing calling plans and adding value-added
services to the subscribers without obtaining express consents of such subscribers. We paid such
fine in April 2005. In May 2005, the MIC ordered us to pay fines of Won 23.1 billion with respect to our
payment of improper handset subsidies. LGT and KTF were also fined Won 2.7 billion and Won 1.1
billion, respectively, in respect of improper subsidy payments. We were more heavily fined than the
other two companies as the FTC found that our efforts to remedy such violations were not sufficient
and that our payment of such subsidies was in violation of the conditions related to our merger
with Shinsegi in January 2002. 90




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Multinet Litigation In October 2002, Korea Multinet Inc. (Multinet) filed a lawsuit against the MIC in the Seoul
Administrative Court to revoke the MICs registration with the International Telecommunication
Union for the frequency spectrum necessary for DMB businesses. Multinet had been previously granted
the right to use this frequency by the MIC, but their right had been granted on the condition that
Multinet would renounce its right to use the frequency upon implementation of a DMB business (to
the extent necessary for the operation of our DMB business) and that Multinet would comply with any
directive of the MIC to reallocate the frequency. The Seoul Administrative Court ruled in favor of
the MIC in December 2002. Multinet filed an appeal with the Seoul High Court, but the Seoul High
Court ruled in favor of the MIC in June 2004. Multinet again appealed the case and the case is now
pending in the Supreme Court of Korea. Based on the application and registration with the International Telecommunication Union for
such frequency spectrum, the MIC has allotted us a frequency with a license to run DMB business as
a network service operator. Multinet, in June 2004 and September 2004, filed two lawsuits against
the MIC to revoke such allotment by the MIC. One lawsuit involved a demand for the cancellation of
the public notice of the allotment by the MIC, the other to revoke such allotment and the license
to run DMB business as a network service operator by the MIC. The cases are currently pending in
the court of first instance. In connection with these cases, Multinet also filed two lawsuits for
preliminary injunction against MIC, one to restrain MIC from allocating the frequency to us and the
other to restrain MIC from granting us the license to run DMB business as a network service
operator. The court ruled against Multinet and denied injunctive relief, in both the court of first
instance and in the appellate court. The case is now pending at the Supreme Court of Korea. Coloring Litigation In November 2002, in connection with certain technology we use to provide our coloring
service, Mr. Park Won-Seop filed a lawsuit against us in the Seoul Central District Court. In the
lawsuit, Mr. Park alleged that our coloring service infringed upon his patent rights. While the
lawsuit is currently pending before the Seoul Central District Court, we sought an administrative
action to nullify Mr. Parks patent rights in the Intellectual Property Tribunal. The Tribunal
upheld the nullification of Mr. Parks patent rights. Mr. Park appealed the decision, and the
appeal is currently pending before the Patent Court. Except as described above, neither we nor any of our subsidiaries are involved in any
litigation, arbitration or administrative proceedings relating to claims which may have, or have
had during the twelve months preceding the date hereof, a significant effect on our financial
position or the financial position of our subsidiaries taken as a whole, and, so far as we are
aware, no such litigation, arbitration or administrative proceedings are pending or threatened. 91




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DIVIDENDS Annual dividends, if any, on our outstanding shares must be approved at the annual general
meeting of shareholders. This meeting is generally held in March of the following year, and the
annual dividend is generally paid shortly after the meeting. Since our shareholders have discretion
to declare annual dividends, we cannot give any assurance as to the amount of dividends per share
or that any dividends will be declared at all. Interim dividends, if any, can be approved by a
resolution of our board of directors. Once declared, dividends must be claimed within five years,
after which the right to receive the dividends is extinguished. We pay cash dividends to the ADR depositary in Won. Under the terms of the deposit agreement,
cash dividends received by the ADR depositary generally are to be converted by the ADR depositary
into Dollars and distributed to the holders of the ADSs, less withholding tax, other governmental
charges and the ADR depositarys fees and expenses. The ADR depositarys designated bank in Korea
must approve this conversion and remittance of cash dividends. See Additional Information  Korean
Foreign Exchange Controls and Securities Regulations and Additional Information  Taxation 
Korean Taxation. The following table sets forth the dividend per share, the aggregate total amount of
dividends, as well as the number of outstanding shares entitled to dividends to the shareholders of
record on December 31 of the years indicated. The dividends set out for each of the years below
were paid in the immediately following year. Number of SharesDividend
    
    
    Total Amount of
    
    
    Entitled toYear Ended December 31,
    
    Per Share
    
    
    Dividends
    
    
    Dividend(In Won)(1)
    
    
    (In billions of Won)1997
    
    
    W      90
    
    
    
    W    5.6
    
    
    
    62,169,7201998
    
    
    118
    
    
    
    7.6
    
    
    
    64,258,6701999
    
    
    185
    
    
    
    15.4
    
    
    
    83,284,1102000
    
    
    540
    
    
    
    48.1
    
    
    
    89,079,0342001
    
    
    690
    
    
    
    57.3
    
    
    
    82,993,4042002
    
    
    1,800
    
    
    
    151.7
    
    
    
    84,299,6982003
    
    
    5,500
    
    
    
    404.9
    
    
    
    73,614,3082004
    
    
    10,300
    
    
    
    758.2
    
    
    
    73,614,296
  (1)
    
    Dividend per share and amount of shares entitled to dividend have been
adjusted to give effect to the 10-for-1 stock split of our common
shares which became effective on April 21, 2000. We distribute dividends to our shareholders in proportion to the number of shares owned by
each shareholder. The common shares represented by the ADSs have the same dividend rights as other
outstanding common shares. Holders of non-voting shares are entitled to receive dividends in priority to the holders of
common shares. The dividend on the non-voting shares is between 9.0% and 25.0% of the par value as
determined by the board of directors at the time of their issuance. If the dividends for common
shares exceed the dividends for non-voting shares, the holders of non-voting shares will be
entitled to participate in the distribution of such excess amount with the holders of common
shares. If the amount available for dividends is less than the aggregate amount of the minimum
required dividend, holders of non-voting shares will be entitled to receive such accumulated unpaid
dividend from dividends payable in the next fiscal year before holders of common shares. There are
no non-voting shares issued or outstanding. 92




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Under the Korean Commercial Code, we may pay an annual dividend only out of the excess of our
net assets, on a non-consolidated basis, over the sum of (1) our stated capital and (2) the total
amount of our capital surplus reserve and legal reserve accumulated up to the end of the relevant
dividend period. In addition, we may not pay an annual dividend unless we have set aside as a legal
reserve an amount equal to at least 10% of the cash portion of the annual dividend or until we have
accumulated a legal reserve of not less than one-half of our stated capital. As a KRX Stock
Market-listed company, we are also required under the relevant laws and regulations to set aside in
reserve a certain amount each fiscal year until the ratio of our own capital to total assets is at
least 30%. We may not use our legal reserve to pay cash dividends but may transfer amounts from our
legal reserve to capital stock or use our legal reserve to reduce an accumulated deficit. In addition, the Korean Commercial Code and our articles of incorporation provide that, in
addition to annual dividends, we may pay interim dividends once during each fiscal year. Unlike
annual dividends, the decision to pay interim dividends can be made by a resolution of the board of
directors and is not subject to shareholder approval. Any interim dividends must be paid in cash to
the shareholders of record as of June 30 of the relevant fiscal year. In August 2004, we
distributed such interim dividends at Won 1,000 per share to our shareholders for a total amount of
Won 73.6 billion. Under the Korean Securities and Exchange Act, the total amount of interim dividends payable in
a fiscal year shall not be more than the net assets on the balance sheet of the immediately
preceding fiscal year, after deducting (1) a companys capital in the immediately preceding fiscal
year, (2) the aggregate amount of its capital reserves and legal reserves accumulated up to the
immediately preceding fiscal year, (3) the amount of earnings for dividend payments confirmed at
the general shareholders meeting with respect to the immediately preceding fiscal year and (4) the
amount of legal reserve that should be set aside for the current fiscal year following the interim
dividend payment. Furthermore, the rate of interim dividends for non-voting shares must be the same
as that for our common shares. Our obligation to pay interim dividends expires if no claims to such dividends are
made for a period of five years from the payment date. CAPITALIZATION The following table sets forth our consolidated short-term debt and capitalization under
Korean GAAP as of December 31, 2004. For additional information, see our consolidated financial
statements and notes to consolidated financial statements contained in this report. As of December 31, 2004Actual
    
    
    Actual(In billions of
    
    
    (In millions ofWon)
    
    
    Dollars)Short-term debt (including current portion of long-term debt):Short-term borrowingsSecured
    
    W
    
    
    
    US$
    Guaranteed
    
    
    
    
    
    
    Unsecured and unguaranteed
    
    
    425.5
    
    
    
    411.1Current portion of long-term debt and other obligations SecuredGuaranteed
    
    
    
    
    
    
    Unsecured and unguaranteed
    
    
    498.3
    
    
    
    481.4Current portion of facility deposits
    
    
    13.4
    
    
    
    13.0Total short-term debt
    
    W
    937.2
    
    
    US$
    905.5Long-term debt, excluding current portion:Facility deposits
    
    W
    31.4
    
    
    US$
    30.4Long-term borrowings and other obligationsSecured
    
    
    
    
    
    
    Guaranteed
    
    
    
    
    
    
    Unsecured and unguaranteed (note a)
    
    
    2,891.8
    
    
    
    2,793.8Total long-term debt, excluding current portion
    
    W
    2,923.2
    
    
    US$
    2,824.2Stockholders equity:Common stock, par value W500 per share:Authorized  220,000,000 shares
Outstanding  73,614,296 shares
    
    W
    44.6
    
    
    US$
    43.1Capital surplus
    
    
    2,968.3
    
    
    
    2,867.6Retained earnings:Appropriated
    
    
    4,733.9
    
    
    
    4,573.3Unappropriated
    
    
    1,419.0
    
    
    
    1,370.9Capital adjustments:Treasury stock
    
    
    (2,047.1
    )
    
    
    (1,977.7
    )Foreign-based operations translation credit
    
    
    (8.0
    )
    
    
    (7.7
    )Stock options
    
    
    4.8
    
    
    
    4.7Unrealized losses on valuation of investment securities
    
    
    (93.0
    )
    
    
    (89.8
    )Equity in capital adjustments of affiliates
    
    
    134.4
    
    
    
    129.8Loss on valuation of currency swap
    
    
    (49.4
    )
    
    
    (47.7
    )Minority interest in equity of consolidated subsidiaries
    
    
    98.2
    
    
    
    94.9Total stockholders equity
    
    W
    7,205.7
    
    
    US$
    6,961.4Total capitalization (total long-term debt, excluding current portion, and stockholders equity)
    
    W
    10,128.9
    
    
    US$
    9,785.6
 
 (note a) In March 2005, we issued Won-denominated notes in the principal amount of Won 200.0
billion, with an interest rate of 4.0% due 2010. The proceeds of such notes were used to pay
maturing debt. 
 Item. 9The Offer and Listing MARKET PRICE INFORMATION The principal trading market for our common stock is the KRX Stock Market. As of May 24, 2005,
82,276,711 shares of our common stock were outstanding. The ADSs are traded on the New York Stock Exchange and the London Stock Exchange. The ADSs
have been issued by the ADR depositary and are traded on the New York Stock Exchange under the
symbol SKM. Each ADS represents one-ninth of one share of common stock. As of May 30, 2004,
202,629,978 ADSs representing 22,514,442 shares of our common stock were outstanding. 93




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##### Table of Contents



Shares of Common Stock The following table sets forth the high, low and closing prices and the average daily trading
volume of the shares of common stock on the KRX Stock Market since January 1, 2000: Prices(1)Average DailyCalendar Year
    
    High(2)
    
    
    Low(2)
    
    
    Close
    
    
    Trading Volume(Number of shares)(Won per share)2000
    
    
    481,000
    
    
    
    216,000
    
    
    
    253,000
    
    
    
    262,660First Quarter
    
    
    481,000
    
    
    
    323,000
    
    
    
    360,000
    
    
    
    238,762Second Quarter
    
    
    406,000
    
    
    
    263,500
    
    
    
    365,000
    
    
    
    311,828Third Quarter
    
    
    379,000
    
    
    
    216,000
    
    
    
    272,000
    
    
    
    239,913Fourth Quarter
    
    
    288,000
    
    
    
    230,000
    
    
    
    253,000
    
    
    
    261,7532001
    
    
    295,000
    
    
    
    165,000
    
    
    
    268,000
    
    
    
    242,254First Quarter
    
    
    293,500
    
    
    
    182,000
    
    
    
    183,000
    
    
    
    253,393Second Quarter
    
    
    235,500
    
    
    
    165,000
    
    
    
    191,500
    
    
    
    312,070Third Quarter
    
    
    233,000
    
    
    
    184,500
    
    
    
    208,000
    
    
    
    154,785Fourth Quarter
    
    
    295,000
    
    
    
    220,000
    
    
    
    268,000
    
    
    
    250,6762002
    
    
    299,000
    
    
    
    209,500
    
    
    
    229,000
    
    
    
    261,482First Quarter
    
    
    299,000
    
    
    
    242,000
    
    
    
    290,000
    
    
    
    263,168Second Quarter
    
    
    292,000
    
    
    
    239,000
    
    
    
    269,500
    
    
    
    227,115Third Quarter
    
    
    279,500
    
    
    
    209.500
    
    
    
    237,000
    
    
    
    241,154Fourth Quarter
    
    
    252,500
    
    
    
    220,000
    
    
    
    229,000
    
    
    
    314,0192003
    
    
    235,000
    
    
    
    142,000
    
    
    
    199,000
    
    
    
    327,689First Quarter
    
    
    235,000
    
    
    
    142,000
    
    
    
    153,000
    
    
    
    497,115Second Quarter
    
    
    210,000
    
    
    
    157,500
    
    
    
    204,000
    
    
    
    298,346Third Quarter
    
    
    216,000
    
    
    
    183,000
    
    
    
    184,000
    
    
    
    267,821Fourth Quarter
    
    
    212,500
    
    
    
    185,000
    
    
    
    199,000
    
    
    
    247,3322004
    
    
    238,500
    
    
    
    154,500
    
    
    
    197,000
    
    
    
    179,712First Quarter
    
    
    238,500
    
    
    
    207,500
    
    
    
    214,500
    
    
    
    243,681Second Quarter
    
    
    213,000
    
    
    
    179,000
    
    
    
    190,000
    
    
    
    188,095Third Quarter
    
    
    186,000
    
    
    
    154,500
    
    
    
    175,500
    
    
    
    137,559Fourth Quarter
    
    
    205,000
    
    
    
    174,500
    
    
    
    197,000
    
    
    
    151,9032005 (through May 24)
    
    
    200,500
    
    
    
    163,500
    
    
    
    176,000
    
    
    
    173,530First Quarter
    
    
    200,500
    
    
    
    171,000
    
    
    
    171,000
    
    
    
    202,857January
    
    
    200,500
    
    
    
    179,000
    
    
    
    179,000
    
    
    
    175,817February
    
    
    184,000
    
    
    
    176,500
    
    
    
    181,000
    
    
    
    266,888March
    
    
    184,500
    
    
    
    171,000
    
    
    
    171,000
    
    
    
    179,188Second Quarter (through May 24)
    
    
    176,500
    
    
    
    163,500
    
    
    
    176,000
    
    
    
    124,651April
    
    
    172,000
    
    
    
    163,500
    
    
    
    163,500
    
    
    
    148,913May (through May 24)
    
    
    176,500
    
    
    
    168,000
    
    
    
    176,000
    
    
    
    94,324
 
 Source: KRX(1)
    
    The price give effect to the 10-for-1 stock split of our common shares which
became effective on April 21, 2000 and resulted in the par value of each
share being reduced from Won 5,000 to Won 500.(2)
    
    Both high and low prices are based on the daily closing prices for the period. 94




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##### Table of Contents



American Depositary Shares The following table sets forth the high, low and closing prices and the average daily trading
volume of the ADSs on the New York Stock Exchange since January 1, 2000: Prices(1)Average DailyHigh(2)
    
    
    Low(2)
    
    
    Close
    
    
    Trading Volume(US$ per ADS)
    
    
    
    
    
    
    (Number of ADSs)2000
    
    
    50.69
    
    
    
    20.56
    
    
    
    23.56
    
    
    
    832,301First Quarter
    
    
    50.69
    
    
    
    33.50
    
    
    
    39.00
    
    
    
    964,229Second Quarter
    
    
    43.31
    
    
    
    28.25
    
    
    
    36.31
    
    
    
    781,578Third Quarter
    
    
    43.44
    
    
    
    20.56
    
    
    
    25.63
    
    
    
    810,021Fourth Quarter
    
    
    28.19
    
    
    
    21.31
    
    
    
    23.56
    
    
    
    773,3762001
    
    
    28.94
    
    
    
    13.50
    
    
    
    21.62
    
    
    
    710,410First Quarter
    
    
    28.94
    
    
    
    15.18
    
    
    
    15.18
    
    
    
    743,602Second Quarter
    
    
    21.05
    
    
    
    13.50
    
    
    
    16.90
    
    
    
    817,532Third Quarter
    
    
    20.21
    
    
    
    16.15
    
    
    
    18.44
    
    
    
    655,302Fourth Quarter
    
    
    25.29
    
    
    
    18.26
    
    
    
    21.62
    
    
    
    623,6112002
    
    
    26.75
    
    
    
    19.25
    
    
    
    21.35
    
    
    
    684,421First Quarter
    
    
    24.70
    
    
    
    20.30
    
    
    
    24.60
    
    
    
    488,958Second Quarter
    
    
    26.75
    
    
    
    20.20
    
    
    
    24.40
    
    
    
    555,865Third Quarter
    
    
    26.36
    
    
    
    19.25
    
    
    
    21.23
    
    
    
    963,578Fourth Quarter
    
    
    22.81
    
    
    
    19.30
    
    
    
    21.35
    
    
    
    717,8592003
    
    
    21.85
    
    
    
    12.83
    
    
    
    18.65
    
    
    
    743,316First Quarter
    
    
    21.85
    
    
    
    12.83
    
    
    
    13.62
    
    
    
    971,259Second Quarter
    
    
    19.40
    
    
    
    14.07
    
    
    
    18.86
    
    
    
    723,959Third Quarter
    
    
    20.83
    
    
    
    17.71
    
    
    
    17.84
    
    
    
    724,406Fourth Quarter
    
    
    19.90
    
    
    
    17.46
    
    
    
    18.65
    
    
    
    564,0232004
    
    
    25.01
    
    
    
    17.28
    
    
    
    22.25
    
    
    
    911.823First Quarter
    
    
    25.01
    
    
    
    19.43
    
    
    
    21.30
    
    
    
    1,331,177Second Quarter
    
    
    21.83
    
    
    
    19.15
    
    
    
    20.99
    
    
    
    832,175Third Quarter
    
    
    20.76
    
    
    
    17.28
    
    
    
    19.45
    
    
    
    768,117Fourth Quarter
    
    
    23.10
    
    
    
    19.30
    
    
    
    22.25
    
    
    
    727,6832005 (through May 24)
    
    
    22.19
    
    
    
    18.96
    
    
    
    20.11
    
    
    
    748,222First Quarter
    
    
    22.19
    
    
    
    19.41
    
    
    
    19.72
    
    
    
    798,390January
    
    
    22.19
    
    
    
    19.96
    
    
    
    19.96
    
    
    
    767,815February
    
    
    21.30
    
    
    
    19.74
    
    
    
    21.30
    
    
    
    931,705March
    
    
    21.62
    
    
    
    19.41
    
    
    
    19.72
    
    
    
    711,050Second Quarter (through May 24)
    
    
    20.22
    
    
    
    18.96
    
    
    
    20.11
    
    
    
    667,689April
    
    
    19.60
    
    
    
    18.96
    
    
    
    19.46
    
    
    
    699,167May (through May 24)
    
    
    20.22
    
    
    
    19.42
    
    
    
    20.11
    
    
    
    628,806
 
 Source: New York Stock Exchange(1)
    
    The price give effect to the 10-for-1 stock split of our common shares which
became effective on April 21, 2000 and resulted in the par value of each
share being reduced from Won 5,000 to Won 500.(2)
    
    Both high and low prices are based on the daily closing prices for the period. 95




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##### Table of Contents



THE KOREAN SECURITIES MARKET The Korea Exchange Inc. With the enactment of the Korea Stock and Futures Exchange Act, which came into effect on
January 27, 2005, the three existing spot and futures exchanges (which were the Korea Stock
Exchange, Korean Futures Exchange, and KOSDAQ) and Kosdaq Committee, a sub-organization of Korea
Securities Dealers Association, were merged and integrated into the Korea Exchange, Inc. (the
KRX). There are three different markets run by the KRX: the KRX Stock Market, the KRX KOSDAQ
Market, and the Futures Market (the KRX Futures Market). The KRX has two trading floors located
in Seoul, one for the KRX Stock Market and one for the KRX KOSDAQ Market, and one trading floor in
Busan for the KRX Futures Market. The KRX is a limited liability company, the shares of which are
held by (i) securities companies and futures companies that were the members of the Korea Stock
Exchange and the Korea Futures Exchange and (ii) the stockholders of the KOSDAQ. Currently, the KRX
is the only stock exchange in Korea and is run by membership, having most of Korean securities
companies and some Korean branches of foreign securities companies as its members. As of May 20, 2005, the aggregate market value of equity securities listed on the KRX
Stock Market was approximately Won 442.1 trillion. The average daily trading volume of equity
securities for 2004 was approximately 372.9 million shares with an average transaction value of Won
2,232.1 billion and for the period from January 1, 2005 through May 20, 2005 was approximately
458.0 million shares with an average transaction value of Won 2,515.2 billion. The KRX has the power in some circumstances to suspend trading in the shares of a given
company or to de-list a security. The KRX also restricts share price movements. All listed
companies are required to file accounting reports annually, semi-annually and quarterly and to
release immediately all information that may affect trading in a security. The Government has in the past exerted, and continues to exert, substantial influence
over many aspects of the private sector business community which can have the intention or effect
of depressing or boosting the market. In the past, the Government has informally both encouraged
and restricted the declaration and payment of dividends, induced mergers to reduce what it
considers excess capacity in a particular industry and induced private companies to offer publicly
their securities. The KRX publishes the Korea Composite Stock Price Index, or KOSPI, every ten seconds,
which is an index of all equity securities listed on the KRX Stock Market. On January 1, 1983, the
method of computing KOSPI was changed from the Dow Jones method to the aggregate value method. In
the new method, the market capitalizations of all listed companies are aggregated, subject to
certain adjustments, and this aggregate is expressed as a percentage of the aggregate market
capitalization of all listed companies as of the base date, January 4, 1980. 96




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##### Table of Contents



Movements in KOSPI are set out in the following table together with the associated dividend
yields and price to earnings ratios: Period AveragePriceDividend
    
    
    EarningsYear
    
    Opening
    
    
    High
    
    
    Low
    
    
    Closing
    
    
    Yield(1)(%)
    
    
    Ratio(2)1980
    
    
    100.00
    
    
    
    119.36
    
    
    
    100.00
    
    
    
    106.87
    
    
    
    20.9
    
    
    
    2.61981
    
    
    97.95
    
    
    
    165.95
    
    
    
    93.14
    
    
    
    131.37
    
    
    
    13.2
    
    
    
    3.11982
    
    
    123.60
    
    
    
    134.49
    
    
    
    106.00
    
    
    
    127.31
    
    
    
    10.5
    
    
    
    3.41983
    
    
    122.52
    
    
    
    134.46
    
    
    
    115.59
    
    
    
    121.21
    
    
    
    6.9
    
    
    
    3.81984
    
    
    116.73
    
    
    
    142.46
    
    
    
    114.37
    
    
    
    142.46
    
    
    
    5.1
    
    
    
    4.51985
    
    
    139.53
    
    
    
    163.37
    
    
    
    131.40
    
    
    
    163.37
    
    
    
    5.3
    
    
    
    5.21986
    
    
    161.40
    
    
    
    279.67
    
    
    
    153.85
    
    
    
    272.61
    
    
    
    4.3
    
    
    
    7.61987
    
    
    264.82
    
    
    
    525.11
    
    
    
    264.82
    
    
    
    525.11
    
    
    
    2.6
    
    
    
    10.91988
    
    
    532.04
    
    
    
    922.56
    
    
    
    527.89
    
    
    
    907.20
    
    
    
    2.4
    
    
    
    11.21989
    
    
    919.61
    
    
    
    1,007.77
    
    
    
    844.75
    
    
    
    909.72
    
    
    
    2.0
    
    
    
    13.91990
    
    
    908.59
    
    
    
    928.77
    
    
    
    566.27
    
    
    
    696.11
    
    
    
    2.2
    
    
    
    12.81991
    
    
    679.75
    
    
    
    763.10
    
    
    
    586.51
    
    
    
    610.92
    
    
    
    2.6
    
    
    
    11.21992
    
    
    624.23
    
    
    
    691.48
    
    
    
    459.07
    
    
    
    678.44
    
    
    
    2.2
    
    
    
    10.91993
    
    
    697.41
    
    
    
    874.10
    
    
    
    605.93
    
    
    
    866.18
    
    
    
    1.6
    
    
    
    12.71994
    
    
    879.32
    
    
    
    1,138.75
    
    
    
    860.47
    
    
    
    1,027.37
    
    
    
    1.2
    
    
    
    16.21995
    
    
    1,013.57
    
    
    
    1,016.77
    
    
    
    847.09
    
    
    
    882.94
    
    
    
    1.2
    
    
    
    16.41996
    
    
    888.85
    
    
    
    986.84
    
    
    
    651.22
    
    
    
    651.22
    
    
    
    1.3
    
    
    
    17.81997
    
    
    653.79
    
    
    
    792.29
    
    
    
    350.68
    
    
    
    376.31
    
    
    
    1.5
    
    
    
    17.01998
    
    
    385.49
    
    
    
    579.86
    
    
    
    280.00
    
    
    
    562.46
    
    
    
    1.9
    
    
    
    10.81999
    
    
    587.57
    
    
    
    1,028.07
    
    
    
    498.42
    
    
    
    1,028.07
    
    
    
    1.1
    
    
    
    13.52000
    
    
    1,059.04
    
    
    
    1,059.04
    
    
    
    500.60
    
    
    
    504.62
    
    
    
    1.6
    (3)
    
    
    18.6
    (3)2001
    
    
    520.95
    
    
    
    704.50
    
    
    
    468.76
    
    
    
    693.70
    
    
    
    2.0
    (3)
    
    
    14.2
    (3)2002
    
    
    724.95
    
    
    
    937.61
    
    
    
    584.04
    
    
    
    829.44
    
    
    
    1.4
    (3)
    
    
    17.9
    (3)2003
    
    
    653.17
    
    
    
    822.16
    
    
    
    515.24
    
    
    
    810.71
    
    
    
    2.1
    (3)
    
    
    11.7
    (3)2004
    
    
    821.26
    
    
    
    936.06
    
    
    
    719.59
    
    
    
    895.92
    
    
    
    2.6
    (3)
    
    
    7.1
    (3)2005 (through May 20)
    
    
    893.71
    
    
    
    1,022.79
    
    
    
    870.84
    
    
    
    952.19
    
    
    
    N/A
    
    
    
    N/A
 
 Source: KRX(1)
    
    Dividend yields are based on daily figures. Before 1983, dividend yields were calculated at the end of
each month. Dividend yields after January 3, 1984 include cash dividends only.(2)
    
    The price to earnings ratio is based on figures for companies that record a profit in the preceding year.(3)
    
    Starting in April 2000, dividend yield and price earnings ratio of KOSPI 200, an index of 200 equity
securities listed on the KRX Stock Market. Starting in April 2000, excludes classified companies,
companies which did not submit annual reports to the KRX, and companies which received disqualified
opinion from external auditors. Shares are quoted ex-dividend on the first trading day of the relevant companys accounting
period. Since the calendar year is the accounting period for the majority of listed companies, this
may account for the drop in KOSPI between its closing level at the end of one calendar year and its
opening level at the beginning of the following calendar year. With certain exceptions, principally to take account of a share being quoted ex-dividend and
ex-rights, permitted upward and downward movements in share prices of any category of shares on
any day are limited 97




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##### Table of Contents



under the rules of the KRX to 15.0% of the previous days closing price of the shares, rounded down
as set out below: Rounded DownPrevious
Days Closing Price (Won)
    
    to (Won)Less than 5,000
    
    W
    55,000 to less than 10,000
    
    
    1010,000 to less than 50,000
    
    
    5050,000 to less than 100,000
    
    
    100100,000 to less than 500,000
    
    
    500500,000 or more
    
    
    1,000
 As a consequence, if a particular closing price is the same as the price set by the
fluctuation limit, the closing price may not reflect the price at which persons would have been
prepared, or would be prepared to continue, if so permitted, to buy and sell shares. Orders are
executed on an auction system with priority rules to deal with competing bids and offers. Due to a recent deregulation of restrictions on brokerage commission rates, the brokerage
commission rate on equity securities transactions may be determined by the parties, subject to
commission schedules being filed with the KRX by the securities companies. In addition, a
securities transaction tax of 0.15% of the sales price will generally be imposed on the transfer of
shares or certain securities representing rights to subscribe for shares. A special agricultural
and fishery tax of 0.15% of the sales prices will also be imposed on transfer of these shares and
securities on the KRX Stock Market. See Additional Information Taxation  Korean Taxation. 98




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##### Table of Contents



The following table sets forth the number of companies listed on the KRX Stock Market, the
corresponding total market capitalization and the average daily trading volume at the end of the
periods indicated: Market Capitalizationon the Last Day of Each Period
    
    
    Average Daily Trading Volume & ValueNumber ofListed
    
    
    (Millions of
    
    
    (Thousands of
    
    
    Thousands
    
    
    (Millions of
    
    
    (Thousands ofYear
    
    Companies
    
    
    Won)
    
    
    Dollars)(1)
    
    
    of Shares
    
    
    Won)
    
    
    Dollars)(1)1980
    
    
    352
    
    
    W
    2,526,553
    
    
    US$
    3,828,691
    
    
    
    5,654
    
    
    W
    3,897
    
    
    US$
    5,9051981
    
    
    343
    
    
    
    2,959,057
    
    
    
    4,224,207
    
    
    
    10,565
    
    
    
    8,708
    
    
    
    12,4331982
    
    
    334
    
    
    
    3,000,494
    
    
    
    4,407,711
    
    
    
    9,704
    
    
    
    6,667
    
    
    
    8,9041983
    
    
    328
    
    
    
    3,489,654
    
    
    
    4,386,743
    
    
    
    9,325
    
    
    
    5,941
    
    
    
    7,4681984
    
    
    336
    
    
    
    5,148,460
    
    
    
    6,222,456
    
    
    
    14,847
    
    
    
    10,642
    
    
    
    12,8621985
    
    
    342
    
    
    
    6,570,404
    
    
    
    7,380,818
    
    
    
    18,925
    
    
    
    12,315
    
    
    
    13,8341986
    
    
    355
    
    
    
    11,994,233
    
    
    
    13,924,115
    
    
    
    31,755
    
    
    
    32,870
    
    
    
    38,1591987
    
    
    389
    
    
    
    26,172,174
    
    
    
    33,033,162
    
    
    
    20,353
    
    
    
    70,185
    
    
    
    88,5841988
    
    
    502
    
    
    
    64,543,685
    
    
    
    94,348,318
    
    
    
    10,367
    
    
    
    198,364
    
    
    
    289,9631989
    
    
    626
    
    
    
    95,476,774
    
    
    
    140,489,660
    
    
    
    11,757
    
    
    
    280,967
    
    
    
    414,4311990
    
    
    669
    
    
    
    79,019,676
    
    
    
    110,301,055
    
    
    
    10,866
    
    
    
    183,692
    
    
    
    256,5001991
    
    
    686
    
    
    
    73,117,833
    
    
    
    96,182,364
    
    
    
    14,022
    
    
    
    214,263
    
    
    
    281,8501992
    
    
    688
    
    
    
    84,711,982
    
    
    
    107,502,515
    
    
    
    24,028
    
    
    
    308,246
    
    
    
    391,1751993
    
    
    693
    
    
    
    112,665,260
    
    
    
    139,419,948
    
    
    
    35,130
    
    
    
    574,048
    
    
    
    676,9541994
    
    
    699
    
    
    
    151,217,231
    
    
    
    191,729,721
    
    
    
    36,862
    
    
    
    776,257
    
    
    
    984,2231995
    
    
    721
    
    
    
    141,151,399
    
    
    
    182,201,367
    
    
    
    26,130
    
    
    
    487,762
    
    
    
    629,6141996
    
    
    760
    
    
    
    117,369,988
    
    
    
    139,031,021
    
    
    
    26,571
    
    
    
    486,834
    
    
    
    575,7331997
    
    
    776
    
    
    
    70,988,897
    
    
    
    50,161,742
    
    
    
    41,525
    
    
    
    555,759
    
    
    
    392,7071998
    
    
    748
    
    
    
    137,798,451
    
    
    
    114,090,455
    
    
    
    97,716
    
    
    
    660,429
    
    
    
    471,4321999
    
    
    725
    
    
    
    349,503,966
    
    
    
    305,137,040
    
    
    
    278,551
    
    
    
    3,481,620
    
    
    
    3,039,6542000
    
    
    704
    
    
    
    188,041,490
    
    
    
    150,162,898
    
    
    
    306,163
    
    
    
    2,602,211
    
    
    
    2,078,0282001
    
    
    689
    
    
    
    225,850,076
    
    
    
    194,784,979
    
    
    
    473,241
    
    
    
    1,997,420
    
    
    
    1,520,6852002
    
    
    683
    
    
    
    258,680,756
    
    
    
    218,167,122
    
    
    
    851,242
    
    
    
    3,041,592
    
    
    
    2,414,3622003
    
    
    684
    
    
    
    355,362,626
    
    
    
    297,960,530
    
    
    
    542,010
    
    
    
    2,216,636
    
    
    
    1,858,5802004
    
    
    683
    
    
    
    412,588,138
    
    
    
    427,069,982
    
    
    
    372,894
    
    
    
    2,232,108
    
    
    
    2,310,4552005 (through May
24)
    
    
    655
    
    
    
    442,054,261
    
    
    
    445,148,641
    
    
    
    458,023
    
    
    
    2,515,201
    
    
    
    2,532,808
 
 Source: KRX(1)
    
    Converted at the noon buying rate in The City of New York for cable
transfers in Won per US$1.00 as certified for customs purposes by the
Federal Reserve Bank of New York. The Korean securities markets are principally regulated by the Financial Supervisory
Commission of Korea and the Korean Securities and Exchange Act. The Korean Securities and Exchange
Act was amended fundamentally numerous times in recent years to broaden the scope and improve the
effectiveness of official supervision of the securities markets. As amended, the law imposes
restrictions on insider trading and price manipulation, requires specified information to be made
available by listed companies to investors and establishes rules regarding margin trading, proxy
solicitation, takeover bids, acquisition of treasury shares and reporting requirements for
shareholders holding substantial interests. 99




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Further Opening of the Korean Securities Market A stock index futures market was opened on May 3, 1996 and a stock index option market was
opened on July 7, 1997, in each case at the Korea Stock Exchange. Remittance and repatriation of
funds in connection with investment in stock index futures and options are subject to regulations
similar to those that govern remittance and repatriation in the context of foreign investment in
Korean stocks. In addition, the Korea Stock Exchange opened new option markets for stocks of seven
companies including our shares of common stock and common stock of six other companies on January
28, 2002. Foreigners will be permitted to invest in such options for individual stocks subject to
certain procedural requirements. Starting from May 1, 1996, foreign investors were permitted to invest in warrants
representing the right to subscribe for shares of a company listed on the Korea Stock Exchange or
registered on the KOSDAQ, subject to certain investment limitations. A foreign investor may not
acquire such warrants with respect to shares of a class of a company for which the ceiling on
aggregate investment by foreigners has been reached or exceeded. As of December 30, 1997, foreign investors were permitted to invest in all types of
corporate bonds, bonds issued by national or local governments and bonds issued in accordance with
certain special laws without being subject to any aggregate or individual investment ceiling. The
Financial Supervisory Commission of Korea sets forth procedural requirements for such investments.
The Government announced on February 8, 1998 its plans for the liberalization of the money market with respect to
investment in money market instruments by foreigners in 1998. According to the plan, foreigners
have been permitted to invest in money market instruments issued by corporations, including
commercial paper, starting February 16, 1998 with no restrictions as to the amount. Starting May
25, 1998, foreigners have been permitted to invest in certificates of deposit and repurchase
agreements. Currently, foreigners are permitted to invest in securities including shares of all
Korean companies which are not listed on the KRX Stock Market nor the KRX KOSDAQ Market and in
bonds which are not listed. Protection of Customers Interest in Case of Insolvency of Securities Companies Under Korean law, the relationship between a customer and a securities company in
connection with a securities sell or buy order is deemed to be consignment and the securities
acquired by a consignment agent (i.e., the securities company) through such sell or buy order are
regarded as belonging to the customer in so far as the customer and the consignment agents
creditors are concerned. Therefore, in the event of a bankruptcy or reorganization procedure
involving a securities company, the customer of the securities company is entitled to the proceeds
of the securities sold by the securities company. When a customer places a sell order with a securities company which is not a member of
the KRX and this securities company places a sell order with another securities company which is a
member of the KRX, the customer is still entitled to the proceeds of the securities sold received
by the non-member company from the member company regardless of the bankruptcy or reorganization of
the non-member company. Under the Korean Securities and Exchange Act, the KRX is obliged to indemnify any loss or
damage incurred by a counterparty as a result of a breach by its members. If a securities company
which is a member of the KRX breaches its obligation in connection with a buy order, the KRX is
obliged to pay the purchase price on behalf of the breaching member. When a customer places a buy order with a non-member company and the non-member company
places a buy order with a member company, the customer has the legal right to the securities
received by the non-member company from the member company because the purchased securities are
regarded as belonging to the customer in so far as the customer and the non-member companys
creditors are concerned. As the cash deposited with a securities company is regarded as belonging to the securities
company, which is liable to return the same at the request of its customer, the customer cannot
take back deposited cash from the securities company if a bankruptcy or reorganization procedure is
instituted against the securities company and, therefore, can suffer from loss or damage as a
result. However, the Depositor Protection Act provides that Korea Deposit Insurance Corporation
will, upon the request of the investors, pay investors up to Won 50 million per investor in case of
the securities companys bankruptcy, liquidation, cancellation of securities business license or
other insolvency events. Pursuant to the Korean Securities and Exchange Act, as amended, subject to
certain exceptions, securities companies are required to deposit the cash received from its
customers with the Korea Securities Finance Corporation, a special entity established pursuant to
the Korean Securities and Exchange Act. Set-off or attachment of cash deposits by securities
companies is prohibited. The premiums related to this insurance under the Depositor Protection Act
are paid by securities companies. 100




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Item. 10Additional Information DESCRIPTION OF CAPITAL STOCK This section provides information relating to our capital stock, including brief summaries of
material provisions of our articles of incorporation, the Korean Securities and Exchange Act of
1962 (the Korean Securities and Exchange Act), the Korean Commercial Code and related laws of
Korea, all as currently in effect. The following summaries are subject to, and are qualified in
their entirety by reference to, our articles of incorporation and the applicable provisions of the
Korean Securities and Exchange Act and the Korean Commercial Code. We have filed or incorporated by
reference copies of our articles of incorporation and these laws as exhibits to our most recently
filed annual report. General The name of our company is SK Telecom Co., Ltd. We are registered under the laws of Korea
under the commercial registry number of 110111-0371346. As specified in Article 2 (Objectives) of
our articles of incorporation, the companys objectives are the rational management of the
telecommunications business, development of telecommunications technology, and contribution to
public welfare and convenience. In order to achieve these objectives, we are engaged in the
following:  
    
    information and communication business;
    
    sale and lease of subscriber handsets;
    
    new media business;
    
    advertising business;
    
    mail order business;
    
    business of leasing available and real estate property;
    
    research and technology development relating to the first four items above;
    
    overseas and import/export business relating to the first four items above;
    
    manufacture and distribution business relating to the first four items above; and
    
    any business or undertaking incidental or conducive to the attainment of the objectives stated above. Currently, our authorized share capital is 220,000,000 shares, which consists of shares of
common stock, par value Won 500 per share, and shares of non-voting stock, par value Won 500 per
share (common shares and non-voting shares together are referred to as shares). Under our
articles of incorporation, we are authorized to issue up to 5,500,000 non-voting preferred shares.
As of December 31, 2004, 82,276,711 common shares were issued, of which 8,662,415 shares were held
by us in treasury. We have never issued any non-voting preferred shares. All of the issued and
outstanding common shares are fully-paid and non-assessable and are in registered form. We issue
share certificates in denominations of 1, 5, 10, 50, 100, 500, 1,000 and 10,000 shares. Board of Directors Meetings of the board of directors are convened by the representative director as he or she
deems necessary or upon the request of three or more directors. The board of directors determines
all important matters relating to 101




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our business. In addition, the prior approval of the majority of the outside directors is required
for certain matters, which include:  
    
    investment by us or any of our subsidiaries in a foreign company or
equity or other overseas assets in an amount equal to 5.0% or more of
our shareholders equity under our most recent balance sheet; and
    
    contribution of capital, loans or guarantees, acquisition of our
subsidiaries assets or similar transactions with our affiliated
companies in excess of Won 10 billion through one or a series of
transactions. Resolutions of the board are adopted in the presence of a majority of the directors in office
and by the affirmative vote of a majority of the directors present. No director who has an interest
in a matter for resolution may exercise his or her vote upon such matter. There are no specific shareholding requirements for directors qualification. Directors are
elected at a general meeting of shareholders if the approval of a majority vote of the shareholders
present at such meeting is obtained, and such majority also represents at least one-fourth of the
total number of shares outstanding. Under the Korean Securities and Exchange Act, unless stated
otherwise in the articles of incorporation, holders of an aggregate of 1% or more of the
outstanding shares with voting rights may request cumulative voting in any election for two or more
directors. Our articles of incorporation permit cumulative voting starting from the ordinary
general meeting of shareholders in 2003. The term of office for directors shall be until the close of the third annual general
shareholders meeting convened after he or she commences his or her term. Our directors may serve
consecutive terms and our shareholders may remove them from office at any time by a special
resolution adopted at a general meeting of shareholders. Dividends We distribute dividends to our shareholders in proportion to the number of shares owned by
each shareholder. The common shares represented by the ADSs have the same dividend rights as other
outstanding common shares. Holders of non-voting shares are entitled to receive dividends in priority to the holders of
common shares. The dividend on the non-voting shares is between 9.0% and 25.0% of the par value as
determined by the board of directors at the time of their issuance. If the dividends for common
shares exceed the dividends for non-voting shares, the holders of non-voting shares will be
entitled to participate in the distribution of such excess amount with the holders of common
shares. If the amount available for dividends is less than the aggregate amount of the minimum
required dividend, holders of non-voting shares will be entitled to receive such accumulated unpaid
dividend from dividends payable in the next fiscal year before holders of common shares. There are
no non-voting shares issued or outstanding. We declare dividends annually at the annual general meeting of shareholders which is generally
held within three months after the end of the fiscal year. We pay the annual dividend shortly after
the annual general meeting to the shareholders of record or registered pledges as of the end of the
preceding fiscal year. We may distribute the annual dividend in cash or in shares. However, a
dividend of shares must be distributed at par value. If the market price of the shares is less than
their par value, dividends in shares may not exceed one-half of the annual dividend. Our obligation
to pay dividend expires if no claim to dividend is made for five years from the payment date. Under the Korean Commercial Code, we may pay an annual dividend only out of the excess of our
net assets, on a non-consolidated basis, over the sum of (1) our stated capital and (2) the total
amount of our capital surplus reserve and legal reserve accumulated up to the end of the relevant
dividend period. In addition, we may not pay an annual dividend unless we have set aside as legal
reserve an amount equal to at least 10.0% of the cash portion of the annual dividend or until we
have accumulated a legal reserve of not less than one-half of our stated capital. As a KRX Stock
Market-listed company, we are also required under the relevant laws and regulations to set aside in
reserve a certain amount each fiscal year until the ratio of our own capital to total assets is at
least 30%. We may not use legal reserve to pay cash dividends but may transfer amounts from legal
reserve to capital stock or use legal reserve to reduce an accumulated deficit. 102




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In addition, the Korean Commercial Code and our articles of incorporation provide that, in
addition to annual dividends, we may pay interim dividends once during each fiscal year. Unlike
annual dividends, the decision to pay interim dividends can be made by a resolution of the board of
directors and is not subject to shareholder approval. Any interim dividends must be paid in cash to
the shareholders of record as of June 30 of the relevant fiscal year. In August 2004, we
distributed such interim dividends at Won 1,000 per share to our shareholders for a total amount of
Won 73.6 billion. Under the Korean Securities and Exchange Act, the total amount of interim dividends payable in
a fiscal year shall not be more than the net assets on the balance sheet of the immediately
preceding fiscal year, after deducting (1) a companys capital in the immediately preceding fiscal
year, (2) the aggregate amount of its capital reserves and legal reserves accumulated up to the
immediately preceding fiscal year, (3) the amount of earnings for dividend payments confirmed at
the general shareholders meeting with respect to the immediately preceding fiscal year and (4) the
amount of legal reserve that should be set aside for the current fiscal year following the interim
dividend payment. Furthermore, the rate of interim dividends for non-voting shares must be the same
as that for our common shares. Our obligation to pay interim dividends expires if no claims to such dividends are made for a
period of five years from the payment date. Distribution of Free Shares In addition to paying dividends in shares out of our retained or current earnings, we may also
distribute to our shareholders an amount transferred from our capital surplus or legal reserve to
our stated capital in the form of free shares. We must distribute such free shares to all our
shareholders in proportion to their existing shareholdings. Preemptive Rights and Issuance of Additional Shares We may at times issue authorized but unissued shares, unless otherwise provided in the Korean
Commercial Code, on terms determined by our board of directors. All our shareholders are generally
entitled to subscribe to any newly-issued shares in proportion to their existing shareholdings. We
must offer new shares on uniform terms to all shareholders who have preemptive rights and are
listed on our shareholders registry as of the relevant record date. We must give public notice of
the preemptive rights regarding new shares and their transferability at least two weeks before the
relevant record date. Our board of directors may determine how to distribute shares for which
preemptive rights have not been exercised or where fractions of shares occur. Under the Korean Commercial Code and our articles of incorporation, we may issue new shares
pursuant to a board resolution to persons other than existing shareholders only if (1) the new
shares are issued for the purpose of issuing depositary receipts in accordance with the relevant
regulations or through an offering to public investors and (2) the purpose of such issuance is
deemed necessary by us to achieve a business purpose, including, but not limited to, the
introduction of new technology or the improvement of our financial condition. Under our articles of
incorporation, only our board of directors is authorized to set the terms and conditions with
respect to such issuance of new shares. In addition, we may issue convertible bonds or bonds with warrants, each up to an aggregate
principal amount of Won 400 billion, to persons other than existing shareholders, where such
issuance is deemed necessary by us to achieve a business purpose, including, but not limited to,
the introduction of new technology or the improvement of our financial condition. Members of our employee stock ownership association, whether or not they are our shareholders,
generally have a preemptive right to subscribe for up to 20.0% of the shares publicly offered
pursuant to the Korean Securities and Exchange Act. This right is exercisable only to the extent
that the total number of shares so acquired and held by members of our employee stock ownership
association does not exceed 20.0% of the sum of the number of shares then outstanding and the
number of newly-issued shares. As of December 31, 2004, approximately 0.46% of the issued shares
were held by members of our employee stock ownership association. 103




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General Meeting of Shareholders We generally hold the annual general meeting of shareholders within three months after the end
of each fiscal year. Subject to a board resolution or court approval, we may hold an extraordinary
general meeting of shareholders:  
    
    as necessary;
    
    at the request of holders of an aggregate of 3.0% or more of our outstanding common shares;
    
    at the request of shareholders holding an aggregate of 3.0% or more of our outstanding shares for at least six months; or
    
    at the request of our audit committee. Holders of non-voting shares may request a general meeting of shareholders only after the
non-voting shares become entitled to vote or enfranchised, as described under  Voting Rights
below. We must give shareholders written notice setting out the date, place and agenda of the meeting
at least two weeks before the date of the general meeting of shareholders. However, for holders of
less than 1.0% of the total number of issued and outstanding voting shares, we may give notice by
placing at least two public notices in at least two daily newspapers at least two weeks in advance
of the meeting. Currently, we use The Korea Economic Daily News and Mail Business Newspaper, both
published in Seoul, for this purpose. Shareholders who are not on the shareholders registry as of
the record date are not entitled to receive notice of the general meeting of shareholders or attend
or vote at the meeting. Holders of non-voting shares, unless enfranchised, are not entitled to
receive notice of or vote at general meetings of shareholders. Our general meetings of shareholders have historically been held in or near Seoul. Voting Rights Holders of our common shares are entitled to one vote for each common share, except that
voting rights of common shares held by us (including treasury shares and shares held by bank trust
funds controlled by us), or by a corporate shareholder that is more than 10.0% owned by us either
directly or indirectly, may not be exercised. Under the Korean Securities and Exchange Act, unless
stated otherwise in the articles of incorporation, holders of an aggregate of 1% or more of the
outstanding shares with voting rights may request cumulative voting in any election for two or more
directors. Our articles of incorporation permit cumulative voting starting from the ordinary
general meeting of shareholders in 2003. Under this voting method, each shareholder would have
multiple voting rights corresponding to the number of directors to be appointed in a particular
election and may exercise all voting rights cumulatively to elect one director. Our shareholders may adopt resolutions at a general meeting by an affirmative majority vote of
the voting shares present or represented at the meeting if the proportion of affirmative votes also
represent at least one-fourth of our total voting shares then issued and outstanding. However,
under the Korean Commercial Code and our articles of incorporation, the following matters, among
others, require approval by the holders of at least two-thirds of the voting shares present or
represented at a meeting, and such affirmative votes also represent at least one-third of our total
voting shares then issued and outstanding:  
    
    amending our articles of incorporation;
    
    removing a director;
    
    effecting any dissolution, merger or consolidation of us;
    
    transferring the whole or any significant part of our business;
    
    effecting our acquisition of all of the business of any other company
or a part of the business of any other company having a material
effect on our business;
    
    reducing our capital; or 104




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
    
    issuing any new shares at a price lower than their par value. In general, holders of non-voting shares are not entitled to vote on any resolution or receive
notice of any general meeting of shareholders. However, in the case of amendments to our articles of incorporation, or any merger or consolidation
of us, or in some other cases which affect the rights or interests of the non-voting shares,
approval of the holders of non-voting shares is required. We may obtain the approval by a
resolution of holders of at least two-thirds of the non-voting shares present or represented at a
class meeting of the holders of non-voting shares, where the affirmative votes also represent at
least one-third of our total issued and outstanding non-voting shares. In addition, if we are
unable to pay dividends on non-voting shares as provided in our articles of incorporation, the
holders of non-voting shares will become enfranchised and will be entitled to exercise voting
rights beginning at the next general meeting of shareholders to be held after the declaration of
non-payment of dividends is made until such dividends are paid. The holders of enfranchised
non-voting shares have the same rights as holders of common shares to request, receive notice of,
attend and vote at a general meeting of shareholders. Shareholders may exercise their voting rights by proxy. A shareholder may give proxies only to
another shareholder, except that a corporate shareholder may give proxies to its officers or
employees. Holders of ADRs exercise their voting rights through the ADR depositary, an agent of which is
the record holder of the underlying common shares. Subject to the provisions of the deposit
agreement, ADR holders are entitled to instruct the ADR depositary how to vote the common shares
underlying their ADSs. Rights of Dissenting Shareholders In some limited circumstances, including the transfer of all or a significant part of our
business or our merger or consolidation with another company (with certain exceptions), dissenting
shareholders have the right to require us to purchase their shares. To exercise this right,
shareholders, including holders of non-voting shares, must submit to us a written notice of their
intention to dissent before the general meeting of shareholders. Then, within 20 days after the
relevant resolution is passed at a meeting, the dissenting shareholders must request us in writing
to purchase their shares. We are obligated to purchase the shares of such dissenting shareholders
within one month after the expiration of the 20-day period. The purchase price for the shares is
required to be determined through negotiation between the dissenting shareholders and us. If we
cannot agree on a price through negotiation, the purchase price will be the average of (1) the
weighted average of the daily share prices on the KRX Stock Market for the two-month period before
the date of the adoption of the relevant board resolution, (2) the weighted average of the daily
share price on the KRX Stock Market for the one month period before the date of the adoption of the
relevant resolution and (3) the weighted average of the daily share price on the KRX Stock Market
for the one week period before such date of the adoption of the relevant resolution. However, the
Financial Supervisory Commission of Korea may adjust this price if we or shareholders
collectively holding 30.0% or more of the total number of the shares held by dissenting
shareholders do not accept the purchase price. Holders of ADSs will not be able to exercise
dissenters rights unless they have withdrawn the underlying common stock and become our direct
shareholders. Registry of Shareholders and Record Dates Our transfer agent, Kookmin Bank, maintains the registry of our shareholders at its office in
Seoul, Korea. It records and registers transfers of shares on the registry of shareholders upon
presentation of the share certificates. The record date for annual dividends is December 31. For the purpose of determining the
shareholders entitled to annual dividends, the registry of shareholders is closed for the period
from January 1 to January 31 of the following year. Further, for the purpose of determining the
shareholders entitled to some other rights pertaining to the shares, we may, on at least two weeks
public notice, set a record date and/or close the register of shareholders for not more than three
months. The trading of shares and the delivery of share certificates may continue while the
register of shareholders is closed. Annual Report At least one week before the annual general meeting of shareholders, we must make our annual
reports and audited non-consolidated financial statements available for inspection at our principal
office and at all of our 105




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branch offices. In addition, copies of annual reports, the audited non-consolidated financial
statements and any resolutions adopted at the general meeting of shareholders will be available to
our shareholders. Under the Korean Securities and Exchange Act, we must file with the Financial Supervisory
Commission of Korea and the KRX (1) an annual securities report within 90 days after the end of our
fiscal year, (2) a half-year report within 45 days after the end of the first six months of our
fiscal year, and (3) quarterly reports within 45 days after the end of the third month and the
ninth month of our fiscal year. Copies of these reports are or will be available for public
inspection at the Financial Supervisory Commission of Korea and the KRX. Transfer of Shares Under the Korean Commercial Code, the transfer of shares is effected by the delivery of share
certificates. However, to assert shareholders rights against us, the transferee must have his or
her name, seal and address registered on our registry of shareholders, maintained by our transfer
agent. A non-Korean shareholder may file a sample signature in place of a seal, unless he or she is
a citizen of a country with a sealing system similar to that of Korea. In addition, a non-resident
shareholder must appoint an agent in Korea authorized to receive notices on his or her behalf and
file his or her mailing address in Korea. These requirements do not apply to holders of ADSs. Under current Korean regulations, Korean securities companies and banks, including licensed
branches of non-Korean securities companies and banks, asset management companies, futures trade
companies, internationally recognized foreign custodians and the Korea Securities Depository may
act as agents and provide related services for foreign shareholders. Certain foreign exchange
controls and securities regulations apply to the transfer of shares by non-residents or
non-Koreans. See  Korean Foreign Exchange Controls and Securities Regulations. Our transfer agent is Kookmin Bank, located at 24-3, Yoido-dong, Yongdungpo-ku, Seoul, Korea. Restrictions Applicable to Shares Pursuant to the Telecommunications Business Law, the maximum aggregate foreign shareholding in
us is limited to 49.0%. See Information on the Company  Business Overview  Law and Regulation 
Foreign Ownership and Investment Restrictions and Requirements. In addition, certain foreign
exchange controls and securities regulations apply to the acquisition of securities by
non-residents or non-Koreans. See  Korean Foreign Exchange Controls and Securities Regulations. Acquisition of Shares by Us Under the Korean Commercial Code, we may not acquire our own shares except in limited
circumstances, such as a reduction in capital. However, we may acquire our own shares under the
relevant provisions of the Korean Securities and Exchange Act. In such cases, we may acquire shares
through purchases on the KRX Stock Market or through a tender-offer after filing the required
report with the Financial Supervisory Commission of Korea and the KRX. We may also acquire
interests in our own shares through agreements with trust companies and asset management companies
after filing a report with the Financial Supervisory Commission and the KRX. The aggregate purchase
price for the shares may not exceed the total amount available for distribution of dividends,
subject to certain procedural requirements. Under the Korean Commercial Code, except in the case of a reduction in capital, we must resell
or transfer any shares we acquire to a third party within a reasonable time. In general, corporate
entities in which we own more than 50% equity interest may not acquire our shares. Under the Korean
Securities and Exchange Act, we are subject to certain selling restrictions for the shares we
acquire. In the case of a reduction in capital, we must immediately cancel the shares we acquire.
On October 26, 2001, in accordance with the approval of our board of directors, we announced plans
to establish trust funds with four Korean banks with a total funding of Won 1.3 trillion for the
purpose of acquiring our shares at market prices or within a range of five percent of market
prices. For more details on the trust funds, see Operating and Financial Review and Prospects 
Liquidity and Capital Resources. 106




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Liquidation Rights In the event of our liquidation, assets remaining after payment of all debts, liquidation
expenses and taxes will be distributed among shareholders in proportion to their shareholdings.
Holders of non-voting shares have no preference in liquidation. Holders of debt securities have no
preference over other creditors in the event of liquidation. DESCRIPTION OF AMERICAN DEPOSITARY SHARES The following is a summary of the deposit agreement dated as of May 31, 1996, as amended by
amendment no. 1 dated as of March 15, 1999, amendment no. 2 dated as of April 24, 2000 and
amendment no. 3 dated as of July 24, 2002, among us, Citibank, N.A., as ADR depositary, and all
holders and beneficial owners of ADSs, as supplemented by the side letter dated as of August 1,
2002 by and between us and Citibank, N.A., as ADR depositary, and as supplemented by the side
letter dated as of October 1, 2002 by and between us and Citibank, N.A., as ADR depositary. The
deposit agreement is governed by the laws of the State of New York. Because it is a summary, this
description does not contain all the information that may be important to you. For more complete
information, you should read the entire deposit agreement and the ADR. The deposit agreement has
been filed as an exhibit to our registration statement on Form F-3 (File No. 333-91304) filed with
the United States Securities and Exchange Commission. Copies of the deposit agreement are available
for inspection at the principal New York office of the ADR depositary, currently located at 388
Greenwich Street, 14th Floor, New York, New York 10013, United States of America, and at the
principal London office of the ADR depositary, currently located at Canada Square, Canary Wharf,
London, E14 5LB, England. American Depositary Receipts The ADR depositary will execute and deliver the ADRs evidencing the ADSs. Each ADR evidences a
specified number of ADSs, each ADS representing one-ninth of one share of our common stock to be
deposited with the ADR depositarys custodian in Seoul, or the Custodian. The Custodian is Korea
Securities Depository, located at 1328 Paeksok-Dong, Ilsan-Ku, Koyang, 411-770, Kyunggi-Do, Seoul,
150-884, Korea. Korea Securities Depository is also the institution authorized under applicable law
to effect book-entry transfers of our common shares, known as the Custodian. An ADR may represent
any number of ADSs. We and the ADR depositary will treat only persons in whose names ADRs are
registered on the books of the registrar as holders of ADRs. Deposit and Withdrawal of Shares of Common Stock Notwithstanding the provisions described below, under the terms of the deposit agreement, as
supplemented by the side letter dated as of October 1, 2002, the deposit of shares and issuance of
ADSs may only be made if the total number of shares represented by ADRs after such deposit does not
exceed a specified maximum, 13,598,544 shares as of October 1, 2002. This limit will be adjusted in
certain circumstances, including (1) increases upon the cancellation of existing ADRs (up to a
maximum of 5,605,839 shares), (2) increases upon future offerings of ADSs by us or our
shareholders, (3) increases upon issuances of ADSs upon the exchange of outstanding exchangeable
bonds issued by Momenta (Cayman) (a special purpose vehicle incorporated in the Cayman Islands,
which sold bonds exchangeable initially into such ADSs, see, Share Ownership), (4) increases for
rights offerings and (5) adjustments for share reclassifications. The limit also may be decreased
in certain circumstances, including in connection with purchases of ADSs by Momenta (Cayman) in
accordance with the terms of its exchangeable bonds. Notwithstanding the foregoing, the ADR
depositary and the custodian may not accept deposits of shares of common stock for issuance of ADSs
(other than in the case of an exercise of the exchange rights of the exchangeable bonds issued by
Momenta (Cayman)) (i) if it has been notified by us in writing that we block deposits to prevent a
violation of applicable Korean laws or regulations or a violation of our articles of incorporation
or (ii) from a person intending to make a deposit that identifies itself to the depositary and that
has been identified in writing by us as a holder of at least 3% of our shares of common stock on
October 7, 2002. The shares of common stock underlying the ADSs are delivered to the ADR depositarys custodian
in book-entry form. Accordingly, no share certificates will be issued for them, and the ADR
depositary will hold the 107




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shares of common stock through the book-entry settlement system of the Custodian. The delivery of
the shares of common stock pursuant to the deposit agreement will take place through the facilities
of the Custodian in accordance with its applicable settlement procedures. The ADR depositary will
execute and deliver ADRs if you or your broker deposit shares or evidence of rights to receive
shares of common stock with the Custodian. Upon payment of its fees and expenses and of any taxes
or charges, such as stamp taxes or stock transfer taxes or fees, the ADR depositary will register
the appropriate number of ADSs in the names you designate and will deliver an ADR or ADRs for those
ADSs to the persons you designate. The ADR depositary and the ADR depositarys custodian will
refuse to accept shares of common stock for deposit whenever we restrict transfer of shares of
common stock to comply with ownership restrictions under applicable law or our articles of
incorporation or whenever the deposit would cause the total number of shares of common stock
deposited to exceed a level we determine from time to time. We may instruct the ADR depositary to
take certain actions with respect to a holder of ADSs who holds in excess of the ownership
limitation set forth in the deposit agreement, including the mandatory sale or disposition of the
shares represented by the ADSs in excess of such ownership limitations if, and to the extent,
permitted by applicable law. You may surrender your ADRs to the ADR depositary to withdraw the underlying shares of our
common stock. Upon payment of the fees and any governmental charges and taxes provided in the
deposit agreement, and subject to applicable laws and regulations of Korea and our articles of
incorporation, you will be entitled to physical delivery or electronic delivery to an account in
Korea or, if permissible under applicable Korean law, outside the United States, of the shares of
common stock evidenced by the ADRs and any other property at the time represented by ADRs you
surrendered. If you surrender an ADR evidencing a number of ADSs not evenly divisible by nine, the
ADR depositary will deliver the appropriate whole number of shares of common stock represented by
the surrendered ADSs and will execute and deliver to you a new ADR evidencing ADSs representing any
remaining fractional shares of common stock. If you request withdrawal of shares of common stock, you must deliver to the ADR depositary a
written order directing the ADR depositary to cause the shares of common stock being withdrawn to
be delivered to or upon the written order of the person designated in your order, subject to
applicable Korean laws and the provisions of the deposit agreement. Under the provisions of the deposit agreement, the ADR depositary may not lend shares of
common stock or ADSs. However, subject to the provisions of the deposit agreement and limitations
established by the ADR depositary, the ADR depositary may execute and deliver ADSs before deposit
of the underlying shares of common stock. This is called a pre-release of the ADS. The ADR
depositary may also deliver shares of common stock upon cancellation of pre-released ADSs (even if
the cancellation occurs before the termination of the pre-release). The ADR depositary may
pre-release ADSs only under the following circumstances:  
    
    before or at the time of the pre-release, the person to whom the pre-release is being made must represent to the
ADR depositary in writing that it or its customer owns the shares of common stock or ADSs to be deposited and
show evidence of the ownership to the ADR depositarys satisfaction;
    
    before or at the time of such pre-release, the person to whom the pre-release is being made must agree in
writing that he will hold the shares of common stock or ADSs in trust for the ADR depositary until their
delivery to the ADR depositary or custodian, reflect on his records the ADR depositary as owner of such shares
of common stock or ADSs and deliver such shares of common stock upon the ADR depositarys request;
    
    the pre-release must be fully collateralized with cash or U.S. government securities;
    
    the ADR depositary must be able to terminate the pre-release on not more than five business days notice; and
    
    the pre-release is subject to further indemnities and credit regulations as the ADR depositary deems appropriate. 108




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The ADR depositary may retain for its own account any compensation received by it in
connection with the pre-release, such as earnings on the collateral. If you want to withdraw the shares of common stock from the depositary facility, you must
register your identity with the Financial Supervisory Service of Korea before you acquire the
shares of common stock unless you intend to sell the shares of common stock within three months.
See Korean Foreign Exchange Controls and Securities Regulations  Restrictions Applicable to
Shares. Dividends, Other Distributions and Rights If the ADR depositary can, in its judgment and pursuant to applicable law, convert Won (or any
other foreign currency) into Dollars on a reasonable basis and transfer the resulting Dollars to
the United States, the ADR depositary will as promptly as practicable convert all cash dividends
and other cash distributions received by it on the deposited shares of common stock into Dollars
and distribute the Dollars to you in proportion to the number of ADSs representing shares of common
stock held by you, after deduction of the fees and expenses of the ADR depositary. If the ADR
depositary determines that in its judgment any currency other than Dollars it receives from us
cannot be converted and distributed on a reasonable basis, the ADR depositary may distribute the
currency it receives to the extent permitted under applicable law or hold the currency for your
account if you are entitled to receive the distribution. The ADR depositary will not be liable for
any interest. Before making a distribution, the ADR depositary will deduct any withholding taxes
that must be paid. In the event that the ADR depositary or the ADR depositarys custodian receives any
distribution upon any deposited shares of common stock in property or securities (other than shares
of common stock, non-voting shares or rights to receive shares of common stock or non-voting
shares), the ADR depositary will distribute the property or securities to you in proportion to your
holdings in any manner that the ADR depositary deems, after consultation with us, equitable and
practicable. If the ADR depositary determines that any distribution of property or securities
(other than shares of common stock, non-voting shares or rights to receive shares of common stock
or non-voting shares) cannot be made proportionally, or if for any other reason the ADR depositary
deems the distribution not to be feasible, the ADR depositary may, after consultation with us,
dispose of all or a portion of the property or securities in such amounts and in such manner,
including by public or private sale, as the ADR depositary deems equitable or practicable. The ADR
depositary will distribute to you the net proceeds of any such sale, or the balance of the property
or securities, after the deduction of the fees and expenses of the ADR depositary. If a distribution by us consists of a dividend in, or free distribution of, our shares of
common stock, the ADR depositary may, with our approval, and will, if we request, deposit the
shares of common stock and either (1) distribute to you, in proportion to your holdings, additional
ADSs representing those shares of common stock, or (2) reflect on the records of the ADR depositary
the increase in the aggregate number of ADSs representing those number of shares of common stock,
in both cases, after the deduction of the fees and expenses of the ADR depositary. If the ADR
depositary deems that such distribution for any reason is not feasible, the ADR depositary may
adopt, after consultation with us, any method as it may deem equitable and practicable, including
by public or private sale of all or part of the shares of common stock received. The ADR depositary
will distribute to you the net proceeds of any such sale in the same way as it does with cash. The
ADR depositary will only distribute whole ADSs. If the ADR depositary does not distribute
additional ADSs, then each outstanding ADS will also represent the new shares so distributed. If a distribution by us consists of a dividend in, or free distribution of, non-voting shares,
the ADR depositary will deposit the non-voting shares under a non-voting shares deposit agreement
to be entered into among us, the ADR depositary and all holders and beneficial owners of depositary
shares. The ADR depositary will deliver to you, in proportion to your holdings of ADSs, depositary
shares issued under the non-voting shares deposit agreement representing the number of non-voting
shares received as such dividend or distribution. If the ADR depositary deems such distribution for
any reason is not feasible, the ADR depositary may adopt, after consultation with us, any method as
it may deem equitable and practicable, including by public or private sale of all or part of the
nonvoting shares received. The ADR depositary will distribute to you the
net proceeds of any such sale in the same way as it does with cash. The ADR depositary will only distribute whole
depositary shares. We are not obligated to list depositary shares representing non-voting shares on
any exchange. 109




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If we offer holders of our securities any rights to subscribe for additional shares of common
stock or any other rights, the ADR depositary may make these rights available to you. The ADR
depositary must first determine whether it is lawful and feasible to do so. If the ADR depositary
determines that it is not lawful or feasible to make these rights available to you, then upon our
request, the ADR depositary will sell the rights and distribute the proceeds in the same way as it
would do with cash. The ADR depositary may allow these rights that are not distributed or sold to
lapse. In that case, you will receive no value for these rights. If we issue any rights with respect to non-voting shares, the securities issuable upon any
exercise of such rights by holders or beneficial owners will be depositary shares representing
those non-voting shares issued under the provisions of a non-voting share deposit agreement. If a registration statement under the U.S. Securities Act is required with respect to the
securities to which any rights relate in order for us to offer the rights to you and to sell the
securities represented by these rights, the ADR depositary will not offer such rights to you until
such a registration is in effect, or unless the offering and sale of such securities and such
rights to you are exempt from the registration requirements of the U.S. Securities Act or any
required filing, report, approval or consent has been submitted, obtained or granted. We or the ADR
depositary will not be obligated to register the rights or securities under the U.S. Securities Act
or to submit, obtain or request any filing, report, approval or consent. The ADR depositary may not be able to convert any currency or to sell or dispose of any
distributed or offered property or rights in a timely manner or at a specified price, or at all. Record Dates The ADR depositary will fix a record date, after consultation with us, in each of the
following situations:  
    
    any cash dividend or other cash distribution becomes payable;
    
    any distribution other than cash is made;
    
    rights are issued with respect to deposited shares of common stock;
    
    the ADR depositary causes a change in the number of shares of common stock that are represented by each ADS; or
    
    the ADR depositary receives notice of any shareholders meeting. The record date will, to the extent practicable, be as near as the record date fixed by us for
the shares of common stock. The record date will determine (1) the ADR holders who are entitled to
receive the dividend, distribution or rights, or the net proceeds of the sale of the rights; or (2)
the ADR holders who are entitled to receive notices or exercise rights. Voting of the Underlying Shares of Common Stock We will give the ADR depositary a notice of any meeting or solicitation of shareholder proxies
immediately after we finalize the form and substance of such notice but not less than 14 days
before the meeting. As soon as practicable after it receives our notice, the ADR depositary will
fix a record date, and upon our written request, the ADR depositary will mail to you a notice that
will contain the following:  
    
    the information contained in our notice to the ADR depositary
including an English translation, or, if requested by us, a summary of
the information provided by us;
    
    a statement that the ADR holders as of the close of business on a
specified record date will be entitled to instruct the ADR depositary
as to how to exercise their voting rights for the number of shares of
deposited shares of common stock, subject to the provisions of
applicable Korean law and our articles of incorporation, which
provisions, if any, will be summarized in the notice to the extent
that they are material; and 110




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
    
    a statement as to the manner in which the ADR holders may give their instructions. Upon your written request received on or before the date set by the ADR depositary for this
purpose, the ADR depositary will endeavor, in so far as practicable, to vote or cause to be voted
the deposited shares of common stock in accordance with the instructions set forth in your written
requests. The ADR depositary may not itself exercise any voting discretion over any deposited
shares of common stock. You may only exercise the voting rights in respect of 9 ADSs or multiples
of 9 ADSs. ADR holders may not be entitled to give instruction to vote the shares represented by
the ADSs if, and to the extent, the total number of shares represented by the ADSs of an ADR holder
exceeds the limit set under applicable law. We can give no assurance to you, however, that we will
notify the ADR depositary sufficiently in advance of the scheduled date of a meeting or
solicitation of consents or proxies to enable the ADR depositary to make a timely mailing of
notices to you, or that you will receive the notices sufficiently in advance of a meeting or
solicitation of consents or proxies to give instructions to the ADR depositary. Inspection of Transfer Books The ADR depositary will keep books at its principal New York office, which is currently
located at 388 Greenwich Street, 14th Floor, New York, New York 10013, for the registration and
transfer of ADRs. You may inspect the books of the ADR depositary as long as the inspection is not
for the purpose of communicating with holders in the interest of a business or object other than
our business or a matter related to the deposit agreement or the ADRs. Reports and Notices On or before the first date on which we give notice, by publication or otherwise, of any
meeting of shareholders, or of any adjourned meeting of shareholders, or of the taking of any
action in respect of any cash or other distributions or the offering of any rights in respect of
the shares of common stock, we will transmit to the Custodian and the ADR depositary sufficient
copies of the notice in English in the form given or to be given to shareholders. We will furnish
to the ADR depositary English language versions of any reports, notices and other communications
that we generally transmit to holders of our common stock, including our annual reports, with
annual audited consolidated financial statements prepared in conformity with Korean GAAP and, if
prepared pursuant to the Securities Exchange Act of 1934, as amended, a reconciliation of net
earnings for the year and stockholders equity to U.S. GAAP, and unaudited non-consolidated
semiannual financial statements prepared in conformity with Korean GAAP. The ADR depositary will
arrange for the prompt mailing of copies of these documents, or, if we request, a summary of any
such notice provided by us to you or, at our request, make notices, reports (other than the annual
reports and semiannual financial statements) and other communications available to you on a basis
similar to that for the holders of our common stock or on such other basis as we may advise the ADR
depositary according to any applicable law, regulation or stock exchange requirement. Notices to you under the deposit agreement will be deemed to have been duly given if
personally delivered or sent by mail or cable, telex or facsimile transmission, confirmed by
letter, addressed to you at your address as it appears on the transfer books of the ADR depositary
or at such other address as you have notified the ADR depositary. In addition, the ADR depositary will make available for inspection by holders at its principal
New York office and its principal London office any notices, reports or communications, including
any proxy soliciting materials, received from us that we generally transmit to the holders of our
common stock or other deposited securities, including the ADR depositary. The ADR depositary will
also send to you copies of reports and communications we will provide as provided in the deposit
agreement. Changes Affecting Deposited Shares of Common Stock In case of a change in the par value, or a split-up, consolidation or any other
reclassification of shares of our common stock or upon any recapitalization, reorganization, merger
or consolidation or sale of assets affecting us, any securities received by the ADR depositary or
the Custodian in exchange for, in conversion of or in respect of deposited shares of our common
stock will be treated as new deposited shares of common stock under the deposit 111




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agreement. In that case, ADSs will, subject to the terms of the deposit agreement and applicable
laws and regulations, including any registration requirements under the U.S. Securities Act,
represent the right to receive the new deposited shares of common stock, unless additional ADRs are
issued, as in the case of a stock dividend, or unless the ADR depositary calls for the surrender of
outstanding ADRs to be exchanged for new
ADRs. Amendment and Termination of the Deposit Agreement We may agree with the ADR depositary to amend the deposit agreement and the ADSs without your
consent for any reason. If the amendment adds or increases fees or charges, except for taxes and
other governmental charges or certain expenses of the ADR depositary, or prejudices any substantial
existing right of ADR holders, it will only become effective 30 days after the ADR depositary
notifies you of the amendment. If you continue to hold your ADSs at the time an amendment becomes
effective, you will be considered to have agreed to the amendment and to be bound by the deposit
agreement as amended. Except as otherwise required by any mandatory provisions of applicable law,
no amendment may impair your right to surrender your ADSs and to receive the underlying deposited
securities. The ADR depositary will terminate the deposit agreement if we ask it to do so with 90 days
prior written notice. The ADR depositary may also terminate the deposit agreement if the ADR
depositary has notified us at least 90 days in advance that it would like to resign and we have not
appointed a new depositary. In both cases, the ADR depositary must notify you at least 30 days
before the termination date. If any ADRs remain outstanding after the date of termination, the ADR depositary will stop
performing any further acts under the deposit agreement, except:  
    
    to collect dividends and other distributions pertaining to the deposited shares of common stock;
    
    to sell property and rights and the conversion of deposited shares of common stock into cash as provided in the deposit agreement; and
    
    to deliver deposited shares of common stock, together with any dividends or other distributions received with respect to the
deposited shares of common stock and the net proceeds of the sale of any rights or other property represented by those ADSs in
exchange for surrendered ADRs. At any time after the expiration of six months from the date of termination, the ADR
depositary may sell any remaining deposited shares of common stock and hold uninvested the net
proceeds in an unsegregated account, together with any other cash or property then held, without
liability for interest, for the pro rata benefit of the holders of ADSs that have not been
surrendered by then. Charges of ADR Depositary The fees and expenses of the ADR depositary as agreed between us and the ADR depositary
include:  
    
    taxes and other governmental charges;
    
    registration fees applicable to transfers of shares of common stock on our shareholders register, or that of any
entity acting as registrar for the shares, to the name of the ADR depositary or its nominee, or the Custodian or its
nominee, when making deposits or withdrawals under the deposit agreement;
    
    cable, telex and facsimile transmission expenses that are expressly provided in the deposit agreement;
    
    expenses incurred by the ADR depositary in the conversion of foreign currency into Dollars under the deposit agreement;
    
    a fee of up to US$5.00 per 100 ADSs, or portion thereof, for execution and delivery of ADSs and the surrender of ADRs
under the deposit agreement; and
    
    a fee of up to US$0.02 per ADS held for cash distributions, a sale or exercise of rights or the taking of any other
corporate action involving distributions to shareholders. 112




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General Neither we nor the ADR depositary will be liable to you if prevented or delayed by law,
governmental authority, any provision of our articles of incorporation or any circumstances beyond
our or its control in performing our or its obligations under the deposit agreement. The deposit
agreement provides that the ADR depositary will hold the shares of common stock for your sole
benefit. Our obligations and those of the ADR depositary under the deposit agreement are expressly
limited to performing, in good faith and without negligence, our and its respective duties
specified in the deposit agreement. The ADSs are transferable on the books of the ADR depositary; provided, however, that the ADR
depositary may, after consultation with us, close the transfer books at any time or from time to
time, when deemed expedient by it in connection with the performance of its duties. As a
condition precedent to the execution and delivery of any ADSs, registration of transfer, split-up,
combination of any ADR or surrender of any ADS for the purpose of withdrawal of deposited shares of
common stock, the ADR depositary or the Custodian may require payment from the depositor of the
shares of common stock or a holder of ADSs of a sum sufficient to reimburse the ADR depositary for
any tax or other governmental charge and any stock transfer or registration fee and payment of any
applicable fees payable by the holders of ADSs. Any person depositing shares of common stock, any holder of an ADS or any beneficial owner may
be required from time to time to file with the ADR depositary or the Custodian a proof of
citizenship, residence, exchange control approval, payment of applicable Korean or other taxes or
governmental charges, or legal or beneficial ownership and the nature of their interest, to provide
information relating to the registration on our shareholders register (or our appointed agent for
the transfer and registration of shares of common stock) of the shares of common stock presented
for deposit or other information, to execute certificates and to make representations and
warranties as we or the ADR depositary may deem necessary or proper or to enable us or the ADR
depositary to perform our and its obligations under the deposit agreement. The ADR depositary may
withhold the execution or delivery or registration of transfer of all or part of any ADR or the
distribution or sale of any dividend or other distribution of rights or of the proceeds from their
sale or the delivery of any shares deposited under the deposit agreement and any other securities,
property and cash received by the ADR depositary or the Custodian until the proof or other
information is filed or the certificates are executed or the representations and warranties are
made. The ADR depositary shall provide us, unless otherwise instructed by us, in a timely manner,
with copies of any these proofs and certificates and these written representations and warranties. The delivery and surrender of ADSs and transfer of ADSs generally may be suspended during any
period when our or the ADR depositarys transfer books are closed or, if that action is deemed
necessary or advisable by us or the ADR depositary, at any time or from time to time in accordance
with the deposit agreement. We may restrict, in a manner as we deem appropriate, transfers of
shares of common stock where the transfers may result in ownership of shares of common stock in
excess of limits under applicable law. Except as described in Deposit and Withdrawal of Shares of
Common Stock above, notwithstanding any other provision of the deposit agreement, the surrender of
outstanding ADRs and withdrawal of Deposited Securities (as defined in the deposit agreement)
represented by the ADRs may be suspended, but only as required in connection with (1) temporary
delays caused by closing the transfer books of the ADR depositary or the issuer of any Deposited
Securities (or the appointed agent or agents for such issuer for the transfer and registration of
such Deposited Securities) in connection with voting at a shareholders meeting or the payment of
dividends, (2) payment of fees, taxes and similar charges, or (3) compliance with any United States
or foreign laws or governmental regulations relating to the ADRs or to the withdrawal of the
Deposited Securities. Governing Law The deposit agreement and the ADRs will be interpreted under, and all rights under the deposit
agreement or the ADRs are governed by, the laws of the State of New York. We have irrevocably submitted to the non-exclusive jurisdiction of New York State or United
States Federal Courts located in New York City and waived any objection to legal actions or
proceedings in these courts whether on the ground of venue or on the ground that the proceedings
have been brought in an inconvenient forum. 113




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This submission was made for the benefit of the ADR depositary and the holders and shall not
limit the right of any of them to take legal actions or proceedings in any other court of competent
jurisdiction nor shall the taking of legal actions or proceedings in one or more jurisdictions
preclude the taking of legal actions or proceedings in any other jurisdiction (whether concurrently
or not), to the extent permitted under applicable law. Information Relating to the ADR Depositary Citibank, N.A. has been appointed as ADR depositary pursuant to the deposit agreement.
Citibank is a wholly-owned subsidiary of Citicorp, a Delaware corporation whose principal office is
located in New York, New York, which in turn is a wholly-owned subsidiary of Citigroup Inc.
Citibank is a global financial services organization serving individuals, businesses, governments
and financial institutions in approximately 100 countries around the world. Citibank was originally organized on June 16, 1812, and now is a national banking association
organized under the National Bank Act of 1864 of the United States of America. Citibank is
primarily regulated by the United States Office of the Comptroller of the Currency. Its principal
office is at 399 Park Avenue, New York, NY 10022. The consolidated balance sheets of Citibank are set forth in Citicorps Annual Reports on Form
10-K and in Citicorps quarterly financial reviews and Forms 10-Q. Citicorps Annual Reports on
Form 10-K and quarterly financial reviews and Forms 10-Q are filed periodically with the United
States Securities and Exchange Commission, or SEC. Citibanks Articles of Association and By-laws, each as currently in effect, together with
Citicorps most recent annual and quarterly reports will be available for inspection at the
Depositary Receipt office of Citibank, N.A., 388 Greenwich Street, 14th Floor, New York, New York
10013. MATERIAL CONTRACTS We have not entered into any material contracts since January 1, 2002, other than in the
ordinary course of our business. For information regarding our agreements and transactions with
entities affiliated with the SK Group see Share Ownership. For a description of certain
agreements entered into during the past three years related to our capital commitments and
obligations, see Operating and Financial Review and Prospects  Capital Requirements and
Resources. KOREAN FOREIGN EXCHANGE CONTROLS AND SECURITIES REGULATIONS General The Foreign Exchange Transaction Act and the Presidential Decree and regulations under that
Act and Decree, collectively referred to as the Foreign Exchange Transaction Laws, regulate
investment in Korean securities by non-residents and issuance of securities outside Korea by Korean
companies. Under the Foreign Exchange Transaction Laws, non-residents may invest in Korean
securities only to the extent specifically allowed by these laws. The Financial Supervisory
Commission of Korea has also adopted, pursuant to its authority under the Securities and Exchange
Act, regulations that restrict investment by foreigners in Korean securities and regulate issuance
of securities outside Korea by Korean companies. Subject to certain limitations, the MOFE has authority to take the following actions under the
Foreign Exchange Transaction Laws:  
    
    if the Government deems it necessary on account of war, armed
conflict, natural disaster or grave and sudden and significant changes
in domestic or foreign economic circumstances or similar events or
circumstances, the MOFE may temporarily suspend performance under any
or all foreign exchange transactions, in whole or in part, to which
the Foreign Exchange Transaction Laws apply (including suspension of
payment and receipt of foreign exchange) or impose an obligation to
deposit, safe-keep or 114




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sell any means of payment to The Bank of Korea or certain other governmental agencies or financial institutions; and
    
    if the Government concludes that the international balance of payments and international financial markets are
experiencing or are likely to experience significant disruption or that the movement of capital between Korea and
other countries are likely to adversely affect the Won, exchange rate or other macroeconomic policies, the MOFE may
take action to require any person who intends to effect or effects a capital transaction to deposit all or a
portion of the means of payment acquired in such transactions with The Bank of Korea or certain other governmental
agencies or financial institutions. Government Review of Issuances of ADSs In order for us to issue ADSs outside Korea, we are required to submit a report to the MOFE or
our designated foreign exchange bank (depending on the aggregate issuance amount) with respect to
the issuance of the ADSs. The transfer of the shares to the ADR depositary must be reported
immediately to the Governor of the Financial Supervisory Service. The ADR depositary must report to
the Financial Supervisory Service (1) the entry into, renewal or termination of a deposit agreement
with a Korean company immediately upon occurrence of such event and (2) the balance of the issued
depositary receipts within 20 days from the last day of each quarter. Furthermore, at the time of
making any payment under the ADSs or any amount as provided in the deposit agreement, relevant
documents should be submitted to a foreign exchange bank to enable such foreign exchange bank to
verify (1) that the amount being remitted conforms to the amount required to be paid under the
relevant documents, and (2) whether or not any necessary approval or report requirement, if any,
has been met. No further governmental approval is necessary for the offering and issuance of the
ADSs. Under current Korean laws and regulations, the ADR depositary is required to obtain our prior
consent for the number of shares to be deposited in any given proposed deposit which exceeds the
difference between:  
    
    the aggregate number of common shares deposited by us or with our
consent for the issuance of ADSs (including deposits in connection
with the initial and all subsequent offerings of ADSs and stock
dividends or other distributions related to these ADSs); and
    
    the number of common shares on deposit with the ADR depositary at the
time of such proposed deposit. We can give no assurance that we would
grant our consent, if our consent is required. In addition to such
restrictions under Korean laws and regulations, there are also
restrictions on the deposits of our common shares for issuance of
ADSs. See Additional Information  Description of American Depositary
Shares. Therefore, a holder of ADRs who surrenders ADRs and withdraws
shares may not be permitted subsequently to deposit those shares and
obtain ADRs. Reporting Requirements for Holders of Substantial Interests Under the Korean Securities and Exchange Act, any person whose direct or beneficial ownership
of shares with voting rights, whether in the form of shares or ADSs, certificates representing the
rights to subscribe for shares and equity-related debt securities including convertible bonds and
bonds with warrants (collectively referred to as Equity Securities), together with the Equity
Securities beneficially owned by certain related persons or by any person acting in concert with
the person, accounts for 5.0% or more of the total outstanding Equity Securities is required to
report the status and purpose (in terms of whether the purpose of shareholding is to affect control
over management of the issuer) of the holdings to the Financial Supervisory Commission of Korea and
the KRX within five business days after reaching the 5.0% ownership interest threshold. In
addition, any change (i) in the ownership interest subsequent to the report which equals or exceeds
1.0% of the total outstanding Equity Securities, or (ii) in the shareholding purpose is required to
be reported to the Financial Supervisory Commission of Korea and KRX within five business days from
the date of the change. However, reporting deadline of such reporting requirement is extended to
institutional investors who hold shares for purposes other than management control by the tenth day
of the month immediately following the month of share acquisition or change in their shareholding.
Those who reported the purpose of shareholding is to affect control over management of the issuer
are prohibited from exercising their voting rights and acquiring additional shares for five days
subsequent to the report under the recently amended Korean Securities and Exchange Act. 115




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Violation of these reporting requirements may subject a person to criminal sanctions such as
fines or imprisonment and may result in a loss of voting rights with respect to the ownership of
unreported Equity Securities exceeding 5.0%. Furthermore, the Financial Supervisory Commission of
Korea may issue an order to dispose of such non-reported Equity Securities. In addition to the reporting requirements described above, any person whose direct or
beneficial ownership of our common shares accounts for 10% or more of the total issued and
outstanding shares with voting rights (a major shareholder) must report the status of his/her
shareholding to the Securities and Futures Commission and the KRX by the tenth day of the calendar
month immediately following the month in which any changes in shareholding have occurred.
Violations of these reporting requirements may subject a person to criminal sanctions, such as
fines or imprisonment. Under the Financial Supervisory Commission Regulations newly amended on March 2005, (i) if a
company listed on the Stock Market (the KRX Stock Market) or a company listed on the Kosdaq
Market (the KRX KOSDAQ Market) has reported material matters regarding management which have not
been disclosed to KRX to a foreign exchange pursuant to the laws of the jurisdiction in which the
foreign exchange is located, then it must submit a Korean translation of the material matters
regarding management that have been reported to the foreign exchange to the FSC and KRX, and (ii)
if a KRX Stock Market-listed company or KRX KOSDAQ Market-listed company has submitted business
reports or similar documents to a foreign exchange, then it must submit a Korean summary thereof to
the FSC and KRX. Restrictions Applicable to ADSs No Korean governmental approval is necessary for the sale and purchase of ADSs in the
secondary market outside Korea or for the withdrawal of shares underlying ADSs and the delivery of
shares in Korea in connection with the withdrawal, provided that a foreigner who intends to acquire
the shares must obtain an investment registration card from the Financial Supervisory Service, as
described below. The acquisition of the shares by a foreigner must be reported by the foreigner or
his standing proxy in Korea immediately to the Governor of the Financial Supervisory Service. Persons who have acquired shares as a result of the withdrawal of shares underlying the ADSs
may exercise their preemptive rights for new shares, participate in free distributions and receive
dividends on shares without any further governmental approval. Restrictions Applicable to Shares As a result of amendments to the Foreign Exchange Transaction Laws and the regulations of
Financial Supervisory Commission of Korea, together referred to as the Investment Rules, adopted in
connection with the stock market opening from January 1992 and after that date, foreigners may
invest, with limited exceptions and subject to procedural requirements, in all shares of Korean
companies, whether listed on the KRX Stock Market or the KRX KOSDAQ Market, unless prohibited by
specific laws. Foreign investors may trade shares listed on the KRX Stock Market or the KRX KOSDAQ
Market only through the KRX Stock Market or the KRX KOSDAQ Market, except in limited circumstances,
including, among others:  
    
    odd-lot trading of shares;
    
    acquisition of shares by a foreign company as a result of a merger;
    
    acquisition or disposal of shares in connection with a tender offer;
    
    acquisition of shares by exercise of warrant, conversion right under convertible bonds,
exchange right under exchangeable bonds or withdrawal right under depositary receipts
issued outside of Korea by a Korean company (Converted Shares);
    
    acquisition of shares through exercise of rights under securities issued outside of Korea;
    
    acquisition of shares as a result of inheritance, donation, bequest or exercise of
shareholders rights, including preemptive rights or rights to participate in free
distributions and receive dividends;
    
    over-the-counter transactions between foreigners of a class of shares for which the
ceiling on aggregate acquisition by foreigners, as explained below, has been reached or
exceeded; and
    
    acquisition of shares by direct investment under the Foreign Investment Promotion Law. For over-the-counter transactions of shares between foreigners outside the KRX Stock Market or
the KRX KOSDAQ Market for shares with respect to which the limit on aggregate foreign ownership has
been reached or exceeded, a securities company licensed in Korea must act as an intermediary.
Odd-lot trading of shares outside the KRX Stock Market or the KRX KOSDAQ Market must involve a
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other party. Foreign investors are prohibited from engaging in margin transactions through
borrowing shares from securities companies with respect to shares which are subject to a foreign
ownership limit. The Investment Rules require a foreign investor who wishes to invest in shares for the first
time on the KRX Stock Market or the KRX KOSDAQ Market (including Converted Shares) and shares being
publicly offered for initial listing on the KRX Stock Market or the KRX KOSDAQ Market to register
its identity with the Financial Supervisory Service prior to making any such investment; however,
the registration requirement does not apply to foreign investors who acquire Converted Shares with
the intention of selling such Converted Shares within three months from the date of acquisition of
the Converted Shares or who acquire the shares in an over-the-counter transaction or dispose of
shares where such acquisition or disposal is deemed to be a foreign direct investment pursuant to
the Foreign Investment Promotion Law. Upon registration, the Financial Supervisory Service will
issue to the foreign investor an investment registration card which must be presented each time the
foreign investor opens a brokerage account with a securities company or financial institution in
Korea. Foreigners eligible to obtain an investment registration card include foreign nationals who
are individuals residing in Korea for six months or longer, foreign governments, foreign municipal
authorities, foreign public institutions, international financial institutions or similar
international organizations, corporations incorporated under foreign laws and any person in any
additional category designated by decree of the MOFE. All Korean offices of a foreign corporation
as a group are treated as a separate foreigner from the offices of the corporation outside Korea
for the purpose of investment registration. However, a foreign corporation or depositary issuing
depositary receipts may obtain one or more investment registration cards in its name in certain
circumstances as described in the relevant regulations. Upon a foreign investors purchase of shares through the KRX Stock Market or the KRX KOSDAQ
Market, no separate report by the investor is required because the investment registration card
system is designed to control and oversee foreign investment through a computer system. However,
where a foreign investor acquires or sells shares outside the KRX Stock Market and the KRX KOSDAQ
Market, such acquisition or sale of shares must be reported by the foreign investor or his standing
proxy to the Governor at the time of each such acquisition or sale; provided, however, that a
foreign investor must ensure that any acquisition or sale by it of shares outside the KRX Stock
Market or the KRX KOSDAQ Market in the case of trades in connection with a tender offer, odd-lot
trading of shares or trades of a class of shares for which the aggregate foreign ownership limit
has been reached or exceeded, is reported to the Governor by the securities company engaged to
facilitate such transaction. In the event a foreign investor desires to acquire or sell shares
outside the KRX Stock Market or the KRX KOSDAQ Market and the circumstances in connection with such
sale or acquisition do not fall within the exceptions made for certain limited circumstances
described above, then the foreign investor must obtain the prior approval of the Governor. In
addition, in the event a foreign investor acquires or sells shares outside the KRX Stock Market or
the KRX KOSDAQ Market, a prior report to the Bank of Korea may also be required in certain
circumstances. A foreign investor must appoint one or more standing proxies from among the Korea
Securities Depository, foreign exchange banks, including domestic branches of foreign banks,
securities companies, including domestic branches of foreign securities companies, investment trust
companies, futures trading companies and internationally recognized custodians which will act as a
standing proxy to exercise shareholders rights, or perform any matters related to the foregoing
activities if the foreign investor does not perform these activities himself. However, a foreign
investor may be exempted from complying with these standing proxy rules with the approval of the
Governor in cases deemed inevitable by reason of conflict between laws of Korea and the home
country of the foreign investor. Certificates evidencing shares of Korean companies must be kept in custody with an eligible
custodian in Korea. Only foreign exchange banks, including domestic branches of foreign banks,
securities companies, including domestic branches of foreign securities companies, the Korea
Securities Depository, investment trust companies, futures trading companies and internationally
recognized custodians are eligible to act as a custodian of shares for a non-resident or foreign
investor. A foreign investor must ensure that his custodian deposits its shares with the Korea
Securities Depository. However, a foreign investor may be exempted from complying with this deposit
requirement with the approval of the Governor in circumstances where compliance with that
requirement is made impracticable, including cases where compliance would contravene the laws of
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Under the Investment Rules, with certain exceptions, foreign investors may acquire shares of a
Korean company without being subject to any foreign investment ceiling. As one such exception,
designated public corporations are subject to a 40.0% ceiling on the acquisition of shares by
foreigners in the aggregate. Designated public corporations may set a ceiling on the acquisition of
shares by a single person within 3.0% of the total number of shares in their articles of
incorporation. Currently, Korea Electric Power Corporation is the only designated public
corporation which has set such a ceiling. Furthermore, an investment by a foreign investor of not
less than 10.0% of the outstanding shares with voting rights of a Korean company is defined as a
direct foreign investment under the Foreign Investment Promotion Law, which is, in general, subject
to the report to, and acceptance by, the Ministry of Commerce, Industry and Energy of Korea, which
delegates its authority to foreign exchange banks or the Korea Trade-Investment Promotion Agency
under the relevant regulations. The acquisition of our shares by a foreign investor is also subject
to the restrictions prescribed in the Telecommunications Business Law. The Telecommunications
Business Law generally limits the maximum aggregate foreign shareholdings in us to 49.0% of the
outstanding shares. Foreign investors may hold shares of our common stock in excess of the 49%
limitation acquired as a result of the exercise of certain exchange-traded stock options for
individual corporations; provided, however, that any such foreign investor must dispose of any of
shares of our common stock in excess of the 49% limitation within one day after settlement of the
option. A foreigner who has acquired shares in excess of such restriction described above may not
exercise its voting rights with respect to the shares exceeding such limitations, and may be
subject to corrective orders. Under the Foreign Exchange Transaction Laws, a foreign investor who intends to make a
portfolio investment in shares of a Korean company listed on the KRX Stock Market or the KRX KOSDAQ
Market must designate a foreign exchange bank at which he must open a foreign currency account and
a Won account exclusively for stock investments. No approval is required for remittance into Korea
and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may
be transferred from the foreign currency account at the time required to place a deposit for, or
settle the purchase price of, a stock purchase transaction to a Won account opened at a securities
company. Funds in the foreign currency account may be remitted abroad without any governmental
approval. Dividends on shares are paid in Won. No governmental approval is required for foreign
investors to receive dividends on, or the Won proceeds of the sale of, any such shares to be paid,
received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any such
shares held by a non-resident of Korea must be deposited either in a Won account with the
investors securities company or the investors Won account. Funds in the investors Won account
may be transferred to his foreign currency account or withdrawn for local living expenses, provided
that any withdrawal of local living expenses in excess of a certain amount is reported to the tax
authorities by the foreign exchange bank at which the Won account is maintained. Funds in the
investors Won account may also be used for future investment in shares or for payment of the
subscription price of new shares obtained through the exercise of preemptive rights. Securities companies and investment trust companies are allowed to open foreign currency
accounts with foreign exchange banks exclusively for accommodating foreign investors stock
investments in Korea. Through these accounts, these securities companies and investment trust
companies may enter into foreign exchange transactions on a limited basis, such as conversion of
foreign currency funds and Won funds, either as a counterparty to or on behalf of foreign
investors, without the investors having to open their own accounts with foreign exchange banks. 118




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TAXATION The following summary is based on the tax laws of the United States and Korea as in effect on
the date of this report, and is subject to any change in United States or Korean law that may come
into effect after such date. We advise investors in the ADSs or shares to consult their own
tax advisors as to the United States, Korean or other tax consequences of the purchase,
ownership and disposition of such securities, including, in particular, the effect of any national,
state or local tax laws. U.S. Federal Income Tax Consequences The following discussion is a general summary of the material U.S. federal income tax
consequences of the acquisition, ownership and disposition of the ADSs or our common shares by a
U.S. Holder (as defined below). This discussion addresses only U.S. Holders that purchase the ADSs
pursuant to this offering and hold the ADSs or our common shares as capital assets within the
meaning of section 1221 of the U.S. Internal Revenue Code of 1986, as amended (the Code). This
discussion is based on the Code, the Treasury Regulations promulgated thereunder, administrative
and judicial pronouncements with respect thereto, the Convention Between The United States of
America And The Republic Of Korea For The Avoidance of Double Taxation, as amended (the Tax
Convention), all as currently in effect and all subject to change, possibly with retroactive
effect. This discussion does not cover all aspects of U.S. federal income taxation that may be
relevant to the acquisition, ownership or disposition of the ADSs or our common shares by
prospective investors in light of their particular circumstances. In particular, this discussion
does not address all of the tax consequences that may be relevant to certain types of investors
subject to special treatment under the U.S. federal income tax laws (such as banks, insurance
companies, investors liable for the alternative minimum tax, persons that own (actually or
constructively) 10% or more (by vote or value) of our outstanding shares, individual retirement
accounts and other tax-deferred accounts, tax-exempt organizations, dealers, traders in securities
that elect to mark-to-market their securities, partnerships and other pass-through entities,
regulated investment companies, real estate investment trusts, U.S. expatriates, investors that
hold the ADSs or our common shares as part of a straddle, hedging transaction or conversion
transaction for U.S. federal income tax purposes or investors whose functional currency is not the
U.S. dollar). This discussion does not address any U.S. state or local, or non-U.S., tax
consequences or any U.S. federal estate or gift tax consequences. As used herein, the term U.S. Holder means a beneficial owner of the ADSs or our common
shares that is for U.S. federal income tax purposes (a) an individual who is a citizen or resident
of the United States, (b) a corporation created or organized under the laws of the United States,
any state thereof or the District of Columbia, (c) an estate the income of which is subject to U.S.
federal income tax without regard to its source or (d) a trust with respect to which a court within
the United States is able to exercise primary supervision over its administration and one or more
United States persons have authority to control all of its substantial decisions or certain
electing trusts that were in existence on August 19, 1996 and were treated as domestic trusts on
that date. If a partnership holds the ADSs or our common shares, the tax treatment of the
partnership and each of its partners will generally depend upon the status and activities of the
partnership and the partner. A U.S. Holder that is treated as a partnership for U.S. federal income
tax purposes should consult its own tax advisor regarding the U.S. federal income tax consequences
to it and its partners of the acquisition, ownership and disposition of the ADSs or our common
shares. This discussion is for general information only. Each U.S. Holder should consult its own
tax advisor as to the particular U.S. federal income tax consequences to it of acquiring, owning
and disposing of the ADSs or our common shares, including its eligibility for the benefits of the
Tax Convention, in light of its particular circumstances. Treatment of the ADSs A U.S. Holder of the ADSs will be treated for U.S. federal income tax purposes as the
owner of such U.S. Holders proportionate interest in our common shares held by the ADR depositary
(or its custodian) that are represented and evidenced by such ADSs, and the discussion below
assumes such treatment. Distributions Subject to the discussion below under Passive Foreign Investment Company
Considerations, a U.S. Holder that receives a distribution, including a constructive distribution,
with respect to the ADSs or our common shares will be required to include the amount of such
distribution in gross income as a dividend (without reduction for any Korean or other non-U.S. tax
withheld from such distribution) to the extent of our current or accumulated earnings and profits.
To the extent that a distribution exceeds our current and accumulated earnings and profits, such
distribution will be treated (a) first, as a tax-free return of capital to the extent of the U.S.
Holders adjusted tax basis in the ADSs or our common shares and (b) thereafter, as gain from the
sale or exchange of such ADSs or our common shares. We have not maintained and do not plan to
maintain calculations of earnings and profits for U.S. federal income tax purposes. Each U.S.
Holder should consult its own tax advisor with respect to the appropriate U.S. federal income tax
treatment of any distribution in respect of the ADSs or our common shares. 119




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The U.S. dollar value of any distribution on the ADSs or our common shares made in Won
should be calculated by reference to the exchange rate in effect on the date of receipt of such
distribution by the ADR depositary or the U.S. Holder, respectively, regardless of whether the Won
is in fact converted into U.S. dollars. If the Won so received is converted into U.S. dollars on
the date of receipt, such U.S. Holder generally should not recognize foreign currency gain or loss
on such conversion. If the Won so received is not converted into U.S. dollars on the date of
receipt, such U.S. Holder will have a basis in the Won equal to their U.S. dollar value on the date
of receipt. Any gain or loss on a subsequent conversion or other disposition of the Won generally
will be treated as ordinary income or loss to such U.S. Holder and generally will be income or loss
from sources within the United States for U.S. foreign tax credit purposes. Dividends paid on the ADSs or our common shares generally will constitute income from
sources outside the United States and be categorized as passive income or, in the case of some
U.S. Holders, as financial services income for U.S. foreign tax credit purposes (or, for tax
years beginning after December 31, 2006, as passive category income or, in the case of some U.S.
Holders, as general category income) and will not be eligible for the dividends received
deduction generally allowed to corporate shareholders with respect to dividends received from U.S.
corporations. In general, a U.S. Holder may be eligible to elect to claim a U.S. foreign tax credit
against its U.S. federal income tax
liability, subject to applicable limitations and holding period requirements, for Korean tax
withheld from distributions received in respect of the ADSs or our common shares. If Korean tax is
withheld at a rate in excess of the rate applicable to a U.S. Holder under the Tax Convention, the
U.S. Holder may not be entitled to a foreign tax credit for the excess amount. A U.S. Holder that
does not elect to claim a U.S. foreign tax credit may instead claim a deduction for Korean tax
withheld, but only for a taxable year in which the U.S. Holder elects to do so with respect to all
foreign income taxes paid or accrued in such taxable year. The rules relating to U.S. foreign tax
credit are very complex. Each U.S. Holder should consult its own tax advisor regarding whether it
should elect to claim U.S. foreign tax credits or deductions with respect to foreign income taxes
paid or accrued and whether and to what extent it is entitled to claim any U.S. foreign tax credit. U.S. legislation enacted in 2003 (the 2003 Legislation) reduces to 15% the maximum tax
rate for certain dividends received by non-corporate taxpayers through taxable years beginning on
or before December 31, 2008, so long as certain holding period requirements are met. Dividends
received from qualified foreign corporations and dividends received in respect of stock of a
corporation (other than a passive foreign investment company) that is readily tradable on an
established securities market in the United States generally qualify for the reduced rate. Since
the ADSs are listed on the New York Stock Exchange, unless we are treated as a passive foreign
investment company, dividends received in respect of the ADSs will qualify for the reduced rate.
Dividends paid on our common shares not held through ADSs should qualify for the reduced rate if we
are treated as a qualified foreign corporation. A non-U.S. corporation (other than a passive
foreign investment company) generally will be considered to be a qualified foreign corporation if
it is eligible for the benefits of a comprehensive income tax treaty with the United States which
the Secretary of the Treasury determines is satisfactory for purposes of this provision and which
includes an exchange of information program. The Tax Convention as currently in effect meets these
requirements. However, because the Treasury Department has not yet issued guidance concerning when
a non-U.S. corporation is eligible for the benefits of an applicable income tax treaty, no
assurance can be given that we will be treated as a qualified foreign corporation for such purpose.
Accordingly, no assurance can be given that such reduced rate will apply to dividends paid on our
common shares held by a U.S. Holder other than through ADSs, although we expect such dividends to
so qualify. Special rules apply for purposes of determining the recipients investment income
(which limits deductions for investment interest) and foreign income (which may affect the amount
of U.S. foreign tax credit) and to certain extraordinary dividends. Each U.S. Holder that is a
non-corporate taxpayer should consult its own tax advisor regarding the possible applicability of
the reduced rate under the 2003 Legislation and the related restrictions and special rules. Sale, Exchange or Other Disposition of the ADSs or our Common Shares Subject to the discussion below under Passive Foreign Investment Company
Considerations, a U.S. Holder generally will recognize capital gain or loss upon the sale,
exchange or other disposition of the ADSs or our common shares in an amount equal to the
difference, if any, between the amount realized on the sale, exchange or other disposition and the
U.S. Holders adjusted tax basis in the ADSs or our common shares. Such capital gain or loss will
be long-term capital gain or loss if the U.S. Holders holding period in the ADSs or our common
shares exceeds one year. Net long-term capital gains of a non-corporate U.S. Holder recognized in a
tax year beginning on or before December 31, 2008, are generally taxed at a maximum U.S. federal
income tax rate of 15%. The deductibility of capital losses is subject to limitations. Such capital
gain or loss will generally be sourced within the United States for U.S. foreign tax credit
purposes. A U.S. Holder generally will not recognize gain or loss for U.S. federal income tax
purposes upon the withdrawal or deposit of our common shares in exchange for the ADSs. Passive Foreign Investment Company Considerations We believe that we are not currently, and were not during 2004, a passive foreign
investment company (PFIC) for U.S. federal income tax purposes. However, because this
determination is made annually at the end of each taxable year and is dependent upon a number of
factors, some of which are beyond our control, including the value of our assets and the amount and
type of our income, there can be no assurance that we will not become a PFIC or that the Internal
Revenue Service (the IRS) will agree with our conclusion regarding our PFIC status. If we are a
PFIC in any year, U.S. Holders could suffer adverse consequences as discussed below. In general, a non-U.S. corporation will be treated as a PFIC for U.S. federal income tax
purposes in any taxable year in which either (i) at least 75% of its gross income is passive
income or (ii) on average at least 50% of the value of its assets is attributable to assets that
produce passive income or are held for the production of passive income. Passive income for this
purpose generally includes, among other things, dividends, interest, royalties, rents and gains
from commodities and securities transactions. In determining whether a non-U.S. corporation is a
PFIC, a pro rata portion of the income and assets of each corporation in which it owns, directly or
indirectly, at least a 25% interest (by value) is taken into account. If we are a PFIC in any year during which a U.S. Holder owns the ADSs or our common
shares, such U.S. Holder could be liable for additional taxes and interest charges upon certain
distributions by us or upon a sale, exchange or other disposition of the ADSs or our common shares
at a gain, whether or not we continue to be a PFIC. The tax will be determined by allocating such
distributions or gain ratably to each day of the U.S. Holders holding period. The amount allocated
to the current taxable year and any taxable year with respect to which we are not a PFIC will be
taxed as ordinary income (rather than capital gain) earned in the current taxable year. The amount
allocated to other taxable years will be taxed at the highest marginal rates applicable to ordinary
income for such taxable years and, in addition, an interest charge will be imposed on the amount of
such taxes. In addition, if we are a PFIC, a person who acquires our common shares from a decedent
will be denied the step-up of the tax basis for U.S. federal income tax purposes to fair market
value at the date of such decedents death, which would otherwise be available with respect to a
decedent dying in any year other than 2010, and, instead, such person will have a tax basis equal
to the lower of such fair market value or such decedents tax basis. The above results may be eliminated if a mark-to-market election is available and a
U.S. Holder validly makes such an election. If such election is made, such U.S. Holder generally
will be required to take into account the difference, if any, between the fair market value of and
its adjusted tax basis in the ADSs or our common shares at the end of each taxable year as
ordinary income or ordinary loss (to the extent of any net mark-to-market gains previously included
in income). In addition, any gain from a sale, exchange or other disposition of the ADSs or our 120




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common shares will be treated as ordinary income, and any loss will be treated as ordinary loss (to
the extent of any net mark-to-market gains previously included in income). A mark-to-market
election is available to a U.S. Holder only if the ADSs or our common shares are considered
marketable stock for these purposes. Generally, stock will be considered marketable stock if it
is regularly traded on a qualified exchange within the meaning of applicable U.S. Treasury
regulations. The above results may also be eliminated if a U.S. Holder is eligible for and timely
makes a valid QEF election. If a QEF election is made, such U.S. Holder generally will be
required to include in income on a current basis its pro rata share of our ordinary income and net
capital gains. In order for a U.S. Holder to be able to make a QEF election, we would be required
to provide such U.S. Holder with certain information. We do not expect to provide U.S. Holders with
the required information, in which case a QEF election would be unavailable. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal income tax
consequences of an investment in a PFIC. Information Reporting and Backup Withholding Payments made within the United States, or by a U.S. payor or U.S. middleman, of
dividends on, and proceeds arising from certain sales or other dispositions of, the ADSs or our
common shares generally will be subject to information reporting and backup withholding tax if a
U.S. Holder (a) fails to furnish such U.S. Holders correct U.S. taxpayer identification number
(generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is
notified by the IRS that such U.S. Holder has previously failed to properly report items subject to
backup withholding tax or (d) fails to certify under penalty of perjury that the IRS has not
notified such U.S. Holder that it is subject to backup withholding tax. However, U.S. Holders that
are corporations generally are excluded from these information reporting and backup withholding tax
rules. Any amounts withheld under the backup withholding tax rules will be allowed as a credit
against a U.S. Holders U.S. federal income tax liability, if any, or will be refunded, if such
U.S. Holder furnishes required information to the IRS. Each U.S. Holder should consult its own tax
advisor regarding the information reporting and backup withholding tax rules. Reportable Transactions Under U.S. Treasury Regulations, U.S. Holders that participate in reportable transactions
(as defined in the regulations) must attach to their tax returns a disclosure statement on Form
8886. Each U.S. Holder should consult its own tax advisor as to the possible obligation to file
Form 8886 with respect to the purchase, ownership or disposition of any Won received as a dividend
or as proceeds from the sale of the ADSs or our common shares. Korean Taxation The following summary of Korean tax considerations applies to you so long as you are not:  
    
    a resident of Korea;
    
    a corporation organized under Korean law; or
    
    engaged in a trade or business in Korea through a permanent
establishment or a fixed base to which the relevant income is
attributable or with which the relevant income is effectively
connected. Dividends on the Shares or ADSs We will deduct Korean withholding tax from dividends paid to you at a rate of 27.5% (including
resident surtax). If you are a qualified resident in a country that has entered into a tax treaty
with Korea, you may qualify for a reduced rate of Korean withholding tax. For example, if you are a
qualified resident of the United States for purposes of the income tax treaty between the United
States and Korea, and you are the beneficial owner of a dividend, generally, a reduced
withholding tax at the rate of 16.5% will apply. In order to obtain the benefits of a reduced withholding tax rate under the treaty, you must
submit to us, prior to the dividend payment date, such residence as may be required by the Korean
tax authorities. Residence may be submitted to us through the ADR depositary. In addition, on or
after July 1, 2002, to obtain the benefit of a tax exemption available under applicable tax
treaties, you should submit an application for exemption prior to the time of the first dividend
payment, together with a certificate of your tax residence issued by a competent authority of your
country of tax residence. Excess taxes withheld are generally not recoverable, even if you
subsequently produce evidence that you were entitled to have tax withheld at a lower rate. If we distribute to you free shares representing transfer of certain capital reserves or asset
revaluation reserves into paid-in capital, that distribution may be regarded as dividend and, as
such, subject to Korean withholding tax. 121




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Taxation Of Capital Gains You may be exempt from Korean taxation on capital gains from the shares, if you have owned,
together with certain related parties, less than 25.0% of our total issued and outstanding shares
at any time during the year of sale and the five calendar years before the year of sale, and the
sale is made through the KRX Stock Market. As for the ADSs, according to a ruling issued by Korean
taxation authorities, capital gains earned by a non-resident holder from the transfer of ADSs
outside Korea are not subject to Korean taxation, irrespective of whether or not such holder has a
permanent establishment in Korea. Under the Tax Benefit Limitation Law, capital gains earned by a
non-resident holder (whether or not such holder has a permanent establishment in Korea) from the
transfer outside Korea of securities issued outside Korea by a Korean company, which are
denominated in foreign currency or satisfy certain criteria established by the Ministry of Finance
and Economy are exempt from Korean taxation. The Korean tax authorities have issued a tax ruling
confirming that receipts (which would include the ADSs) are deemed to be securities issued outside
Korea by the issuer of the underlying stock. Further, capital gains earned by a non-resident from
the transfer of stocks issued by a Korean company are also exempt from Korean taxation, if listed
or registered and sold through an overseas securities exchange having functional similarity to the
KRX Stock Market or the KRX KOSDAQ Market under the Korean Securities and Futures Exchange Act. If you are subject to tax on capital gains with respect to the sale of ADSs, or of shares
which you acquired as a result of a withdrawal, your gain will be calculated based on your cost of
acquiring the ADSs representing such shares, although there are no specific Korean tax provisions
or rulings on this issue. In the absence of the application of a tax treaty which exempts or
reduces the rate of tax on capital gains, the amount of Korean tax imposed on your capital gains
will be the lesser of 11.0% (including resident surtax) of the gross realization proceeds or,
subject to production of satisfactory evidence of acquisition cost and transfer expenses of the
ADSs, 27.5% of the net capital gains. Under the Korea-United States Tax Treaty, a U.S. resident is
generally exempt from Korean taxation on gains from the sale, exchange or other disposition of our
Shares or ADSs, subject to certain exceptions. If you sell your shares or ADSs, the purchaser or, in the case of the sale of shares on the
KRX Stock Market or through a licensed securities company in Korea, the licensed securities
company, is required to withhold Korean tax from the sales price in an amount equal to 11.0% of the
gross realization proceeds and to make payment of such amounts to the Korean tax authority, unless
you establish your entitlement to an exemption or lower rate of taxation under an applicable tax
treaty or produce satisfactory evidence of your acquisition and transfer costs for the ADSs. To
obtain the benefit of an exemption or reduced rate of tax pursuant to a tax treaty, you must submit
to the purchaser or the securities company (or through the ADR depositary), as the case may be,
prior to or at the time of payment, such evidence of your tax residence as the Korean tax
authorities may require in support of your claim for treaty protection. In addition, Korean tax law
requires a non-resident seller to submit to the relevant tax office (through the payer of the
income, subject to certain exceptions) an application for exemption by the 9th day of the month
following the month in which the first payment date falls, with a certificate of tax residence of
the seller issued by a competent authority of the sellers residence country, to obtain the benefit
of a tax treaty exemption available under applicable tax treaties. However, this requirement will
not apply to exemptions under Korean tax law. Excess taxes withheld are generally not recoverable
even if you subsequently produce evidence that you were entitled to have taxes withheld at a lower
rate. Inheritance Tax And Gift Tax If you die while holding an ADS or transfer an ADS as a gift, it is unclear whether you will
be treated as the owner of the shares underlying the ADSs for Korean inheritance and gift tax
purposes. If you are treated as the owner of the shares, the heir or the donee (or in certain
circumstances, you as the donor) will be subject to Korean inheritance or gift tax presently at the
rate of 10.0% to 50.0%. If you die while holding a share or donate a share, the heir or donee (or in certain
circumstances, you as the donor) will be subject to Korean inheritance or gift tax at the same rate
as indicated above. 122




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Securities Transaction Tax You will not pay a securities transaction tax on your transfer of ADSs. If you transfer
shares, you will be subject to a securities transaction tax at the rate of 0.15% and an
agricultural and fishery special tax at the rate of 0.15% of the sale price of the share when
traded on the KRX Stock Market. If your transfer is not made on the KRX Stock Market, subject to
certain exceptions, you will be subject to a securities transaction tax at the rate of 0.5% and
will not be subject to an agricultural and fishery special tax. According to a tax ruling issued by the Korean tax authorities, foreign shareholders will not
be subject to a securities transaction tax upon the deposit of underlying shares and receipt of
depositary shares or upon the surrender of depositary shares and withdrawal of originally deposited
underlying shares. Moreover, to date, the imposition of securities transaction tax has not been
enforced on the transfers of ADSs. However, the Ministry of Finance and Economy recently issued a
ruling on February 25, 2004 to the Korean National Tax Service, holding that depositary
shares fall under the meaning of share certificates that are subject to the securities transaction
tax. In the ruling, the Ministry of Finance and Economy treats the transfers of depositary shares
the same as the transfer of the underlying Korean shares. Under Korean tax laws, transfers of
depositary shares listed or registered on the New York Stock Exchange, Nasdaq National Market, or
other foreign exchanges designated by the Ministry of Finance and Economy (which are the Tokyo
Stock Exchange, London Stock Exchange, Deutsche Stock Exchange, and a stock exchange with functions
similar to (i), (ii) or (iii) above, on which trading is done by standardized procedure as set
forth in the Enforcement Regulation of the Korean Securities and Exchange Act) will be exempted
from the securities transaction tax. Securities transaction tax, if applicable, must be paid in principle by the transferor of the
shares or the rights to subscribe to such shares. When the transfer is effected through a
securities settlement company, the settlement company is generally required to withhold and pay the
tax to the tax authority. When the transfer is made through a securities company, the securities
company is required to withhold and pay the tax. Where the transfer is effected by a non-resident
without a permanent establishment in Korea, other than through a securities settlement company or a
securities company, the transferee is required to withhold the securities transaction tax. Failing to report (or under-report) the securities transaction tax will result in a penalty of
10% of the tax amount due. The failure to pay the securities transaction tax due will result in
imposition of interest at 10.95% per annum on the unpaid tax amount for the period from the day
immediately following the last day of tax payment period to the day of issuance of tax notice. The
penalty is imposed on the party responsible for paying the securities transaction tax or, if the
securities transaction tax is to be withheld, the penalty is imposed on the party that has the
withholding obligation. Documents On Display We file reports, including annual reports on Form 20-F, and other information with the SEC
pursuant to the rules and regulations of the SEC that apply to foreign private issuers. You may
read and copy any materials filed with the SEC at the Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20459. You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. Any filings we make electronically will be available to
the public over the Internet at the SECs Website at http://www.sec.gov. Documents filed with annual reports and documents filed or submitted to the SEC are also
available for inspection at our principal business office during normal business hours. Our
principal business office is located at 11, Euljiro 2-ga, Jung-gu, Seoul 100-999, Korea. 
 Item. 11Quantitative and Qualitative Disclosures about Market Risk Quantitative and Qualitative Disclosures about Market Risk Exchange Rate and Interest Rate Risks We are exposed to foreign exchange rate and interest rate risk primarily associated with
underlying liabilities. In the first quarter of 2004, we entered into currency swap agreements and
currency forward contracts with three banks to reduce our foreign currency exposure with respect to
our issuance of US$300 million notes on April 1, 2004. In addition, we have entered into a currency
swap contract with a bank to hedge the foreign currency risk of unguaranteed Dollar denominated
convertible bonds with face amount of US$329.5million issued on May 27, 2004. See note 23 of the
notes to our consolidated financial statements. We may consider in the future entering into other
such transactions solely for hedging purposes. 123




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The following discussion and tables, which constitute forward looking statements that
involve risks and uncertainties, summarize our market-sensitive financial instruments including
fair value, maturity and contract terms. These tables address market risk only and do not present
other risks which we face in the normal course of business, including country risk, credit risk and
legal risk. Exchange Rate Risk Korea is our main market and, therefore, substantially all of our cash flow is
denominated in Won. We are exposed to foreign exchange risk related to foreign currency denominated
liabilities. These liabilities relate primarily to foreign currency denominated debt, all in
Dollars and Yen. A 10% change in the exchange rate between the Won and all foreign currencies would
result in a change in net liabilities (total monetary liabilities minus total monetary assets) of
approximately 9.1% or Won 66.4 billion as of December 31, 2004. Interest Rate Risk We are also subject to market risk exposure arising from changing interest rates. The
following table summarizes the carrying amounts and fair values, maturity and contract terms of our
exchange rate and interest sensitive short-term and long-term liabilities as of December 31, 2004: Maturities2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    Total
    
    
    Fair Value(In billions of Won, except for percentage data)Local currency:Fixed rate
    
    (Won)
    898.3
    
    
    (Won)
    788.8
    
    
    (Won)
    687.7
    
    
    (Won)
    297.0
    
    
    (Won)
    297.2
    
    
    (Won)
    187.8
    
    
    (Won)
    3,156.8
    
    
    (Won)
    3,277.0Average weighted rate(1)
    
    
    4.90
    %
    
    
    5.50
    %
    
    
    5.57
    %
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    3.00
    %Variable rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average weighted rate(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sub-total
    
    (Won)
    898.3
    
    
    (Won)
    788.8
    
    
    (Won)
    687.7
    
    
    (Won)
    297.0
    
    
    (Won)
    297.2
    
    
    (Won)
    187.8
    
    
    (Won)
    3,156.8
    
    
    (Won)
    3,277.0Foreign currency:Fixed rate
    
    (Won)
    25.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Won)
    323.7
    
    
    (Won)
    309.6
    
    
    (Won)
    658.8
    
    
    (Won)
    696.0Average weighted rate(1)
    
    
    2.51
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    4.25
    %Variable rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average weighted rate(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sub-total
    
    (Won)
    25.5
    
    
    (Won)
    
    
    
    (Won)
    
    
    
    
    
    
    
    (Won)
    323.7
    
    
    (Won)
    309.6
    
    
    (Won)
    658.8
    
    
    (Won)
    696.0Total
    
    (Won)
    923.8
    
    
    (Won)
    788.8
    
    
    (Won)
    687.7
    
    
    (Won)
    297.0
    
    
    (Won)
    620.9
    
    
    (Won)
    497.4
    
    
    (Won)
    3,815.6
    
    
    (Won)
    3,973.0
 
 (1)
    
    Weighted average rates of the portfolio at the period end. A 1.0% change in interest rates would result in a change of approximately 2.72% in the
fair value of our liabilities resulting in a Won 96.4 billion change in their value as of December
31, 2004 and a Won 255 million annualized change in interest expenses. 124




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Item. 12Description of Securities other than Equity Securities Not applicable. 
 Item. 13Defaults, Dividend Arrearage and Delinquencies None. 
 Item. 14Material Modifications to the Rights of Security Holders and Use of Proceeds None. 
 Item. 15Controls and Procedures Disclosure Controls And Procedures In light of the new regulatory framework introduced by the Sarbanes-Oxley Act of 2002, we
established a formal disclosure committee. Our disclosure committee consists of the head of each
divisional group, including (among others) the heads of the investor relations office, legal office
and strategic planning office. The committee, together with our Chief Executive Officer and Chief
Financial Officer, has the responsibility for the evaluation of the effectiveness of our new
disclosure and control procedures and may generally take all actions deemed necessary or desirable
to ensure compliance with such procedures. Our disclosure controls and procedures, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance of achieving the objectives of the control system. As
such, disclosure controls and procedures or internal control systems may not prevent all error and
all fraud. In addition, the design of a control system must reflect the fact that there are
resource constraints and the benefits of controls must be considered relative to their costs and
our management necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. As of the end of the period covered by this report, the Company carried out an evaluation,
under the supervision of the Companys Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the Companys disclosure controls and procedures pursuant to Rule 13a-15 of the
United States Securities Exchange Act of 1934 (the Exchange Act). Based upon that evaluation, the
Companys Chief Executive Officer and Chief Financial Officer have concluded that the Companys
disclosure controls and procedures are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in Securities and Exchange
Commission rules and forms. Changes In Internal Controls Over Financial Reporting During the period covered by this annual report on Form 20-F, no changes occurred in the
Companys internal control over financial reporting that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial reporting. 
 Item. 16AAudit Committee Financial Expert The board of directors has determined that Dae Sik Kim is an audit committee financial
expert and independent as defined under the applicable rules of the Securities and Exchange
Commission. See Directors, Senior Management and Employees  Board Practices  Audit Committee
for additional information regarding our Audit Committee. 125




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Item. 16BCode of Ethics Code of Ethics for Chief Executive Officer, Chief Financial Officer and Controller We have a code of ethics that applies to our Chief Executive Officer, senior accounting
officers and employees. We also have internal control and disclosure policy designed to promote
full, fair, accurate, timely and understandable disclosure in all of our reports and publicly filed
documents. A copy of the Companys code of ethics is attached to this annual report as Exhibit
11.1. 
 Item. 16CPrincipal Accountant Fees and Services The table sets forth the fees we paid to our independent auditors, Deloitte HanaAnjin LLC
(formerly Deloitte & Touche LLC (Hana)) for the year ended December 31, 2004 and 2003,
respectively, and Ahn Kwon & Co. for the year ended December 31, 2002: Years Ended December 31,2004
    
    
    2003
    
    
    2002(In millions of Won)Audit
    
    W 841.3 million
    
    
    W 727.7 million
    
    
    W 913.9 millionAudit Related
    
    W 127.7 million
    
    
    W 13.7 million
    
    
    W 122.0 millionTax
    
    W 110.1 million
    
    
    W 143.0 million
    
    
    W 74.7 millionAll Other Fees
    
    W 2,418.0  million
    
    
    W 12,006.2  million
    
    
    W 11,058.4  millionTotal
    
    W 3,497.1  million
    
    
    W 12,890.6  million
    
    
    W 12,169.0  million
 Audit Fees are the aggregate fees billed by Deloitte HanaAnjin LLC in 2004 and 2003,
respectively, for the audit of our consolidated annual financial statements, reviews of interim
financial statements and attestation services that are provided in connection with statutory and
regulatory filings or engagements. Audit-Related Fees are fees charged by Deloitte HanaAnjin LLC in 2004 and 2003,
respectively, for assurance and related services that are reasonably related to the performance of
the audit or review of our financial statements and are not reported under Audit Fees. This
category comprises fees billed for advisory services associated with our financial reporting. Tax Fees are fees for professional services rendered by Deloitte HanaAnjin LLC in 2004 and
2003, respectively, for tax compliance, tax advice on actual or contemplated transactions. Fees disclosed under the category All Other Fees are fees for professional services rendered
by Deloitte HanaAnjin LLC in 2004 and 2003, respectively, primarily for business consulting. Pre-Approval of Audit and Non-Audit Services Provided by Independent Auditors Our audit committee pre-approves all audit services to be provided by Deloitte HanaAnjin LLC,
our independent registered public accounting firm. Our audit committees policy regarding the
pre-approval of non-audit services to be provided to us by our independent auditors is that all
such services shall be pre-approved by the Audit Committee. Non-audit services that are prohibited
to be provided to us by our independent auditors under the rules of the Securities and Exchange
Commission and applicable law may not be pre-approved. In addition, prior to the granting of any
pre-approval, our audit committee must be satisfied that the performance of the services in
question will not compromise the independence of our independent registered public accounting firm. Our audit committee did not pre-approve any non-audit services under the de minimisexception
of Rule 2-01 (c)(7)(i)(C) of Regulation S-X as promulgated by the Securities and Exchange
Commission. 126




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Item. 16DExemptions from the Listing Standards for Audit Committees Not applicable. 
 Item. 16EPurchases of Equity Securities by the Issuer and Affiliated Purchasers On August 11, 2003, we concluded a stock buyback program which we commenced on June 30, 2003.
We acquired a total of 2,544,600 shares of our outstanding common stock, all of which were
cancelled on August 20, 2003. The total purchase price for the stock buyback was Won 525.2 billion
(or an average of approximately Won 206,388 per share), with the price per share ranging from Won
192,000 (on July 24, 2003) to Won 216,000 (on July 15-16, 2003). As a result of the stock buyback
and subsequent cancellation of shares, the total number of our outstanding common stock declined
from 84,821,311 to 82,276,711 as of December 31, 2003. Set forth in the following table is information with respect to purchases made by or on behalf
of the issuer or any affiliated purchaser (as defined in Rule 10b-18(a)(3) of the Exchange Act)
of our Common Shares. Total Number of
    
    
    Maximum NumberTotal
    
    
    
    
    
    
    Shares Purchased as
    
    
    of Shares that MayNumber of
    
    
    Average
    
    
    Part of Publicly
    
    
    Yet be PurchasedShares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Under the PlansPeriod
    
    Purchased
    
    
    Per Share
    
    
    or Programs
    
    
    or ProgramsJanuary
    
    
    
    
    
    W
    
    
    
    
    
    
    
    
    February
    
    
    12
    
    
    W
    173,500
    
    
    
    
    
    
    
    March
    
    
    
    
    
    W
    
    
    
    
    
    
    
    
    April
    
    
    
    
    
    W
    
    
    
    
    
    
    
    
    May
    
    
    
    
    
    W
    
    
    
    
    
    
    
    
    June
    
    
    
    
    
    W
    
    
    
    
    
    
    
    
    July
    
    
    
    
    
    W
    
    
    
    
    
    
    
    
    August
    
    
    
    
    
    W
    
    
    
    
    
    
    
    
    September
    
    
    
    
    
    W
    
    
    
    
    
    
    
    
    October
    
    
    
    
    
    W
    
    
    
    
    
    
    
    
    November
    
    
    
    
    
    W
    
    
    
    
    
    
    
    
    December
    
    
    
    
    
    W
    
    
    
    
    
    
    
    
    Total
    
    
    12
    
    
    W
    
    
    
    
    
    
    
    
    
 We exchanged 29,808,333 shares of KT Corporations common stock at Won 50,900 per share for
8,266,923 shares of our common stock at Won 224,000 per share and settled the difference of Won
334.5 billion between the aggregate sale and purchase prices in cash on December 30, 2002 and
January 10, 2003, under a mutual agreement on stock exchange between us and KT Corporation dated
November 14, 2002. Of the 8,266,923 shares of our common stock exchanged, 4,457,635 shares of our
common stock were subsequently cancelled and 3,809,288 shares were designated as treasury stock for
use in future mergers and acquisitions transactions and strategic alliances or for other corporate
purposes to be determined by us. As a result of the share swap, all crossshareholdings between KT
Corporation and us have been completely eliminated. In late May 2004, we sold US$329.5 million in zero coupon convertible notes due 2009. These
convertible notes are convertible by the holders into shares of our common stock at the rate of Won
235,625 per share. In connection with the issuance of the zero coupon convertible notes, we
deposited 1,645,000 shares of our common stock with Korea Securities Depository to be reserved and
used to satisfy the note holders conversion rights. This will be deemed as the repurchase of
treasury stock and cancellation thereof for the purposes of Korean law. On March 14, 2005, we filed
a report with the Financial Supervisory Services to disclose that we adjusted the conversion price
of the convertible notes issued in late May 2004 in the principal amount of US$329,450,000 from Won
235,625 to Won 226,566 and made additional deposit of its common stocks accordingly so that the
total number of shares of common stock deposited with Korea Securities Depository to satisfy the
note holders 127




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conversion rights increase from 1,644,978 to 1,710,750. Such adjustment of conversion price has
been made as a result of the payment of cash dividend in excess of 1% of the market capitalization
in the fiscal year of 2004. 
 Item. 17Financial Statements 
 Item. 18Financial Statements Not applicable. 128




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm of Deloitte HanaAnjin LLC for the years
ended December 31, 2002, 2003 and 2004
    
    F-3Consolidated Balance Sheets as of December 31, 2002, 2003 and 2004
    
    F-5Consolidated Statements of Income for the Years Ended December 31, 2002, 2003 and 2004
    
    F-7Consolidated Statements of Shareholders Equity for the Years Ended December 31, 2002, 2003 and 2004
    
    F-9Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2003 and 2004
    
    F-11Notes to Consolidated Financial Statements
    
    F-15
 F-1




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##### Table of Contents



SK TELECOM CO., LTD. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 2002, 2003 and 2004 and
Report of Independent Registered Public Accounting Firm F-2




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of SK Telecom Co., Ltd. We have audited the accompanying consolidated balance sheets of SK Telecom Co., Ltd. (the
Company) and its subsidiaries as of December 31, 2002, 2003 and 2004, and the related
consolidated statements of income, shareholders equity, and cash flows for the years then ended
(all expressed in Korean won). These consolidated financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of SK Telecom Co., Ltd. and its subsidiaries at December 31, 2002,
2003 and 2004, and the results of their operations and their cash flows for the years then ended,
in conformity with accounting principles generally accepted in the Republic of Korea. Our audits also comprehended the translation of the Korean won amounts into U.S. dollar
amounts and, in our opinion, such translation has been made in conformity with the basis stated in
Note 2(a) to the accompanying consolidated financial statements. Such U.S. dollar amounts are
presented solely for the convenience of readers outside of the Republic of Korea. As described in Note 29(a) to the accompanying consolidated financial statements, the Company,
together with KT Corporation and HanaroTelecom, acquired the license for WiBro, a portable internet
service which is scheduled to start commercial operations in June 2006, as a result of the decision
of the Committee of Information and Communication Policy of the Republic of Korea dated January 20,
2005. With regard to this service, the Company made a contribution of W117 billion and received the
WiBro license from the Ministry of Information and Technology in March 2005. As described in Note 29(b) to the accompanying consolidated financial statements, in
accordance with the resolution of the Companys board of directors dated January 26, 2005, the
Company and EarthLink, Inc., an internet service provider in the United States of America, agreed
to establish SK-EarthLink, a joint venture company, in the United States of America in February
2005 in order to provide wireless telecommunication services across the United States of America.
The Company, via SK Telecom USA Holdings, Inc., its wholly-owned subsidiary in the United States of
America, will invest US$220 million for a 50% equity interest in the joint venture company from
2005 through 2007. SK-EarthLink plans to launch cellular voice and data services across the United
States of America by the third quarter of 2005 by renting networks from network operators
throughout the United States of America, also known as partial mobile virtual network operator
(MVNO) system. As described in Note 29(d) to the accompanying consolidated financial statements, in
accordance with the resolution of the Companys board of directors dated May 3, 2005, the Company
decided to sell 4,542,000 shares of 6,747,421 shares of SK Teletech Co., Ltd. (SKTT) held by the
Company, representing 60% of the total outstanding common stock of SKTT for a total selling price
of W300 billion (W66,050 per share), to Curitel Communications, Inc., a handset maker in Korea. As
a result of such trade, the Companys ownership in SKTT will decrease from 89.1% to 29.1% and the
Companys management rights of SKTT is expected to be transferred to Curitel Communications, Inc.
by the end of June 2005. F-3




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##### Table of Contents



Accounting principles generally accepted in the Republic of Korea vary in certain respects
from accounting principles generally accepted in the United States of America. Application of
accounting principles generally accepted in the United States of America would have affected the
determination of net income for the years ended December 31, 2002, 2003 and 2004 and the
determination of shareholders equity and financial position as of December 31, 2002, 2003 and 2004
to the extent summarized in Notes 30 and 31 to the consolidated financial statements. /s/ DELOITTE HANAANJIN LLC May 16, 2005 Seoul, Korea F-4




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##### Table of Contents



SK TELECOM CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, 2002, 2003 and 2004 2002
    
    

    2003
    
    

    2004
    

    
    2004In thousandsof U.S. dollarsIn millions of Korean won
    
    
    (Note 2)ASSETSCURRENT ASSETS:Cash and cash equivalents (Note 12)
    
    (Won)
    664,117
    
    
    (Won)
    317,488
    
    
    (Won)
    370,630
    
    
    $
    358,062Short-term financial instruments (Notes 12 and 20)
    
    
    202,905
    
    
    
    154,922
    
    
    
    12,730
    
    
    
    12,298Trading securities (Notes 2 and 3)
    
    
    754,219
    
    
    
    893,217
    
    
    
    654,779
    
    
    
    632,576Current portion of long-term investment securities (Notes 2
and 3)
    
    
    70,267
    
    
    
    85,861
    
    
    
    3,709
    
    
    
    3,583Accounts receivabletrade, net of allowance for doubtful
accounts of (Won)60,542 million, (Won)65,327 million and
(Won)71,090 million at December 31, 2002, 2003 and 2004,
respectively (Notes 2, 12 and 22)
    
    
    1,442,135
    
    
    
    1,579,153
    
    
    
    1,720,201
    
    
    
    1,661,869Accounts receivableother, net of allowance for doubtful
accounts of (Won)23,355 million, (Won)16,768 million and
(Won)15,622 million at December 31, 2002, 2003 and 2004,
respectively (Notes 2, 12 and 22)
    
    
    852,873
    
    
    
    867,120
    
    
    
    1,406,553
    
    
    
    1,358,857Inventories (Notes 2 and 21)
    
    
    27,460
    
    
    
    31,516
    
    
    
    52,321
    
    
    
    50,547Short-term loans and other (Note 5)
    
    
    99,748
    
    
    
    140,248
    
    
    
    169,770
    
    
    
    164,014Total Current Assets
    
    
    4,113,724
    
    
    
    4,069,525
    
    
    
    4,390,693
    
    
    
    4,241,806NON-CURRENT ASSETS:Property and equipment, net (Notes 2, 6, 11, 20 and 21)
    
    
    4,569,417
    
    
    
    4,641,547
    
    
    
    4,703,922
    
    
    
    4,544,413Intangible assets (Notes 2 and 7)
    
    
    3,721,235
    
    
    
    3,674,944
    
    
    
    3,522,903
    
    
    
    3,403,442Long-term investment securities (Notes 2 and 3)
    
    
    1,394,697
    
    
    
    879,193
    
    
    
    948,101
    
    
    
    915,951Equity securities accounted for using the equity method
(Notes 2 and 4)
    
    
    81,247
    
    
    
    183,709
    
    
    
    304,028
    
    
    
    293,718Long-term bank deposits (Note 20)
    
    
    177
    
    
    
    352
    
    
    
    10,351
    
    
    
    10,000Long-term loans, net of allowance for doubtful accounts of
(Won)19,486 million, (Won)19,552 million and (Won)19,273
million at December 31, 2002, 2003 and 2004, respectively
(Notes 2 and 5)
    
    
    52,688
    
    
    
    40,819
    
    
    
    30,442
    
    
    
    29,410Guarantee deposits (Notes 12 and 22)
    
    
    249,331
    
    
    
    270,255
    
    
    
    289,015
    
    
    
    279,215Other
    
    
    46,194
    
    
    
    57,873
    
    
    
    83,903
    
    
    
    81,058Total Non-Current Assets
    
    
    10,114,986
    
    
    
    9,748,692
    
    
    
    9,892,665
    
    
    
    9,557,207TOTAL ASSETS
    
    (Won)
    14,228,710
    
    
    (Won)
    13,818,217
    
    
    (Won)
    14,283,358
    
    
    $
    13,799,013
 F-5




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##### Table of Contents



SK TELECOM CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS(Continued)
December 31, 2002, 2003 and 2004 2002
    
    
    2003
    
    
    2004
    
    
    2004In thousandsof U.S. dollarsIn millions of Korean won
    
    
    (Note 2)LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable (Notes 12 and 22)
    
    (Won)
    1,697,502
    
    
    (Won)
    1,317,162
    
    
    (Won)
    1,205,682
    
    
    $
    1,164,798Short-term borrowings (Note 12)
    
    
    687,296
    
    
    
    786,096
    
    
    
    425,496
    
    
    
    411,068Income taxes payable
    
    
    383,900
    
    
    
    402,559
    
    
    
    273,495
    
    
    
    264,221Accrued expenses (Note 12)
    
    
    408,521
    
    
    
    420,995
    
    
    
    394,354
    
    
    
    380,982Current portion of long-term debt (Notes 8, 9 and 11)
    
    
    922,209
    
    
    
    1,364,264
    
    
    
    498,278
    
    
    
    481,382Current portion of facility deposits
    
    
    18,415
    
    
    
    12,881
    
    
    
    13,405
    
    
    
    12,950Other
    
    
    185,543
    
    
    
    226,953
    
    
    
    256,183
    
    
    
    247,495Total Current Liabilities
    
    
    4,303,386
    
    
    
    4,530,910
    
    
    
    3,066,893
    
    
    
    2,962,896LONG-TERM LIABILITIES:Bonds payable, net (Notes 2 and 8)
    
    
    2,908,496
    
    
    
    2,261,868
    
    
    
    2,891,843
    
    
    
    2,793,781Long-term borrowings (Note 9)
    
    
    10,284
    
    
    
    1,633
    
    
    
    
    
    
    
    Facility deposits (Note 10)
    
    
    46,850
    
    
    
    44,197
    
    
    
    31,440
    
    
    
    30,374Long-term payablesother, net of present value discount of
(Won)98,017 million, (Won)85,881 million and (Won)72,663 million
at December 31, 2002, 2003 and 2004, respectively (Note 2)
    
    
    551,983
    
    
    
    564,119
    
    
    
    577,337
    
    
    
    557,760Obligations under capital leases (Notes 2, 11 and 12)
    
    
    121
    
    
    
    
    
    
    
    
    
    
    
    Accrued severance indemnities, net (Note 2)
    
    
    48,519
    
    
    
    67,824
    
    
    
    80,984
    
    
    
    78,238Deferred income tax liabilities (Notes 2 and 17)
    
    
    104,770
    
    
    
    226,029
    
    
    
    306,052
    
    
    
    295,674Long-term currency swap (Notes 2 and 23)
    
    
    
    
    
    
    
    
    
    
    96,743
    
    
    
    93,462Guarantee deposits received and other (Note 22)
    
    
    22,401
    
    
    
    27,790
    
    
    
    26,322
    
    
    
    25,429Total Long-Term Liabilities
    
    
    3,693,424
    
    
    
    3,193,460
    
    
    
    4,010,721
    
    
    
    3,874,718Total Liabilities
    
    
    7,996,810
    
    
    
    7,724,370
    
    
    
    7,077,614
    
    
    
    6,837,614COMMITMENTS AND CONTINGENCIES (Note 20)SHAREHOLDERS EQUITY:Capital stock (Notes 1 and 13)
    
    
    44,576
    
    
    
    44,639
    
    
    
    44,639
    
    
    
    43,125Capital surplus (Note 13)
    
    
    2,884,382
    
    
    
    2,911,556
    
    
    
    2,968,301
    
    
    
    2,867,647Retained earnings (Note 14)
    
    
    4,873,205
    
    
    
    5,139,911
    
    
    
    6,152,898
    
    
    
    5,944,255Capital adjustments:Treasury stock (Note 15)
    
    
    (2,192,449
    )
    
    
    (2,047,103
    )
    
    
    (2,047,105
    )
    
    
    (1,977,688
    )Unrealized loss on valuation of long-term investment
securities (Notes 2 and 3)
    
    
    (104,117
    )
    
    
    (160,622
    )
    
    
    (92,975
    )
    
    
    (89,822
    )Equity in capital adjustment of affiliates (Notes 2 and 4)
    
    
    (5,171
    )
    
    
    42,581
    
    
    
    134,376
    
    
    
    129,819Loss on valuation of currency swap (Notes 2 and 23)
    
    
    
    
    
    
    
    
    
    
    (49,452
    )
    
    
    (47,775
    )Stock options (Notes 2 and 16)
    
    
    2,452
    
    
    
    3,741
    
    
    
    4,833
    
    
    
    4,669Foreign-based operations translation adjustment
(Note 2)
    
    
    3,515
    
    
    
    3,159
    
    
    
    (7,969
    )
    
    
    (7,699
    )Minority interest in equity of consolidated subsidiaries
(Note 2)
    
    
    725,507
    
    
    
    155,985
    
    
    
    98,198
    
    
    
    94,868Total Shareholders Equity
    
    
    6,231,900
    
    
    
    6,093,847
    
    
    
    7,205,744
    
    
    
    6,961,399TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    (Won)
    14,228,710
    
    
    (Won)
    13,818,217
    
    
    (Won)
    14,283,358
    
    
    $
    13,799,013
 See accompanying Notes to Consolidated Financial Statements. F-6




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##### Table of Contents



SK TELECOM CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2002, 2003 and 2004 2002
    
    
    2003
    
    
    2004
    
    
    2004In thousands ofU.S. dollars,except forIn millions of Korean won, except for
    
    
    income perincome per share
    
    
    share(Note 2)OPERATING REVENUE (Notes 2, 22 and 28)
    
    (Won)
    9,323,993
    
    
    (Won)
    10,272,081
    
    
    (Won)
    10,570,615
    
    
    $
    10,212,168OPERATING EXPENSES (Notes 2, 20 and 22)Labor cost
    
    
    (318,346
    )
    
    
    (407,243
    )
    
    
    (464,778
    )
    
    
    (449,017
    )Commissions paid (Note 22)
    
    
    (1,964,797
    )
    
    
    (2,314,558
    )
    
    
    (2,812,318
    )
    
    
    (2,716,953
    )Depreciation and amortization (Notes 6 and 7)
    
    
    (1,435,041
    )
    
    
    (1,510,545
    )
    
    
    (1,607,478
    )
    
    
    (1,552,969
    )Network interconnection (Note 28)
    
    
    (752,144
    )
    
    
    (771,553
    )
    
    
    (913,688
    )
    
    
    (882,705
    )Leased line
    
    
    (280,113
    )
    
    
    (306,527
    )
    
    
    (375,227
    )
    
    
    (362,503
    )Advertising
    
    
    (448,784
    )
    
    
    (376,424
    )
    
    
    (352,877
    )
    
    
    (340,911
    )Cost of goods sold
    
    
    (509,055
    )
    
    
    (560,859
    )
    
    
    (479,257
    )
    
    
    (463,006
    )Other
    
    
    (818,070
    )
    
    
    (919,265
    )
    
    
    (1,125,243
    )
    
    
    (1,087,086
    )Sub-total
    
    
    (6,526,350
    )
    
    
    (7,166,974
    )
    
    
    (8,130,866
    )
    
    
    (7,855,150
    )OPERATING INCOME
    
    
    2,797,643
    
    
    
    3,105,107
    
    
    
    2,439,749
    
    
    
    2,357,018OTHER INCOME:Interest
    
    
    86,013
    
    
    
    86,485
    
    
    
    80,459
    
    
    
    77,731Dividends
    
    
    207
    
    
    
    25,923
    
    
    
    23,843
    
    
    
    23,034Commissions
    
    
    73,515
    
    
    
    80,180
    
    
    
    26,891
    
    
    
    25,979Foreign exchange and translation gains (Note 2)
    
    
    41,439
    
    
    
    6,131
    
    
    
    20,559
    
    
    
    19,862Gain on disposal and valuation of trading securities (Note 2)
    
    
    11,893
    
    
    
    188
    
    
    
    2,548
    
    
    
    2,462Gain on disposal of property, equipment and intangible assets
    
    
    1,206
    
    
    
    2,750
    
    
    
    2,067
    
    
    
    1,997Gain on transaction of currency swap (Notes 2 and 23)
    
    
    
    
    
    
    
    
    
    
    2,850
    
    
    
    2,753Equity in earnings of affiliates (Notes 2 and 4)
    
    
    813
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    44,070
    
    
    
    59,787
    
    
    
    40,202
    
    
    
    38,839259,156
    
    
    
    261,444
    
    
    
    199,419
    
    
    
    192,657
 F-7




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##### Table of Contents



SK TELECOM CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME(Continued)
Years Ended December 31, 2002, 2003 and 2004 2002
    
    
    2003
    
    
    2004
    
    
    2004In thousands ofU.S. dollars,except forIn millions of Korean won, except for
    
    
    income perincome per share
    
    
    share(Note 2)OTHER EXPENSES:Interest and discounts
    
    
    (311,132
    )
    
    
    (391,482
    )
    
    
    (303,410
    )
    
    
    (293,121
    )Donations
    
    
    (127,517
    )
    
    
    (91,487
    )
    
    
    (89,232
    )
    
    
    (86,206
    )Foreign exchange and translation losses (Note 2)
    
    
    (13,547
    )
    
    
    (10,230
    )
    
    
    (9,074
    )
    
    
    (8,766
    )Loss on disposal and valuation of trading securities (Note 2)
    
    
    
    
    
    
    (3,974
    )
    
    
    (232
    )
    
    
    (224
    )Loss on disposal and impairment of property, equipment and
intangible assets (Notes 2 and 3)
    
    
    (221,681
    )
    
    
    (13,784
    )
    
    
    (19,208
    )
    
    
    (18,557
    )Loss on impairment of long-term investment securities (Notes
2, 3 and 27)
    
    
    (68,882
    )
    
    
    (5,749
    )
    
    
    (33,654
    )
    
    
    (32,513
    )Loss on disposal of investment assets
    
    
    (51,618
    )
    
    
    (45,403
    )
    
    
    (1,539
    )
    
    
    (1,487
    )Loss on transaction and valuation of currency swap (Notes 2
and 23)
    
    
    
    
    
    
    
    
    
    
    (15,818
    )
    
    
    (15,282
    )Equity in losses of affiliates (Notes 2 and 4)
    
    
    
    
    
    
    (6,975
    )
    
    
    (11,954
    )
    
    
    (11,549
    )Other
    
    
    (44,158
    )
    
    
    (43,131
    )
    
    
    (31,872
    )
    
    
    (30,792
    )(838,535
    )
    
    
    (612,215
    )
    
    
    (515,993
    )
    
    
    (498,497
    )ORDINARY INCOME
    
    
    2,218,264
    
    
    
    2,754,336
    
    
    
    2,123,175
    
    
    
    2,051,178EXTRAORDINARY GAIN
    
    
    504
    
    
    
    
    
    
    
    
    
    
    
    INCOME BEFORE INCOME TAXES AND MINORITY INTEREST
    
    
    2,218,768
    
    
    
    2,754,336
    
    
    
    2,123,175
    
    
    
    2,051,178INCOME TAXES (Notes 2 and 17)
    
    
    (698,507
    )
    
    
    (789,059
    )
    
    
    (629,761
    )
    
    
    (608,406
    )INCOME BEFORE MINORITY INTEREST
    
    
    1,520,261
    
    
    
    1,965,277
    
    
    
    1,493,414
    
    
    
    1,442,772MINORITY INTEREST IN NET LOSS (GAIN) OF CONSOLIDATED
SUBSIDIARIES
    
    
    (33,110
    )
    
    
    823
    
    
    
    (1,935
    )
    
    
    (1,869
    )NET INCOME
    
    (Won)
    1,487,151
    
    
    (Won)
    1,966,100
    
    
    (Won)
    1,491,479
    
    
    $
    1,440,903NET INCOME PER SHARE (Notes 2 and 18) (In Korean won
and U.S. dollars)
    
    (Won)
    17,647
    
    
    (Won)
    26,187
    
    
    (Won)
    20,261
    
    
    $
    19.57
 See accompanying Notes to Consolidated Financial Statements. F-8




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##### Table of Contents



SK TELECOM CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
Years Ended December 31, 2002, 2003 and 2004 Common
    
    
    Capital
    
    
    Retained
    
    
    Capital
    
    
    Minority
    
    
    Shareholders'Stock
    
    
    Surplus
    
    
    Earnings
    
    
    Adjustments
    
    
    Interest
    
    
    Equity(In millions of Korean won)Balance,
January 1, 2002
    
    (Won)
    44,576
    
    
    (Won)
    3,449,698
    
    
    (Won)
    3,443,319
    
    
    (Won)
    (1,492,634)
    
    
    (Won)
    704,345
    
    
    (Won)
    6,149,304Net income
    
    
    
    
    
    
    
    
    
    
    1,487,151
    
    
    
    
    
    
    
    
    
    
    
    1,487,151Treasury stock
transactions (Notes
13 and 15)
    
    
    
    
    
    
    81,984
    
    
    
    
    
    
    
    (766,597
    )
    
    
    
    
    
    
    (684,613
    )Cash dividends paid
(Note 19)
    
    
    
    
    
    
    
    
    
    
    (57,265
    )
    
    
    
    
    
    
    
    
    
    
    (57,265
    )Excess unallocated
purchase price
(Note 13)
    
    
    
    
    
    
    (647,025
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (647,025
    )Unrealized loss on
valuation of
long-term
investment
securities (Notes 2
and 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,327
    )
    
    
    
    
    
    
    (28,327
    )Equity in capital
surplus and capital
adjustment changes
of affiliates (Note
2)
    
    
    
    
    
    
    (275
    )
    
    
    
    
    
    
    (12,513
    )
    
    
    
    
    
    
    (12,788
    )Stock compensation
plans (Notes 2 and
16)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,492
    
    
    
    
    
    
    
    1,492Foreign-based
operations
translation
adjustment (Note 2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,809
    
    
    
    
    
    
    
    2,809Increase in
minority interest
in equity of
consolidated
subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,162
    
    
    
    21,162Balance,
December 31, 2002
    
    
    44,576
    
    
    
    2,884,382
    
    
    
    4,873,205
    
    
    
    (2,295,770
    )
    
    
    725,507
    
    
    
    6,231,900Net income
    
    
    
    
    
    
    
    
    
    
    1,966,100
    
    
    
    
    
    
    
    
    
    
    
    1,966,100Acquisition of
treasury stock
(Note 15)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,379,337
    )
    
    
    
    
    
    
    (1,379,337
    )Retirement of
treasury stock
(Note 15)
    
    
    
    
    
    
    
    
    
    
    (1,545,281
    )
    
    
    1,524,683
    
    
    
    
    
    
    
    (20,598
    )Cash dividends paid
(Note 19)
    
    
    
    
    
    
    
    
    
    
    (151,739
    )
    
    
    
    
    
    
    
    
    
    
    (151,739
    )Excess unallocated
purchase price
(Note 13)
    
    
    
    
    
    
    (230
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (230
    )Issuance of common
stock for the
merger with SK IMT
Co., Ltd. (Note 13)
    
    
    63
    
    
    
    31,809
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,872Gain on disposal of
investments in
common stock of
subsidiary
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58Equity in beginning
retained earnings
change of
affiliates (Notes 2
and 4)
    
    
    
    
    
    
    
    
    
    
    (33
    )
    
    
    
    
    
    
    
    
    
    
    (33
    )Cumulative effect
of an accounting
change (Note 2)
    
    
    
    
    
    
    
    
    
    
    (2,341
    )
    
    
    
    
    
    
    (515
    )
    
    
    (2,856
    )Unrealized loss on
valuation of
long-term
investment
securities (Notes 2
and 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56,505
    )
    
    
    
    
    
    
    (56,505
    )Equity in capital
surplus and capital
adjustment changes
of affiliates (Note
2)
    
    
    
    
    
    
    (4,463
    )
    
    
    
    
    
    
    47,752
    
    
    
    
    
    
    
    43,289Stock compensation
plans (Notes 2 and
16)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,289
    
    
    
    
    
    
    
    1,289Foreign-based
operations
translation
adjustment (Note 2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (356
    )
    
    
    
    
    
    
    (356
    )Decrease in
minority interest
in equity of
consolidated
subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (569,007
    )
    
    
    (569,007
    )Balance,
December 31, 2003
    
    
    44,639
    
    
    
    2,911,556
    
    
    
    5,139,911
    
    
    
    (2,158,244
    )
    
    
    155,985
    
    
    
    6,093,847
 F-9




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##### Table of Contents



SK TELECOM CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY(Continued)
Years Ended December 31, 2002, 2003 and 2004 Common
    
    
    Capital
    
    
    Retained
    
    
    Capital
    
    
    Minority
    
    
    Shareholders'Stock
    
    
    Surplus
    
    
    Earnings
    
    
    Adjustments
    
    
    Interest
    
    
    Equity(In millions of Korean won)Balance,
January 1, 2004
    
    
    44,639
    
    
    
    2,911,556
    
    
    
    5,139,911
    
    
    
    (2,158,244
    )
    
    
    155,985
    
    
    
    6,093,847Net income
    
    
    
    
    
    
    
    
    
    
    1,491,479
    
    
    
    
    
    
    
    
    
    
    
    1,491,479Cash dividends paid
(Note 19)
    
    
    
    
    
    
    
    
    
    
    (404,878
    )
    
    
    
    
    
    
    
    
    
    
    (404,878
    )Cash dividends paid
(interim) (Note 19)
    
    
    
    
    
    
    
    
    
    
    (73,614
    )
    
    
    
    
    
    
    
    
    
    
    (73,614
    )Excess unallocated
purchase price
(Note 13)
    
    
    
    
    
    
    (77
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77
    )Consideration for
conversion rights
(Notes 2 and 13)
    
    
    
    
    
    
    67,279
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,279Acquisition of
treasury stock
(Note 15)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Equity in capital
surplus and capital
adjustment changes
of affiliates (Note
2)
    
    
    
    
    
    
    (10,457
    )
    
    
    
    
    
    
    91,795
    
    
    
    
    
    
    
    81,338Unrealized gain on
valuation of
long-term
investment
securities (Notes 2
and 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,647
    
    
    
    
    
    
    
    67,647Loss on valuation
of currency swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49,452
    )
    
    
    
    
    
    
    (49,452
    )Stock compensation
plans (Notes 2 and
16)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,092
    
    
    
    
    
    
    
    1,092Foreign-based
operations
translation
adjustment (Note 2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,128
    )
    
    
    
    
    
    
    (11,128
    )Decrease in
minority interest
in equity of
consolidated
subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57,787
    )
    
    
    (57,787
    )Balance,
December 31, 2004
    
    (Won)
    44,639
    
    
    (Won)
    2,968,301
    
    
    (Won)
    6,152,898
    
    
    (Won)
    (2,058,292)
    
    
    (Won)
    98,198
    
    
    (Won)
    7,205,744(In thousands of U.S. dollars) (Note 2)Balance,
January 1, 2004
    
    $
    43,125
    
    
    $
    2,812,826
    
    
    $
    4,965,618
    
    
    $
    (2,085,058
    )
    
    $
    150,696
    
    
    $
    5,887,207Net income
    
    
    
    
    
    
    
    
    
    
    1,440,903
    
    
    
    
    
    
    
    
    
    
    
    1,440,903Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    (391,149
    )
    
    
    
    
    
    
    
    
    
    
    (391,149
    )Cash dividends paid
(interim)
    
    
    
    
    
    
    
    
    
    
    (71,117
    )
    
    
    
    
    
    
    
    
    
    
    (71,117
    )Excess unallocated
purchase price
    
    
    
    
    
    
    (74
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74
    )Consideration for
conversion rights
    
    
    
    
    
    
    64,998
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,998Acquisition of
treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Equity in capital
surplus and capital
adjustment changes
of affiliates
    
    
    
    
    
    
    (10,103
    )
    
    
    
    
    
    
    88,682
    
    
    
    
    
    
    
    78,579Unrealized gain on
valuation of
long-term
investment
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,353
    
    
    
    
    
    
    
    65,353Loss on valuation
of currency swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,775
    )
    
    
    
    
    
    
    (47,775
    )Stock compensation
plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,055
    
    
    
    
    
    
    
    1,055Foreign-based
operations
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,751
    )
    
    
    
    
    
    
    (10,751
    )Decrease in
minority interest
in equity of
consolidated
subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55,828
    )
    
    
    (55,828
    )Balance,
December 31, 2004
    
    $
    43,125
    
    
    $
    2,867,647
    
    
    $
    5,944,255
    
    
    $
    (1,988,496
    )
    
    $
    94,868
    
    
    $
    6,961,399
 See accompanying Notes to Consolidated Financial Statements. F-10




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##### Table of Contents



SK TELECOM CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2002, 2003 AND 2004 2002
    
    
    2003
    
    
    2004
    
    
    2004In thousandsof U.S. dollarsIn millions of Korean won
    
    
    (Note 2)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    (Won)
    1,487,151
    
    
    (Won)
    1,966,100
    
    
    (Won)
    1,491,479
    
    
    $
    1,440,903Expenses not involving cash payments:Depreciation and amortization
    
    
    1,543,335
    
    
    
    1,649,902
    
    
    
    1,752,530
    
    
    
    1,693,102Provision for severance indemnities
    
    
    45,509
    
    
    
    65,375
    
    
    
    58,151
    
    
    
    56,179Provision for bad debts
    
    
    20,981
    
    
    
    23,304
    
    
    
    43,144
    
    
    
    41,681Foreign currency translation loss
    
    
    5,397
    
    
    
    2,546
    
    
    
    2,179
    
    
    
    2,105Loss on disposal and valuation of trading securities
    
    
    
    
    
    
    3,974
    
    
    
    232
    
    
    
    224Loss on disposal and impairment of property, equipment and
intangible assets
    
    
    221,681
    
    
    
    13,784
    
    
    
    19,208
    
    
    
    18,557Loss on impairment of long-term investment securities
    
    
    68,882
    
    
    
    5,749
    
    
    
    33,654
    
    
    
    32,513Loss on disposal of investment assets
    
    
    51,618
    
    
    
    45,403
    
    
    
    1,539
    
    
    
    1,487Loss on transaction and valuation of currency swap
    
    
    
    
    
    
    
    
    
    
    15,818
    
    
    
    15,282Equity in losses of affiliates
    
    
    
    
    
    
    6,975
    
    
    
    11,954
    
    
    
    11,549Minority interest in net gain of consolidated subsidiaries
    
    
    33,110
    
    
    
    
    
    
    
    1,935
    
    
    
    1,869Amortization of discounts on bonds and other
    
    
    51,630
    
    
    
    73,655
    
    
    
    46,274
    
    
    
    44,704Sub-total
    
    
    2,042,143
    
    
    
    1,890,667
    
    
    
    1,986,618
    
    
    
    1,919,252Income not involving cash receipts:Reversal of allowance for doubtful accounts
    
    
    (6,365
    )
    
    
    (1,555
    )
    
    
    (759
    )
    
    
    (733
    )Foreign currency translation gain
    
    
    (30,282
    )
    
    
    (668
    )
    
    
    (3,367
    )
    
    
    (3,253
    )Gain on disposal and valuation of trading securities
    
    
    (11,893
    )
    
    
    (188
    )
    
    
    (2,548
    )
    
    
    (2,462
    )Gain on disposal of property, equipment and intangible assets
    
    
    (1,206
    )
    
    
    (2,750
    )
    
    
    (2,067
    )
    
    
    (1,997
    )Gain on transaction of currency swap
    
    
    
    
    
    
    
    
    
    
    (2,850
    )
    
    
    (2,753
    )Equity in earnings of affiliates
    
    
    (813
    )
    
    
    
    
    
    
    
    
    
    
    Minority interest in net loss of consolidated subsidiaries
    
    
    
    
    
    
    (823
    )
    
    
    
    
    
    
    Other
    
    
    (7,812
    )
    
    
    (14,046
    )
    
    
    (14,133
    )
    
    
    (13,654
    )Sub-total
    
    
    (58,371
    )
    
    
    (20,030
    )
    
    
    (25,724
    )
    
    
    (24,852
    )
 F-11




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##### Table of Contents



SK TELECOM CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)
Years Ended December 31, 2002, 2003 and 2004 2002
    
    
    2003
    
    
    2004
    
    
    2004In thousandsof U.S. dollarsIn millions of Korean won
    
    
    (Note 2)Changes in assets and liabilities related to operating activities:Accounts receivabletrade
    
    
    (277,685
    )
    
    
    (159,160
    )
    
    
    (170,891
    )
    
    
    (165,096
    )Accounts receivableother
    
    
    224,640
    
    
    
    (48,789
    )
    
    
    (552,343
    )
    
    
    (533,613
    )Inventories
    
    
    39,092
    
    
    
    (4,056
    )
    
    
    (20,982
    )
    
    
    (20,271
    )Other current assets
    
    
    (30,764
    )
    
    
    (30,417
    )
    
    
    (5,549
    )
    
    
    (5,360
    )Accounts payable
    
    
    614,005
    
    
    
    (396,700
    )
    
    
    (90,977
    )
    
    
    (87,892
    )Income taxes payable
    
    
    12,946
    
    
    
    (11,597
    )
    
    
    (125,430
    )
    
    
    (121,177
    )Accrued expenses
    
    
    67,026
    
    
    
    24,385
    
    
    
    (26,622
    )
    
    
    (25,719
    )Current portion of facility deposits
    
    
    3,801
    
    
    
    (3,418
    )
    
    
    2,580
    
    
    
    2,493Other current liabilities
    
    
    125,767
    
    
    
    49,194
    
    
    
    22,608
    
    
    
    21,841Deferred income taxes
    
    
    81,963
    
    
    
    120,879
    
    
    
    78,356
    
    
    
    75,699Severance indemnity payments
    
    
    (20,378
    )
    
    
    (24,516
    )
    
    
    (27,582
    )
    
    
    (26,647
    )Deposits for group severance indemnities and other deposits
    
    
    (43,521
    )
    
    
    (24,727
    )
    
    
    (19,489
    )
    
    
    (18,828
    )Transfer of accrued severance indemnities from affiliates and related
companies
    
    
    
    
    
    
    955
    
    
    
    
    
    
    
    Sub-total
    
    
    796,892
    
    
    
    (507,967
    )
    
    
    (936,321
    )
    
    
    (904,570
    )Net Cash Provided by Operating Activities
    
    
    4,267,815
    
    
    
    3,328,770
    
    
    
    2,516,052
    
    
    
    2,430,733
 F-12




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##### Table of Contents



2002
    
    
    2003
    
    
    2004
    
    
    2004In thousandsof U.S. dollarsIn millions of Korean won
    
    
    (Note 2)CASH FLOWS FROM INVESTING ACTIVITIES:Decrease in short-term financial instruments
    
    (Won)
    231,219
    
    
    (Won)
    95,123
    
    
    (Won)
    90,034
    
    
    $
    86,981Decrease (increase) in trading securities
    
    
    (103,256
    )
    
    
    (137,618
    )
    
    
    240,204
    
    
    
    232,059Decrease (increase) in short-term loans
    
    
    24,474
    
    
    
    (8,533
    )
    
    
    33,019
    
    
    
    31,899Decrease (increase) in long-term bank deposits
    
    
    21
    
    
    
    (350
    )
    
    
    (9,999
    )
    
    
    (9,660
    )Proceeds from sale of current portion of long-term investment
securities
    
    
    
    
    
    
    70,267
    
    
    
    85,861
    
    
    
    82,949Proceeds from sale of long-term investment securities
    
    
    1,084,945
    
    
    
    762,896
    
    
    
    17,658
    
    
    
    17,059Proceeds from sale of equity securities accounted for using the equity
method
    
    
    53,230
    
    
    
    3,510
    
    
    
    1,023
    
    
    
    988Decrease in long-term loans
    
    
    19,920
    
    
    
    9,980
    
    
    
    4,746
    
    
    
    4,585Decrease in guarantee deposits
    
    
    77,490
    
    
    
    67,410
    
    
    
    22,096
    
    
    
    21,347Proceeds from disposal of property and equipment
    
    
    23,211
    
    
    
    12,828
    
    
    
    10,116
    
    
    
    9,773Proceeds from disposal of intangible assets
    
    
    1,198
    
    
    
    2,248
    
    
    
    2,291
    
    
    
    2,213Acquisition of long-term investment securities
    
    
    (2,062,355
    )
    
    
    (437,076
    )
    
    
    (54,132
    )
    
    
    (52,296
    )Acquisition of equity securities accounted for using the equity method
    
    
    (208,913
    )
    
    
    (7,158
    )
    
    
    (21,086
    )
    
    
    (20,371
    )Increase in long-term loans
    
    
    (24,376
    )
    
    
    (15,578
    )
    
    
    (35,291
    )
    
    
    (34,094
    )Increase in guarantee deposits
    
    
    (55,986
    )
    
    
    (88,223
    )
    
    
    (40,957
    )
    
    
    (39,568
    )Increase in other non-current assets
    
    
    (22,022
    )
    
    
    (3,332
    )
    
    
    (46,556
    )
    
    
    (44,976
    )Acquisition of property and equipment
    
    
    (2,024,655
    )
    
    
    (1,647,639
    )
    
    
    (1,631,941
    )
    
    
    (1,576,602
    )Acquisition of intangible assets
    
    
    (77,580
    )
    
    
    (56,745
    )
    
    
    (72,376
    )
    
    
    (69,922
    )Acquisition of minority interest
    
    
    
    
    
    
    (36,442
    )
    
    
    (64,247
    )
    
    
    (62,068
    )Net Cash Used in Investing Activities
    
    
    (3,063,435
    )
    
    
    (1,414,432
    )
    
    
    (1,469,537
    )
    
    
    (1,419,704
    )
 F-13




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##### Table of Contents



SK TELECOM CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)
Years Ended December 31, 2002, 2003 and 2004 2002
    
    
    2003
    
    
    2004
    
    
    2004In thousandsof U.S. dollarsIn millions of Korean won
    
    
    (Note 2)CASH FLOWS FROM FINANCING ACTIVITIES:Increase in short-term borrowings
    
    (Won)
    91,942
    
    
    (Won)
    108,669
    
    
    (Won)
    
    
    
    $
    Issuance of bonds payable
    
    
    1,166,451
    
    
    
    688,737
    
    
    
    1,205,727
    
    
    
    1,164,841Increase in long-term borrowings
    
    
    24,682
    
    
    
    13,532
    
    
    
    
    
    
    
    Payment of short-term borrowings
    
    
    (578,696
    )
    
    
    (12,087
    )
    
    
    (359,133
    )
    
    
    (346,955
    )Payment of current portion of long-term debt
    
    
    (719,779
    )
    
    
    (939,176
    )
    
    
    (1,370,611
    )
    
    
    (1,324,134
    )Repayment of bonds payable
    
    
    
    
    
    
    
    
    
    
    (5,068
    )
    
    
    (4,896
    )Payment of dividends
    
    
    (58,716
    )
    
    
    (151,739
    )
    
    
    (478,318
    )
    
    
    (462,098
    )Decrease in facility deposits
    
    
    (25,278
    )
    
    
    (2,654
    )
    
    
    (12,757
    )
    
    
    (12,324
    )Transaction of currency swap and currency forward
    
    
    
    
    
    
    
    
    
    
    2,821
    
    
    
    2,725Net increase in treasury stock
    
    
    (1,351,243
    )
    
    
    (1,379,337
    )
    
    
    (2
    )
    
    
    (2
    )Increase in minority interest in equity of
consolidated subsidiaries
    
    
    17,405
    
    
    
    22,278
    
    
    
    45,065
    
    
    
    43,537Other
    
    
    15,035
    
    
    
    (609,262
    )
    
    
    3,706
    
    
    
    3,579Net Cash Used in Financing Activities
    
    
    (1,418,197
    )
    
    
    (2,261,039
    )
    
    
    (968,570
    )
    
    
    (935,727
    )NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS DUE TO CHANGES IN CONSOLIDATED SUBSIDIARIES
    
    
    10,654
    
    
    
    72
    
    
    
    (24,803
    )
    
    
    (23,962
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (203,163
    )
    
    
    (346,629
    )
    
    
    53,142
    
    
    
    51,340CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR
    
    
    867,280
    
    
    
    664,117
    
    
    
    317,488
    
    
    
    306,722CASH AND CASH EQUIVALENTS AT END OF THE YEAR
    
    (Won)
    664,117
    
    
    (Won)
    317,488
    
    
    (Won)
    370,630
    
    
    $
    358,062Cash paid for interest (net of amounts capitalized)
    
    (Won)
    248,234
    
    
    (Won)
    328,890
    
    
    (Won)
    264,224
    
    
    $
    255,264Cash paid for income taxes
    
    (Won)
    693,999
    
    
    (Won)
    675,122
    
    
    (Won)
    679,262
    
    
    $
    656,228
 See accompanying Notes to Consolidated Financial Statements F-14




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##### Table of Contents



SK TELECOM CO., LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2003 and 2004 1. GENERAL SK Telecom Co., Ltd. (the Company) was incorporated in March 1984 under the laws of
Korea to engage in providing cellular telephone communication services in the Republic of Korea.
The Companys common shares and depositary receipts (DRs) are listed on the KRX Stock Market and
the New York and London Stock Exchanges, respectively. As of December 31, 2004, the Companys total
issued shares are held by the following: Percentage ofNumber of
    
    
    Total SharesShares
    
    
    Issued (%)SK Group
    
    
    19,772,914
    
    
    
    24.03POSCO Corp.
    
    
    4,098,496
    
    
    
    4.98Institutional investors and other minority shareholders
    
    
    49,742,886
    
    
    
    60.46Treasury stock
    
    
    8,662,415
    
    
    
    10.5382,276,711
    
    
    
    100.00
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements of the Company have been prepared in
accordance with Korean Financial Accounting Standards and Statements of Korea Accounting Standards
(SKAS) No. 1 through No. 10, No. 12 and 13. Significant accounting policies followed in preparing
the accompanying consolidated financial statements are summarized as follows:  a.
    
    Basis of Presentation The official accounting records of the Company are expressed in Korean won and are
maintained in accordance with the relevant laws and regulations of the Republic of Korea. The
accounting principles and reporting practices followed by the Company and generally accepted in
Korea (Korean GAAP) may differ in certain respects from accounting principles and reporting
practices generally accepted in other countries and jurisdictions. To conform more closely to
presentations customary in filings with the Securities and Exchange Commission of the United States
of America, the accompanying consolidated financial statements have been condensed, restructured
and translated into English. The conversion into U.S. dollars was made at the rate of (Won)1,035.10
to US$1, the Noon Buying Rate in the City of New York for cable transfers in Korean won as
certified for customs purposes by the Federal Reserve Bank of New York on the last business day of
the year ended December 31, 2004. Such conversion into U.S. dollars should not be construed as
representations that the Korean won amounts could be converted into U.S. dollars at the above or
any other rate. Certain supplementary information included in the statutory Korean language
consolidated financial statements, not required for a fair presentation of the Company and
subsidiaries financial position or results of operations, is not presented in the accompanying
consolidated financial statements.  b.
    
    Principles of Consolidation The consolidated financial statements include the accounts of the Company and all
majority-owned subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation. 20% to 50% owned affiliates are accounted for using the equity method. F-15




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##### Table of Contents



The Companys subsidiaries are as follows: Year of
    
    
    
    OwnershipSubsidiary
    
    Establishment
    
    Primary business
    
    Percentage (%)SK Teletech Co., Ltd.
    
    
    1995
    
    
    Engineering and maintenance
    
    
    89.13SK Capital Co., Ltd.
    
    
    1995
    
    
    Finance
    
    
    100.00SK Telink Co., Ltd.
    
    
    1998
    
    
    Telecommunication services
    
    
    90.77SK Communications Co., Ltd.
    
    
    1999
    
    
    Internet website services
    
    
    93.44SK Wyverns Baseball Club Co., Ltd.
    
    
    2000
    
    
    Business related sports
    
    
    99.99Centurion IT Investment Association
    
    
    2001
    
    
    Investment association
    
    
    37.50Global Credit & Information Corp.
    
    
    1998
    
    
    Credit and collection services
    
    
    50.00PAXNet Co., Ltd.
    
    
    1999
    
    
    Internet website services
    
    
    67.10SK Telecom International Inc.
    
    
    1995
    
    
    Internet website services
    
    
    100.00SLD Telecom PTE Ltd.
    
    
    2000
    
    
    Telecommunication services
    
    
    55.10SK Telecom China Co., Ltd.
    
    
    2002
    
    
    Telecommunication services
    
    
    100.00
 In August 2002, the Company purchased a 78.3% interest in SK Communications Co., Ltd.
(formerly known as Lycos Korea) and on November 1, 2002, SK Communications Co., Ltd. merged with
NetsGo Co., Ltd., a subsidiary of the Company. In December 2002, the Company purchased a 67.1%
interest in PAXNet Co., Ltd. Effective January 1, 2004, TU Media Corp. that was included in the consolidated financial
statements for the year ended December 31, 2003 is excluded from the consolidation as the Companys
equity interest in TU Media Corp. decreased from 100% to 46.1%, effective January 1, 2004 and to
28.5%, effective May 21, 2004. Effective January 1, 2004, SK Telecom China, Ltd. is included in the consolidation of the
accompanying financial statements as its total assets at the beginning of the fiscal year were more
than (Won)7 billion, in accordance with Korean GAAP. As allowed under Korean GAAP, the financial
statements of prior years have not been restated to include the financial statements of this
entity.  c.
    
    Use of Estimates The preparation of financial statements in conformity with accounting principles
generally accepted in Korea and the United States of America requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.  d.
    
    Allowance for Doubtful Accounts An allowance for doubtful accounts is provided based on the estimated collectibility of
individual accounts and historical bad debt experience. F-16




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##### Table of Contents



Activity in the allowance for doubtful accounts receivabletrade for 2002, 2003 and 2004
is as follows (in millions of Korean won): 2002
    
    
    2003
    
    
    2004Beginning balance
    
    (Won)
    81,681
    
    
    (Won)
    60,542
    
    
    (Won)
    65,327Increase in allowance from newly consolidated subsidiaries
    
    
    2,056
    
    
    
    
    
    
    
    Additions
    
    
    22,281
    
    
    
    22,378
    
    
    
    29,181Reductions
    
    
    (45,476
    )
    
    
    (17,593
    )
    
    
    (23,418
    )Ending balance
    
    (Won)
    60,542
    
    
    (Won)
    65,327
    
    
    (Won)
    71,090
  e.
    
    Inventories Inventories, which consist mainly of replacement units for wireless telecommunication
facilities, handsets and raw material for handsets, are stated at the lower of cost or market
value, with cost determined using the moving average method. During the year, perpetual inventory
systems are used to value inventories, which are adjusted to physical inventory counts performed at
the end of the year. When the market value of inventories is less than the acquisition cost,
carrying amount shall be reduced to the market value and any difference is charged to current
operations as operating expenses. There was no such loss for the years ended December 31, 2002,
2003 and 2004.  f.
    
    Securities (excluding securities accounted for using the equity method of accounting) Debt and equity securities are initially recorded at their acquisition costs (fair value
of considerations paid) including incidental cost incurred in connection with acquisition of the
related securities and classified into trading, available-for-sale and held-to-maturity securities
depending on the acquisition purpose and nature. Trading securities are stated at fair value with gains or losses on valuation reflected
in current operations. Securities classified as available-for-sale are reported at fair value. Unrealized gains
or losses on valuation of available-for-sale securities are included in capital adjustments and the
unrealized gains or losses are reflected in net income when the securities are sold or if an
impairment is other than temporary as discussed below. Equity securities are stated at acquisition
cost if fair value cannot be reliably measured. If the declines in the fair value of individual
available-for-sale securities below their acquisition or amortized cost are other than temporary
and there is objective
evidence of impairment, write-downs of the individual securities are recorded to reduce the
carrying value to their fair value. The related write-downs are recorded in current operations as a
loss on impairment of investment securities. Held-to-maturity securities are presented at acquisition cost after premiums or discounts
for debt securities are amortized or accreted, respectively. The Company recognizes write-downs
resulting from the other-than-temporary declines in the fair value below its book value on the
balance sheet date if there is objective evidence of impairment. The related write-downs are
recorded in current operations as a loss on impairment of investment securities. Trading securities are presented in the current asset section of the balance sheet, and
available-for-sales and held-to-maturity securities are presented in the current and/or non-current
asset section of the balance sheet as long-term investment securities, based on their intent to
hold and their maturities from the balance sheet date.  g.
    
    Investment Securities with 20% or More Ownership Interest Investment securities of affiliated companies, in which the Company has a 20% or more
ownership interest, are carried using the equity method of accounting, whereby the Companys
initial investment is recorded at cost and the carrying value is subsequently increased or
decreased to reflect the Companys portion of shareholders equity of the investee. Differences
between the purchase cost and net asset value of the investee are amortized over 20 years using the
straight-line method. When applying the equity method of accounting, unrealized intercompany gains
and losses are eliminated similar to the method used in preparing consolidated financial
statements. F-17




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##### Table of Contents



h.
    
    Property and Equipment Property and equipment are stated at cost. Major renewals and betterments, which prolong
the useful life or enhance the value of assets, are capitalized; expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation is computed using the declining balance method (except for buildings and
structures acquired on or after January 1, 1995 which are depreciated using straight-line method)
over the estimated useful lives (3 - 30 years) of the related assets. Through 2002, interest expense and other financing charges for borrowings related to the
manufacture or construction of property and equipment were capitalized until such manufacture or
construction activities were complete. Effective January 1, 2003, in accordance with the
application of SKAS No. 7, Capitalization of Financing Costs, the Company changed the accounting
policy for capitalization of interest costs to charge such interest expense and other financial
charges to current operations as incurred. In accordance with this statement, this accounting
change has been applied prospectively. If such financing costs had been capitalized, total assets
of the Company and its subsidiaries as of December 31, 2003 and net income for the year then ended
would have increased by (Won)20,345 million and (Won)14,303 million (net of income tax effect of
(Won)6,042 million), respectively. For the year ended December 31, 2002, the Company capitalized
financing cost amounting to (Won)14,830 million related to the manufacture or construction of
property and equipment.  i.
    
    Intangible Assets Intangible assets are stated at cost less amortization computed using the straight-line
method over 4 to 20 years. With its application for a license to provide IMT services, the Company has a commitment
to pay (Won)1,300,000 million to the Ministry of Information Communication (MIC). SK IMT Co.,
Ltd., which was merged into the Company on May 1, 2003, paid (Won)650,000 million in March 2001 and
the Company is required to pay the remainder over 10 years with an annual interest rate equal to
the 3-year-maturity government bond rate minus 0.75% (3.20% as of December 31, 2004). The future
payment obligations are (Won)90,000 million in 2007, (Won)110,000 million in 2008, (Won)130,000
million in 2009, (Won)150,000 million in 2010 and (Won)170,000 million in 2011. On December 4,
2001, SK IMT Co., Ltd. received the IMT license from the MIC, and recorded the total license cost
as an intangible asset. Amortization of the IMT license commenced when the Company started its
commercial IMT 2000 service in December 2003, using the straight-line method over the estimated
useful life of the IMT license which expires in December 2016. The Company determined the IMT
license has a finite life, considering that renewal cost is expected to be substantial. Through 2002, interest expense and other financing charges for borrowings related to the
purchase of intangible assets were capitalized until the assets were put in use. Effective January
1, 2003, in accordance with the application of SKAS No. 7, Capitalization of Financing Costs, the
Company changed the accounting policy for capitalization of interest to charge such interest and
other financing charges to current operations as incurred. In accordance with this statement, this
accounting change has been applied prospectively. If such financing costs had been capitalized, the
total balance of intangible assets of the Company as of December 31, 2003 and net income for the
year then ended would have increased by (Won)25,594 million and (Won)17,993 million (net of income
tax effect of (Won)7,601 million), respectively. For the year ended December 31, 2002, the Company
and its subsidiaries capitalized financing costs amounting to (Won)69,372 million related to
intangible assets. Changes in intangible assets for 2002, 2003 and 2004 are as follows (in millions
of Korean won): F-18




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##### Table of Contents



2002
    
    
    2003
    
    
    2004Beginning balance
    
    (Won)
    3,816,373
    
    
    (Won)
    3,721,235
    
    
    (Won)
    3,674,944Additions:IMT license
    
    
    (40,393
    )
    
    
    
    
    
    
    Other
    
    
    144,180
    
    
    
    175,793
    
    
    
    184,235Reductions:Amortization
    
    
    (187,218
    )
    
    
    (214,809
    )
    
    
    (332,020
    )Write-off
    
    
    (6,669
    )
    
    
    
    
    
    
    (42
    )Disposal
    
    
    (5,038
    )
    
    
    (7,275
    )
    
    
    (4,214
    )Ending balance
    
    (Won)
    3,721,235
    
    
    (Won)
    3,674,944
    
    
    (Won)
    3,522,903
  j.
    
    Convertible Bonds The proceeds from issuance of convertible bonds are allocated between the conversion
rights and the debt issued; the portion allocable to the conversion rights is accounted for as
capital surplus with a corresponding conversion right adjustment which is deducted from the related
bonds. Such conversion right adjustment is amortized to interest expense using the effective
interest rate method over the redemption period of the convertible bonds. The portion allocable to
the conversion rights is measured by deducting the present value of the debt at time of issuance
from the gross proceeds from issuance of convertible bonds, with the present value of the debt
being computed by discounting the expected future cash flows (including call premium, if any) using
the effective interest rate applied to ordinary or straight debt of the Company at the issue date.  k.
    
    Discounts on Bonds Discounts on bonds are amortized to interest expense using the effective interest rate
method over the redemption period of the bonds.  l.
    
    Valuation of Long-Term Payables Long-term payables resulting from long-term installment transactions are stated at the
present value of the expected future cash flows. Imputed interest amounts are recorded in present
value discount accounts which are deducted directly from the related nominal payable balances. Such
imputed interest is included in operations using the effective interest rate method over the
redemption period.  m.
    
    Accrued Severance Indemnities In accordance with the policies of the Company and its subsidiaries, all employees with
more than one year of service are entitled to receive severance indemnities, based on length of
service and rate of pay, upon termination of their employment. Accruals for severance indemnities
are recorded to approximate the amount required to be paid if all employees were to terminate at
the balance sheet date. The Company and certain subsidiaries have deposits with insurance companies to fund the
portion of the employees severance indemnities which is in excess of the tax deductible amount
allowed under the Corporate Income Tax Law, in order to take advantage of the additional tax
deductibility for such funding. Such funding of severance indemnities in outside insurance
companies, where the beneficiaries are their employees, totaling (Won)120,413 million, (Won)144,861
million and (Won)164,643 million as of December 31, 2002, 2003 and 2004, respectively, were
deducted from accrued severance indemnities in accordance with Korean GAAP. F-19




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##### Table of Contents



In accordance with the Korean National Pension Fund Law, the Company and its domestic
subsidiaries transferred a portion of its accrued severance indemnities to the National Pension
Fund through March 1999. Such transfers, amounting to (Won)6,860 million, (Won)6,229 million and
(Won)5,687 million as of December 31, 2002, 2003 and 2004, respectively, are deducted from accrued
severance indemnities. Changes in accrued severance indemnities for 2002, 2003 and 2004 are as
follows (in millions of Korean won): 2002
    
    
    2003
    
    
    2004Beginning balance
    
    (Won)
    61,620
    
    
    (Won)
    48,519
    
    
    (Won)
    67,824Provision
    
    
    49,599
    
    
    
    67,693
    
    
    
    60,523Payments to employees
    
    
    (20,378
    )
    
    
    (24,516
    )
    
    
    (27,582
    )Transfer from affiliated and related companies
    
    
    
    
    
    
    955
    
    
    
    Increase in accrued severance indemnities from newly consolidated subsidiaries
    
    
    1,673
    
    
    
    77
    
    
    
    Deposits for severance indemnities
    
    
    (43,995
    )
    
    
    (24,904
    )
    
    
    (19,781
    )Ending balance
    
    (Won)
    48,519
    
    
    (Won)
    67,824
    
    
    (Won)
    80,984
 In addition, the Company and certain subsidiaries expect to pay the following future
benefits for the next 10 years to their employees upon their normal retirement age as follows (in
millions of Korean won): Year ending December 31,2005
    
    (Won)
    2,2252006
    
    
    2007
    
    
    9762008
    
    
    1662009
    
    
    9512010~2014
    
    
    7,612Total
    
    (Won)
    11,930
 The above amounts were determined based on the employees current salary rates and the
number of service years that will be accumulated upon their retirement date. These amounts do not
include amounts that might be paid to employees that will cease working with the Company before
their normal retirement age.  n.
    
    Accounting for Leases Lease agreements that include a bargain purchase option, result in the transfer of
ownership at the end of the lease term, have a lease term equal to 75% or more of the estimated
economic life of the leased property or where the present value of minimum lease payments equals or
exceeds 90% of the fair value of the leased property, are accounted for as capital leases. All
other leases are accounted for as operating leases. Assets and liabilities related to capital leases are recorded as property and equipment
and obligations under capital leases, respectively, and the related interest is calculated using
the effective interest rate method and charged to expense. For operating leases, the future minimum
lease payments are expensed ratably over the lease term while contingent rentals are expensed as
incurred.  o.
    
    Research and Development Costs The Company and its subsidiaries charge substantially all research and development costs
to expense as incurred. The Company and its subsidiaries incurred internal research and development
costs of (Won)194,332 million, (Won)235,551 million and (Won)267,107 million for the years ended
December 31, 2002, 2003 and 2004, respectively, and external research and development costs of
(Won)58,974 million, (Won)64,893 million and (Won)69,016 million for the years ended December 31,
2002, 2003 and 2004, respectively. F-20




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##### Table of Contents



p.
    
    Derivative Instruments The Company records rights and obligations arising from derivative instruments as assets
and liabilities, which are stated at fair value. The gains and losses that result from the change
in the fair value of derivative instruments are reported in current earnings. However, for
derivative instruments designated as hedging the exposure of variable cash flows, the effective
portion of the gains or losses on the hedging instruments are recorded as a separate component of
shareholders equity and credited/charged to operations at the time the hedged transactions affect
earnings, and the ineffective portions of the gains or losses is credited/charged immediately to
operations.  q.
    
    Revenue Recognition The revenues of the Company and its subsidiaries are principally derived from
telecommunication service revenue including data services, and telephone sales. Telecommunication
service consists of fixed monthly charges, usage-related charges and non-refundable activation
fees. Fixed monthly charges are recognized in the period earned. Usage-related charges are
recognized at the time services are rendered. Non-refundable activation fees and costs are
recognized when the activation service was performed. The Companys subsidiaries also sell telephones to customers and telephone sales are
recognized at the time products are delivered.  r.
    
    Income Taxes Deferred tax assets and liabilities are recorded for future tax consequences of operating
loss carryforwards, tax credits and temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are
recognized to the extent that they are expected to be realizable. Deferred tax assets and
liabilities are presented on the balance sheet as a single non-current net number.  s.
    
    Net Income Per Share Net income per share is computed by dividing net income by the weighted average number of
common shares outstanding during the period.  t.
    
    Foreign-Based Operations Translation Adjustment In translating the foreign currency financial statements of the Companys overseas
subsidiaries into Korean won, the Company presents the translation gain or loss as a foreign-based
operations translation adjustment in the capital adjustment section of the balance sheet. The
translation gain or loss arises from the application of different exchange rates; the year-end rate
for balance sheet items except shareholders equity, the historical rate for shareholders equity
and the daily average rate for statement of income items.  u.
    
    Accounting for Foreign Currency Transactions and Translation The Company and its domestic subsidiaries maintain their accounts in Korean won.
Transactions in foreign currencies are recorded in Korean won based on the prevailing rate of
exchange at the dates of transactions. As allowed under Korean GAAP, monetary assets and
liabilities denominated in foreign currencies are translated in the accompanying consolidated
financial statements at the Base Rates announced by Seoul Money Brokerage Services, Ltd. on the
balance sheet dates, which, for U.S. dollars, were (Won)1,200=US$1, (Won)1,197=US$1 and
(Won)1,043=US$1 at December 31, 2002, 2003 and 2004, respectively. The resulting gains and losses
arising from the translation or settlement of such assets and liabilities are included in current
operations. F-21




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##### Table of Contents



v.
    
    Accounting for Employee Stock Option Compensation Plan The Company adopted the fair value based method of accounting for its employee stock
option compensation plan (see Note 16). Under the fair value based method, compensation cost is
measured at the grant date based on the value of the award and is recognized over the service
period. For stock options, fair value is determined using an option-pricing model that takes into
account the stock price at the grant date, the exercise price, the expected life of the option, the
volatility of the underlying stock, expected dividends and the current risk-free interest rate for
the expected life of the option. However, as permitted under Korean GAAP, the Company excludes the
volatility factor in estimating the value of its stock options granted before December 31, 2003,
which results in measurement at minimum value. The total compensation cost of an option estimated
at the grant date is not subsequently adjusted for changes in the price of the underlying stock or
its volatility, the actual life of the option, dividends on the stock, or the risk-free interest
rate.  w.
    
    Adoption of New Statements of Korea Accounting Standards (SKAS) On January 1, 2003, the Company and its subsidiaries adopted SKAS No. 2 through No. 9,
except for SKAS No. 6, which was early adopted in 2002. As a result, the Company and its
subsidiaries reclassified the accounts relating to securities as explained in Note 2-(f), and
changed the accounting policy for capitalization of interest and other financing costs to charge
such interest expense and other financing cost to current operations as incurred as explained in
Notes 2-(h) and 2-(i). If financing costs had been capitalized, net income of the Company and its
subsidiaries for the year ended December 31, 2003 would have increased by (Won)32,296 million (net
of income tax effect of (Won)13,643 million). In addition, in accordance with the application of
SKAS No. 3, Intangible Assets, effective from January 1, 2003 organization costs which were
recorded in intangible assets through 2002, are charged to expenses as incurred and the cumulative
effect of this accounting change was charged to beginning retained earnings as of January 1, 2003. On January 1, 2004, the Company and its subsidiaries adopted SKAS No. 10, No. 12 and No.
13. Such adoptions of new SKAS did not have an effect on the consolidated financial position of the
Company and its subsidiaries as of December 31, 2004 or consolidated ordinary income and net income
of the Company and its subsidiaries for the year ended December 31, 2004. 3. INVESTMENT SECURITIES  a.
    
    Trading Securities Trading securities as of December 31, 2002, 2003 and 2004 are as follows (in millions of
Korean won): Acquisition Cost
    
    
    Fair Value
    
    
    Carrying Amountat December 31,
    
    
    at December 31,2004
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004Stocks
    
    (Won)
    450
    
    
    (Won)
    368
    
    
    (Won)
    
    
    
    (Won)
    
    
    
    (Won)
    368Public bonds
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    18,499
    
    
    
    Corporate bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,383
    
    
    
    Beneficiary certificates
    
    
    652,372
    
    
    
    654,411
    
    
    
    754,182
    
    
    
    870,335
    
    
    
    654,411Total
    
    (Won)
    652,822
    
    
    (Won)
    654,779
    
    
    (Won)
    754,219
    
    
    (Won)
    893,217
    
    
    (Won)
    654,779
 F-22




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##### Table of Contents



b.
    
    Long-term Investment Securities Long-term investment securities at of December 31, 2002, 2003 and 2004 are as follows (in
millions of Korean won): 2002
    
    
    2003
    
    
    2004Available-for-sale equity securities
    
    (Won)
    1,334,197
    
    
    (Won)
    824,392
    
    
    (Won)
    896,508Available-for-sale debt securities
    
    
    12,500
    
    
    
    14,315
    
    
    
    5,158Held-to-maturity securities
    
    
    118,267
    
    
    
    126,347
    
    
    
    50,144Total
    
    
    1,464,964
    
    
    
    965,054
    
    
    
    951,810Less current portion
    
    
    (70,267
    )
    
    
    (85,861
    )
    
    
    (3,709
    )Long-term portion
    
    (Won)
    1,394,697
    
    
    (Won)
    879,193
    
    
    (Won)
    948,101
 F-23




---



##### Table of Contents



b-(1).
    
    Available-for-sale Equity Securities Available-for-sale equity securities as of December 31, 2002, 2003 and 2004 are as
follows (in millions of Korean won, except for share data): Ownership
    
    
    Acquisition
    
    
    
    
    
    
    Unrealized
    
    
    Carrying AmountPercentage (%)
    
    
    Cost at
    
    
    Fair Value
    
    
    Gain (Loss)Number of
    
    
    at Dec. 31,
    
    
    Dec. 31,
    
    
    at Dec. 31,
    
    
    at Dec. 31,Shares
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004(Investments in
listed companies)Digital
Chosunilbo Co., Ltd.
    
    
    2,890,630
    
    
    
    7.8
    
    
    (Won)
    5,781
    
    
    (Won)
    2,023
    
    
    (Won)
    (3,758)
    
    
    (Won)
    2,428
    
    
    (Won)
    2,847
    
    
    (Won)
    2,023Hanaro Telecom Inc.
    
    
    22,090,000
    
    
    
    4.8
    
    
    
    121,676
    
    
    
    71,019
    
    
    
    (50,657
    )
    
    
    49,586
    
    
    
    26,838
    
    
    
    71,019Korea Radio Wave
Basestation Management
    
    
    234,150
    
    
    
    4.5
    
    
    
    1,171
    
    
    
    2,178
    
    
    
    1,007
    
    
    
    2,693
    
    
    
    2,669
    
    
    
    2,178POSCO Corporation
    
    
    2,481,310
    
    
    
    2.7
    
    
    
    332,662
    
    
    
    464,005
    
    
    
    131,343
    
    
    
    
    
    
    
    404,454
    
    
    
    464,005KT Corporation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    730,602
    
    
    
    
    
    
    
    INNOTG Co., Ltd.
    
    
    594,737
    
    
    
    3.9
    
    
    
    1,695
    
    
    
    152
    
    
    
    (1,543
    )
    
    
    
    
    
    
    
    
    
    
    152SINJISOFT Corporation
    
    
    78,000
    
    
    
    2.3
    
    
    
    130
    
    
    
    590
    
    
    
    460
    
    
    
    
    
    
    
    
    
    
    
    590SK Securities Co., Ltd.
    
    
    3,608,856
    
    
    
    1.1
    
    
    
    5,551
    
    
    
    2,418
    
    
    
    (3,133
    )
    
    
    5,052
    
    
    
    1,877
    
    
    
    2,418sub-total
    
    
    
    
    
    
    
    
    
    
    468,666
    
    
    
    
    
    
    
    73,719
    
    
    
    790,361
    
    
    
    438,685
    
    
    
    542,385(Investments in
non-listed companies)Powercomm Co.,
Ltd.
    
    
    7,500,000
    
    
    
    5.0
    
    
    
    240,243
    
    
    
    71,565
    
    
    
    (168,678
    )
    
    
    240,243
    
    
    
    68,407
    
    
    
    71,565Real Telecom Co., Ltd.
    
    
    398,722
    
    
    
    8.3
    
    
    
    5,981
    
    
    (note c)
    
    
    
    
    
    
    
    5,981
    
    
    
    5,981
    
    
    
    Japan MBCO
    
    
    54,000
    
    
    
    7.3
    
    
    
    27,332
    
    
    (note a)
    
    
    
    
    
    
    
    27,209
    
    
    
    42,517
    
    
    
    27,332Enterprise Networks
Co., Ltd.
    
    
    423,244
    
    
    
    4.0
    
    
    
    14,438
    
    
    (note c)
    
    
    
    
    
    
    
    14,438
    
    
    
    14,438
    
    
    
    SK Life Insurance Co.,
Ltd.
    
    
    4,702,000
    
    
    
    8.7
    
    
    
    14,890
    
    
    (note a)
    
    
    
    
    
    
    
    14,890
    
    
    
    14,890
    
    
    
    14,890Eonex Technologies Inc.
    
    
    144,000
    
    
    
    14.1
    
    
    
    3,600
    
    
    (note a)
    
    
    
    2,011
    
    
    
    4,593
    
    
    
    4,593
    
    
    
    4,593WideThan Co., Ltd.
    
    
    2,000,000
    
    
    
    14.3
    
    
    
    1,000
    
    
    (note a)
    
    
    
    (27
    )
    
    
    
    
    
    
    3,188
    
    
    
    3,188Other
    
    
    
    
    
    
    
    
    
    
    123,396
    
    
    (notes a and b)
    
    
    
    
    
    
    
    43,971
    
    
    
    38,475
    
    
    
    36,149sub-total
    
    
    
    
    
    
    
    
    
    
    430,879
    
    
    
    
    
    
    
    (166,694
    )
    
    
    346,732
    
    
    
    189,301
    
    
    
    157,717(Investments in
funds)Korea IT Fund
    
    
    
    
    
    
    
    
    
    
    
    
    
    (note a)
    
    
    
    
    
    
    
    190,000
    
    
    
    190,000
    
    
    
    190,000Others
    
    
    
    
    
    
    
    
    
    
    
    
    
    (notes a and b)
    
    
    
    
    
    
    
    7,104
    
    
    
    6,406
    
    
    
    6,406sub-total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    197,104
    
    
    
    196,406
    
    
    
    196,406Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Won)
    92,975
    
    
    (Won)
    1,334,197
    
    
    (Won)
    824,392
    
    
    (Won)
    896,508
 
 (note a)
    
    As a reasonable estimate of fair value could not be made, the investment is stated
at acquisition cost. The investments in common stock of Eonex Technologies Inc. and WiderThan
Co., Ltd. were reclassified to available-for-sale securities from equity securities accounted
for using the equity method during 2003 and 2004, respectively, as the Companys ownership in
such investees decreased to less than 20%. Such securities were transferred to
available-for-sale securities at the carrying amount valued using the equity method of
accounting prior to the reclassification.(note b)
    
    Due to the impairment of their investments in common stock of CCK Van, Biznet Tech, Hanse
Telecom, Cybird Korea and Venture Korea in 2003 and Mobilewelcom Co., Ltd., CXP Inc., LoveHunt
Inc. and others in 2004, the Company and certain subsidiaries recorded impairment losses of
(Won)5,749 million and (Won)2,580 million for the years ended December 31, 2003 and 2004,
respectively. F-24




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##### Table of Contents



(note c)
    
    Due to the impairment of the Companys investments in common stock of Real Telecom Co.,
Ltd. and Enterprise Networks Co., Ltd., the Company recorded impairment losses of (Won)20,419
million for the year ended December 31, 2004. The net unrealized loss on investments in common stock of KT Corporation, Digital
Chosunilbo Co., Ltd., Hanaro Telecom, Inc., Korea Radio Wave Basestation Management and SK
Securities Co., Ltd. as of December 31, 2002 totaling (Won)104,117 million, the net unrealized gain
on investments in common stock of Digital Chosunilbo Co., Ltd., Hanaro Telecom Inc., Korea Radio
Wave Basestation Management, SK Securities Co., Ltd. and POSCO Corporation as of December 31, 2003
totaling (Won)11,213 million and, the net unrealized gain on investments in common stock of Digital
Chosunilbo Co., Ltd., Hanaro Telecom Inc., Korea Radio Wave Basestation Management, POSCO
Corporation, SK Securities Co., Ltd., INNOTG Co., Ltd. and SINJISOFT Corporation as of December 31,
2004 totaling (Won)73,719 million, were recorded as a capital adjustment. On May 23, 2002, the Company acquired a 9.6% equity interest (29,808,333 shares of common
stock) in KT Corporation for (Won)1,609 billion as a result of participation in the privatization
of KT Corporation. The Company sold all of these shares on December 30, 2002 and January 10, 2003,
under the Mutual Agreement on Stock Exchange between the Company and KT Corporation. The
investments in 14,353,674 shares of KT Corporations common stock as of December 31, 2002, which
were not sold until January 10, 2003, were reported at the agreed sales price ((Won)50,900 per
share) with unrealized losses amounting to (Won)44,496 million reported as impairment losses in the
year ended December 31, 2002, as the decline in the carrying value was not recoverable. The Company recorded its investments in common stock of Powercomm Co., Ltd. at its fair
value, which was estimated by an outside professional valuation company using the present value of
expected future cash flow, and the unrealized loss on valuation of investments amounting to
(Won)171,836 million and (Won)168,678 million as of December 31, 2003 and 2004, respectively, were
recorded as a capital adjustment.  b-(2).
    
    Available-for-sale Debt Securities Available-for-sale debt securities as of December 31, 2002, 2003 and 2004 are as follows
(in millions of Korean won): Acquisition
    
    
    Carrying AmountCost atDecember 31,Maturity
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004Public bonds
    
    (note a)
    
    (Won)
    1,328
    
    
    (Won)
    586
    
    
    (Won)
    971
    
    
    (Won)
    1,328Convertible bonds of Real Telecom Co., Ltd.
    
    March 2004
    
    
    10,655
    
    
    
    9,514
    
    
    
    9,514
    
    
    
    Convertible
bonds of Eonex Technologies, Inc. (1st)
    
    May 2003
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    Convertible
bonds of Eonex Technologies, Inc. (3rd)
    
    January 2005
    
    
    3,600
    
    
    
    
    
    
    
    3,600
    
    
    
    3,600Other
    
    
    
    
    
    
    230
    
    
    
    400
    
    
    
    230
    
    
    
    230Total
    
    
    
    
    
    
    
    
    
    
    12,500
    
    
    
    14,315
    
    
    
    5,158Less current portion of available-for-sale debt
securities
    
    
    
    
    
    
    
    
    
    
    (2,000
    )
    
    
    (9,514
    )
    
    
    (3,700
    )Long-term available-for-sale debt securities
    
    
    
    
    
    
    
    
    
    (Won)
    10,500
    
    
    (Won)
    4,801
    
    
    (Won)
    1,458
 
 (note a)
    
    The maturities of public bonds as of December 31, 2002, 2003 and 2004 are as follows (in millions of Korean won): Maturity
    
    2002
    
    
    2003
    
    
    2004Within five years
    
    (Won)
    583
    
    
    (Won)
    857
    
    
    (Won)
    904Within ten years
    
    
    3
    
    
    
    114
    
    
    
    424(Won)
    586
    
    
    (Won)
    971
    
    
    (Won)
    1,328
 F-25




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##### Table of Contents



The convertible bonds of Real Telecom Co., Ltd. with a principal amount of (Won)10,655
million can be converted into 371,018 shares of common stock of Real Telecom Co., Ltd. at
(Won)28,721 per share over the period from September 29, 2004 to March 28, 2007. If such bonds are
converted, the Companys equity interest in Real Telecom Co., Ltd. will increase to 14.8%.
Meanwhile, due to the impairment in such bonds, the Company recorded an impairment loss of
(Won)10,655 million for the year ended December 31, 2004. The convertible bonds of Eonex Technologies, Inc. (3rd) with a principal amount of
(Won)3,600 million could be converted into 48,000 shares of common stock of Eonex Technologies,
Inc. at (Won)75,000 per share over the period from July 30, 2003 to January 29, 2005. Such bonds
were all repaid at the maturity date.  b-(3).
    
    Held-to-maturity Securities Held-to-maturity securities as of December 31, 2002, 2003 and 2004 are as follows (in
millions of Korean won): Acquisition
    
    
    Carrying AmountCost atDecember 31,Maturity
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004Public bonds
    
    (note a)
    
    
    (Won)
    144
    
    
    (Won)
    
    
    
    (Won)
    
    
    
    (Won)
    144Subordinated bonds of SK Life Insurance
Co., Ltd.
    
    April 2006
    
    
    
    50,000
    
    
    
    50,000
    
    
    
    50,000
    
    
    
    50,000Subordinated bonds of Nate First Special
Purpose Company
    
    June 2003
    
    
    
    
    
    
    
    40,506
    
    
    
    
    
    
    
    Subordinated bonds of Nate Second Special
Purpose Company
    
    December 2003
    
    
    
    
    
    
    
    27,761
    
    
    
    
    
    
    
    Subordinated bonds of Nate Third Special
Purpose Company
    
    May 2004
    
    
    
    
    
    
    
    
    
    
    
    27,464
    
    
    
    Subordinated bonds of Nate Fourth Special
Purpose Company
    
    September 2004
    
    
    
    
    
    
    
    
    
    
    
    25,393
    
    
    
    Subordinated bonds of Nate Fifth Special
Purpose Company
    
    December 2004
    
    
    
    
    
    
    
    
    
    
    
    23,490
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    118,267
    
    
    
    126,347
    
    
    
    50,144Less current portion of held-to-maturity
securities
    
    
    
    
    
    
    
    
    
    
    (68,267
    )
    
    
    (76,347
    )
    
    
    (9
    )Long-term held-to-maturity securities
    
    
    
    
    
    
    
    
    
    (Won)
    50,000
    
    
    (Won)
    50,000
    
    
    (Won)
    50,135
 
 (note a)
    
    The maturities of public bonds as of December 31, 2004 is as follows (in millions of
Korean won): Maturity
    
    2004Within one year
    
    (Won)
    9Within five years
    
    
    105Within ten years
    
    
    30(Won)
    144
 F-26




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##### Table of Contents



On June 20, 2002, December 3, 2002, May 2, 2003, September 4, 2003 and December 15, 2003,
the Company sold (Won)631,447 million, (Won)650,641 million, (Won)577,253 million, (Won)549,256
million and (Won)498,426 million, respectively, of accounts receivable resulting from its mobile
phone dealer financing plan to Nate First Special Purpose Company, Nate Second Special Purpose
Company, Nate Third Special Purpose Company, Nate Fourth Special Purpose Company and Nate Fifth
Special Purpose Company, respectively, in asset-backed securitization transactions. In the course
of these transactions, the Company acquired subordinate bonds issued by such special purpose
companies, in order to supplement the creditworthiness of bonds issued by them. All such
subordinated bonds were repaid in 2003 and 2004. 4. EQUITY SECURITIES ACCOUNTED FOR USING THE EQUITY METHOD Equity securities accounted for using the equity method as of December 31, 2002, 2003 and
2004 are as follows (in millions of Korean won, except for share data): OwnershipNumber of
    
    
    Percentage
    
    
    Acquisition
    
    
    Net Asset
    
    
    Carrying AmountShares at
    
    
    (%) at
    
    
    Cost at
    
    
    Value atDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004SK C&C Co.,
Ltd.
    
    
    300,000
    
    
    
    30.0
    
    
    (Won)
    19,071
    
    
    (Won)
    196,208
    
    
    
    
    
    
    (Won)
    39,687
    
    
    (Won)
    92,844
    
    
    (Won)
    201,484STIC Ventures Co.,
Ltd.
    
    
    1,600,000
    
    
    
    24.1
    
    
    
    8,000
    
    
    
    7,477
    
    
    
    
    
    
    
    6,885
    
    
    
    7,086
    
    
    
    7,477Eonex Technologies,
Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (note a)
    
    
    4,615
    
    
    
    
    
    
    
    WiderThan Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (note b)
    
    
    1,750
    
    
    
    3,188
    
    
    
    VCASH Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (note c)
    
    
    2,232
    
    
    
    1,048
    
    
    
    Skytel Co., Ltd.
    
    
    1,756,000
    
    
    
    28.6
    
    
    
    2,159
    
    
    
    3,713
    
    
    
    
    
    
    
    2,576
    
    
    
    3,401
    
    
    
    3,713SK China Company
Ltd.
    
    
    28,160
    
    
    
    20.7
    
    
    
    3,195
    
    
    
    1,915
    
    
    
    
    
    
    
    3,482
    
    
    
    1,683
    
    
    
    830SKT-QC Wireless
Development Fund
    
    
    
    
    
    
    50.0
    
    
    
    6,540
    
    
    
    5,146
    
    
    
    
    
    
    
    5,993
    
    
    
    5,901
    
    
    
    5,146SKT-HP Ventures, LLC
    
    
    
    
    
    
    50.0
    
    
    
    6,415
    
    
    
    5,281
    
    
    
    
    
    
    
    5,990
    
    
    
    5,960
    
    
    
    5,281CDMA Mobile Phone
Center
    
    
    
    
    
    
    50.0
    
    
    
    45,687
    
    
    
    25,117
    
    
    
    
    
    
    
    
    
    
    
    49,444
    
    
    
    25,117TU Media Corp.
    
    
    7,800,000
    
    
    
    28.5
    
    
    
    39,000
    
    
    
    34,592
    
    
    (note d)
    
    
    
    
    
    
    
    
    
    
    34,592SK USA, Inc.
    
    
    49
    
    
    
    49.0
    
    
    
    3,184
    
    
    
    3,056
    
    
    (note e)
    
    
    3,184
    
    
    
    3,184
    
    
    
    3,056Aircross Co., Ltd.
    
    
    600,000
    
    
    
    38.1
    
    
    
    300
    
    
    
    940
    
    
    (note e)
    
    
    300
    
    
    
    300
    
    
    
    940DSS Mobile
Communications Ltd.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (note f)
    
    
    
    
    
    
    
    
    
    
    Other investments
in affiliates
    
    
    
    
    
    
    
    
    
    
    16,893
    
    
    
    
    
    
    (note g)
    
    
    4,553
    
    
    
    9,670
    
    
    
    16,392Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Won)
    81,247
    
    
    (Won)
    183,709
    
    
    (Won)
    304,028
 
 (note a)
    
    As the Companys ownership in Eonex Technologies, Inc. decreased to 16.1% from 22.5%,
during the first quarter of 2003, investments in common stock of Eonex Technologies, Inc. were
reclassified to available-for-sale securities at the end of the first quarter of 2003. F-27




---



##### Table of Contents



(note b)
    
    As the Companys ownership in WiderThan Co., Ltd. decreased to 14.3% from 20% in 2004,
investments in common stock of WiderThan Co., Ltd. are reclassified to available-for-sale
securities in 2004.(note c)
    
    The investments in common stock of VCASH Co., Ltd. were sold to Korea Railway
Transportation Promotion Foundation in 2004.(note d)
    
    As the Companys ownership in TU Media Corp. decreased from 100% to 28.5% in 2004, TU
Media Corp. was excluded from the consolidation, effective January 1, 2004. And, the
investment in common stock of TU Media Corp. are accounted for using the equity method of
accounting.(note e)
    
    As their total assets at the beginning of 2004 were over (Won)7 billion, effective
January 1, 2004, investments in equity securities of SK USA, Inc. and Aircross Co., Ltd. are
accounted for using the equity method of accounting.(note f)
    
    DSS Mobile Communication Ltd., an Indian company, has a negative capital since March 31,
1998 and the investment in common stock of DSS Mobile Communication Ltd. were sold in 2004.(note g)
    
    As allowed under Korean GAAP, investments in equity securities of SK Telecom Europe
Limited, UNISK Information Technology Co., Ltd. and certain others were not accounted for
using the equity method of accounting, as their total assets at the beginning of 2004 were
less than (Won)7 billion. Details of changes in investments in affiliates accounted for using the equity method for
the years ended December 31, 2002, 2003 and 2004 are as follows (in millions of Korean won): For the Year Ended December 31, 2002Equity inCapitalEquity in
    
    
    Equity in
    
    
    Surplus andBeginning
    
    
    
    
    
    
    Earnings
    
    
    Retained
    
    
    Capital
    
    
    Dividends
    
    
    
    
    
    EndingBalance
    
    
    Acquisition
    
    
    (Losses)
    
    
    Earnings
    
    
    Adjustments
    
    
    Received
    
    
    Decrease
    
    
    BalanceSK C&C Co.,
Ltd.
    
    (Won)
    43,475
    
    
    (Won)
    
    
    
    (Won)
    3,401
    
    
    (Won)
    
    
    
    (Won)
    (6,589
    )
    
    (Won)
    (600
    )
    
    (Won)
    
    
    
    (Won)
    39,687STIC IT Venture
Capital
    
    
    8,038
    
    
    
    
    
    
    
    (1,137
    )
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    6,885Eonex Technologies,
Inc. (note a)
    
    
    3,600
    
    
    
    
    
    
    
    (996
    )
    
    
    
    
    
    
    2,011
    
    
    
    
    
    
    
    
    
    
    
    4,615WiderThan Co., Ltd.
(note a)
    
    
    1,000
    
    
    
    
    
    
    
    750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,750VCASH
    
    
    3,417
    
    
    
    
    
    
    
    (1,192
    )
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    2,232Skytel Co., Ltd.
    
    
    2,352
    
    
    
    675
    
    
    
    29
    
    
    
    
    
    
    
    (480
    )
    
    
    
    
    
    
    
    
    
    
    2,576SK China Co., Ltd.
    
    
    3,869
    
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    (366
    )
    
    
    
    
    
    
    
    
    
    
    3,482SKT QC Wireless
Development Fund,
LLC
    
    
    6,540
    
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (538
    )
    
    
    
    
    
    
    
    
    
    
    5,993SKT-HP Ventures, LLC
    
    
    6,415
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    (413
    )
    
    
    
    
    
    
    
    
    
    
    5,990(Won)
    78,706
    
    
    (Won)
    675
    
    
    (Won)
    813
    
    
    (Won)
    
    
    
    (Won)
    (6,384
    )
    
    (Won)
    (600
    )
    
    (Won)
    
    
    
    (Won)
    73,210
 
 (note a)
    
    As their total assets at the beginning of 2002 were over (Won)7 billion, effective
January 1, 2002, investments in equity securities of Eonex Technologies, Inc. and WiderThan
Co., Ltd. are accounted for using the equity method of accounting. F-28




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##### Table of Contents



For the Year Ended December 31, 2003Equity inEquity in
    
    
    CapitalEquity in
    
    
    Retained
    
    
    Surplus and
    
    
    
    
    
    DecreaseBeginning
    
    
    
    
    
    
    Earnings
    
    
    Earning
    
    
    Capital
    
    
    Dividend
    
    
    (Notes c
    
    
    EndingBalance
    
    
    Acquisition
    
    
    (Losses)
    
    
    (Note b)
    
    
    Adjustments
    
    
    Received
    
    
    and d)
    
    
    BalanceSK C&C Co.,
Ltd.
    
    (Won)
    39,687
    
    
    (Won)
    
    
    
    (Won)
    7,962
    
    
    (Won)
    
    
    
    (Won)
    45,795
    
    
    (Won)
    (600
    )
    
    (Won)
    
    
    
    (Won)
    92,844STIC Ventures Co.,
Ltd.
    
    
    6,884
    
    
    
    
    
    
    
    44
    
    
    
    (3
    )
    
    
    161
    
    
    
    
    
    
    
    
    
    
    
    7,086Eonex Technologies,
Inc.
    
    
    4,615
    
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,593
    )
    
    
    WiderThan Co., Ltd.
    
    
    1,750
    
    
    
    
    
    
    
    1,465
    
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    
    
    
    
    3,188VCASH Co., Ltd.
    
    
    2,232
    
    
    
    
    
    
    
    (1,353
    )
    
    
    (30
    )
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    1,048Skytel Co., Ltd.
    
    
    2,576
    
    
    
    
    
    
    
    694
    
    
    
    
    
    
    
    152
    
    
    
    (21
    )
    
    
    
    
    
    
    3,401SK China Co., Ltd.
    
    
    3,482
    
    
    
    
    
    
    
    (1,864
    )
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    1,683SK-QC Wireless
Development Fund
    
    
    5,993
    
    
    
    
    
    
    
    (79
    )
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    5,901SKT-HP Ventures, LLC
    
    
    5,990
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    (47
    )
    
    
    
    
    
    
    
    
    
    
    5,960CDMA Mobile Phone
Center (note a)
    
    
    63,354
    
    
    
    
    
    
    
    (13,839
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71
    )
    
    
    49,444(Won)
    136,563
    
    
    (Won)
    
    
    
    (Won)
    (6,975
    )
    
    (Won)
    (33
    )
    
    (Won)
    46,285
    
    
    (Won)
    (621
    )
    
    (Won)
    (4,664
    )
    
    (Won)
    170,555
 
 (note a)
    
    As its total assets at the beginning of 2003 were over (Won)7 billion, effective
January 1, 2003, investment in equity securities of CDMA Mobile Phone Center held by SLD
Telecom PTE Ltd., a overseas subsidiary of the Company, is accounted for using the (note a)
equity method of accounting.(note b)
    
    Effective January 1, 2003, the Companys investees including STIC Ventures Co., Ltd. and
VCASH Co., Ltd., adopted SKAS No. 3, Intangible Assets. This statement requires that
organization cost be charged to expenses as incurred and the unamortized organization costs at
January 1, 2003 be offset against the beginning retained earnings. To reflect the Companys
portion of the decrease in the beginning retained earnings of the investees, the Company
reduced its beginning retained earnings of 2003.(note c)
    
    Investments in common stock of Eonex Technologies, Inc. were reclassified to
available-for-sale securities as the Companys ownership in Eonex Technologies, Inc. decreased
to 16.1% from 22.5% during the first quarter of 2003.(note d)
    
    The decrease in investments in equity securities of CDMA Mobile Phone Center represents a
translation loss incurred from translating the foreign currency financial statements of SLD
Telecom PTE Ltd., a overseas subsidiary of the Company, which makes investments in CDMA Mobile
Phone Center, into Korean won. F-29




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##### Table of Contents



For the Year Ended December 31, 2004Equity inCapitalEquity in
    
    
    Surplus and
    
    
    
    
    
    
    DecreaseBeginning
    
    
    
    
    
    
    Earnings
    
    
    Capital
    
    
    Dividend
    
    
    (Notes b
    
    
    EndingBalance
    
    
    Acquisition
    
    
    (Losses)
    
    
    Adjustments
    
    
    Received
    
    
    and c)
    
    
    BalanceSK C&C Co.,
Ltd.
    
    (Won)
    92,844
    
    
    (Won)
    
    
    
    (Won)
    13,322
    
    
    (Won)
    95,918
    
    
    (Won)
    (600
    )
    
    (Won)
    
    
    
    (Won)
    201,484STIC Ventures Co.,
Ltd.
    
    
    7,086
    
    
    
    
    
    
    
    (123
    )
    
    
    514
    
    
    
    
    
    
    
    
    
    
    
    7,477WiderThan Co., Ltd.
    
    
    3,188
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,188
    )
    
    
    VCASH Co., Ltd.
    
    
    1,048
    
    
    
    
    
    
    
    (657
    )
    
    
    
    
    
    
    
    
    
    
    (391
    )
    
    
    Skytel Co., Ltd.
    
    
    3,401
    
    
    
    
    
    
    
    1,070
    
    
    
    (603
    )
    
    
    (155
    )
    
    
    
    
    
    
    3,713SK China Co., Ltd.
    
    
    1,683
    
    
    
    
    
    
    
    (595
    )
    
    
    (258
    )
    
    
    
    
    
    
    
    
    
    
    830SK-QC Wireless
Development Fund
    
    
    5,901
    
    
    
    
    
    
    
    4
    
    
    
    (759
    )
    
    
    
    
    
    
    
    
    
    
    5,146SKT-HP Ventures, LLC
    
    
    5,960
    
    
    
    
    
    
    
    62
    
    
    
    (741
    )
    
    
    
    
    
    
    
    
    
    
    5,281CDMA Mobile Phone
Center
    
    
    49,444
    
    
    
    5,979
    
    
    
    (21,651
    )
    
    
    
    
    
    
    
    
    
    
    (8,655
    )
    
    
    25,117TU Media Corp.
    
    
    38,681
    
    
    
    
    
    
    
    (4,213
    )
    
    
    124
    
    
    
    
    
    
    
    
    
    
    
    34,592SK USA, Inc. (note
a)
    
    
    3,184
    
    
    
    
    
    
    
    168
    
    
    
    (296
    )
    
    
    
    
    
    
    
    
    
    
    3,056Aircross Co., Ltd.
(note a)
    
    
    300
    
    
    
    
    
    
    
    659
    
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    940(Won)
    212,720
    
    
    (Won)
    5,979
    
    
    (Won)
    (11,954
    )
    
    (Won)
    93,880
    
    
    (Won)
    (755
    )
    
    (Won)
    (12,234
    )
    
    (Won)
    287,636
 
 (note a)
    
    As their total assets at the beginning of 2004 were over (Won)7 billion, effective
January 1, 2004, investments in equity securities of SK USA, Inc. and Aircross Co., Ltd. are
accounted for using the equity method of accounting.(note b)
    
    As the Companys ownership in WiderThan Co., Ltd. decreased to 14.3% from 20% in 2004,
investments in common stock of WiderThan Co., Ltd. are reclassified to available-for-sale
securities in 2004.(note c)
    
    SLD Telecom PTE Ltd. (SLD), an oversea subsidiary of the Company, accounted for the
in-kind contribution of network equipment to CDMA Mobile Phone Center as an increase in the
investment securities and the reimbursement in the amount equal to depreciation of such
network equipment in accordance with the Business Co-Operation Contract between SLD and Saigon
Post and Telecommunication Service Corp., a Vietnamese counterparty, was accounted for as a
decrease in the investment. During the year ended December 31, 2004, SLD got such
reimbursement of (Won)4,046 million from CDMA Mobile Phone Center and decreased the investment
in CDMA Mobile Phone Center by the same amount. In addition, translation loss of (Won)4,609
million incurred from translating the foreign currency financial statement of SLD Telecom PTE
Ltd. into Korean won was accounted for as a decrease in the investment in CDMA Mobile Phone
Center. 5. LOANS TO EMPLOYEES Short-term and long-term loans to employees as of December 31, 2002, 2003 and 2004 are as
follows (in millions of Korean won): 2002
    
    
    2003
    
    
    2004Loans to employees stock ownership association
    
    (Won)
    45,906
    
    
    (Won)
    33,788
    
    
    (Won)
    22,546Loans to employees for housing and other (3 - 4%)
    
    
    10,556
    
    
    
    8,587
    
    
    
    8,859(Won)
    56,462
    
    
    (Won)
    42,375
    
    
    (Won)
    31,405
 F-30




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##### Table of Contents



6. PROPERTY AND EQUIPMENT Property and equipment as of December 31, 2002, 2003 and 2004 are as follows (in millions
of Korean won): Useful Lives(Years)
    
    
    2002
    
    
    2003
    
    
    2004Land
    
    
    
    
    
    (Won)
    439,915
    
    
    (Won)
    449,377
    
    
    (Won)
    466,459Buildings and structures
    
    
    15, 30
    
    
    
    977,045
    
    
    
    1,081,134
    
    
    
    1,445,593Machinery
    
    
    3-6
    
    
    
    6,998,088
    
    
    
    8,440,624
    
    
    
    9,584,526Vehicles
    
    
    3-4
    
    
    
    19,368
    
    
    
    19,741
    
    
    
    21,710Other
    
    
    3-4
    
    
    
    878,006
    
    
    
    794,495
    
    
    
    791,829Construction in progress
    
    
    
    
    
    
    352,932
    
    
    
    323,490
    
    
    
    138,002Total
    
    
    
    
    
    
    9,665,354
    
    
    
    11,108,861
    
    
    
    12,448,119Less accumulated depreciation
    
    
    
    
    
    
    (5,095,937
    )
    
    
    (6,467,314
    )
    
    
    (7,744,197
    )Property and equipment, net
    
    
    
    
    
    (Won)
    4,569,417
    
    
    (Won)
    4,641,547
    
    
    (Won)
    4,703,922
 The governments declared standard value of land owned as of December 31, 2002, 2003 and
2004 are (Won)356,360 million, (Won)396,103 million and (Won)404,385 million, respectively. Details of changes in property and equipment for the years ended December 31, 2003 and
2004 are as follows (in millions of Korean won): For the Year Ended December 31, 2003Beginning
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EndingBalance
    
    
    Acquisition
    
    
    Disposal
    
    
    Transfer
    
    
    Depreciation
    
    
    BalanceLand
    
    (Won)
    439,915
    
    
    (Won)
    6,381
    
    
    (Won)
    (4,793
    )
    
    (Won)
    7,874
    
    
    (Won)
    
    
    
    (Won)
    449,377Buildings and
structures
    
    
    778,832
    
    
    
    9,393
    
    
    
    (4,599
    )
    
    
    100,341
    
    
    
    (40,166
    )
    
    
    843,801Machinery
    
    
    2,475,663
    
    
    
    125,332
    
    
    
    (4,996
    )
    
    
    1,360,240
    
    
    
    (1,285,271
    )
    
    
    2,670,968Vehicles
    
    
    6,353
    
    
    
    1,012
    
    
    
    (123
    )
    
    
    63
    
    
    
    (3,137
    )
    
    
    4,168Other
    
    
    515,722
    
    
    
    861,333
    
    
    
    (4,329
    )
    
    
    (916,464
    )
    
    
    (106,519
    )
    
    
    349,743Construction in
progress
    
    
    352,932
    
    
    
    644,188
    
    
    
    
    
    
    
    (673,630
    )
    
    
    
    
    
    
    323,490Total
    
    (Won)
    4,569,417
    
    
    (Won)
    1,647,639
    
    
    (Won)
    (18,840
    )
    
    (Won)
    (121,576
    )
    
    (Won)
    (1,435,093
    )
    
    (Won)
    4,641,547
 F-31




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##### Table of Contents



For the Year Ended December 31, 2004Beginning
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EndingBalance
    
    
    Acquisition
    
    
    Disposal
    
    
    Transfer
    
    
    Depreciation
    
    
    BalanceLand
    
    (Won)
    449,377
    
    
    (Won)
    3,395
    
    
    (Won)
    (2,684
    )
    
    (Won)
    16,372
    
    
    (Won)
    
    
    
    (Won)
    466,460Buildings and
structures
    
    
    843,801
    
    
    
    7,239
    
    
    
    (7,849
    )
    
    
    366,296
    
    
    
    (42,945
    )
    
    
    1,166,542Machinery
    
    
    2,670,968
    
    
    
    108,238
    
    
    
    (8,098
    )
    
    
    1,143,335
    
    
    
    (1,271,336
    )
    
    
    2,643,107Vehicles
    
    
    4,168
    
    
    
    3,744
    
    
    
    (425
    )
    
    
    674
    
    
    
    (3,370
    )
    
    
    4,791Other
    
    
    349,743
    
    
    
    740,752
    
    
    
    (5,481
    )
    
    
    (697,135
    )
    
    
    (102,859
    )
    
    
    285,020Construction in
progress
    
    
    323,490
    
    
    
    768,573
    
    
    
    (756
    )
    
    
    (953,305
    )
    
    
    
    
    
    
    138,002Total
    
    (Won)
    4,641,547
    
    
    (Won)
    1,631,941
    
    
    (Won)
    (25,293
    )
    
    (Won)
    (123,763
    )
    
    (Won)
    (1,420,510
    )
    
    (Won)
    4,703,922
 7. INTANGIBLE ASSETS Intangible assets as of December 31, 2002, 2003 and 2004 are as follows (in millions of
Korean won): Acquisition
    
    
    Accumulated
    
    
    Accumulated
    
    
    Carrying AmountsCost at
    
    
    Amortization at
    
    
    Impairment atDecember 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    2004
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004Goodwill
    
    (Won)
    2,401,306
    
    
    (Won)
    (406,897
    )
    
    (Won)
    (70
    )
    
    (Won)
    2,255,868
    
    
    (Won)
    2,129,980
    
    
    (Won)
    1,994,339Frequency use rights
    
    
    1,267,053
    
    
    
    (103,734
    )
    
    
    
    
    
    
    1,259,253
    
    
    
    1,251,278
    
    
    
    1,163,319Software
development costs
    
    
    228,757
    
    
    
    (122,301
    )
    
    
    (501
    )
    
    
    91,337
    
    
    
    137,810
    
    
    
    105,955Other
    
    
    490,625
    
    
    
    (229,909
    )
    
    
    (1,426
    )
    
    
    114,777
    
    
    
    155,876
    
    
    
    259,290(Won)
    4,387,741
    
    
    (Won)
    (862,841
    )
    
    (Won)
    (1,997
    )
    
    (Won)
    3,721,235
    
    
    (Won)
    3,674,944
    
    
    (Won)
    3,522,903
 Details of changes in intangible assets for the years ended December 31, 2003 and 2004
are as follows (in millions of Korean won): For the Year Ended December 31, 2003Beginning
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EndingBalance
    
    
    Acquisition
    
    
    Disposal
    
    
    Transfer
    
    
    Amortization
    
    
    BalanceGoodwill
    
    (Won)
    2,255,868
    
    
    (Won)
    9,374
    
    
    (Won)
    
    
    
    (Won)
    (111
    )
    
    (Won)
    (135,151
    )
    
    (Won)
    2,129,980Software
development costs
    
    
    91,337
    
    
    
    26,665
    
    
    
    
    
    
    
    56,512
    
    
    
    (36,704
    )
    
    
    137,810Frequency use rights
    
    
    1,259,253
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,975
    )
    
    
    1,251,278Other
    
    
    114,777
    
    
    
    28,982
    
    
    
    (7,275
    )
    
    
    54,371
    
    
    
    (34,979
    )
    
    
    155,876(Won)
    3,721,235
    
    
    (Won)
    65,021
    
    
    (Won)
    (7,275
    )
    
    (Won)
    110,772
    
    
    (Won)
    (214,809
    )
    
    (Won)
    3,674,944
 For the Year Ended December 31, 2004Beginning
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EndingBalance
    
    
    Acquisition
    
    
    Disposal
    
    
    Transfer
    
    
    Amortization
    
    
    Impairment
    
    
    BalanceGoodwill
    
    (Won)
    2,129,980
    
    
    (Won)
    647
    
    
    (Won)
    
    
    
    (Won)
    
    
    
    (Won)
    (136,288
    )
    
    (Won)
    
    
    
    (Won)
    1,994,339Software
development costs
    
    
    137,810
    
    
    
    6,235
    
    
    
    (3,349
    )
    
    
    10,545
    
    
    
    (45,244
    )
    
    
    (42
    )
    
    
    105,955Frequency use rights
    
    
    1,251,278
    
    
    
    
    
    
    
    
    
    
    
    7,800
    
    
    
    (95,759
    )
    
    
    
    
    
    
    1,163,319Other
    
    
    155,876
    
    
    
    65,494
    
    
    
    (865
    )
    
    
    93,514
    
    
    
    (54,729
    )
    
    
    
    
    
    
    259,290(Won)
    3,674,944
    
    
    (Won)
    72,376
    
    
    (Won)
    (4,214
    )
    
    (Won)
    111,859
    
    
    (Won)
    (332,020
    )
    
    (Won)
    (42
    )
    
    (Won)
    3,522,903
 F-32




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##### Table of Contents



The book value and residual useful lives of major intangible assets as of December 31,
2004 are as follows (in millions of Korean won): ResidualAmount
    
    Description
    
    Useful LivesGoodwill
    
    (Won)
    1,949,546
    
    
    Goodwill related to acquisition of Shinsegi Telecomm, Inc.
    
    16 yearsFrequency use rights
    
    
    1,155,575
    
    
    IMT license received on December 4, 2001
    
    (note)Software development costs
    
    
    105,955
    
    
    Software for business use
    
    1-5 years
 
 (note)
    
    Amortization of the IMT license commenced when the Company started its commercial IMT
service in December 2003, using the straight-line method over the estimated useful life of the
IMT license which expires in December 2016. 8. BONDS PAYABLE Bonds payable as of December 31, 2002, 2003 and 2004 are as follows (in millions of
Korean won and thousands of U.S. dollars): Maturity
    
    
    Annual InterestYear
    
    
    Rate (%)
    
    
    2002
    
    
    2003
    
    
    2004Domestic general bonds
    
    
    2003
    
    
    
    5.0-9.9
    
    
    (Won)
    910,000
    
    
    (Won)
    
    
    
    (Won)
    
    
    
    2004
    
    
    
    5.0-7.0
    
    
    
    1,120,000
    
    
    
    1,120,000
    
    
    
    
    
    
    2005
    
    
    
    6.0
    
    
    
    500,000
    
    
    
    500,000
    
    
    
    500,000
    
    
    2006
    
    
    
    5.0-6.0
    
    
    
    400,000
    
    
    
    800,000
    
    
    
    800,000
    
    
    2007
    
    
    
    5.0-6.0
    
    
    
    700,000
    
    
    
    700,000
    
    
    
    700,000
    
    
    2008
    
    
    
    5.0
    
    
    
    
    
    
    
    300,000
    
    
    
    300,000
    
    
    2009
    
    
    
    5.0
    
    
    
    
    
    
    
    
    
    
    
    300,000
    
    
    2011
    
    
    
    3.0
    
    
    
    
    
    
    
    
    
    
    
    200,000Dollar denominated bonds(US$200,078)
    
    
    2004
    
    
    
    7.75
    
    
    
    240,173
    
    
    
    239,653
    
    
    
    (US$300,000)
    
    
    2011
    
    
    
    4.25
    
    
    
    
    
    
    
    
    
    
    
    313,140Convertible bonds (US $329,450)
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    385,885Bonds with stock purchase warrants (US $4,000)
    
    
    2006
    
    
    6M Libor-0.3
    
    
    4,802
    
    
    
    4,791
    
    
    
    3,874,975
    
    
    
    3,664,444
    
    
    
    3,499,025Less discounts on bonds
    
    
    
    
    
    
    
    
    
    
    (60,467
    )
    
    
    (47,553
    )
    
    
    (51,467
    )Less conversion right adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82,245
    )Add long-term accrued interest
    
    
    
    
    
    
    
    
    
    
    252
    
    
    
    491
    
    
    
    24,808Net
    
    
    
    
    
    
    
    
    
    
    3,814,760
    
    
    
    3,617,382
    
    
    
    3,390,121Less portion due within one year
    
    
    
    
    
    
    
    
    
    
    (906,264
    )
    
    
    (1,355,514
    )
    
    
    (498,278
    )Long-term portion
    
    
    
    
    
    
    
    
    
    (Won)
    2,908,496
    
    
    (Won)
    2,261,868
    
    
    (Won)
    2,891,843
 All of the above bonds will be paid in full at maturities. F-33




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##### Table of Contents



The bonds with stock purchase warrants were issued on December 11, 2001 by PAXNet Co.,
Ltd., in which the Company purchased a 67.1% interest in December 2002. The stock purchase warrants
are detachable and the bonds are unsecured oversea public bonds. These bonds were in full redeemed
for cash at the option of the bondholders in 2004, at 114.79% of the principal amount. The stock
purchase warrants, however, are still effective and may be exercised at any time after 3 months
from the issuance date and up to 1 month before the original maturity date of the bonds. As of
December 31, 2004, the exercise price per common stock of PAXNet Co., Ltd. is (Won)5,000. On May 27, 2004, the Company issued zero coupon convertible bonds with a maturity of five
years in the principal amount of US$329,450,000 for US$324,923,469, with an initial conversion
price of (Won)235,625 per share of the Companys common stock that is greater than market value at
the date of issuance and do not change, except under antidilution protection, subject to certain
redemption rights. The Company may redeem their principal amount after 3 years from the issuance
date if the market price exceeds 130% of the conversion price during a predetermined period. On the
other hand, the bond holders may redeem their notes at 103.81% of the principal amount on May 27,
2007 (3 years from the issuance date). The conversion right may be exercised during the period from
July 7, 2004 to May 13, 2009 and the number of common shares to be converted as of December 31,
2004 is 1,644,978 shares. Conversion of notes to common shares may be prohibited under the
Telecommunications Law or other legal restrictions which restrains foreign governments, individuals
and entities from owning more than 49% of the Companys voting stock, if this 49% ownership
limitation is violated due to the exercise of conversion rights. In this case, the Company will pay
a bond holder a cash settlement determined at the average price of one day after a holder exercises
its conversion right or the weighted average price for the following five business days. The
Company intends to sell treasury shares held in trust by the Company that corresponds to the number
of shares of common stock that would have been delivered in the absence of the 49% foreign
shareholding restrictions. The Company entered into an agreement with Credit Suisse First Boston
International to reduce the effect of fluctuation with respect to cash settlement payments more or
less than the proceeds from sales of treasury shares held in trust. Unless either previously
redeemed or converted, the notes are redeemable at 106.43% of the principal amount at maturity. 9. LONG-TERM BORROWINGS Long-term borrowings denominated in foreign currency as of December 31, 2002, 2003 and
2004 are as follows (in millions of Korean won and thousands of U.S. dollars): Final
    
    
    AnnualLender
    
    Maturity Year
    
    
    Interest Rate (%)
    
    
    2002
    
    
    2003
    
    
    2004Korea Development Bank
    
    
    2004
    
    
    3M Libor + 3.45
    
    US$
    13,434
    
    
    US$
    4,478
    
    
    US$
    Woori Bank
    
    
    2005
    
    
    Floating rate + 0.2
    
    
    6,815
    
    
    
    4,089
    
    
    
    Total in foreign currency
    
    
    
    
    
    
    
    
    
    US$
    20,249
    
    
    US$
    8,567
    
    
    US$
    Equivalent in Korean won
    
    
    
    
    
    
    
    
    
    (Won)
    24,307
    
    
    (Won)
    10,262
    
    
    (Won)
    Less portion due within one year
    
    
    
    
    
    
    
    
    
    
    (14,023
    )
    
    
    (8,629
    )
    
    
    Long-term portion
    
    
    
    
    
    
    
    
    
    (Won)
    10,284
    
    
    (Won)
    1,633
    
    
    (Won)
    
 10. SUBSCRIPTION DEPOSITS The Company receives facility guarantee deposits from customers of cellular services at
the subscription date. The Company has no obligation to pay interest on these deposits and returns
all amounts to subscribers upon termination of the subscription contract. F-34




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##### Table of Contents



Long-term subscription guarantee deposits by service type held as of December 31, 2002,
2003 and 2004 are as follows (in millions of Korean won, except deposit per subscriber amounts): Deposit perService type
    
    Subscriber
    
    
    2002
    
    
    2003
    
    
    2004Cellular
    
    (Won)
    200,000
    
    
    (Won)
    46,850
    
    
    (Won)
    44,197
    
    
    (Won)
    31,440
 The Company offers existing and new cellular subscribers the option of obtaining credit
insurance from Seoul Guarantee Insurance company (SGIC) in lieu of the facility deposit. Existing
subscribers who elect this option are refunded their subscription deposits. As a result of this
arrangement, the balance of facility guarantee deposits has been decreasing. 11. LEASES The Company and its subsidiaries lease certain machinery and equipment under capital
leases. The Company and its subsidiaries have an option to acquire the leased machinery and
equipment, free of charge, upon termination of the lease period. Depreciation expense for the years
ended December 31, 2002, 2003 and 2004 were (Won)428 million, (Won)250 million and (Won)37 million,
respectively. For the year ended December 31, 2004, all capital leases were terminated and the
Company acquired the related leased machinery free of charge. The Company and its subsidiaries leased certain machinery and equipment under an
operating lease and the related lease expenses for the years ended December 31, 2002, 2003 and 2004
were (Won)7,649 million, (Won)1,774 million and (Won)261 million, respectively. These operating
leases were terminated in 2004. 12. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES The details of monetary assets and liabilities denominated in foreign currencies (except
for bonds payable and long-term borrowings denominated in foreign currencies described in Notes 8
and 9) as of December 31, 2002, 2003 and 2004 are as follows (in millions of Korean won, thousands
of U.S. dollars, thousands of HK dollars, thousands of Japanese yen, thousands of Singaporean
dollars, thousands of Euros, thousands of Great Britain pounds, thousands of Swiss francs,
thousands of Chinese Yuan and thousands of Australian dollars): Foreign Currencies
    
    
    Korean won Equivalent2002
    
    
    2003
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004Cash and cash equivalents
    
    US$
    46,025
    
    
    US$
    24,407
    
    
    US$
    4,875
    
    
    (Won)
    55,247
    
    
    (Won)
    29,234
    
    
    (Won)
    5,088¥
    12
    
    
    ¥
    8
    
    
    ¥
    6
    
    
    
    
    
    
    
    
    
    
    
    EUR
    2
    
    
    EUR
    17
    
    
    
    
    
    
    
    3
    
    
    
    26
    
    
    
    
    
    
    GBP
    5
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    Short-term financial
instruments
    
    US$
    35,281
    
    
    US$
    31,492
    
    
    
    
    
    
    
    42,351
    
    
    
    37,721
    
    
    
    Accounts receivabletrade
    
    US$
    19,477
    
    
    US$
    8,627
    
    
    US$
    19,284
    
    
    
    23,382
    
    
    
    10,333
    
    
    
    20,129¥
    240
    
    
    SG$
    743
    
    
    
    
    
    
    
    2
    
    
    
    522
    
    
    
    Accounts receivableother
    
    US$
    9,639
    
    
    US$
    12,844
    
    
    US$
    2,989
    
    
    
    11,571
    
    
    
    15,385
    
    
    
    3,120Guarantee deposits
    
    US$
    187
    
    
    US$
    193
    
    
    US$
    142
    
    
    
    225
    
    
    
    232
    
    
    
    149
    
    
    ¥
    16,337
    
    
    ¥
    15,756
    
    
    
    
    
    
    
    183
    
    
    
    159Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Won)
    132,781
    
    
    (Won)
    93,646
    
    
    (Won)
    28,645
 F-35




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##### Table of Contents



Foreign Currencies
    
    
    Korean won Equivalent2002
    
    
    2003
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004Accounts payabletrade
    
    US$
    23,975
    
    
    US$
    15,432
    
    
    US$
    17,406
    
    
    (Won)
    28,779
    
    
    (Won)
    18,485
    
    
    (Won)
    18,169¥
    1,198,724
    
    
    ¥
    555,277
    
    
    ¥
    26,240
    
    
    
    12,141
    
    
    
    6,217
    
    
    
    266EUR
    180
    
    
    
    
    
    
    
    
    
    
    
    227
    
    
    
    
    
    
    
    Short-term borrowings
    
    US$
    32,928
    
    
    US$
    26,853
    
    
    US$
    19,392
    
    
    
    39,526
    
    
    
    32,164
    
    
    
    20,241¥
    2,603,467
    
    
    ¥
    2,255,431
    
    
    ¥
    438,499
    
    
    
    26,370
    
    
    
    25,252
    
    
    
    4,438
    
    
    EUR
    7
    
    
    EUR
    207
    
    
    
    
    
    
    
    10
    
    
    
    294
    
    
    
    
    
    
    GBP
    260
    
    
    
    
    
    
    
    
    
    
    
    522Accounts payableother
    
    US$
    37,228
    
    
    US$
    35,759
    
    
    US$
    13,539
    
    
    
    44,689
    
    
    
    42,832
    
    
    
    14,132¥
    229,641
    
    
    ¥
    20,606
    
    
    ¥
    60,678
    
    
    
    2,326
    
    
    
    231
    
    
    
    614HK$
    825
    
    
    HK$
    267
    
    
    HK$
    217
    
    
    
    127
    
    
    
    41
    
    
    
    29CNY
    61
    
    
    CNY
    140
    
    
    CNY
    1
    
    
    
    9
    
    
    
    20
    
    
    
    GBP
    1
    
    
    GBP
    304
    
    
    GBP
    118
    
    
    
    1
    
    
    
    648
    
    
    
    237SG$
    24
    
    
    SG$
    5
    
    
    SG$
    5
    
    
    
    17
    
    
    
    3
    
    
    
    3EUR
    8
    
    
    EUR
    10
    
    
    EUR
    348
    
    
    
    11
    
    
    
    15
    
    
    
    495AU$
    1
    
    
    AU$
    1
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    CHF
    4
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    Accrued expenses
    
    
    
    
    
    US$
    71
    
    
    US$
    84
    
    
    
    
    
    
    
    86
    
    
    
    88
    
    
    ¥
    1,300
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    EUR
    23
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Obligation under capital
leases including current
portion
    
    US$
    482
    
    
    US$
    101
    
    
    
    
    
    
    
    578
    
    
    
    121
    
    
    
    Total liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Won)
    154,802
    
    
    (Won)
    126,146
    
    
    (Won)
    59,528
 13. CAPITAL STOCK AND CAPITAL SURPLUS The Companys outstanding capital stock consists entirely of common stock with a par
value of (Won)500. The number of authorized, issued and outstanding common shares as of December
31, 2002, 2003 and 2004 are as follows: 2002
    
    
    2003
    
    
    2004Authorized shares
    
    
    220,000,000
    
    
    
    220,000,000
    
    
    
    220,000,000Issued shares
    
    
    89,152,670
    
    
    
    82,276,711
    
    
    
    82,276,711Outstanding shares, net of treasury stock
    
    
    79,842,063
    
    
    
    73,614,308
    
    
    
    73,614,296
 The number of authorized shares of preferred stock as of December 31, 2004 is 5,500,000
shares, none of which is outstanding as of December 31, 2004. F-36




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##### Table of Contents



Significant changes in common stock and capital surplus in 2002, 2003 and 2004 are as
follows (in millions of Korean won, except for share data): Number ofShares Issued
    
    
    Common Stock
    
    
    Capital SurplusAt January 1, 2002
    
    
    89,152,670
    
    
    (Won)
    44,576
    
    
    (Won)
    3,449,698Excess unallocated purchase price (note a)
    
    
    
    
    
    
    
    
    
    
    (647,025
    )Gain on disposal of treasury stock (note b)
    
    
    
    
    
    
    
    
    
    
    81,984Equity in capital surplus changes of affiliates
    
    
    
    
    
    
    
    
    
    
    (275
    )At December 31, 2002
    
    
    89,152,670
    
    
    
    44,576
    
    
    
    2,884,382Excess unallocated purchase price (note a)
    
    
    
    
    
    
    
    
    
    
    (230
    )Retirement of treasury stock (note c)
    
    
    (7,002,235
    )
    
    
    
    
    
    
    Issuance of common stock for the merger with SK IMT Co., Ltd. (note d)
    
    
    126,276
    
    
    
    63
    
    
    
    31,809Gain on disposal of investments in common stock of subsidiary
    
    
    
    
    
    
    
    
    
    
    58Equity in capital surplus changes of affiliates
    
    
    
    
    
    
    
    
    
    
    (4,463
    )At December 31, 2003
    
    
    82,276,711
    
    
    
    44,639
    
    
    
    2,911,556Excess unallocated purchase price (note a)
    
    
    
    
    
    
    
    
    
    
    (77
    )Considerations for conversion right (note e)
    
    
    
    
    
    
    
    
    
    
    67,279Equity in capital surplus changes of affiliates
    
    
    
    
    
    
    
    
    
    
    (10,457
    )At December 31, 2004
    
    
    82,276,711
    
    
    (Won)
    44,639
    
    
    (Won)
    2,968,301
 
 (note a)
    
    The excess unallocated purchase price of (Won)299,121 million for the additional
19.2% equity interest acquired in 2001 and (Won)647,025 million for the distribution of
2,677,653 shares of treasury stock to minority shareholders of Shinsegi Telecomm, Inc. upon
the merger dated January 13, 2002, were deducted from capital surplus, in accordance with
Korean GAAP. In addition, during the years ended December 31, 2003 and 2004, the Company paid
(Won)230 million and (Won)77 million, respectively, to certain former shareholders of Shinsegi
Telecomm, Inc. in accordance with the ruling of the court and deducted it from capital surplus
in accordance with Korean GAAP.(note b)
    
    The gain on disposal of treasury stock of (Won)81,984 million resulting from the
distribution of treasury stock to minority shareholders of Shinsegi Telecomm, Inc. upon the
merger dated January 13, 2002 was recorded as an increase in other capital surplus.(note c)
    
    The Company retired 4,457,635 shares and 2,544,600 shares of treasury stock on January 3,
2003 and August 20, 2003, respectively, and reduced unappropriated retained earnings in
accordance with the Korean Commercial Laws.(note d)
    
    The excess of acquired net assets over the par value of (Won)63 million for the
issuance of 126,276 shares of new common stock to minority shareholders of SK IMT Co., Ltd.
upon the merger dated May 1, 2003, was added to capital surplus in accordance with Korean
GAAP.(note e)
    
    The Company issued zero coupon convertible bonds in the principal amount of
US$329,450,000 at US$324,923,469 with an initial conversion price of (Won)235,625 per share of
the Companys common stock on May 27, 2004 and the considerations for conversion right of
(Won)67,279 million was added to capital surplus in accordance with Korean GAAP (See Note
2(j)). F-37




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##### Table of Contents



14. RETAINED EARNINGS Retained earnings as of December 31, 2002, 2003 and 2004 are as follows (in millions of
Korean won): 2002
    
    
    2003
    
    
    2004Appropriated
    
    (Won)
    3,379,922
    
    
    (Won)
    4,743,822
    
    
    (Won)
    4,733,936Unappropriated
    
    
    1,493,283
    
    
    
    396,089
    
    
    
    1,418,962(Won)
    4,873,205
    
    
    (Won)
    5,139,911
    
    
    (Won)
    6,152,898
 The details of appropriated retained earnings as of December 31, 2002, 2003 and 2004 are
as follows (in millions of Korean won): 2002
    
    
    2003
    
    
    2004Legal reserve
    
    (Won)
    17,200
    
    
    (Won)
    22,288
    
    
    (Won)
    22,320Reserve for improvement of financial structure
    
    
    33,000
    
    
    
    33,000
    
    
    
    33,000Reserve for business rationalization
    
    
    169,493
    
    
    
    
    
    
    
    Reserve for loss on foreign investment
    
    
    29,192
    
    
    
    
    
    
    
    Reserve for loss on disposal of treasury stock
    
    
    240,000
    
    
    
    221,197
    
    
    
    477,182Reserve for research and manpower development
    
    
    365,300
    
    
    
    559,198
    
    
    
    776,296Reserve for business expansion
    
    
    2,525,737
    
    
    
    3,908,139
    
    
    
    3,425,138(Won)
    3,379,922
    
    
    (Won)
    4,743,822
    
    
    (Won)
    4,733,936
  a.
    
    Legal Reserve The Korean Commercial Code requires the Company to appropriate as a legal reserve at
least 10% of cash dividends for each accounting period until the reserve equals 50% of outstanding
capital stock. The legal reserve may not be utilized for cash dividends, but may only be used to
offset a future deficit, if any, or may be transferred to capital stock.  b.
    
    Reserve for Improvement of Financial Structure The Financial Control Regulation for listed companies in Korea requires that at least 10%
of net income (net of accumulated deficit), and an amount equal to net gains (net of related income
taxes, if any) on the disposal of property and equipment be appropriated as a reserve for
improvement of financial structure until the ratio of stockholders equity to total assets reaches
30%. The reserve for improvement of financial structure may not be utilized for cash dividends, but
may only be used to offset a future deficit, if any, or may be transferred to capital stock.  c.
    
    Reserve for Business Rationalization Through 2001, the Tax Exemption and Reduction Control Law required that the amount of tax
benefit associated with certain tax exemptions and tax credits be appropriated as a reserve for
business rationalization. The revised Tax Exemption and Reduction Control Law no longer requires
providing the reserve for business rationalization. Thus, since 2002, the Company has transferred
the reserve for business rationalization to voluntary reserve that may be utilized for cash
dividends. F-38




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##### Table of Contents



d.
    
    Reserves for Loss on Foreign Investment, Loss on Disposal of Treasury Stock and Research
and Manpower Development Reserves for loss on foreign investment, loss on disposal of treasury stock and research
and manpower development were appropriated in order to recognize certain tax deductible benefits
through the early recognition of future expenditures. These reserves will be unappropriated from
appropriated retained earnings in accordance with the relevant tax laws. Such unappropriation will
be included in taxable income in the year of unappropriation.  e.
    
    Reserve for Business Expansion The reserve for business expansion is voluntary and was approved by the board of
directors and shareholders. 15. TREASURY STOCK Upon the issuances of stock dividends and new common stock and the merger with Shinsegi
Telecomm, Inc. and SK IMT Co., Ltd., the Company acquired fractional shares totaling 77,958 shares
for (Won)6,108 million through 2003. In addition, the Company acquired 7,452,810 shares of treasury
stock in the market or through the trust funds for (Won)1,771,507 million through 2003 in order to
stabilize the market price of its stock. Under the Mutual Agreement on Stock Exchange between the Company and KT Corporation, on
December 30, 2002 and January 10, 2003, the Company acquired 8,266,923 shares of the Companys
common stock from KT Corporation for (Won)1,853,643 million. On January 13, 2002, the Company merged with Shinsegi Telecomm, Inc. and distributed
2,677,653 shares of treasury stock to minority shareholders of Shinsegi Telecomm, Inc., of which
the cost was (Won)584,646 million. On January 6, 2003, the Company retired 4,457,635 shares of treasury stock that were
purchased from KT Corporation as mentioned above in accordance with a resolution of the board of
directors dated December 26, 2002 and reduced unappropriated retained earnings by (Won)1,008,882
million including the tax effect of (Won)9,373 million, in accordance with the Korean Commercial
Laws. On June 30, 2003, in accordance with a resolution of the board of directors dated June
24, 2003, the Company announced a stock repurchase program to acquire 2,544,600 shares of common
stock in the market in order to enhance stockholders interest and to stabilize the stock price.
Pursuant to the program, the Company acquired a total of 2,544,600 shares of Companys outstanding
common stock for (Won)525,174 million during the period from June 30, 2003 to August 11, 2003 and
retired such treasury shares on August 20, 2003, which reduced the unappropriated retained earnings
by (Won)537,138 million including the tax effect of (Won)11,964 million, in accordance with Korean
Commercial Laws. On February 20, 2004, the Company additionally acquired fractional shares totaling 12
shares for (Won)2 million which resulted from the merger with SK IMT Co., Ltd. 16. STOCK OPTIONS On March 17, 2000, March 16, 2001 and March 8, 2002, in accordance with the approval of
its stockholders and its board of directors, the Company granted stock options to its management,
representing 17,800 shares at an exercise price of (Won)424,000 per share, 43,290 shares at an
exercise price of (Won)211,000 per share and 65,730 shares at an exercise price of (Won)267,000 per
share. The stock options will become exercisable after three years from the date of grant and shall
be exercisable within two years from the first exercisable date. If the employees leave the Company
within three years after the grant of stock options, the Company may cancel the stock options
awarded. Upon exercise of stock options, the Company will issue its common stock. During the year
ended December 31, 2004, stock options representing 530 shares, of which total compensation cost
was (Won)3 million, were forfeited. During the year ended December 31, 2002 and 2003, there was no
forfeited or expired stock options. F-39




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##### Table of Contents



Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Compensation
    
    
    Stock Option in CapitalCompensation
    
    
    Recognized Compensation Cost
    
    
    Cost to be
    
    
    AdjustmentGrant Date
    
    Cost
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    Recognized
    
    
    2002
    
    
    2003
    
    
    2004March 17, 2000
    
    (Won) 1,533
    
    
    (Won)511
    
    
    (Won)128
    
    
    (Won)
    
    
    (Won) 
    
    
    (Won)1,405
    
    
    (Won)1,533
    
    
    (Won)1,533March 16, 2001
    
    
    234
    
    
    
    79
    
    
    
    79
    
    
    
    10
    
    
    
    
    
    
    
    145
    
    
    
    224
    
    
    
    234March 8, 2002
    
    
    3,246
    
    
    
    902
    
    
    
    1,082
    
    
    
    1,082
    
    
    
    180
    
    
    
    902
    
    
    
    1,984
    
    
    
    3,066(Won) 5,013
    
    
    (Won)1,492
    
    
    (Won)1,289
    
    
    (Won)1,092
    
    
    (Won) 180
    
    
    (Won)2,452
    
    
    (Won)3,741
    
    
    (Won)4,833
  2002
    
    
    2003
    
    
    2004Pro forma ordinary income (in millions of Koran won)
    
    (Won)2,215,401
    
    (Won)2,751,221
    
    (Won)2,121,238Pro forma ordinary income per common shares
    
    
    17,603
    
    
    
    26,145
    
    
    
    20,234Pro forma net income (in millions of Korean won)
    
    
    1,483,784
    
    
    
    1,962,986
    
    
    
    1,489,542Pro forma net income per common shares
    
    
    17,607
    
    
    
    26,145
    
    
    
    20,234
 17. INCOME TAXES
  2002
    
    
    2003
    
    
    2004Currently payable
    
    (Won)616,544
    
    (Won)668,180
    
    (Won)551,405Deferred
    
    
    81,963
    
    
    
    120,879
    
    
    
    78,356Recorded income taxes
    
    (Won)698,507
    
    (Won)789,059
    
    (Won)629,761
 F-40




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##### Table of Contents



2002
    
    
    2003
    
    
    2004Income before income taxes
    
    (Won)2,218,768
    
    (Won)2,754,336
    
    (Won)2,123,175Additions (deductions):Allowance for bad debts
    
    
    (66,940
    )
    
    
    2,081
    
    
    
    (3,406
    )Loss on impairment of investment securities
    
    
    68,882
    
    
    
    (53,161
    )
    
    
    7,866Accrued interest income
    
    
    (2,107
    )
    
    
    (3,096
    )
    
    
    (2,133
    )Foreign exchange loss
    
    
    (8,211
    )
    
    
    (8,449
    )
    
    
    (2,815
    )Depreciation
    
    
    (3,803
    )
    
    
    (34,070
    )
    
    
    (162,670
    )Equity in losses (earnings) of affiliates
    
    
    (813
    )
    
    
    6,975
    
    
    
    11,954Amortization of goodwill
    
    
    128,662
    
    
    
    128,662
    
    
    
    128,662Loss on impairment of tangible assets and intangible assets
    
    
    8,212
    
    
    
    22,459
    
    
    
    Tax-free reserves
    
    
    (175,096
    )
    
    
    (468,775
    )
    
    
    (45,765
    )Net operating loss carryforwards
    
    
    (7,060
    )
    
    
    
    
    
    
    (14,750
    )Other
    
    
    101,950
    
    
    
    135,324
    
    
    
    54,373Net taxable income
    
    (Won)2,262,444
    
    (Won)2,482,286
    
    (Won)2,094,493Corporate income taxes at statutory Korean corporate income tax rates of 27%
    
    (Won)612,890
    
    (Won)670,144
    
    (Won)566,280Tax credit for investments, technology and human resource development and others
    
    
    (62,974
    )
    
    
    (75,149
    )
    
    
    (77,490
    )Corporate income taxes payable
    
    
    549,916
    
    
    
    594,995
    
    
    
    488,790Resident surtax payable
    
    
    54,992
    
    
    
    59,500
    
    
    
    48,879Special surtax for agriculture and fishery industries and other
    
    
    11,636
    
    
    
    13,685
    
    
    
    13,736Total income taxes currently payable
    
    (Won)616,544
    
    (Won)668,180
    
    (Won)551,405
 F-41




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##### Table of Contents



2002
    
    
    2003
    
    
    2004Income taxes at statutory income tax rate of 27%
    
    
    (Won)599,067
    
    
    
    (Won)743,671
    
    
    
    (Won)573,257Resident surtax payable
    
    
    59,907
    
    
    
    74,367
    
    
    
    57,326Tax credit for investments, technology and human resource development and others
    
    
    (37,309
    )
    
    
    (83,826
    )
    
    
    (89,080
    )Special surtax for agriculture and fishery industries and other
    
    
    11,636
    
    
    
    13,685
    
    
    
    13,736Goodwill amortization not deductible for tax purpose
    
    
    38,213
    
    
    
    38,213
    
    
    
    35,382Undistributed earnings (unrecognized deficit) of subsidiaries
    
    
    12,295
    
    
    
    (5,909
    )
    
    
    11,011Effect of the change in income tax rate (note a)
    
    
    
    
    
    
    (20,204
    )
    
    
    Other permanent differences
    
    
    1,520
    
    
    
    15,327
    
    
    
    28,581Increase (decrease) in valuation allowance
    
    
    13,178
    
    
    
    13,735
    
    
    
    (452
    )Recorded income taxes
    
    
    (Won)698,507
    
    
    
    (Won)789,059
    
    
    
    (Won)629,761Effective tax rate
    
    
    31.48
    %
    
    
    28.65
    %
    
    
    29.66
    %
 
 (note a)
    
    Pursuant to a revision in the Korean Corporate Income Tax Law during 2003, statutory
corporate income tax rate including resident surtax is changed from 29.5% to 27.5%, effective
January 1, 2005. Such change in statutory corporate income tax rate resulted in a decrease in
deferred tax liabilities as of December 31, 2003 by (Won)20,204 million. F-42




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##### Table of Contents



2002
    
    
    2003
    
    
    2004Allowance for doubtful accounts
    
    
    (Won)23,251
    
    
    
    (Won)22,039
    
    
    
    (Won)19,649Write-off of doubtful accounts
    
    
    9,715
    
    
    
    9,587
    
    
    
    9,764Trading securities
    
    
    
    
    
    
    1
    
    
    
    (561
    )Accrued interest income
    
    
    (2,902
    )
    
    
    (2,026
    )
    
    
    (2,463
    )Depreciation
    
    
    12,609
    
    
    
    3,712
    
    
    
    (40,220
    )Loss on disposition of properties
    
    
    
    
    
    
    
    
    
    
    11,480Loss on impairment of investment securities
    
    
    48,588
    
    
    
    30,757
    
    
    
    32,851Foreign currency translation loss
    
    
    3,345
    
    
    
    774
    
    
    
    Equity in losses of affiliates
    
    
    (5,090
    )
    
    
    (6,593
    )
    
    
    (12,671
    )Unrecognized deficit (undistributed earnings) of subsidiaries
    
    
    (9,012
    )
    
    
    (3,364
    )
    
    
    (9,434
    )Tax free reserve for research and manpower development
    
    
    (133,920
    )
    
    
    (182,518
    )
    
    
    (195,103
    )Tax free reserve for loss on disposal of treasury stock
    
    
    (64,775
    )
    
    
    (130,373
    )
    
    
    (130,372
    )Tax credit carryforwards
    
    
    
    
    
    
    1,162
    
    
    
    5,003Net operating loss carryforwards
    
    
    17,290
    
    
    
    29,575
    
    
    
    25,371Other
    
    
    20,851
    
    
    
    39,693
    
    
    
    18,510Total deferred tax assets (liabilities)
    
    
    (80,050
    )
    
    
    (187,574
    )
    
    
    (268,196
    )Valuation allowance for:Depreciation
    
    
    (1,081
    )
    
    
    
    
    
    
    (5,321
    )Net operating loss carryforwards
    
    
    (17,290
    )
    
    
    (29,575
    )
    
    
    (24,980
    )Other
    
    
    (6,349
    )
    
    
    (8,880
    )
    
    
    (7,555
    )Net deferred tax assets (liabilities)
    
    
    (Won)(104,770
    )
    
    
    (Won)(226,029
    )
    
    
    (Won)(306,052
    )
  Net Operating Loss
    
    
    Tax CreditYear Ending December 31,
    
    Carryforwards
    
    
    Carryforwards2005
    
    
    (Won) 753
    
    
    
    (Won) 2006
    
    
    18,567
    
    
    
    2007
    
    
    24,611
    
    
    
    2008
    
    
    45,373
    
    
    
    2009
    
    
    2,953
    
    
    
    5,003Total
    
    
    (Won) 92,257
    
    
    
    (Won) 5,003
 F-43




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##### Table of Contents



18. INCOME PER SHARE
  2002
    
    
    2003
    
    
    2004Net income
    
    
    (Won)1,487,151
    
    
    
    (Won)1,966,100
    
    
    
    (Won)1,491,479Weighted average number of common shares outstanding
    
    
    84,270,450
    
    
    
    75,078,219
    
    
    
    73,614,297Net income per share
    
    
    (Won) 17,647
    
    
    
    (Won) 26,187
    
    
    
    (Won) 20,261Ordinary income per share
 2002
    
    
    2003
    
    
    2004Net income
    
    
    (Won)1,487,151
    
    
    
    (Won)1,966,100
    
    
    
    (Won)1,491,479Extraordinary gain
    
    
    (504
    )
    
    
    
    
    
    
    Income tax effect of extraordinary gain
    
    
    149
    
    
    
    
    
    
    
    Ordinary income
    
    
    1,486,796
    
    
    
    1,966,100
    
    
    
    1,491,479Weighted average number of common shares outstanding
    
    
    84,270,450
    
    
    
    75,078,219
    
    
    
    73,614,297Ordinary income per share
    
    
    (Won) 17,643
    
    
    
    (Won) 26,187
    
    
    
    (Won) 20,261
  Weighted
    
    
    WeightedNumber of
    
    
    Number
    
    
    Number ofDate
    
    
    Shares
    
    
    of Days
    
    
    SharesFor 2002:At January 1, 2002
    
    
    
    
    
    
    89,152,670
    
    
    
    365/365
    
    
    
    89,152,670Treasury stock, at the beginning
    
    
    
    
    
    
    (6,159,266
    )
    
    
    365/365
    
    
    
    (6,159,266
    )Distribution of treasury stock for merger with Shinsegi
    
    Jan. 13
    
    
    2,673,474
    
    
    
    349/365
    
    
    
    2,556,280Treasury stock
    
    (note a)
    
    
    (5,824,815
    )
    
    
    
    
    
    
    (1,279,234
    )Total
    
    
    
    
    
    
    79,842,063
    
    
    
    
    
    
    
    84,270,450
 F-44




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##### Table of Contents



Weighted
    
    
    WeightedNumber of
    
    
    Number
    
    
    Number ofDate
    
    
    Shares
    
    
    of Days
    
    
    SharesFor 2003:At January 1, 2003
    
    
    
    
    
    
    89,152,670
    
    
    
    365/365
    
    
    
    89,152,670Treasury stock, at the beginning
    
    
    
    
    
    
    (9,310,607
    )
    
    
    365/365
    
    
    
    (9,310,607
    )Purchase of treasury stock
    
    Jan. 10
    
    
    (3,809,288
    )
    
    
    356/365
    
    
    
    (3,715,360
    )Purchase of fractional shares
    
    Feb. 3
    
    
    (52
    )
    
    
    332/365
    
    
    
    (47
    )Purchase of fractional shares
    
    May 1
    
    
    (91
    )
    
    
    233/365
    
    
    
    (58
    )Issuance of common stock
    
    May 1
    
    
    126,276
    
    
    
    233/365
    
    
    
    80,609Treasury stock
    
    (note a)
    
    
    (2,544,600
    )
    
    
    
    
    
    
    (1,128,988
    )Total
    
    
    
    
    
    
    73,614,308
    
    
    
    
    
    
    
    75,078,219For 2004:At January 1, 2004
    
    
    
    
    
    
    82,276,711
    
    
    
    366/366
    
    
    
    82,276,711Treasury stock, at the beginning
    
    
    
    
    
    
    (8,662,403
    )
    
    
    366/366
    
    
    
    (8,662,403
    )Purchase of fractional shares
    
    Feb. 20
    
    
    (12
    )
    
    
    316/366
    
    
    
    (11
    )Total
    
    
    
    
    
    
    73,614,296
    
    
    
    
    
    
    
    73,614,297
 
 (note a)
    
    Such treasury stock was acquired or disposed of on several different dates in 2002
and 2003, and the weighted number of shares was calculated according to each transaction date.  Diluted net income per share 2002
    
    
    2003
    
    
    2004Adjusted net income
    
    
    (Won)1,487,230
    
    
    
    (Won)1,966,100
    
    
    
    (Won)1,499,026Adjusted weighted average number of common shares outstanding (note b)
    
    
    84,277,598
    
    
    
    75,078,219
    
    
    
    74,596,777Diluted net income per share
    
    
    (Won)17,647
    
    
    
    (Won)26,187
    
    
    
    (Won)20,095
 Diluted ordinary income per share 2002
    
    
    2003
    
    
    2004Adjusted ordinary income
    
    
    (Won)1,486,875
    
    
    
    (Won)1,966,100
    
    
    
    (Won)1,499,026Adjusted weighted average number of common shares outstanding (note b)
    
    
    84,277,598
    
    
    
    75,078,219
    
    
    
    74,596,777Diluted ordinary income per share
    
    
    (Won)17,643
    
    
    
    (Won)26,187
    
    
    
    (Won)20,095
 
 (note b)
    
    In 2002 and 2004, for the calculation of diluted income per share, the weighted
average number of common shares outstanding is adjusted for dilutive effects of assuming the
exercise of stock options on January 1, 2002 and the conversion of and convertible bonds on
May 27, 2004 (see Note 8), respectively. The weighted average number of common shares
outstanding for basic and diluted earnings per share calculations are the same for the year
ended December 31, 2003 as there is no item that dilutes the earnings per share for that year. F-45




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##### Table of Contents



Average WeightedNet Income
    
    
    Number of Shares
    
    
    Per-share Amount(In Millions ofKorean Won)
    
    
    
    
    
    
    (In Korean Won)For 2002Basic net income per share
    
    
    (Won)1,487,151
    
    
    
    84,270,450
    
    
    (Won) 17,647Effect of stock option
    
    
    79
    
    
    
    7,148Diluted net income per share
    
    
    (Won)1,487,230
    
    
    
    84,277,598
    
    
    (Won) 17,647For 2004Basic net income per share
    
    
    (Won)1,491,479
    
    
    
    73,614,297
    
    
    (Won) 20,261Effect of convertible bonds
    
    
    7,547
    
    
    
    982,480Diluted net income per share
    
    
    (Won)1,499,026
    
    
    
    74,596,777
    
    
    (Won) 20,095Diluted ordinary income per share
 Average WeightedNet Income
    
    
    Number of Shares
    
    
    Per-share Amount(In Millions ofKorean Won)
    
    
    
    
    
    
    (In Korean Won)For 2002Basic ordinary income per share
    
    
    (Won)1,486,796
    
    
    
    84,270,450
    
    
    (Won) 17,643Effect of stock option
    
    
    79
    
    
    
    7,148Diluted ordinary income per share
    
    
    (Won)1,486,875
    
    
    
    84,277,598
    
    
    (Won) 17,643For 2004Basic ordinary income per share
    
    
    (Won)1,491,479
    
    
    
    73,614,297
    
    
    (Won) 20,261Effect of convertible bonds
    
    
    7,547
    
    
    
    982,480Diluted ordinary income per share
    
    
    (Won)1,499,026
    
    
    
    74,596,777
    
    
    (Won) 20,095
 F-46




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19. DIVIDEND DISCLOSURE
  Number of
    
    
    Face
    
    
    DividendFiscal Year
    
    
    Dividend Type
    
    Shares Outstanding
    
    
    Value
    
    
    Ratio
    
    
    Dividends2002
    
    
    Cash dividends
    
    84,299,698
    (note)
    
    
    (Won)500
    
    
    360
    %
    
    
    (Won)151,7392003
    
    
    Cash dividends
    
    73,614,308
    
    
    
    (Won)500
    
    
    1,100
    %
    
    
    (Won)404,8782004
    
    
    Cash dividends (interim)
    
    73,614,308
    
    
    
    (Won)500
    
    
    200
    %
    
    
    (Won)73,614Cash dividends (year-end)
    
    73,614,296
    
    
    
    (Won)500
    
    
    1,860
    %
    
    
    (Won)684,613Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Won)758,227
 
 (note)
    
    4,457,635 shares of the Companys common stock acquired through the stock exchange with
KT Corporation on December 30, 2002 were included in the number of shares outstanding, as the
dividend right date was December 27, 2002.  2002
    
    
    2003
    
    
    2004Dividends
    
    
    (Won) 151,739
    
    
    
    (Won) 404,878
    
    
    
    (Won) 758,227Net income
    
    
    1,487,151
    
    
    
    1,966,100
    
    
    
    1,491,479Dividends payout ratio
    
    
    10.20
    %
    
    
    20.59
    %
    
    
    50.84
    %
  2002
    
    
    2003
    
    
    2004Dividend per share
    
    
    (Won) 1,800
    
    
    
    (Won) 5,500
    
    
    
    (Won) 10,300Stock price at the year-end
    
    
    229,000
    
    
    
    199,000
    
    
    
    197,000Dividends yield ratio
    
    
    0.79
    %
    
    
    2.76
    %
    
    
    5.23
    %
 20. COMMITMENTS AND CONTINGENCIES
     F-47




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21. INSURANCE
  Asset
    
    Risk
    
    Book Value
    
    CoverageInventories and property and equipment
    
    Fire and
    
    
    
    US$            74,815comprehensive liability
    
    (Won)6,606,428
    
    (Won)12,425,032
 F-48




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22. TRANSACTIONS WITH AFFILIATED COMPANIES
  Description
    
    2002
    
    
    2003
    
    
    2004TransactionsSK Engineering & Construction Co., Ltd.:Construction (note a)
    
    
    289,311
    
    
    
    324,260
    
    
    
    419,871Commissions paid and other expense
    
    
    23,981
    
    
    
    7,662
    
    
    
    6,148Commission income and other income
    
    
    678
    
    
    
    776
    
    
    
    1,348SK Networks (formerly known as SK Global):Purchases of property and equipment
    
    
    11,055
    
    
    
    3,853
    
    
    
    3,144Commissions paid, leased line and other expense
    
    
    83,234
    
    
    
    214,101
    
    
    
    411,053Sales of handsets and other income
    
    
    383,138
    
    
    
    491,978
    
    
    
    1,177,249SK Corporation:Purchases of property and equipment
    
    
    52
    
    
    
    3,831
    
    
    
    4,071Commissions paid and other expense
    
    
    37,249
    
    
    
    35,612
    
    
    
    55,921Commission income and other income
    
    
    3,201
    
    
    
    5,370
    
    
    
    8,826SK Life Insurance Co., Ltd.:Purchases of property and equipment
    
    
    
    
    
    
    1,570
    
    
    
    29,959Commissions paid and other expenses
    
    
    
    
    
    
    1,637
    
    
    
    1,630Commission income and other income
    
    
    
    
    
    
    761
    
    
    
    8,833Kyocera Corp.:Purchase of raw materials and other
    
    
    2,807
    
    
    
    7,143
    
    
    
    344Commissions paid and other expenses
    
    
    
    
    
    
    59
    
    
    
    Commission income and other income
    
    
    66,088
    
    
    
    14,075
    
    
    
    SK Group Japan:Purchase of raw materials for handsets and other expenses
    
    
    9,784
    
    
    
    5,292
    
    
    
    SK Telesys:Purchases of property and equipment
    
    
    187,205
    
    
    
    188,111
    
    
    
    188,822Commissions paid and other expenses
    
    
    1,519
    
    
    
    1,717
    
    
    
    3,102Commission income and other income
    
    
    290
    
    
    
    385
    
    
    
    879SKC:Purchases of inventories
    
    
    17,260
    
    
    
    204,694
    
    
    
    899,260Disposal of inventories and other
    
    
    50,341
    
    
    
    18
    
    
    
    Commissions paid and other expenses
    
    
    
    
    
    
    3,120
    
    
    
    2,192Commission income and other income
    
    
    
    
    
    
    747
    
    
    
    584
 Description
    
    2002
    
    
    2003
    
    
    2004Innoace:Purchases of property and equipment
    
    
    40,884
    
    
    
    35,225
    
    
    
    23,776Commissions paid and other expenses
    
    
    9,454
    
    
    
    314
    
    
    
    4,337Commission income and other income
    
    
    217
    
    
    
    8,969
    
    
    
    296
 F-49




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Description
    
    2002
    
    
    2003
    
    
    2004WiderThan Co., Ltd.:Purchases of property and equipment
    
    
    9,124
    
    
    
    22,643
    
    
    
    3,780Commissions paid and other expenses
    
    
    24,218
    
    
    
    49,939
    
    
    
    82,380Commission income and other income
    
    
    
    
    
    
    665
    
    
    
    2,216SK C&C Co., Ltd.:Purchases of property and equipment
    
    
    197,250
    
    
    
    182,774
    
    
    
    130,243Commissions paid and other expenses (note b)
    
    
    231,472
    
    
    
    284,319
    
    
    
    295,562Commission income and other income
    
    
    6,691
    
    
    
    8,200
    
    
    
    7,918
 F-50




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##### Table of Contents



Description
    
    2002
    
    
    2003
    
    
    2004BalancesSK Engineering & Construction Co., Ltd.:Accounts receivable
    
    
    241
    
    
    
    92
    
    
    
    76Accounts payable
    
    
    65,773
    
    
    
    63,442
    
    
    
    135,213Guarantee deposits received
    
    
    130
    
    
    
    90
    
    
    
    408SK Networks (formerly known as SK Global):Accounts receivable
    
    
    84,970
    
    
    
    107,782
    
    
    
    108,757Guarantee deposits
    
    
    113
    
    
    
    113
    
    
    
    113Accounts payable
    
    
    14,792
    
    
    
    63,641
    
    
    
    20,047Guarantee deposits received
    
    
    255
    
    
    
    719
    
    
    
    955SK Corporation:Accounts receivable
    
    
    985
    
    
    
    1,571
    
    
    
    4,843Guarantee deposits (note c)
    
    
    79,611
    
    
    
    103,720
    
    
    
    103,720Accounts payable
    
    
    11,654
    
    
    
    2,911
    
    
    
    20,165Guarantee deposits received
    
    
    9,885
    
    
    
    10,194
    
    
    
    10,194SK Life Insurance Co., Ltd.:Deposits for severance indemnities
    
    
    58,057
    
    
    
    63,992
    
    
    
    73,558Accounts receivable
    
    
    117
    
    
    
    1,119
    
    
    
    1,100Guarantee deposits
    
    
    60
    
    
    
    60
    
    
    
    60Guarantee deposits received
    
    
    767
    
    
    
    338
    
    
    
    821Kyocera Corp.:Accounts receivable
    
    
    12,094
    
    
    
    
    
    
    
    Accounts payable
    
    
    63
    
    
    
    
    
    
    
    SK Group Japan:Accounts payable
    
    
    1,557
    
    
    
    
    
    
    
    SK Telesys:Accounts receivable
    
    
    5
    
    
    
    50
    
    
    
    53Accounts payable
    
    
    60,834
    
    
    
    33,904
    
    
    
    51,954SKC:Accounts receivable
    
    
    70,464
    
    
    
    53,680
    
    
    
    15,549Guarantee deposits
    
    
    
    
    
    
    
    
    
    
    10,266Accounts payable
    
    
    2,928
    
    
    
    93,383
    
    
    
    115,839Innoace:Accounts payable
    
    
    26,806
    
    
    
    25,640
    
    
    
    15,199Guarantee deposits received
    
    
    2,138
    
    
    
    1,069
    
    
    
    2,138
 Description
    
    2002
    
    
    2003
    
    
    2004WiderThan Co., Ltd.Accounts receivable
    
    
    
    
    
    
    30
    
    
    
    102Accounts payable
    
    
    8,296
    
    
    
    9,762
    
    
    
    9,847
 F-51




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##### Table of Contents



Description
    
    2002
    
    
    2003
    
    
    2004SK C&C Co., Ltd.:Accounts receivable
    
    
    287
    
    
    
    245
    
    
    
    480Accounts payable
    
    
    116,235
    
    
    
    72,715
    
    
    
    77,871Guarantee deposits received
    
    
    284
    
    
    
    346
    
    
    
    346
 
 (note a)
    
    The Company is a party to several contracts with SK Engineering and Construction Co.,
Ltd. related to the construction of its new corporate headquarters in Ulchiro 2-ga,
Chongro-gu, Seoul. Construction of its new headquarters was completed at the end of 2004. The
total payment to SK Engineering & Construction Co., Ltd. for the demolition of existing
buildings on the site and construction of the new building was (Won)209 billion.(note b)
    
    The Company and certain subsidiaries are party to an agreement with SK C&C Co., Ltd.,
pursuant to which SK C&C Co., Ltd. provides them with information technology services, dated
as of December 28, 1998 and amended as of November 1, 1999. This agreement will expire on
December 31, 2009, but may be terminated by the Company and certain subsidiaries without cause
on a six months notice. The agreement provides that the parties will agree annually on the
specific services to be provided and the monthly fees to be paid by the Company and certain
subsidiaries. The Company and certain subsidiaries also enter into agreements with SK C&C Co.,
Ltd. from time to time for specific information technology-related projects.(note c)
    
    On December 19, 2000, the Company entered into an agreement with SK Corporation for the
sale and leaseback of the Companys head office with the lease period from December 19, 2000
to March 31, 2004. Under the lease agreement, in January 2001 the Company deposited refundable
leasehold key money of (Won)80,113 million and, as a result there will be no rent payment for
the remaining lease period. On January 30, 2003, the Company prolonged the lease term to
February 28, 2005 and deposited additional refundable leasehold key money of (Won)20,027
million. In addition, in December 2003, the Company deposited additional refundable leasehold
key money of (Won)3,580 million. As a result, the refundable leasehold key money to SK
Corporation as of December 31, 2004 totaled (Won)103,720 million. 23. DERIVATIVE INSTRUMENTS
    F-52




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Fair ValueDesignatedDuration of
    
    as Cash
    
    NotType
    
    Hedged Item
    
    Face Amount
    
    Contract
    
    Flow Hedge
    
    DesignatedFix-to-fixed cross currency swap
    
    Unguaranteed US dollar
denominated bonds
    
    US$ 300,000
    
    March 23, 2004
April 1, 2011
    
    (Won)80,953
    
    
    (Won) Fix-to-fixed cross currency swap
    
    Unguaranteed US dollar
denominated convertible bonds
    
    US$ 100,000
    
    May 27, 2004
May 27, 2009
    
    
    
    
    15,790
  24. MERGER WITH SK IMT CO., LTD.
  25. MERGER WITH CYWORLD CO., LTD.
  F-53




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##### Table of Contents



Aug. 1, 2003
    
    
    Dec. 31, 2002(Condensed balance sheets)Current assets
    
    
    (Won) 1,200
    
    
    
    (Won) 129Non-current assets
    
    
    615
    
    
    
    1,175Total assets
    
    
    (Won) 1,815
    
    
    
    (Won) 1,304Current liabilities
    
    
    (Won) 1,586
    
    
    
    (Won) 850Long-term liabilities
    
    
    77
    
    
    
    432Total liabilities
    
    
    1,663
    
    
    
    1,282Common stock
    
    
    1,160
    
    
    
    1,160Capital surplus
    
    
    4,208
    
    
    
    4,208Deficit
    
    
    (5,216
    )
    
    
    (5,346
    )Total equity
    
    
    152
    
    
    
    22Total liabilities and stockholders equity
    
    
    (Won) 1,815
    
    
    
    (Won) 1,304
 Period fromJan. 1, 2003 to
    
    
    Year endedJul. 31, 2003
    
    
    Dec. 31, 2002(Condensed statements of operations)Operating revenue
    
    
    (Won) 1,930
    
    
    
    (Won) 1,823Operating expenses
    
    
    (2,244
    )
    
    
    (2,694
    )Operating loss
    
    
    (314
    )
    
    
    (871
    )Other income
    
    
    606
    
    
    
    37Other expenses
    
    
    (163
    )
    
    
    (721
    )Net income (loss)
    
    
    (Won) 129
    
    
    
    (Won) (1,555
    )
  Fair value of net assets merged
    
    
    
    
    
    
    (Won) 152Merger costFair value of common stock issued
    
    
    (Won)8,429Direct costs related to the merger (note)
    
    
    1,097
    
    
    
    9,526Goodwill
    
    
    
    
    
    
    (Won)9,374
 
 (note)
    
    The direct costs related to the merger are the liquidation income tax of (Won)1,067
million paid for Cyworld Co., Ltd., and service fees of (Won)30 million related to the merger.  F-54




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##### Table of Contents



26. ACQUISITION OF AND MERGER WITH SHINSEGI TELECOMM, INC.
    In Millions ofKorean WonFair value of assets acquired
    
    
    (Won) 1,183,633Goodwill
    
    
    2,560,690Elimination of investment in unconsolidated affiliate
    
    
    (1,067,180
    )Assumed liabilities
    
    
    (1,018,710
    )Acquisition cost after adding incidental costs of (Won)1,085 million
    
    
    (Won) 1,658,433
   27. LOSS ON IMPAIRMENT OF IDLE NETWORK EQUIPMENT OF SHINSEGI TELECOMM, INC.
  F-55




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##### Table of Contents



28. NETWORK INTERCONNECTION CHARGES
   29. SUBSEQUENT EVENT
 a. Acquisition of WiBro License
  b. Agreement for Establishing SK-EarthLink, a Joint Venture Company in the U.S.
  c. Issuance of unguaranteed domestic bonds
  d. Resolution to dispose of the Companys investments in SK Teletech Co., Ltd.
  F-56




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##### Table of Contents



e. Fine for Providing Handset subsidies
  30. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
  a. Deferred Income Taxes (see Note 2)
   b. Deferred Charges (see Note 2)
  c. Leases
  d. Marketable Securities and Investments Securities (see Note 2)
  F-57




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##### Table of Contents




    
    Debt securities that the Company has the positive intent and ability to hold to maturity
are classified as held-to-maturity securities and reported at amortized cost.
    
    Debt and equity securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading securities and reported at fair
value, with unrealized gains and losses included in income.
    
    Debt and equity securities not classified as either held-to-maturity securities or
trading securities are classified as available-for-sale securities and reported at fair
value, with unrealized gains and losses excluded from income and reported in other
comprehensive income.
   Cost
    
    
    Gross
    
    
    Gross(Amortized
    
    
    Unrealized
    
    
    UnrealizedCost)
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAt December 31, 2002:Debt securities
    
    (Won)754,219
    
    (Won)
    
    (Won)
    
    (Won)754,219At December 31, 2003:Debt securities
    
    (Won)895,401
    
    (Won)
    
    (Won)2,184
    
    (Won)893,217At December 31, 2004:Equity securities
    
    (Won)450
    
    (Won)
    
    (Won)82
    
    (Won)368Debt securities
    
    
    652,372
    
    
    
    2,039
    
    
    
    
    
    
    
    654,411Total
    
    (Won)652,822
    
    (Won)2,039
    
    (Won)82
    
    (Won)654,779
 F-58




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##### Table of Contents



Gross
    
    
    GrossCost
    
    
    Unrealized
    
    
    Unrealized
    
    
    Impairment(Amortized Cost)
    
    
    Gains
    
    
    Losses
    
    
    Losses
    
    
    Fair ValueAt December 31, 2002:Equity securities
    
    (Won)938,975
    
    (Won)1,522
    
    (Won)3,852
    
    (Won)146,284
    
    (Won)790,361Debt securities
    
    
    62,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,500(Won)1,001,475
    
    (Won)1,522
    
    (Won)3,852
    
    (Won)146,284
    
    (Won)852,861At December 31, 2003:Equity securities
    
    (Won)427,472
    
    (Won)73,290
    
    (Won)6,608
    
    (Won)55,469
    
    (Won)438,685Debt securities
    
    
    64,315
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,315(Won)491,787
    
    (Won)73,290
    
    (Won)6,608
    
    (Won)55,469
    
    (Won)503,000At December 31, 2004:Equity securities
    
    (Won)468,666
    
    (Won)137,621
    
    (Won)
    
    (Won)63,902
    
    
    542,385Debt securities
    
    
    65,957
    
    
    
    
    
    
    
    
    
    
    
    10,655
    
    
    
    55,302(Won)534,623
    
    (Won)137,621
    
    (Won)
    
    (Won)74,557
    
    (Won)597,687
   e. Impairment of Investment Securities and Recoveries
  F-59




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##### Table of Contents



f. Comprehensive Income
  g. Business Combinations and Intangible Assets
     h. Determination of Acquisition Cost of Equity Interest in Subsidiary
  F-60




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##### Table of Contents



i. Additional Equity Investment in Subsidiaries
  j. Capitalization of Foreign Exchange Losses (or Gains) and Interest Expenses
   k. Nonrefundable Activation Fees
   l. Gain or Loss on Disposal of Subsidiarys Stock
  m. Employee Stock Option Compensation Plan
   F-61




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##### Table of Contents



n. Loans Receivable for Stock Issued to Employee
  o. Discount on Leasehold Deposits
  p. Asset Securitization Transactions
  
    
    The transferred assets have been isolated from the transferor and put beyond the reach
of the transferor, or any consolidated affiliated of the transferor, and their creditors
even in the event of bankruptcy or receivership of the transferor or any consolidated
affiliate.
 
    
    The transferee is a qualifying special-purpose entity (QSPE) and each holder of its
beneficial interests (including both debt and equity securities) has the right to pledge,
or the right to exchange its interests. If the issuing vehicle is not a QSPE, then sale
accounting is only permitted if the issuing vehicle itself has the right to pledge or the
right to exchange the transferred assets.
 
    
    The transferor does not effectively maintain control over the transferred assets either
through;
     q. Considerations for conversion right
  F-62




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##### Table of Contents



r. Currency Swap
  s. Foreign Currency Translation
  t. Presentation of Minority Interest as a Component of Shareholders Equity
  F-63




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##### Table of Contents



Year Ended December 31,2002
    
    
    2003
    
    
    2004Net income based on Korean GAAP
    
    (Won)1,487,151
    

    
    (Won)1,966,100
    

    
    (Won)1,491,479Adjustments:Deferred income tax adjustments due to
difference in accounting principles
    
    
    (8,481
    )
    
    
    (7,342
    )
    
    
    (3,827
    )Tax effect of the reconciling items
    
    
    121,976
    
    
    
    (15,036
    )
    
    
    22,515Deferred charges
    
    
    1,318
    
    
    
    2,660
    
    
    
    (60
    )Capital leases
    
    
    454
    
    
    
    (906
    )
    
    
    1,534Intangible assets
    
    
    (23,507
    )
    
    
    (22,303
    )
    
    
    (18,546
    )Reversal of amortization of goodwill
    
    
    138,041
    
    
    
    135,557
    
    
    
    136,694Capitalization of foreign exchange losses
and interest expenses related to tangible
assets
    
    
    6,213
    
    
    
    21,617
    
    
    
    24,454Capitalization of interest expenses related
to purchases of intangible assets
    
    
    (69,372
    )
    
    
    427
    
    
    
    5,285Nonrefundable activation fees
    
    
    (104,263
    )
    
    
    (46,962
    )
    
    
    (36,048
    )Loss (gain) on disposal of subsidiary shares
    
    
    
    
    
    
    58
    
    
    
    Stock option compensation plan
    
    
    (3,367
    )
    
    
    (3,114
    )
    
    
    (1,938
    )Loss on sale of accounts receivable and
other in asset securitization
    
    
    7,039
    
    
    
    7,437
    
    
    
    (14,476
    )Loss on impairment of investment securities
    
    
    (252,031
    )
    
    
    24,727
    
    
    
    (8,434
    )Loss on valuation of currency swap
    
    
    
    
    
    
    
    
    
    
    (49,452
    )Discount on leasehold deposits
    
    
    (45
    )
    
    
    (286
    )
    
    
    422Considerations for conversion right
    
    
    
    
    
    
    
    
    
    
    1,016Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    2,458Recovery of impaired investment securities
    
    
    
    
    
    
    115
    
    
    
    Net income based on U.S. GAAP
    
    (Won)1,301,126
    

    
    (Won)2,062,749
    

    
    (Won)1,553,076Weighted average number of common shares outstanding
    
    
    84,270,450
    
    
    
    75,078,219
    
    
    
    73,614,297Earnings per share based on U.S. GAAP:Basic earnings per share
    
    (Won)15,440
    

    
    (Won)27,475
    

    
    (Won)21,097Diluted earnings per share
    
    (Won)15,439
    

    
    (Won)27,475
    

    
    (Won)20,921
 F-64




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##### Table of Contents



December 31,2002
    
    
    2003
    
    
    2004Shareholders equity based on Korean GAAP
    
    (Won)6,231,900
    

    
    (Won)6,093,847
    

    
    (Won)7,205,744Adjustments:Deferred income tax adjustments due to
difference in accounting principles
    
    
    (18,997
    )
    
    
    (45,317
    )
    
    
    (70,067
    )Tax effect of the reconciling items
    
    
    151,554
    
    
    
    136,517
    
    
    
    159,032Deferred charges
    
    
    (2,600
    )
    
    
    60
    
    
    
    Capital leases
    
    
    1,144
    
    
    
    239
    
    
    
    1,773Intangible assets
    
    
    1,033,558
    
    
    
    1,019,917
    
    
    
    1,009,557Reversal of amortization of goodwill
    
    
    138,041
    
    
    
    273,598
    
    
    
    410,292Capitalization of foreign exchange losses
and interest expenses related to tangible
assets
    
    
    (1,775
    )
    
    
    19,842
    
    
    
    44,294Capitalization of interest expenses
related to purchase of intangible assets
    
    
    (69,372
    )
    
    
    (68,945
    )
    
    
    (63,660
    )Nonrefundable activation fees
    
    
    (192,212
    )
    
    
    (239,174
    )
    
    
    (275,222
    )Loans receivable for stock issued to
employees investor association
    
    
    (45,906
    )
    
    
    (33,788
    )
    
    
    (22,546
    )Minority interest in equity of
consolidated affiliates
    
    
    (725,507
    )
    
    
    (155,985
    )
    
    
    (98,198
    )Loss on sale of accounts receivable and
other in asset securitization
    
    
    7,039
    
    
    
    14,476
    
    
    
    Loss on impairment of investment securities
    
    
    (150,243
    )
    
    
    
    
    
    
    Discount on leasehold deposits
    
    
    (367
    )
    
    
    (653
    )
    
    
    (231
    )Considerations for conversion right
    
    
    
    
    
    
    
    
    
    
    (66,263
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    2,458Recovery of impaired investment securities
    
    
    (81
    )
    
    
    34
    
    
    
    34Shareholders equity based on U.S. GAAP
    
    (Won)6,356,176
    

    
    (Won)7,014,668
    

    
    (Won)8,236,997
 F-65




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##### Table of Contents



Year Ended December 31,2002
    
    
    2003
    
    
    2004Balance, beginning of the year
    
    (Won)5,820,051
    

    
    (Won)6,356,176
    

    
    (Won)7,014,668Net income for the year
    
    
    1,301,126
    
    
    
    2,062,749
    
    
    
    1,553,076Dividends
    
    
    (57,265
    )
    
    
    (151,739
    )
    
    
    (478,492
    )Issuance of common stock
    
    
    
    
    
    
    31,053
    
    
    
    Unrealized gains on valuation of securities, net
of tax
    
    
    51,644
    
    
    
    50,033
    
    
    
    55,156Equity in capital surplus, retained earnings and
capital adjustments of affiliates (note a)
    
    
    (12,789
    )
    
    
    50,166
    
    
    
    89,448Retirement of treasury stock
    
    
    
    
    
    
    (20,598
    )
    
    
    Treasury stock transactions
    
    
    (779,290
    )
    
    
    (1,379,337
    )
    
    
    (2
    )Foreign-based operations translation adjustments
    
    
    2,809
    
    
    
    (356
    )
    
    
    (11,128
    )Stock compensation plan
    
    
    4,859
    
    
    
    4,403
    
    
    
    3,030Decrease in loans receivable for stock issued to
employees investor association
    
    
    25,031
    
    
    
    12,118
    
    
    
    11,241Balance, end of the year
    
    (Won)6,356,176
    

    
    (Won)7,014,668
    

    
    (Won)8,236,997
 
 (note a)
    
    This line item consists of the adjustments to the carrying amount of equity method
investments based on the Companys proportionate pickup in affiliates using the equity method
of accounting, which are directly adjusted to stockholders equity of affiliates, such as
unrealized gains or losses on valuation of available-for-sale securities, foreign-based
operations translation adjustments in affiliates and stock transactions by affiliates. F-66




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##### Table of Contents



December 31,2002
    
    
    2003
    
    
    2004Current assets:As reported
    
    (Won)4,113,724
    

    
    (Won)4,069,525
    

    
    (Won)4,390,693U.S. GAAP adjustments:loans receivable for stock issued to
employees investor association
    
    
    
    
    
    
    
    
    
    
    (4,123
    )deferred tax adjustments due to
difference in accounting principles
    
    
    60,619
    
    
    
    73,500
    
    
    
    51,344tax effect of the reconciling items
    
    
    (9,927
    )
    
    
    (8,297
    )
    
    
    25,234discount on leasehold deposits
    
    
    4,843
    
    
    
    5,777
    
    
    
    1,119asset securitization transactions
    
    
    582,742
    
    
    
    478,298
    
    
    
    Current assets based on U.S. GAAP
    
    
    4,752,001
    
    
    
    4,618,823
    
    
    
    4,464,267Non-current assets:As reported
    
    
    10,114,986
    
    
    
    9,748,692
    
    
    
    9,892,665U.S. GAAP adjustments:loans receivable for stock issued to
employees investor association
    
    
    (45,906
    )
    
    
    (33,788
    )
    
    
    (18,423
    )intangible assets
    
    
    1,034,972
    
    
    
    1,015,801
    
    
    
    1,004,774cancellation of amortization of goodwill
    
    
    138,041
    
    
    
    273,598
    
    
    
    410,292discount on leasehold deposits
    
    
    (5,210
    )
    
    
    (6,430
    )
    
    
    (1,349
    )loss on sale of accounts receivable and
other in asset securitization
    
    
    (68,267
    )
    
    
    
    
    
    
    recovery of impaired investment
securities
    
    
    (81
    )
    
    
    34
    
    
    
    34loss on impairment of investment
securities
    
    
    (150,243
    )
    
    
    
    
    
    
    nonrefundable activation fees
    
    
    9,129
    
    
    
    9,129
    
    
    
    9,129capital lease
    
    
    5,820
    
    
    
    3,301
    
    
    
    1,773capitalization of foreign exchange
losses and interest expense related to
tangible assets
    
    
    (1,775
    )
    
    
    19,842
    
    
    
    44,294capitalization of interest expenses
related to purchase of intangible assets
    
    
    (69,372
    )
    
    
    (68,945
    )
    
    
    (63,660
    )deferred charges
    
    
    6,564
    
    
    
    6,154
    
    
    
    12,969Non-current assets based on U.S. GAAP
    
    
    10,968,658
    
    
    
    10,967,388
    
    
    
    11,292,498Total assets based on U.S. GAAP
    
    (Won)15,720,659
    

    
    (Won)15,586,211
    

    
    (Won)15,756,765
 F-67




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##### Table of Contents



December, 312002
    
    
    2003
    
    
    2004Current liabilities:As reported
    
    (Won)4,303,386
    
    
    (Won)4,530,910
    
    
    (Won)3,066,893U.S. GAAP adjustments:deferred charges
    
    
    222
    
    
    
    31
    
    
    
    nonrefundable activation fees
    
    
    46,723
    
    
    
    68,665
    
    
    
    86,082asset securitization transactions
    
    
    507,436
    
    
    
    463,822
    
    
    
    acquisition cost of equity interest in subsidiary
    
    
    2,449
    
    
    
    886
    
    
    
    foreign currency translation
    
    
    
    
    
    
    
    
    
    
    (26
    )Current liabilities based on U.S. GAAP
    
    
    4,860,216
    
    
    
    5,064,314
    
    
    
    3,152,949Long-term liabilities:As reported
    
    
    3,693,424
    
    
    
    3,193,460
    
    
    
    4,010,721U.S. GAAP adjustments:deferred charges
    
    
    8,942
    
    
    
    5,844
    
    
    
    12,969Intangible assets
    
    
    3,748
    
    
    
    
    
    
    
    nonrefundable activation fees
    
    
    154,618
    
    
    
    179,638
    
    
    
    198,269capital leases
    
    
    4,676
    
    
    
    3,062
    
    
    
    deferred tax adjustments due to difference in accounting principles
    
    
    79,616
    
    
    
    118,837
    
    
    
    123,911tax effect of the reconciling items
    
    
    (166,264
    )
    
    
    (149,597
    )
    
    
    (141,080
    )considerations for conversion right
    
    
    
    
    
    
    
    
    
    
    66,263foreign currency translation
    
    
    
    
    
    
    
    
    
    
    (2,432
    )Long-term liabilities based on U.S. GAAP
    
    
    3,778,760
    
    
    
    3,351,244
    
    
    
    4,268,621Total liabilities based on U.S. GAAP
    
    (Won)8,638,976
    
    
    (Won)8,415,558
    
    
    (Won)7,421,570Minority interests:As reported
    
    (Won)725,507
    
    
    (Won)155,985
    
    
    (Won)98,198U.S. GAAP adjustments:
    
    
    
    
    
    
    
    
    
    
    Total minority interests based on U.S. GAAP
    
    (Won)725,507
    
    
    (Won)155,985
    
    
    (Won)98,198
 F-68




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##### Table of Contents



2002
    
    
    2003
    
    
    2004Cash flows from operating activities based on Korean GAAP
    
    (Won)4,267,815
    
    
    (Won)3,328,770
    
    
    (Won)2,516,052Adjustments:Asset securitization transactions
    
    
    (558,921
    )
    
    
    (47,496
    )
    
    
    469,883Cash flows from operating activities based on US GAAP
    
    (Won)3,708,894
    
    
    (Won)3,281,274
    
    
    (Won)2,985,935Cash flows from investing activities based on Korean GAAP
    
    (Won)(3,063,435
    )
    
    (Won)(1,414,432
    )
    
    (Won)(1,469,537
    )Adjustments:Asset securitization transactions
    
    
    68,267
    
    
    
    (8,080
    )
    
    
    76,347Cash flows from investing activities based on US GAAP
    
    (Won)(2,995,168
    )
    
    (Won)(1,422,512
    )
    
    (Won)(1,393,190
    )Cash flows from financing activities based on Korean GAAP
    
    (Won)(1,418,197
    )
    
    (Won)(2,261,039
    )
    
    (Won)(968,570
    )Adjustments:Asset securitization transactions
    
    
    490,654
    
    
    
    55,576
    
    
    
    (546,230
    )Cash flows from financing activities based on US GAAP
    
    (Won)(927,543
    )
    
    (Won)(2,205,463
    )
    
    (Won)(1,514,800
    )
 31. ADDITIONAL DISCLOSURES REQUIRED BY U.S. GAAP
 a. Income Taxes
  Year Ended December 31,2002
    
    
    2003
    
    
    2004Currently payable
    
    (Won)616,544
    
    
    (Won)668,180
    
    
    (Won)551,405Deferred
    
    
    (31,532
    )
    
    
    143,257
    
    
    
    59,669(Won)585,012
    
    
    (Won)811,437
    
    
    (Won)611,074
 F-69




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##### Table of Contents



Year Ended December 31,2002
    
    
    2003
    
    
    2004Income taxes at statutory income tax rate of 27%
    
    (Won)518,197
    
    
    (Won)776,030
    
    
    (Won)584,843Resident surtax payable
    
    
    51,820
    
    
    
    77,603
    
    
    
    58,484Tax credit for investments, technology, human resource development and others
    
    
    (37,309
    )
    
    
    (83,826
    )
    
    
    (89,080
    )Special surtax for agriculture and fishery industries and other
    
    
    11,636
    
    
    
    13,685
    
    
    
    13,736Undistributed earnings of subsidiaries
    
    
    12,295
    
    
    
    (5,909
    )
    
    
    11,011Effect of change in income tax rate
    
    
    
    
    
    
    (7,943
    )
    
    
    Other permanent differences
    
    
    6,714
    
    
    
    20,719
    
    
    
    28,705Change in valuation allowance
    
    
    21,659
    
    
    
    21,078
    
    
    
    3,375Recorded income taxes
    
    (Won)585,012
    
    
    (Won)808,892
    
    
    (Won)611,074Effective tax rate
    
    
    30.48
    %
    
    
    28.23
    %
    
    
    28.21
    %
 F-70




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##### Table of Contents



December 31,2002
    
    
    2003
    
    
    2004Current:Allowance for doubtful accounts
    
    (Won)21,885
    
    
    (Won)22,039
    
    
    (Won)19,649Write-off of doubtful accounts
    
    
    9,715
    
    
    
    9,587
    
    
    
    9,764Marketable trading securities
    
    
    
    
    
    
    1
    
    
    
    (561
    )Accrued income
    
    
    (2,844
    )
    
    
    (2,026
    )
    
    
    (2,463
    )Accrued expenses and other
    
    
    21,936
    
    
    
    35,622
    
    
    
    50,18950,692
    
    
    
    65,223
    
    
    
    76,578Non-current:Depreciation
    
    
    11,732
    
    
    
    3,935
    
    
    
    (34,371
    )Loss on disposition of properties
    
    
    
    
    
    
    
    
    
    
    11,480Loss on impairment and valuation of investment securities (note)
    
    
    119,940
    
    
    
    74,928
    
    
    
    58,419Foreign exchange losses
    
    
    3,345
    
    
    
    774
    
    
    
    Equity in losses (earnings) of affiliates
    
    
    (5,090
    )
    
    
    (6,593
    )
    
    
    (12,671
    )Undistributed earnings of subsidiaries
    
    
    (28,700
    )
    
    
    (3,364
    )
    
    
    (9,434
    )Tax free reserve for technology development
    
    
    (133,920
    )
    
    
    (182,518
    )
    
    
    (195,103
    )Tax free reserve for loss on disposal of treasury stock
    
    
    (64,775
    )
    
    
    (130,373
    )
    
    
    (130,372
    )Tax credit carryforwards
    
    
    
    
    
    
    1,162
    
    
    
    5,003Net operating loss carryforwards
    
    
    
    
    
    
    
    
    
    
    25,371Deferred charges and other
    
    
    79,346
    
    
    
    46,780
    
    
    
    (7,205
    )(18,122
    )
    
    
    (195,269
    )
    
    
    (288,883
    )Total deferred tax assets (liabilities)
    
    (Won)32,570
    
    
    (Won)(130,046
    )
    
    (Won)(212,305
    )
 
 (note)
    
    As of December 31, 2002, unrealized loss on valuation of investment securities has been
recorded as a separate component of shareholders equity, net of tax effect of (Won)691
million, and unrealized gain on valuation of investment securities as of December 31, 2003 and
2004 was recorded as a separate component of shareholders equity, net of tax effect of
(Won)18,287 million and (Won)39,210 million, respectively. b. Fair Value of Financial Instruments
  Cash and Cash Equivalents, Accounts Receivable (trade and other), Short-Term Loans, Accounts
Payable and Short-term Borrowings
  F-71




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##### Table of Contents



Trading Securities and Long-term Investment Securities
  Long-Term Bank Deposits
  Long-Term Loans
  Bonds Payable, Bonds with Stock Warrant, Convertible Bonds, Long-Term Borrowings, Long-Term
PayableOther and Obligation under Capital Leases
   2002
    
    
    2003
    
    
    2004Carrying
    
    
    
    
    
    
    Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    
    
    
    
    Amount
    
    
    
    
    
    
    Amount(Note a)
    
    
    Fair Value
    
    
    (Note a)
    
    
    Fair Value
    
    
    (Note a)
    
    
    Fair ValueFinancial assets:Cash and cash
equivalents and short-term
financial instruments
    
    (Won)867,022
    
    
    (Won)867,022
    
    
    (Won)472,410
    
    
    (Won)472,410
    
    
    (Won)383,360
    
    
    (Won)383,360Trading securities
    
    
    754,219
    
    
    
    754,219
    
    
    
    893,217
    
    
    
    893,217
    
    
    
    654,779
    
    
    
    654,779Accounts receivable (trade
and other)
    
    
    2,877,750
    
    
    
    2,877,750
    
    
    
    3,000,918
    
    
    
    3,000,918
    
    
    
    3,126,754
    
    
    
    3,126,754Short-term loans
    
    
    18,296
    
    
    
    18,296
    
    
    
    41,933
    
    
    
    41,933
    
    
    
    51,232
    
    
    
    51,232Investment securities:Listed equity
and debts (note b)
    
    
    852,861
    
    
    
    852,861
    
    
    
    503,000
    
    
    
    503,000
    
    
    
    597,687
    
    
    
    597,687Non-listed equity
    
    
    543,836
    
    
    
    N/A
    
    
    
    385,707
    
    
    
    N/A
    
    
    
    354,123
    
    
    
    N/ALong-term bank deposits
    
    
    177
    
    
    
    177
    
    
    
    352
    
    
    
    352
    
    
    
    10,351
    
    
    
    10,351Long-term loans
    
    
    12,905
    
    
    
    9,679
    
    
    
    13,947
    
    
    
    10,460
    
    
    
    12,019
    
    
    
    9,014(Won)5,927,066
    
    
    
    
    
    
    (Won)5,311,484
    
    
    
    
    
    
    (Won)5,190,305Financial liabilities:Accounts payable
    
    (Won)1,697,502
    
    
    (Won)1,697,502
    
    
    (Won)1,317,162
    
    
    (Won)1,317,162
    
    
    (Won)1,205,682
    
    
    (Won)1,205,682Short-term borrowings
    
    
    1,177,950
    
    
    
    1,177,950
    
    
    
    1,236,197
    
    
    
    1,236,197
    
    
    
    425,496
    
    
    
    425,496Bonds payable, long-term
borrowings, convertible
bonds, long-term
payablesother and
obligation under capital
leases, including current
portion
    
    
    4,413,130
    
    
    
    4,704,752
    
    
    
    4,201,707
    
    
    
    4,283,402
    
    
    
    4,044,258
    
    
    
    4,211,926(Won)7,288,582
    
    
    
    
    
    
    (Won)6,755,066
    
    
    
    
    
    
    (Won)9,234,563
 F-72




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##### Table of Contents



(note a)
    
    These carrying amounts represent the amounts determined under U.S. GAAP.(note b)
    
    Investments in nonlisted equity include the investments in the common stock of
Powercomm Co., Ltd. (Powercomm). Korea Electric Power Corp. (KEPCO), the parent company of
Powercomm, sold to Dacom Corporation 45.5% interest in Powercomm at (Won)12,000 per share in
2002. Based on this transaction, the fair value of the Companys investments in the common
stock of Powercomm was determinable and the impairment loss on the investment of (Won)150,243
million was recognized in 2002. The fair value of common stock of Powercomm as of December 31,
2003 and 2004 was estimated by an outside professional valuation company using the present
value of expected future cash flows; and the additional impairment loss of (Won)21,593 million
was recognized in 2003. As of December 31, 2004, unrealized gain on valuation of investment in
Powercomm of (Won)3,158 million has been recorded as other comprehensive income. c. Comprehensive Income
  2002
    
    
    2003
    
    
    2004Net income
    
    (Won)1,301,126
    
    
    (Won)2,062,749
    
    
    (Won)1,553,076Other comprehensive income:Available-for-sale securitiesUnrealized gain on investment securities
    
    
    325,494
    
    
    
    90,727
    
    
    
    84,513Less impact of realized losses
    
    
    (252,031
    )
    
    
    (21,716
    )
    
    
    (8,434
    )Tax effect
    
    
    (21,819
    )
    
    
    (18,978
    )
    
    
    (20,923
    )Net change from available-for-sale securities
    
    
    51,644
    
    
    
    50,033
    
    
    
    55,156Foreign-based operations translation adjustments
    
    
    2,809
    
    
    
    (356
    )
    
    
    (11,128
    )Total other comprehensive income
    
    
    54,453
    
    
    
    49,677
    
    
    
    44,028Comprehensive income
    
    (Won)1,355,579
    
    
    (Won)2,112,426
    
    
    (Won)1,597,104
 d. Goodwill and other intangible assets
  F-73




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##### Table of Contents



Goodwill
  2002
    
    
    2003
    
    
    2004Beginning of period
    
    (Won)2,833,752
    
    
    (Won)3,400,110
     
    
    (Won)3,400,155Goodwill reclassifications to other intangibles assets
    
    
    
    
    
    
    (16,437
    )
    
    
    Goodwill acquired during the period
    
    
    566,358
    
    
    
    16,482
    
    
    
    8,834Goodwill impairment losses
    
    
    
    
    
    
    
    
    
    
    Ending of period
    
    (Won)3,400,110
    
    
    (Won)3,400,155
    
    
    (Won)3,408,989
 Other Intangible Assets
  December 31, 2002
    
    
    December 31, 2003
    
    
    December 31, 2004Gross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortized intangible assets:IMT license (13 years)
    
    (Won)1,189,881
    
    
    (Won)
    
    
    (Won)1,188,547
    
    
    (Won)(7,548
    )
    
    (Won)1,188,547
    
    
    (Won)(98,183
    )Customer lists (4 years)
    
    
    99,783
    
    
    
    (39,142
    )
    
    
    99,783
    
    
    
    (64,088
    )
    
    
    99,783
    
    
    
    (83,686
    )Other (5 to 20 years)
    
    
    344,708
    
    
    
    (158,248
    )
    
    
    552,279
    
    
    
    (258,802
    )
    
    
    718,291
    
    
    
    (354,021
    )Total
    
    (Won)1,634,372
    
    
    (Won)(197,390
    )
    
    (Won)1,840,609
    
    
    (Won)(330,438
    )
    
    (Won)2,066,621
    
    
    (Won)(535,890
    )
  e. Other SK Group Companies
  F-74




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##### Table of Contents



f. Operating Revenue
  2002
    
    
    2003
    
    
    2004Wireless services
    
    (Won)7,475,371
    
    
    (Won)8,401,021
    
    
    (Won)8,762,376Interconnection
    
    
    1,043,174
    
    
    
    1,017,056
    
    
    
    849,407Digital handset sales
    
    
    534,038
    
    
    
    611,981
    
    
    
    649,809Other
    
    
    167,147
    
    
    
    180,306
    
    
    
    272,974Total operating revenue
    
    (Won)9,219,730
    
    
    (Won)10,210,364
    
    
    (Won)10,534,566
 g. Segment
  h. New Accounting Pronouncements
    F-75




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##### Table of Contents



F-76




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##### Table of Contents



Item. 19Exhibits
 Exhibit
    
    Description1.1
    
    
    Articles of Incorporation, as amended and restated (English translation)*4.1
    
    
    Telecommunications Basic Law of 1983, as amended (English translation)**4.2
    
    
    Enforcement Decree of the Telecommunications Basic Law, as amended (English translation)*4.3
    
    
    Telecommunications Business Law of 1983, as amended (English translation)**4.4
    
    
    Enforcement Decree of the Telecommunications Business Law (English translation)*4.5
    
    
    Amendment to Telecommunications Business Law of 1983 dated February 9, 2004 (English translation)*4.6
    
    
    Korean Commercial Code (together with English translation) (Incorporated by reference herein from our
Form 20-F filed on June 30, 2000)4.7
    
    
    Amendment to Korean Commercial Code dated December 29, 2001 (together with English translation)
(Incorporated by reference herein from our Form 20-F filed on June 28, 2002)4.8
    
    
    Korean Securities and Exchange Act, as amended (English translation)*11.1
    
    
    Code of Ethics of SK Telecom Co., Ltd.*12.1
    
    
    Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2
    
    
    Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1
    
    
    Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 200213.2
    
    
    Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 200299.1
    
    
    Consent of Deloitte HanaAnjin LLC




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##### Table of Contents



SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form
20-F/A and that it has duly caused and authorized the undersigned to sign this amendment to the
annual report on its behalf.     SK Telecom Co., Ltd.     By: /s/ Shin Bae Kim     Name: Shin Bae Kim
Title: Chief Executive Officer     Date: July 25, 2005