SK Telecom Co., Ltd
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE MONTH OF FEBRUARY 2007
 
SK Telecom Co., Ltd.
(Translation of registrant’s name into English)
11, Euljiro2-ga, Jung-gu
Seoul 100-999, Korea
(Address of principal executive offices)
 
     (Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F þ                         Form 40-F o
     Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T
Rule 101(b)(1):                     
     Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
     Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T
Rule 101(b)(7):                     
     Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submission to furnish a report or other document that the registration foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
     Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.          Yes o     No þ
     If “Yes” is marked, indicate below the file number assigned to the Registrant in connection with Rule 12g3-2(b):
82-                     
 
 

 


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QUARTERLY REPORT
(From January 1, 2006 to September 30, 2006)
THIS IS A SUMMARY OF THE QUARTERLY REPORT ORIGINALLY PREPARED IN KOREAN AND IS IN SUCH FORM AS REQUIRED BY THE KOREAN FINANCIAL SUPERVISORY COMMISSION.
IN THE TRANSLATION PROCESS, SOME PARTS OF THE REPORT WERE REFORMATTED, REARRANGED OR SUMMARIZED FOR THE CONVENIENCE OF READERS.
UNLESS EXPRESSLY STATED OTHERWISE, ALL INFORMATION CONTAINED HEREIN IS PRESENTED ON A NON-CONSOLIDATED BASIS IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN KOREA, OR KOREAN GAAP, WHICH DIFFER IN CERTAIN RESPECTS FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CERTAIN OTHER COUNTRIES, INCLUDING THE UNITED STATES. WE HAVE MADE NO ATTEMPT TO IDENTIFY OR QUANTIFY THE IMPACT OF THESE DIFFERENCES.

 


 

Contents
         
  Overview    
 
       
  Business    
 
       
  Financial Information    
 
 
     
  Auditor’s Opinion    
 
       
  Management Structure    
 
       
  Shares    
 
       
  Employees    
 
       
  Transactions with Interested Parties    
 
       
  Other Relevant Matters    
         
Attachment: Korean GAAP Non-consolidated Financial Statements
   


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I. OVERVIEW
1. Corporate Purpose of SK Telecom Co., Ltd. (the “Company”)

Business Objectives
1.   Information and communication business
 
2.   Handset sales and lease business
 
3.   New media business
 
4.   Advertisement business
 
5.   Communication sales business
 
6.   Personal property and real property lease business
 
7.   Research and technology development related to Clause 1 through 4
 
8.   Overseas business and trading business related to Clause 1 through 4
 
9.   Manufacturing and distribution business related to Clause 1 through 4
 
10.   Tourism
 
11.   Other businesses related to the above
2. Company History
A.  Changes Since Incorporation
  (1)   Date of Incorporation
    March 29, 1984 (date of shareholders’ meeting for the incorporation): Incorporated as Korea Mobile Communications Service Co., Ltd.
(Authorized capital: Won 500 million / Paid-in capital: Won 250 million)
  (2)   Location of Headquarters
    22 Dohwa-dong, Mapo-gu, Seoul (July 11, 1988)
    16-49 Hangang-ro 3-ga, Yongsan-gu, Seoul (November 19, 1991)
    267 Namdaemun-ro 5-ga, Jung-gu, Seoul (June 14, 1995)
    99 Seorin-dong, Jongro-gu, Seoul (December 20, 1999)
    11, Euljiro 2-ga, Jung-gu, Seoul (December 13, 2004)
B.  Mergers
  (1)   Target: Shinsegi Communication Co., Ltd.
    Date: January 13, 2002
    Registration: January 16, 2002
  (2)   Target: SK IMT Co., Ltd.
    Date: May 1, 2003
    Registration: May 7, 2003
C.  Significant Recent Business Events
  (1)   Cancellation of Treasury Stock
  Pursuant to the resolutions of the Company’s board of directors dated July 28, 2006 and August 31, 2006, the Company acquired 491,000 shares of the Company’s common stock (at a purchase price of Won92,518,373,000) between August 1 and August 14, 2006 and 592,000 shares of the Company’s common stock (at a purchase price of Won 116,559,060,000) between September 4 and September 27,

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    2006, respectively, and cancelled such shares of treasury stock as of August 17 and September 29, 2006, respectively.
(2) Interim Dividends
  On July 28, 2006, the Company’s board of directors approved a resolution to pay an interim dividend as follows:
    Dividend amount: Won 1,000 per share (Total amount: Won 73,713,657,000)
    Market dividend rate: 0.5%
    Record date: June 30, 2006
    Dividend payment date: August 16, 2006
3. Information Regarding Shares
A.  Total number of shares
(As of September 30, 2006)   (Unit: shares)
                                 
    Share type    
Classification   Common shares     Total   Remarks
I. Total number of issuable shares
    220,000,000             220,000,000        
II. Total number of shares issued to date
    89,278,946             89,278,946        
III. Total number of shares retired to date
    8,085,235             8,085,235        
1. Capital reduction
                       
2. Share cancellation
    8,085,235             8,085,235        
3. Redeemed shares
                       
4. Others
                       
IV. Total number of shares (II-III)
    81,193,711             81,193,711        
V. Number of treasury shares
    8,563,054             8,563,054        
VI. Number of shares outstanding (IV-V)
    72,630,657             72,630,657        
B. Capital Stock and Price per Share
(As of September 30, 2006)   (Unit: Won, shares)
                                                         
            Capital (total face value)   Price per share
            Capital amount           Total amount of           Capital/   Capital/
            in financial   Total number of   distributed   Par value   Total number of   Number of distributed
            statements   issued shares   shares   per share   issued shares   shares
Classification   Type   (a)   (IV of A×b)   (VI of A×b )   (b)   (a / IV of A.)   (a / VI of A.)
Registered
  Common shares     44,639,473,000       40,596,855,500       36,315,328,500       500       549.8       614.6  
Total
            44,639,473,000       40,596,855,500       36,315,328,500       500       549.8       614.6  
C.  Acquisition and Disposition of Treasury Shares
  (1)   Status of Acquisition and Disposition of Treasury Shares

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        Amount at the                           Amount at the end
Acquisition method   Type of share   beginning of period   Acquisition (+)   Disposition (-)   Retirement (-)   of period
Direct acquisition pursuant to Article 189-2 (1) of the relevant Act
  Common share
Preferred share
    4,697,735
      1,083,000
      99,361
      1,083,000
      4,598,374
 
Direct acquisition based on causes other than those stipulated in Article 189-2 (1) of the relevant Act
  Common share
Preferred share
    77,970
     
     
     
      77,970
 
Sub-total
  Common share
Preferred share
    4,775,705
      1,083,000
      99,361
      1,083,000
      4,676,344
 
Indirect acquisition through trust and other agreements
  Common share
Preferred share
    3,886,710
     
     
     
      3,886,710
 
Total
  Common share
Preferred share
    8,662,415
      1,083,000
      99,361
      1,083,000
      8,563,054
 
                                                 
 
* Of the 4,676,344 shares of treasury stocks directly acquired based on causes other than those provided in Article 189-2 (1) of the relevant Act, 1,685,816 shares were deposited with the Korea Securities Depository as of September 30, 2006 for any exchange of the Company’s overseas exchangeable bonds.
D.   Employee Stock Ownership Program
(1)   Transactions with the Employee Stock Ownership Program
  a)   On August 23, 1999, the Company lent Won 118.6 billion of purchase funds for employee stock ownership to the Employee Stock Ownership Program, and the Employee Stock Ownership Program re-lent the amount to the Company’s employees in accordance with its internal allotment standards.
    Terms of the loan: 10-year installment repayment plan following a three-year grace period
 
    The loan is deducted from wages for each individual to repay the Employee Stock Ownership Program, and is subsequently repaid to the company.
  b)   Repayment amount during the first to the third quarter of 2006: Won 5,986,736,183
    Details of the loan repayment
(As of September 30, 2006)   (Unit: in thousand Won)
                 
Classification   Amount     Remarks  
Initial loan amount
    118,577,755     Lent on August 23, 1999 to 3,540 persons
Accumulated repayment amount
    109,978,284     Including Won 5.99 billion repaid during the first to the third quarter of 2006
Balance
    8,599,471     Full repayment by June 2010

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(2) Voting Rights of the Employee Stock Ownership Program
During a designated period, to be 7 days or longer, each individual member of the Program may exercise his voting rights by expressing his intention on the shareholders’ meeting agenda through a written power of attorney to a designated proxy.
(3) Shareholdings of the Employee Stock Ownership Program
(Unit: shares)
                         
            Balance at the beginning   Balance at the end
Account classification   Types of share   of period   of period
E.S.O.P. account
                 
Member account
  Common share     297,246       211,493  
 
* As the relevant law requires an immediate transfer of the shares directly purchased by the employees to the account of the individual purchasers, the Company transfers and holds the employees’ stocks in separate individual accounts within the program once the number of shares for each individual member is determined.
4. Status of Voting Rights
(As of September 30, 2006)   (Unit: shares)
                         
Classification           Number of shares   Remarks
Total outstanding shares (A)
  Common share     81,193,711        
 
  Preferred share              
Number of shares without voting right (B)
  Common share     8,563,054     Treasury shares
 
  Preferred share              
Shares with restricted voting right under the Stock Exchange Act and other laws (C)
  Common share            
Shares with reestablished voting right (D)
                 
The number of shares with exercisable voting right
  Common share     72,630,657        
(E = A - B - C + D)
  Preferred share              
5. Dividends and Others

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        (Unit: in million Won except per share value)
        Year ended December 31,
Classification       2006(Half year)   2005   2004
Par value per share
        500       500       500  
Current net income
        710,498       1,871,380       1,494,852  
Net income per share
        9,648       25,421       20,307  
Income available for distribution as dividend
        712,210       1,930,626       1,377,007  
Total cash dividend
        73,714       662,529       758,227  
Total stock dividend
                     
Percentage of cash dividend to available income (%)
        10.4       35.4       50.7  
Cash dividend yield ratio (%)
  Common share     0.5       4.9       5.2  
 
  Preferred share                  
Stock dividend yield ratio (%)
  Common share                  
 
  Preferred share                  
Cash dividend per share
  Common share     1,000       9,000       10,300  
 
  Preferred share                  
Stock dividend per share
  Common share                  
 
  Preferred share                  
 
* Half year interim dividend for the year 2006 was paid on August 16, 2006
* The total amount of cash dividend for the year ended December 31, 2005 includes the interim dividend amount of Won 73,614 million, and the cash dividend amount per share of Won 9,000 for the same period includes the interim dividend amount of Won 1,000 per share.
* The cash dividend per share of Won 10,300 for the year ended December 31, 2004 includes the regular dividend of Won 5,100 (including the interim dividend amount of Won 1,000) and a special dividend of Won 5,200.
II. BUSINESS
1. Business Summary
A. Industry Status
(1) Characteristics of the Industry
     As of September 30, 2006, the number of domestic mobile phone subscribers reached 39.70 million and with a 82.0% penetration rate, and the Korean mobile communication market can be considered to have reached its maturation stage. However, considering the number of European countries with penetration rates exceeding 90%, additional future growth of the domestic market may be possible.
     The Korean mobile communications market continues to improve with the help of advances in network-related technology evidenced by the world’s first commercialization of CDMA2000 1x, CDMA 1x EV-DO, and the development of highly advanced handsets that enables the provision of convergence services for multimedia contents, mobile commerce, telematics, satellite DMB, digital home services and other related contents.
(2) Industry Growth

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                                        (Unit: 1,000 persons)
        As of
September 30,
                   
Classification   2006   End of 2005   End of 2004   End of 2003   End of 2002   End of 2001
 
  Penetration rate (%)     82.0       79.4       75.9       70.1       67.9       60.9  
Number of subscribers
  SK Telecom     20,032       19,530       18,783       18,313       17,220       11,867  
 
  Shinsegi Communication                                   3,312  
 
  PCS     19,671       18,812       17,803       15,279       15,123       13,867  
 
  Total     39,703       38,342       36,586       33,592       32,342       29,046  
(Data: Ministry of Information and Communication website)
(3) Market Characteristics
     The Korean mobile communication market includes the entire population of Korea with mobile communication service needs, and almost every Korean is considered a potential user. With the market penetration rate reaching as high as 82.0% (as of the end of September 2006), the customer base is continuing to expand to include elementary school and pre-school children. Although demand to date has primarily been in the domestic market, as the business territory expands to overseas market, the size of overseas sales is expected to grow in the near future. Seasonal and economic fluctuations have much less impact on the Korean mobile communication market compared to other industries.
B. Company Status
(1) Market Share
* Historical market share of the Company
                                 
                            (Unit: %)
    As of            
Classification   September 30, 2006   2005   2004   2003
Mobile phone
    50.5       50.9       51.3       54.5  
* Comparative market share
(As of September 30, 2006)   (Unit: %)
                         
Classification   SK Telecom   KTF   LG Telecom
Market share
    50.5       32.2       17.4  
(Data: Ministry of Information and Communication website)
(2)   New Business Contents and Prospects
  a)   Expansion of U.S. market operations through commencement of “Helio” service
    Resolution for capital investment regarding Mobile Virtual Network Operator (MVNO) service in the U.S. (January 26, 2005)
 
    Investment amount: US$220 million (From 2005 to 2007)
 
    Investment method: Establishment of a joint venture with EarthLink, which is one of the three major Internet service providers in the U.S.
 
    Service provided: MVNO (Mobile Virtual Network Operator)
    Subscriber recruitment and service provision based on service facilities and fee plans

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    Combination of the Company’s mobile communications business capabilities and data service technology with the local customer base, marketing infrastructure and brand power of EarthLink
 
    Planning to provide additional services related with music, games and messaging for target customers
  b)   Commencement of Commercial High Speed Downlink Packet Access (“HSDPA”) Service (May 16, 2006)
    Building on an advanced WCDMA network for data transmission, improve the Company’s long-term growth base through the development of new products with strong visual components (such as video phones and other video content) and the expansion of global roaming services;
 
    Planning to increase customer preference for HSDPA by capturing the early adopter and heavy user markets and to raise awareness of HSDPA as a premium service;
 
    Nationwide HSDPA network expected to be completed in the first half of 2007.
  c)   Commencement of Commercial Wireless Broadband (“WiBro”) Service (June 30, 2006)
    On January 20, 2005, the Company, along with Korea Telecom, obtained rights to the WiBro business following the review of the Information and Communications Policy Review Committee
 
    Currently servicing six HotZone areas in the Korea University, Shinchon, Hanyang University, Myungdong and Euljiro areas in Seoul;
 
    Plan to expand HotZone service and to introduce partial flat rate plans in light of various customers’ different usage patterns.
2. Major Products
A. Status of Major Products
                     
            (Unit: in million Won, %)
Business field   Sales type   Item   Major trademarks   Sales amount (ratio)
Information and communication
  Services   Mobile phone   June, NATE and others   7,800,540 (98.85%)
 
      Others   Others   90,637 (1.15%)
B. Price Trend of Major Products
                             
        Quarter ended        
Item   September 30, 2006   During 2005   During 2004
Mobile phone (Based on
  Basic fee (per month)     13,000       13,000       13,000  
standard call charge) 
  Service fee (per 10 seconds)     20       20       20  
 
* Caller ID service became free of charge beginning January 2006.
3. Investment Status
A. Investments in Progress

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                            (Unit: Won 100 million)
        Investment   Subject of       Total   Amount
already
  Future
Business field   Classification   period   investment   Investment effect   investments   invested   investment
Network/Common
  Upgrade/
New installation
  2006   Network, systems and others   Capacity increase and quality improvement; systems improvement     16,000       7,195       8,805  
 
* Amount already invested is the cumulative amount expended through the quarter ended September 30, 2006.
B. Future Investment Plan
                                                 
                                    (Unit: Won 100 million)
    Expected investment amount   Expected investment for each year    
Business field   Asset type   Amount   2006   2007   2008   Investment effect
Network/Common
  Network, systems and others     8,805       8,805       N/A       N/A     Upgrades to the existing services and provision of new services
Total
            8,805       8,805       N/A       N/A        
 
* The expected investment amount of Won 880.5 billion is the future investment amount for 2006, which is the total investment amount for 2006 less the cumulative amount expended through the quarter ended September 30, 2006.
4. Derivative Products and Others
A. Derivatives Contracts
(1)   FX Swap
  a)   Purpose of Contracts: Currency Exchange Risk Hedging
 
  b)   Contract Terms
 
    Cross Currency Swap
                                 
(As of September 30, 2006)                   (Unit: in million Won)
                            Income/loss on
Contract amount   Contract party   Contract date   Proceeds payment method   valuation
US$125 million
  Citibank   March 23, 2004   Exchange on the date immediately preceding the principal and interest payment date     (37,063 )
US$125 million
  Credit Suisse   March 23, 2004   Same as above     (38,336 )
US$50 million
  BNP Paribas   March 23, 2004   Same as above     (14,783 )
Total: US$300 million
                  (90,182 )

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* Income/loss on valuation was calculated using the cash flow hedge accounting and was appropriated for capital adjustment.
— FX Swap
                                 
(As of September 30, 2006)                   (Unit: in million Won)
Contract amount   Contract party   Contract date   Proceeds payment method   Income on valuation
US$100 million
  Credit Suisse   May 27, 2004   Exchange before principal payment date     (21,798 )
US$300 million
  Hana Bank   June 30, 2006   Payment of US Dollars and receipt of Korean Won on July 5, 2007     4,358  
US$140 million
  Shinhan Bank                        
US$140 million
  Woori Bank                        
US$140 million
  Korea Exchange Bank                        
US$140 million
  Citibank                        
US$140 million
  Barclays Capital                        
(2)   Interest Rate Swap
  a)   Purpose of Contracts: Interest Rate Risk Hedging
 
  b)   Contract Terms
 
    IRS
                                 
(As of September 30, 2006)                   (Unit: in million Won)
                            Income/loss on
Contract amount   Contract party   Contract date   Proceeds payment method   valuation
2,000
  Shinhan Bank   June 28, 2006   Fixing of interest payment date/
exchange of floating interest rate
    (2,747 )
 
* Income/loss on valuation was calculated using the cash flow hedge accounting and was appropriated for capital adjustment.

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5. R&D Investments
                                     
                        (Unit: in thousand Won)
        Quarter ended            
Category   September 30, 2006   2005   2004   Remarks
Raw material
        106,872       234,889       255,320        
Labor
        27,359,460       35,191,759       36,026,539        
Depreciation
        98,926,079       121,335,301       122,097,858        
Commissioned service
        62,880,554       86,536,635       85,646,995        
Others
        21,646,814       41,730,732       39,951,341        
Total R&D costs
        210,919,779       285,029,316       283,978,053        
Accounting
  Sales and administrative expenses     202,995,538       273,223,885       272,290,385        
 
  Development expenses (Intangible assets)     7,924,241       11,805,431       11,687,668        
R&D cost / sales amount ratio (Total R&D costs / Current sales amount×100)
        2.67 %     2.81 %     2.93 %      
6. Other Matters
A. External Fund Procurement Summary
* Domestic procurement
                                         
                            (Unit: in million Won)
    Beginning   New   Reduction from   Ending    
Source of procurement   balance   procurement   repayment   balance   Remarks
Bank
          200,000             200,000        
Insurance company
                             
Merchant banking
                             
Loan specialty financial company
                             
Mutual savings bank
                             
Other financial institutions
    24,543             10,889       13,654        
Total procurement from financial institutions
    24,543       200,000       10,889       213,654        
Corporate bond (public offering)
    2,500,000       200,000       350,000       2,350,000        
Corporate bond (private offering)
                             
Paid-in capital increase (public offering)
                             
Paid-in capital increase (private offering)
                             

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                            (Unit: in million Won)
    Beginning   New   Reduction from   Ending    
Source of procurement   balance   procurement   repayment   balance   Remarks
Asset-backed securitization (public offering)
                             
Asset-backed securitization (private offering)
                             
Others
                             
Total procurement from capital market
    2,500,000       200,000       350,000       2,350,000        
Borrowings from shareholder, officer and affiliated company
                             
Others
                             
Total
    2,524,543       400,000       360,889       2,563,654        
 
* Overseas procurement
                                         
                                    (Unit: in million Won)
                    Reduction in        
    Beginning           repayment and   Ending    
Procurement source   balance   New procurement   others   balance   Remarks
Financial institutions
                             
Overseas securities (Corporate bonds)
    303,900             20,340       283,560     Exchange rate adjustment
Overseas securities (shares and others)
    385,885             21,576       364,309     Stock conversion
Asset-backed securitization
                             
Others
                             
Total
    689,785             41,916       647,869        
B. Credit Ratings
(1) Corporate Bonds
                 
    Subject of       Credit rating entity    
Credit rating date   valuation   Credit rating   (Credit rating range)   Evaluation classification
March 12, 2004
  Corporate bond   AAA   Korea Ratings   Current valuation
March 15, 2004
  Corporate bond   AAA   National Information on Credit Evaluation, Inc.   Current valuation
April 23, 2004
  Corporate bond   AAA   Korea Investors Service, Inc.   Current valuation

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    Subject of       Credit rating entity    
Credit rating date   valuation   Credit rating   (Credit rating range)   Evaluation classification
April 23, 2004
  Corporate bond   AAA   Korea Ratings   Current valuation
December 6, 2004
  Corporate bond   AAA   Korea Investors Service, Inc.   Current valuation
December 6, 2004
  Corporate bond   AAA   National Information on Credit Evaluation, Inc.   Current valuation
March 11, 2005
  Corporate bond   AAA   Korea Investors Service, Inc.   Current valuation
March 11, 2005
  Corporate bond   AAA   Korea Ratings   Current valuation
March 14, 2005
  Corporate bond   AAA   Korea Ratings   Regular valuation
June 14, 2005
  Corporate bond   AAA   National Information on Credit Evaluation, Inc.   Regular valuation
June 13, 2006
  Corporate bond   AAA   National Information on Credit Evaluation, Inc.   Regular valuation
June 21, 2006
  Corporate bond   AAA   Korea Ratings   Regular valuation
June 22, 2006
  Corporate bond   AAA   Korea Investors Service, Inc.   Regular valuation
September 1st, 2006
  Corporate bond   AAA   National Information on Credit Evaluation, Inc.   Current valuation
September 1st, 2006
  Corporate bond   AAA   Korea Ratings   Current valuation
September 1st, 2006
  Corporate bond   AAA   Korea Investors Service, Inc.   Current valuation
 
*Rating definition:   “AAA” — The certainty of principal and interest payment is at the highest level with extremely low investment risk, and is stable in that there is no influence of any environmental change under reasonable expectation conditions.
(2) Commercial Paper (“CP”)
                 
            Credit rating entity   Evaluation
Credit rating date   Subject of valuation   Credit rating   (Credit rating range)   classification
January 26, 2004
  CP   A1   National Information on Credit Evaluation, Inc.   Regular valuation
June 8, 2004
  CP   A1   National Information on Credit Evaluation, Inc.   Current valuation
June 11, 2004
  CP   A1   Korea Ratings   Current valuation
June 11, 2004
  CP   A1   Korea Investors Service, Inc.   Current valuation
June 13, 2005
  CP   A1   Korea Investors Service, Inc.   Current valuation
June 14, 2005
  CP   A1   National Information on Credit Evaluation, Inc.   Current valuation
June 16, 2005
  CP   A1   Korea Ratings   Current valuation
June 13, 2006
  CP   A1   Korea Investors Service, Inc.   Current valuation
June 21, 2006
  CP   A1   National Information on Credit Evaluation, Inc.   Current valuation
June 22, 2006
  CP   A1   Korea Ratings   Current valuation
 
*Rating definition:   “A1” — Timely repayment capability is at the highest level with extremely low investment risk, and is stable in that there is no influence of any environmental change under reasonable expectation conditions.

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(3) International Credit Ratings
                 
        Credit rating   Credit rating company    
Date of credit rating   Subject of valuation   of securities   (Credit rating range)   Evaluation type
June 14, 2005
  Issuer Rating   A   Fitch (England)   Current valuation
July 14, 2005
  Global Bonds   A2   Moody’s (U.S.A.)   Current valuation
July 14, 2005
  Exchangeable Bonds   A2   Moody’s (U.S.A.)   Current valuation
July 27, 2005
  Global Bonds   A   S&P (U.S.A.)   Current valuation
July 27, 2005
  Exchangeable Bonds   A   S&P (U.S.A.)   Current valuation
III. FINANCIAL INFORMATION
1. Summary Financial Statements
                                         
(Unit: in million Won)
    Quarter ended    
    September 30,   Year ended December 31,
Classification   2006   2005   2004   2003   2002
Current assets
    4,121,627       4,172,485       3,854,345       3,460,706       2,746,991  
— Quick assets
    4,104,736       4,166,500       3,843,384       3,452,682       2,736,273  
— Inventory
    16,891       5,985       10,961       8,024       10,718  
Fixed assets
    10,882,707       10,349,191       10,166,360       9,915,253       9,974,227  
— Investments
    3,341,456       2,366,760       2,112,488       1,763,359       3,132,330  
— Tangible assets
    4,371,898       4,595,884       4,605,253       4,551,626       4,451,548  
— Intangible assets
    3,169,353       3,386,547       3,448,619       3,600,268       2,390,350  
Total assets
    15,004,334       14,521,676       14,020,705       13,375,959       12,721,218  
Current liabilities
    2,927,373       2,747,268       2,859,711       4,231,974       4,015,859  
Fixed liabilities
    3,392,550       3,516,528       4,033,902       3,202,147       3,168,412  
Total liabilities
    6,319,923       6,263,796       6,893,613       7,434,121       7,184,271  
Capital
    44,639       44,639       44,639       44,639       44,576  
Capital surplus
    2,963,880       2,966,198       2,983,166       2,915,964       2,884,385  
— Surplus from share issuance
    2,915,887       2,915,887       2,915,887       2,915,964       2,884,385  
— Other capital surplus
    47,993       50,311       67,279              
Income surplus
    7,565,455       7,269,861       6,156,708       5,140,349       4,897,099  
Capital adjustment
    (1,889,564 )     (2,022,817 )     (2,057,422 )     (2,159,114 )     (2,289,112 )
Total capital
    8,684,410       8,257,881       7,127,091       5,941,838       5,536,948  
Sales
    7,891,177       10,161,129       9,703,681       9,520,244       8,634,049  

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(Unit: in million Won)
    Quarter ended    
    September 30,   Year ended December 31,
Classification   2006   2005   2004   2003   2002
Operation income
    2,045,510       2,653,570       2,359,581       3,080,660       2,683,676  
Ordinary income
    1,650,637       2,554,613       2,115,778       2,714,194       2,179,993  
Current net income
    1,167,300       1,871,380       1,494,852       1,942,750       1,511,278  
 
*   See the attached Korean GAAP Non-consolidated Financial Statements.
IV. AUDITOR'S OPINION
1. Auditor
             
Quarter ended            
September 30, 2006   September 30, 2005   2005   2004
Deloitte Anjin LLC
  Deloitte Anjin LLC   Deloitte Anjin LLC   Deloitte Hana Anjin LLC
2. Audit Opinion
         
Term   Auditor’s opinion   Issues noted
Quarter ended September 30, 2006   Appropriate  
Quarter ended September 30, 2005   Appropriate  
Year ended December 31, 2005   Appropriate  
Year ended December 31, 2004   Appropriate  
3. Remuneration for Independent non-executive Auditors for the Past Three Fiscal Years
A. Audit Contracts
                         
(Unit: in thousand Won)
Term   Auditors   Contents   Fee   Total hours
Quarter ended September 30, 2006
  Deloitte Anjin LLC   Semi-annual review
Quarterly review
Non-consolidated financial   statements audit
Consolidated financial statements
  audit
    656,000       7,637  
Year ended December 31, 2005
  Deloitte Anjin LLC   Semi-annual review
Quarterly review
Non-consolidated financial
  statements audit
Consolidated financial statements
  audit
    447,000       5,177  
Year ended December 31, 2004
  Deloitte Hana Anjin LLC   Semi-annual review
Quarterly review
Non-consolidated financial
  statements audit
Consolidated financial statements
  audit
    360,000       4,808  

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B. Non-Audit Services Contract with External Auditors
                     
(Unit: in thousand Won)
Term   Contract date   Service provided   Service period   Fee
Quarter ended September 30, 2006
  April 30, 2006   Tax consulting   7 days     45,000  
 
  July 26, 2006   Financial consulting   7 days     40,000  
Year ended December 31, 2005
  February 4, 2005  
Advisory service regarding the set up of the internal control
  9 days     46,080  
 
  March 30, 2005  
— Form 20-F for the year ended December 31, 2003
  10 days     20,200  
 
     
— Response to the U.S. S.E.C. comments regarding the Form 6-K including the U.S. GAAP consolidated financial statements for the six months ended June 30, 2004
           
 
  March 31, 2005  
Tax adjustment for the year ended December 31, 2004
  7 days     24,920  
 
  April 15, 2005   Tax consulting   3 days     5,000  
 
  April 29, 2005   Tax consulting   7 days     19,000  
 
  June 1, 2005   2004 English audit   20 days     86,000  
 
  July 18, 2005   Tax consulting   5 days     13,500  
 
  December 31, 2005   Tax consulting   All year (100 hours)     10,000  
Year ended December 31, 2004
  March 2, 2004  
Consulting on the issuance of overseas unsecured debenture
  17 days     49,500  
 
  March 30, 2004  
Tax adjustment for the year ended December
31, 2003
  5 days     22,650  
 
  April 1, 2004   Financial due diligence   6 days     6,100  
 
  April 10, 2004   Thailand tax consulting   4 days     12,000  
 
  April 14, 2004  
Consulting on issuance of overseas exchangeable bond
  15 days     48,800  
 
  May 10, 2004   Indonesia tax consulting   4 days     9,600  
 
 
September 30, 2004
 
U.S. GAAP Consolidated Audit (yearly basis)
  20 days     86,000  
 
 
September 30, 2004
 
U.S. GAAP Consolidated Audit (Semi-annual basis)
  30 days     114,000  
 
  October 15, 2004   Consulting on internal control   50 days     171,000  
 
          recommendations            

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V. MANAGEMENT STRUCTURE
1. Summary of Management Structure
A. Board of Directors
(1) Authority of the Board of Directors
  a)   Authority of the board of directors under Article 7 of the Regulations of the Board of Directors
    Convocation of shareholders’ meeting and submission of agenda
 
    Prior approval of financial statements
 
    Decisions on issuance of new shares
 
    Long-term borrowings, issuance of corporate bonds and redemptions
 
    Capital transfer of reserves
 
    Election of CEO and representatives
 
    Appointment of executive directors
 
    Establishment, transfer or closure of branches
 
    Enactment of and revision to the Regulations for the Board of Directors
 
    Annual business plan and budgeting
 
    Approval of investments of Won 15 billion or above
 
    Planned budget increases and changes for investments or Won 15 billion or above
 
    Diversification into new businesses
 
    Investments and joint ventures of Won 15 billion or above (excluding matters subject to prior approval by independent non-executive directors)

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      Establishment of subsidiaries
   
      Guarantees of Won 15 billion or above (excluding matters subject to prior approval by independent non-executive directors)
   
      Transactions undertaken with related parties equal to or above the lesser of an amount equivalent to 10% of capital or Won 10 billion, and any material changes to such transactions in accordance with the Anti-trust Law and Fair Trade Act
   
      Enactment of and amendment to the Internal Trading Procedures
   
      Other matters considered necessary by the Board of Directors and those requiring Board of Directors’ approval under applicable laws
  b)   Reporting items under Article 7.2 of the Regulations of the Board of Directors
      The representative director must report the following to the Board of Directors within two months after the date of occurrence:
      Results for the six months ended June 30 of each year
   
      Execution of investments between Won 5 billion and Won 15 billion
   
      New investments and joint ventures under Won 15 billion
   
      Acquisition of non-operational fixed assets
   
      Disposition of fixed assets of Won 15 billion or above
   
      Matters related to guarantees of under Won 15 billion
   
      Internal trading not subject to approval by the Board of Directors
   
      Matters delegated to the representative director that the Board of Directors requires to be reported
(2) Publication of Information on Director Candidates Prior to the Shareholders’ Meeting for the Election of Directors and Shareholders’ Nomination
  a)   On February 16, 2006, through the convocation of the shareholders’ meeting, information on candidates Kim Yong Woon and Lim Hyun Jin was publicly disclosed.
 
  b)   There was no nomination by the shareholders.
(3) Significant Activities of the Board of Directors
             
Meeting   Date   Agenda   Approval
264th(the first meeting of 2006)
  January 23, 2006  
—    Financial statements for the year ended December 31, 2005
  Approved as proposed
 
           
 
     
—    Annual business report for the year ended December 31, 2005
  Approved as proposed
 
           
 
     
—    Organization of Independent non-executive Director Nomination Committee
  Approved as proposed
 
           
 
     
—    Amendment of regulation for the Compensation Review Committee
  Amendment to be proposed to the Board of Directors in April, 2006

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Meeting   Date   Agenda   Approval
265th (the second meeting of 2006)
  February 14, 2006  
— Convocation of the 22nd General Meeting of Shareholders
  Approved as proposed
 
           
266th (the third meeting of 2006)
  March 31, 2006  
— Election of committee members
  Approved as proposed
 
           
 
     
— Amendment of regulations for the Compensation Review Committee
  Approved after amendment
 
           
 
           
267th (the fourth meeting of 2006)
  April 26, 2006  
— Election of committee member for the Compensation Review Committee
  Approved as proposed
 
           
 
     
— Establishment of the Service &Technology Center (STC)
  Approved as proposed
 
           
 
     
— Exercise of the iHQ call option
  Approved as proposed
 
           
268th (the fifth meeting of 2006)
  May 26, 2006  
— Issuance of overseas convertible bonds and approval of related treasury stock disposition plan, as amended
  Approved as proposed
 
           
269th (the sixth meeting of 2006)
  June 20, 2006  
— Acquisition of China Unicom convertible bonds
  Approved as proposed
 
           
 
     
— Long-term borrowings
  Approved as proposed
 
           
270th (the seventh meeting of 2006)
  July 28, 2006  
— Interim dividends
  Approved as proposed
 
           
 
     
— Acquisition of the Company’s common stock for cancellation
  Approved as proposed
 
           
 
     
— Establishment of Global Committee and election of members
  Approved after amendment
 
           
 
     
— Issuance of corporate bonds and long-term borrowings
  Approved as proposed
 
           
271th (the eighth meeting of 2006) 
  August 31, 2006   
— Acquisition of the Company’s common stock for cancellation
  Approved as proposed
 
           
 
     
— Expansion of WCDMA investment
  Approved as proposed
 
           
 
     
— Construction of TD-SCDMA Test-bed and investment for development of related services
  Approved as proposed
 
           
272th (the ninth meeting of 2006)
  September 29, 2006  
— Report on activities in July and August 2006
 
 
           
273th (the tenth meeting of 2006)
  October 27, 2006  
— Issuance of corporate bonds
  Approved as proposed

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(4)   Committee Structure and Activities of the Board of Directors
             
    a)   Independent non-executive Director Nomination Committee
             
        ¾   Organization
(As of September 30, 2006)
         
    Members
Number of Persons   Company Directors   Independent non-executive Directors
4
  Jung Nam Cho, Sung Min Ha   Jae Seung Yoon, Sang Jin Lee
        ¾   Activities
             
Meeting   Date   Number of Attendees   Details
 
          — Election of the Chairman: Jung Nam Cho
7th Meeting (the first meeting of 2006)   February 14, 2006   3 persons/4 persons  
— 22nd General Meeting of Shareholders: Nomination of Independent non-executive director candidates
 
          — Yong Woon Kim, Hyun Jin Lim
 

* The Independent Non-executive Director Nomination Committee is a committee established under the provisions of the Articles of Incorporation.

    b)   Compensation Review Committee
             
        ¾   Organization
(As of September 30, 2006)
         
    Members
Number of Persons   Company Directors   Independent non-executive Directors
7 persons
    Dae Sik Kim, Yong Woon Kim, Dae Kyu Byun, Seung Taik Yang, Jae Seung Yoon, Sang Jin Lee, Hyun Jin Lim
        ¾   Activities
             
Meeting   Date   Number of Attendees   Details
The first meeting of 2006
  May 25, 2006   7 persons/ 7 persons   Election of chairman
The second meeting of 2006
  June 20, 2006   5 persons/ 7 persons   Discussion of operation of the Compensation Review Committee
The third meeting of 2006
  July 27, 2006   7 persons/ 7 persons   same as above
The fourth meeting of 2006
  August 30, 2006   7 persons/ 7 persons   same as above
The fifth meeting of 2006
  October 26, 2006   6 persons/ 7 persons   same as above

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  *   The Compensation Review Committee is a committee established by the resolution of the Board of Directors.
c)   Capex Review Committee
    Organization
(As of September 30, 2006)
         
    Members
Number of Persons   Company Directors   Independent non-executive Directors
5 persons
  Lee Bang Hyung   Byon Dae Kyu, Yang Seung Taek, Yoon Jae Seung, Lee Sang Jin
    Activities
             
Meeting   Date   Number of Attendees   Details
The first meeting of 2006
  February 13, 2006   4 persons/5 persons  
— Additional report on the investment plan for 2006
The second meeting of 2006
  April 25, 2006   4 persons/5 persons  
— Establishment of the Service & Technology Center
 
         
— Exercise of the iHQ call option
The third meeting of 2006
  April 26, 2006   4 persons/5 persons  
— Election of chairman
 
         
— Approval of plans for investment in contents business and restrictions thereof
The fourth meeting of 2006
  August 30, 2006   5 persons/5 persons  
— Construction of TD-SCDMA Test-bed and investment for development of related services
 
         
— Expansion of WCDMA investment
 
  *   The Capex Review Committee is a committee established by the resolution of the Board of Directors.
d)   Global Committee
  —    Organization
(As of September 30, 2006)
         
    Members
Number of Persons   Company Directors   Independent non-executive Directors
4 persons
  Ha Sung Min   Kim Dae Sik, Byon Dae Kyu, Lee Sang Jin
  —    Activities
             
Meeting   Date   Number of Attendees   Details
The first meeting of 2006
  July 27, 2006   4 persons/ 4 persons  
— Report on Vietnam (S-Fone) and United States (HELIO) operations
 
         
— Discussion on operation of Globalization Committee
The second meeting of 2006
  September 28, 2006   4 persons/ 4 persons  
— Election of chairman

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*   The Global Committee is a committee established by the resolution of the Board of Directors.
  e)   Audit Committee: See “B. Audit System” below.
*   The Audit Committee is a committee established under the provisions of the Articles of Incorporation.
B. Audit System
(1)   Establishment and Organization of the Audit Committee
  a)   The Audit Committee is composed of three or more directors. However, independent non-executive directors must account for 2/3 or more, and the members are elected by the resolution of the Board of Directors each year.
 
  b)   The Audit Committee is convened when deemed necessary by the chairman or is requested by two or more of the committee members.
 
  c)   The quorum for resolution is majority attendance with majority consent of the attending members.
(2)   Authority of the Audit Committee
Includes authority to inquire on the subsidiary companies, right to investigate the business operations and asset conditions, and right to request for a business status report pursuant to the Audit Committee Regulations.
(3)   Members of the Audit Committee
Audit Committee Members are directors Kim Dae Sik, Kim Yong Woon and Im Hyun Jin.
(4)   Major Activities of the Audit Committee
                 
Meeting   Date   Agenda   Approval   Remarks
The first meeting of 2006
  January 20, 2006  
— Report on operation of internal accounting controls
   
The second meeting of 2006
  February 13, 2006  
— Audit report for the year ended December 31, 2005
  Approved as proposed  
 
     
— Evaluation of internal accounting controls
  Approved as proposed    

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Table of Contents

                 
Meeting   Date   Agenda   Approval   Remarks
The third meeting of 2006
  February 27, 2006  
— Auditor’s opinion on the internal audit system
  Approved as proposed    
 
     
— Management audit schedule for 2006
   
 
     
— Proposal for the election of outside auditor for 2006-2008 period
     
The fourth meeting of 2006
  March 8, 2006  
— Election of outside auditor for 2006-2008 period
  Approved as proposed  
The fifth meeting of 2006
  April 25, 2006  
— Election of chairman
  Approved as proposed    
 
     
— Remuneration for outside auditor
  Approved as proposed  
 
     
— Collective re-approval of outside auditor’s service schedule for 2006
  Approved as proposed    
 
     
— Management report
     
The sixth meeting of 2006
  May 25, 2006  
— Report on issuance of overseas convertible bonds and approval of related treasury stock disposition plan, as amended
   
The seventh meeting of 2006
  June 20, 2006  
— Audit report for 2005 US GAAP financial statements
   
The eighth meeting of 2006
  July 5, 2006  
— Report on operation of Ethics Counseling Center
       
 
     
— Report on activities relating to the prevention of ethical issues
   
 
     
— Report on the Company’s current operations
       
The ninth meeting of 2006
  July 27, 2006  
— Interim dividend plan
       
 
     
— Plan to acquire the Company’s common stock for cancellation
   
 
     
— Management audit results for the first half of 2006
       
The tenth meeting of 2006
  August 30, 2006  
— Plans for issuance of corporate bonds and long-term borrowings
       
 
     
— Plan to acquire the Company’s common stock for cancellation
   
 
     
— Report on the Company’s current operations
       
The eleventh meeting of 2006
  October 26, 2006  
— Report on status of internal accounting controls
       
 
     
— Plan for issuance of corporate bonds
   
 
     
— Report on the Company’s current operations
       

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C. Exercise of Voting Rights by the Shareholders
(1)   Use of the Cumulative Voting System
    a)  Pursuant to the Articles of Incorporation, the cumulative voting system was first introduced in the General Meeting of Shareholders in 2003.
 
    b)  Articles of Incorporation
    Article 32 (3) (Election of Directors): Cumulative voting under Article 382-2 of the Commercial Code will not be applied for the election of directors.
 
    Article 4 of the 12th Supplement to the Articles of Incorporation (Interim Regulation): Article 32 (3) of the Articles of Incorporation shall remain effective until the day immediately preceding the date of the general shareholders’ meeting of 2003.
D. Compensation of Officers and Others
(1) Compensation of Directors (including Independent non-executive Directors) and Members of the Audit Committee
                             
                    (Unit: in million Won)
            Total amount        
            approved by the        
            Meeting of   Average payment    
Classification   Total payment   Shareholders   per person   Remarks
Company directors (4 persons)
    4,026       12,000       1,007    
Independent non-executive
directors (8 persons)
    460               63     Including members of the Audit Committee (4 persons)

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(2)   Granting and Exercise of Stock Options
                                             
(As of September 30, 2006)                       (Unit: in thousand Won, shares)
                        Amount            
        Grant   Method of   Type of   Changes   not   Exercise   Exercise   Final
Grantees   Relationship   date   grant   shares   Granted   Exercised   Cancelled   exercised   period   price   price
Cho Jung Nam
  Registered officer   March 8, 2002   Distribution of treasury or new shares   Common stock   6,150       6,150   Within two years following the third year after the date of grant (March 8, 2002)   267   215
Kim Young Jin
    March 8, 2002   "   Common stock   790       790   "   "   "
Kim Sin Bae
  Registered officer   March 8, 2002   "   Common stock   1,650       1,650   "   "   "
Ha Sung Min
  Registered officer   March 8, 2002   "   Common stock   690       690   "   "   "
Lee Sang Jin
  Registered officer   March 8, 2002   "   Common stock   1,000       1,000   "   "   "
Kim Dae Sik
  Registered officer   March 8, 2002   "   Common stock   1,000       1,000   "   "   "
Nam Sang Ku
  Registered officer   March 8, 2002   "   Common stock   1,000       1,000   "   "   "
Sung Ki Jung
    March 8, 2002   "   Common stock   1,000       1,000   "   "   "
Byon Dae Kyu
  Registered officer   March 8, 2002   "   Common stock   1,000       1,000   "   "   "
Yoon Jae Seung
  Registered officer   March 8, 2002   "   Common stock   1,000       1,000   "   "   "
Lee Bang Hyung
  Registered officer   March 8, 2002   "   Common stock   1,620       1,620   "   "   "
Kim Dae Ki and 58 others
    March 8, 2002   "   Common stock   48,830       48,830   "   "   "
Sub-total
          65,730       65,730      
Total
          65,730       65,730      
 
* The stock options granted on March 8, 2002 may be exercised between March 8, 2005 and March 7, 2007.
* The final price was calculated as of November 13, 2006.
* Although the total amount granted in or after 2001 is 109,550 shares, the outstanding number of options after deducting the number of options that have expired is 65,730 shares.

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2. Affiliated Companies
(1)   Summary of Corporate Group
— Name: SK Group
(2)   Capital Investments between Affiliated Companies
         
(As of September 30, 2006)       * Based on common shares
                                                                 
    Invested companies
Investing company   SK Corporation   SK Networks   SK Telecom   SK Chemicals   SKC   SK E&C   SK Shipping   SK Securities
SK Corporation
            40.64 %     21.75 %             44.37 %             72.13 %        
SK Networks
                    1.34 %                     0.02 %     17.71 %     22.71 %
SK Telecom
                                                               
SK Chemicals
                                            58.03 %                
SKC
                            3.39 %                     10.16 %     12.41 %
SK E&C
                                                               
SK Shipping
                                                               
SK Securities
                                                               
Walkerhill
                                                               
SK C&C
    11.16 %                                                        
SK incheon oil
                                                               
Daehan City Gas
                                                               
SK Telink
                                                               
Busan City Gas
                                                               
SK E&S
                                                               
SK Communications
                                                           
iHQ
                                                               
WiderThan
                                                               
Total affiliated
                                                               
companies
    11.16 %     40.64 %     23.09 %     3.39 %     44.37 %     58.05 %     100.00 %     35.12 %

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Table of Contents

                                                                 
    Invested companies
Investing companies   Walkerhill   SK E&S   SK Gas   SK C&C   DOPCO   Cheongju Gas   Gumi Gas   Pohang Gas
SK Corporation
            51.00 %                     32.38 %                        
SK Networks
    9.68 %                     15.00 %     4.61 %                        
SK Telecom
                            30.00 %                                
SK Chemicals
    0.25 %                                                        
SKC
    7.50 %                                                        
SK E&C
                                                               
SK Shipping
                                                               
SK Securities
                                                               
Walkerhill
                                                               
SK C&C
                                                               
SK incheon oil
                                    5.23 %                        
Daehan City Gas
                                                               
SK Telink
                                                               
Busan City Gas                                                                
SK E&S
                    45.53 %                     100.00 %     100.00 %     100.00 %
SK Communications
                                                               
iHQ
                                                               
WiderThan
                                                               
Total affiliated companies     17.43 %     51.00 %     45.53 %     45.00 %     42.23 %     100.00 %     100.00 %     100.00 %
                                                                 
    Invested companies
Investing companies   Daehan City
Gas
  Daehan
Engineering
  SK Sci-tech   SK Capital   K-Power   SK NJC   SK Telink   Busan City
Gas
SK Corporation
                                    65.00 %                        
SK Networks
                                                               
SK Telecom
                            100.00 %                     90.77 %        
SK Chemicals
                    50.00 %                     60.00 %                
SKC
                                                               
SK E&C
                                                               
SK Shipping
                                                               
SK Securities
                                                               
Walkerhill
                                                               
SK C&C
                                                               
SK incheon oil
                                                               
Daehan City Gas
            100.00 %                                             7.84 %
SK Telink
                                                               
Busan City Gas
                                                               
SK E&S
    40.00 %                                                     40.00 %
SK Communications
                                                               
iHQ
                                                               
WiderThan
                                                               
Total affiliated companies
    40.00 %     100.00 %     50.00 %     100.00 %     65.00 %     60.00 %     90.77 %     47.84 %

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    Invested companies
    Stellar   Jeonnam   Gangwon City   Iksan City   Iksan   OK Cashbag   Chungnam   SK
Investing companies   Shipping   Gas   Gas   Iksan City Gas   Energy   Service   City Gas   Wyverns
SK Corporation
                                            89.18 %                
SK Networks
                                                               
SK Telecom
                                            3.86 %             99.99 %
SK Chemicals
                                                               
SKC
                                                               
SK E&C
                                                               
SK Shipping
    80.82 %                                                        
SK Securities
                                                               
Walkerhill
                                                               
SK C&C
                                                               
SK incheon oil
                                                               
Daehan City Gas
                                                               
SK Telink
                                                               
Busan City Gas
                                                               
SK E&S
            100.00 %     100.00 %     100.00 %     100.00 %             100.00 %        
SK Communications
                                                               
iHQ
                                                               
WiderThan
                                                               
Total affiliated companies
    80.82 %     100.00 %     100.00 %     100.00 %     100.00 %     93.04 %     100.00 %     99.99 %

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    Invested companies
Investing companies   Infosec   MRO Korea   WiderThan   SK Communications   SK Telesys   Innoace   AirCROSS
SK Corporation
                                                       
SK Networks
            51.00 %                                        
SK Telecom
                    10.10 %     86.45 %             14.25 %     38.10 %
SK Chemicals
                                                       
SKC
    20.63 %                             77.13 %                
SK E&C
                                                       
SK Shipping
                                                       
SK Securities
                                                       
Walkerhill
                                                       
SK C&C
    48.14 %                                                
SK incheon oil
                                                       
Daehan City Gas
                                                       
SK Telink
                            1.19 %                        
Busan City Gas
                                                       
SK E&S
                                                       
SK Communications
                                                       
iHQ
                                                       
WiderThan
                                            7.50 %     42.86 %
Total affiliated companies     68.77 %     51.00 %     10.10 %     87.64 %     77.13 %     21.75 %     80.95 %
                                                                 
    Invested companies
                Dongshin                
Investing companies   Encar network   Global C&I   Oil chain   Pharmaceutical   Paxnet   TU Media   SK Utis   SK CTA
SK Corporation
    50.00 %             50.00 %                                     50.00 %
SK Networks
                                                               
SK Telecom
            50.00 %                     65.90 %     29.58 %                
SK Chemicals
                            40.14 %                     60.00 %        
SKC
                                                               
SK E&C
                                                               
SK Shipping
                                                               
SK Securities
            40.00 %                                                
Walkerhill
                                                               
SK C&C
                                                               
SK incheon oil
                                                               
Daehan City Gas
                                                               
SK Telink
                                                               
Busan City Gas
                                                               
SK E&S
                                                               
SK Communications
                                                               
iHQ
                                                               
WiderThan
                                                               
Total affiliated companies     50.00 %     90.00 %     50.00 %     40.14 %     65.90 %     29.58 %     60.00 %     50.00 %

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    Invested companies
Investing companies   Seoul Records   In2Gen   Independence   SK Petrochemical   SK Mobile Energy   SKC Media   SK Incheon Oil
SK Corporation
                                    88.34 %             90.63 %
SK Networks
                                                       
SK Telecom
    60.00 %                                                
SK Chemicals
            45.03 %             100.00 %                        
SKC
                                    11.66 %     100.00 %        
SK E&C
                                                       
SK Shipping
                                                       
SK Securities
                                                       
Walkerhill
                                                       
SK C&C
                    67.78 %                                
Daehan City Gas
                                                       
SK Telink
                                                       
Busan City Gas
                                                       
SK Capital
                                                       
SK E&S
                                                       
Jeonnam City Gas
                                                       
Gangwon City Gas
                                                       
WiderThan
                                                       
Total affiliated companies     60.00 %     45.03 %     67.78 %     100.00 %     100.00 %     100.00 %     90.63 %

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    Invested companies
Investing companies   iHQ   YTN Media   I Film Co.   NTREEV Soft   SK I-Media
SK Corporation
                                       
SK Networks
                                       
SK Telecom
    34.28 %                                
SK Chemicals
                                       
SKC
                                       
SK E&C
                                       
SK Shipping
                                       
SK Securities
                                       
Walkerhill
                                       
SK Gas
                                       
SK C&C
                                    40.00 %
SK incheon oil
                                       
Daehan City Gas
                                       
SK Telink
                                       
Busan City Gas
                                       
SK E&S
                                       
SK Communications
                                    60.00 %
IHQ
            51.42 %     45.00 %     51.00 %        
WiderThan
                                       
Total affiliated companies
    34.28 %     51.42 %     45.005       51.00 %     100.00 %

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VI. SHARES
1. Distribution of Shares
A. Shareholdings of Major Shareholders and other Related Parties
     
(As of September 30, 2006)   (Unit: share, %)
                                                                 
            Number of shares owned (equity rate)    
            Beginning   Increase   Decrease   Ending   Cause
        Types of   Number of   Ownership   Number of   Number of   Number of   Ownership   of
Name   Relationship   shares   shares   ratio   shares   shares   shares   ratio   change
SK Corporation
  Parent company   Common stock     17,663,127       21.47                   17,663,127       21.75        
SK Networks
  Affiliated company   Common stock     1,085,325       1.32                   1,085,325       1.34        
Tae Won Choi
  Officer of affiliated company   Common stock     100       0.00                   100       0.00        
Shin Won Choi
  Officer of affiliated company   Common stock     700       0.00                   700       0.00        
Shin Bae Kim
  Director   Common stock     1,270       0.00                   1,270       0.00        
Dae Kyu Byun
  Director   Common stock     50       0.00                   50       0.00        
Jae Seung Yoon
  Director   Common stock     200       0.00                   200       0.00        
Bang Hyung Lee
  Director   Common stock     1,630       0.00             1,230       400       0.00        
Sung Min Ha
  Director   Common stock     738       0.00                   738       0.00        
Total
      Common stock     18,753,140       22.79             1,230       18,751,910       23.10        
 
      Preferred stock     0       0                   0       0          
Total
        18,753,140       22.79             1,230       18,751,910       23.10          
Largest sharedholder: SK Corporation                      Number of related parties: 8 persons

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B. Shareholders with More than 5% Shareholding
     
(As of September 30, 2006)   (Unit: share, %)
                                                     
        Common share   Preferred share   Sub-total
        Number of   Ownership   Number of   Ownership   Number of   Ownership
Rank   Name (title)   shares   ratio   shares   ratio   shares   ratio
1
  Citibank ADR     22,330,137       27.50                   22,330,137       27.50  
2
  SK Corporation     17,663,127       21.75                   17,663,127       21.75  
3
  SK Telecom     8,563,054       10.55                   8,563,054       10.55  
Total
        48,556,318       59,80                   48,556,318       59.80  
C. Shareholder Distribution
 
(As of June 30, 2006)                                        
    Number of           Number of        
Classification   shareholders   Ratio (%)   shares   Ratio (%)   Remarks
Total minority shareholders
    20,018       99.95       30,266,748       36,78        
Minority shareholders (corporate)
    953       4.75       12,596,711       15.31        
Minority shareholders (individual)
    19,065       95.19       17,670,037       21.47        
Largest shareholder
    1       0.00       17,663,127       21.47        
Major shareholders
                             
Other shareholders
    8       0.03       34,346,836       41.74        
Other shareholders (corporate)
    6       0.02       10,995,387       13.36        
Other shareholders (individual)
    2       0.00       23,351,449       28.38        
Total
    20,027       100.00       82,276,711       100.00        

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2. Share Price and Trading Volume in the Last Six Months
A. Domestic Securities Market
     
    (Unit: Won, shares)
                                                         
        September                    
Types   2006   August 2006   July 2006   June 2006   May 2006   April 2006
Common share
  Highest     205,500       202,500       205,000       234,000       237,500       225,000  
 
  Lowest     189,000       179,000       188,500       193,000       207,500       188,500  
Monthly transaction volume
    4,634,645       5,158,605       3,069,172       4,301,579       3,653,171       5,258,280  
B. Overseas Securities Market
     
New York Stock Exchange   (Unit: US$, ADR)
                                                         
            September                    
Types   2006   August 2006   July 2006   June 2006   May 2006   April 2006
Depository receipt
  Highest     24.16       22.43       23.75       26.75       27.70       26.70  
 
  Lowest     22.20       21.14       21.87       22.54       24.91       23.31  
Monthly transaction volume
    15,993,800       18,427,807       15,287,500       25,627,800       23,618,694       16,620,193  
VII. EMPLOYEES
     
(As of September 30, 2006)   (Unit: persons, in million Won)
                                                                 
    Number of employees                    
    Office                                   Total   Average    
    managerial   Production                   Average   quarterly   wage per    
Classification   positions   positions   Others   Total   service year   wage   person   Remarks
Male
    3,741                   3,741       9.6       170,937       45.7        
Female
    534                   534       8.0       20,297       38.0        
Total
    4,275                   4,275       9.4       191,234       44.7        
VIII. TRANSACTIONS WITH RELATED PARTIES
1. Transactions with the Largest Shareholder
A. Provisional Payment and Loans (including loans on marketable securities)

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    (Unit: in million Won)
                                                         
                   
Name       Account   Change details   Accrued    
(Corporate name)   Relationship   category   Beginning   Increase   Decrease   Ending   interest   Remarks
SK Wyverns
  Affiliated company   Long-term and short-term loans     5,857             575       5,282       356        
B. Equity Investments
     
    (Unit: in million Won)
                                                 
           
Name       Details    
(Corporate name)   Relationship   Types of Investment   Beginning   Increase   Decrease   Ending   Note
SLD Telecom, Pte. Ltd.
  Affiliated company   Common share     93,987       97,285             191,272        
SKT U.S.A. Holdings
  Affiliated company   Common share     123,214       75,499             198,713        
SK Mobile
  Affiliated company   Common share           10,322             10,322        
SKT-HP Fund
  Affiliated company   Common share     6,415             6,415                
iHQ
  Affiliated company   Common share     14,440       27,352             41,792          
Cyworld Japan Co., Ltd.
  Affiliated company   Common share     1,309       1,832             3,141          
China STC
  Affiliated company   Common share           1,343             1,343          
Total
    239,365       213,633       6,415       446,583        

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C. Transfer of Assets
                                 
(Unit: in thousand won)
        Transfer details    
                    Amount    
Name           Transfer   Transfer   Transfer (out)   Transfer (in)    
(Corporate name)   Relationship   Objective   purpose   date   amount   amount   Remarks
EnCar Network
  Affiliated company   12 vehicles   Disposition of surplus vehicles   January to
June 2006
      120,819    
 
 
      Total               120,819      
2.   Transactions with Shareholders (excluding the largest shareholder and others), Officers, Employees and other Interested Parties
A. Provisional Payment and Loans (including loans on marketable securities)
* Agents
                                                     
(Unit: in million Won)
        Account   Change details   Accrued    
Name (Corporate name)   Relationship   category   Beginning   Increase   Decrease   Ending   interest   Remarks
‘A1’ and others
  Agency   Long-term and short-term loans     62,776       74,783       76,533       61,026       10    
     
* Overseas investment companies
                                         
(Unit: in million Won)
                     
Name       Account   Change details        
(Corporate name)   Relationship   category   Beginning   Increase   Decrease   Ending   Accrued interest   Remarks
DSS Mobile Com. (India)
  Overseas Investment
company
  Long-term loans     18,887           18,887       Payment guarantee

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B.   Equity Investments
                                             
(Unit: in million Won)
            Details            
Name (Corporate name)   Relationship   Types of Investment   Beginning   Increase   Decrease   Ending   Remarks
Flarion Technologies, Inc.
  Affiliated party   Convertible
preferred share
    3,638             3,638          
 
                                           
Qualcomm, Inc.
  Affiliated party   Common share           2,756             2,756    
 
                                           
Mobile Welcome Co.
  Affiliated party   Common share     1,000             1,000          
 
                                           
Cyper Casting
  Affiliated party   Common share           141             141          
 
  Total         4,638       2,897       4,638       2,897    
IX. OTHER RELEVANT MATTERS
1. Developments in the Items mentioned in prior Reports on Important Business Matters
A. Status and Progress of Major Management Events
             
Date of            
Disclosure in            
Korea   Title   Report   Reports status
October 26, 2001
  Resolution on trust agreement for the acquisition of treasury shares and others   1. Signatories: Shinhan Bank,
Hana Bank,
Cho Hung Bank, Korea Exchange Bank
2. Contract amount: Won 1,300 billion
3. Purpose: to increase shareholder value
  1. On December 24, 2003, cash surplus amount from the existing trust agreement was partially reduced (Won 318 billion).
2. On September 24, 2004, the Board of Directors extended the term of the specified monetary trust agreement for 3 years.
3. As of March 31, 2006, the balance of specified monetary trust for treasury shares was Won 982 billion.

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2.   Summary Minutes of the Shareholders’ Meeting
         
Date   Agenda   Resolution
Meeting of Shareholders for the year ended December 31, 2005 (March 10, 2006)
  1. Approval of the financial statements for the year ended December 31, 2005
2. Amendment of the Articles of Incorporation
3. Remuneration limit for Directors
4. Election of Directors
(Election of Independent non-executive directors as Audit Committee members)
  Approved (Cash dividend, Won 8,000 per share)
Approved (Addition of business objective: travel business)
Approved (Won 12 billion)
Approved (Kim Yong Woon and Im Hyun Jin)
3.   Contingent Liabilities
 
A.   Material Legal Proceedings
 
(1)   Action Seeking to Vacate Judgment of the Intellectual Property Tribunal Nullifying Patent Registration Related to Caller Ring Service
  a)   Parties to the litigation: Park Won Sup (plaintiff) vs. the Company (defendant)
 
  b)   Overview: Mr. Park Won Sup (the representative director of Ad Ring Systems Co., Ltd.) claimed that certain technology the Company uses to provide the caller ring service infringed upon his patent rights, and the Company 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 and Mr. Park appealed the decision.
 
  c)   Progress: The Patent Court dismissed plaintiff’s claim (September 2005), after which the plaintiff appealed.
 
  d)   Impact on business: In the event that the case is decided against the Company, there is a risk of material future royalty obligations. However, given the progress of the proceedings, the estimated impact should not be large; however, the actual impact may differ depending on future events.
(2)   Actions for the Cancellation of the International Registration for Satellite Network
a) Parties to the litigation: Korea Multinet Co., Ltd. (“Korea Multinet”) vs. the Ministry of Information and Communication (“MIC”; the Company is participating in the action on behalf of MIC)
b) Overview: Korea Multinet brought an administrative action against MIC to cancel the Company’s international satellite frequency registration related to the satellite DMB business.
c) Progress: The trial court found for the defendant and the appellate court affirmed the judgment of the trial court (June 30, 2004). The plaintiff appealed and the case is currently pending at the Supreme Court.
d) Impact on business: Given the progress of the proceedings, no significant impact on the Company’s business is expected; however, the actual impact may differ depending on future events.
(3)   Actions for the Cancellation of Key Communication Business Licenses and Allotment of Satellite DMB Frequency
a) Parties to the litigation: Korea Multinet vs. MIC (the Company is participating in the action on behalf of MIC)

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b) Overview: Korea Multinet brought an administrative action against MIC to cancel the Company’s key communication business licenses and the allotment of the Company’s satellite DMB frequency.
c) Progress: Trial currently in progress
d)   Impact on business: The Company plans to provide full support to MIC in the action although no significant impact to the Company’s business is expected; however, the actual impact may differ depending on future events.

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SK TELECOM CO., LTD.
NON-CONSOLIDATED FINANCIAL STATEMENTS
THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
AND INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

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Independent Accountants’ Review Report
English Translation of a Report Originally Issued in Korean
To the Stockholders and Board of Directors of
SK Telecom Co., Ltd. :
We have reviewed the accompanying non-consolidated balance sheet of SK Telecom Co., Ltd. (the “Company”) as of September 30, 2006 and the related non-consolidated statements of income and cash flows for the three months and nine months ended September 30, 2006 and 2005, all expressed in Korean won. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these financial statements based on our reviews.
We conducted our reviews in accordance with standards for review of interim financial statements in the Republic of Korea. Those standards require that we plan and perform the review to obtain moderate assurance as to whether the financial statements are free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data, and this provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.
Based on our reviews, nothing has come to our attention that causes us to believe that the financial statements referred to above are not presented fairly, in all material respects, in conformity with accounting principles generally accepted in the Republic of Korea.
We have previously audited, in accordance with auditing standards generally accepted in the Republic of Korea, the non-consolidated balance sheet of the Company as of December 31, 2005, and the related non-consolidated statements of income, appropriations of retained earnings and cash flows for the year then ended (not presented herein); and in our report dated February 3, 2006, we expressed an unqualified opinion on those non-consolidated financial statements. The accompanying balance sheet as of December 31, 2005, which is comparatively presented, does not differ in material respects from such audited non-consolidated balance sheet.

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Our reviews also comprehended the translation of the Korean won amounts into U.S. dollar amounts and nothing has come to our attention that causes us to believe that such translation has not been made in conformity with the basis stated in Note 2(a). Such U.S. dollar amounts are presented solely for the convenience of readers outside of Korea.
Accounting principles and review standards and their application in practice vary among countries. The accompanying financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to review such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying financial statements are for use by those knowledgeable about Korean accounting principles and review standards and their application in practice.
October 27, 2006
/s/ Deloitte Anjin LLC
Seoul, Republic of Korea
 
 
Notice to Readers
This report is effective as of October 27, 2006, the accountants’ review report date. Certain subsequent events or circumstances may have occurred between the accountants’ review report date and the time the accountants’ review report is read. Such events or circumstances could significantly affect the accompanying financial

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statements and may result in modification to the accountants’ review report.

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SK TELECOM CO., LTD.
NON-CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2006 AND DECEMBER 31, 2005
(See Independent Accountants’ Review Report)
                                 
                    Translation into U.S. dollars  
    Korean won     (Note 2)  
    September 30,     December 31,     September 30,     December 31,  
    2006     2005     2006     2005  
    (In millions)     (In thousands)  
ASSETS
                               
 
                               
CURRENT ASSETS :
                               
Cash and cash equivalents (Notes 2 and 11)
  W 331,520     W 151,766     $ 350,444     $ 160,429  
Short-term financial instruments
    121,467       73,062       128,401       77,233  
Trading securities (Notes 2 and 3)
    483,114       745,360       510,691       787,907  
Current portion of long-term investment securities (Notes 2 and 3)
    125             132        
Accounts receivable — trade, net of allowance for doubtful accounts of W108,530 million as of September 30, 2006 and W121,319 million as of December 31, 2005 (Notes 2, 11 and 21)
    1,575,379       1,607,596       1,665,305       1,699,362  
Short-term loans, net of allowance for doubtful accounts of W9,181 million at September 30, 2006 and W648 million at December 31, 2005 (Notes 2, 5 and 21)
    58,889       64,150       62,251       67,812  
Accounts receivable — other, net of allowance for doubtful accounts of W18,464 million at September 30, 2006 and W14,246 million at December 31, 2005 (Notes 2, 11 and 21)
    1,319,083       1,333,238       1,394,379       1,409,342  
Inventories (Note 2)
    16,891       5,986       17,855       6,328  
Prepaid expenses
    125,177       101,274       132,322       107,055  
Current deferred income tax assets, net (Notes 2 and 16)
    67,637       61,152       71,498       64,643  
Currency swap (Notes 2 and 23)
    4,358             4,607        
Advanced payments and other
    17,987       28,901       19,014       30,550  
 
                       
 
                               
Total Current Assets
    4,121,627       4,172,485       4,356,899       4,410,661  
 
                       
 
                               
NON-CURRENT ASSETS :
                               
Property and equipment, net (Notes 2, 6, 10, 20 and 21)
    4,371,898       4,595,883       4,621,457       4,858,227  
Intangible assets, net (Notes 2 and 7)
    3,169,353       3,386,547       3,350,267       3,579,859  
Long-term investment securities (Notes 2 and 3)
    1,855,225       1,203,333       1,961,126       1,272,022  
Equity securities accounted for using the equity method (Notes 2 and 4)
    1,246,803       925,904       1,317,974       978,757  
Long-term loans, net of allowance for doubtful accounts of W23,720 million at September 30, 2006 and W23,737 million at December 31, 2005 (Notes 2, 5 and 21)
    12,502       14,204       13,216       15,015  
Guarantee deposits, net of allowance for doubtful accounts of W163 million as of September 30, 2006 and W312 million at December 31, 2005 (Notes 2, 11 and 21)
    117,262       122,846       123,956       129,858  
Long-term deposits and other (Note 18)
    109,663       100,474       115,922       106,210  
 
                       
 
                               
Total Non-Current Assets
    10,882,706       10,349,191       11,503,918       10,939,948  
 
                       
 
                               
TOTAL ASSETS
  W 15,004,333     W 14,521,676     $ 15,860,817     $ 15,350,609  
 
                       
(Continued)

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SK TELECOM CO., LTD.
NON-CONSOLIDATED BALANCE SHEETS (CONTINUED)
SEPTEMBER 30, 2006 AND DECEMBER 31, 2005
(See Independent Accountants’ Review Report)
                                 
                    Translation into U.S. dollars  
    Korean won     (Note 2)  
    September 30,     December 31,     September 30,     December 31,  
    2006     2005     2006     2005  
    (In millions)     (In thousands)  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                               
 
                               
CURRENT LIABILITIES :
                               
Accounts payable (Notes 11 and 21)
  W 1,044,347     W 971,558     $ 1,103,961     $ 1,027,017  
Income tax payable
    270,024       366,579       285,438       387,504  
Accrued expenses (Notes 2 and 22)
    328,269       362,178       347,007       382,852  
Dividend payable
    294       298       311       315  
Withholdings
    297,810       205,060       314,810       216,765  
Current portion of long-term debt, net (Notes 2, 8 and 10)
    946,823       809,490       1,000,870       855,698  
Current portion of subscription deposits (Note 9)
    15,769       14,875       16,669       15,724  
Advanced receipts and other
    24,037       17,230       25,409       18,214  
 
                       
 
                               
Total Current Liabilities
    2,927,373       2,747,268       3,094,475       2,904,089  
 
                       
 
                               
LONG-TERM LIABILITIES :
                               
Bonds payable, net (Notes 2 and 8)
    2,094,360       2,314,208       2,213,911       2,446,309  
Long-term borrowings (Note 8)
    200,000             211,416        
Subscription deposits (Note 9)
    21,666       23,770       22,903       25,127  
Long-term payables — other, net of present value discount of W45,756 million as of September 30, 2006 and W58,413 million as of December 31, 2005 (Note 2)
    514,244       591,587       543,598       625,356  
Obligations under capital lease (Notes 2 and 10)
    3,397       10,204       3,591       10,786  
Accrued severance indemnities, net (Notes 2 and 21)
    24,847       64,029       26,265       67,684  
Non-current deferred income tax liabilities, net (Notes 2 and 16)
    392,128       409,715       414,512       433,103  
Long-term currency swap (Notes 2 and 23)
    111,980       73,450       118,372       77,643  
Long-term interest rate swap (Notes 2 and 23)
    2,747             2,904        
Guarantee deposits received and other (Note 21)
    27,181       29,565       28,733       31,252  
 
                       
 
                               
Total Long-Term Liabilities
    3,392,550       3,516,528       3,586,205       3,717,260  
 
                       
 
                               
Total Liabilities
    6,319,923       6,263,796       6,680,680       6,621,349  
 
                       
 
                               
STOCKHOLDERS’ EQUITY :
                               
Capital stock (Notes 1 and 12)
    44,639       44,639       47,187       47,187  
Capital surplus (Notes 2 and 12)
    2,963,880       2,966,198       3,133,066       3,135,516  
Retained earnings (Note 13) :
                               
Appropriated
    6,679,235       5,470,701       7,060,502       5,782,982  
Before appropriations
    886,220       1,799,160       936,808       1,901,860  
Capital adjustments :
                               
Treasury stock (Note 14)
    (2,023,624 )     (2,047,105 )     (2,139,137 )     (2,163,959 )
Unrealized gains (losses) on valuation of long-term investment securities, net (Notes 2, 3 and 16)
    89,739       (42,134 )     94,862       (44,539 )
Equity in capital adjustments of affiliates, net (Notes 2, 4 and 16)
    64,353       77,119       68,025       81,521  
Loss on valuation of currency swap, net (Notes 2, 16 and 23)
    (21,287 )     (14,178 )     (22,502 )     (14,987 )
Loss on valuation of interest rate swap, net (Notes 2, 16 and 23)
    (1,991 )           (2,105 )      
Stock options (Notes 2,15 and 21)
    3,246       3,480       3,431       3,679  
 
                       
 
                               
Total Stockholders’ Equity
    8,684,410       8,257,880       9,180,137       8,729,260  
 
                       
 
                               
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  W 15,004,333     W 14,521,676     $ 15,860,817     $ 15,350,609  
 
                       
See accompanying notes to non-consolidated financial statements.

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SK TELECOM CO., LTD.
NON-CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(See Independent Accountants’ Review Report)
                                                                 
    Korean won     Translation into U.S. dollars (Note 2)  
    2006     2005     2006     2005  
    Three months     Nine months     Three months     Nine months     Three months     Nine months     Three months     Nine months  
    ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30  
    (In millions)     (In thousands)  
OPERATING REVENUE (Notes 2 and 21)
  W 2,712,531     W 7,891,177     W 2,595,485     W 7,534,571     $ 2,867,369     $ 8,341,625     $ 2,743,642     $ 7,964,663  
 
                                               
 
                                                               
OPERATING EXPENSES (Notes 2 and 21)
                                                               
Labor cost (Note 21)
    (100,339 )     (320,169 )     (98,112 )     (295,684 )     (106,067 )     (338,445 )     (103,712 )     (312,562 )
Commissions paid
    (806,258 )     (2,397,787 )     (747,222 )     (2,176,985 )     (852,281 )     (2,534,659 )     (789,875 )     (2,301,253 )
Depreciation and amortization (Notes 2, 6, 7 and 10)
    (383,545 )     (1,057,068 )     (379,392 )     (1,080,445 )     (405,438 )     (1,117,408 )     (401,049 )     (1,142,119 )
Network interconnection
    (207,954 )     (712,292 )     (238,966 )     (697,319 )     (219,825 )     (752,951 )     (252,607 )     (737,124 )
Leased line
    (99,339 )     (296,950 )     (98,252 )     (290,309 )     (105,010 )     (313,901 )     (103,860 )     (306,881 )
Advertising
    (68,453 )     (206,116 )     (67,234 )     (189,587 )     (72,360 )     (217,882 )     (71,072 )     (200,409 )
Research and development (Note 2)
    (51,539 )     (153,294 )     (51,772 )     (149,236 )     (54,481 )     (162,044 )     (54,727 )     (157,755 )
Rent
    (47,948 )     (141,588 )     (43,814 )     (130,897 )     (50,685 )     (149,670 )     (46,315 )     (138,369 )
Frequency usage
    (40,174 )     (118,484 )     (38,555 )     (116,288 )     (42,467 )     (125,247 )     (40,756 )     (122,926 )
Repair
    (34,844 )     (97,785 )     (33,671 )     (80,175 )     (36,833 )     (103,367 )     (35,593 )     (84,752 )
Cost of goods sold
    (11,666 )     (24,286 )     (4,323 )     (8,678 )     (12,332 )     (25,672 )     (4,570 )     (9,173 )
Other
    (102,352 )     (319,848 )     (123,239 )     (320,183 )     (108,193 )     (338,106 )     (130,274 )     (338,459 )
 
                                               
 
                                                               
Sub-total
    (1,954,411 )     (5,845,667 )     (1,924,552 )     (5,535,786 )     (2,065,974 )     (6,179,352 )     (2,034,410 )     (5,851,782 )
 
                                               
 
                                                               
OPERATING INCOME
    758,120       2,045,510       670,933       1,998,785       801,395       2,162,273       709,232       2,112,881  
 
                                               
 
                                                               
OTHER INCOME :
                                                               
Interest income (Note 3)
    12,917       49,275       12,521       35,830       13,654       52,088       13,236       37,875  
Dividends
    4,969       20,345       5,076       21,506       5,253       21,506       5,366       22,734  
Commissions (Note 21)
    9,261       27,220       7,295       23,369       9,790       28,774       7,711       24,703  
Equity in earnings of affiliates (Notes 2 and 4)
    14,415       47,831       22,318       40,484       15,238       50,561       23,592       42,795  
Foreign exchange and translation gains (Note 2)
    288       2,332       861       1,384       304       2,465       910       1,463  
Reversal of allowance for doubtful accounts
                      428                         452  
Gain on disposal of investment assets
    2,494       4,963       176,053       177,010       2,636       5,246       186,103       187,114  
Gain on disposal of property, equipment and intangible assets
    302       1,056       140       744       319       1,116       148       786  
Gain on transaction and valuation of currency swap (Notes 2 and 23)
    4,930       4,358       1,669       4,314       5,211       4,607       1,764       4,560  
Other
    13,686       35,930       6,506       26,045       14,468       37,981       6,877       27,533  
 
                                               
 
                                                               
Sub-total
    63,262       193,310       232,439       331,114       66,873       204,344       245,707       350,015  
 
                                               
(Continued)

45


Table of Contents

SK TELECOM CO., LTD.
NON-CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(See Independent Accountants’ Review Report)
                                                                 
    Korean won     Translation into U.S. dollars (Note 2)  
    2006     2005     2006     2005  
    Three months     Nine months     Three months     Nine months     Three months     Nine months     Three months     Nine months  
    ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30  
    (In millions)     (In thousands)  
OTHER EXPENSES :
                                                               
Interest and discounts
  W (61,744 )   W (178,534 )   W (59,588 )   W (191,520 )   $ (65,268 )   $ (188,725 )   $ (62,989 )   $ (202,452 )
Donations
    (20,960 )     (42,479 )     (13,358 )     (31,076 )     (22,156 )     (44,904 )     (14,121 )     (32,850 )
Foreign exchange and translation losses (Note 2)
    (1,197 )     (2,637 )     (344 )     (1,068 )     (1,265 )     (2,788 )     (364 )     (1,129 )
Loss on transaction and valuation of currency swap (Notes 2 and 23)
          (8,553 )                       (9,041 )            
Equity in losses of affiliates (Notes 2 and 4)
    (55,762 )     (112,054 )     (20,326 )     (57,524 )     (58,945 )     (118,450 )     (21,486 )     (60,808 )
Loss on disposal of investment assets
    (489 )     (3,194 )     (1 )     (63 )     (517 )     (3,376 )     (1 )     (67 )
Loss on disposal of property, equipment and intangible assets
    (1,385 )     (15,019 )     (498 )     (3,982 )     (1,464 )     (15,876 )     (526 )     (4,209 )
Special severance indemnities (Note 2)
          (144,021 )                       (152,242 )            
Other
    (33,910 )     (81,692 )     (19,666 )     (57,176 )     (35,846 )     (86,356 )     (20,789 )     (60,440 )
 
                                               
 
                                                               
Sub-total
    (175,447 )     (588,183 )     (113,781 )     (342,409 )     (185,461 )     (621,758 )     (120,276 )     (361,955 )
 
                                               
 
                                                               
ORDINARY INCOME
    645,935       1,650,637       789,591       1,987,490       682,807       1,744,859       834,663       2,100,941  
 
                                               
 
                                                               
INCOME BEFORE INCOME TAXES
    645,935       1,650,637       789,591       1,987,490       682,807       1,744,859       834,663       2,100,941  
 
                                                               
PROVISION FOR INCOME TAXES (Notes 2 and 16)
    (189,133 )     (483,337 )     (201,713 )     (564,085 )     (199,930 )     (510,927 )     (213,227 )     (596,285 )
 
                                               
 
                                                               
NET INCOME
  W 456,802     W 1,167,300     W 587,878     W 1,423,405     $ 482,877     $ 1,233,932     $ 621,436     $ 1,504,656  
 
                                               
 
                                                               
NET INCOME PER SHARE
(In Korean won and U.S. dollars) (Note 17)
  W 6,231     W 15,875     W 7,986     W 19,336     $ 6,587     $ 16,781     $ 8,442     $ 20,440  
 
                                               
 
                                                               
DILUTED NET INCOME PER SHARE
(In Korean won and U.S. dollars) (Note 17)
  W 6,135     W 15,641     W 7,849     W 19,024     $ 6,485     $ 16,534     $ 8,297     $ 20,110  
 
                                               
See accompanying notes to non-consolidated financial statements.

46


Table of Contents

SK TELECOM CO., LTD.
NON-CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(See Independent Accountants’ Review Report)
                                                                 
    Korean won     Translation into U.S. dollars (Note 2)  
    2006     2005     2006     2005  
    Three months     Nine months     Three months     Nine months     Three months     Nine months     Three months     Nine months  
    ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30  
    (In millions)     (In thousands)  
CASH FLOWS FROM OPERATING ACTIVITIES :
                                                               
 
                                                               
Net income
  W 456,802     W 1,167,300     W 587,878     W 1,423,405     $ 482,877     $ 1,233,932     $ 621,436     $ 1,504,656  
 
                                               
 
                                                               
Expenses not involving cash payments :
                                                               
Provision for severance indemnities
    6,866       33,710       10,563       29,137       7,258       35,634       11,166       30,800  
Depreciation and amortization
    416,780       1,155,994       409,075       1,168,603       440,571       1,221,981       432,426       1,235,310  
Allowance for doubtful accounts
    17,897       47,479       31,906       66,781       18,919       50,189       33,727       70,593  
Foreign translation loss
    712       1,237             63       753       1,308             67  
Loss on transaction and valuation of currency swap
          8,553                         9,041              
Equity in losses of affiliates
    55,762       112,054       20,326       57,524       58,945       118,450       21,486       60,808  
Loss on disposal of investment assets
    489       3,194       1       63       517       3,376       1       67  
Loss on disposal of property, equipment and intangible assets
    1,385       15,019       498       3,982       1,464       15,876       526       4,209  
Amortization of discounts on bonds and other
    12,082       36,513       12,128       37,095       12,771       38,598       12,821       39,212  
 
                                               
 
                                                               
Sub-total
    511,973       1,413,753       484,497       1,363,248       541,198       1,494,453       512,153       1,441,066  
 
                                               
 
                                                               
Income not involving cash receipts :
                                                               
Foreign translation gain
    (93 )     (312 )     (93 )     (96 )     (98 )     (330 )     (98 )     (101 )
Reversal of allowance for doubtful accounts
                      (428 )                       (452 )
Equity in earnings of affiliates
    (14,415 )     (47,831 )     (22,318 )     (40,484 )     (15,238 )     (50,561 )     (23,592 )     (42,795 )
Gain on disposal of investment assets
    (2,494 )     (4,963 )     (176,053 )     (177,010 )     (2,636 )     (5,246 )     (186,103 )     (187,114 )
Gain on disposal of property, equipment and intangible assets
    (302 )     (1,056 )     (140 )     (744 )     (319 )     (1,116 )     (148 )     (786 )
Gain on transaction and valuation of currency swap
    (4,929 )     (4,358 )     (1,668 )     (4,314 )     (5,210 )     (4,607 )     (1,763 )     (4,562 )
Other
          (1,532 )                       (1,620 )            
 
                                               
 
                                                               
Sub-total
    (22,233 )     (60,052 )     (200,272 )     (223,076 )     (23,501 )     (63,480 )     (211,704 )     (235,810 )
 
                                               
(Continued)

47


Table of Contents

SK TELECOM CO., LTD.
NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(See Independent Accountants’ Review Report)
                                                                 
    Korean won     Translation into U.S. dollars (Note 2)  
    2006     2005     2006     2005  
    Three months     Nine months     Three months     Nine months     Three months     Nine months     Three months     Nine months  
    ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30  
    (In millions)     (In thousands)  
Changes in assets and liabilities related to operating activities :
                                                               
Accounts receivable — trade
    (W74,179 )     (W3,275 )     (W22,864 )     (W75,558 )     ($78,413 )     ($3,462 )     ($24,169 )     ($79,871 )
Accounts receivable — other
    (12,775 )     9,315       (79,074 )     (39,107 )     (13,504 )     9,847       (83,588 )     (41,339 )
Inventories
    (8,944 )     (10,425 )     (2,512 )     (3,030 )     (9,455 )     (11,020 )     (2,655 )     (3,203 )
Prepaid expenses
    19,361       48,332       3,885       6,529       20,466       51,091       4,107       6,902  
Advanced payments and other
    1,507       10,895       (2,528 )     (25,508 )     1,593       11,517       (2,672 )     (26,964 )
Accounts payable
    129,442       73,094       36,047       (380,162 )     136,831       77,266       38,105       (401,863 )
Income taxes payable
    (61,051 )     (107,008 )     (88,650 )     (25,216 )     (64,536 )     (113,116 )     (93,710 )     (26,655 )
Accrued expenses
    (127,816 )     (33,909 )     58,058       114,689       (135,112 )     (35,845 )     61,372       121,236  
Withholdings
    3,392       92,750       (5,955 )     54,288       3,586       98,044       (6,295 )     57,387  
Current portion of subscription deposits
    314       893       371       1,202       332       944       392       1,271  
Advance receipts and other
    4,044       6,989       (28,004 )     (16,757 )     4,275       7,388       (29,603 )     (17,714 )
Deferred income taxes
    (25,021 )     (60,630 )     (16,028 )     4,347       (26,449 )     (64,091 )     (16,943 )     4,595  
Severance indemnity payments
    (869 )     (257,989 )     (3,402 )     (17,937 )     (919 )     (272,716 )     (3,596 )     (18,961 )
Deposits for group severance indemnities and other deposits
    41       183,685       1,998       9,624       43       194,171       2,112       10,173  
Dividends received from affiliate
          1,318             600             1,393             634  
 
                                               
 
                                                               
Sub-total
    (152,554 )     (45,965 )     (148,658 )     (391,996 )     (161,262 )     (48,589 )     (157,143 )     (414,372 )
 
                                               
 
                                                               
Net Cash Provided by Operating Activities
    793,988       2,475,036       723,445       2,171,581       839,312       2,616,316       764,742       2,295,540  
 
                                               
(Continued)

48


Table of Contents

SK TELECOM CO., LTD.
NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(See Independent Accountants’ Review Report)
                                                                 
    Korean won     Translation into U.S. dollars (Note 2)  
    2006     2005     2006     2005  
    Three months     Nine months     Three months     Nine months     Three months     Nine months     Three months     Nine months  
    ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30  
    (In millions)     (In thousands)  
CASH FLOWS FROM INVESTING ACTIVITIES :
                                                               
Cash inflows from investing activities :
                                                               
Decrease in short-term financial instruments, net
  W 62,298     W     W     W     $ 65,854     $     $     $  
Decrease in trading securities, net
    440,219       262,246              #     465,348       277,216              
Decrease in current portion of long-term investment securities
                      3,600                         3,805  
Collection of short-term loans
    21,584       80,292       20,009       51,495       22,816       84,875       21,151       54,434  
Proceeds from sales of long-term investment securities
    190,876       304,621       2,271       3,985       201,772       322,010       2,401       4,212  
Proceeds from sales of equity securities accounted for using the equity method
          5,079       290,979       290,979             5,369       307,589       307,589  
Decrease in guarantee deposits
    4,227       24,526       7,194       125,021       4,468       25,926       7,605       132,158  
Decrease in other non-current assets
    1,195       9,970       10,729       26,944       1,263       10,539       11,341       28,483  
Proceeds from disposal of property and equipment
    469       2,283       488       18,948       496       2,413       516       20,030  
Proceeds from disposal of intangible assets
    68       124             53       72       131             56  
 
                                               
 
                                                               
Sub-total
    720,936       689,141       331,670       521,025       762,089       728,479       350,603       550,767  
 
                                               
 
                                                               
Cash outflows for investing activities :
                                                               
Increase in short-term financial instruments, net
          (48,405 )     (7,339 )     (24,942 )           (51,168 )     (7,758 )     (26,366 )
Increase in trading securities, net
                (10,030 )     (34,976 )                 (10,603 )     (36,973 )
Extension of short-term loans
    (22,022 )     (73,942 )     (8,172 )     (52,136 )     (23,279 )     (78,163 )     (8,638 )     (55,112 )
Acquisition of long-term investment securities
    (957,200 )     (960,250 )           (12,615 )     (1,011,839 )     (1,015,063 )           (13,335 )
Acquisition of equity securities accounted for using the equity method
    (67,746 )     (213,634 )     (101,425 )     (208,569 )     (71,613 )     (225,829 )     (107,215 )     (220,475 )
Extension of long-term loans
    (4,917 )     (7,902 )     (852 )     (2,397 )     (5,198 )     (8,353 )     (901 )     (2,534 )
Increase in guarantee deposits and other non-current assets
    (17,789 )     (110,129 )     (25,676 )     (66,908 )     (18,805 )     (116,415 )     (27,142 )     (70,726 )
Acquisition of property and equipment
    (283,309 )     (714,441 )     (412,654 )     (777,921 )     (299,481 )     (755,223 )     (436,209 )     (822,327 )
Acquisition of intangible assets
    (10,165 )     (15,815 )     (12,670 )     (136,690 )     (10,745 )     (16,718 )     (13,393 )     (144,493 )
 
                                               
 
                                                               
Sub-total
    (1,363,148 )     (2,144,518 )     (578,818 )     (1,317,154 )     (1,440,960 )     (2,266,932 )     (611,859 )     (1,392,341 )
 
                                               
 
                                                               
Net Cash Used in Investing Activities
    (642,212 )     (1,455,377 )     (247,148 )     (796,129 )     (678,871 )     (1,538,453 )     (261,256 )     (841,574 )
 
                                               
(Continued)

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SK TELECOM CO., LTD.
NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(See Independent Accountants’ Review Report)
                                                                 
    Korean won     Translation into U.S. dollars (Note 2)  
    2006     2005     2006     2005  
    Three months     Nine months     Three months     Nine months     Three months     Nine months     Three months     Nine months  
    ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30     ended September 30  
    (In millions)     (In thousands)  
CASH FLOWS FROM FINANCING ACTIVITIES :
                                                               
Cash inflows from financing activities :
                                                               
Issuance of bonds
  W 197,362     W 197,362     W     W 193,683     $ 208,628     $ 208,628     $     $ 204,739  
Proceeds from long-term borrowings
          200,000                         211,416              
Increase in guarantee deposits received and other
    65       1,241       1,706       22,257       69       1,312       1,803       23,527  
 
                                               
 
                                                               
Sub-total
    197,427       398,603       1,706       215,940       208,697       421,356       1,803       228,266  
 
                                               
 
                                                               
Cash outflows for financing activities :
                                                               
Repayment of short-term borrowings
                (300,000 )     (200,000 )                 (317,125 )     (211,416 )
Repayment of current portion of long-term debt
    (3,400 )     (10,889 )           (500,000 )     (3,594 )     (11,511 )           (528,541 )
Repayment of bonds
    (350,000 )     (350,000 )                     (369,979 )     (369,979 )            
Payment of dividends
    (73,879 )     (662,815 )     (73,623 )     (758,153 )     (78,096 )     (700,650 )     (77,826 )     (801,430 )
Decrease in facility deposits
    (692 )     (2,103 )     (1,100 )     (6,838 )     (732 )     (2,223 )     (1,163 )     (7,228 )
Acquisition of treasury stock
    (209,077 )     (209,077 )                 (221,012 )     (221,012 )            
Other
    (1,762 )     (3,624 )     (550 )     (17,127 )     (1,863 )     (3,829 )     (581 )     (18,105 )
 
                                               
 
                                                               
Sub-total
    (638,810 )     (1,238,508 )     (375,273 )     (1,482,118 )     (675,276 )     (1,309,204 )     (396,695 )     (1,566,720 )
 
                                               
 
                                                               
Net Cash Used in Financing Activities
    (441,383 )     (839,905 )     (373,567 )     (1,266,178 )     (466,579 )     (887,848 )     (394,892 )     (1,338,454 )
 
                                               
 
                                                               
NET INCREASE IN CASH AND CASH EQUIVALENTS
    (289,607 )     179,754       102,730       109,274       (306,138 )     190,015       108,594       115,512  
 
                                                               
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD
    621,127       151,766       119,510       112,966       656,582       160,429       126,332       119,414  
 
                                               
 
                                                               
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD
  W 331,520     W 331,520     W 222,240     W 222,240     $ 350,444     $ 350,444     $ 234,926     $ 234,926  
 
                                               
See accompanying notes to non-consolidated financial statements.

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SK TELECOM CO., LTD.
NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
1.   GENERAL
SK Telecom Co., Ltd. (the “Company”) was incorporated in March 1984 under the laws of the Republic of Korea to engage in providing nationwide cellular telephone communication services in the Republic of Korea. The Company mainly provides wireless telecommunications in the Republic of Korea and recently acquired foreign wireless telecommunications operations in Vietnam, Mongolia and the United States of America. The Company’s common shares and depositary receipts (DRs) are listed on the Stock Market of Korea Exchange (formerly “Korea Stock Exchange”) and the New York and London Stock Exchanges, respectively. As of September 30, 2006, the Company’s total issued shares are held by the following:
                 
            Percentage of  
    Number of shares     total shares issued (%)  
SK Group
    18,748,522       23.09  
POSCO Corp.
    2,341,569       2.88  
Institutional investors and other minority shareholders
    51,540,566       63.48  
Treasury stock
    8,563,054       10.55  
 
           
 
               
 
    81,193,711       100.00  
 
           
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the Republic of Korea, using the same accounting policies which were adopted in preparing the annual financial statements. Significant accounting policies followed in preparing the accompanying financial statements are summarized as follows:
a.  Basis of Presentation
The Company’s statutory financial statements have been prepared in the Korean language (Hangul) in conformity with the accounting principles generally accepted in the Republic of Korea (“Korean GAAP”). Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with accounting principles generally accepted in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying financial statements have been condensed, restructured and translated into English with certain expanded descriptions from the Korean language financial statements. Certain information included in the Korean language financial statements, but not required for a fair presentation of the Company’s financial position, results of operations or cash flows, is not presented in the accompanying financial statements.
The official accounting records of the Company are maintained and expressed in Korean won, the currency of the country in which the Company is incorporated and operates. The translation of Korean won amounts into U.S. dollar amounts is included solely for the convenience of readers outside of the Republic of Korea and has been made at the rate of W 946.00 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 nine months ended September 30, 2006. Such translations into U.S. dollars should not be construed as representations that the Korean won amounts could be converted into U.S. dollars at that or any other rate.

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b.   Adoptions of New Statements of Korea Accounting Standards (“SKAS”)
On January 1, 2006, the Company adopted SKAS No. 18 through No. 20, which are effective from the fiscal year beginning after December 31, 2005. Such adoption of SKASs did not have an effect on the non-consolidated financial position of the Company as of September 30, 2006 or the non-consolidated ordinary income and net income of the Company for the three months and nine months ended September 30, 2006.
c.   Cash Equivalents
Cash equivalents are highly liquid investments and short term financial instruments, which are readily convertible without significant transaction cost, do not have significant risk of changes in interest rates, and with original maturities of three months or less.
d.   Allowance for Doubtful Accounts
Allowance for doubtful accounts is provided based on the estimated collectibility of individual accounts and historical bad debt experience.
e.   Inventories
Inventories, which consist mainly of replacement units for wireless telecommunication facilities and supplies for sales promotion, are stated at the lower of cost or market value, with cost determined using the moving average method. The Company maintains perpetual inventory systems, which are adjusted to physical inventory counts performed at fiscal year end. When the market value of inventories is less than the acquisition cost, the carrying amount is reduced to the market value and any difference is charged to current operations as operating expenses. There was no such loss for the three months and nine months ended September 30, 2006 and 2005.
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 impairment is other than temporary. 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 are amortized or accreted, respectively. The Company recognizes write-downs resulting from 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 asset section of the balance sheet if their maturities are within one year; otherwise such securities are recorded in the non-current section of the balance sheet.

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g.   Equity Securities Accounted for Using the Equity Method
Investment securities of affiliated companies, in which the Company has the ability to exercise significant influence, 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 stockholders’ equity of the investee. Differences between the purchase cost and the acquisition date net asset fair value of the investee are amortized over 5 to 20 years using the straight-line method. When applying the equity method of accounting, unrealized inter-company gains and losses are eliminated (See Note 4). In addition, the Company provides for additional losses for those investments accounted for using the equity method that are reduced to zero to the extent that the Company has other investment assets related to the equity method investees.
When the Company’s share of equity interest in the equity method investees increases as a result of capital transactions of the investees with (or without) consideration, the increase in the Company’s proportionate shares in the investees are treated as goodwill or negative goodwill and when the Company’s share of equity interest in the equity method investees decreases as a result of capital transactions of the investees with (or without) consideration, the decrease in the Company’s proportionate shares in the investees are accounted for as gain or loss on disposal. However, if equity method investees are subsidiaries, such differences in the Company’s proportionate shares in the investees are accounted for as capital adjustments of affiliates in the Company’s shareholders’ equity.
In translating the foreign currency forward statements of the Company’s investees operating overseas, the Company applies (a) the foreign exchange rate at the balance sheet date to the investee’s balance sheet items (except historical rates applied for shareholders’ equity), and (b) the average foreign exchange rate for the current period for income statements items. After translating the balance sheet and income statements items as noted above, the Company’s portion of the amount after deducting the translated total liabilities from translated total assets and equity is recorded as capital adjustment of affiliates in the Company’s shareholders’ equity.
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 the straight-line method) over the estimated useful lives (4~30 years) of the related assets (See Note 6).
Interest expense and other financing charges for borrowings related to the manufacture or construction of property and equipment are charged to current operations as incurred.

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i.   Intangible Assets
Intangible assets are recorded at cost, less amortization computed using the straight-line method over 5 to 20 years. The amortization for the nine months ended September 30, 2006 and 2005 were W260,627 million and W245,212 million, respectively, and for the three months ended September 30, 2006 and 2005 were W89,367 million and W81,639 million, respectively.
With its application for a license to provide IMT 2000 service, the Company has a commitment to pay W1,300,000 million to the Ministry of Information Communication (“MIC”). W650,000 million was paid in March 2001 by SK IMT Co., Ltd. (a former subsidiary of the Company), which was merged into the Company on May 1, 2003, and the remainder is required to be paid over 10 years with an annual interest rate equal to the 3-year-maturity government bond rate minus 0.75% (4.08% as of September 30, 2006). The future payment obligations are W90,000 million (related present value discount: W1,206 million) in 2007, W110,000 million in 2008, W130,000 million in 2009, W150,000 million in 2010 and W170,000 million in 2011. On December 4, 2001, SK IMT Co., Ltd. received the IMT 2000 license from MIC, and recorded the total license cost as an intangible asset. As a result of the merger with SK IMT Co., Ltd., the Company acquired such IMT license of W1,259,253 million and assumed the related long-term payable with a principal amount of W650,000 million on May 1, 2003 (the date of merger). 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. As of September 30, 2006, the present value discount related to the current portion and long-term portion of payments to be made to MIC totaled W1,206 million and W45,756 million, respectively.
j.   Convertible Bonds
The proceeds from issuance of convertible bonds are allocated between the conversion rights and the debt issued; and the portion allocable to the conversion rights is accounted for as capital surplus with a corresponding conversion right adjustment 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.   Provisions, Contingent Liabilities and Contingent Assets
The Company recognizes a provision when i) it has a present obligation as a result of a past event, ii) it is probable that a disbursement of economic resources will be required to settle the obligation, and iii) a reliable estimate can be made of the amount of the obligation (See Note 22).

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The Company does not recognize the following contingent obligations as liabilities:
     —  Possible obligations related to past events, for which the existence of a liability can only be confirmed upon occurrence of uncertain future event or events outside the control of the Company.
 
     —  Present obligations arising out of past events or transactions, for which i) a disbursement of economic resources to fulfill such obligations is not probable or ii) a disbursement of economic resources is probable, but the related amount cannot be reasonably estimated.
In addition, the Company does not recognize potential assets related to past events or transactions, for which the existence of an asset or future benefit can only be confirmed upon occurrence of uncertain future event or events outside the control of the Company.
n.   Accrued Severance Indemnities
In accordance with the Company’s policy, all employees with more than one year of service are entitled to receive severance indemnities upon termination of their employment based on length of service and rate of pay. 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 has 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 deposits with outside insurance companies, where the beneficiaries are the Company’s employees, totaling W3,418 million and W187,103 million as of September 30, 2006 and December 31, 2005, respectively, are deducted from accrued severance indemnities.
In accordance with the Korean National Pension Fund Law, the Company transferred a portion of its accrued severance indemnities to the National Pension Fund through March 1999. Such transfers, amounting to W54 million and W5,172 million as of September 30, 2006 and December 31, 2005, respectively, are deducted from accrued severance indemnities.
Actual payment of severance indemnities amounted to W257,989 million and W17,937 million for the nine months ended September 30, 2006 and 2005, respectively, and W869 million and W3,402 million for the three months ended September 30, 2006 and 2005, respectively.
Effective March 31, 2006, the Company changed its policy for the severance indemnities applicable to those employees who joined the Company before or on December 31, 2002 from cumulative method, where employees are entitled to get paid more than one month of salary each year depending on the length of service, to simple multiplier method, where employees are paid one month of salary each year regardless of their service period in accordance with the resolution of the Company’s joint labor-management conference held on March 16, 2006. As a result of such policy change, the Company has decided to distribute early settlements to those eligible employees on their accumulated severance indemnities as of March 31, 2006 on a mandatory basis. In addition, the Company paid the additional bonuses of W125,890 million for those employees who received the mandatory distribution for their early settlement as compensation for those employees. The Company recorded such compensation costs as special severance indemnities in other expenses for the nine months ended September 30, 2006. In addition, the Company executed the early retirement program and the related special bonus of W18,131 million were paid to eligible employees and accounted for as special severance indemnities in other expenses. Such costs are recorded as other expenses for the nine months ended September 30, 2006.
o.   Accounting for Employee Stock Option Compensation Plan

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The Company adopted the fair value based method of accounting for its employee stock option compensation plan (See Note 15). 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. In addition, recognized compensation costs related to stock options expired due to such stock options not being exercised within the exercisable period are transferred to other capital surplus from capital adjustments (See Note 12).
p.   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 other expenses. For operating leases, the future minimum lease payments are expensed ratably over the lease term while contingent rentals are expensed as incurred (See Note 10).
q.   Research and Development Costs
The Company charges substantially all research and development costs to expense as incurred. The Company incurred internal research and development costs of W153,294 million and W149,236 million for the nine months ended September 30, 2006 and 2005, respectively, and W51,539 million and W51,772 million for the three months ended September 30, 2006 and 2005, respectively. In addition, external research and development costs were W49,702 million and W51,394 million for the nine months ended September 30, 2006 and 2005, respectively, and W16,354 million and W17,131 million for the three months ended September 30, 2006 and 2005, respectively.
r.   Accounting for Foreign Currency Transactions and Translation
Transactions denominated in foreign currencies are recorded in Korean won based on the prevailing rate of exchange at the dates of transactions. Monetary assets and liabilities denominated in foreign currency are translated into Korean won at the Base Rates announced by Seoul Money Brokerage Services, Ltd. on the balance sheet date, which were W945.20 and W1,013.00 to US$1.00 at September 30, 2006 and December 31, 2005, respectively. The resulting gains or losses arising from the translation or settlement of such assets and liabilities are included in current operations.
s.   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 portions of the gains or losses on the hedging instruments are recorded as a separate component of stockholders’ equity and credited/charged to operations at the time the hedged transactions affect earnings, and the ineffective portions of the gains or losses are credited/charged immediately to operations.
t.   Revenue Recognitions

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Operating revenue is recognized when cellular telephone communication services are provided.
u.   Income Tax
Income tax expense is determined by adding or deducting the total income tax and surtaxes to be paid for the current period and the changes in deferred income tax assets and liabilities.
Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profits. Deferred tax liabilities are generally recognized for all taxable temporary differences with some exceptions and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which the deductible temporary differences can be utilized. The carrying amount of deferred tax assets is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered. Deferred income tax assets and liabilities are classified into current and non-current based on the classification of related assets or liabilities for financial reporting purposes (See Note 16).
v.   Handset Subsidiaries to Long-term Mobile Subscribers
Effective March 27, 2006, the Telecommunication Law of Korea was revised to allow wireless carriers to provide handset subsidiaries to customers who have maintained their wireless account with the same carrier for 18 months or longer. The Company commenced its handset subsidy program on the effective date of the revised Telecommunications Law and included a clause in the service contract which allows the Company to change the terms of its subsidy program, including the Company’s ability to terminate the program at any time after a thirty day notice to its customers. The Company charges such handset subsidiaries to commissions paid as the related payments are made.
w.   Reclassifications
Certain reclassifications have been made in prior period’s financial statements to conform to classifications used in the current period. Such reclassifications did not have an effect on the previously reported net assets as of December 31, 2005 and ordinary income and net income for the three months and nine months ended September 30, 2005.
3. INVESTMENT SECURITIES
a. Trading Securities
Trading securities as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won):
                                 
                            December 31, 2005  
    September 30, 2006     Fair value and  
    Acquisition cost     Fair value     Carrying amount     carrying amount  
Beneficiary certificates
  W 483,114     W 483,114     W 483,114     W 745,360  
 
                       

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b. Long-term Investment Securities
Long-term investment securities as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won):
                 
    September 30, 2006     December 31, 2005  
Available-for-sale equity securities
  W 841,446     W 907,069  
Available-for-sale debt securities
    1,013,904       296,264  
 
           
 
               
Total
    1,855,350       1,203,333  
Less : current portion
    (125 )      
 
           
 
               
Long-term portion
  W 1,855,225     W 1,203,333  
 
           
b-(1). Available-for-sale Equity Securities
Available-for-sale equity securities as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won):
                                                         
    Number of     Percentage     Acquisition                      
    shares at     (%) at     cost at     Fair value at             Carrying amount  
    September     September     September     September             September     December  
    30, 2006     30, 2006     30, 2006     30, 2006             30, 2006     30, 2006  
(Investments in listed companies)
                                                       
Digital Chosunilbo Co., Ltd.
    2,890,630       7.8     W 5,781     W 4,437             W 4,437     W 5,796  
hanarotelecom incorporated.
    11,045,000       4.8       121,677       77,204               77,204       56,440  
KRTnet Corporation (Formerly Korea Radio Wave Basestation Management)
    234,150       4.4       1,171       2,365               2,365       2,646  
POSCO
    2,481,310       2.8       332,662       607,921               607,921       501,225  
Comas Interactive Co., Ltd. (Formerly INNOTG Co., Ltd.)
    59,473       0.4       1,695       70               70       83  
eXtended Computing Environment Co., Ltd.
    133,333       3.3       10       917     (Note a)     917       10  
 
                                               
Sub-total
                    462,996       692,914               692,914       566,200  
 
                                               
 
 
(Investments in non-listed companies)                                                        
LG Powercomm Co., Ltd. (Formerly Powercomm Co., Ltd.)
    7,500,000       5.0     W 240,243     W 77,130     (Note b)   W 77,130     W 77,130  
Japan MBCO
    54,000       7.3       27,332     (Note c)             27,332       27,332  
Eonex Technologies Inc.
    144,000       12.6       3,600     (Note c)             4,593       4,593  
The Korea Economic Daily
    2,585,069       13.8       13,964     (Note c)             13,964       13,964  
Others
                    119,313     (Notes c and d)             22,075       22,815  
 
                                                 
Sub-total
                    404,452                       145,094       145,834  
 
                                                 
 
                                                       
(Investments in funds)
                                                       
Korea IT Fund
                        (Note e)                   190,000  
Others
                    3,438     (Note c)             3,438       5,035  
 
                                                 
Sub-total
                    3,438                       3,438       195,035  
 
                                                 
 
Total
                  W 870,886                     W 841,446     W 907,069  
 
                                                 

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(Note a)
  Common stocks of extended Computing Environment Co., Ltd. were listed on the Korea Securities Dealers Automated Quotation during the three months ended September 30, 2006.
 
   
(Note b)
  The Company recorded its investments in common stock of LG Powercomm Co., Ltd. at its fair value, which was estimated by an outside professional valuation company using the present value of expected future cash flows and the unrealized loss on valuation of investments amounting to W118,257 million (net of tax effect of W44,856 million) as of December 31, 2005 was recorded as a capital adjustment. Based on the opinion of the outside professional valuation company, there was no significant change in LG Powercomm Co., Ltd.’s operation and financial results, which have an effect on the fair value of the common stocks, for the nine months ended September 30, 2006. No additional unrealized loss or recovery on valuation of such investments was recorded accordingly.
 
   
(Note c)
  As a reasonable estimate of fair value could not be made, the investment is stated at acquisition cost. The investment in common stock of Eonex Technologies Inc. was reclassified to available-for-sale securities from equity securities accounted for using the equity method during 2003, as the Company’s ownership in such investees decreased to less than 20% and the Company no longer exercises significant influence. Such securities were transferred to available-for-sale securities at the carrying amount valued using the equity method of accounting prior to the reclassification.
 
   
(Note d)
  Due to the impairment of the Company’s investments in common stock of TeleMerc.com, the Company recorded impairment loss on such investments of W1,793 million in the 4th quarter of 2005.
 
   
(Note e)
  The investment in Korea IT Fund was reclassified to equity securities accounted for using the equity method during the nine months ended September 30, 2006 as the Company has the ability to exercise significant influence on the investee.
b-(2). Available-for-sale Debt Securities
    Available-for-sale debt securities as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won):
                             
        Acquisition cost     Carrying amount  
        as of September     September 30,     December 31,  
    Maturity   30, 2006     2006     2005  
Public bonds
  (Note a)   W 1,888     W 1,888     W 1,590  
Currency stabilization bonds
  (Note b)                 294,674  
Convertible bonds of Real Telecom Co., Ltd. (Note c)
  March, 2007     10,656              
Convertible bonds of China Unicom Ltd. (Note d)
  July, 2009     957,055       1,012,016        
 
                     
 
                           
Total
        969,599       1,013,904       296,264  
Less current portion
        (125 )     (125 )      
 
                     
 
                           
Long-term available-for-sale debt securities
      W 969,474     W 1,013,779     W 296,264  
 
                     
    The interest income incurred from available-for-sale debt securities for the nine months ended September 30, 2006 and 2005 were W6,904 million and W 645 million, respectively, and for the three months ended September 30, 2006 and 2005 were W 18 million and W 15 million, respectively.

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(Note a)   The maturities of public bonds as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won):
                 
Maturity   September 30, 2006     December 31, 2005  
Within one year
  W 125     W  
After one year but within five years
    1,763       1,229  
After five years but within ten years
          361  
 
           
 
               
 
  W 1,888     W 1,590  
 
           
(Note b)   The maturities of currency stabilization bonds as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won):
                 
Maturity   September 30, 2006     December 31, 2005  
After one year but wthin five years
  W     W 294,674  
 
           
(Note c)   The convertible bonds of Real Telecom Corp. with a principal amount of W10,656 million can be converted into 371,018 shares of common stock of Real Telecom Corp. at W28,721 per share during the period from September 29, 2004 to March 28, 2007. Due to the impairment of such bonds, the Company recorded an impairment loss of W10,656 million prior to December 31, 2004.
(Note d)   On July 5, 2006, the Company purchased zero coupon convertible bonds of China Unicom Ltd. with maturity of three years and principal amount of US$1,000,000,000 for US$1,000,000,000. Such convertible bonds have initial conversion price of US$1.111426 per share of common stock of China Unicom Ltd. The bond holders may redeem their notes at 102.82% of the principal amount on July 5, 2008 (2 years from the issuance date). The conversion right may be exercised during the period from July 5, 2007 to June 29, 2009 and the number of common shares to be converted as of September 30, 2006 is 899,745,075 shares. Unless either previously redeemed or converted, the notes are redeemable at 104.26% of the principal amount at maturity. The Company recorded the convertible bonds of China Unicom Ltd. at its fair value, which was estimated by an outside professional valuation company using Cox, Ross & Rubinstein Model (1979) and discount rate of 5.9138%.

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b-(3). Changes in Unrealized Gains (Losses) on Investments in Common Stock
The changes in unrealized gains (losses) on investments in available-for-sales securities for the nine months ended September 30, 2006 and 2005 are as follows (In millions of Korean won):
                                 
    For the nine months ended September 30, 2006  
                    Transferred        
                    to        
    Beginning     Increase/     realized     Ending  
    balance     (decrease)     gain (loss)     balance  
Available-for-sales equity securities:
                               
Digital Chosunilbo Co., Ltd.
  W 14     W ( 1,358 )   W     W ( 1,344 )
hanarotelecom incorporated
    (65,237 )     20,764             (44,473 )
KRTnet Corporation
    1,475       (281 )           1,194  
POSCO
    168,563       106,696             275,259  
Comas Interactive Co., Ltd.
    (1,611 )     (13 )           (1,624 )
eXtended Computing Environment Co., Ltd.
          907             907  
LG Powercomm Co., Ltd.
    (163,113 )                 (163,113 )
Eonex Technologies Inc.
    2,011                   2,011  
Currency stabilization bonds
    (218 )     895       (677 )      
Convertible bonds of China Unicom Ltd.
          54,961             54,961  
 
                       
 
                               
Sub-total
    (58,116 )     182,571       (677 )     123,778  
Less tax effect
    15,982       (50,207 )     186       (34,039 )
 
                       
 
                               
Total
  W (42,134 )   W 132,364     W (491 )   W 89,739  
 
                       
                                 
    For the nine months ended September 30, 2005  
                    Transferred to        
    Beginning     Increase/     realized     Ending  
    balance     (decrease)     gain (loss)     balance  
Available-for-sales equity securities:
                               
Digital Chosunilbo Co., Ltd.
  W ( 3,758 )   W 1,532     W     W (2,226 )
hanarotelecom incorporated
    (50,657 )     (10,382 )           (61,039 )
KRTnet Corporation
    1,007       73             1,080  
POSCO
    131,343       116,621             247,964  
Comas Interactive Co., Ltd.
    (1,543 )     (100 )           (1,643 )
SINJISOFT Corporation
    460             (460 )      
Cowon System, Inc.
          491             491  
LG Powercomm Co., Ltd.
    (168,678 )                 (168,678 )
Eonex Technologies Inc.
    2,011                   2,011  
WiderThan Co., Ltd.
    (27 )                 (27 )
 
                       
 
                               
Sub-total
    (89,842 )     108,235       (460 )     17,933  
Less tax effect
          (4,932 )           (4,932 )
 
                       
 
                               
Total
  W (89,842 )   W 103,303     W (460 )   W 13,001  
 
                       

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4. EQUITY SECURITIES ACCOUNTED FOR USING THE EQUITY METHOD
Equity securities accounted for using the equity method of accounting as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won):
                                                 
    September 30, 2006     Carrying Amount  
            Ownership                          
    Number     percentage     Acquisition     Net asset     September     December  
    of shares     (%)     cost     value     30, 2006     31,2005  
Pantech Co., Ltd.
    25,570,306       22.7     W 26,309     W 44,438     W 44,929     W 55,634  
SK Capital Co., Ltd.
    10,000,000       100.0       50,000       37,506       37,506       37,501  
SK Communications Co., Ltd.
    7,844,454       86.4       175,441       153,564       173,208       158,170  
SK Telink Co., Ltd.
    943,997       90.8       5,296       82,629       82,629       70,863  
SK C&C Co., Ltd.
    300,000       30.0       19,071       213,799       218,365       198,251  
SK Wyverns Baseball Club Co., Ltd.
    199,997       100.0       1,000                    
STIC Ventures Co., Ltd.
    1,600,000       21.9       8,000       8,379       8,379       8,308  
Paxnet Co., Ltd.
    5,590,452       65.9       26,563       11,373       28,805       27,372  
Global Credit & Information Co., Ltd.
    300,000       50.0       2,410       2,649       3,245       3,276  
TU Media Corp.
    12,922,266       29.6       64,611       12,252       13,088       32,393  
Aircross Co., Ltd.
    600,000       38.1       300       966       966       970  
WiderThan Co., Ltd.
    2,000,000       10.1       1,000       11,503  (Note a)     11,503       12,827  
IHQ, Inc.
    13,000,000       34.3       41,793       14,739       40,846       13,935  
Seoul Records, Inc.
    9,582,321       60.0       27,874       23,345       26,403       27,242  
Harex Info Tech, Inc.
    225,000       21.2       3,375       1,128       2,267       2,568  
SK Mobile
            42.5       10,322       6,217  (Note b)     9,090        
SLD Telecom PTE. Ltd.
    180,476,700       73.3       191,273       125,778       126,168       55,358  
Skytel Co., Ltd.
    1,756,400       28.6       2,159       4,852       4,852       4,872  
SK China Company Ltd.
    28,160       20.7       3,195       1,571       485       483  
SK Telecom China Co., Ltd.
    6,150,000       100.0       7,340       6,564       6,564       6,927  
ULand Company Ltd.
    14,100,100       70.1       17,511       4,057       8,623       12,564  
SK Telecom USA Holdings, Inc.
    1,000       100.0       198,713       113,997  (Note c)     113,997       103,751  
SK Telecom International, Inc.
    1,099       100.0       17,467       24,978       24,978       25,957  
SK USA, Inc.
    49       49.0       3,184       3,352       3,352       3,353  
Korea IT Fund
            63.3       190,000       195,569  (Note d)     195,569        
Centurion IT Investment Association
            37.5       3,000       3,076       3,076       3,635  
1st Music Investment Fund of SK-PVC
            69.3       6,925       6,995       6,995       6,990  
2nd Music Investment Fund of SK-PVC
            79.3       7,925       7,966       7,966       7,966  
SK-KTB Music Investment Fund
            74.3       14,850       15,248       15,248       14,999  
IMM Cinema Fund
            48.4       12,000       11,944       11,944       11,884  
SKT-HP Ventures, LLC.
                                    5,272  
Other investments in affiliates
                    16,257        (Note e)     15,757       12,583  
 
                                         
 
                                               
Total
                  W 1,155,164             W 1,246,803     W 925,904  
 
                                         

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(Note a)
  Effective January 1, 2005, the investment in common stock of WiderThan Co., Ltd. was reclassified to equity securities accounted for using the equity method. Although the Company’s ownership in WiderThan Co., Ltd. is less than 20%, the Company exercises significant influences on the selection of directors and the investee has significant transactions with the Company.
 
   
(Note b)
  On March 31 2006, the Company acquired 42.5% interests of common stock of SK Mobile from Pantech Co., Ltd. and others.
 
   
(Note c)
  In 2005, the Company incorporated SK Telecom USA Holdings, Inc. with an investment of US$122 million in order to invest in and manage Helio, Inc., a joint venture company in the Untied States of America, which was established in order to provide wireless telecommunication services in the United States of America. In addition, the Company invested an additional US$78.5 million in SK USA Holdings, Inc. for the nine months ended September 30, 2006 (See Note 24).
 
   
(Note d)
  The investment in Korea IT Fund was reclassified to equity securities accounted for using the equity method for the nine months ended September 30, 2006 as the Company has ability to exercise significant influence on the investee.
 
   
(Note e)
  As allowed under Korean GAAP, investments in equity securities of SK Telecom Europe Limited and others were not accounted for using the equity method of accounting, as changes in the Company’s portion of stockholders’ equity of such investees were not expected to be material.

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Details of the changes in investments in affiliates accounted for using the equity method for the three months and nine months ended September 30, 2006 and 2005 are as follows (In millions of Korean won):
                                                                 
            For the nine months ended September 30, 2006  
                                    Equity in                      
                            Equity in     capital surplus             Other        
            Beginning             earnings     and capital     Dividend     increase     Ending  
            balance     Acquisition     (losses)     adjustments     received     (decrease)     balance  
Pantech Co., Ltd.
  (Note a)   W 55,634     W     W (12,654 )   W 1,949     W     W     W 44,929  
SK Capital Co., Ltd.
  (Note b)     37,501             5                         37,506  
SK Communications Co., Ltd
  (Note a)     158,170             13,079       1,959                   173,208  
SK Telink Co., Ltd.
  (Note a)     70,863             11,729       37                   82,629  
SK C&C Co., Ltd.
  (Notes a and c)     198,251             17,234       3,870       (990 )           218,365  
SK Wyverns Baseball Club Co., Ltd.
  (Note b)                                          
STIC Ventures Co., Ltd.
  (Note b)     8,308             71                         8,379  
Paxnet Co., Ltd.
  (Note a)     27,372             1,178       255                   28,805  
Global Credit & Information Co., Ltd.
  (Note b)     3,276             (31 )                       3,245  
TU Media Corp.
  (Note a)     32,393             (19,305 )                       13,088  
Aircross Co., Ltd.
  (Note b)     970             (4 )                       966  
WiderThan Co., Ltd.
  (Notes b and d)     12,827             (500 )     (54 )           (770 )     11,503  
IHQ, Inc.
  (Notes a and d)     13,935       27,352       (2,332 )     793             1,098       40,846  
Seoul Records, Inc.
  (Note a)     27,242             (839 )                       26,403  
Harex Info Tech, Inc.
  (Note b)     2,568             (301 )                       2,267  
SK Mobile
  (Note a)           10,322       (1,117 )     (115 )                 9,090  
SLD Telecom PTE Ltd.
  (Note a)     55,358       97,285       (11,816 )     (14,659 )                 126,168  
Skytel Co., Ltd.
  (Notes b and c)     4,872             111       197       (328 )           4,852  
SK China Company Ltd.
  (Note b)     483             2                         485  
SK Telecom China Co., Ltd.
  (Note a)     6,927             (301 )     (62 )                 6,564  
ULand Company Limited.
  (Note a)     12,564             (4,967 )     1,026                   8,623  
SK Telecom USA Holdings, inc.
  (Note a)     103,751       75,499       (57,197 )     (8,056 )                 113,997  
SK Telecom International, Inc.
  (Note a)     25,957             695       (1,674 )                 24,978  
SK USA, Inc.
  (Note b)     3,353             (75 )     74                   3,352  
Korea IT Fund
  (Notes a and e)                 3,395       2,174             190,000       195,569  
Centurion IT Investment Association
  (Note b)     3,635             (615 )     56                   3,076  
1st Music Investment Fund of SK-PVC
  (Note b)     6,990             5                         6,995  
2nd Music Investment Fund of SK-PVC
  (Note b)     7,966                                     7,966  
SK-KTB Music Investment Fund
  (Note a)     14,999             249                         15,248  
IMM Cinema Fund
  (Note a)     11,884             60                         11,944  
SKT-HP Ventures, LLC
  (Note f)     5,272             18                   (5,290 )      
 
                                                 
 
                                                               
Total
          W 913,321       210,458       (64,223 )     (12,230 )     (1,318 )     185,038     W 1,231,046  
 
                                                           
Less six months ended June 30, 2006
                    145,888       (22,876 )     (13,852 )     (1,318 )     (597 )        
 
                                                     
Three months ended September 30, 2006
                  W 64,570     W (41,347 )   W 1,622     W (— )   W 185,635          
 
                                                     

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(Note a)
  Investments were recorded using the equity method of accounting based on unaudited and unreviewed financial statements as of and for the nine months ended September 30, 2006 In order to verify the reliability of such unaudited and unreviewed financial statements, the Company has performed the following procedures and found no significant errors:
    i)   obtained the signature from the chief executive officer of the equity method investee asserting that the unaudited and unreviewed financial statements are accurate
 
    ii)   checked whether the major transactions identified by the Company, including public disclosures, were appropriately reflected in the unaudited and unreviewed financial statements
 
    iii)   performed an analytical review on the unaudited and unreviewed financial statements
     
(Note b)
  Investments in equity securities are carried using the equity method of accounting based on the financial statements as of December 31, 2005 as information as of September 30, 2006 was not available and the change in the Company’s portion of stockholders’ equity of the investee for the nine months ended September 30, 2006 was immaterial.
 
   
(Note c)
  The Company received dividends from SK C&C Co., Ltd. and Skytel Co., Ltd. and the corresponding amount was deducted from the carrying amount of equity method securities.
 
   
(Note d)
  Other increase (decrease) in investments in equity securities of WiderThan Co., Ltd. and IHQ, Inc. represent gains (losses) on disposal of investments in equity securities, which have resulted from the dilution of the Company’s ownership as a result of investees’ sale of their unissued shares to third parties.
 
   
(Note e)
  Other increase in investments in Korea IT Fund is the carrying amount transferred from available-for-sale equity securities.
 
   
(Note f)
  Investment was fully liquidated due to dissolution of SKT-HP Ventures, LLC for the nine months ended September 30, 2006.

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            For the nine months ended September 30, 2005  
                                    Equity in                    
                            Equity in     capital surplus                    
            Beginning             earnings     and capital     Dividend     Other increase     Ending  
            balance     Acquisition     (losses)     adjustments     received     (decrease)     balance  
SKY Teletech Co., Ltd.
          W 190,896     W     W (15,338 )   W 108     W     W (115,478 )   W 60,188  
SK Capital Co., Ltd.
  (Note a)     34,891                                     34,891  
SK Communications Co., Ltd
            143,096             8,494       (797 )                 150,793  
SK Telink Co., Ltd.
            56,182             13,228       32                   69,442  
SK C&C Co., Ltd.
            201,353             13,359       16,468       (600 )           230,580  
SK Wyverns Baseball Club Co., Ltd.
                        (3,904 )                        
STIC Ventures Co., Ltd.
  (Note a)     7,321             (284 )     441                   7,478  
Paxnet Co., Ltd.
            25,244             1,510                         26,754  
Global Credit & Information Co., Ltd.
  (Note a)     3,054             (31 )                       3,023  
TU Media Corp.
            34,607             (18,788 )     (4 )                 15,815  
Aircross Co., Ltd.
  (Note a)     944             (4 )                       940  
IHQ, Inc.
                  14,440       166       (10 )                 14,596  
Seoul Records, Inc.
                  27,874       209                         28,083  
SLD Telecom PTE Ltd.
            59,804             (5,235 )     (442 )                 54,127  
Skytel Co., Ltd.
  (Note a)     3,633             88       (8 )                 3,713  
SK China Company Ltd.
  (Note a)     803             35       (8 )                 830  
SK Telecom China Co., Ltd.
  (Note a)     9,212             178       (178 )                 9,212  
ULand Company Limited
                  17,511       (3,128 )     2,098                   16,481  
SK Telecom USA Holdings, Inc.
                  123,214       (10,535 )     3,235                   115,914  
SK Telecom International, Inc.
  (Note a)     21,995             3,048       (62 )                 24,981  
SK USA, Inc.
  (Note a)     3,184             168       (297 )                 3,055  
Centurion IT Investment Association
  (Note a)     3,205             (277 )                       2,928  
SKT-QC Wireless Development Fund
  (Note a)     5,145             1                         5,146  
SKT-HP Ventures, LLC
  (Note a)     5,284                   (3 )                 5,281  
 
                                                 
 
                                                               
Total
          W 809,853       183,039       (17,040 )     20,573       (600 )     (115,478 )   W 884,251  
 
                                                           
Less six months ended June 30, 2005
                    97,878       (19,031 )     (10,158 )     (600 )              
 
                                                     
Three months ended September 30, 2005
                  W 85,161     W 1,991     W 30,731     W     W (115,478 )        
 
                                                     
 
     
(Note a)
  Investments in equity securities are carried using the equity method of accounting based on the financial statements as of December 31, 2004 as information as of September 30, 2005 was not available and the change of the Company’s portion of shareholders’ equity of the investee for the nine months ended September 30, 2005 was not expected to be material.

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Details of changes in the differences between the acquisition cost and net asset value of equity method investees at the acquisition date for the three months and nine months ended September 30, 2006 and 2005 are as follows (In millions of Korean won):
                                 
    For the nine months ended September 30, 2006  
    Beginning                     Ending  
    balance     Increase     Amortization     balance  
Pantech Co., Ltd.
  W 793     W     W (32 )   W 761  
SK Communications Co., Ltd.
    23,814             (1,048 )     22,766  
SK C&C Co., Ltd.
    4,870             (304 )     4,566  
Paxnet Co., Ltd.
    18,237             (805 )     17,432  
Global Credit & Information Co., Ltd.
    628             (31 )     597  
TU Media Corp.
    993             (157 )     836  
IHQ, Inc.
    6,267       21,948       (2,108 )     26,107  
Seoul Records, Inc.
    3,670             (612 )     3,058  
Harex Info Tech, Inc.
    1,402             (263 )     1,139  
SK Mobile
          3,192       (319 )     2,873  
SLD Telecom PTE. Ltd.
    406             (16 )     390  
ULand Company Ltd.
    3,628       1,131       (193 )     4,566  
 
                       
 
                               
Total
  W 64,708       26,271       (5,888 )   W 85,091  
 
                           
Less six months ended June 30, 2006
            4,252       (3,201 )        
 
                           
Three months ended September 30, 2006
          W 22,019     (W 2,687 )        
 
                           
                                 
    For the nine months ended September 30, 2005  
    Beginning                     Ending  
    balance     Increase     Amortization     balance  
Pantech Co., Ltd.
  W 3,287     W (2,155 )   W (100 )   W 1,032  
SK Communications Co., Ltd.
    24,622             (459 )     24,163  
SK C&C Co., Ltd.
    5,276             (304 )     4,972  
Paxnet Co., Ltd.
    19,310             (805 )     18,505  
Global Credit & Information Co., Ltd.
    670             (31 )     639  
IHQ, Inc.
          7,401       (185 )     7,216  
Seoul Records, Inc.
          4,078       (51 )     4,027  
SLD Telecom PTE. Ltd.
    428             (17 )     411  
ULand Company Ltd.
          3,922       (245 )     3,677  
 
                       
 
                               
Total
  W 53,593       13,246       (2,197 )   W 64,642  
 
                           
Less six months ended June 30, 2005
            7,401       (1,169 )        
 
                           
Three months ended September 30, 2005
          W 5,845     W (1,028 )        
 
                           

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Details of changes in unrealized inter-company gains incurred from sales of assets for the three months and nine months ended September 30, 2006 and 2005 are as follows (In millions of Korean won):
                                 
    For the nine months ended September 30, 2006  
    Beginning                     Ending  
Subsidiary   balance     Increase     Decrease     balance  
Pantech Co., Ltd.
  W     W 270     W     W 270  
SK Communications Co., Ltd.
    4,016             (894 )     3,122  
SK China Company Ltd.
    1,086                   1,086  
 
                       
 
                               
Total
  W 5,102       270       (894 )   W 4,478  
 
                           
Less: six months ended June 30, 2006
            270       (686 )        
 
                           
Three months ended September 30, 2006
          W     W (208 )        
 
                           
                                 
    For the nine months ended September 30, 2005  
    Beginning                     Ending  
Subsidiary   balance     Increase     Decrease     balance  
SK Communications Co., Ltd.
  W     W 3,688     W     W 3,688  
SK China Company Ltd.
    1,206             (120 )     1,086  
 
                       
 
                               
Total
  W 1,206       3,688       (120 )   W 4,774  
 
                           
Less: six months ended June 30, 2005
            3,688       (120 )        
 
                           
Three months ended September 30, 2005
          W     W          
 
                           
Details of market price of the equity securities accounted for using the equity method as of September 30, 2006 are as follows (In millions of Korean won, except for market price per share):
                         
    Market price   Number of    
    per share   shares owned by    
    (In Korean won)   the Company   Market price
Pantech Co., Ltd.
  W 5,500       25,570,306     W 140,637  
WiderThan Co., Ltd.
    15,832       2,000,000       31,664  
IHQ, Inc.
    7,800       13,000,000       101,400  
Seoul Records, Inc.
    3,870       9,582,321       37,084  

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The condensed financial information of the investees as of and for the nine months ended September 30, 2006 is as follows (In millions of Korean won):
                                 
    Total   Total           Net
    assets   liabilities   Revenue   income (loss)
Pantech Co., Ltd.
  W 1,121,241     W 927,201     W 1,001,528     W (55,161 )
SK Communications Co., Ltd.
    243,204       57,108       132,364       17,780  
SK Telink Co., Ltd.
    136,491       45,844       141,993       14,324  
SK C&C Co., Ltd.
    1,661,359       948,694       681,075       58,578  
Paxnet Co., Ltd.
    22,305       4,445       23,591       2,956  
TU Media Corp.
    355,953       314,536       60,080       (64,561 )
IHQ, Inc.
    71,675       26,644       37,401       (2,775 )
Seoul Records, Inc.
    46,182       7,273       19,820       (355 )
SK Mobile
    16,301       1,674       796       (2,814 )
SLD Telecom PTE Ltd.
    228,689       57,141             (14,999 )
SK Telecom China Co., Ltd.
    6,843       279       11,450       (23 )
ULand Company Limited
    7,640       1,856       5,285       (6,301 )
SK Telecom USA Holdings, Inc.
    154,079       40,081             (56,572 )
SK Telecom International, Inc.
    26,301       1,324       9,279       1,196  
Korea IT Fund
    308,794             14,494       3,043  
SKT-KTB Music Investment Fund
    20,637       81       445       341  
IMM Cinema Fund
    24,685       2       336       122  
5.   LOANS TO EMPLOYEES
Short-term and long-term loans to employees as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won):
                                 
    September 30, 2006     December 31,  
    Short-term     Long-term     Total     2005  
Loans to employees’ stock ownership association
  W 2,327     W 6,271     W 8,598     W 14,586  
Loans to employees for housing and other
    78       221       299       433  
 
                       
 
                               
Total
  W 2,405     W 6,492     W 8,897     W 15,019  
 
                       
6.   PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won):
                         
    Useful lives              
    (years)     September 30, 2006     December 31, 2005  
Land
        W 462,587     W 461,513  
Buildings and structures
    30,15       1,480,719       1,477,838  
Machinery
    6       10,748,336       10,376,529  
Vehicles
    4       20,669       20,442  
Other
    4       833,281       807,534  
Construction in progress
          396,038       264,309  
 
                   
 
                       
 
            13,941,630       13,408,165  
Less accumulated depreciation
            (9,569,732 )     (8,812,282 )
 
                   
 
                       
Property and equipment, net
          W 4,371,898     W 4,595,883  
 
                   
The standard value of land declared by the government as of September 30, 2006 and December 31, 2005 are W504,069 million and W412,829 million, respectively.
Details of change in property and equipment for the three months and nine months ended September 30,

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2006 and 2005 are as follows (In millions of Korean won):
                                                 
    For the nine months ended September 30, 2006  
    Beginning                                     Ending  
    balance     Acquisition     Disposal     Transfer     Depreciation     balance  
Land
  W 461,513     W 7     W (344 )   W 1,411     W     W 462,587  
Buildings and structures
    1,145,497       1,969       (607 )     1,755       (41,596 )     1,107,018  
Machinery
    2,429,564       8,755       (1,704 )     487,220       (791,570 )     2,132,265  
Vehicles
    2,786       994       (113 )           (1,286 )     2,381  
Other
    292,214       423,457       (13,548 )     (369,599 )     (60,915 )     271,609  
Construction in progress
    264,309       279,259             (147,530 )           396,038  
 
                                   
Total
  W 4,595,883       714,441       (16,316 )     (26,743 )     (895,367 )   W 4,371,898  
 
                                           
Less six months ended June 30, 2006
            431,132       (14,730 )     (15,896 )     (567,954 )        
 
                                       
Three months ended September 30, 2006
          W 283,309     W (1,586 )   W (10,847 )   W (327,413 )        
 
                                       
                                                 
    For the nine months ended September 30, 2005  
    Beginning                                     Ending  
    balance     Acquisition     Disposal     Transfer     Depreciation     balance  
Land
  W 463,656     W 719     W (504 )   W 1,503     W     W 465,374  
Buildings and structures
    1,163,070       7,663       (782 )     18,531       (41,216 )     1,147,266  
Machinery
    2,585,118       13,697       (17,901 )     368,028       (820,928 )     2,128,014  
Vehicles
    4,030       753       (116 )     70       (1,626 )     3,111  
Other
    251,377       500,868       (2,718 )     (267,494 )     (59,621 )     422,412  
Construction in progress
    138,002       254,221             (149,255 )           242,968  
 
                                   
 
                                               
Total
  W 4,605,253       777,921       (22,021 )     (28,617 )     (923,391 )   W 4,409,145  
 
                                           
Less six months ended June 30, 2005
            365,267       (21,189 )     (19,972 )     (595,955 )        
 
                                       
Three months ended September 30, 2005
          W 412,654     W (832 )   W (8,645 )   W (327,436 )        
 
                                       
7.   INTANGIBLE ASSETS
Intangible assets as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won):
                                                 
    September, 2006     December 31, 2005  
    Acquisition     Accumulated     Carrying     Acquisition     Accumulated     Carrying  
    cost     amortization     amounts     cost     amortization     amounts  
Goodwill
  W 2,335,532     W (611,144 )   W 1,724,388     W 2,335,532     W (514,648 )   W 1,820,884  
Frequency use rights
    1,384,433       (279,115 )     1,105,318       1,384,433       (200,141 )     1,184,292  
Software development costs
    229,121       (183,559 )     45,562       221,913       (160,657 )     61,256  
Computer software
    521,966       (267,670 )     254,296       489,807       (210,050 )     279,757  
Other
    107,717       (67,928 )     39,789       103,974       (63,616 )     40,358  
 
                                   
 
                                               
 
  W 4,578,769     W (1,409,416 )   W 3,169,353     W 4,535,659     W (1,149,112 )   W 3,386,547  
 
                                   

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Details of changes in intangible assets for the three months and nine months ended September 30, 2006 and 2005 are as follows (In millions of Korean won):
                                                 
    For the nine months ended September 30, 2006  
    Beginning                                     Ending  
    balance     Increase     Decrease     Transfer     Amortization     balance  
Goodwill
  W 1,820,884     W     W     W     W (96,496 )   W 1,724,388  
Frequency use rights
    1,184,292                         (78,974 )     1,105,318  
Software development costs
    61,256                   7,208       (22,902 )     45,562  
Computer software
    279,757       12,019       (1 )     20,189       (57,668 )     254,296  
Other
    40,358       3,796       (53 )     275       (4,587 )     39,789  
 
                                   
 
                                               
Total
  W 3,386,547       15,815       (54 )     27,672       (260,627 )   W 3,169,353  
 
                                           
Less six months ended June 30, 2006
            5,650       (20 )     17,053       (171,260 )        
 
                                       
Three months ended September 30, 2006
          W 10,165     W (34 )   W 10,619     W (89,367 )        
 
                                       
                                                 
    For the nine months ended September 30, 2005  
    Beginning                                     Ending  
    balance     Increase     Decrease     Transfer     Amortization     balance  
Goodwill
  W 1,949,546     W     W     W       (W96,496 )   W 1,853,050  
Frequency use rights
    1,163,319       117,380                   (72,305 )     1,208,394  
Software development costs
    100,579       35                   (31,023 )     69,591  
Computer software
    190,744       17,804       (3 )     29,364       (39,735 )     198,174  
Other
    44,431       1,471       (214 )     600       (5,653 )     40,635  
 
Total
  W 3,448,619       136,690       (217 )     29,964       (245,212 )   W 3,369,844  
 
                                           
Less six months ended June 30, 2005
            124,020       (203 )     20,763       (163,573 )        
 
                                       
Three months ended September 30, 2005
          W 12,670     W (14 )   W 9,201     W (81,639 )        
 
                                       
The book value as of September 30, 2006 and residual useful lives of major intangible assets are as follows (In millions of Korean won):
                 
    Amount   Description   Residual useful lives
Goodwill
  W 1,724,388     Goodwill related to acquisition of Shinsegi Telecomm, Inc.   13 years and 6 months
IMT license
    988,094     Frequency use rights relating to W-CDMA Service   (Note a)
WiBro license
    110,331     WiBro Service   (Note b)
DMB license
    6,893     DMB Service   9 years and 9 months

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(Note a)
  Amortization of the IMT license commenced when the Company started its commercial IMT 2000 service in December 2003, using the straight-line method over the estimated useful life (13 years) of the IMT license which expires in December 2016.
 
   
(Note b)
  The Company purchased the WiBro license from MIC on March 30, 2005. The license period is seven years from the purchase date. Amortization of the WiBro license commenced when the Company started its commercial WiBro services on June 30, 2006 using the straight line basis over the remaining useful life.
8.   BONDS PAYABLE AND LONG-TERM BORROWINGS
     a. Bonds payable
Bonds payable as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won and thousands of U.S. dollars):
                                 
            Annual              
            interest     September 30,     December 31,  
      Maturity year     rate (%)     2006     2005  
Domestic general bonds
    2006       5.0 — 6.0     W 450,000     W 800,000  
    2007       5.0 — 6.0       700,000       700,000  
    2008       5.0       300,000       300,000  
    2009       5.0       300,000       300,000  
    2010       4.0       200,000       200,000  
    2011       3.0       200,000       200,000  
    2016       5.0       200,000        
Dollar denominated bonds (US$300,000)
    2011       4.25       283,560       303,900  
Convertible bonds (US$311,030)
    2009             364,309       385,885  
 
                           
 
                               
Total
                    2,997,869       3,189,785  
Less discounts on bonds
                    (30,185 )     (40,016 )
conversion right adjustments
                    (48,973 )     (65,219 )
Add long-term accrued interest
                    23,421       24,808  
 
                           
 
                               
Net
                    2,942,132       3,109,358  
Less portion due within one year
                    (847,772 )     (795,150 )
 
                           
 
                               
Long-term portion
                  W 2,094,360     W 2,314,208  
 
                           
All of the above bonds will be paid in full at maturity.

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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 W235,625 per share of the Company’s common stock, which was greater than market value at the date of issuance. Subsequently, the initial conversion price was changed to W217,062 per share in accordance with anti-dilution protection. The Company may redeem their principal amount after 3 years from the issuance date if the market price exceeds 130% of the conversion price during a predetermined period. On the other hand, the bond holders may redeem their notes at 103.81% of the principal amount on May 27, 2007 (3 years from the issuance date). The conversion right may be exercised during the period from July 7, 2004 to May 13, 2009 and the number of common shares to be converted as of September 30, 2006 is 1,685,816 shares. During the nine months ended September 30, 2006, the conversion price was changed from W218,098 to W217,062 and the number of shares to be converted was changed from 1,677,812 shares to 1,685,816 shares due to the payment of interim dividends in accordance with the resolution of the Company’s board of directors dated July 28, 2006.
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 that may be 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. During the nine months ended September 30, 2006, the convertible bonds with a principal amount of US$18,420,000 were converted into 99,361 shares of treasury stock (See note 14), and the principal amount of the convertible bonds decreased from US$329,450,000 to US$311,030,000. In addition, the consideration for conversion right (capital surplus) decreased by W2,728 million (net of tax effect of W1,034 million) as a result of this conversion.
     b. Long-term borrowings
Long-term borrowings as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won and thousands of U.S. dollars):
                     
        Final   Annual interest   September 30,   December 31,
    Lender   maturity year   rate (%) (Note)   2006   2005
Long-term floating rate discount bill
  Shinhan Bank   June 29, 2011   91 days CD yield + 0.25%   W200,000   W
The above borrowings are classified as long-term borrowings as the borrowings are to be rolled-over exceeding 1 year from September 30, 2006 in accordance with the loan agreement.
(Note) 91 days CD yield as of September 30, 2006 is 4.6%.
9.   SUBSCRIPTION DEPOSITS
The Company receives subscription deposits from customers of cellular services at the subscription date. The Company has no obligation to pay interest on subscription deposits but is required to return them to subscribers upon termination of the subscription contract.

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    Long-term subscription deposits held as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won except deposit per subscriber amounts):
                         
    Deposit              
Service type   per subscriber     September 30, 2006     December 31, 2005  
Cellular
  W 200,000     W 21,666     W 23,770  
 
                   
    The Company offers existing and new cellular subscribers the option of obtaining credit insurance from Seoul Guarantee Insurance Company (“SGIC”) in lieu of the subscription deposits. Existing subscribers who elect this option are refunded their subscription deposits. As a result, the balance of subscription deposits has been decreasing.
 
10.   LEASES
 
    The Company acquired certain computer equipment and software from SK C&C Co., Ltd. and succeeded certain capital lease agreements between SK C&C Co., Ltd. and HP Financial Service. Details of capital lease assets acquired and liabilities assumed from SK C&C Co., Ltd. as of and for the nine months ended September 30, 2006 and as of and for the year ended December 31, 2005 are as follows (In millions of Korean won):
                     
        September 30, 2006     December 31, 2005  
Acquisition cost
  Office equipment   W 16,096     W 16,919  
 
  Computer software     7,609       7,625  
 
               
 
                   
 
      W 23,705     W 24,544  
 
               
 
                   
Accumulated depreciation
  Office equipment   W 6,802     W 744  
 
  Computer software     1,268       127  
 
               
 
                   
 
      W 8,070     W 871  
 
               
 
                   
Carrying amounts
  Office equipment   W 9,294     W 16,175  
 
  Computer software     6,341       7,498  
 
               
 
                   
 
      W 15,635     W 23,673  
 
               
 
                   
Depreciation expenses
  Office equipment   W 6,197     W 744  
 
  Computer software     1,142       127  
 
               
 
                   
 
      W 7,339     W 871  
 
               
    The Company’s minimum future lease payments as of September 30, 2006 are as follows (In millions of Korean won):
                         
    Annual lease payments     Interest     Principal  
October 2006 ~ September 2007
  W 10,758       (W501 )   W 10,257  
October 2007 ~ September 2008
    3,467       (70 )     3,397  
 
                 
 
Total
  W 14,225       (W571 )     13,654  
 
                   
Less: portion due within one year
                    (10,257 )
 
                     
 
Capital lease liabilities
                  W 3,397  
 
                     

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11.   MONETARY ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES
 
    The details of monetary assets and liabilities denominated in foreign currencies (except for bonds payable denominated in foreign currencies described in Note 8) as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won, thousands of U.S. dollars, thousands of HK dollars, thousands of Japanese yen, thousands of Great Britain pounds, thousands of Singapore dollars, thousands of Swiss Franc and thousands of Euros, thousands of Chinese yuan, thousands of Canada dollars):
                                 
    September 30, 2006     December 31, 2005  
    Foreign     Korean won     Foreign     Korean won  
    currencies     equivalent     currencies     equivalent  
Cash and cash equivalents
  US$ 1,179     W 1,115     US$ 4,175     W 4,229  
              EUR 3       3  
Accounts receivable — trade
  US$ 18,242       17,242     US$ 9,390       9,512  
  EUR 248       298     EUR 248       298  
Accounts receivable — other
  US$ 4,113       3,888     US$ 3,364       3,408  
Guarantee deposits
  US$ 17       16     JPY 16,156       139  
  JPY 21,536       173              
 
                           
 
 
          W 22,732             W 17,589  
 
                           
Accounts payable
  US$ 12,188     W 11,520     US$ 15,633     W 15,836  
  JPY 32,758       263     JPY 8,498       73  
  HK$ 136       16     HK 254       33  
  GBP 58       102     GBP 453       792  
  SG$ 12       7     SG$ 22       13  
  EUR 580       696     EUR 504       604  
  CNY 2       1     CHF 19       15  
  CA$ 354       301              
 
                           
 
                               
 
          W 12,906             W 17,366  
 
                           
12.   CAPITAL STOCK AND CAPITAL SURPLUS
 
    The Company’s capital stock consists entirely of common stock with a par value of W500. The number of authorized and issued shares as of September 30, 2006 and December 31, 2005 are as follows:
                 
    September 30, 2006   December 31, 2005
Authorized shares
    220,000,000       220,000,000  
Issued shares
    81,193,711       82,276,711  
Outstanding shares, net of treasury stock
    72,630,657       73,614,296  

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    Significant change in capital stock and capital surplus for the nine months ended September 30, 2006 and for the year ended December 31, 2005 are as follows (In millions of Korean won except for share data):
                         
    Number of              
    shares              
    Issued     Capital stock     Capital surplus  
At January 1, 2005
    82,276,711     W 44,639     W 2,983,166  
 
                 
Deferred tax liabilities deducted from capital surplus (Note a)
                (18,501 )
Transferred from stock options in capital adjustment (Note b)
                1,533  
 
                 
 
                       
At December 31, 2005
    82,276,711       44,639       2,966,198  
 
                 
 
                       
Consideration for conversion right (Note c)
                (2,728 )
Transferred from stock options in capital adjustment (Note d)
                234  
Gains on disposal of treasury stock (Note e)
                176  
Retirement of treasury stock (Note f)
    (1,083,000 )            
 
                 
 
                       
September 30, 2006
    81,193,711     W 44,639     W 2,963,880  
 
                 
 
     
(Note a)
  The tax effects of consideration for conversion rights, which resulted in temporary differences, were deducted directly from related components of stockholders’ equity, pursuant to adoption of SKAS No. 16 for the year ended December 31, 2005.
 
   
(Note b)
  During the year ended December 31, 2005, the exercisable period for the stock options representing 17,800 shares, of which recognized compensation costs were W1,533 million, expired and the related stock options of W1,533 million in capital adjustments were transferred to capital surplus in accordance with Korean GAAP [See Note 2 (o)].
 
   
(Note c)
  During the nine months ended September 30, 2006, the convertible bonds with a face value of US$18,420,000 were converted and the capital surplus amount (in connection with the related conversion rights) decreased by W2,728 million (net of tax effect of W1,034 million).
 
   
(Note d)
  During the nine months ended September 30, 2006, the exercisable period for the stock options representing 43,390 shares, of which recognized compensation costs were W234 million, expired and the related stock options of W234 million in capital adjustments were transferred to capital surplus in accordance with Korean GAAP [See Note 2 (o)].
 
   
(Note e)
  In relation to the conversion of convertible bonds, 99,361 shares of treasury stock were issued and W176 million of gain on disposal of treasury stock were recorded.
 
   
(Note f)
  The Company retired 491,000 shares and 592,000 shares of treasury stock on August 17, 2006 and September 29, 2006, respectively, and reduced retained earnings before appropriation in accordance with Korean Commercial laws.

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13.   RETAINED EARNINGS
 
  Retained earnings as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won):
                 
    September 30, 2006     December 31, 2005  
Appropriated
  W 6,679,235     W 5,470,701  
Before appropriations
    886,220       1,799,160  
 
           
 
               
 
  W 7,565,455     W 7,269,861  
 
           
    The details of appropriated retained earnings as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won):
                 
    September 30, 2006     December 31, 2005  
Legal reserve
  W 22,320     W 22,320  
Reserve for improvement of financial structure
    33,000       33,000  
Reserve for loss on disposal of treasury stock
    477,182       477,182  
Reserve for research and manpower development
    880,595       822,061  
Reserve for business expansion
    5,266,138       4,116,138  
 
           
 
               
Total
  W 6,679,235     W 5,470,701  
 
           
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 gain (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.   Reserves for Loss on Disposal of Treasury Stock and Research and Manpower Development
 
    Reserves for 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 for tax purposes. These reserves will be reversed from appropriated retained earnings in accordance with the relevant tax laws. Such reversal will be included in taxable income in the year of reversal.
 
d.   Reserve for Business Expansion
 
    The reserve for business expansion is voluntary and was approved by the board of directors and stockholders.

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14.   TREASURY STOCK
 
    Upon 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 77,970 shares for W6,110 million through 2005. In addition, the Company acquired 8,584,445 shares of treasury stock in the market or through the trust funds for W2,040,995 million through 2005 in order to stabilize the market price of its stock. In addition, during the nine months ended September 30, 2006, the convertible bonds with a principal amount of US$18,420,000 were converted into 99,361 shares of common stock. Such conversion was settled by the Company by using its treasury stock with carrying value totaling W23,481 million, which resulted in the Company recording W176 million of gain on disposal of treasury stock.
 
    On August 17, 2006, the Company retired 491,000 shares of treasury stock, which were acquired by the Company during the period from August 1, 2006 through August 14, 2006 for W92,518 million in accordance with a resolution of the board of directors dated July 28, 2006.
 
    On September 29, 2006, the Company retired 592,000 shares of treasury stock, which were acquired by the Company during the period from September 4, 2006 through September 27, 2006 for W116,559 million in accordance with a resolution of the board of directors dated August 31, 2006.
 
    In connection with the retired treasury stocks discussed above, the Company reduced its retained earnings before appropriations by W209,077 million in accordance with Korean Commercial law.
 
15.   STOCK OPTIONS
 
    On March 17, 2000, March 16, 2001 and March 8, 2002, in accordance with the approval of its stockholders or its board of directors, the Company granted stock options to its management, representing 17,800 shares at an exercise price of W424,000 per share, 43,820 shares at an exercise price of W211,000 per share and 65,730 shares at an exercise price of W267,000 per share. The stock options will become exercisable after three years from the date of grant and shall be exercisable for two years from the first exercisable date. Upon exercise of stock options, the Company will issue its common stock. If the employees leave the Company within three years after the grant of stock options, such employees forfeit their unvested stock options awarded. Stock options representing 530 shares for which total compensation cost was W3 million were forfeited during the year ended December 31, 2004.
 
    The value of stock options granted is determined using the Black-Scholes option-pricing model, without considering the volatility factor in estimating the value of its stock options, as permitted under Korean GAAP. The following assumptions are used to estimate the fair value of options granted in 2000, 2001 and 2002; risk-free interest rate of 9.1% for 2000, 5.9% for 2001 and 6.2% for 2002; expected life of three years for 2000, 2001 and 2002; expected dividend of W500 per share for 2000, 2001 and 2002. Under these assumptions, total compensation cost, the recognized compensation cost (included in labor cost) for the three months and nine months ended September 30, 2006 and 2005 and the outstanding balance of stock options in capital adjustment as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won):
                                                         
            Recognized     Recognized        
            compensation cost     compensation cost     Stock options in  
    Total     for the three months     for the nine months     capital adjustment  
    Compensation     ended September 30,     ended September 30,     September 30,     December 31,  
Grant date   cost     2006     2005     2006     2005     2006     2005  
March 17, 2000(Note a)
  W 1,533     W     W     W     W     W     W  
March 16, 2001(Note b)
    234                                     234  
March 8, 2002
    3,246                         180       3,246       3,246  
 
                                         
 
                                                       
 
  W 5,013     W     W     W     W 180     W 3,246     W 3,480  
 
                                         

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(Note a)
  During the year ended December 31, 2005, the exercisable period expired for stock options representing 17,800 shares, for which the Company had recognized compensation cost of W1,533 million. The related capital adjustment of W1,533 million was transferred to capital surplus.
 
   
(Note b)
  During the nine months ended September 30, 2006, the exercisable period expired for stock options representing 43,820 shares, for which the Company had recognized compensation cost of W234 million. The related capital adjustment of W234 million was transferred to capital surplus.
If the Company had not excluded the volatility factor (expected volatility of 66.8% for options granted in 2000, 67.5% for options granted in 2001, and 63.0% for options granted in 2002), the pro forma total compensation cost would be W15,967 million (W3,738 million for options granted in 2000, W3,617 million for options granted in 2001 and W8,613 million for options granted in 2002) and the recognized compensation cost for the three months and nine months ended September 30, 2006 would be nil, and the pro forma net income and net income per common share for the three months and nine months ended September 30, 2006, 2005, and 2004 are as follows:
                         
    For the three months ended September 30,  
    2006     2005     2004  
Pro forma ordinary income (In millions of Korean won)
  W 645,935     W 789,591     W 553,022  
Pro forma ordinary income per share (In Korean won)
    6,231       7,986       5,367  
Pro forma net income (In millions of Korean won)
    456,802       587,878       395,088  
Pro forma net income per share (In Korean won)
    6,231       7,986       5,367  
                         
    For the nine months ended September 30,  
    2006     2005     2004  
Pro forma ordinary income (In millions of Korean won)
  W 1,650,637     W 1,987,193     W 1,632,891  
Pro forma ordinary income per share (In Korean won)
    15,875       19,332       15,557  
Pro forma net income (In millions of Korean won)
    1,167,300       1,423,107       1,145,248  
Pro forma net income per share (In Korean won)
    15,875       19,332       15,557  
16.   INCOME TAX
  a.   Details of income tax expense
 
      Income tax expenses for the nine months ended September 30, 2006 and 2005 consist of the following (In millions of Korean won):
                 
    2006     2005  
Current
  W 544,033     W 559,738  
Deferred (Note a)
    (60,696 )     4,347  
 
           
 
               
Income tax expenses
    483,337       564,085  
Less: six months ended June 30,
    (294,204 )     (362,372 )
 
           
 
               
Three months ended September 30,
  W 189,133     W 201,713  
 
           

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(Note a)   Changes in net deferred tax liabilities for the nine months ended September 30, 2006 and 2005 are as follows (In millions of Korean won):
                 
    2006     2005  
Ending balance of net deferred tax liabilities
  W 324,490     W 377,423  
Beginning balance of net deferred tax liabilities
    (348,563 )     (323,096 )
Adjustment to the beginning net deferred income tax liabilities based on tax return filed
    10,453       8,536  
Tax effect of temporary differences charged or credited directly to related components of stockholders’ equity
    (47,076 )     (58,516 )
 
           
 
               
 
  W (60,696 )   W 4,347  
 
           
b.   Reconciling items between accounting income and taxable income
 
    Reconciling items between accounting income and taxable income for the nine months ended September 30, 2006 and 2005 are as follows (In millions of Korean won):
                 
    2006     2005  
(Temporary Differences)
               
Additions:
               
Allowance for doubtful accounts
  W 149,075     W 117,877  
Accrued interest income — prior period
    3,931       4,423  
Reserves for research and manpower development
    141,000       98,600  
Reserves for loss on disposal of treasury stock
    177,675        
Equity in losses of affiliates
    64,373       117,488  
Unrealized loses on valuation of long-term investment securities
    47,442       9,411  
Accrued expenses
    15,300       5,586  
Depreciation
    40,973       11,977  
Loss on impairment of other assets
    1,488       8,115  
Loss on valuation of currency swap
    4,195        
Loss on valuation of currency swap (capital adjustments)
    9,807       23,845  
Accrued severance indemnities
    23,960       17,443  
Deposits for severance indemnities
    148,610       9,686  
Consideration of conversion right
    16,246       12,642  
Other
    45,319       8,597  
 
           
Sub-total
    889,394       445,690  
 
           
 
               
 
               
Deductions:
               
Reserves for research and manpower development
    (135,000 )     (97,500 )
Allowance for doubtful accounts — prior period
    (124,184 )     (59,612 )
Depreciation — prior period
    (14,867 )     (59,360 )
Accrued interest income
    (7,287 )     (7,061 )
Equity in earnings of affiliates
          (40,484 )
Unrealized gains on valuation of long-term investment securities
    (229,335 )     (116,725 )
Accrued expenses
    (21,906 )     (12,282 )
Accrued severance indemnities
    (155,633 )     (9,686 )
Deposits for severance indemnities
    (3,424 )     (17,443 )
Loss on impairment of other assets — prior period
    (5,109 )     (21,070 )
Loss on disposal of property, equipment
    (38,656 )      
Gain on valuation of currency swap
          (4,314 )
Gain on valuation of currency swap (capital adjustments)
          (23,845 )
Other
    (8,606 )     (35,219 )
 
           
Sub-total
    (744,007 )     (504,601 )
 
           
Total Temporary Differences
    145,387       (58,911 )
 
           
 
               
(Permanent Differences)
    328,066       281,935  
 
           
 
               
Total
  W 473,453     W 223,024  
 
           

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c.   Change in cumulative temporary differences and deferred tax liabilities
 
    Changes in cumulative temporary differences for the nine months ended September 30, 2006 and 2005 and deferred tax assets and liabilities as of September 30, 2006 and 2005 are as follows (In millions of Korean won):
 
    For the nine months ended September 30, 2006
                                 
    January 1,     Increase     Decrease     September 30,  
Description   2006     (Note a)     (Note a)     2006  
Current:
                               
Allowance for doubtful accounts
  W 122,561     W 129,119     W 124,184     W 127,496  
Accrued interest income
    (3,931 )     (3,987 )     (3,931 )     (3,987 )
Accrued expenses
    61,967       15,514       21,906       55,575  
Other
    189,548       10,710       4,834       195,424  
 
                       
 
                               
Total
    370,145       151,356       146,993       374,508  
Temporary differences unlikely to be realized
    (147,774 )           (19,219 )     (128,555 )
 
                       
 
                               
Total current cumulative temporary differences-net
  W 222,371     W 151,356     W 127,774     W 245,953  
 
                       
 
                               
Current deferred tax assets-net (Note b)
  W 61,152                     W 67,637  
 
                           
 
                               
Non-current:
                               
Property and equipment
  (W 196,446 )   W 12,228     W 10,964     (W 195,182 )
Loss on impairment of long-term investment securities
    108,145                   108,145  
Loss on impairment of other long-term assets
    7,461             5,973       1,488  
Reserves for research and manpower development
    (768,000 )     (135,000 )     (141,000 )     (762,000 )
Reserves for loss on disposal of treasury stock
    (474,081 )           (177,675 )     (296,406 )
Equity in (earnings) losses of affiliates
    (5,025 )     56,156       328       50,803  
Equity in capital adjustment of affiliates
    (109,468 )           (10,862 )     (98,606 )
Unrealized loss on valuation of long-term investment securities
    58,116       219       182,113       (123,778 )
Accrued severance indemnities
    148,465       24,106       155,633       16,938  
Deposits for severance indemnities
    (148,465 )     (3,568 )     (148,610 )     (3,423 )
Loss on valuation of currency swap
    13,244       4,195             17,439  
Loss on valuation of currency swap (capital adjustment)
    19,554       9,807             29,361  
Loss on valuation of interest rate swap (capital adjustment)
          2,747             2,747  
Considerations for conversion right
    (67,279 )           (3,762 )     (63,517 )
Other
    (10,647 )     60,117       (1,911 )     51,381  
 
                       
 
                               
Total
    (1,424,426 )     31,007       (128,809 )     (1,264,610 )
Temporary differences unlikely to be realized
    (65,447 )     (97,197 )     (1,336 )     (161,308 )
 
                       
 
                               
Total non-current cumulative temporary differences-net
  (W 1,489,873 )   (W 66,190 )   (W 130,145 )   (W 1,425,918 )
 
                       
 
                               
Total non-current deferred tax liabilities-net (Note b)
  (W 409,715 )                   (W 392,128 )
 
                           
 
(Note a)   These changes include adjustment to reflect the change in accumulated temporary differences based on the prior year tax return.
(Note b)   The tax rate used in measuring deferred tax assets and liabilities is 27.5%.

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    For the nine months ended September 30, 2005
                                 
    January 1,     Increase     Decrease     September 30,  
Description   2005     (note b)     (note b)     2005  
Current :
                               
Allowance for doubtful accounts
  W 59,622     W 117,867     W 59,612     W 117,877  
Accrued interest income
    (7,796 )     (3,688 )     (4,423 )     (7,061 )
Other
    235,000       5,079       17,206       222,873  
 
                       
 
                               
Total
    286,826     W 119,258     W 72,395       333,689  
 
                           
Temporary differences unlikely to be realized (note a)
    (128,555 )                     (128,555 )
 
                           
 
                               
Total current cumulative temporary differences-net
  W 158,271                     W 205,134  
 
                           
 
                               
Current deferred tax assets-net (note c)
  W 43,525                     W 56,412  
 
                           
 
                               
Non-current :
                               
Property and equipment
    (127,822 )     (44,551 )     5,924       (178,297 )
Loss on impairment of long-term investment securities
    106,752       (400 )           106,352  
Loss on impairment of other long-term assets
    21,070       8,116       21,070       8,116  
Reserves for research and manpower development
    (709,467 )     (97,500 )     (98,600 )     (708,367 )
Reserves for loss on disposal of treasury stock
    (474,081 )                 (474,081 )
Equity in (earnings) losses of affiliates
    (89,441 )     79,291             (10,150 )
Equity in capital adjustment of affiliates
          (144,730 )           (144,730 )
Unrealized loss on valuation of long-term investment securities
          (17,933 )           (17,933 )
Accrued severance indemnities
    139,524       14,057       9,686       143,895  
Deposits for severance indemnities
    (139,524 )     (14,057 )     (9,686 )     (143,895 )
Loss on valuation of derivative instruments
    15,789             4,313       11,476  
Loss on valuation of derivative instruments -capital adjustment
          25,607             25,607  
Considerations for conversion right
          (67,279 )           (67,279 )
Other
    (122,004 )     254,690       144,112       (11,426 )
 
                       
 
                               
Total
    (1,379,204 )   (W 4,689 )   W 76,819       (1,460,712 )
 
                           
Temporary differences unlikely to be realized (note a)
    46,038                       (116,869 )
 
                       
 
                               
Total non-current cumulative temporary differences-net
  (W 1,333,166 )                   (W 1,577,581 )
 
                           
 
                               
Total non-current deferred tax liabilities-net (note c)
  (W 366,621 )                   (W 433,835 )
 
                           
 
(note a)   Through 2004, the tax effects of temporary differences, which are unlikely to be realized, and temporary differences directly adjusted to capital surplus or capital adjustments, such as net unrealized loss on valuation of long-term investment securities, were excluded in determining the net deferred tax assets or liabilities. However, effective January 1, 2005, pursuant to adoption of SKAS No. 16, “Income Taxes”, temporary differences are presented on a gross basis, including temporary differences which are unlikely to be realized. In addition, tax effects of temporary differences related to adjustments made directly to capital surplus or capital adjustments are included in determining the net deferred tax assets or liabilities.
(note b)   These changes include adjustment to reflect the change in accumulated temporary differences based on the prior year tax return.
(note c)   The statutory tax rate used in measuring deferred tax asset and liabilities is 27.5%.

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    Deferred tax assets and liabilities before offsetting each other are as follows (In millions of Korean won):
                 
    September 30, 2006     December 31, 2005  
Deferred tax assets
   W 149,393      W 192,044  
Deferred tax liabilities
    (473,884 )     (540,607 )
 
           
 
               
Deferred tax assets (liabilities), net
  (W 324,491 )   (W 348,563 )
 
           
 
               
Current, net
   W 67,637      W 61,152  
Non-current, net
  (W 392,128 )   (W 409,715 )
 
           
d.   Deferred tax assets (liabilities) added to (deducted from) capital surplus or capital adjustments
 
    Deferred tax assets (liabilities) added to (deducted from) capital surplus or capital adjustments as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won):
                 
    September 30, 2006     December 31, 2005  
Gains on disposal of treasury stock
  (W 30,226 )   (W 30,576 )
Considerations for conversion right
    (17,467 )     (18,502 )
Unrealized loss on valuation of long-term investment securities
    (34,039 )     15,982  
Equity in capital adjustment of affiliates, net
    (34,242 )     (32,350 )
Loss on valuation of currency swap
    8,074       5,377  
Loss on valuation of interest rate swap
    755        
 
           
 
               
Total
  (W 107,145 )   (W 60,069 )
 
           
e.   Effective tax rate
 
    Effective tax rates for the three months and nine months ended September 30, 2006 and 2005 are as follows (In millions of Korean won):
                                 
    For the     For the  
    three months ended     nine months ended  
    September 30,     September 30,     September 30,     September 30,  
    2006     2005     2006     2005  
Income before income tax
   W 645,935      W 789,591      W 1,650,637      W 1,987,490  
Income tax expenses
    189,133       201,713       483,337       564,085  
 
                       
 
                               
Effective tax rate
    29.28 %     25.55 %     29.28 %     28.38 %
 
                       

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17.   NET INCOME AND ORDINARY INCOME PER SHARE
 
    The Company’s net income and ordinary income per share amounts for the three months and nine months ended September 30, 2006 and 2005 are computed as follows (In millions of Korean won, except for per share income per share):
 
    Net income and ordinary income per share
                                 
    For the     For the  
    three months ended     nine months ended  
    September 30,     September 30,     September 30,     September 30,  
    2006     2005     2006     2005  
Net income and ordinary income
  W 456,802     W 587,878     W 1,167,300     W 1,423,405  
Weighted average number of common shares outstanding
    73,314,653       73,614,296       73,531,415       73,614,296  
 
                       
 
                               
Net income and ordinary income per share
  W 6,231     W 7,986     W 15,875     W 19,336  
 
                       
    Net income and ordinary income per share for the year ended December 31, 2005 were W25,421 and net income and ordinary income per share for the three months ended March 31, 2006 and 2005 are W4,580 and W5,005, respectively, and for the three months ended June 30, 2006 and 2005 are W5,068 and W6,345, respectively.
 
    The weighted average number of common shares outstanding for the three months and nine months ended September 30, 2006 and 2005 is calculated as follows:
                         
    Number of     Weighted     Weighted  
    shares     number of days     number of shares  
For the three months ended September 30, 2006
                       
Outstanding common stocks at July 1, 2006
    82,276,711       92/92       82,276,711  
Treasury stocks at July 1, 2006
    (8,563,054 )     92/92       (8,563,054 )
Retirement of treasury stock (Note a)
    (1,083,000 )   34 / 92 (Note a)     (399,004 )
 
                   
 
                       
Total
    72,630,657               73,314,653  
 
                   
 
                       
For the nine months ended September 30, 2006
                       
Outstanding common stocks at January 1, 2006
    82,276,711       273/273       82,276,711  
Treasury stocks at January 1, 2006
    (8,662,415 )     273/273       (8,662,415 )
Conversion of convertible bonds into treasury stock (Note b)
    99,361     142 / 273 (Note b)     51,582  
Retirement of treasury stock (Note a)
    (1,083,000 )   34 / 273 (Note a)     (134,463 )
 
                   
 
                       
Total
    72,630,657               73,531,415  
 
                   
 
(Note a)   The Company retired treasury stocks which were acquired on two different dates during the nine months ended September 30, 2006, and weighted number of shares was calculated considering each transaction date.
(Note b)   Treasury stocks were used to settle the conversion of the convertible bonds on several different dates during the nine months ended September 30, 2006 and weighted number of shares was calculated considering each transaction date.

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    Number of   Weighted   Weighted
    shares   number of days   number of shares
For the three months ended September 30, 2005
                       
Issued common stocks at July 1, 2005
    82,276,711       92/92       82,276,711  
Treasury stocks at July 1, 2005
    (8,662,415 )     92/92       (8,662,415 )
 
                       
 
                       
Total
    73,614,296               73,614,296  
 
                       
 
                       
For the nine months ended September 30, 2005
                       
Issued common stocks at January 1, 2005
    82,276,711       273/273       82,276,711  
Treasury stocks at January 1, 2005
    (8,662,415 )     273/273       (8,662,415 )
 
                       
 
                       
Total
    73,614,296               73,614,296  
 
                       
    Diluted net income and ordinary income per share amounts for the three months and nine months ended September 30, 2006 and 2005 are computed as follows (In millions of Korean won, except for share data):
     
    Diluted net income and ordinary income per share
                                 
    For the     For the  
    three months ended     nine months ended  
    September 30,     September 30,     September 30,     September 30,  
    2006     2005     2006     2005  
Adjusted net income and ordinary income
  W 460,152     W 591,305     W 1,177,231     W 1,433,099  
Adjusted weighted average number of common shares outstanding
    75,000,469       75,332,996       75,265,373       75,332,996  
 
                       
 
                               
Diluted net income and ordinary income per share
  W 6,135     W 7,849     W 15,641     W 19,024  
 
                       
    Diluted net income and ordinary income per share for the year ended December 31, 2005 are W25,015 and diluted net income and ordinary income per share for the three months ended March 31, 2006 and 2005 are W4,516 and W4,932, respectively, and for the three months ended June 30, 2006 and 2005 are W4,996 and W6,243, respectively.
     
    Adjusted net income and ordinary income per share and the adjusted weighted average number of common shares outstanding for the three months and nine months ended September 30, 2006 and 2005 are calculated as follows (In millions of Korean won, except for share data):
                                 
    For the     For the  
    three months ended     nine months ended  
    September 30,     September 30,     September 30,     September 30,  
    2006     2005     2006     2005  
Net income and ordinary income
  W 456,802     W 587,878     W 1,167,300     W 1,423,405  
Effect of stock options (Note a)
                       
Effect of convertible bonds (Note b)
    3,350       3,427       9,931       9,694  
 
                       
 
                               
Adjusted net income and ordinary income
  W 460,152     W 591,305     W 1,177,231     W 1,433,099  
 
                       

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    For the     For the  
    three months ended     nine months ended  
    September 30,     September 30,     September 30,     September 30,  
    2006     2005     2006     2005  
Weighted average number of common shares outstanding
    73,314,653       73,614,296       73,531,415       73,614,296  
Effect of stock options (Note a)
                       
Effect of convertible bonds (Note b)
    1,685,816       1,718,700       1,733,958       1,718,700  
 
                       
Adjusted weighted average number of common shares outstanding
    75,000,469       75,332,996       75,265,373       75,332,996  
 
                       
 
(Note a)   For the three months and nine months ended September 30, 2006 and 2005, the outstanding stock options did not have a dilutive effect because the exercise price exceeded the average market price of common stock for the three months and nine months ended September 30, 2006 and 2005 and for the year ended December 31, 2005, respectively.
(Note b)   The effect of convertible bonds increased net income related to interest expenses that would not have incurred, and increase in the weighted average number of common shares outstanding related to common shares that would have been issued, assuming that the conversion of convertible bonds was made at the beginning of the period.
18.   RESTRICTED DEPOSITS
  a.   At September 30, 2006, the Company has restricted guarantee deposits for its checking accounts totaling W26 million, which are recorded as long-term deposits.
 
  b.   The Company entered into a contract with First Data Corporation to sell the investment in common stock of KPMS Corporation, which was held by the Company and accounted for as available-for-sale securities. At September 30, 2006, certain portion of proceeds from sales of such investment totaling W1,137 million is kept in escrow accounts in accordance with the Escrow Agreement, which is restricted for use until November 16, 2007, the final settlement date, and recorded as long-term deposits.
19.   INTERIM DIVIDENDS
    In accordance with the resolution of the Company’s board of directors dated July 28, 2006, the Company declared and paid cash dividends during the three months ended September 30, 2006 based on outstanding number of common shares at June 30, 2006 as follows (in millions of Korean won except for per share data) :
                                     
Number of shares            
outstanding as of June 30, 2006   Par value per share   Dividend ratio   Dividends
73,713,657
  W 500       200 %   W 73,714  
20.   INSURANCE
 
    As of September 30, 2006, certain Company’s assets are insured with local insurance companies as follows (In millions of Korean won and thousands of U.S. dollars):
                                     
Insured   Risk   Carrying value     Coverage  
 
                  US$ 58,115  
Property and equipment
  Fire and comprehensive liability   W 3,335,730     W 7,255,411  
 
                   
    In addition, the Company carries directors and officers liability coverage insurance totaling W50,000 million.

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21.   RELATED PARTY TRANSACTIONS
a. Holding company and subsidiaries
As of September 30, 2006 and December 31, 2005, parent company and subsidiaries of the Company are as follows:
             
        Ownership   Types of
Type   Company   percentage (%)   business
Parent company
  SK Corporation   22.8 (Note a)   Manufacturing and selling petrochemicals
 
           
Subsidiary
  SK Capital Co., Ltd.   100   In arrangement to commence the business
           "
  SK Telink Co., Ltd.   90.8   Telecommunication service
           "
  SK Communications Co., Ltd.   86.5   Internet website services
           "
  SK Wyverns Baseball Club Co., Ltd.   100.0   Business related sports
           "
  Global Credit & Information Co., Ltd.   50.5   Credit and collection services
           "
  PAXNet Co., Ltd.   65.9   Internet website services
           "
  Seoul Records, Inc.   60.0   Release of music disc
           "
  SLD Telecom PTE Ltd.   73.3   Telecommunication service
           "
  SK Telecom China Co., Ltd.   100.0   Telecommunication service
           "
  U-Land Company Ltd   70.1   Telecommunication service
           "
  IHQ, Inc.   34.3   Entertainment management
           "
  SK Telecom USA Holdings, Inc.   100.0   Telecommunication service
           "
  SK Telecom International Inc.   100.0   Telecommunication service
           "
  Centurion IT Investment Association   37.5   Investment association
           "
  The First Music Investment Fund of SK-PVC   69.3   Investment association
           "
  The Second Music Investment Fund of SK-PVC   79.3   Investment association
           "
  SK-KTB Music Investment Fund   74.3   Investment association
           "
  IMM Cinema Fund   48.4   Investment association
           "
  Cyworld, Inc.   100.0 (Note b)   Internet website services
           "
  Cyworld Japan Co., Ltd.   100.0   Internet website services
           "
  SK Cyberpass Inc.   70.5 (Note b)   Telecommunication service
           "
  Masoolpiri   51.4 (Note b)   Film production
           "
  YTN Media Inc.,   51.4 (Note b)   Broadcasting program production
           "
  Ntreev Soft Co., Ltd   51.0 (Note b)   Game program production
           "
  Ifilm Co., Ltd.   45.0 (Note b)   Film production
           "
  IHQ USA, Inc.   100.0 (Note b)   Surveying marketing information
           "
  SK Telecom Europe Ltd.   100.0   Wireless telecommunication related business
           "
  SK Telecom Advanced Tech & Service Center   100.0   Research & Development
           "
  Cyworld Europe GmbH   50.2 (Note b)   Internet Website services
 
(Note a)   The ownership percentage represents parent company’s ownership over the Company.
(Note b)   The ownership percentage represents subsidiaries’ ownership over their subsidiaries, in which the Company has no direct investment.

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Table of Contents

b. Transactions and balances with related parties
Significant related party transactions for the three months and nine months ended September 30, 2006 and 2005, and account balances as of September 30, 2006 and December 31, 2005 are as follows (In millions of Korean won):
b-(1) Transactions
                                                 
    For the three months ended September 30, 2006     For the nine months ended September 30, 2006  
    Purchases of     Commissions     Commissions     Purchases of     Commissions   Commissions  
    property and     paid and     earned and     property and     paid and   earned and  
    equipment     other expenses     other income     equipment     Other expenses   other income  
Parent Company:
                                               
SK Corporation
  W 5     W 9,274     W 1,663     W 859     W 25,233     W 6,759  
 
                                               
Subsidiaries:
                                               
SK Communications Co., Ltd.
    40       10,884       541       51       30,984       1,949  
Global Credit & Information Co., Ltd.
          10,043       292             26,413       927  
PAXNet Co., Ltd.
          1,726       322             6,539       1,176  
SK Telink Co., Ltd.
          2,684       4,268             10,998       12,724  
Others
    8       5,656       2       12       17,828       2  
 
                                               
Equity Method Investees:
                                               
WiderThan Co., Ltd.
    374       29,795       9       1,341       77,791       981  
Helio, LLC.
                15,123                   28,044  
SK C&C Co., Ltd.
    41,493       68,729       1,770       87,269       210,607       5,637  
TU Media Corp.
          414       14,500       573       1,055       36,394  
Others
    950       5,845       297       3,896       13,153       7,641  
 
                                               
Others :
                                               
SK Engineering & Construction Co., Ltd.
    76,868       2,224       520       123,072       3,299       1,911  
SK Networks Co., Ltd.
    821       118,703       3,049       2,705       336,834       8,514  
Innoace Co., Ltd.
    3,010       579       49       4,394       3,445       156  
SK Telesys Co., Ltd.
    49,920       1,020       758       133,659       2,187       1,807  
Others
    147       3,100       920       176       6,351       2,269  
 
                                   
 
                                               
Total
  W 173,636     W 270,676     W 44,083     W 358,007     W 772,717     W 116,891  
 
                                   
                                                 
    For the three months ended September 30, 2005     For the nine months ended September 30, 2005  
    Purchases of     Commissions     Commission     Purchases of     Commissions     Commission  
    property and     paid and     and     property and     paid and     and  
    equipment     other expenses     other income     equipment     Other expenses     other income  
Parent Company:
                                               
SK Corporation
  W 457     W 10,741     W 1,309     W 927     W 33,814     W 5,478  
 
                                               
Subsidiaries:
                                               
SK Communications Co., Ltd.
    31       12,428       186       157       31,338       671  
Global Credit & Information Co., Ltd.
          9,585       292             25,547       766  
PAXNet Co., Ltd.
          2,664       766             12,050       1,773  
SK Telink Co., Ltd.
          3,179       4,592             9,587       11,745  
Others
          3,601             576       17,632       976  
 
                                               
Equity Method Investees:
                                               
WiderThan Co., Ltd.
    1,547       24,948       209       6,109       70,821       241  
SK C&C Co., Ltd.
    39,182       80,173       1,990       67,239       223,272       6,232  
TU Media Corp.
          908       8,337             1,009       17,142  
Others
    7       4,276       540       97       11,065       898  
 
                                               
Others:
                                               
SK Engineering & Construction Co., Ltd.
    61,591       2,220       524       111,738       2,814       1,420  
SK Networks Co., Ltd.
    6,499       108,260       2,284       7,626       313,404       9,505  
Innoace Co., Ltd.
    3,363       379       55       8,009       1,495       165  
SK Telesys Co., Ltd.
    78,415       863       106       145,219       2,400       296  
Others
    1,001       3,161       583       1,288       6,394       1,650  
 
                                   
 
                                               
Total
  W 192,093     W 267,386     W 21,773     W 348,985     W 762,642     W 58,958  
 
                                   

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b-(2) Account balances
                                                 
    As of September 30, 2006  
                                            Guarantee  
    Accounts     Short-term     Long-term     Guarantee     Accounts     deposits  
    receivable     loans     loans     deposits     payable     received  
Parent Company:
                                               
SK Corporation.
  W 860     W     W     W 291     W 5,308     W 6,174  
 
                                               
Subsidiaries:
                                               
SK Communications Co., Ltd.
    1,062                         6,420       3,681  
SK Wyverns Baseball Club Co., Ltd.
    276       575       4,707                    
Global Credit & Information Co., Ltd.
    5                         3,446        
PAXNet Co., Ltd.
    147                         1,005        
SK Telink Co., Ltd.
    930                         853       826  
 
                                               
Equity Method Investees:
                                               
WiderThan Co., Ltd.
    12                         4,953        
SK C&C Co., Ltd.
    214                         49,153       346  
Helio, LLC.
    15,096                                
Others
    7,850                         4,865       3,242  
 
                                               
Others:
                                               
SK Engineering & Construction Co., Ltd.
    183                         676       942  
SK Networks Co., Ltd.
    940                   113       37,651       2,967  
Innoace Co., Ltd.
    20                         1,082       2,291  
SK Telesys Co., Ltd.
    11                         37,340        
Others
    683                   900       1,569        
 
                                   
 
                                               
Total
  W 28,289     W 575     W 4,707     W 1,304     W 154,321     W 20,469  
 
                                   
                                                 
    As of December 31, 2005  
                                            Guarantee  
    Accounts     Short-term     Long-term     Guarantee     Accounts     deposits  
    receivable     loans     loans     deposits     payable     received  
Parent Company:
                                               
SK Corporation
  W 1,643     W     W     W 1,307     W 6,767     W 6,174  
 
                                               
Subsidiaries:
                                               
SK Communications Co., Ltd.
    195                         5,891       3,681  
SK Wyverns Baseball Club Co., Ltd.
    527       1,150       4,706                    
Global Credit & Information Co., Ltd.
    70                         6,533        
PAXNet Co., Ltd.
    401                         2,077        
SK Telink Co., Ltd.
    436                         1,179       514  
Others
    2                         2,755       70  
 
                                               
Equity Method Investees:
                                               
WiderThan Co., Ltd.
    4                         17,398        
SK C&C Co., Ltd.
    91                         174,884       346  
Helio, LLC.
    11,914                                
Others
    6,048                         4,154       3,062  
 
                                               
Others:
                                               
SK Engineering & Construction Co., Ltd.
    97                         21,326       942  
SK Networks Co., Ltd.
    1,760                   113       20,465       2,700  
Innoace Co., Ltd.
                            6,100       2,138  
SK Telesys Co., Ltd.
    3                         65,496        
Others
    223                   900       7,495        
 
                                   
 
                                               
Total
  W 23,414     W 1,150     W 4,706     W 2,320     W 342,520     W 19,627  
 
                                   
     c. Compensation for the key management

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    The Company considers registered directors who have substantial roles and responsibility for planning, operating, and controlling of the business as key management, and the considerations given to the key management for the three months and the nine months ended September 30, 2006 are as follows(In millions of Korean won):
                                                 
    For the three months ended     For the nine months ended  
    September 30, 2006     September 30, 2006 (Note)  
            Severance                     Severance        
Payee   Payroll     indemnities     Total     Payroll     indemnities     Total  
12 Registered directors (including outside directors)
  W 507     W 136     W 643     W 3,687     W 799     W 4,486  
 
                                   
 
(Note)   Compensation for an ex-outside director who resigned during the three months ended June 30, 2006 is included.
    In addition, on March 8, 2002, the Company granted stock options to its nine key members of the management, representing 15,110 shares at an exercise price of W267,000 per share. The stock options fully vested after three years from the date of grant and are exercisable for two years upon vesting. Upon exercise of stock options, the Company will issue its common stock or deliver treasury stock.
22.   PROVISION FOR MILEAGE POINTS
 
    The Company, for its marketing purposes, grants certain mileage points (“Rainbow Points”) to its subscribers based on their usage of the Company’s services. Rainbow Points provision was provided based on the historical usage experience and the Company’s marketing policy. Such provision was recorded as accrued expenses and details of change in the provisions for such mileage points for the nine months ended September 30, 2006 and 2005 are as follows (In millions of Korean won):
                 
    September 30, 2006     September 30, 2005  
    (Note a)     (Note a)  
Beginning balance
  W 52,172     W 61,596  
Increase
    9,679       9,065  
Decrease
    (9,381 )     (12,403 )
 
           
 
               
Ending balance
  W 52,470     W 58,258  
 
           
 
(Note a)   Beginning and ending balances for the nine months ended September 30, 2006 are stated at their discounted values in accordance with SKAS No. 17 and beginning and ending balances for the nine months ended September 30, 2005 are stated at their nominal values.
    Rainbow Points expire after 5 years; thus, all unused points are expired on their fifth anniversary.
    The expected year when unused Rainbow Points as of September 30, 2006 are expected to be used and the respective estimated monetary amount to be paid in a given year are as follows (In millions of Korean won):
                 
  Estimated amount to be paid        
Expected usage for the year ended September 30,
  In nominal value (Note b)     Current value (Note b)  
2007
  W 26,532     W 25,311  
2008
    15,870       14,443  
2009
    8,452       7,340  
2010
    4,364       3,615  
2011
    2,228       1,761  
 
           
 
   
Ending balance
  W 57,446     W 52,470  
 
           
 
(Note b)   The above expected year of the usage and the current value of the estimated amount to be paid are estimated based on historical usage experience.

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23.   DERIVATIVE INSTRUMENTS
  a.   Currency swap contract to which the cash flow hedge accounting is applied
 
      The Company has entered into a fixed-to-fixed cross currency swap contract with Citibank, BNP Paribas and Credit Suisse First Boston International to hedge the foreign currency risk of unguaranteed U.S. dollar denominated bonds with face amounts totaling US$300,000,000 at annual fixed interest rate of 4.25% issued on April 1, 2004. As of September 30, 2006, in connection with unsettled foreign currency swap contract to which the cash flow hedge accounting is applied, an accumulated loss on valuation of derivatives amounting to W21,287 million (excluding tax effect totaling W8,074 million and foreign exchange translation gain arising from unguaranteed U.S. dollar denominated bonds totaling W60,821 million) was accounted for as a capital adjustment.
 
  b.   Currency swap contract to which the cash flow hedge accounting is not applied
 
      The Company has entered into a fixed-to-fixed cross currency swap contract with Credit Suisse First Boston International to hedge foreign currency risk of unguaranteed U.S. dollar denominated convertible bonds with face amounts of US$329,450,000 issued on May 27, 2004. In connection with unsettled fixed-to-fixed cross currency swap contract to which the cash flow hedge accounting is not applied, loss on valuation of currency swap of W8,553 million for the nine months ended September 30, 2006 and gains on valuation of currency swap of W4,314 million for the nine months ended September 30, 2005 were charged to current operations.
 
      In addition, the company has entered into a fixed-to-fixed cross currency swap contract with Hana Bank, Korea Exchange Bank, Woori Bank, Shinhan Bank, Citibank and Barclays Bank to hedge foreign currency risk of unguaranteed U.S. dollar denominated convertible bonds issued by China Unicom which was acquired on July 5, 2006. In connection with unsettled fixed-to-fixed cross currency swap contract to which the cash flow hedge accounting is not applied, gain on valuation of currency swap of W4,358 million for the nine months ended September 30, 2006 were charged to current operations.
 
  c.   Interest rate swap
 
      The Company has entered into a floating-to-fixed interest rate swap contract with Shinhan Bank to hedge the interest rate risk of floating rate discounted bill with face amounts totaling W200,000 million borrowed on June 29, 2006. As of September 30, 2006, in connection with unsettled interest rate swap contract to which the cash flow hedge accounting is applied, an accumulated loss on valuation of derivatives amounting to W1,991 million (excluding tax effect totaling W755 million) was accounted for as a capital adjustment.
 
      As of September 30, 2006, fair values of above derivatives recorded in long-term liabilities and details of derivative instruments as of September 30, 2006 are as follows (In thousands of U.S. dollars and millions of Korean won):

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                Fair value
                Designated        
        Face   Duration   as cash   Not    
Type   Hedged item   Amount   of contract   flow hedge   designated   Total
Current assets:
                                   
Fix-to-fixed cross
currency swap
 
U.S. dollar denominated convertible bond issued by China Unicom
  US1,000,000   July 5, 2006
~ July 5, 2007
  W     W 4,358     W 4,358  
 
                                   
                 
 
              W     W 4,358     W 4,358  
 
                                   
                 
Non-current liabilities:
                                   
Fix-to-fixed cross
currency swap
 
U.S. dollar denominated bonds
  US$300,000   March 23, 2004
~ April 1, 2011
  W 90,182     W     W 90,182  
Fix-to-fixed cross
currency swap
 
U.S. dollar denominated convertible bond
  US$100,000   May 27, 2004
~ May 27, 2009
          21,798       21,798  
 
                                   
                 
 
                90,182       21,798       111,980  
 
                                   
                 
Floating-to-fixed
Interest rate swap
 
Long-term floating rate
discounted bill
  W   200,000   June 29, 2006
~ June 29, 2010
    2,747             2,747  
 
                                   
                 
 
              W 92,929     W 21,798     W 114,727  
 
                                   
24.   COMMITMENTS
 
    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 ‘Helio, LLC.’, a joint venture company, in the United States of America in February 2005 in order to provide wireless telecommunication service across the United States of America. The Company, via SK Telecom USA Holdings, Inc., its wholly-owned subsidiary in the United States of America, has invested US$200.5 million from 2005 through September 30, 2006 and will additionally invest US$19.5 million through 2007 to maintain a 50% equity interest in the joint venture company. Helio, LLC. launched cellular voice and data services extensively across the United States of America in May 2006, by renting networks from network operators throughout the United States of America also known as partial mobile virtual network operator (MVNO) system.
25.   STATEMENTS OF CASH FLOWS
 
    The statements of cash flows are prepared using the indirect method and significant non-cash transactions for the three months and nine months ended September 30, 2006 are as follows (In millions of Korean won):
                 
    For the three months   For the nine months
    ended September 30, 2006   ended September 30, 2006
Conversion of convertible bonds
  W     W 21,575  
Retirement of treasury stock
    209,077       209,077  
    There was no significant non-cash transaction for the three months and nine months ended September 30, 2005.

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26.   SUBSEQUENT EVENTS
 
    The Company is expected to sell 2,000,000 shares of WiderThan Co., Ltd. held by the Company, representing 10.10% of the total outstanding common stock of WiderThan Co., Ltd., for US$34.1 million (US$17.05 per share), to RealNetworks, Inc., a U.S.A. company, on October 31, 2006.

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Forward-Looking Statement Disclaimer
The material above contains forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results or performance to be materially different from any future results or performance expressed or implied by such forward-looking statements. We do not make any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein, and nothing contained herein is, or shall be relied upon as, a promise or representation, whether as to the past or the future. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events. Additional information concerning these and other risk factors are contained in our latest annual report on Form 20-F and in our other filings with the U.S. Securities and Exchange Commission.

94


SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
       
 
  SK Telecom Co., Ltd.
 
  (Registrant)
 
     
 
  By: /s/ Tae Jin Park
 
   
 
  (Signature)
 
  Name: Tae Jin Park
 
  Title: Vice President
Date: February 5, 2007