Edgar Filing: SK TELECOM CO LTD

4. Other Resolutions

Agenda No. 1. Approval of Financial Statements for the 32stFiscal Year

(Fiscal Year ended December 31, 2015)

: Approved as originally submitted.

Agenda No. 2. Amendment to the Articles of Incorporation

: Approved as originally submitted.

Agenda No. 3. Approval of the Appointment of Directors

3.1 Election of an Executive Director(Cho, Dae Sik)

: Approved as originally submitted.

3.2 Election of an Independent Non-Executive Director(Oh, Dae Shick)

: Approved as originally submitted.

Agenda No. 4. Approval of the Appointment of a Member of the Audit Committee

(Oh, Dae Shick)

: Approved as originally submitted.

Agenda No. 5. Approval of Ceiling Amount of the Remuneration for Directors

: Approved as originally submitted.

Agenda No. 6. Approval of the Remuneration Policy for Executives

: Approved as originally submitted.

5. Date of General Meeting of Shareholders

March 18, 2016

Form 6-K

UNITED STATES

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 MARCH 2016

Commission File Number: 333-04906

SK Telecom Co., Ltd.

(Translation of registrant’s name into English)

Euljiro 65(Euljiro2-ga), Jung-gu

Seoul 100-999, Korea

(Address of principal executive office)

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 x Form 40-F ¨

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): ¨

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): ¨

Results of the Annual General Meeting of Shareholders

1. Approval of the Financial Statements⁽¹⁾⁽²⁾

The 32^nd Fiscal Year (Fiscal Year ended December 31, 2015)

(in millions of Won, except for basic earnings per share)


Consolidated	- Total Assets	28,581,387	- Operating Revenue	17,136,734

	- Total Liabilities	13,207,291	- Operating Income	1,708,006

	- Share Capital	44,639	- Profit for the Year	1,515,885

	- Total Equity	15,374,096	- Basic Earnings per Share	20,988

Separate	- Total Assets	23,146,940	- Operating Revenue	12,556,979

	- Total Liabilities	9,367,480	- Operating Income	1,658,776

	- Share Capital	44,639	- Profit for the Year	1,106,761

	- Total Equity	13,779,460	- Basic Earnings per Share	15,233

(1)	Prepared in accordance with International Financial Reporting Standards as adopted in Korea

(2)	Opinion of independent auditors: Appropriate

2. Approval of Dividends

(in Won, except for percentages and stock dividend)


a. Cash Dividends	Dividend per Share	Common Stock	Year-end Dividend	9,000
			Interim Dividends	1,000
		Preferred Stock	Year-end Dividend	—
			Interim/Quarterly Dividend	—

	Total Cash Dividend			708,111,600,000

	Market Dividend Rate (%) (including interim dividend)		Common Stock	4.3
	Market Dividend Rate (%) (including interim dividend)		Preferred Stock	—
b. Stock Dividends	Stock Dividend Rate (%)		Common Stock	—
			Preferred Stock	—

	Total Stock Dividend (Shares)		Common Stock	—

			Preferred Stock	—

3. Status of Directors (as of the date of appointment)


a. Approval of the Appointment of Directors		-	One (1) Executive Director
		-	One (1) Independent Non-Executive Director
		-	One (1) Member of the Audit Committee
			(Who is an Independent Non-Executive Director)
b. Number of Independent Non-Executive Directors Following Appointment	Total Number of Directors		6
	Total Number of Independent Non-Executive Directors		4
	Percentage of Independent Non-Executive Directors (%)	66.7

c. Number of Auditors Following Appointment	Full-time Auditors	—
c. Number of Auditors Following Appointment	Part-time Auditors	—

d. Number of Members of Audit Committee Following Appointment	Number of Members of Audit Committee who are Independent Non-Executive Directors	3
	Number of Members of Audit Committee who are not Independent Non-Executive Directors	—

1.	Approval of Financial Statements

SK TELECOM CO., LTD. AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2015 and 2014

(With Independent Auditors’ Report Thereon)

Contents


	Page

Independent Auditors’ Report		1

Consolidated Statements of Financial Position		3

Consolidated Statements of Income		5

Consolidated Statements of Comprehensive Income		6

Consolidated Statements of Changes in Equity		7

Consolidated Statements of Cash Flows		8

Notes to the Consolidated Financial Statements		10

Independent Auditors’ Report

Based on a report originally issued in Korean

To The Board of Directors and Shareholders

SK Telecom Co., Ltd.:

We have audited the accompanying consolidated financial statements of SK Telecom Co., Ltd. and its subsidiaries (the “Group”), which comprise the consolidated statements of financial position as at December 31, 2015 and 2014, the consolidated statements of income, comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Korean Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2015 and 2014 and of its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with Korean International Financial Reporting Standards.

Other Matter

The procedures and practices utilized in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries.

KPMG Samjong Accounting Corp.

Seoul, Korea

February 23, 2016

This report is effective as of February 23, 2016, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Financial Position

As of December 31, 2015 and 2014


(In millions of won)	*Note*		December 31, 2015		December 31, 2014

Assets
Current Assets:
Cash and cash equivalents		34,35	W	768,922		834,429
Short-term financial instruments		6,34,35,36,37		691,090		313,068
Short-term investment securities		9,34,35		92,262		280,161
Accounts receivable - trade, net		7,34,35,36		2,344,867		2,392,150
Short-term loans, net		7,34,35,36		53,895		74,512
Accounts receivable - other, net		7,34,35,36		673,739		690,527
Prepaid expenses				151,978		134,404
Inventories, net		8,37		273,556		267,667
Assets classified as held for sale		10		—		10,510
Advanced payments and other		7,9,34,35,36		109,933		85,720

Total Current Assets				5,160,242		5,083,148


Non-Current Assets:
Long-term financial instruments		6,34,35,37		10,623		631
Long-term investment securities		9,34,35		1,207,226		956,280
Investments in associates and joint ventures		12		6,896,293		6,298,088
Property and equipment, net		13,36,37		10,371,256		10,567,701
Investment property, net		14		15,071		14,997
Goodwill		15		1,908,590		1,917,595
Intangible assets, net		16		2,304,784		2,483,994
Long-term loans, net		7,34,35,36		62,454		55,728
Long-term accounts receivable - other		7,34,35		2,420		3,596
Long-term prepaid expenses		37		76,034		51,961
Guarantee deposits		6,7,34,35,36		297,281		285,144
Long-term derivative financial assets		22,34,35		166,399		70,035
Deferred tax assets		2,31		17,257		25,083
Other non-current assets		7,34,35		85,457		127,252

Total Non-Current Assets				23,421,145		22,858,085


Total Assets			W	28,581,387		27,941,233

See accompanying notes to the consolidated financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Financial Position, Continued

As of December 31, 2015 and 2014


(In millions of won)	*Note*		December 31, 2015		December 31, 2014

Liabilities and Equity
Current Liabilities:
Short-term borrowings		17,34,35	W	260,000		366,600
Current installments of long-term debt, net		17,34,35		703,087		590,714
Current installments of finance lease liabilities		20,34,35		26		3,804
Current installments of long-term payables – other		18,34,35		120,185		189,389
Accounts payable - trade		34,35,36		279,782		275,495
Accounts payable - other		34,35,36		1,323,434		1,381,850
Withholdings		34,35,36		865,327		1,053,063
Accrued expenses		34,35		920,739		952,418
Income tax payable		31		381,794		99,236
Unearned revenue				224,233		327,003
Provisions		19		40,988		51,075
Advanced receipts				136,844		129,255
Liabilities classified as held for sale		10		—		408
Other current liabilities				54		—

Total Current Liabilities				5,256,493		5,420,310


Non-Current Liabilities:
Debentures, excluding current installments, net		17,34,35		6,439,147		5,649,158
Long-term borrowings, excluding current installments		17,34,35		121,553		149,720
Long-term payables - other		18,34,35		581,697		684,567
Long-term unearned revenue				2,842		19,659
Finance lease liabilities		20,34,35		—		26
Defined benefit liabilities		21		98,856		91,587
Long-term derivative financial liabilities		22,34,35		89,296		130,889
Long-term provisions		19		29,217		36,013
Deferred tax liabilities		31		538,114		444,211
Other non-current liabilities		34,35		50,076		66,823

Total Non-Current Liabilities				7,950,798		7,272,653


Total Liabilities				13,207,291		12,692,963


Equity
Share capital		1,23		44,639		44,639
Capital surplus and other capital adjustments		23,24,25		189,510		277,998
Retained earnings		26		15,007,627		14,188,591
Reserves		27		9,303		(4,489	)

Equity attributable to owners of the Parent Company				15,251,079		14,506,739
Non-controlling interests				123,017		741,531

Total Equity				15,374,096		15,248,270


Total Liabilities and Equity			W	28,581,387		27,941,233

See accompanying notes to the consolidated financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Income

For the years ended December 31, 2015 and 2014


(In millions of won except for per share data)	*Note*		2015			2014

Operating revenue:		5,36
Revenue			W	17,136,734			17,163,798


Operating expense:		36
Labor cost		21		1,893,745			1,659,777
Commissions paid				5,206,951			5,692,680
Depreciation and amortization		5		2,845,295			2,714,730
Network interconnection				957,605			997,319
Leased line				389,819			399,014
Advertising				405,005			415,857
Rent				493,586			460,309
Cost of products that have been resold				1,955,861			1,680,110
Other operating expenses		28		1,280,861			1,318,897

				15,428,728			15,338,693


Operating income		5		1,708,006			1,825,105
Finance income		5,30		103,900			126,337
Finance costs		5,30		(350,100	)		(386,673	)
Gain related to investments in subsidiaries, associates and joint ventures, net		1,5,12		786,140			906,338
Other non-operating income		5,29		30,910			56,279
Other non-operating expenses		5,29		(243,491	)		(273,558	)

Profit before income tax		5		2,035,365			2,253,828

Income tax expense		31		519,480			454,508

Profit for the year				1,515,885			1,799,320

Attributable to:
Owners of the Parent Company			W	1,518,604			1,801,178
Non-controlling interests				(2,719	)		(1,858	)

Earnings per share		32
Basic earnings per share (in won)			W	20,988			25,154

Diluted earnings per share (in won)			W	20,988			25,154

See accompanying notes to the consolidated financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2015 and 2014


(In millions of won)	*Note*		2015			2014

Profit for the year			W	1,515,885			1,799,320

Other comprehensive income (loss)
Items that will never be reclassified to profit or loss, net of taxes:
Remeasurement of defined benefit liabilities		21		(14,489	)		(32,942	)
Items that are or may be reclassified subsequently to profit or loss, net of taxes:
Net change in unrealized fair value of available-for-sale financial assets		27,30		(3,661	)		27,267
Net change in other comprehensive income of investments in associates and joint ventures		12,27		(5,709	)		8,187
Net change in unrealized fair value of derivatives		22,27,30		(1,271	)		(45,942	)
Foreign currency translation differences for foreign operations		27		26,965			14,944

Other comprehensive income (loss) for the year				1,835			(28,486	)

Total comprehensive income			W	1,517,720			1,770,834


Total comprehensive income attributable to:
Owners of the Parent Company			W	1,522,280			1,777,519
Non-controlling interests				(4,560	)		(6,685	)

See accompanying notes to the consolidated financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Changes in Equity

For the years ended December 31, 2015 and 2014


(In millions of won)
	Controlling Interest														Non- controlling interests			Total equity
	Share capital		Capital surplus and other capital adjustments			Retained earnings			Reserves			Sub-total			Non- controlling interests			Total equity
Balance, January 1, 2014	W	44,639		317,508			13,102,495			(12,270	)		13,452,372			714,185			14,166,557
Cash dividends		—		—			(666,802	)		—			(666,802	)		(170	)		(666,972	)
Total comprehensive income
Profit (loss) for the year		—		—			1,801,178			—			1,801,178			(1,858	)		1,799,320
Other comprehensive income (loss)		—		—			(31,440	)		7,781			(23,659	)		(4,827	)		(28,486	)

		—		—			1,769,738			7,781			1,777,519			(6,685	)		1,770,834
Interest on hybrid bond		—		—			(16,840	)		—			(16,840	)		—			(16,840	)
Changes in consolidation scope		—		—			—			—			—			23,667			23,667
Business combination under common control		—		(28,641	)		—			—			(28,641	)		—			(28,641	)
Changes in ownership in subsidiaries		—		(10,869	)		—			—			(10,869	)		10,534			(335	)

Balance, December 31, 2014	W	44,639		277,998			14,188,591			(4,489	)		14,506,739			741,531			15,248,270


Balance, January 1, 2015	W	44,639		277,998			14,188,591			(4,489	)		14,506,739			741,531			15,248,270
Cash dividends		—		—			(668,494	)		—			(668,494	)		(143	)		(668,637	)
Total comprehensive income
Profit (loss) for the year		—		—			1,518,604			—			1,518,604			(2,719	)		1,515,885
Other comprehensive income (loss)		—		—			(13,402	)		17,078			3,676			(1,841	)		1,835

		—		—			1,505,202			17,078			1,522,280			(4,560	)		1,517,720
Interest on hybrid bond		—		—			(16,840	)		—			(16,840	)		—			(16,840	)
Acquisition of treasury stock		—		(490,192	)		—			—			(490,192	)		—			(490,192	)
Disposal of treasury stock		—		425,744			—			—			425,744			—			425,744
Changes in consolidation scope		—		—			—			—			—			(5,226	)		(5,226	)
Changes in ownership in subsidiaries		—		(24,040	)		(832	)		(3,286	)		(28,158	)		(608,585	)		(636,743	)

Balance, December 31, 2015	W	44,639		189,510			15,007,627			9,303			15,251,079			123,017			15,374,096

See accompanying notes to the consolidated financial statements.


(In millions of won)	*Note*		2015			2014

Cash flows from operating activities:
Cash generated from operating activities
Profit for the year			W	1,515,885			1,799,320
Adjustments for income and expenses		38		3,250,143			2,978,995
Changes in assets and liabilities related to operating activities		38		(685,734	)		(707,333	)

Sub-total				4,080,294			4,070,982
Interest received				43,400			56,706
Dividends received				62,973			13,048
Interest paid				(275,796	)		(280,847	)
Income tax paid				(132,742	)		(182,504	)

Net cash provided by operating activities				3,778,129			3,677,385


Cash flows from investing activities:
Cash inflows from investing activities:
Decrease in short-term financial instruments, net				—			5,627
Decrease in short-term investment securities, net				105,158			—
Collection of short-term loans				398,308			207,439
Decrease in long-term financial instruments				7,424			2,535
Proceeds from disposals of long-term investment securities				149,310			65,287
Proceeds from disposals of investments in associates and joint ventures				185,094			7,333
Proceeds from disposals of property and equipment				36,586			25,143
Proceeds from disposals of intangible assets				3,769			10,917
Proceeds from disposals of assets held for sale				1,009			3,667
Collection of long-term loans				2,132			4,454
Decrease in deposits				14,635			8,891
Proceeds from disposals of other non-current assets				607			94
Proceeds from disposals of subsidiaries				155			—
Increase in cash due to acquisition of a subsidiary				10,355			—

Sub-total				914,542			341,387
Cash outflows for investing activities:
Increase in short-term financial instruments, net				(385,612	)		—
Increase in short-term investment securities, net				—			(174,209	)
Increase in short-term loans				(370,378	)		(202,501	)
Increase in long-term loans				(16,701	)		(4,341	)
Increase in long-term financial instruments				(10,008	)		(2,522	)
Acquisitions of long-term investment securities				(312,261	)		(41,305	)
Acquisitions of investments in associates and joint ventures				(65,080	)		(60,020	)
Acquisitions of property and equipment				(2,478,778	)		(3,008,026	)
Acquisitions of intangible assets				(127,948	)		(130,667	)
Cash held by disposal group classified as held for sale				—			(552	)
Increase in deposits				(12,536	)		(6,903	)
Increase in other non-current assets				(2,542	)		(18,233	)
Acquisitions of business, net of cash acquired				(13,197	)		(375,273	)

Sub-total				(3,795,041	)		(4,024,552	)

Net cash used in investing activities			W	(2,880,499	)		(3,683,165	)


(In millions of won)	*Note*	2015			2014

Cash flows from financing activities:
Cash inflows from financing activities:
Increase in short-term borrowings, net		W	—			102,868
Proceeds from issuance of debentures			1,375,031			1,255,468
Proceeds from long-term borrowings			—			62,552
Cash inflows from settlement of derivatives			175			200

Sub-total			1,375,206			1,421,088
Cash outflows for financing activities:
Decrease in short-term borrowings, net			(106,600	)		—
Repayments of long-term account payables-other			(191,436	)		(207,791	)
Repayments of debentures			(620,000	)		(1,039,938	)
Repayments of long-term borrowings			(21,924	)		(23,284	)
Cash outflows from settlement of derivatives			(655	)		(6,444	)
Payments of finance lease liabilities			(3,206	)		(19,388	)
Payments of dividends			(668,494	)		(666,802	)
Payments of interest on hybrid bond			(16,840	)		(16,840	)
Acquisitions of treasury stock			(490,192	)		—
Cash outflows related to equity interest transactions			(220,442	)		—

Sub-total			(2,339,789	)		(1,980,487	)

Net cash used in financing activities			(964,583	)		(559,399	)


Net decrease in cash and cash equivalents			(66,953	)		(565,179	)
Cash and cash equivalents at beginning of the year			834,429			1,398,639
Effects of exchange rate changes on cash and cash equivalents			1,446			969

Cash and cash equivalents at end of the year		W	768,922			834,429

See accompanying notes to the consolidated financial statements.

1.	Reporting Entity

(1)

General

SK Telecom Co., Ltd. (“the Parent Company”) was incorporated in March 1984 under the laws of the Republic of Korea (“Korea”) to engage in providing cellular telephone communication services in Korea. The Parent Company mainly provides wireless telecommunications in Korea. The Parent Company’s common shares and depositary receipts (DRs) are listed on the Stock Market of Korea Exchange, the New York Stock Exchange and the London Stock Exchange. As of December 31, 2015, the Parent Company’s total issued shares are held by the following:


	Number of shares		Percentage of total shares issued (%)
SK Holdings Co., Ltd.(*)		20,363,452		25.22
National Pension Service		6,963,591		8.63
Institutional investors and other minority stockholders		43,282,117		53.60
Treasury stock		10,136,551		12.55

Total number of shares		80,745,711		100.00

(*)	During the year ended December 31, 2015, SK C&C Co., Ltd., the ultimate controlling entity’s investee accounted using the equity method, merged SK Holdings Co., Ltd., the ultimate controlling entity of the Parent Company, and changed its name to SK, Holdings Co., Ltd.

These consolidated financial statements comprise the Parent Company and its subsidiaries (together referred to as the “Group” and individuals as “Group entities”). SK Holdings Co., Ltd. is the ultimate controlling entity of the Parent Company.

(2)

List of subsidiaries

The list of subsidiaries as of December 31, 2015 and 2014 is as follows:

Ownership (%)

Subsidiary

Location

Primary business

Dec. 31,
2015

Dec. 31,
2014

SK Telink Co., Ltd.

Korea

Telecommunication and MVNO service

83.5

M&Service Co., Ltd.

Korea

Data base and internet website service

100.0

SK Communications Co., Ltd.

Korea

Internet website services

64.6

Stonebridge Cinema Fund

Korea

Investment association

55.2

56.0

Commerce Planet Co., Ltd.

Korea

Online shopping mall operation agency

100.0

SK Broadband Co., Ltd.(*1,4)

Korea

Telecommunication services

100.0

50.6

K-net Culture and Contents Venture Fund

Korea

Investment association

59.0

Fitech Focus Limited Partnership II

Korea

Investment association

66.7

Open Innovation Fund

Korea

Investment association

98.9

PS&Marketing Corporation

Korea

Communications device retail business

100.0

Service Ace Co., Ltd.

Korea

Customer center management service

100.0

Service Top Co., Ltd.

Korea

Customer center management service

100.0

Network O&S Co., Ltd.

Korea

Base station maintenance service

100.0

BNCP Co., Ltd.(*5)

Korea

Internet website services

—

100.0

Iconcube Holdings, Inc. (*5)

Korea

Investment association

—

100.0

Iconecube, Inc. (*5)

Korea

Internet website services

—

100.0

SK Planet Co., Ltd.

Korea

Telecommunication service

100.0

Neosnetworks Co., Ltd.(*2)

Korea

Guarding of facilities

83.9

66.7

1.	Reporting Entity, Continued

(2)

List of subsidiaries, Continued

Ownership (%)

Subsidiary

Location

Primary business

Dec. 31,
2015

Dec. 31,
2014

IRIVER LIMITED (*3)

Korea

Manufacturing digital audio players and other portable media devices.

49.0

Iriver CS Co., Ltd. (*5)

Korea

After-sales service and logistics agency

—

100.0

iriver Enterprise Ltd.

Hong Kong

Management of Chinese subsidiary

100.0

iriver America Inc.

USA

Marketing and sales in North America

100.0

iriver Inc.

USA

Marketing and sales in North America

100.0

iriver China Co., Ltd.

China

Sales and manufacturing MP3,4 in China

100.0

Dongguan iriver Electronics Co., Ltd.

China

Sales and manufacturing e-book in China

100.0

Groovers JP Ltd.(*5)

Japan

Digital music contents sourcing and distribution service

100.0

—

SK Telecom China Holdings Co., Ltd.

China

Investment association

100.0

Shenzhen E-eye High Tech Co., Ltd.(*5)

China

Manufacturing

—

65.5

SK Global Healthcare Business Group, Ltd.

Hong Kong

Investment association

100.0

SK Planet Japan, K. K.

Japan

Digital contents sourcing service

100.0

SKT Vietnam PTE. Ltd.

Singapore

Telecommunication service

73.3

SK Planet Global PTE. Ltd.

Singapore

Digital contents sourcing service

100.0

SKP GLOBAL HOLDINGS PTE. LTD.

Singapore

Investment association

100.0

SKT Americas, Inc.

USA

Information gathering and consulting

100.0

SKP America LLC.

USA

Digital contents sourcing service

100.0

YTK Investment Ltd.

Cayman

Investment association

100.0

Atlas Investment

Cayman

Investment association

100.0

Technology Innovation Partners, LP.

USA

Investment association

100.0

SK Telecom China Fund I L.P.

Cayman

Investment association

100.0

Entrix Co., Ltd.(*5)

Korea

Cloud streaming services

100.0

—

shopkick Management Company, Inc.

USA

Investment association

95.2

shopkick, Inc.

USA

Mileage-based online transaction app development

100.0

(*1)

On March 20, 2015, the Board of Directors of the Parent Company decided to grant 0.0168936 share of its treasury stock in exchange for 1 share of SK Broadband Co., Ltd., a subsidiary of the Parent Company, to the shareholders of SK Broadband Co., Ltd. as of June 9, 2015. After the stock exchange, SK Broadband Co., Ltd. became a wholly-owned subsidiary of the Parent Company.

(*2)

Due to the shareholders’ agreement which grants put option to the non-controlling shareholders, this entity is consolidated as a wholly owned subsidiary in the consolidated financial statements. The Parent Company newly acquired 50,377 and 326,748 shares of Neosnetworks Co., Ltd. by participating in the capital increase and capital increase without consideration, respectively during the year ended December 31, 2015.

(*3)	Although the Group has less than 50% of the voting rights of IRIVER LIMITED, it is considered to have de facto control since the Group holds significantly more voting rights than any other vote holder or organized group of vote holders, and the other shareholdings are widely dispersed.

1.	Reporting Entity, Continued

(2)

List of subsidiaries, Continued

(*4)

On November 2, 2015, the board of directors of the Parent Company entered into a share purchase agreement to acquire 30%(23,234,060 shares) of the issued and outstanding common shares of CJ Hello Vision Co, Ltd. (“CJ Hello Vision”) from CJ O Shopping Co., Ltd. (“CJ O Shopping”). The proposed transaction closing date is April 4, 2016. According to the share purchase agreement, the Parent Company will grant put option (exercisable at a price of W26,994 during the two year period following the third anniversary of the transaction closing date) to CJ O Shopping and be granted call option (exercisable at a price of W26,994 during the five year period following the closing date) on CJ O Shopping’s remaining shares in CJ Hello Vision. On November 2, 2015, the board of directors of SK Broadband Co., Ltd. (“SK Broadband”), a subsidiary of the Parent Company, held a meeting to resolve the merger of SK Broadband into CJ Hello Vision, and SK Broadband entered into a merger agreement with CJ Hello Vision. Under the agreement, SK Broadband will be merged into CJ Hello Vision on April 4, 2016. As of December 31, 2015, the approval of relevant government agencies for the share purchase and the merger has not been completed, and the transaction closing date is subject to change depending on the status of the pre-requirements including the approval of government agencies.

(*5)	Changes in subsidiaries are explained in Note 1-(4).

In accordance with the Group’s accounting policy relating to the scope of consolidation, small-sized subsidiaries including IM Shopping Inc. were excluded from the list of subsidiaries as the effects on the Group’s consolidated financial statements are not material considering both individual and overall quantitative and qualitative effects.

1.	Reporting Entity, Continued

(3)

Condensed financial information of subsidiaries

Condensed financial information of subsidiaries as of and for the year ended December 31, 2015 is as follows:


(In millions of won)
Subsidiary	Total assets		Total liabilities		Total equity (deficit)			Revenue		Profit (loss)
SK Telink Co., Ltd.	W	309,955		113,878		196,077			431,368		55,781
M&Service Co., Ltd.		89,452		42,414		47,038			143,255		5,549
SK Communications Co., Ltd.		152,496		35,014		117,482			80,147		(14,826	)
Stonebridge Cinema Fund		7,797		523		7,274			—		3,290
Commerce Planet Co., Ltd.		26,291		33,660		(7,369	)		78,647		(3,003	)
SK Broadband Co., Ltd.		3,291,707		2,170,484		1,121,223			2,731,344		10,832
K-net Culture and Contents Venture Fund		13,169		—		13,169			—		(421	)
Fitech Focus Limited Partnership II		18,249		—		18,249			—		(1,085	)
Open Innovation Fund		19,455		—		19,455			—		(2,348	)
PS&Marketing Corporation		509,580		300,364		209,216			1,791,944		4,835
Service Ace Co., Ltd.		65,424		34,240		31,184			206,338		2,778
Service Top Co., Ltd.		61,897		38,482		23,415			197,092		4,396
Network O&S Co., Ltd.		77,426		48,069		29,357			210,676		6,466
SK Planet Co., Ltd.		2,406,988		784,631		1,622,357			1,624,630		(75,111	)
Neosnetworks Co., Ltd.		68,361		15,583		52,778			61,092		(5,615	)
IRIVER LIMITED(*1)		60,434		12,377		48,057			55,637		635
SK Telecom China Holdings Co., Ltd.		37,748		2,111		35,637			10,764		(10,124	)
SK Global Healthcare Business Group, Ltd.		25,768		—		25,768			—		(106	)
SK Planet Japan, K. K.		5,068		1,021		4,047			699		(4,988	)
SKT Vietnam PTE. Ltd.		4,523		1,371		3,152			—		—
SK Planet Global PTE. Ltd.		1,570		218		1,352			1		(4,069	)
SKP GLOBAL HOLDINGS PTE. LTD.		28,320		16		28,304			—		(23,918	)
SKT Americas, Inc.		51,138		837		50,301			9,132		(3,204	)
SKP America LLC.		380,141		—		380,141			—		791
YTK Investment Ltd.		16,318		—		16,318			—		(3,210	)
Atlas Investment(*2)		77,750		199		77,551			—		(2,429	)
Entrix Co., Ltd.		30,876		3,186		27,690			4,895		(1,826	)
shopkick Management Company, Inc.		306,248		7		306,241			7		(2,455	)
shopkick, Inc.		25,388		32,243		(6,855	)		33,851		(52,390	)

(*1)	The condensed financial information of IRIVER LIMITED includes financial information of iriver Enterprise Ltd., iriver America Inc., iriver Inc., iriver China Co., Ltd., Dongguan iriver Electronics Co., Ltd. and Groovers JP Ltd., subsidiaries of IRIVER LIMITED.

(*2)	The financial information of Atlas Investment includes financial information of Technology Innovation Partners, L.P. and SK Telecom China Fund I L.P., subsidiaries of Atlas Investment.

1.	Reporting Entity, Continued

(3)

Condensed financial information of subsidiaries, Continued

Condensed financial information of subsidiaries as of and for the year ended December 31, 2014 is as follows:


(In millions of won)
Subsidiary	Total assets		Total liabilities		Total equity (deficit)			Revenue		Profit (loss)
SK Telink Co., Ltd.	W	324,028		184,074		139,954			465,463		13,073
M&Service Co., Ltd.		78,826		36,817		42,009			133,789		7,492
SK Communications Co., Ltd.		176,168		41,987		134,181			93,910		(18,386	)
Stonebridge Cinema Fund		11,137		320		10,817			—		383
Commerce Planet Co., Ltd.		26,078		27,259		(1,181	)		64,509		933
SK Broadband Co., Ltd.		3,109,991		1,988,379		1,121,612			2,654,381		4,307
K-net Culture and Contents Venture Fund		21,094		4		21,090			—		4,920
Fitech Focus Limited Partnership II		19,301		—		19,301			—		(2,055	)
Open Innovation Fund		21,765		—		21,765			—		(6,266	)
PS&Marketing Corporation		544,292		336,221		208,071			1,627,217		2,817
Service Ace Co., Ltd.		66,336		37,770		28,566			207,427		3,570
Service Top Co., Ltd.		57,032		36,723		20,309			188,835		3,503
Network O&S Co., Ltd.		71,348		45,770		25,578			211,916		3,823
BNCP Co., Ltd.		6,785		5,887		898			12,869		(1,505	)
Iconcube Holdings, Inc.(*1)		1,415		515		900			630		(2,284	)
SK Planet Co., Ltd.		2,579,286		746,832		1,832,454			1,512,492		1,593
Neosnetworks Co., Ltd.		31,633		13,251		18,382			33,302		(1,989	)
IRIVER LIMITED(*2)		61,945		14,392		47,553			53,192		2,345
SK Telecom China Holdings Co., Ltd.		37,877		2,335		35,542			12,420		1,058
Shenzhen E-eye High Tech Co., Ltd.		15,566		408		15,158			3,637		(1,143	)
SK Global Healthcare Business Group, Ltd.		25,874		—		25,874			—		(689	)
SK Planet Japan, K. K.		5,222		1,638		3,584			93		(4,561	)
SKT Vietnam PTE. Ltd.		4,242		1,286		2,956			—		(73	)
SK Planet Global PTE. Ltd.		4,215		64		4,151			87		(2,543	)
SKP GLOBAL HOLDINGS PTE. LTD.		29,529		11		29,518			—		(9,716	)
SKT Americas, Inc.		42,159		554		41,605			9,100		(5	)
SKP America LLC.		297,981		67		297,914			—		(2,370	)
YTK Investment Ltd.		27,944		—		27,944			—		(15,259	)
Atlas Investment(*3)		66,825		94		66,731			—		(6,626	)
shopkick Management Company, Inc.		230,925		—		230,925			—		—
shopkick, Inc.		28,216		13,698		14,518			—		—

(*1)	The condensed financial information of Iconcube Holdings, Inc. includes financial information of Iconcube, Inc., a subsidiary of Iconcube Holdings, Inc.

(*2)	The condensed financial information of IRIVER LIMITED includes financial information of iriver CS Co. Ltd., iriver Enterprise Ltd., iriver America Inc., iriver Inc., iriver China Co., Ltd., and Dongguan iriver Electronics Co., Ltd., subsidiaries of IRIVER LIMITED.

1.	Reporting Entity, Continued

(3)

Condensed financial information of subsidiaries, Continued

(*3)	The financial information of Atlas Investment includes financial information of Technology Innovation Partners, L.P. and SK Telecom China Fund I L.P., subsidiaries of Atlas Investment.

(4)

Changes in subsidiaries

The list of subsidiaries that were newly included from consolidation during the year ended December 31, 2015 is as follows:


Subsidiary		Reason
Groovers JP Ltd.		Established by IRIVER LIMITED, a subsidiary of the Parent Company during the year ended December 31, 2015.
Entrix Co., Ltd		Established by spin-off from SK Planet Co., Ltd., a subsidiary of the Parent Company.

The list of subsidiaries that were excluded from subsidiaries during the year ended December 31, 2015 is as follows:


Subsidiary		Reason
BNCP Co., Ltd.		Disposed during the year ended December 31, 2015.
Iconcube Holdings, Inc.		Disposed during the year ended December 31, 2015.
Iconcube, Inc.		Disposed during the year ended December 31, 2015.
Iriver CS Co., Ltd.		Merged into IRIVER LIMITED, a subsidiary of the Parent Company during the year ended December 31, 2015.
Shenzhen E-eye High Tech Co., Ltd.		Disposed during the year ended December 31, 2015.

1.	Reporting Entity, Continued

(5)

The information of significant non-controlling interests of the Group as of and for the years ended December 31, 2015 and 2014 are as follows. There were no dividends paid during the years ended December 31, 2015 and 2014 by subsidiaries of which non-controlling interests are significant.


(In millions of won)	December 31, 2015
	SK Communications Co., Ltd.
Ownership of non-controlling interests (%)		35.4

Current assets	W	95,662
Non-current assets		56,834
Current liabilities		(33,306	)
Non-current liabilities		(1,708	)
Net assets		117,482
Net assets of consolidated entities		117,482
Carrying amount of non-controlling interests		41,659

Revenue	W	80,147
Loss for the period		(14,826	)
Loss of the consolidated entities		(14,826	)
Total comprehensive loss		(16,698	)
Loss attributable to non-controlling interests		(5,254	)

Net cash used in operating activities	W	(2,706	)
Net cash provided by investing activities		8,723
Net cash provided by financing activities		—
Net increase in cash and cash equivalents		6,017

1.	Reporting Entity, Continued

(5)


(In millions of won)	December 31, 2014
	SK Communications Co., Ltd.			SK Broadband Co., Ltd.
Ownership of non-controlling interests (%)		35.4			49.4

Current assets	W	89,135			463,764
Non-current assets		87,033			2,646,227
Current liabilities		(41,252	)		(881,886	)
Non-current liabilities		(735	)		(1,106,493	)
Net assets		134,181			1,121,612
Adjustment for fair value		—			111,561
Net assets of consolidated entities		134,181			1,233,173
Carrying amount of non-controlling interests		47,577			609,638

Revenue	W	93,910			2,654,381
Profit (loss) for the period		(18,386	)		4,307
Amortization of fair value adjustment		—			(1,916	)
Profit (loss) of the consolidated entities		(18,386	)		2,391
Total comprehensive income (loss)		530			(10,324	)
Profit (loss) attributable to non-controlling interests		(6,519	)		1,182

Net cash provided by (used in) operating activities	W	(5,962	)		431,760
Net cash used in investing activities		(17,927	)		(599,016	)
Net cash provided by financing activities		—			119,484
Net decrease in cash and cash equivalents		(23,889	)		(47,772	)

2.	Basis of Presentation

(1)

Statement of compliance

These consolidated financial statements were prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in the Act on External Audits of Stock Companies in the Republic of Korea.

The consolidated financial statements were authorized for issuance by the Board of Directors on February 3, 2016, which will be submitted for approval at the shareholders’ meeting to be held on March 18, 2016.

(2)

Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the consolidated statements of financial position:

•

derivative financial instruments are measured at fair value

•

financial instruments at fair value through profit or loss are measured at fair value

•

available-for-sale financial assets are measured at fair value

•

liabilities for defined benefit plans are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets.

(3)

Functional and presentation currency

Financial statements of Group entities within the Group are presented in functional currency and the currency of the primary economic environment in which each entity operates. Consolidated financial statements of the Group are presented in Korean won, which is the Parent Company’s functional and presentation currency.

(4)

Use of estimates and judgments

The preparation of the consolidated financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period prospectively.

Critical judgments

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in Note 4 for the following areas: revenue, consolidation: whether the Group has de facto control over an investee, and classification of lease.

2.	Basis of Presentation, Continued

(4)

Use of estimates and judgments, Continued

Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes: allowance for doubtful accounts, estimated useful lives of property and equipment and intangible assets, impairment of goodwill, recognition of provision, measurement of defined benefit liabilities, and recognition of deferred tax assets (liabilities).

Fair value measurement

A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the finance executive.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of K-IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.

•

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

•

Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

•

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Information about assumptions used for fair value measurements are included in Note 35.

(5)

Common control transactions

SK Holdings Co., Ltd. (“the Ultimate Controlling Entity”) is the Ultimate Controlling Entity of the Parent Company because it controls the Parent Company. Accordingly, gains and losses from business acquisitions and dispositions involving entities that are under the control of the Ultimate Controlling Entity are accounted for as common control transactions within equity.

3.	Changes in Accounting Policies

Except for the changes below, the Group has consistently applied the accounting policies set out in Note 4 to all periods presented in these consolidated financial statements.

The Group has adopted the following amendments to standards with a date of initial application of January 1, 2015.

1) K-IFRS 1019 ‘Employee Benefits’ – Employee contributions

Amendments to K-IFRS 1019 introduced a practical expedient to accounting for defined benefit plan, when employees or third parties pay contributions if certain criteria are met. According to the amendments, the entity is permitted to recognize those contributions as a reduction of the service cost in the period in which the related service is rendered, instead of forecast future contributions from employees or third parties and attribute them to periods or service as negative benefits.

There is no material impact of the application of this amendment on the consolidated financial statements.

4.	Significant Accounting Policies

The significant accounting policies applied by the Group in preparation of its consolidated financial statements in accordance with K-IFRSs are included below. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements except for those as described in Note 3.

(1)

Operating segments

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. The Group’s operating segments have been determined to be each business unit, for which the Group generates separately identifiable financial information that is regularly reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance. The Group has three reportable segments which consist of cellular services, fixed-line telecommunication services and others, as described in Note 5. Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

4.	Significant Accounting Policies, Continued

(2)

Basis of consolidation

(i)

Business combination

A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control.

Consideration transferred is generally measured at fair value, identical to the measurement of identifiable net assets acquired at fair value. If goodwill incurs as a result of business combination, the Group performs impairment test on an annual basis and recognizes gain from bargain purchases through profit or loss. Acquisition-related costs are expensed in the periods in which the costs are incurred and the services are received excluding costs to issue debt or equity securities recognized based on K-IFRS No. 1032 and 1039.

Consideration transferred does not include the amount settled in relation to the pre-existing relationship and the amount settled in relation to the pre-existing relationship is generally recognized through profit or loss.

Contingent consideration is measured at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. If contingent consideration is not classified as equity, the Group subsequently recognizes changes in fair value of contingent consideration and recognizes through profit or loss.

Entire or certain portion of market-based measure of replacement award for share-based payment transactions of the acquiree or the replacement of an acquiree’s share-based payment transactions with share-based payment transactions of the acquirer is included in measurement of contingent considerations. Portion of a replacement award that is part of the consideration transferred for the acquiree and the portion that is remuneration for post-combination service is determined by comparing market-based measure of the awards of acquire and replacement awards that is attributable to pre-combination service.

(ii)

Non-controlling interests

The Group measure at the acquisition date components of non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the acquiree’s net assets.

Changes in a Controlling Company’s ownership interest in a subsidiary that do not result in the Controlling Company losing control of the subsidiary are accounted for as equity transactions.

(iii)

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of an investee begins from the date the Group obtains control of the investee and cease when the Group loses control of the investee.

4.	Significant Accounting Policies, Continued

(2)

Basis of consolidation, Continued

(iv)

Loss of control

If the Group loses control of a subsidiary, the Group derecognizes the assets and liabilities of the former subsidiary from the consolidated statement of financial position and recognizes gain or loss associated with the loss of control attributable to the former controlling interest. Any investment retained in the former subsidiary is recognized at its fair value when control is lost.

(v)

Interest in investees accounted for using the equity method

Interest in investees accounted for using the equity method composed of interest in associates and joint ventures. An associate is an entity in which the Group has significant influence, but not control, over the entity’s financial and operating policies. A joint venture is a joint arrangement whereby the Group that has joint control of the arrangement have rights to the net assets of the arrangement.

The investment in an associate and a joint venture is initially recognized at cost including transaction costs and the carrying amount is increased or decreased to recognize the Group’s share of the profit or loss and changes in equity of the associate or the joint venture after the date of acquisition.

(vi)

Intra-group transactions

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. The Group’s share of unrealized gain incurred from transactions with investees accounted for using the equity method are eliminated and unrealized loss are eliminated using the same basis if there are no evidence of asset impairments.

(vii)

Business combinations under common control

The assets and liabilities acquired from the combination of entities or business under common control are recognized at the carrying amounts in the ultimate controlling shareholder’s consolidated financial statements. The difference between consideration and carrying amount of net assets acquired is added to or subtracted from other capital adjustments.

(3)

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.

(4)

Inventories

Inventories are stated at the acquisition cost using the average method. During the period, a perpetual inventory system is used to value inventories, which is adjusted to the physical inventory counts performed at the period end. When the net realizable value of inventories is less than the acquisition cost, the carrying amount is reduced to the net realizable value and any difference is charged to current operations as operating expenses. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

4.	Significant Accounting Policies, Continued

(5)

Non-derivative financial assets

The Group recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The Group recognizes financial assets in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Upon initial recognition, non-derivative financial assets are measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the asset’s acquisition or issuance.

(i)

Financial assets at fair value through profit or loss

A financial asset is classified as financial assets are classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

(ii)

Held-to-maturity investments

A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Group has the positive intention and ability to hold to maturity, are classified as held-to-maturity investments. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest rate method.

(iii)

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method except for loans and receivables of which the effect of discounting is immaterial.

(iv)

Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at fair value, which changes in fair value, net of any tax effect, recorded in other comprehensive income in equity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost.

(v)

De-recognition of financial assets

The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability. If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

4.	Significant Accounting Policies, Continued

(5)

Non-derivative financial assets, Continued

(vi)

Offsetting between financial assets and financial liabilities

Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Group currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

(6)

Derivative financial instruments, including hedge accounting

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

(i)

Hedge accounting

The Group holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk. The Group designated derivatives as hedging instruments to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).

On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.

Fair value hedge

Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the consolidated statement of income. The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting. Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued.

Cash flow hedge

When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.

4.	Significant Accounting Policies, Continued

(6)

Derivative financial instruments, including hedge accounting, Continued

(ii)

Separable embedded derivatives

Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria have been met:

(a)

the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract;

(b)

a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and

(c)

the hybrid instrument is not measured at fair value with changes in fair value recognized in profit or loss.

Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

(iii)

Other derivative financial instruments

Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.

(7)

Impairment of financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.

Objective evidence that a financial asset is impaired includes following loss events:

•

significant financial difficulty of the issuer or obligor;

•

a breach of contract, such as default or delinquency in interest or principal payments;

•

the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

•

it becoming probable that the borrower will enter bankruptcy or other financial reorganization;

•

the disappearance of an active market for that financial asset because of financial difficulties; or

•

observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group

In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

4.	Significant Accounting Policies, Continued

(7)

Impairment of financial assets, Continued

If financial assets have objective evidence that they are impaired, impairment losses should be measured and recognized.

(i)

Financial assets measured at amortized cost

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. If it is not practicable to obtain the instrument’s estimated future cash flows, impairment losses would be measured by using prices from any observable current market transactions. The Group can recognize impairment losses directly or establish a provision to cover impairment losses. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss shall be reversed either directly or by adjusting an allowance account.

(ii)

Financial assets carried at cost

If there is objective evidence that an impairment loss has occurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses shall not be reversed.

(iii)

Available-for-sale financial assets

When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale shall not be reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognized in profit or loss.

(8)

Property, plant and equipment

Property, plant and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

4.	Significant Accounting Policies, Continued

(8)

Property, plant and equipment, continued

Subsequent to initial recognition, an item of property, plant and equipment is carried at its cost less any accumulated depreciation and any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of property, plant and equipment at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Property, plant and equipment, except for land, are depreciated on a straight-line basis over estimated useful lives that appropriately reflect the pattern in which the asset’s future economic benefits are expected to be consumed. A component that is significant compared to the total cost of property, plant and equipment is depreciated over its separate useful life.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized as other non-operating income (loss).

The estimated useful lives of the Group’s property, plant and equipment are as follows:


		Useful lives (years)

Buildings and structures		15 ~ 40
Machinery		3 ~ 15
Other property, plant and equipment (“Other PP&E”)		4 ~ 10

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

(9)

Borrowing costs

The Group capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets and inventories that are manufactured or otherwise produced over a short period of time are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.

To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that the Group borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Group shall determine the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to the borrowings of the Group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Group capitalizes during a period shall not exceed the amount of borrowing costs incurred during that period.

4.	Significant Accounting Policies, Continued

(10)

Intangible assets

Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.

Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, as there are no foreseeable limits to the periods over which club memberships are expected to be available for use, this intangible asset is determined as having indefinite useful lives and not amortized.

The estimated useful lives of the Group’s intangible assets are as follows:


		Useful lives (years)

Frequency use rights		6.3 ~ 13.1
Land use rights		5
Industrial rights		5, 10
Development costs		5
Facility usage rights		10, 20
Customer relations		3 ~ 7
Other		3 ~ 20

Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.

Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.

Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.

4.	Significant Accounting Policies, Continued

(11)

Government grants

Government grants are not recognized unless there is reasonable assurance that the Group will comply with the grant’s conditions and that the grant will be received.

(i)

Grants related to assets

Government grants whose primary condition is that the Group purchase, construct or otherwise acquire long-term assets are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduction to depreciation expense.

(ii)

Grants related to income

Government grants which are intended to compensate the Group for expenses incurred are deducted from the related expenses.

(12)

Investment property

Property held for the purpose of earning rentals or benefiting from capital appreciation is classified as investment property. Investment property is initially measured at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at depreciated cost less any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Investment property except for land, are depreciated on a straight-line basis over 15~40 years as estimated useful lives.

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

(13)

Impairment of non-financial assets

The carrying amounts of the Group’s non-financial assets, other than assets arising from employee benefits, inventories, deferred tax assets and non-current assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

4.	Significant Accounting Policies, Continued

(13)

Impairment of non-financial assets, Continued

The Group estimates the recoverable amount of an individual asset, if it is impossible to measure the individual recoverable amount of an asset, then the Group estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a pre-tax discount rate that reflect current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.

An impairment loss is recognized in profit or loss if the carrying amount of an asset or a CGU exceeds its recoverable amount.

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the goodwill acquired. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(14)

Leases

The Group classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

(i)

Finance leases

At the commencement of the lease term, the Group recognizes as finance assets and finance liabilities in its consolidated statements of financial position, the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset.

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life. The Group reviews to determine whether the leased asset may be impaired.

4.	Significant Accounting Policies, Continued

(14)

Leases, Continued

(ii)

Operating leases

Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the period of the lease.

(iii)

Determining whether an arrangement contains a lease

Determining whether an arrangement is, or contains, a lease shall be based on the substance of the arrangement and requires an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset or assets (the asset) and the arrangement conveys a right to use the asset.

At inception or reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a financial lease that it is impracticable to separate the payments reliably, the Group recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability shall be reduced as payments are made and an imputed finance charge on the liability recognized using the purchaser’s incremental borrowing rate of interest.

(15)

Non-current assets held for sale

Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. In order to be classified as held for sale, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. The assets or disposal group that are classified as non-current assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell. The Group recognizes an impairment loss for any initial or subsequent write-down of an asset (or disposal group) to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized in accordance with K-IFRS No. 1036, ‘Impairment of Assets’.

A non-current asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).

4.	Significant Accounting Policies, Continued

(16)

Non-derivative financial liabilities

The Group classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability.

(i)

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the acquisition are recognized in profit or loss as incurred.

(ii)

Other financial liabilities

Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method.

The Group derecognizes a financial liability from the consolidated statement of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

(17)

Employee benefits

(i)

Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

(ii)

Other long-term employee benefits

Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the period in which the employees render the related service, and are calculated at the present value of the amount of future benefit that employees have earned in return for their service in the current and prior periods. Any changes from remeasurements are recognized through profit or loss in the period in which they arise.

4.	Significant Accounting Policies, Continued

(17)

Employee benefits, Continued

(iii)

Retirement benefits: defined contribution plans

When an employee has rendered service to the Group during a period, the Group recognizes the contribution payable to a defined contribution plan in exchange for that service as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, the Group recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.

(iv)

Retirement benefits: defined benefit plans

As of the end of reporting period, defined benefits liabilities relating to defined benefit plans are recognized as present value of defined benefit obligations net of fair value of plan assets.

The calculation is performed annually by an independent actuary using the projected unit credit method. When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Group recognizes an asset, to the extent of the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.

Remeasurements of the net defined benefit liability comprise of actuarial gains and losses, the return on plan assets excluding amounts included in net interest on the net defined benefit liability, and any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and recognized in other comprehensive income. The Group determines net interests on net defined benefit liability (asset) by multiplying discount rate determined at the beginning of the annual reporting period and considers changes in net defined benefit liability (asset) from contributions and benefit payments. Net interest costs and other costs relating to the defined benefit plan are recognized through profit or loss.

When the plan amendment or curtailment occurs, gains or losses on amendment or curtailment in benefits for the past service provided are recognized through profit or loss. The Group recognizes gain or loss on a settlement when the settlement of defined benefit plan occurs.

(v)

Termination benefits

The Group recognizes a liability and expense for termination benefits at the earlier of the period when the Group can no longer withdraw the offer of those benefits and the period when the Group recognizes costs for a restructuring that involves the payment of termination benefits. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value.

4.	Significant Accounting Policies, Continued

(18)

Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

A provision shall be used only for expenditures for which the provision was originally recognized.

(19)

Foreign currencies

(i)

Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the reporting date’s exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.

Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments, a financial liability designated as a hedge of the net investment in a foreign operation, or qualifying cash flow hedges, which are recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

(ii)

Foreign operations

If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:

The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.

4.	Significant Accounting Policies, Continued

(19)

Foreign currencies, Continued

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and translated at the closing rate.

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

(20)

Equity capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.

When the Group repurchases its share capital, the amount of the consideration paid is recognized as a deduction from equity and classified as treasury shares. The profits or losses from the purchase, disposal, reissue, or retirement of treasury shares are not recognized as current profit or loss. If the Group acquires and retains treasury shares, the consideration paid or received is directly recognized in equity.

(21)

Hybrid bond

The Group recognizes a financial instrument issued by the Group as an equity instrument if it does not include contractual obligation to deliver financial assets including cash to the counter party.

(22)

Revenue

Revenue from the sale of goods, rendering of services or use of the Group assets is measured at the fair value of the consideration received or receivable. Returns, trade discounts and volume rebates are recognized as a reduction of revenue.

(i)

Services

Revenue from cellular services consists of revenue from basic charges, voice charges, data charges, data-roaming services and interconnection charges. Such revenues are recognized as services are performed. Revenues received for the activation of service are deferred and recognized over the average customer retention period.

Revenue from fixed-line services includes domestic short and long distance charges, international phone connection charges, and broadband internet services. Such revenues are recognized as the related services are performed.

Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

4.	Significant Accounting Policies, Continued

(22)

Revenue, Continued

(ii)

Goods sold

Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.

(iii)

Customer loyalty programmes

For customer loyalty programmes, the fair value of the consideration received or receivable in respect of the initial sale is allocated between the award credits and the other components of the sale. The amount allocated to the award credits is estimated by reference to the fair value of the services to be provided with respect to the redeemable award credits. The fair value of the services to be provided with respect to the redeemable portion of the award credits granted to the customers in accordance with customer loyalty programmes is estimated taking into account the expected redemption rate and timing of the expected redemption. Considerations allocated to the award credits are deferred and revenue is recognized when the award credits are recovered and the Group performs its obligation to provide the service. The amount of revenue recognized is based on the relative size of the total award credits that are expected to be redeemed and the redeemed award credits in exchange for services.

(iv)

Bundled arrangements

When the Group sells both handsets and wireless services to subscribers, the Group recognizes these transactions separately as sales for handset sales and wireless telecommunication services.

(23)

Finance income and finance costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets, changes in the fair value of financial assets at fair value through profit or loss, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is recognized in profit or loss on the date that the Group’s right to receive payment is established.

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets at fair value through profit or loss, and losses on hedging instruments that are recognized in profit or loss. Interest expense on borrowings and debentures are recognized in profit or loss using the effective interest rate method.

(24)

Income taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

4.	Significant Accounting Policies, Continued

(24)

Income taxes, Continued

(i)

Current tax

Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit.

(ii)

Deferred tax

Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries and associates, except to the extent that the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Group recognizes a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries and associates, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if (a) there is a legally enforceable right to offset the related current tax liabilities and assets, (b) they relate to income taxes levied by the same tax authority and (c) they intend to settle current tax liabilities and assets on a net basis. Income tax expense in relation to dividend payments is recognized when liabilities relating to the dividend payments are recognized.

4.	Significant Accounting Policies, Continued

(25)

Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

(26)

Discontinued operations

A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. When an operation is classified as a discontinued operation, the comparative consolidated statement of comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative period.

(27)

New standards and interpretations not yet adopted

The following new standards, have been published and are mandatory for the Group for annual period beginning on January 1, 2018, and the Group has not early adopted them.

As of December 31, 2015, management is in the process of evaluating the impact of applying these standards on its financial position and results of operations.

K-IFRS 1109 ‘Financial Instruments’

K-IFRS 1109, published in December 2015, replaces the existing guidance in K-IFRS 1039, Financial Instruments: Recognition and Measurement. K-IFRS 1109 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from K-IFRS 1039. K-IFRS 1109 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted.

K-IFRS 1115 ‘Revenue from Contracts with Customers’

K-IFRS 1115, published in December 2015, establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including K-IFRS 1018, Revenue, K-IFRS 1011, Construction Contracts and K-IFRS 2113, Customer Loyalty Programmes. K-IFRS 1115 is effective for annual reporting periods beginning on or after January 1, 2018, with early adoption permitted.

5.	Operating Segments

The Group’s operating segments have been determined to be each business unit, for which the Group provides independent services and merchandise. The Group’s reportable segments are: 1) cellular services, which include cellular voice service, wireless data service and wireless internet services, and 2) fixed-line telecommunication services, which include telephone services, internet services, and leased line services. All other operating segments, which include the Group’s internet portal services and other immaterial operations, do not meet the quantitative thresholds to be considered reportable segments and are presented as others.

(1)

Segment information as of and for the years ended December 31, 2015 and 2014 is as follows:


(In millions of won)
	2015
	Cellular Services		Fixed-line telecommunication services		Others			Sub-total		Consolidation adjustments			Consolidated amount
Total revenue	W	14,962,689		3,162,712		2,113,543			20,238,944		(3,102,210	)		17,136,734
Inter-segment revenue		1,693,411		668,139		740,660			3,102,210		(3,102,210	)		—
External revenue		13,269,278		2,494,573		1,372,883			17,136,734		—			17,136,734
Depreciation and amortization		2,174,819		531,106		139,370			2,845,295		—			2,845,295
Operating income (loss)		1,678,339		108,252		(78,585	)		1,708,006		—			1,708,006
Finance income and costs, net														(246,200	)
Gain related to investments in subsidiaries, associates and joint ventures, net														786,140
Other non-operating income and expense, net														(212,581	)

Profit from continuing operations before income tax														2,035,365

Total assets		23,861,267		3,600,890		3,008,592			30,470,749		(1,889,362	)		28,581,387
Total liabilities		9,788,635		2,284,362		963,612			13,036,609		170,682			13,207,291

5.	Operating Segments, Continued


(In millions of won)
	2014
	Cellular Services		Fixed-line telecommunication services		Others			Sub-total		Consolidation adjustments			Consolidated Amount
Total revenue	W	15,248,039		3,119,845		1,884,784			20,252,668		(3,088,870	)		17,163,798
Inter-segment revenue		1,720,158		669,925		698,787			3,088,870		(3,088,870	)		—
External revenue		13,527,881		2,449,920		1,185,997			17,163,798		—			17,163,798
Depreciation and amortization		2,113,510		501,623		99,597			2,714,730		—			2,714,730
Operating income (loss)		1,754,433		80,423		(9,751	)		1,825,105		—			1,825,105
Finance income and costs, net														(260,336	)
Gain related to investments in subsidiaries, associates and joint ventures, net														906,338
Other non-operating income and expense, net														(217,279	)

Profit from continuing operations before income tax														2,253,828

Total assets		23,451,471		3,434,020		3,202,833			30,088,324		(2,147,091	)		27,941,233
Total liabilities		9,626,724		2,172,454		924,683			12,723,861		(30,898	)		12,692,963

Intersegment sales and purchases are conducted on an arms-length basis and eliminated on consolidation. Since there are no intersegment sales of inventory, there is no unrealized intersegment profit to be eliminated on consolidation. The Group principally operates its business in its domestic market in Korea and the amounts outside of Korea are immaterial, therefore no entity-wide geographical information is presented.

No single customer contributed 10% or more to the Group’s total revenue for the years ended December 31, 2015 and 2014.

6.	Restricted Deposits

Deposits which are restricted in use as of December 31, 2015 and 2014 are summarized as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Short-term financial instruments
Charitable fund(*)	W	79,500		86,000
Other		2,969		4,321
Long-term financial instruments		10,596		612
Guarantee deposits		280		280

	W	93,345		91,213

(*)	The Group established a trust fund for charitable purposes. Profits from the fund are donated to charitable institutions. As of December 31, 2015, the funds cannot be withdrawn.

7.	Trade and Other Receivables

(1)

Details of trade and other receivables as of December 31, 2015 and 2014 are as follows:


(In millions of won)	December 31, 2015
	Gross amount		Allowances for impairment			Carrying amount
Current assets:
Accounts receivable – trade	W	2,583,558		(238,691	)		2,344,867
Short-term loans		54,377		(482	)		53,895
Accounts receivable – other		752,731		(78,992	)		673,739
Accrued income		10,753		—			10,753
Others		1,861		—			1,861

		3,403,280		(318,165	)		3,085,115
Non-current assets:
Long-term loans		87,501		(25,047	)		62,454
Long-term accounts receivable - other		2,420		—			2,420
Guarantee deposits		297,281		—			297,281
Long-term accounts receivable - trade		46,047		(804	)		45,243

		433,249		(25,851	)		407,398

	W	3,836,529		(344,016	)		3,492,513

7.	Trade and Other Receivables, Continued

(1)

Details of trade and other receivables as of December 31, 2015 and 2014 are as follows, Continued


(In millions of won)	December 31, 2014
	Gross amount		Allowances for impairment			Carrying Amount
Current assets:
Accounts receivable – trade	W	2,614,059		(221,909	)		2,392,150
Short-term loans		75,199		(687	)		74,512
Accounts receivable – other		769,115		(78,588	)		690,527
Accrued income		10,134		—			10,134
Others		3,865		—			3,865

		3,472,372		(301,184	)		3,171,188
Non-current assets:
Long-term loans		82,735		(27,007	)		55,728
Long-term accounts receivable - other		3,596		—			3,596
Guarantee deposits		285,144		—			285,144
Long-term accounts receivable – trade		68,536		—			68,536

		440,011		(27,007	)		413,004

	W	3,912,383		(328,191	)		3,584,192

(2)

The movements in allowances for doubtful accounts of trade and other receivables during the years ended December 31, 2015 and 2014 were as follows:


(In millions of won)
	2015			2014
Balance at January 1	W	328,191			323,984
Increase of bad debt allowances		75,773			63,697
Write-offs		(87,798	)		(89,529	)
Other		27,850			30,039

Balance at December 31	W	344,016			328,191

(3)

Details of overdue but not impaired, and impaired trade and other receivable as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015						December 31, 2014
	Accounts receivable - trade			Other receivables			Accounts receivable - trade			Other receivables
Neither overdue nor impaired	W	1,841,442			1,053,096			1,831,243			1,089,001
Overdue but not impaired		77,008			5,155			76,671			3,481
Impaired		711,155			148,673			774,681			137,306

		2,629,605			1,206,924			2,682,595			1,229,788
Allowances for doubtful accounts		(239,495	)		(104,521	)		(221,909	)		(106,282	)

	W	2,390,110			1,102,403			2,460,686			1,123,506

The Group establishes allowances for doubtful accounts based on the likelihood of recoverability of trade and other receivables based on their aging at the end of the period, past customer default experience, customer credit status, and economic and industrial factors.

7.	Trade and Other Receivables, Continued

(4)

The aging of overdue but not impaired accounts receivable as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015				December 31, 2014
	Accounts receivable - trade		Other receivables		Accounts receivable - trade		Other receivables
Less than 1 month	W	20,908		2,770		25,254		1,795
1 ~ 3 months		21,941		924		26,469		213
3 ~ 6 months		7,043		265		11,641		608
More than 6 months		27,116		1,196		13,307		865

	W	77,008		5,155		76,671		3,481

8.	Inventories

Details of inventories as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015							December 31, 2014
	Acquisition cost		Write-down of inventory			Carrying amount		Acquisition cost		Write-down of inventory			Carrying amount
Merchandise	W	247,294		(5,064	)		242,230		252,063		(5,325	)		246,738
Finished goods		3,530		(179	)		3,351		1,930		(216	)		1,714
Work in process		1,976		(149	)		1,827		1,144		(131	)		1,013
Raw materials and supplies		27,296		(1,148	)		26,148		19,242		(1,040	)		18,202

	W	280,096		(6,540	)		273,556		274,379		(6,712	)		267,667

There are no significant reversals of inventory write-downs for the periods presented.

9.	Investment Securities

(1)

Details of short-term investment securities as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Beneficiary certificates(*)	W	92,262		277,003
Current portion of long-term investment securities		—		3,158

	W	92,262		280,161

(*)	The distributions arising from beneficiary certificates as of December 31, 2015 were accounted for as accrued income.

(2)

Details of long-term investment securities as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Equity securities:
Marketable equity securities	W	897,958		657,286
Unlisted equity securities(*1)		96,899		56,236
Equity investments(*2)		207,916		209,120

		1,202,773		922,642
Debt securities:
Public bonds(*3)		—		158
Investment bonds(*4)		4,453		36,638

		4,453		36,796

Total		1,207,226		959,438
Less current portion of long-term investment securities		—		(3,158	)

Long-term investment securities	W	1,207,226		956,280

(*1)	Unlisted equity securities whose fair value cannot be measured reliably are recorded at cost.

(*2)	Equity investments are recorded at cost.

(*3)	Details of maturity for the public bonds as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Less than 1 year	W	—		158

(*4)

During the year ended December 31, 2015, the Parent Company exercised the conversion right for the convertible bonds of Health Connect Co., Ltd., which were classified as available-for-sale financial assets. Health Connect Co., Ltd. has been classified as investments in associates (W5,900 million) as the Parent Company obtained significant influence over the company. As a result of this transaction, investments in associates have increased by W5,900 million and the remaining convertible bonds of W560 million was fully redeemed.

10.

Assets and Liabilities Classified as Held for Sale

During the year ended December 31, 2014, the Group entered into a disposal contract regarding the Group’s ownership interests in Shenzhen E-eye High Tech Co., Ltd., the Parent Company’s subsidiary. Assets and liabilities of the subsidiary amounting to W10,510 million and W408 million, were reclassified to assets and liabilities held for sale, respectively, and the carrying amount in excess of the fair value less cost to sell was recognized as impairment loss. The ownership interests of Shenzhen E-eye High Tech Co., Ltd. were disposed during the year ended December 31, 2015.

11.

Business Combinations

(1)

General information

On April 1, 2015, Neosnetworks Co., Ltd., a subsidiary of the Parent Company, acquired an unmanned machine security business of Joeun Safe Co., Ltd., which manages facility guarding services, in order to expand infrastructure and enhance competitiveness of its security business.

The Group recognized the acquired assets and liabilities at fair value and the difference between the consideration and fair value of net assets as goodwill.

(2)

Consideration paid and assets and liabilities transferred

Consideration paid and assets in succession recognized at the acquisition date are as follows:


(In millions of won)
	2015
Consideration paid
Cash and cash equivalents	W	13,197
Accounts payable - other		1,858

	W	15,055

Assets transferred
Property and equipment	W	3,208
Intangible assets		8,486
Other assets		1,603

	W	13,297

(3)

During the year ended December 31, 2015, hoppin service division of SK Planet Co., Ltd., a subsidiary of the Parent Company, was spun off from SK Planet Co., Ltd. and was merged into SK Broadband, Co., Ltd. There is no impact on the consolidated financial statements as it is a business combination under common control.

12.

Investments in Associates and Joint Ventures

(1)

Investments in associates and joint ventures accounted for using the equity method as of December 31, 2015 and 2014 are as follows:


(In millions of won)		December 31, 2015				December 31, 2014
	Country	Ownership percentage		Carrying amount		Ownership percentage		Carrying amount
Investments in associates
SK China Company Ltd.(*1)	China		9.6	W	43,814		9.6	W	35,817
Korea IT Fund(*2)	Korea		63.3		260,456		63.3		240,676
KEB HanaCard Co., Ltd.(*1,3)	Korea		15.0		254,177		25.4		425,140
Candle Media Co., Ltd.	Korea		35.1		20,144		35.1		19,486
NanoEnTek, Inc. (*4)	Korea		28.6		45,008		26.0		36,527
SK Industrial Development China Co., Ltd.	Hong Kong		21.0		86,324		21.0		79,394
Packet One Network(*5)	Malaysia		—		—		13.6		53,670
SK Technology Innovation Company	Cayman		49.0		45,891		49.0		44,052
HappyNarae Co., Ltd.	Korea		42.5		17,095		42.5		15,551
SK hynix Inc.	Korea		20.1		5,624,493		20.1		4,849,159
SK MENA Investment B.V.	Netherlands		32.1		14,929		32.1		14,015
SKY Property Mgmt. Ltd.	Virgin Island		33.0		251,166		33.0		248,534
Xinan Tianlong Science and Technology Co., Ltd.	China		49.0		25,767		49.0		25,874
Daehan Kanggun BcN Co., Ltd. and others	—		—		161,058		—		158,725

Sub-total					6,850,322				6,246,620


Investments in joint ventures
Dogus Planet, Inc.(*6)	Turkey		50.0		15,118		50.0		11,441
PT. Melon Indonesia	Indonesia		49.0		4,339		49.0		3,564
Television Media Korea Ltd.(*7)	Korea		—		—		51.0		6,944
Celcom Planet	Malaysia		51.0		3,406		51.0		16,605
PT XL Planet Digital(*6)	Indonesia		50.0		23,108		50.0		12,914

Sub-total					45,971				51,468

Total				W	6,896,293			W	6,298,088

12.

Investments in Associates and Joint Ventures, Continued

(1)

Investments in associates and joint ventures accounted for using the equity method as of December 31, 2015 and 2014 are as follows, Continued:

(*1)	Classified as investments in associates as the Group can exercise significant influence through participation on the board of directors even though the Group has less than 20% of equity interests.

(*2)	Investment in Korea IT Fund was classified as investment in associates as the Group has less than 50% of voting rights, and therefore does not have control over Korea IT Fund under the agreement.

(*3)	During the year ended December 31, 2015, the Group disposed of 27,725,264 shares of KEB HanaCard Co., Ltd.

(*4)	During the year ended December 31, 2015, the Group newly acquired 1,090,155 shares of NanoEnTek, Inc. by participating in paid in capital increase allocation of third parties.

(*5)	Reclassified from investment in associates to available-for-sale financial assets during the year ended December 31, 2015, as the Group lost the right to appoint directors of this investee and consequently no longer has significant influence.

(*6)	There were additional investments in associates and joint ventures during the year ended December 31, 2015.

(*7)	During the year ended December 31, 2015, the Group disposed of all shares of Television Media Korea Ltd.

12.

Investments in Associates and Joint Ventures, Continued

(2)

The market price of investments in listed associates as of December 31, 2015 and 2014 are as follows:


(In millions of won, except for share and per share data)
	December 31, 2015						December 31, 2014
	Market value per share (In won)		Number of shares		Market price		Market value per share (In won)		Number of shares		Market price
Candle Media Co., Ltd.	W	1,170		21,620,360		25,296		734		21,620,360		15,869
NanoEnTek, Inc.		7,300		6,960,445		50,811		5,710		5,870,290		33,519
SK hynix Inc.		30,750		146,100,000		4,492,575		47,750		146,100,000		6,976,275

(3)

The financial information of the significant investees as of and for the years ended December 31, 2015 and 2014 is as follows:


(In millions of won)	As of and for the year ended December 31, 2015
	SK hynix Inc.		KEB HanaCard Co., Ltd.			SKY Property Mgmt. Ltd.			Korea IT Fund
Current assets	W	9,760,030		6,228,076			176,517			152,070
Non-current assets		19,917,876		509,579			650,661			259,176
Current liabilities		4,840,698		1,103,873			242,002			—
Non-current liabilities		3,449,505		4,297,289			39,154			—
Revenue		18,797,998		1,472,830			89,161			30,875
Profit from continuing operations		4,323,595		10,119			19,722			21,655
Other comprehensive income (loss)		40,215		(547	)		(11,872	)		15,651

Total comprehensive income		4,363,810		9,572			7,850			37,306

12.

Investments in Associates and Joint Ventures, Continued

(3)

The financial information of the significant investees as of and for the years ended December 31, 2015 and 2014 is as follows, Continued:


(In millions of won)	As of and for the year ended December 31, 2014
	SK hynix Inc.			KEB HanaCard Co., Ltd.(*)			SKY Property Mgmt. Ltd.			Korea IT Fund
Current assets	W	10,363,514			6,716,612			172,775			122,026
Non-current assets		16,519,764			568,065			667,560			258,144
Current liabilities		5,765,304			848,140			62,868			—
Non-current liabilities		3,081,671			5,109,888			242,116			—
Revenue		17,125,566			305,756			81,502			18,883
Profit (loss) from continuing operations		4,195,169			(11,196	)		15,006			5,470
Other comprehensive income (loss)		(52,360	)		(734	)		(6,090	)		4,837
Total comprehensive income (loss)		4,142,809			(11,930	)		8,916			10,307

(*)	Pre-merger revenue and net profit of KEB HanaCard Co., Ltd., amounting to W853,506 million and W3,521 million, respectively, were not included.

(4)

The condensed financial information of joint ventures as of and for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)	As of and for the year ended December 31, 2015
	Dogus Planet, Inc.			PT. Melon Indonesia			PT XL Planet Digital			Celcom Planet
Current assets	W	46,248			12,805			9,500			21,416
Cash and cash equivalents		8,091			4,027			5,034			19,371
Non-current assets		18,088			2,657			46,013			5,519
Current liabilities		34,022			6,416			8,583			20,257
Account payable, other payables and provision		4,317			3,396			3,648			5,889
Non-current liabilities		78			140			714			—
Account payable, other payables and provisions		—			—			—			—
Revenue		38,944			17,094			5,536			1,647
Depreciation and amortization		(5,318	)		(132	)		(2,746	)		(1,332	)
Interest income		465			288			525			345
Interest expense		—			—			—			—
Income tax expense (income)		—			—			(7,025	)		—

Profit (loss) from continuing operations		(32,713	)		1,853			(21,381	)		(25,881	)

Total comprehensive income (loss)		(32,713	)		1,853			(21,381	)		(25,881	)

12.

Investments in Associates and Joint Ventures, Continued

(4)

The condensed financial information of joint ventures as of and for the years ended December 31, 2015 and 2014 are as follows, Continued:


(In millions of won)	As of and for the year ended December 31, 2014
	Television Media Korea Ltd.			Dogus Planet, Inc.			PT. Melon Indonesia			PT XL Planet Digital			Celcom Planet
Current assets	W	16,252			38,641			10,022			9,241			30,407
Cash and cash equivalents		5,104			6			4,763			6,710			30,400
Non-current assets		4,543			13,011			3,094			14,589			3,343
Current liabilities		7,188			28,406			5,689			4,198			1,182
Account payable, other payables and provisions		265			3,648			—			—			—
Non-current liabilities		464			377			102			124			—
Account payable, other payables and provisions		464			377			—			124			—
Revenue		16,403			23,897			11,826			1,019			—
Depreciation and amortization		(3,732	)		(2,402	)		(928	)		(1,452	)		(1	)
Interest income		254			1,154			268			—			—
Interest expense		—			(6	)		—			—			—
Income tax expense		—			—			—			(5,334	)		—
Profit (loss) from continuing operations		(3,361	)		(37,146	)		523			(15,596	)		(1,479	)
Total comprehensive income (loss)		(3,361	)		(37,146	)		523			(15,596	)		(1,479	)

12.

Investments in Associates and Joint Ventures, Continued

(5)

Reconciliations of financial information of significant associates to carrying amounts of investments in associates in the consolidated financial statements as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015
	Net assets		Ownership interests (%)		Net assets attributable to the ownership interests		Cost-book value differentials		Carrying amount
Associates:
SK hynix Inc.(*1,2)	W	21,386,863		20.1		4,425,794		1,198,699		5,624,493
KEB HanaCard Co., Ltd.		1,336,493		15.0		200,474		53,703		254,177
SKY Property Mgmt. Ltd.(*1)		537,847		33.0		177,490		73,676		251,166
Korea IT Fund		411,246		63.3		260,456		—		260,456

(*1)	These entities prepare consolidated financial statements and net assets of these entities represent net assets attributable to owners of the Parent Company.

(*2)

The ownership interest is based on the number of shares owned by the Parent Company for the total listed shares of the investee company. The Group applied the equity method using the effective ownership interest of 20.69% which is based on the number of shares owned by the Parent Company for the total issued shares outstanding not including the shares held by the investee as treasury shares.


(In millions of won)
	December 31, 2014
	Net assets		Ownership interests (%)		Net assets attributable to the ownership interests		Cost-book value differentials		Carrying amount
Associates:
SK hynix Inc.(*)	W	18,036,453		20.1		3,619,666		1,229,493		4,849,159
KEB HanaCard Co., Ltd.		1,326,649		25.4		337,266		87,874		425,140
SKY Property Mgmt. Ltd.(*)		527,479		33.0		174,068		74,466		248,534
Korea IT Fund		380,170		63.3		240,676		—		240,676

(*)	These entities prepare consolidated financial statements and net assets of these entities represent net assets attributable to owners of the Parent Company.

12.

Investments in Associates and Joint Ventures, Continued

(6)

Details of changes in investments in associates and joint ventures accounted for using the equity method for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)	2015
	Beginning balance		Acquisition and disposition			Share of profits (losses)			Other comprehensive income (loss)			Impairment loss			Other increase (decrease)			Ending balance
Investments in associates
SK China Company Ltd.		35,817		—			4,361			3,636			—			—			43,814
Korea IT Fund(*)		240,676		—			11,971			9,912			—			(2,103	)		260,456
KEB HanaCard Co., Ltd.		425,140		(174,475	)		3,275			237			—			—			254,177
Candle Media Co., Ltd.		19,486		—			550			70			—			38			20,144
NanoEnTek, Inc.		36,527		10,000			(1,649	)		130			—			—			45,008
SK Industrial Development China Co., Ltd.		79,394		—			3,380			3,550			—			—			86,324
Packet One Network		53,670		—			(8,714	)		(3,030	)		—			(41,926	)		—
SK Technology Innovation Company		44,052		—			(2,907	)		4,746			—			—			45,891
HappyNarae Co., Ltd.		15,551		—			1,589			(45	)		—			—			17,095
SK hynix Inc.(*)		4,849,159		—			842,086			(22,922	)					(43,830	)		5,624,493
SK MENA Investment B.V.		14,015		—			3			911			—			—			14,929
SKY Property Mgmt. Ltd.		248,534		—			6,408			(3,776	)		—			—			251,166
Xinan Tianlong Science and Technology Co., Ltd.		25,874		—			(107	)		—			—			—			25,767
Daehan Kanggun BcN Co., Ltd. and others(*)		158,725		12,320			(15,726	)		1,689			(1,305	)		5,355			161,058

Sub-total		6,246,620		(152,155	)		844,520			(4,892	)		(1,305	)		(82,466	)		6,850,322

Investments in joint ventures
Dogus Planet, Inc.		11,441		16,419			(16,357	)		3,615			—			—			15,118
PT. Melon Indonesia		3,564		—			908			(133	)		—			—			4,339
Television Media Korea Ltd.		6,944		(6,712	)		(232	)		—			—			—			—
Celcom Planet		16,605		—			(13,199	)		—			—			—			3,406
PT XL Planet Digital		12,914		20,884			(10,690	)		—			—			—			23,108

Sub-total		51,468		30,591			(39,570	)		3,482			—			—			45,971

Total	W	6,298,088		(121,564	)		804,950			(1,410	)		(1,305	)		(82,466	)		6,896,293

(*)	Dividends paid by the associate are deducted from the carrying amount during the year ended December 31, 2015.

12.

Investments in Associates and Joint Ventures, Continued

(6)

Details of changes in investments in associates and joint ventures accounted for using the equity method for the year ended December 31, 2015 and 2014 are as follows, Continued:


(In millions of won)	2014
	Beginning balance		Acquisition and disposition		Share of profits (losses)			Other comprehensive income (loss)			Impairment loss			Other increase (decrease)			Ending balance
Investments in associates
SK China Company Ltd.	W	37,434		—		(365	)		(1,252	)		—			—			35,817
Korea IT Fund		231,402		—		3,243			6,031			—			—			240,676
Etoos Co., Ltd.		12,029		—		346			—			—			(12,375	)		—
KEB HanaCard Co., Ltd.		378,616		—		(739	)		(2,031	)		—			49,294			425,140
Candle Media Co., Ltd.		21,241		—		(1,701	)		(54	)		—			—			19,486
NanoEnTek, Inc.		9,312		7,778		284			(27	)		—			19,180			36,527
SK Industrial Development China Co., Ltd.		77,517		—		(791	)		2,668			—			—			79,394
Packet One Network		60,706		—		(11,845	)		4,809			—			—			53,670
SK Technology Innovation Company		53,874		—		(9,822	)		—			—			—			44,052
HappyNarae Co., Ltd.		13,935		—		1,688			(72	)		—			—			15,551
SK hynix Inc.		3,943,232		—		916,486			(10,559	)		—			—			4,849,159
SK MENA Investment B.V.		13,477		—		(4	)		542			—			—			14,015
SKY Property Mgmt. Ltd.		238,278		—		3,438			6,818			—			—			248,534
Xinan Tianlong Science and Technology Co., Ltd.		26,562		—		(688	)		—			—			—			25,874
Daehan Kanggun BcN Co., Ltd. and others		164,976		14,172		(18,126	)		1,324			(2,363	)		(1,258	)		158,725

Sub-total		5,282,591		21,950		881,404			8,197			(2,363	)		54,841			6,246,620

Investments in joint ventures
Dogus Planet, Inc.		10,105		19,677		(18,573	)		232			—			—			11,441
PT. Melon Indonesia		3,230		—		256			78			—			—			3,564
Television Media Korea Ltd.		8,659		—		(1,715	)		—			—			—			6,944
Celcom Planet		—		17,433		(656	)		—			—			(172	)		16,605
PT XL Planet Digital		20,712		—		(7,798	)		—			—			—			12,914

Sub-total		42,706		37,110		(28,486	)		310			—			(172	)		51,468

Total	W	5,325,297		59,060		852,918			8,507			(2,363	)		54,669			6,298,088

12.

Investments in Associates and Joint Ventures, Continued

(7)

As the Group discontinued the application of the equity method due to the carrying amount of the Group’s share being reduced to zero, the unrecognized accumulated equity losses as of December 31, 2015 are as follows:


(In millions of won)	Unrealized loss				Unrealized change in equity
	Year ended December 31, 2015		Accumulated		Year ended December 31, 2015		Accumulated
Wave City Development Co., Ltd.	W	2,894		4,538		—		—
SK Wyverns Co., Ltd. and others		1,193		6,510		—		365

	W	4,087		11,048		—		365

13.

Property and Equipment

(1)

Property and equipment as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015
	Acquisition cost		Accumulated depreciation			Accumulated impairment loss			Carrying amount
Land	W	812,947		—			—			812,947
Buildings		1,563,069		(651,940	)		—			911,129
Structures		763,122		(418,901	)		—			344,221
Machinery		28,624,842		(21,281,400	)		(1,433	)		7,342,009
Other		1,511,304		(1,036,780	)		(1,086	)		473,438
Construction in progress		487,512		—			—			487,512

	W	33,762,796		(23,389,021	)		(2,519	)		10,371,256


(In millions of won)
	December 31, 2014
	Acquisition cost		Accumulated depreciation			Accumulated impairment loss			Carrying amount
Land	W	766,780		—			—			766,780
Buildings		1,537,042		(603,175	)		—			933,867
Structures		737,494		(384,705	)		—			352,789
Machinery		27,088,067		(19,775,784	)		(1,468	)		7,310,815
Other		1,461,201		(960,450	)		(1,701	)		499,050
Construction in progress		704,400		—			—			704,400

	W	32,294,984		(21,724,114	)		(3,169	)		10,567,701

13.

Property and Equipment, Continued

(2)

Changes in property and equipment for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015
	Beginning balance		Acquisition		Disposal			Transfer			Depreciation			Impairment			Business combination		Change of consolidation scope			Ending balance
Land	W	766,780		6,629		(2,031	)		41,569			—			—			—		—			812,947
Buildings		933,867		6,042		(6,839	)		27,500			(49,441	)		—			—		—			911,129
Structures		352,789		9,776		(57	)		16,104			(34,391	)		—			—		—			344,221
Machinery		7,310,815		645,986		(22,518	)		1,538,235			(2,133,193	)		(524	)		3,208		—			7,342,009
Other		499,050		786,531		(16,721	)		(652,022	)		(143,288	)		(4	)		—		(108	)		473,438
Construction in progress		704,400		1,063,169		(1,522	)		(1,271,762	)		—			(6,773	)		—		—			487,512

	W	10,567,701		2,518,133		(49,688	)		(300,376	)		(2,360,313	)		(7,301	)		3,208		(108	)		10,371,256


(In millions of won)
	2014
	Beginning balance		Acquisition		Disposal			Transfer			Depreciation			Impairment			Classified as held for sale			Change of consolidation scope		Ending balance
Land	W	732,206		8,306		(12	)		24,178			—			—			—			2,102		766,780
Buildings		956,691		5,862		(451	)		16,885			(48,745	)		—			—			3,625		933,867
Structures		364,951		8,909		(39	)		11,919			(32,951	)		—			—			—		352,789
Machinery		6,847,059		572,764		(28,101	)		1,979,590			(2,065,368	)		(2,879	)		(6	)		7,756		7,310,815
Other		533,181		1,124,067		(6,188	)		(1,022,999	)		(135,213	)		(49	)		(245	)		6,496		499,050
Construction in progress		762,519		1,101,691		(11,277	)		(1,147,666	)		—			(691	)		(176	)		—		704,400

	W	10,196,607		2,821,599		(46,068	)		(138,093	)		(2,282,277	)		(3,619	)		(427	)		19,979		10,567,701

14.

Investment Property

(1)

Investment property as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015
	Acquisition cost		Accumulated depreciation			Carrying amount
Land	W	10,634		—			10,634
Buildings		7,531		(3,094	)		4,437

	W	18,165		(3,094	)		15,071


(In millions of won)
	December 31, 2014
	Acquisition cost		Accumulated depreciation			Carrying amount
Land	W	10,418		—			10,418
Buildings		7,379		(2,800	)		4,579

	W	17,797		(2,800	)		14,997

(2)

Changes in investment property for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015
	Beginning balance		Transfer		Depreciation			Ending balance
Land	W	10,418		216		—			10,634
Buildings		4,579		98		(240	)		4,437

	W	14,997		314		(240	)		15,071


(In millions of won)
	2014
	Beginning balance		Transfer			Depreciation			Ending balance
Land	W	10,822		(404	)		—			10,418
Buildings		4,989		(172	)		(238	)		4,579

	W	15,811		(576	)		(238	)		14,997

(3)

Fair value of investment property as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015				December 31, 2014
	Carrying amount		Fair value		Carrying amount		Fair value
Land	W	10,634		6,009		10,418		6,056
Buildings		4,437		4,261		4,579		4,288

	W	15,071		10,270		14,997		10,344

The fair value of investment property was appraised on the basis of market price by an independent appraisal company.

14.

Investment Property, Continued

(4)

Income (expense) from investment property for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015			2014
Rent revenue	W	850			896
Operating expense		(240	)		(239	)

15.

Goodwill

(1)

Goodwill as of December 31, 2015 and 2014 is as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Goodwill related to acquisition of Shinsegi Telecom, Inc.	W	1,306,236		1,306,236
Goodwill related to acquisition of SK Broadband Co., Ltd.		358,443		358,443
Other goodwill		243,911		252,916

	W	1,908,590		1,917,595

Goodwill is allocated to the following CGUs for the purpose of impairment testing.

•

Shinsegi Telecom, Inc.(*1): cellular services

•

SK Broadband Co., Ltd.(*2): fixed-line telecommunication services

•

Other: other

(*1)	Shinsegi Telecom, Inc.

The recoverable amount of the CGU is based on its value in use calculated by applying the annual discount rate of 4.9% to the estimated future cash flows based on financial budgets for the next five years. An annual growth rate of 0.62% was applied for the cash flows expected to be incurred after five years and is not expected to exceed the Group’s long-term wireless telecommunication business growth rate. Management of the Group does not expect the total carrying amount of the CGU will exceed the total recoverable amount due to reasonably possible changes from the major assumptions used to estimate the recoverable amount.

(*2)	Goodwill related to acquisition of SK Broadband Co., Ltd.

The recoverable amount of the CGU is based on its value in use calculated by applying the annual discount rate of 5.3% to the estimated future cash flows based on financial budgets for the next five years. An annual growth rate of 1.0%, the Group’s long-term fixed-line telecommunication business growth rate, was applied for the cash flows expected to be incurred after five years. Management of the Group does not expect the total carrying amount of the CGU will exceed the total recoverable amount due to reasonably possible changes from the major assumptions used to estimate the recoverable amount.

15.

Goodwill, Continued

(2)

Details of changes in goodwill for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015			2014
Beginning balance	W	1,917,595			1,733,261
Increase due to business acquisition		1,758			193,202
Impairment loss		(19,245	)		(8,868	)
Other		8,482			—

	W	1,908,590			1,917,595

Accumulated impairment losses as of December 31, 2015 and 2014 are W36,119 million and W18,849 million, respectively.

16.

Intangible Assets

(1)

Intangible assets as of December 31, 2015 and 2014 are as follows:


(In millions of won)	2015
	Acquisition cost		Accumulated depreciation			Accumulated impairment			Carrying amount
Frequency use rights	W	3,033,879		(1,930,362	)		—			1,103,517
Land use rights		74,217		(47,641	)		—			26,576
Industrial rights		159,926		(43,384	)		—			116,542
Development costs		140,226		(132,754	)		—			7,472
Facility usage rights		149,841		(101,822	)		—			48,019
Customer relations		16,528		(9,353	)		—			7,175
Memberships(*1)		126,622		—			(35,115	)		91,507
Other(*2)		3,101,622		(2,197,646	)		—			903,976

	W	6,802,861		(4,462,962	)		(35,115	)		2,304,784


(In millions of won)	2014
	Acquisition cost		Accumulated depreciation			Accumulated impairment			Carrying amount
Frequency use rights	W	3,033,879		(1,649,835	)		—			1,384,044
Land use rights		64,136		(38,783	)		—			25,353
Industrial rights		144,497		(36,737	)		—			107,760
Development costs		162,493		(144,215	)		(9,947	)		8,331
Facility usage rights		146,112		(93,476	)		—			52,636
Customer relations		17,147		(10,743	)		—			6,404
Memberships(*1)		128,274		—			(34,155	)		94,119
Other(*2)		3,029,590		(2,223,627	)		(616	)		805,347

	W	6,726,128		(4,197,416	)		(44,718	)		2,483,994

16.

Intangible Assets, Continued

(1)

Intangible assets as of December 31, 2015 and 2014 are as follows, Continued:

(*1)	Memberships are classified as intangible assets with indefinite useful life and are not amortized.

(*2)	Other intangible assets primarily consist of computer software and usage rights to a research facility which the Group built and donated to a university, and the Group is given rights-to-use for a definite number of years in turn.

(2)

Details of changes in intangible assets for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015
	Beginning balance		Acquisition		Disposal			Transfer		Amortization			*Impairment()**			Business combination		Change of consolidation scope			Ending balance
Frequency use rights	W	1,384,044		—		—			—		(280,527	)		—			—		—			1,103,517
Land use rights		25,353		11,956		(1,314	)		—		(9,419	)		—			—		—			26,576
Industrial rights		107,760		5,878		(22	)		8,935		(6,009	)		—			—		—			116,542
Development costs		8,331		3,737		—			23		(4,563	)		(56	)		—		—			7,472
Facility usage rights		52,636		2,721		(23	)		1,177		(8,492	)		—			—		—			48,019
Customer relations		6,404		—		—			—		(4,689	)		—			8,486		(3,026	)		7,175
Memberships		94,119		1,137		(1,802	)		68		—			(2,015	)		—		—			91,507
Other		805,347		103,137		(1,772	)		323,933		(319,234	)		(7,228	)		—		(207	)		903,976

	W	2,483,994		128,566		(4,933	)		334,136		(632,933	)		(9,299	)		8,486		(3,233	)		2,304,784

(*)	The Group recognized the difference between recoverable amount and the carrying amount of memberships, computer software and development costs, amounting to W9,299 million as impairment loss during for the year ended December 31, 2015.

16.

Intangible Assets, Continued

(2)

Details of changes in intangible assets for the years ended December 31, 2015 and 2014 are as follows, Continued:


(In millions of won)
	2014
	Beginning balance		Acquisition		Disposal			Transfer			Amortization			Impairment			Change of consolidation scope		Ending balance
Frequency use rights	W	1,664,571		—		—			—			(280,527	)		—			—		1,384,044
Land use rights		16,590		15,560		(573	)		—			(8,483	)		—			2,259		25,353
Industrial rights		58,763		5,048		(180	)		—			(4,584	)		—			48,713		107,760
Development costs		10,127		1,253		(25	)		63			(4,048	)		(398	)		1,359		8,331
Facility usage rights		58,828		1,890		(30	)		382			(8,434	)		—			—		52,636
Customer relations		6,333		779		—			(39	)		(3,063	)		—			2,394		6,404
Memberships (*)		128,452		5,629		(5,810	)		(264	)		—			(34,155	)		267		94,119
Other		807,118		102,322		(9,919	)		171,858			(300,216	)		(449	)		34,633		805,347

	W	2,750,782		132,481		(16,537	)		172,000			(609,355	)		(35,002	)		89,625		2,483,994

(*)	The Group recognized the difference between recoverable amount and the carrying amount of memberships, amounting to W34,155 million as impairment loss for the year ended December 31, 2014.

(3)

Research and development expenditures recognized as expense for the years ended December 31, 2015 and 2014 are as follows:


	2015		2014
Research and development costs expensed as incurred	W	315,790		390,943

(4)

The carrying amount and residual useful lives of frequency usage rights as of the year ended December 31, 2015 are as follows, all of which are depreciated on a straight-line basis:


(In millions of won)
	Amount		Description	Commencement of depreciation	Completion of depreciation
W-CDMA license	W	102,839	Frequency use rights relating to W-CDMA service	Dec. 2003	Dec. 2016
W-CDMA license		16,311	Frequency use rights relating to W-CDMA service	Oct. 2010	Dec. 2016
800MHz license		222,992	Frequency use rights relating to CDMA and LTE service	Jul. 2011	Jun. 2021
1.8GHz license		753,720	Frequency use rights relating to LTE service	Sep. 2013	Dec. 2021
WiBro license		7,655	WiBro service	Mar. 2012	Mar. 2019

	W	1,103,517

17.

Borrowings and Debentures

(1)

Short-term borrowings as of December 31, 2015 and 2014 are as follows:

(In millions of won)

Lender

Annual
interest
rate (%)

December 31,
2015

December 31,
2014

Commercial Paper

KTB Investment and Securities Co., Ltd., etc.

1.76~1.84

220,000

206,000

Short-term borrowings

Kookmin Bank, etc.

2.47

40,000

160,600

260,000

366,600

(2)

Long-term borrowings as of December 31, 2015 and 2014 are as follows:


(In millions of won, thousands of U.S. dollars)
Lender	Annual interest rate (%)	Maturity	December 31, 2015			December 31, 2014
Shinhan Bank	2.39	Jun. 15, 2015	W	—			1,712
Kookmin Bank	1.98	Jun. 15, 2016		1,625			4,874
Kookmin Bank	1.98	Mar. 15, 2017		2,498			4,496
Kookmin Bank	1.98	Mar. 15, 2018		6,450			8,600
Shinhan Bank(*1)	6M bank debenture rate+1.58	Apr. 30, 2016		10,000			10,000
Korea Finance Corporation	3.32	Jul. 30 ,2019		39,000			39,000
Korea Finance Corporation	2.94	Jul. 30 ,2019		10,000			10,000
Export Kreditnamnden(*2)	1.7	Apr. 29, 2022		87,685			94,903
			(USD	74,817	)	(USD	86,338	)

Sub-total				157,258			173,585
Less present value discount on long-term borrowings				(2,124	)		(2,623	)

				155,134			170,962
Less current portion of long-term borrowings				(33,581	)		(21,242	)

Long-term borrowings			W	121,553			149,720

(*1)	As of December 31, 2015, the 6M bank debenture rate of Shinhan Bank is 1.69%.

(*2)	For the years ended December 31, 2014 and 2013, the Group obtained long-term borrowings from Export Kreditnamnden, an export credit agency. The long-term borrowings are redeemed by installment on an annual basis from 2014 to 2022.

(*3)	Convenient translation was provided for the borrowings repayable in other currencies.

17.

Borrowings and Debentures, Continued

(3)

Debentures as of December 31, 2015 and 2014 are as follows:


(In millions of won, thousands of U.S. dollars and thousands of other currencies)
	Purpose	Maturity	Annual interest rate (%)	December 31, 2015			December 31, 2014
Unsecured private bonds	Refinancing fund	2016	5.00		200,000			200,000
Unsecured private bonds	Other fund	2015	5.00		—			200,000
Unsecured private bonds		2018	5.00		200,000			200,000
Unsecured private bonds		2016	5.54		40,000			40,000
Unsecured private bonds		2016	5.92		230,000			230,000
Unsecured private bonds	Operating fund	2016	3.95		110,000			110,000
Unsecured private bonds		2021	4.22		190,000			190,000
Unsecured private bonds	Operating and refinancing fund	2019	3.24		170,000			170,000
Unsecured private bonds		2022	3.30		140,000			140,000
Unsecured private bonds		2032	3.45		90,000			90,000
Unsecured private bonds	Operating fund	2023	3.03		230,000			230,000
Unsecured private bonds		2033	3.22		130,000			130,000
Unsecured private bonds		2019	3.30		50,000			50,000
Unsecured private bonds		2024	3.64		150,000			150,000
Unsecured private bonds(*5,6)		2029	4.73		—			55,188
Unsecured private bonds(*5)		2029	4.72		54,695			55,177
Unsecured private bonds	Refinancing fund	2019	2.53		160,000			160,000
Unsecured private bonds		2021	2.66		150,000			150,000
Unsecured private bonds		2024	2.82		190,000			190,000
Unsecured private bonds	Operating and refinancing fund	2022	2.40		100,000			—
Unsecured private bonds		2025	2.49		150,000			—
Unsecured private bonds		2030	2.61		50,000			—
Unsecured private bonds	Operating fund	2018	1.89		90,000			—
Unsecured private bonds		2025	2.66		70,000			—
Unsecured private bonds		2030	2.82		90,000			—
Unsecured private bonds(*5)		2030	3.40		50,485			—
Unsecured private bonds	Operating and	2018	2.07		80,000			—
Unsecured private bonds	refinancing fund	2025	2.55		100,000			—
Unsecured private bonds		2035	2.75		70,000			—
Unsecured private bonds(*5)		2030	3.10		50,524			—
Unsecured private bonds(*1)	Operating fund	2015	4.62		—			10,000
Unsecured private bonds(*2)		2015	4.09		—			110,000
Unsecured private bonds(*2)		2015	4.14		—			110,000
Unsecured private bonds(*2)		2017	4.28		100,000			100,000
Unsecured private bonds(*2)		2015	3.14		—			130,000
Unsecured private bonds(*2)		2017	3.27		120,000			120,000
Unsecured private bonds(*2)		2016	3.05		80,000			80,000
Unsecured private bonds(*2)		2019	3.49		210,000			210,000
Unsecured private bonds(*2)		2019	2.76		130,000			130,000
Unsecured private bonds(*2)		2018	2.23		50,000			—
Unsecured private bonds(*2)		2020	2.49		160,000			—
Unsecured private bonds(*2)		2020	2.43		140,000			—
Unsecured private bonds(*2)		2020	2.18		130,000			—
Unsecured private bonds(*3)		2015	3.12		—			10,000
Unsecured private bonds(*3)		2016	3.24		10,000			10,000
Unsecured private bonds(*3)		2017	3.48		20,000			20,000
Foreign global bonds		2027	6.63	(USD	468,800 400,000	)	(USD	439,680 400,000	)
Swiss unsecured private bonds		2017	1.75	(CHF	355,617 300,000	)	(CHF	333,429 300,000	)

17.

Borrowings and Debentures, Continued


(In millions of won, thousands of U.S. dollars and thousands of other currencies)
	Purpose	Maturity	Annual interest rate (%)	December 31, 2015			December 31, 2014
Foreign global bonds	Operating fund	2018	2.13		820,400 (USD 700,000	)		769,440 (USD 700,000	)
Australia unsecured private bonds		2017	4.75		255,930 (AUD 300,000	)		269,727 (AUD 300,000	)
Floating rate notes(*4)		2020	3M Libor + 0.88		351,600 (USD 300,000	)		329,760 (USD 300,000	)
Foreign global bonds(*2)		2018	2.88		351,600 (USD 300,000	)		329,760 (USD 300,000	)

Sub-total					7,139,651			6,252,161
Less discounts on bonds					(30,998	)		(33,531	)

					7,108,653			6,218,630
Less current portion of bonds					(669,506	)		(569,472	)

				W	6,439,147			5,649,158

(*1)	Unsecured private bonds were issued by SK Telink Co., Ltd., a subsidiary of the Parent Company.

(*2)	Unsecured private bonds were issued by SK Broadband Co., Ltd., a subsidiary of the Parent Company.

(*3)	Unsecured private bonds were issued by PS&Marketing Corporation, a subsidiary of the Parent Company.

(*4)	As of December 31, 2015, 3M Libor rate is 0.61%.

(*5)	The Group settled the difference of the measurement bases of accounting profit or loss between the bonds and related derivatives by designating the structured bonds as financial liabilities at fair value through profit or loss.

The difference between the carrying amount of the designated financial liabilities at fair value through profit or loss and the amount required to pay at maturity is W5,704 million as of December 31, 2015.

(*6)	As of December 31, 2014, the principal amount and the fair value of the structured bonds were W50,000 million and W55,188 million, respectively. The entire bonds were early redeemed during the year ended December 31, 2015.

(*7)	Convenient translation was provided for the bonds repayable in other currencies.

18.

Long-term Payables - Other

(1)

Long-term payables – other as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Payables related to acquisition of W-CDMA licenses	W	550,964		657,001
Other(*)		30,733		27,566

	W	581,697		684,567

(*)	Other includes vested compensation claims of employees who have rendered long-term service, etc.

(2)

As of December 31, 2015 and 2014, long-term payables – other consist of payables related to the acquisition of W-CDMA licenses for 800MHZ, 2.3GHz and 1.8GHz frequencies as follows:


(In millions of won)
	Period of repayment	Coupon rate	Annual effective interest rate(*)	December 31, 2015			December 31, 2014
800MHz	2013~2015	3.51%	5.69%		—			69,416
2.3GHz	2014~2016	3.00%	5.80%		2,882			5,766
1.8GHz	2012~2021	2.43~3.00%	4.84~5.25%		707,006			824,841

					709,888			900,023
Present value discount on long-term payables - other					(38,739	)		(53,633	)

					671,149			846,390
Current portion of long-term payables – other					(120,185	)		(189,389	)

Carrying amount at December 31				W	550,964			657,001

(*)	The Group estimated the discount rate based on its credit ratings and corporate bond yield rate as there is no market interest rate available for long-term account payables-other.

(3)

The repayment schedule of long-term payables – other related to acquisition of W-CDMA licenses as of December 31, 2015 is as follows:


(In millions of won)
	Amount
Less than 1 year	W	120,718
1~3 years		235,669
3~5 years		235,669
More than 5 years		117,832

	W	709,888

19.

Provisions

(1)

Changes in provisions for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	For the year ended December 31, 2015																	As of December 31, 2015
	Beginning balance		Increase		Utilization			Reversal			Other		Change of consolidation scope			Ending balance		Current		Non-current
Provision for handset subsidy (*1)	W	26,799		1,641		(5,004	)		(17,766	)		—		—			5,670		2,232		3,438
Provision for restoration		59,727		4,983		(1,135	)		(5,433	)		1,812		—			59,954		34,336		25,618
Emission allowance (*2)		—		1,477		—			—			—		—			1,477		1,477		—
Other provisions		562		3,795		(510	)		(472	)		—		(271	)		3,104		2,943		161

	W	87,088		11,896		(6,649	)		(23,671	)		1,812		(217	)		70,205		40,988		29,217


(In millions of won)
	For the year ended December 31, 2014															As of December 31, 2014
	Beginning balance		Increase		Utilization			Reversal			Other			Ending balance		Current		Non-current
Provision for handset subsidy (*1)	W	53,923		41,802		(68,926	)		—			—			26,799		14,844		11,955
Provision for restoration		40,507		20,098		(702	)		(34	)		(142	)		59,727		35,865		23,862
Other provisions		451		155		(225	)		—			181			562		366		196

	W	94,881		62,055		(69,853	)		(34	)		39			87,088		51,075		36,013

(*1)	The Group has provided handset subsidy to subscribers who purchase handsets on an installment basis and recognized provision for subsidy amounts which the Group is expected to pay in future periods.

(*2)	The Group recognizes estimated future payment for the number of emission certificates required to settle the Group’s obligation exceeding the actual number of certificates on hand as emission allowances according to the Act on Allocation and Trading of Greenhouse Gas Emission Permits.

20.

Leases

(1)

Finance Leases

The Group has leased telecommunication equipment under finance lease agreements with Cisco Systems Capital Korea Ltd. Finance lease liabilities as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Finance Lease Liabilities
Current portion of long-term finance lease liabilities	W	26		3,804
Long-term finance lease liabilities		—		26

	W	26		3,830

The Group’s related interest and principal as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015					December 31, 2014
	Minimum lease payment		Present value			Minimum lease payment		Present value
Less than 1 year	W	26		26			3,909		3,804
1~5 years		—		—			26		26

Sub-total		26		26			3,935		3,830

Current portion of long-term finance lease liabilities				(26	)				(3,804	)

Long-term finance lease liabilities	W			—					26

20.

Leases, Continued

(2)

Operating Leases

The Group entered into operating leases and sublease agreements in relation to rented office space and the expected future lease payments and lease revenues as of December 31, 2015 and 2014 (included in other non-operating income in the accompanying consolidated statements of income) are as follows:


(In millions of won)
	2015				2014
	Lease payments		Lease revenues		Lease payments		Lease revenues
Less than 1 year	W	32,416		1,876		29,233		3,496
1~5 years		75,568		1,026		76,306		1,390
More than 5 years		33,602		577		49,582		1,043

	W	141,586		3,479		155,121		5,929

(3)

Sale and Leaseback Transaction

During the year ended December 31, 2012, the Group disposed a portion of its property and equipment and investment property, and entered into lease agreements with respect to those assets. This sale and leaseback transaction is considered as an operating lease. The Group recognized W14,539 million and W14,075 million of lease payments in relation to the operating lease agreement for the years ended December 31, 2015 and 2014, respectively, and W2,393 million and W2,469 million of lease revenues in relation to the sublease agreement for the years ended December 31, 2015 and 2014, respectively. Expected future lease payments and lease revenues are included in Note 20-(2).

21.

Defined Benefit Liabilities

(1)

Details of defined benefit liabilities as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015			December 31, 2014
Present value of defined benefit obligations	W	525,269			437,844
Fair value of plan assets		(426,413	)		(346,257	)

	W	98,856			91,587

(2)

Principal actuarial assumptions as of December 31, 2015 and 2014 are as follows:


	December 31, 2015	December 31, 2014
Discount rate for defined benefit obligations	1.90%~2.93%	2.23% ~ 3.70%
Expected rate of salary increase	2.51%~7.04%	2.51% ~ 7.39%

Discount rate for defined benefit obligation is determined based on the Group’s credit ratings and yield rate of corporate bonds with similar maturities for estimated payment term of defined benefit obligation. Expected rate of salary increase is determined based on the Group’s historical promotion index, inflation rate and salary increase ratio in accordance with salary agreement.

(3)

Changes in defined benefit obligations for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)	For the year ended December 31
	2015			2014
Beginning balance	W	437,844			312,494
Current service cost		106,764			109,625
Interest cost		12,292			12,630
Remeasurement
- Demographic assumption		732			2,859
- Financial assumption		5,900			28,287
- Adjustment based on experience		15,100			9,932
Benefit paid		(58,513	)		(46,531	)
Others(*)		5,150			8,548

Ending balance	W	525,269			437,844

(*)

Others for the year ended December 31, 2015 include liabilities of W3,470 million succeeded due to transfer of employees from associates and transfer to construction in progress, etc. Others for the year ended December 31, 2014 include the effect of changes in the consolidation scope of W2,939 million, liabilities of W4,433 million succeeded due to transfer of employees from associates, and transfer to construction in progress, etc.

21.

Defined Benefit Liabilities, Continued

(4)

Changes in plan assets for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015			2014
Beginning balance	W	346,257			238,293
Interest income		9,035			9,538
Actuarial gain		3,146			50
Contributions by employer directly to plan assets		115,640			117,558
Benefits paid		(47,809	)		(20,711	)
Others(*)		144			1,529

Ending balance	W	426,413			346,257

(*)	Others for the year ended December 31, 2014 include the effect of changes in the consolidation scope of W1,221 million.

The Group expects to make a contribution of W82,220 million to the defined benefit plans during the next financial year.

(5)

Expenses recognized in profit and loss (included in labor cost in the accompanying consolidated statements of income) and capitalized into construction-in-progress for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015		2014
Current service cost	W	106,764		109,625
Net interest cost		3,257		3,092

	W	110,021		112,717

The above costs are recognized in labor cost, research and development, or capitalized into construction-in-progress.

(6)

Details of plan assets as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Equity instruments	W	1,086		1,746
Debt instruments		81,867		70,778
Short-term financial instruments, etc.		343,460		273,733

	W	426,413		346,257

Actual return on plan assets for the years ended December 31, 2015 and 2014 amounted to W12,181 million and W9,588 million, respectively.

21.

Defined Benefit Liabilities, Continued

(7)

As of December 31, 2015, effects on defined benefit obligations if each of significant actuarial assumptions changes within expectable and reasonable range are as follows:


(In millions of won)
	Increase			Decrease
Discount rate (if changed by 0.5%)	W	(20,669	)		22,690
Expected salary increase rate (if changed by 0.5%)		22,604			(20,851	)

The sensitivity analysis does not consider dispersion of all cashflows that are expected from the plan and provides approximate values of sensitivity for the assumptions used.

Weighted average durations of defined benefit obligations as of December 31, 2015 and 2014 are 9.35 years and 9.10 years, respectively.

22.

Derivative Instruments

(1)

Currency swap contracts under cash flow hedge accounting as of December 31, 2015 are as follows:


(In thousands of foreign currencies)
Borrowing date	Hedged item	Hedged risk	Contract type	Financial institution	Duration of contract
Jul. 20, 2007	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 400,000)	Foreign currency risk	Currency swap	Morgan Stanley and five other banks	Jul. 20, 2007 ~ Jul. 20, 2027
Jun. 12, 2012	Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000)	Foreign currency risk	Currency swap	Citibank and four other banks	Jun. 12, 2012 ~ Jun.12, 2017
Nov. 1, 2012	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 700,000)	Foreign currency risk	Currency swap	Barclays and eight other banks	Nov. 1, 2012 ~ May. 1, 2018
Jan. 17, 2013	Fixed-to-fixed cross currency swap (Australia dollar denominated bonds face value of AUD 300,000)	Foreign currency risk	Currency swap	BNP Paribas and three other banks	Jan. 17, 2013 ~ Nov. 17, 2017
Mar. 7, 2013	Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 300,000)	Foreign currency risk and the interest rate risk	Currency interest rate swap	DBS bank	Mar. 7, 2013 ~ Mar. 7, 2020
Oct. 29, 2013	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 300,000)	Foreign currency risk	Currency swap	Korea Development Bank and four other banks	Oct. 29, 2013 ~ Oct. 26, 2018
Dec. 16, 2013	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 74,817)	Foreign currency risk	Currency swap	Deutsche bank	Dec. 16, 2013 ~ Apr. 29, 2022

22.

Derivative Instruments, Continued

(2)

As of December 31, 2015, fair values of the above derivatives recorded in assets or liabilities and details of derivative instruments are as follows:


(In millions of won and thousands of foreign currencies)
	Fair value
	Cash flow hedge
Hedged item	Accumulated gain (loss) on valuation of derivatives			Tax effect			Accumulated foreign currency translation (gain) loss			Others *()**		Held for trading purpose		Total
Non-current assets:
Structured bond (face value of KRW 150,000)	W	—			—			—			—		6,277		6,277
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 400,000)		(46,616	)		(14,883	)		11,180			129,806		—		79,487
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 700,000)		(18,705	)		(5,971	)		56,738			—		—		32,062
Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 300,000)		(5,748	)		(1,835	)		26,439			—		—		18,856
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 300,000)		(6,394	)		—			32,870			—		—		26,476
Fixed-to-fixed long-term borrowings (U.S. dollar denominated bonds face value of USD 74,817)		(4,072	)		(1,300	)		8,613			—		—		3,241

Total assets														W	166,399

Non-current liabilities:
Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000)	W	(3,678	)		(1,174	)		(7,851	)		—		—		(12,703	)
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of AUD 300,000)		2,013			642			(79,248	)		—		—		(76,593	)

Total liabilities														W	(89,296	)

(*)	Cash flow hedge accounting has been applied to the relevant contracts from May 12, 2010. Others represent gain on valuation of currency swap incurred prior to the application of hedge accounting and was recognized through profit or loss prior to the year ended December 31, 2013.

23.

Share Capital and Capital Surplus and Other Capital Adjustments

The Parent Company’s outstanding share capital consists entirely of common stock with a par value of W500. The number of authorized, issued and outstanding common shares and capital surplus and other capital adjustments as of December 31, 2015 and 2014 are as follows:


(In millions of won, except for share data)
	December 31, 2015			December 31, 2014
Authorized shares		220,000,000			220,000,000
Issued shares(*1)		80,745,711			80,745,711
Share capital
Common stock	W	44,639			44,639
Capital surplus and other capital adjustments:
Paid-in surplus		2,915,887			2,915,887
Treasury stock(Note 24)		(2,260,626	)		(2,139,683	)
Loss on disposal of treasury stock		—			(18,087	)
Hybrid bonds(Note 25)		398,518			398,518
Others		(864,269	)		(878,637	)

	W	189,510			277,998

(*1)

During the years ended December 31, 2003, 2006 and 2009, the Parent Company retired 7,002,235 shares, 1,083,000 shares and 448,000 shares, respectively, of treasury stock which reduced its retained earnings before appropriation in accordance with the Korean Commercial Act. As a result, the Parent Company’s outstanding shares have decreased without change in the share capital.

There were no changes in share capital for the years ended December 31, 2015 and 2014. Changes in number of shares outstanding for the years ended December 31, 2015 and 2014 as follows:


(In shares)	2015								2014
	Issued shares		Treasury stock			Outstanding shares			Issued shares		Treasury stock		Outstanding shares
Beginning issued shares		80,745,711		9,809,375			70,936,336			80,745,711		9,809,375		70,936,336
Disposal of treasury stock		—		(1,692,824	)		1,692,824			—		—		—
Acquisition of treasury stock		—		2,020,000			(2,020,000	)		—		—		—

Ending issued shares		80,745,711		10,136,551			70,609,160			80,745,711		9,809,375		70,936,336

24.

Treasury Stock

The Parent Company acquired treasury stock to provide stock dividends, merge with Shinsegi Telecom, Inc. and SK IMT Co, Ltd., increase shareholder value and to stabilize its stock prices when needed.

Treasury stock as of December 31, 2015 and 2014 are as follows:


(In millions of won, shares)
	December 31, 2015		December 31, 2014
Number of shares		10,136,551		9,809,375
Amount	W	2,260,626		2,139,683

On June 9, 2015, the Parent Company granted 1,692,824 shares of its treasury stock (acquisition cost: W369,249 million) in order to acquire shares of SK Broadband Co., Ltd. In addition, from September 30, 2015 to December 11, 2015, the Parent Company newly acquired 2,020,000 shares of its treasury stock amounting to W490,192 million in order to stabilize stock price.

25.

Hybrid Bond

Hybrid bonds classified as equity as of December 31, 2015 are as follows:

(In millions of won)

Type

Issuance date

Maturity

Annual
interest
rate(%)

Amount

Private hybrid bonds

Blank coupon unguaranteed
subordinated bond

June 7, 2013

June 7, 2073

(*1)

4.21

(*2)

400,000

Issuance costs

(1,482

)

398,518

Hybrid bonds issued by the Parent Company is classified as equity as there is no contractual obligation for delivery of financial assets to the bond holders. These are subordinated bonds which rank before common shareholders in the event of a liquidation or reorganization of the Parent Company.

(*1)	The Parent Company has a right to extend the maturity under the same issuance terms without any notice or announcement. The Parent Company also has the right to defer interest payment at its sole discretion.

(*2)	Annual interest rate is adjusted after five years from the issuance date.

26.

Retained Earnings

(1)

Retained earnings as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Appropriated:
Legal reserve	W	22,320		22,320
Reserve for research & manpower development		87,301		151,533
Reserve for business expansion		9,671,138		9,476,138
Reserve for technology development		2,616,300		2,416,300

		12,397,059		12,066,291
Unappropriated		2,610,568		2,122,300

	W	15,007,627		14,188,591

(2)

Legal reserve

The Korean Commercial Act requires the Parent Company to appropriate as a legal reserve at least 10% of cash dividends paid for each accounting period until the reserve equals 50% of outstanding share capital. 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 share capital.

(3)

Reserve for research & manpower development

The reserve for research and manpower development was 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 and retained earnings in accordance with the relevant tax laws. Such reversal will be included in taxable income in the year of reversal.

27.

Reserves

(1)

Details of reserves, net of taxes, as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015			December 31, 2014
Unrealized fair value of available-for-sale financial assets	W	232,316			235,385
Other comprehensive income of investments in associates		(169,520	)		(163,808	)
Unrealized fair value of derivatives		(83,200	)		(77,531	)
Foreign currency translation differences for foreign operations		29,707			1,465

	W	9,303			(4,489	)

27.

Reserves, Continued

(2)

Changes in reserves for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)	2015
	Unrealized fair value of available-for- sale financial assets			Other comprehensive income of investments in associates			Unrealized fair value of derivatives			Foreign currency translation differences for foreign operations			Total
Balance at January 1, 2015	W	235,385			(163,808	)		(77,531	)		1,465			(4,489	)
Changes		(5,530	)		(5,649	)		(5,221	)		28,242			11,842
Tax effect		2,461			(63	)		(448	)		—			1,950

Balance at December 31, 2015	W	232,316			(169,520	)		(83,200	)		29,707			9,303


(In millions of won)	2014
	Unrealized fair value of available-for- sale financial assets			Other comprehensive income of investments in associates			Unrealized fair value of derivatives			Foreign currency translation differences for foreign operations			Total
Balance at January 1, 2014	W	208,529			(172,117	)		(35,429	)		(13,253	)		(12,270	)
Changes		30,945			8,381			(54,290	)		14,718			(246	)
Tax effect		(4,089	)		(72	)		12,188			—			8,027

Balance at December 31, 2014	W	235,385			(163,808	)		(77,531	)		1,465			(4,489	)

(3)

Details of changes in unrealized fair value of available-for-sale financial assets for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)	2015
	Before taxes			Income tax effect			After taxes
Balance at January 1, 2015	W	306,608			(71,223	)		235,385
Amount recognized as other comprehensive income during the year		(3,902	)		2,067			(1,835	)
Amount reclassified through profit or loss		(1,628	)		394			(1,234	)

Balance at December 31, 2015	W	301,078			(68,762	)		232,316


(In millions of won)	2014
	Before taxes			Income tax effect			After taxes
Balance at January 1, 2014	W	275,663			(67,134	)		208,529
Amount recognized as other comprehensive income during the year		40,785			(6,470	)		34,315
Amount reclassified through profit or loss		(9,840	)		2,381			(7,459	)

Balance at December 31, 2014	W	306,608			(71,223	)		235,385

27.

Reserves, Continued

(4)

Details of changes in unrealized fair value of derivatives for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)	2015
	Before taxes			Income tax effect			After taxes
Balance at January 1, 2015	W	(102,501	)		24,970			(77,531	)
Amount recognized as other comprehensive income during the year		(4,714	)		(570	)		(5,284	)
Amount reclassified through profit or loss		(507	)		122			(385	)

Balance at December 31, 2015	W	(107,722	)		24,522			(83,200	)


(In millions of won)	2014
	Before taxes			Income tax effect			After taxes
Balance at January 1, 2014	W	(48,211	)		12,782			(35,429	)
Amount recognized as other comprehensive income during the year		(46,535	)		10,311			(36,224	)
Amount reclassified through profit or loss		(7,755	)		1,877			(5,878	)

Balance at December 31, 2014	W	(102,501	)		24,970			(77,531	)

28.

Other Operating Expenses

Details of other operating expenses for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015		2014
Other Operating Expenses:
Communication expenses	W	43,979		58,622
Utilities		270,621		247,919
Taxes and dues		36,118		33,500
Repair		312,517		260,533
Research and development		315,790		390,943
Training		37,278		42,781
Bad debt for accounts receivables - trade		60,450		45,754
Travel		27,860		28,912
Supplies and other		176,248		209,933

	W	1,280,861		1,318,897

29.

Other Non-operating Income and Expenses

Details of other non-operating income and expenses for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015		2014
Other Non-operating Income:
Gain on disposal of property and equipment and intangible assets	W	7,140		8,792
Others		23,770		47,487

	W	30,910		56,279

Other Non-operating Expenses:
Impairment loss on property and equipment, and intangible assets	W	35,845		47,489
Loss on disposal of property and equipment and intangible assets		21,392		32,950
Donations		72,454		67,823
Bad debt for accounts receivable – other		15,323		17,943
Others		98,477		107,353

	W	243,491		273,558

30.

Finance Income and Costs

(1)

Details of finance income and costs for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015		2014

Finance Income:
Interest income	W	45,884		60,006
Dividends		16,102		13,048
Gain on foreign currency transactions		18,923		16,301
Gain on foreign currency translations		5,090		6,277
Gain on disposal of long-term investment securities		10,786		13,994
Gain on valuation of derivative		1,927		8,713
Gain on settlement of derivatives		—		7,998
Gain relating to financial liability at fair value through profit or loss		5,188		—

	W	103,900		126,337

30.

Finance Income and Costs, Continued

(1)

Details of finance income and costs for the years ended December 31, 2015 and 2014 are as follows, Continued:


(In millions of won)
	2015		2014
Finance Costs:
Interest expense	W	297,662		323,910
Loss on foreign currency transactions		17,931		18,053
Loss on foreign currency translations		4,750		5,079
Loss on disposal of long-term investment securities		2,599		2,694
Loss on valuation of derivatives		—		10
Loss on settlement of derivatives		4,845		672
Loss relating to financial asset at fair value through profit or loss		—		1,352
Loss relating to financial liability at fair value through profit or loss		526		10,370
Other finance costs		21,787		24,533

	W	350,100		386,673

(2)

Details of interest income included in finance income for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015		2014
Interest income on cash equivalents and deposits	W	20,009		33,417
Interest income on installment receivables and others		25,875		26,589

	W	45,884		60,006

(3)

Details of interest expense included in finance costs for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015		2014
Interest expense on bank overdrafts and borrowings	W	19,577		26,360
Interest expense on debentures		238,450		247,972
Interest on finance lease liabilities		58		504
Others		39,577		49,074

	W	297,662		323,910

30.

Finance Income and Costs, Continued

(4)

Finance income and costs by categories of financial instruments for the years ended December 31, 2015 and 2014 are as follows. Bad debt expenses (reversal of allowance for doubtful accounts) for accounts receivable – trade, loans and receivables are excluded and are explained in Note 7.

(i)

Finance income and costs


(In millions of won)	2015				2014
	Finance income		Finance costs		Finance income		Finance costs
Financial Assets:

Financial assets at fair value through profit or loss	W	1,927		4,188		8,713		1,361
Available-for-sale financial assets		31,220		24,386		32,227		27,227
Loans and receivables		64,749		15,861		57,685		18,182
Derivative financial instruments designated as hedged item		—		657		7,998		672

Sub-total		97,896		45,092		106,623		47,442

Financial Liabilities:
Financial liabilities at fair value through profit or loss		5,188		526		—		10,370

Financial liabilities measured at amortized cost		816		304,482		19,714		328,861

Sub-total		6,004		305,008		19,714		339,231

Total	W	103,900		350,100		126,337		386,673

(ii)

Other comprehensive income(loss)


(In millions of won)
	2015			2014
Financial Assets:
Available-for-sale financial assets	W	(3,661	)		26,856
Derivative financial instruments designated as hedged item		(3,248	)		(20,301	)

Sub-total		(6,909	)		6,555

Financial Liabilities:
Derivative financial instruments designated as hedged item		1,977			(21,801	)

Sub-total		1,977			(21,801	)

Total	W	(4,932	)		(15,246	)

30.

Finance Income and Costs, Continued

(5)

Details of impairment losses for financial assets for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015		2014
Available-for-sale financial assets	W	21,787		24,533
Bad debt for accounts receivable - trade		60,450		45,754
Bad debt for accounts receivable - other		15,323		17,943

	W	97,560		88,230

31.

Income Tax Expense for Continuing Operations

(1)

Income tax expenses for continuing operations for the years ended December 31, 2015 and 2014 consist of the following:


(In millions of won)
	2015			2014
Current tax expense
Current tax payable	W	417,022			181,273
Adjustments recognized in the period for current tax of prior periods		(4,124	)		(19,938	)

		412,898			161,335

Deferred tax expense
Changes in net deferred tax assets		102,305			276,049
Tax directly charged to equity		4,669			16,929
Changes in scope of consolidation		(575	)		—
Others (exchange rate differences, etc.)		183			195

		106,582			293,173

Income tax for continuing operation	W	519,480			454,508

31.

Income Tax Expense for Continuing Operations, Continued

(2)

The difference between income taxes computed using the statutory corporate income tax rates and the recorded income taxes for the years ended December 31, 2015 and 2014 is attributable to the following:


(In millions of won)
	2015			2014

Income taxes at statutory income tax rates	W	492,096			544,964
Non-taxable income		(85,589	)		(32,277	)
Non-deductible expenses		44,770			61,580
Tax credit and tax reduction		(25,756	)		(33,581	)
Changes in unrealizable deferred taxes		83,623			(43,820	)
Others (income tax refund and tax rate differences, etc.)		10,336			(42,358	)

Income tax for continuing operation	W	519,480			454,508

Tax rates applied for the above taxable income for the years ended December 31, 2015 and 2014 are corporate income tax rates applied for taxable income in Republic of Korea, of which SK Telecom Co., Ltd., the Parent Company, is located.

(3)

Deferred taxes directly charged to (credited from) equity for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015			2014

Net change in fair value of available-for-sale financial assets	W	2,461			(4,089	)
Share of other comprehensive income of associates		(63	)		(72	)
Gain or loss on valuation of derivatives		(448	)		12,188
Remeasurement of defined benefit liabilities		2,719			8,902

	W	4,669			16,929

31.

Income Tax Expense for Continuing Operations, Continued

(4)

Details of changes in deferred tax assets (liabilities) for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)	2015
	Beginning			Changes in scope of consolidation			Deferred tax expense (income)			Directly added to (deducted from) equity			Other		Ending
Deferred tax assets (liabilities) related to temporary differences
Allowance for doubtful accounts	W	53,578			—			6,379			—			—		59,957
Accrued interest income		(2,450	)		—			(117	)		—			—		(2,567	)
Available-for-sale financial assets		(4,824	)		—			32,728			2,461			—		30,365
Investments in subsidiaries and associates		(211,043	)		—			(144,167	)		(63	)		—		(355,273	)
Property and equipment (depreciation)		(372,332	)		—			44,760			—			—		(327,572	)
Provisions		7,587			—			(5,102	)		—			—		2,485
Retirement benefit obligation		27,361			—			(1,753	)		2,719			—		28,327
Gain or loss on valuation of derivatives		24,969			—			—			(448	)		—		24,521
Gain or loss on foreign currency translation		19,324			—			193			—			—		19,517
Tax free reserve for research and manpower development		(7,162	)		—			—			—			—		(7,162	)
Goodwill relevant to leased line		4,433			—			(720	)		—			—		3,713
Unearned revenue (activation fees)		25,977			—			(23,912	)		—			—		2,065
Others		(15,682	)		(575	)		(7,708	)		—			183		(23,782	)

		(450,264	)		(575	)		(99,419	)		4,669			183		(545,406	)

Deferred tax assets related to unused tax loss carryforwards and unused tax credit carryforwards
Tax loss carryforwards		31,712			—			(7,163	)		—			—		24,549

	W	(418,552	)		(575	)		(106,582	)		4,669			183		(520,857	)

31.

Income Tax Expense for Continuing Operations, Continued

(4)

Details of changes in deferred tax assets (liabilities) for the years ended December 31, 2015 and 2014 are as follows, Continued:


(In millions of won)	2014
	Beginning			Deferred tax expense (income)			Directly added to (deducted from) equity			Other			Ending
Deferred tax assets (liabilities) related to temporary differences
Allowance for doubtful accounts	W	56,427			(2,700	)		—			(149	)		53,578
Accrued interest income		(2,831	)		381			—			—			(2,450	)
Available-for-sale financial assets		(589	)		(146	)		(4,089	)		—			(4,824	)
Investments in subsidiaries and associates		(44,844	)		(165,663	)		(72	)		(464	)		(211,043	)
Property and equipment (depreciation)		(333,633	)		(38,690	)		—			(9	)		(372,332	)
Provisions		14,303			(6,699	)		—			(17	)		7,587
Retirement benefit obligation		16,089			2,390			8,902			(20	)		27,361
Gain or loss on valuation of derivatives		12,779			2			12,188			—			24,969
Gain or loss on foreign currency translation		19,572			(248	)		—			—			19,324
Tax free reserve for research and manpower development		(40,011	)		32,849			—			—			(7,162	)
Goodwill relevant to leased line		31,025			(26,592	)		—			—			4,433
Unearned revenue (activation fees)		53,412			(27,435	)		—			—			25,977
Others		44,738			(61,274	)		—			854			(15,682	)

		(173,563	)		(293,825	)		16,929			195			(450,264	)

Deferred tax assets related to unused tax loss carryforwards and unused tax credit carryforwards
Tax loss carryforwards		31,060			652			—			—			31,712

	W	(142,503	)		(293,173	)		16,929			195			(418,552	)

31.

Income Tax Expense for Continuing Operations, Continued

(5)

Details of temporary differences, unused tax loss carryforwards and unused tax credits carryforwards which are not recognized as deferred tax assets (liabilities), as the Group does not believe it is probable that the deferred tax assets will be realizable in the future, in the consolidated statements of financial position as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Allowance for doubtful accounts	W	182,266		155,634
Investments in subsidiaries and associates		281,719		422,033
Other temporary differences		285,845		314,188
Unused tax loss carryforwards		1,034,070		729,570
Unused tax credit carryforwards		2,271		2,438

	W	1,786,171		1,623,863

(6)

The expirations of unused tax loss carryforwards and unused tax credit carryforwards which are not recognized as deferred tax assets as of December 31, 2015 are as follows:


(In millions of won)
	Unused tax loss carryforwards		Unused tax credit carryforwards

Less than 1 year	W	4,894		1,041
1 ~ 2 years		—		155
2 ~ 3 years		—		870
More than 3 years		1,029,176		205

	W	1,034,070		2,271

32.

Earnings per Share

(1)

Basic earnings per share

Basic earnings per share for the years ended December 31, 2015 and 2014 are calculated as follows:


(In millions of won, shares)
	2015			2014
Basic earnings per share attributable to owners of the Parent Company:
Profit attributable to owners of the Parent Company	W	1,518,604			1,801,178
Interest on hybrid bond		(16,840	)		(16,840	)

Profit attributable to owners of the Parent Company on common shares		1,501,764			1,784,338
Weighted average number of common shares outstanding		71,551,966			70,936,336

Basic earnings per share (In won)	W	20,988			25,154

The weighted average number of common shares outstanding for the years ended December 31, 2015 and 2014 are calculated as follows:


(In shares)
	2015			2014
Outstanding common shares		80,745,711			80,745,711
Weighted number of treasury stocks		(9,193,745	)		(9,809,375	)

Weighted average number of common shares outstanding		71,551,966			70,936,336

(2)

Diluted earnings per share

For the year ended December 31, 2015 and 2014, there were no potentially dilutive shares. Therefore, diluted earnings per share for the years ended December 31, 2015 and 2014 are the same as basic earnings per share.

33.

Dividends

(1)

Details of dividends declared

Details of dividend declared for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won, except for face value and share data)
Year	Dividend type	Number of shares outstanding		Face value (In won)		Dividend ratio			Dividends
2015	Cash dividends (interim)		72,629,160		500		200	%		72,629
2015	Cash dividends (year-end)		70,609,160		500		1800	%		635,482

										708,111

2014	Cash dividends (interim)		70,936,336		500		200	%		70,937
2014	Cash dividends (year-end)		70,936,336		500		1680	%		595,865

										666,802

(2)

Dividends payout ratio

Dividends payout ratios for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
Year	Dividends calculated		Profit		Dividends payout ratio
2015	W	708,111		1,518,604		46.63	%
2014	W	666,802		1,801,178		37.02	%

(3)

Dividends yield ratio

Dividends yield ratios for the years ended December 31, 2015 and 2014 are as follows:


(In won)
Year	Dividend type	Dividend per share		Closing price at settlement		Dividend yield ratio
2015	Cash dividends		10,000		215,500		4.64	%
2014	Cash dividends		9,400		268,000		3.51	%

34.

Categories of Financial Instruments

(1)

Financial assets by categories as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015
	Financial assets at fair value through profit or loss		Available- for-sale financial assets		Loans and receivables		Derivative financial instruments designated as hedged item		Total
Cash and cash equivalents	W	—		—		768,922		—		768,922
Financial instruments		—		—		701,713		—		701,713
Short-term investment securities		—		92,262		—		—		92,262
Long-term investment securities		—		1,207,226		—		—		1,207,226
Accounts receivable – trade		—		—		2,390,110		—		2,390,110
Loans and other receivables(*)		—		—		1,102,403		—		1,102,403
Derivative financial assets		6,277		—		—		160,122		166,399

	W	6,277		1,299,488		4,963,148		160,122		6,429,035


(In millions of won)
	December 31, 2014
	Financial assets at fair value through profit or loss		Available-for- sale financial assets		Loans and receivables		Derivative financial instruments designated as hedged item		Total
Cash and cash equivalents	W	—		—		834,429		—		834,429
Financial instruments		—		—		313,699		—		313,699
Short-term investment securities		—		280,161		—		—		280,161
Long-term investment securities		7,817		948,463		—		—		956,280
Accounts receivable – trade		—		—		2,460,686		—		2,460,686
Loans and other receivables(*)		—		—		1,123,507		—		1,123,507
Derivative financial assets		8,713		—		—		61,322		70,035

	W	16,530		1,228,624		4,732,321		61,322		6,038,797

34.

Categories of Financial Instruments, continued

(1)

Financial assets by categories as of December 31, 2015 and 2014 are as follows, continued:

(*)	Details of loans and other receivables as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Short-term loans	W	53,895		74,512
Accounts receivable – other		673,739		690,527
Accrued income		10,753		10,134
Other current assets		1,861		3,866
Long-term loans		62,454		55,728
Long-term accounts receivable-other		2,420		3,596
Guarantee deposits		297,281		285,144

	W	1,102,403		1,123,507

(2)

Financial liabilities by categories as of December 31, 2015 and 2014 are as follows:


(In millions of won)	December 31, 2015
	Financial liabilities at fair value through profit or loss		Financial liabilities measured at amortized cost		Derivative financial instruments designated as hedged item		Total
Accounts payable – trade	W	—		279,782		—		279,782
Derivative financial liabilities		—		—		89,296		89,296
Borrowings		—		415,134		—		415,134
Debentures(*1)		155,704		6,952,949		—		7,108,653
Accounts payable - other and others (*2)		—		2,970,801		—		2,970,801

	W	155,704		10,618,666		89,296		10,863,666


(In millions of won)	December 31, 2014
	Financial liabilities at fair value through profit or loss		Financial liabilities measured at amortized cost		Derivative financial instruments designated as hedged item		Total
Accounts payable – trade	W	—		275,495		—		275,495
Derivative financial liabilities		—		—		130,889		130,889
Borrowings		—		537,562		—		537,562
Debentures(*1)		110,365		6,108,265		—		6,218,630
Accounts payable - other and others (*2)		—		3,241,615		—		3,241,615

	W	110,365		10,162,937		130,889		10,404,191

(*1)

Bonds classified as financial liabilities at fair value through profit or loss as of December 31, 2015 and 2014 are structured bonds and they were designated as financial liabilities at fair value through profit or loss in order to settle the difference of the measurement bases of accounting profit or loss between the related derivatives and bonds.

34.

Categories of Financial Instruments, Continued

(2)

Financial liabilities by categories as of December 31, 2015 and 2014 are as follows, continued:

(*2)	Details of accounts payable – other and other payables as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Accounts payable – other	W	1,323,434		1,381,850
Withholdings		1,178		1,760
Accrued expenses		920,739		952,418
Current portion of long-term payables - other		120,211		193,193
Long-term payables – other		581,697		684,567
Finance lease liabilities		—		26
Other non-current liabilities		23,542		27,801

	W	2,970,801		3,241,615

35.

Financial Risk Management

(1)

Financial risk management

The Group is exposed to credit risk, liquidity risk and market risk. Market risk is the risk related to the changes in market prices, such as foreign exchange rates, interest rates and equity prices. The Group implements a risk management system to monitor and manage these specific risks.

The Group’s financial assets under financial risk management consist of cash and cash equivalents, financial instruments, available-for-sale financial assets, trade and other receivables. Financial liabilities consist of trade and other payables, borrowings, and debentures.

Market risk

(i)

Currency risk

The Group is exposed to currency risk mainly on exchange fluctuations on recognized assets and liabilities. The Group manages currency risk by currency forward, etc. if needed to hedge currency risk on business transactions. Currency risk occurs on forecasted transaction and recognized assets and liabilities which are denominated in a currency other than the functional currency of the Group.

35.

Financial Risk Management, Continued

(1)

Financial risk management, Continued

Market risk, Continued

(i)

Currency risk, Continued

Monetary foreign currency assets and liabilities as of December 31, 2015 are as follows:


(In millions of won, thousands of U.S. dollars, thousands of Euros, thousands of Japanese Yen, thousands of other currencies)
	Assets				Liabilities
	Foreign currencies		Won translation		Foreign currencies		Won translation
USD		162,322	W	189,763		1,836,860	W	2,152,800
EUR		23,421		30,005		257		328
JPY		24,462		238		695		7
AUD		—		—		299,023		255,097
CHF		—		—		299,403		354,909
Others		4,995		1,148		291		121

			W	221,154			W	2,763,262

In addition, the Group has entered into cross currency swaps to hedge against currency risk related to foreign currency borrowings and debentures. (Refer to Note 22)

As of December 31, 2015, effects on income (loss) before income tax as a result of change in exchange rate by 10% are as follows:


(In millions of won)
	If increased by 10%		If decreased by 10%
USD	W	9,600		(9,600	)
EUR		2,934		(2,934	)
JPY		23		(23	)
Others		100		(100	)

	W	12,657		(12,657	)

(ii)

Equity price risk

The Group has equity securities which include listed and non-listed securities for its liquidity and operating purpose. As of December 31, 2015, available-for-sale equity instruments measured at fair value amount to W1,076,291 million.

(iii)

Interest rate risk

Since the Group’s interest bearing assets are mostly fixed-interest bearing assets, as such, the Group’s revenue and operating cash flow are not influenced by the changes in market interest rates. However, the Group still has interest rate risk arising from borrowings and debentures.

Accordingly, the Group performs various analysis of interest rate risk, which includes refinancing, renewal, alternative financing and hedging instrument option, to reduce interest rate risk and to optimize its financing.

35.

Financial Risk Management, Continued

(1)

Financial risk management, Continued

Market risk, Continued

(iii)

Interest rate risk, Continued

The interest rate risk arises from the Group’s floating-rate borrowings and bonds agreements. As of December 31, 2015, the floating-rate borrowings and bonds are W20,573 million and W351,600 million, respectively, and the Group has entered into interest rate swap agreements, as described in Note 22, for all floating-rate bonds to hedge the interest rate risk of floating-rate bonds. On the other hand, if the interest rate increases (decreases) 1% with all other variables held constant, income before income taxes for the year ended December 31, 2015, fluctuates as much as W206 million due to the interest expense on floating-rate borrowings that have not entered into an interest rate swap agreement.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet his/her contractual obligations. The maximum credit exposure as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015		2014
Cash and cash equivalents	W	768,794		833,129
Financial instruments		701,713		313,699
Available-for-sale financial assets		3,430		15,498
Accounts receivable – trade		2,390,110		2,460,686
Loans and receivables		1,102,403		1,123,507
Derivative financial assets		166,399		70,035
Financial assets at fair value through profit or loss		—		7,817

	W	5,132,849		4,824,371

To manage credit risk, the Group evaluates the credit worthiness of each customer or counterparty considering the party’s financial information, its own trading records and other factors; based on such information, the Group establishes credit limits for each customer or counterparty.

For the year ended December 31, 2015, the Group has no trade and other receivables or loans which have indications of significant impairment loss or are overdue for a prolonged period. As a result, the Group believes that the possibility of default is remote. Also, the Group’s credit risk can rise due to transactions with financial institutions related to its cash and cash equivalents, financial instruments and derivatives. To minimize such risk, the Group has a policy to deal with high credit worthy financial institutions. The amount of maximum exposure to credit risk of the Group is the carrying amount of financial assets as of December 31, 2015.

In addition, the aging of trade and other receivables that are over-due at the end of the reporting period but not impaired is stated in Note 7 and the analysis of financial assets that are individually determined to be impaired at the end of the reporting period is stated in Note 30.

35.

Financial Risk Management, Continued

(1)

Financial risk management, Continued

Liquidity risk

The Group’s approach to managing liquidity is to ensure that it will always maintain sufficient cash and cash equivalents balances and have enough liquidity through various committed credit lines. The Group maintains flexibly enough liquidity under credit lines through active operating activities.

Contractual maturities of financial liabilities as of December 31, 2015 are as follows:


(In millions of won)
	Carrying amount		Contractual cash flows		Less than 1 year		1 - 5 years		More than 5 years
Accounts payable - trade	W	279,782		279,782		279,782		—		—
Borrowings(*1)		415,134		428,012		298,118		109,200		20,694
Debentures(*1)		7,108,653		8,514,028		897,895		4,516,896		3,099,237
Accounts payable - other and others(*2)		2,970,801		3,030,356		2,330,565		578,643		121,148

	W	10,774,370		12,252,178		3,806,360		5,204,739		3,241,079

The Group does not expect that the cash flows included in the maturity analysis could occur significantly earlier or at different amounts.

(*1)	Includes estimated interest to be paid and excludes discounts on borrowings and debentures.

(*2)	Excludes discounts on accounts payable-other and others.

As of December 31, 2015, periods which cash flows from cash flow hedge derivatives are expected to be incurred are as follows:


(In millions of won)
	Carrying amount			Contractual cash flows			Less than 1 year			1 - 5 years			More than 5 years
Assets	W	160,122			171,808			1,894			138,980			30,934
Liabilities		(89,296	)		(92,498	)		(4,882	)		(87,616	)		—

	W	70,826			79,310			(2,988	)		51,364			30,934

35.

Financial Risk Management, Continued

(2)

Capital management

The Group manages its capital to ensure that it will be able to continue as a business while maximizing the return to shareholders through the optimization of its debt and equity balance. The overall strategy of the Group is the same as that of the group as of and for the year ended December 31, 2014.

The Group monitors its debt-equity ratio as a capital management indicator. This ratio is calculated as total liabilities divided by total equity which are extracted from the financial statements.

Debt-equity ratio as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015			December 31, 2014
Liabilities	W	13,207,291			12,692,963
Equity		15,374,096			15,248,270

Debt-equity ratio		85.91	%		83.24	%

35.

Financial Risk Management, Continued

(3)

Fair value

Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2015 are as follows:


(In millions of won)
	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets that can be measured at fair value
Financial assets at fair value through profit or loss	W	6,277		—		6,277		—		6,277
Derivative financial assets		160,122		—		160,122		—		160,122
Available-for-sale financial assets		1,076,291		897,958		47,262		131,071		1,076,291

	W	1,242,690		897,958		213,661		131,071		1,242,690

Financial assets that cannot be measured at fair value
Cash and cash equivalents(*1)	W	768,922		—		—		—		—
Available-for-sale financial assets(*1,2)		223,197		—		—		—		—
Accounts receivable – trade and others(*1)		3,492,513		—		—		—		—
Financial instruments(*1)		701,713		—		—		—		—

	W	5,186,345		—		—		—		—

Financial liabilities that can be measured at fair value
Financial liabilities at fair value through profit or loss	W	155,704		—		155,704		—		155,704
Derivative financial liabilities		89,296		—		89,296		—		89,296

	W	245,000		—		245,000		—		245,000

Financial liabilities that cannot be measured at fair value
Accounts payable – trade(*1)	W	279,782		—		—		—		—
Borrowings		415,134		—		416,702		—		416,702
Debentures		6,952,949		—		7,411,909		—		7,411,909
Accounts payable - other and others(*1)		2,970,801		—		—		—		—

	W	10,618,666		—		7,828,611		—		7,828,611

35.

Financial Risk Management, Continued

(3)

Fair value, Continued

Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2014 are as follows:


(In millions of won)
	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets that can be measured at fair value
Financial assets at fair value through profit or loss	W	16,530		—		8,713		7,817		16,530
Derivative financial assets		61,322		—		61,322		—		61,322
Available-for-sale financial assets		846,614		657,286		47,002		142,326		846,614

	W	924,466		657,286		117,037		150,143		924,466

Financial assets that cannot be measured at fair value
Cash and cash equivalents(*1)	W	834,429		—		—		—		—
Available-for-sale financial assets(*1,2)		382,010		—		—		—		—
Accounts receivable – trade and others(*1)		3,584,193		—		—		—		—
Financial instruments(*1)		313,699		—		—		—		—

	W	5,114,331		—		—		—		—

Financial liabilities that can be measured at fair value
Financial liabilities at fair value through profit or loss	W	110,365		—		110,365		—		110,365
Derivative financial liabilities		130,889		—		130,889		—		130,889

	W	241,254		—		241,254		—		241,254

Financial liabilities that cannot be measured at fair value
Accounts payable – trade(*1)	W	275,495		—		—		—		—
Borrowings		537,562		—		549,083		—		549,083
Debentures		6,108,265		—		6,514,832		—		6,514,832
Accounts payable - other and others(*1)		3,241,615		—		—		—		—

	W	10,162,937		—		7,063,915		—		7,063,915

(*1)	Does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are closed to the reasonable approximate fair values.

(*2)	Equity instruments which do not have quoted price in an active market for the identical instruments (inputs for level 1) are measured at cost in accordance with K-IFRS 1039 as such equity instruments cannot be reliably measured using other methods.

Fair value of the financial instruments that are traded in an active market (available-for-sale financial assets, financial liabilities at fair value through profit or loss, etc.) is measured based on the bid price at the end of the reporting date.

35.

Financial Risk Management, Continued

(3)

Fair value, Continued

The Group uses various valuation methods for valuation of fair value of financial instruments that are not traded in an active market. Fair value of available-for-sale securities is determined using the market approach methods and financial assets through profit or loss are measured using the option pricing model. In addition, derivative financial contracts and long-term liabilities are measured using the present value methods. Inputs used to such valuation methods include swap rate, interest rate, and risk premium, and the Group performs valuation using the inputs which are consistent with natures of assets and liabilities being evaluated.

Fair values of accounts receivable – trade, and accounts payable - trade are considered to be carrying amount less impairment and fair value of financial liabilities for the disclosure purpose is estimated by discounting contractual future cash flows using the current market interest rate used for the similar financial instruments by the Group.

Interest rates used by the Group for the fair value measurement as of December 31, 2015 are as follows:


		Interest rate
Derivative instruments		1.92 ~ 2.37%
Borrowings and debentures		2.12 ~ 3.34%

3) There have been no transfers from Level 2 to Level 1 in 2015 and changes of financial assets classified as Level 3 for the year ended December 31, 2015 are as follows:


	Balance at Jan. 1		Acquisition		Loss for the period			Other comprehensive loss			Disposal			Others		Balance at Dec. 31
Available-for-sale financial assets		142,326		3,103		(449	)		(2,379	)		(30,359	)		18,829		131,071

35.

Financial Risk Management, Continued

(4)

Enforceable master netting agreement or similar agreement

Carrying amount of financial instruments recognized of which offset agreements are applicable as of December 31, 2015 are as follows:


(In millions of won)	Gross financial instruments recognized		Gross offset financial instruments recognized			Net financial instruments presented on the statements of financial position		Relevant amount not offset on the statements of financial position					Net amount
	Gross financial instruments recognized		Gross offset financial instruments recognized					Financial instruments			Cash collaterals received		Net amount
Financial assets:
Derivatives(*)	W	55,673		—			55,673		(55,673	)		—		—
Accounts receivable – trade and others		129,527		(113,003	)		16,524		—			—		16,524

	W	185,200		(113,003	)		72,197		(55,673	)		—		16,524

Financial liabilities:
Derivatives(*)	W	89,734		—			89,734		(55,673	)		—		34,061
Accounts payable – other and others		113,003		(113,003	)		—		—			—		—

	W	202,737		(113,003	)		89,734		(55,673	)		—		34,061

Carrying amount of financial instruments recognized of which offset agreements are applicable as of December 31, 2014 are as follows:


(In millions of won)	Gross financial instruments recognized		Gross offset financial instruments recognized			Net financial instruments presented on the statements of financial position		Relevant amount not offset on the statements of financial position					Net amount
	Gross financial instruments recognized		Gross offset financial instruments recognized					Financial instruments			Cash collaterals received		Net amount
Financial assets:
Derivatives(*)	W	48,057		—			48,057		(45,892	)		—		2,165
Accounts receivable – trade and others		128,794		(117,568	)		11,226		—			—		11,226

	W	176,851		(117,568	)		59,283		(45,892	)		—		13,391

Financial liabilities:
Derivatives(*)	W	45,892		—			45,892		(45,892	)		—		—
Accounts payable – others		117,568		(117,568)			—		—			—		—

	W	163,460		(117,568	)		45,892		(45,892	)		—		—

(*)	The amount is applicable by enforceable master netting agreement according to ISDA (International Swap and Derivatives Association).

36.

Transactions with Related Parties

(1)

List of related parties


Relationship		Interest rate
Ultimate Controlling Entity		SK Holdings Co., Ltd.
Joint venture		Dogus Planet, Inc. and 3 others
Associates		SK hynix Inc. and 52 others
Affiliates		The Ultimate Controlling Entity’s subsidiaries and associates, etc.

(2)

Compensation for the key management

The Parent Company considers registered directors who have substantial role and responsibility in planning, operating, and controlling of the business as key management. The considerations given to such key management for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015		2014
Salaries	W	1,971		2,600
Provision for retirement benefits		626		907

	W	2,597		3,507

Compensation for the key management includes salaries, non-monetary salaries and contributions made in relation to the pension plan.

36.

Transactions with Related Parties, Continued

(3)

Transactions with related parties for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)		2015
Scope	Company	Operating revenue and others		Operating expense and others		Acquisition of property and equipment		Loans		Loans collection
Ultimate Controlling Entity	SK Holdings Co., Ltd. (formerly, SK C&C Co., Ltd.)(*1)	W	20,260		324,078		236,414		—		—
	SK Holdings Co., Ltd. (formerly, SK Holdings Co., Ltd.)(*2,3)		1,299		212,378		117		—		—

			21,559		536,456		236,531		—		—

Associates	F&U Credit information Co., Ltd.		2,510		43,967		—		—		—
	HappyNarae Co., Ltd.		297		6,886		13,495		—		—
	SK hynix Inc.(*4)		55,949		2,384		—		—		—
	SK Wyverns Baseball Club., Ltd.		3,849		18,544		—		—		204
	KEB HanaCard Co., Ltd.		21,414		16,057		—		—		—
	Xian Tianlong Science and Technology Co., Ltd.		—		—		—		8,287		—
	Others(*5)		6,397		11,917		1,864		690		—

			90,416		99,755		15,359		8,977		204

Other	SK Engineering & Construction Co., Ltd.		15,598		27,243		240,701		—		—
	SK Networks Co., Ltd.		11,923		1,257,975		2		—		—
	SK Networks Services Co., Ltd.		10,491		94,097		6,472		—		—
	SK Telesys Co., Ltd.		397		48,900		141,870		—		—
	SK Energy Co., Ltd.		9,930		978		—		—		—
	SK Gas Co., Ltd.		3,561		2		—		—		—
	Others		29,409		71,314		194,945		—		—

			81,309		1,500,509		583,990		—		—

Total		W	193,284		2,136,720		835,880		8,977		204

(*1)	On August 1, 2015, SK C&C Co., Ltd., the Ultimate Controlling Entity’s investor using equity method, merged SK Holdings Co., Ltd., the ultimate controlling entity of the Parent Company, and changed its name to SK Holdings Co., Ltd.

(*2)	These relates to transactions occurred until July 31, 2015 before the merger with SK C&C Co., Ltd.

(*3)	Operating expense and others include W191,416 million of dividends paid by the Parent Company.

(*4)	Operating revenue and others include W43,830 million of dividends paid by SK hynix Inc. and deducted from the investment in associates.

(*5)	Operating revenue and others include W2,103 million and W457 million of dividends paid by Korea IT Fund and UniSK, respectively, and deducted from the investment in associates.

36.

Transactions with Related Parties, Continued

(3)

Transactions with related parties for the years ended December 31, 2015 and 2014 are as follows, continued:


(In millions of won)		2014
Scope	Company	Operating revenue and others		Operating expense and others		Acquisition of property and equipment		Loans		Loans collection
Ultimate Controlling Entity	SK Holdings Co., Ltd.(*1)	W	530		226,772		—		—		—
Associates	F&U Credit information Co., Ltd.		2,395		45,417		—		—		—
	HappyNarae Co., Ltd.		253		6,492		10,418		—		—
	SK hynix Inc.		12,964		3,391		—		—		—
	SK USA, Inc.		—		2,153		—		—		—
	SK Wyverns Baseball Club., Ltd.		901		22,402		—		—		204
	KEB HanaCard Co., Ltd. (*2)		39,828		5,416		—		—		—
	Others		5,852		15,150		—		45		—

			62,193		100,421		10,418		45		204

Other	SK Engineering & Construction Co., Ltd.		3,385		42,964		460,783		—		—
	SK C&C Co., Ltd.		18,309		360,842		168,778		—		—
	SK Networks Co., Ltd.		16,230		1,509,017		5,388		—		—
	SK Networks Services Co., Ltd.		13,017		106,273		2,583		—		—
	SK Telesys Co., Ltd.		494		64,038		205,538		—		—
	SK Energy Co., Ltd.		22,650		944		—		—		—
	SK Gas Co., Ltd.		10,115		—		—		—		—
	Others		25,537		38,868		12,628		—		—

			109,737		2,122,946		855,698		—		—

Total		W	172,460		2,450,139		866,116		45		204

(*1)	Operating expense and others include W191,416 million of dividends paid by the Group.

(*2)	During the year ended December 31, 2014, due to merger between Hana SK Card Co., Ltd., the Parent Company’s associate and KEB Card Co., Ltd., the Group returned 57,647,058 shares of Hana SK Card Co., Ltd., and received 67,627,587 shares of the merged company, KEB HanaCard Co., Ltd.

100

36.

Transactions with Related Parties, Continued

(4)

Account balances as of December 31, 2015 and 2014 are as follows:


(In millions of won)		2015
		Accounts receivable				Accounts payable
Scope	Company	Loans		Accounts receivable- trade, and others		Accounts payable – other, and others
Ultimate Controlling Entity	SK Holdings Co., Ltd. (formerly, SK C&C Co., Ltd.) (*)	W	—		1,836		160,133
Associates	HappyNarae Co., Ltd.		—		12		6,162
	F&U Credit information Co., Ltd.		—		66		934
	SK hynix Inc.		—		4,360		155
	SK Wyverns Baseball Club Co., Ltd.		1,017		4,502		—
	Wave City Development Co., Ltd.		1,890		38,412		—
	Daehan Kanggun BcN Co., Ltd.		22,148		—		—
	KEB HanaCard Co., Ltd.		—		1,771		9,042
	Xian Tianlong Science and Technology Co., Ltd.		8,287		—		—
	Others		—		299		964

			33,342		49,422		17,257

Other	SK Engineering & Construction Co., Ltd.		—		1,005		14,877
	SK Networks. Co., Ltd.		—		1,569		208,291
	SK Networks Services Co., Ltd.		—		—		9,414
	SK Telesys Co., Ltd.		—		140		37,491
	SK innovation co., ltd.		—		2,159		1,424
	SK Energy Co., Ltd.		—		1,681		173
	SK Gas Co., Ltd.		—		1,830		9
	Others		—		2,886		58,088

			—		11,270		329,767

Total		W	33,342		62,528		507,157

(*)	On August 1, 2015, SK C&C Co., Ltd., the Ultimate Controlling Entity’s investor using equity method, merged SK Holdings Co., Ltd., the ultimate controlling entity of the Parent Company, and changed its name to SK, Holdings Co., Ltd.

101

36.

Transactions with Related Parties, Continued

(4)

Account balances as of December 31, 2015 and 2014 are as follows, continued:


(In millions of won)		2014
		Accounts receivable				Accounts payable
Scope	Company	Loans		Accounts receivable- trade, and others		Accounts payable – other, and others
Ultimate Controlling Entity	SK Holdings Co., Ltd.	W	—		90		—
Associates	HappyNarae Co., Ltd.		—		13		2,650
	F&U Credit information Co., Ltd.		—		148		797
	SK hynix Inc.		—		2,800		2,840
	SK Wyverns Baseball Club Co., Ltd.		1,221		—		—
	Wave City Development Co., Ltd.		1,200		38,412		—
	Daehan Kanggun BcN Co., Ltd.		22,148		—		—
	KEB HanaCard Co., Ltd.		—		1,998		59
	Others		—		543		1,285

			24,569		43,914		7,631

Other	SK Engineering & Construction Co., Ltd.		—		897		27,282
	SK C&C Co., Ltd.		—		1,393		121,145
	SK Networks. Co., Ltd.		—		2,608		238,351
	SK Networks Services Co., Ltd.		—		16		2,922
	SK Telesys Co., Ltd.		—		321		3,037
	SK innovation co., ltd.		—		1,641		271
	SK Energy Co., Ltd.		—		4,781		79
	SK Gas Co., Ltd.		—		2,143		47
	Others		—		2,813		9,342

			—		16,613		402,476

Total		W	24,569		60,617		410,107

(5)	As of December 31, 2015, there are no collateral or guarantee provided by the Group to related parties nor by related parties to the Group.

(6)	M&Service Co., Ltd., a subsidiary of the Parent Company, entered into performance agreement with SK Energy Co., Ltd. and provides a blank note to SK Energy Co., Ltd., with regard to this transaction.

(7)

During the year ended December 31, 2014, the Group acquired convertible bonds with a face value of W6,000 million from Health Connect Co., Ltd. at the face value. During the year ended December 31, 2015, the Parent Company exercised the conversion right for the convertible bonds of Health Connect Co., Ltd. As a result of this transaction, investments in associates have increased by W5,900 million.

(8)	As of December 31, 2015 the Parent Company has established a right of pledge on its capital investment for Entrix Co., Ltd., a subsidiary of the Parent Company, amounting to W10,000 million.

(9)	There were additional investments in associates and joint ventures during the year ended December 31, 2015. (See Note 12)

102

37.

Commitments and Contingencies

(1)

Collateral assets and commitments

SK Broadband Co., Ltd., a subsidiary of the Parent Company, has pledged its properties as collateral for leases on buildings in the amount of W10,193 million as of December 31, 2015.

SK Broadband Co., Ltd., a subsidiary of the Parent Company, has guaranteed for employees’ borrowings relating to employee stock ownership and provided short-term financial instruments amounting to W1,219 million as collateral as of December 31, 2015.

(2)

Legal claims and litigations

As of December 31, the Group is involved in various legal claims and litigation. Provision recognized in relation to these claims and litigation is immaterial. For those legal claims and litigation for which no provision was recognized, management does not believe the Group has a present obligation for these matters, nor is it expected any of these claims or litigation will have a significant impact on the Group’s financial position or operating results in the event an outflow of resources is ultimately necessary.

(3)

Guarantee provided

PS&Marketing Corporation, a subsidiary of the Parent Company, obtained W3,000 million of payment guarantees from Shinhan Bank, in relation to handsets purchased from the Apple Computer Korea Ltd.

103

38.

Statements of Cash Flows

(1)

Adjustments for income and expenses from operating activities for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015			2014
Interest income	W	(45,884	)		(60,006	)
Dividend		(16,102	)		(13,048	)
Gain on foreign currency translation		(5,090	)		(6,277	)
Gain on disposal of long-term investment securities		(10,786	)		(13,994	)
Gain on valuation of derivatives		(1,927	)		(8,713	)
Gain on settlement of derivatives		—			(7,998	)
Gain related to investments in subsidiaries and associates, net		(786,140	)		(906,338	)
Gain on disposal of property and equipment and intangible assets		(7,140	)		(8,792	)
Gain relating to financial liabilities at fair value through profit or loss		(5,188	)		—
Other income		(7,577	)		(608	)
Interest expenses		297,662			323,910
Loss on foreign currency translation		4,750			5,079
Loss on disposal of long-term investment securities		2,599			2,694
Other finance costs		21,787			24,533
Loss on valuation of derivatives		—			10
Loss on settlement of derivatives		4,845			672
Income tax expense		519,480			454,508
Expense related to defined benefit plan		110,021			112,717
Depreciation and amortization		2,993,486			2,891,870
Bad debt expenses		60,450			45,754
Loss on disposal of property and equipment and intangible assets		21,392			32,950
Impairment loss on property and equipment and intangible assets		35,845			47,489
Loss relating to financial assets at fair value through profit or loss		—			1,352
Loss relating to financial liabilities at fair value through profit or loss		526			10,370
Bad debt for accounts receivable - other		15,323			17,943
Impairment loss on other investment securities		42,966			22,749
Other expenses		4,845			10,169

	W	3,250,143			2,978,995

104

38.

Statements of Cash Flows, Continued

(2)

Changes in assets and liabilities from operating activities for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)	2015			2014
Accounts receivable - trade	W	7,554			(168,839	)
Accounts receivable - other		(11,108	)		(52,137	)
Accrued income		116			14
Advance payments		(35,906	)		(62,873	)
Prepaid expenses		(40,464	)		(36,808	)
V.A.T. refund receivable		1,385			7,200
Inventories		(7,814	)		(171	)
Long-term accounts receivables - other		—			80
Guarantee deposits		(11,238	)		(12,699	)
Accounts payable - trade		12,442			(37,790	)
Accounts payable - other		(107,114	)		(296,875	)
Advanced receipts		6,421			20,701
Withholdings		(191,209	)		306,515
Deposits received		(9,661	)		(4,395	)
Accrued expenses		(28,845	)		(79,831	)
V.A.T. payable		3,494			2,711
Unearned revenue		(115,187	)		(140,295	)
Provisions		(30,562	)		(38,469	)
Long-term provisions		(4,447	)		29,532
Plan assets		(67,831	)		(96,847	)
Retirement benefit payment		(58,513	)		(46,531	)
Others		2,753			474

	W	(685,734	)		(707,333	)

(3)

Significant non-cash transactions for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015		2014
Transfer of construction in progress to property and equipment, and intangible assets	W	2,002,231		2,238,620
Transfer of other property and equipment and others to construction in progress		730,469		1,090,954
Accounts payable - other related to acquisition of property and equipment and intangible assets		39,973		(184,614	)

105

SK TELECOM CO., LTD.

Separate Financial Statements

December 31, 2015 and 2014

(With Independent Auditors’ Report Thereon)

Contents


	Page

Independent Auditors’ Report		1

Separate Statements of Financial Position		3

Separate Statements of Income		5

Separate Statements of Comprehensive Income		6

Separate Statements of Changes in Equity		7

Separate Statements of Cash Flows		8

Notes to the Separate Financial Statements		10

Independent Accountant’s Review Report on Internal Accounting Control System (“IACS”)		83

Report on the Assessment of Internal Accounting Control System (“IACS”)		84

Independent Auditors’ Report

Based on a report originally issued in Korean

To The Board of Directors and Shareholders

SK Telecom Co., Ltd.:

We have audited the accompanying separate financial statements of SK Telecom Co., Ltd. (the “Company”) which comprise the separate statements of financial position as at December 31, 2015 and 2014, the separate statements of income, comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Separate Financial Statements

Management is responsible for the preparation and fair presentation of these separate financial statements in accordance with Korean International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these separate financial statements based on our audits. We conducted our audits in accordance with Korean Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the separate financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the separate financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the separate financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the separate financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the separate financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the separate financial statements present fairly, in all material respects, the separate financial position of the Company as at December 31, 2015 and 2014 and of its separate financial performance and its separate cash flows for the years then ended in accordance with Korean International Financial Reporting Standards.

Other Matter

The procedures and practices utilized in the Republic of Korea to audit such separate financial statements may differ from those generally accepted and applied in other countries.

KPMG Samjong Accounting Corp.

Seoul, Korea

February 23, 2016

This report is effective as of February 23, 2016, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

SK TELECOM CO., LTD.

Separate Statements of Financial Position

As of December 31, 2015 and 2014


(In millions of won)	*Note*		December 31, 2015		December 31, 2014

Assets
Current Assets:
Cash and cash equivalents		29,30	W	431,666		248,311
Short-term financial instruments		5,29,30		121,500		143,000
Short-term investment securities		7,29,30		92,262		197,161
Accounts receivable - trade, net		6,29,30,31		1,528,751		1,559,281
Short-term loans, net		6,29,30,31		47,741		67,989
Accounts receivable - other, net		6,29,30,31		264,741		305,990
Prepaid expenses				92,220		86,070
Inventories, net				45,991		23,694
Advanced payments and other		6,29,30		88,657		58,417

Total Current Assets				2,713,529		2,689,913


Non-Current Assets:
Long-term financial instruments		5,29,30		10,062		69
Long-term investment securities		7,29,30		726,505		608,797
Investments in subsidiaries and associates		8		8,810,548		8,181,769
Property and equipment, net		9,31		7,442,280		7,705,906
Goodwill		10		1,306,236		1,306,236
Intangible assets, net		11		1,766,069		1,928,169
Long-term loans, net		6,29,30,31		35,080		38,457
Long-term prepaid expenses				29,802		28,551
Guarantee deposits		5,6,29,30,31		166,656		156,807
Long-term derivative financial assets		16,29,30		139,923		67,728
Other non-current assets				250		60

Total Non-Current Assets				20,433,411		20,022,549


Total Assets			W	23,146,940		22,712,462

See accompanying notes to the separate financial statements.

SK TELECOM CO., LTD.

Separate Statements of Financial Position, Continued

As of December 31, 2015 and 2014


(In millions of won)	*Note*		December 31, 2015			December 31, 2014

Liabilities and Equity
Current Liabilities:
Short-term borrowings		12,29,30	W	230,000			200,000
Current installments of long-term debt, net		12,29,30		592,637			211,863
Current installments of long-term payables – other		13,29,30		120,185			189,389
Accounts payable – other		29,30,31		927,170			1,086,485
Withholdings		29,30		607,690			801,119
Accrued expenses		29,30		540,770			615,488
Income tax payable		26		375,189			91,315
Unearned revenue				10,014			92,783
Provisions		14		37,551			50,456
Advanced receipts				50,100			39,148

Total Current Liabilities				3,491,306			3,378,046


Non-Current Liabilities:
Debentures, excluding current installments, net		12,29,30		5,033,495			4,655,137
Long-term borrowings, excluding current installments		12,29,30		72,554			80,147
Long-term payables - other		13,29,30		550,964			657,001
Long-term unearned revenue				2,768			19,544
Defined benefit liabilities		15		4,006			15,555
Long-term derivative financial liabilities		16,29,30		89,296			130,889
Long-term provisions		14		20,055			27,676
Deferred tax liabilities		26		56,274			144,876
Other non-current liabilities		29,30		46,762			61,370

Total Non-Current Liabilities				5,876,174			5,792,195


Total Liabilities				9,367,480			9,170,241


Equity
Share capital		1,17		44,639			44,639
Capital surplus and other capital adjustments		17,18,19		369,446			433,894
Retained earnings		20,21		13,418,603			12,996,790
Reserves		22		(53,228	)		66,898

Total Equity				13,779,460			13,542,221


Total Liabilities and Equity			W	23,146,940			22,712,462

See accompanying notes to the separate financial statements.

SK TELECOM CO., LTD.

Separate Statements of Income

For the years ended December 31, 2015 and 2014


(In millions of won except for per share data)	*Note*		2015			2014

Operating revenue:		31
Revenue			W	12,556,979			13,012,644


Operating expense:		31
Labor cost				694,666			588,635
Commissions paid				5,102,723			5,591,245
Depreciation and amortization				2,155,531			2,095,702
Network interconnection				720,879			771,786
Leased line				358,031			370,549
Advertising				175,776			213,605
Rent				403,317			377,112
Cost of products that have been resold				462,256			457,049
Other operating expenses		23		825,024			809,801

				10,898,203			11,275,484


Operating income				1,658,776			1,737,160

Finance income		25		246,394			82,276
Finance costs		25		(314,191	)		(293,338	)
Other non-operating income		24		15,277			37,422
Other non-operating expenses		24		(132,993	)		(184,177	)
Loss relating to investments in subsidiaries and associates, net		8		(3,819	)		(57,593	)

Profit before income tax				1,469,444			1,321,750

Income tax expense		26		362,683			293,209


Profit for the year			W	1,106,761			1,028,541


Earnings per share		27
Basic earnings per share (in won)			W	15,233			14,262

Diluted earnings per share (in won)			W	15,233			14,262

See accompanying notes to the separate financial statements.

SK TELECOM CO., LTD.

Separate Statements of Comprehensive Income

For the years ended December 31, 2015 and 2014

(In millions of won)

Note

2015

2014

Profit for the year

1,106,761

1,028,541

Other comprehensive income (loss)

Items that will never be reclassified to profit or loss, net of taxes:

Remeasurement of defined benefit liabilities

386

(13,808

)

Items that are or may be reclassified subsequently to profit or loss, net of taxes:

Net change in unrealized fair value of available-for-sale financial assets

(121,528

)

(66,103

)

Net change in unrealized fair value of derivatives

16,22

1,402

(38,175

)

Other comprehensive loss for the year

(119,740

)

(118,086

)

Total comprehensive income

987,021

910,455

See accompanying notes to the separate financial statements.

SK TELECOM CO., LTD.

Separate Statements of Changes in Equity

For the years ended December 31, 2015 and 2014


(In millions of won)
			Capital surplus and other capital adjustments
	Share capital		Paid-in surplus		Treasury stock			Loss on disposal of treasury stock			Hybrid bond		Other			Retained earnings			Reserves			Total equity
Balance, January 1, 2014	W	44,639		2,915,887		(2,139,683	)		(18,087	)		398,518		(722,741	)		12,665,699			171,176			13,315,408
Cash dividends		—		—		—			—			—		—			(666,802	)		—			(666,802	)
Interest on hybrid bonds		—		—		—			—			—		—			(16,840	)		—			(16,840	)
Total comprehensive income
Profit for the year		—		—		—			—			—		—			1,028,541			—			1,028,541
Other comprehensive loss		—		—		—			—			—		—			(13,808	)		(104,278	)		(118,086	)

		—		—		—			—			—		—			1,014,733			(104,278	)		910,455

Balance, December 31, 2014	W	44,639		2,915,887		(2,139,683	)		(18,087	)		398,518		(722,741	)		12,996,790			66,898			13,542,221


Balance, January 1, 2015	W	44,639		2,915,887		(2,139,683	)		(18,087	)		398,518		(722,741	)		12,996,790			66,898			13,542,221
Cash dividends		—		—		—			—			—		—			(668,494	)		—			(668,494	)
Interest on hybrid bonds		—		—		—			—			—		—			(16,840	)		—			(16,840	)
Acquisition of treasury stock		—		—		(490,192	)		—			—		—			—			—			(490,192	)
Disposal of treasury stock		—		—		369,249			18,087			—		38,408			—			—			425,744
Total comprehensive income
Profit for the year		—		—		—			—			—		—			1,106,761			—			1,106,761
Other comprehensive income (loss)		—		—		—			—			—		—			386			(120,126	)		(119,740	)

		—		—		—			—			—		—			1,107,147			(120,126	)		987,021

Balance, December 31, 2015	W	44,639		2,915,887		(2,260,626	)		—			398,518		(684,333	)		13,418,603			(53,228	)		13,779,460

See accompanying notes to the separate financial statements.

SK TELECOM CO., LTD.

Separate Statements of Cash Flows

For the years ended December 31, 2015 and 2014


(In millions of won)	*Note*		2015			2014

Cash flows from operating activities:
Cash generated from operating activities
Profit for the year			W	1,106,761			1,028,541
Adjustments for income and expenses		33		2,811,718			2,886,389
Changes in assets and liabilities related to operating activities		33		(699,106	)		(334,898	)

Sub-total				3,219,373			3,580,032
Interest received				18,786			20,954
Dividends received				59,462			13,048
Interest paid				(221,309	)		(224,119	)
Income tax paid				(129,183	)		(168,482	)

Net cash provided by operating activities				2,947,129			3,221,433


Cash flows from investing activities:
Cash inflows from investing activities:
Decrease in short-term investment securities, net				105,158			—
Decrease in short-term financial instruments, net				21,500			30,500
Collection of short-term loans				387,922			197,925
Decrease in long-term financial instruments				7			2,522
Proceeds from disposals of long-term investment securities				22,106			54,218
Proceeds from disposals of investments in subsidiaries and associates				185,557			—
Proceeds from disposals of property and equipment				23,372			25,677
Proceeds from disposals of intangible assets				343			1,127
Proceeds from disposals of assets held for sale				—			3,667
Collection of long-term loans				—			3,660
Proceeds from disposals of other non-current assets, net				—			93

Sub-total				745,965			319,389
Cash outflows for investing activities:
Increase in short-term investment securities, net				—			(94,802	)
Increase in short-term loans				(364,687	)		(195,700	)
Increase in long-term financial instruments				(10,000	)		(2,522	)
Acquisitions of long-term investment securities				(296,254	)		(28,801	)
Acquisitions of investments in subsidiaries and associates				(306,382	)		(210,060	)
Acquisitions of property and equipment				(1,752,804	)		(2,319,016	)
Acquisitions of intangible assets				(77,830	)		(91,060	)
Increase in long-term loans				—			(45	)
Increase in other non-current assets, net				(190	)		—

Sub-total				(2,808,147	)		(2,942,006	)

Net cash used in investing activities			W	(2,062,182	)		(2,622,617	)

See accompanying notes to the separate financial statements.


(In millions of won)	2015			2014

Cash flows from financing activities:
Cash inflows from financing activities:
Increase in short-term borrowings, net	W	30,000			—
Proceeds from long-term borrowings		—			3,552
Proceeds from issuance of debentures		897,029			797,364
Cash inflows from settlement of derivatives		175			119

Sub-total		927,204			801,035
Cash outflows for financing activities:
Decrease in short-term borrowings, net		—			(60,000	)
Repayments of long-term borrowings		(12,814	)		(12,814	)
Repayments of long-term account payables - other		(190,134	)		(207,668	)
Repayments of debentures		(250,000	)		(629,940	)
Payments of cash dividends		(668,494	)		(666,802	)
Payments of interest on hybrid bond		(16,840	)		(16,840	)
Acquisitions of treasury stock		(490,192	)		—
Cash outflows from settlement of derivatives		(150	)		(5,882	)

Sub-total		(1,628,624	)		(1,599,946	)

Net cash used in financing activities		(701,420	)		(798,911	)


Net increase (decrease) in cash and cash equivalents		183,527			(200,095	)
Cash and cash equivalents at beginning of the year		248,311			448,459
Effects of exchange rate changes on cash and cash equivalents		(172	)		(53	)

Cash and cash equivalents at end of the year	W	431,666			248,311

See accompanying notes to the separate financial statements.

1.	Reporting Entity

SK Telecom Co., Ltd. (“the Company”) was incorporated in March 1984 under the laws of the Republic of Korea (“Korea”) to engage in providing cellular telephone communication services in Korea. The Company mainly provides wireless telecommunications in Korea. The Company’s common shares and depositary receipts (DRs) are listed on the Stock Market of Korea Exchange, the New York Stock Exchange and the London Stock Exchange. As of December 31, 2015, the Company’s total issued shares are held by the following:


	Number of shares		Percentage of total shares issued (%)
SK Holdings Co., Ltd.(*)		20,363,452		25.22
National Pension Service		6,963,591		8.63
Institutional investors and other minority stockholders		43,282,117		53.60
Treasury stock		10,136,551		12.55

Total number of shares		80,745,711		100.00

(*)	During the year ended December 31, 2015, SK C&C Co., Ltd., the ultimate controlling entity’s investee accounted using equity method, merged SK Holdings Co., Ltd., the ultimate controlling entity of the Company, and changed its name to SK, Holdings Co., Ltd.

2.	Basis of Presentation

(1)

Statement of compliance

These separate financial statements were prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in the Act on External Audits of Stock Companies in the Republic of Korea.

These financial statements are separate financial statements prepared in accordance with K-IFRS No.1027, ‘Separate Financial Statements’ presented by a parent, an investor with joint control of, of significant influence over, an investee, in which the investments are accounted for at cost.

The separate financial statements were authorized for issuance by the Board of Directors on February 3, 2016, which will be submitted for approval at the shareholders’ meeting to be held on March 18, 2016.

(2)

Basis of measurement

The separate financial statements have been prepared on the historical cost basis, except for the following material items in the separate statement of financial position:

•

derivative financial instruments are measured at fair value

•

financial instruments at fair value through profit or loss are measured at fair value

•

available-for-sale financial assets are measured at fair value

•

liabilities for defined benefit plans are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets

(3)

Functional and presentation currency

These separate financial statements are presented in Korean won, which is the Company’s functional currency and the currency of the primary economic environment in which the Company operates.

2.	Basis of Presentation, Continued

(4)

Use of estimates and judgments

The preparation of the separate financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period prospectively.

1) Critical judgments

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in Note 4 for the following areas: revenue and classification of lease.

2) Assumptions and estimation uncertainties

3) Fair value measurement

A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Company has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the finance executive.

When measuring the fair value of an asset or a liability, the Company uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

•

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

•

Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

•

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

2.	Basis of Presentation, Continued

(4)

Use of estimates and judgments, continued

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Information about assumptions used for fair value measurements are included in Note 30.

(5)

Common control transactions

SK Holdings Co., Ltd. (“the Ultimate Controlling Entity”) is the Ultimate Controlling Entity of the Company because it controls the Company. Accordingly, gains and losses from business acquisitions and dispositions involving entities that are under the control of the Ultimate Controlling Entity are accounted for as common control transactions within equity.

3.	Changes in Accounting Policies

Except for the changes below, the Company has consistently applied the accounting policies set out in Note 4 to all periods presented in these financial statements.

The Company has adopted the following amendments to standards with a date of initial application of January 1, 2015.

1) K-IFRS 1019 ‘Employee Benefits’ – Employee contributions

There is no material impact of the application of this amendment on the Company’s financial statements.

4.	Significant Accounting Policies

The significant accounting policies applied by the Company in preparation of its separate financial statements in accordance with K-IFRSs are included below. The accounting policies set out below have been applied consistently to all periods presented in these separate financial statements except for those as described in Note 3.

(1)

Operating segments

The Company presents disclosures relating to operating segments on its separate financial statements in accordance with K-IFRS No. 1108, ‘Operating Segments’ and such disclosures are not separately disclosed on these separate financial statements.

(2)

Investments in subsidiaries and associates

These separate financial statements are prepared and presented in accordance with K-IFRS No. 1027, ‘Separate Financial Statements’. The Company applied the cost method to investments in subsidiaries and associates in accordance with K-IFRS No. 1027. Dividends from a subsidiary or associate are recognized in profit or loss when the right to receive the dividend is established.

(3)

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Company in the management of its short-term commitments.

(4)

Inventories

Inventories are stated at the acquisition cost using the average method. During the period, a perpetual inventory systems is used to value inventories, which is adjusted to the physical inventory counts performed at the period end. When the net realizable value of inventories is less than the acquisition cost, the carrying amount is reduced to the net realizable value and any difference is charged to current operations as operating expenses. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

4.	Significant Accounting Policies, Continued

(5)

Non-derivative financial assets

The Company recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The Company recognizes financial assets in the separate statement of financial position when the Company becomes a party to the contractual provisions of the instrument.

(i)

Financial assets at fair value through profit or loss

(ii)

Held-to-maturity investments

A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Company has the positive intention and ability to hold to maturity, are classified as held-to-maturity investments. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest rate method.

(iii)

Loans and receivables

(iv)

Available-for-sale financial assets

4.	Significant Accounting Policies, Continued

(5)

Non-derivative financial assets, Continued

(v)

De-recognition of financial assets

The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability. If the Company retains substantially all the risks and rewards of ownership of the transferred financial assets, the Company continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

(vi)

Offsetting between financial assets and financial liabilities

Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position only when the Company currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

(6)

Derivative financial instruments, including hedge accounting

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

(i)

Hedge accounting

The Company holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk. The Company designated derivatives as hedging instruments to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).

On initial designation of the hedge, the Company formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship

Fair value hedge

Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the statement of income. The Company discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting. Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued.

4.	Significant Accounting Policies, Continued

(6)

Derivative financial instruments, including hedge accounting, Continued

Cash flow hedge

(ii)

Separable embedded derivatives

Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria have been met:

(a)

the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract;

(b)

a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and

(c)

the hybrid instrument is not measured at fair value with changes in fair value recognized in profit or loss.

Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

(iii)

Other derivative financial instruments

Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.

4.	Significant Accounting Policies, Continued

(7)

Impairment of financial assets

Objective evidence that a financial asset is impaired includes following loss events:

•

significant financial difficulty of the issuer or obligor;

•

a breach of contract, such as default or delinquency in interest or principal payments;

•

the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

•

it becoming probable that the borrower will enter bankruptcy or other financial reorganization;

•

the disappearance of an active market for that financial asset because of financial difficulties; or

•

In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

If financial assets have objective evidence that they are impaired, impairment losses should be measured and recognized.

(i)

Financial assets measured at amortized cost

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. If it is not practicable to obtain the instrument’s estimated future cash flows, impairment losses would be measured by using prices from any observable current market transactions. The Company can recognize impairment losses directly or establish a provision to cover impairment losses. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss shall be reversed either directly or by adjusting an allowance account.

4.	Significant Accounting Policies, Continued

(7)

Impairment of financial assets, Continued

(ii)

Financial assets carried at cost

(iii)

Available-for-sale financial assets

(8)

Property, plant and equipment

Subsequent to initial recognition, an item of property, plant and equipment is carried at its cost less any accumulated depreciation and any accumulated impairment losses.

4.	Significant Accounting Policies, Continued

(8)

Property, plant and equipment, Continued

Subsequent costs are recognized in the carrying amount of property, plant and equipment at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

The estimated useful lives of the Company’s property, plant and equipment are as follows:


		Useful lives (years)

Buildings and structures		15, 30
Machinery		3 ~ 6
Other property, plant and equipment (“Other PP&E”)		4 ~ 10

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

(9)

Borrowing costs

The Company capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets and inventories that are manufactured or otherwise produced over a short period of time are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.

To the extent that the Company borrows funds specifically for the purpose of obtaining a qualifying asset, the Company determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that the Company borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Company shall determine the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to the borrowings of the Company that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Company capitalizes during a period shall not exceed the amount of borrowing costs incurred during that period.

4.	Significant Accounting Policies, Continued

(10)

Intangible assets

Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.

The estimated useful lives of the Company’s intangible assets are as follows:


		Useful lives (years)

Frequency use rights		6.3 ~ 13.1
Land use rights		5
Industrial rights		5, 10
Development costs		5
Facility usage rights		10, 20
Other		3 ~ 20

Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.

4.	Significant Accounting Policies, Continued

(11)

Government grants

Government grants are not recognized unless there is reasonable assurance that the Company will comply with the grant’s conditions and that the grant will be received.

(i)

Grants related to assets

Government grants whose primary condition is that the Company purchase, construct or otherwise acquire long-term assets are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduction to depreciation expense.

(ii)

Grants related to income

Government grants which are intended to compensate the Company for expenses incurred are deducted from the related expenses.

(12)

Impairment of non-financial assets

The carrying amounts of the Company’s non-financial assets, other than assets arising from employee benefits, inventories, deferred tax assets and non-current assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

The Company estimates the recoverable amount of an individual asset, if it is impossible to measure the individual recoverable amount of an asset, then the Company estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a pre-tax discount rate that reflect current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.

An impairment loss is recognized in profit or loss if the carrying amount of an asset or a CGU exceeds its recoverable amount.

4.	Significant Accounting Policies, Continued

(13)

Leases

The Company classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Company assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

(i)

Finance leases

At the commencement of the lease term, the Company recognizes as finance assets and finance liabilities in its separate statements of financial position, the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset.

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life. The Company reviews to determine whether the leased asset may be impaired.

(ii)

Operating leases

(iii)

Determining whether an arrangement contains a lease

At inception or reassessment of the arrangement, the Company separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Company concludes for a financial lease that it is impracticable to separate the payments reliably, the Company recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability shall be reduced as payments are made and an imputed finance charge on the liability recognized using the purchaser’s incremental borrowing rate of interest.

4.	Significant Accounting Policies, Continued

(14)

Non-current assets held for sale

Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. In order to be classified as held for sale, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. The assets or disposal group that are classified as non-current assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell. The Company recognizes an impairment loss for any initial or subsequent write-down of an asset (or disposal group) to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized in accordance with K-IFRS No. 1036, ‘Impairment of Assets’.

A non-current asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).

(15)

Non-derivative financial liabilities

The Company classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Company recognizes financial liabilities in the separate statement of financial position when the Company becomes a party to the contractual provisions of the financial liability.

(i)

Financial liabilities at fair value through profit or loss

(ii)

Other financial liabilities

The Company derecognizes a financial liability from the separate statements of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

4.	Significant Accounting Policies, Continued

(16)

Employee benefits

(i)

Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Company during an accounting period, the Company recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

(ii)

Other long-term employee benefits

(iii)

Retirement benefits: defined contribution plans

When an employee has rendered service to the Company during a period, the Company recognizes the contribution payable to a defined contribution plan in exchange for that service as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, the Company recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.

(iv)

Retirement benefits: defined benefit plans

As of the end of reporting period, defined benefits liabilities relating to defined benefit plans are recognized as present value of defined benefit obligations net of fair value of plan assets.

The calculation is performed annually by an independent actuary using the projected unit credit method. When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Company recognizes an asset, to the extent of the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.

Remeasurements of the net defined benefit liability comprise of actuarial gains and losses, the return on plan assets excluding amounts included in net interest on the net defined benefit liability, and any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and recognized in other comprehensive income. The Company determines net interests on net defined benefit liability (asset) by multiplying discount rate determined at the beginning of the annual reporting period and considers changes in net defined benefit liability (asset) from contributions and benefit payments. Net interest costs and other costs relating to the defined benefit plan are recognized through profit or loss.

When the plan amendment or curtailment occurs, gains or losses on amendment or curtailment in benefits for the past service provided are recognized through profit or loss. The Company recognizes gain or loss on a settlement when the settlement of defined benefit plan occurs.

4.	Significant Accounting Policies, Continued

(v)

Termination benefits

The Company recognizes a liability and expense for termination benefits at the earlier of the period when the Company can no longer withdraw the offer of those benefits and the period when the Company recognizes costs for a restructuring that involves the payment of termination benefits. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value.

(17)

Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

A provision shall be used only for expenditures for which the provision was originally recognized.

(18)

Foreign currencies

Transactions in foreign currencies are translated to the respective functional currencies of Company entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the reporting date’s exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.

4.	Significant Accounting Policies, Continued

(19)

Equity capital

When the Company repurchases its share capital, the amount of the consideration paid is recognized as a deduction from equity and classified as treasury shares. The profits or losses from the purchase, disposal, reissue, or retirement of treasury shares are not recognized as current profit or loss. If the Company acquires and retains treasury shares, the consideration paid or received is directly recognized in equity.

(20)

Hybrid bond

The Company recognizes a financial instrument issued by the Company as an equity instrument if it does not include contractual obligation to deliver financial assets including cash to the counter party.

(21)

Revenue

Revenue from the sale of goods, rendering of services or use of assets is measured at the fair value of the consideration received or receivable. Returns, trade discounts and volume rebates, and are recognized as a reduction of revenue.

(i)

Services

(ii)

Goods sold

When two or more revenue generating activities or deliverables are sold under a single arrangement, each deliverable that is considered to be a separate unit of account is accounted for separately. The allocation of consideration from a revenue arrangement to its separate units of account is based on the relative fair values of each unit.

4.	Significant Accounting Policies, Continued

(21)

Revenue, Continued

(iii)

Customer loyalty programmes

For customer loyalty programmes, the fair value of the consideration received or receivable in respect of the initial sale is allocated between the award credits and the other components of the sale. The amount allocated to the award credits is estimated by reference to the fair value of the services to be provided with respect to the redeemable award credits. The fair value of the services to be provided with respect to the redeemable portion of the award credits granted to the customers in accordance with customer loyalty programmes is estimated taking into account the expected redemption rate and timing of the expected redemption. Considerations allocated to the award credits are deferred and revenue is recognized when the award credits are recovered and the Company performs its obligation to provide the service. The amount of revenue recognized is based on the relative size of the total award credits that are expected to be redeemed and the redeemed award credits in exchange for services.

(22)

Finance income and finance costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets, changes in the fair value of financial assets at fair value through profit or loss, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest method. Dividend income is recognized in profit or loss on the date that the Company’s right to receive payment is established.

4.	Significant Accounting Policies, Continued

(23)

Income taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to items recognized directly in equity or in other comprehensive income.

(i)

Current tax

(ii)

Deferred tax

Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The Company recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries and associates, except to the extent that the Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Company recognizes a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries and associates, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis. Income tax expense in relation to dividend payments is recognized when liabilities relating to the dividend payments are recognized.

4.	Significant Accounting Policies, Continued

(24)

Earnings per share

The Company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

(25)

New standards and interpretations not yet adopted

The following new standards and amendments to existing standards have been published and are mandatory for the Company for annual periods beginning on or after January 1, 2016, and the Company has not early adopted them.

As of December 31, 2015, management is in the process of evaluating the impact of applying these standards on its financial position and results of operations.

K-IFRS 1109 ‘Financial Instruments’

K-IFRS 1115 ‘Revenue from Contracts with Customers’

K-IFRS 1115, published in December 2015, establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including K-IFRS 1018, Revenue, K-IFRS 1011 Construction Contracts and K-IFRS 2113 Customer Loyalty Programmes. K-IFRS 1115 is effective for annual reporting periods beginning on or after January 1, 2018, with early adoption permitted.

K-IFRS 1027 ‘Separate Financial Statements’

Amendments to K-IFRS 1027 introduced equity accounting as a third option in the entity’s separate financial statements, in addition to the existing cost and equity method options. This amendment is effective for annual periods beginning on or after January 1, 2016, with early adoption permitted.

5.	Restricted Deposits

Deposits which are restricted in use as of December 31, 2015 and 2014 are summarized as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Short-term financial instruments	W
Charitable fund(*)		79,000		85,500
Long-term financial instruments
Charitable fund(*)		10,000		—
Other		62		69
Guarantee deposits		280		280

	W	89,342		85,849

(*)	The Company established a trust fund for charitable purposes. Profits from the fund are donated to charitable institutions. As of December 31, 2015, the funds cannot be withdrawn.

6.	Trade and Other Receivables

(1)

Details of trade and other receivables as of December 31, 2015 and 2014 are as follows:


(In millions of won)	December 31, 2015
	Gross amount		Allowances for impairment			Carrying amount
Current assets:
Accounts receivable - trade	W	1,654,575		(125,824	)		1,528,751
Short-term loans		48,223		(482	)		47,741
Accounts receivable - other		323,870		(59,129	)		264,741
Accrued income		7,505		—			7,505

		2,034,173		(185,435	)		1,848,738
Non-current assets:
Long-term loans		54,322		(19,242	)		35,080
Guarantee deposits		166,656		—			166,656

		220,978		(19,242	)		201,736

	W	2,255,151		(204,677	)		2,050,474


(In millions of won)	December 31, 2014
	Gross amount		Allowances for impairment			Carrying amount
Current assets:
Accounts receivable - trade	W	1,665,941		(106,660	)		1,559,281
Short-term loans		68,676		(687	)		67,989
Accounts receivable - other		366,821		(60,831	)		305,990
Accrued income		6,354		—			6,354

		2,107,792		(168,178	)		1,939,614
Non-current assets:
Long-term loans		60,130		(21,673	)		38,457
Guarantee deposits		156,807		—			156,807

		216,937		(21,673	)		195,264

	W	2,324,729		(189,851	)		2,134,878

6.	Trade and Other Receivables, Continued

(2)

The movement in allowance for doubtful accounts of trade and other receivables for the years ended December 31, 2015 and 2014 were as follows:


(In millions of won)
	2015			2014
Balance at January 1	W	189,851			174,480
Increase of bad debt allowances		53,043			43,186
Write-offs		(58,003	)		(49,926	)
Collection of receivables previously written-off		19,786			22,111

Balance at December 31	W	204,677			189,851

(3)

Details of overdue but not impaired, and impaired trade and other receivable as of December 31, 2015 and 2014 are as follows:


(In millions of won)	December 31, 2015						December 31, 2014
	Accounts receivable - trade			Other receivables			Accounts receivable - trade			Other receivables
Neither overdue nor impaired	W	1,188,225			488,244			1,182,627			553,014
Overdue but not impaired		45,146			—			47,663			—
Impaired		421,204			112,332			435,651			105,774

		1,654,575			600,576			1,665,941			658,788
Allowances for doubtful accounts		(125,824	)		(78,853	)		(106,660	)		(83,191	)

	W	1,528,751			521,723			1,559,281			575,597

The Company establishes allowances for doubtful accounts based on the likelihood of recoverability of trade and other receivables based on their aging at the end of the period, past customer default experience, customer credit status, and economic and industrial factors.

(4)

The aging of overdue but not impaired accounts receivable as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Less than 1 month	W	5,550		12,045
1 ~ 3 months		9,507		15,222
3 ~ 6 months		6,583		8,591
More than 6 months		23,506		11,805

	W	45,146		47,663

7.	Investment Securities

(1)

Details of short-term investment securities as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Beneficiary certificates(*)	W	92,262		197,003
Current portion of long-term investment securities		—		158

	W	92,262		197,161

(*)	The interest distributions arising from beneficiary certificates as of December 31, 2015, were accounted for as accrued income.

(2)

Details of long-term investment securities as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Equity securities:
Marketable equity securities	W	579,282		490,741
Unlisted equity securities(*1)		72,461		28,696
Equity investments(*2)		65,659		73,054

		717,402		592,491
Debt securities:
Public bonds(*3)		—		158
Investment bonds(*4)		9,103		16,306

		9,103		16,464

Total		726,505		608,955
Less current portion of long-term investment securities		—		(158	)

Long-term investment securities	W	726,505		608,797

(*1)	Unlisted equity securities whose fair value cannot be measured reliably are recorded at cost.

(*2)	Equity investments are recorded at cost.

(*3)	Details of maturity for the public bonds as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Less than 1 year	W	—		158

(*4)

During the year ended December 31, 2015, the Company exercised the conversion right for the convertible bonds of Health Connect Co., Ltd., which were classified as available-for-sale financial assets. Health Connect Co., Ltd. has been classified as investments in associates (W5,900 million) as the Company obtained significant influence over the investee. As a result of this transaction, investments in associates have increased by W5,900 million and the remaining convertible bonds of W560 million was fully redeemed. Also, the Company classified the convertible bonds of IRIVER LIMITED, amounting to W7,073 million, as financial assets at fair value through profit or loss and the difference between carrying amount and fair value was accounted for as gain or loss relating to financial assets at fair value through profit or loss.

8.	Investments in Subsidiaries and Associates

(1)

Investments in subsidiaries and associates as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Investments in subsidiaries	W	4,469,997		3,614,750
Investments in associates		4,340,551		4,567,019

	W	8,810,548		8,181,769

(2)

Details of investments in subsidiaries as of December 31, 2015 and 2014 are as follows:


(In millions of won)	December 31, 2015						December 31, 2014
	Number of shares		Ownership (%)		Carrying amount		Carrying amount
SK Telink Co., Ltd.		1,082,272		83.5	W	144,740		144,740
SK Broadband Co., Ltd.(*1,3,6)		298,460,212		100.0		1,870,582		1,242,247
SK Communications Co., Ltd.(*2)		28,029,945		64.5		151,934		—
PS&Marketing Corporation		66,000,000		100.0		313,934		313,934
Service Ace Co., Ltd.		4,385,400		100.0		21,927		21,927
Service Top Co., Ltd.		2,856,200		100.0		14,281		14,281
Network O&S Co., Ltd.		3,000,000		100.0		15,000		15,000
SK Planet Co., Ltd.(*2,3,4)		71,209,687		100.0		1,520,206		1,538,020
Neosnetworks Co., Ltd.(*5)		408,435		83.9		63,967		23,968
IRIVER LIMITED		15,202,039		49.0		54,503		54,503
SK Telecom China Holdings Co., Ltd.		—		100.0		38,652		29,116
SKT Vietnam PTE. Ltd.		180,476,700		73.3		2,364		2,364
SKT Americas, Inc.		122		100.0		93,319		83,871
YTK Investment Ltd.		—		100.0		18,693		27,945
Atlas Investment		—		100.0		78,618		77,050
SK Global Healthcare Business Group Ltd.		—		100.0		39,649		25,784
Entrix Co., Ltd.(*4)		4,157,000		100.0		27,628		—

					W	4,469,997		3,614,750

(*1)

On March 20, 2015, the Board of Directors of the Company decided to grant 0.0168936 share of its treasury stock in exchange for 1 share of SK Broadband Co., Ltd., a subsidiary of the Company, to the shareholders of SK Broadband Co., Ltd. as of June 9, 2015. After the stock exchange, SK Broadband Co., Ltd. became a wholly-owned subsidiary of the Company.

(*2)

On September 24, 2015, the board of directors of SK Planet Co., Ltd., a subsidiary of the Company, resolved to distribute 26,523,815 shares of SK Communications Co., Ltd., a subsidiary of SK Planet Co., Ltd. to the Company as dividend in kind and to dispose of 1,506,130 shares of SK Communication Co., Ltd. to the Company. For the year ended December 31, 2015, the Company recognized dividend income amounting to W140,834 million based on carrying amount for 26,523,815 shares of separate financial statements of SK Planet Co., Ltd. and acquired 1,506,130 shares amounting to W11,100 million from SK Planet Co., Ltd.

8.	Investments in Subsidiaries and Associates, Continued

(2)

Details of investments in subsidiaries as of December 31, 2015 and 2014 are as follows, Continued:

(*3)

During the year ended December 31, 2015, hoppin service division of SK Planet Co., Ltd., a subsidiary of the Company, was spun off from SK Planet Co., Ltd. and was merged into SK Broadband, Co., Ltd. Consequently, the Company exchanged 417,630 shares of SK Planet Co., Ltd. for 2,501,125 shares of SK broadband Co., Ltd.

(*4)

During the year ended December 31, 2015, Entrix Co., Ltd., providing cloud streaming service, was established by spin off from SK Planet Co, Ltd., a subsidiary of the Company. The Company exchanged 1,300,000 shares of SK Planet Co., Ltd. for 1,300,000 shares of Entrix Co., Ltd. and additionally acquired 2,857,000 shares by participating in paid in capital increase.

(*5)	The Company newly acquired 50,377 and 326,748 shares of Neosnetworks Co., Ltd. by participating in the capital increase and capital increase without consideration respectively during the year ended December 31, 2015.

(*6)

On November 2, 2015, the board of directors of the Company resolved to acquire 30% of the issued and outstanding common shares of CJ Hello Vision Co, Ltd. (“CJ Hello Vision”) from CJ O Shopping Co., Ltd. (“CJ O Shopping”), and the Company entered into a share purchase agreement with CJ O Shopping. On April 4, 2016 (“the transaction closing date”), the Company will acquire 23,234,060 shares of CJ Hello Vision. As of December 31, 2015, the approval of relevant government agencies for the share purchase has not been completed yet, and the transaction closing date is subject to change depending on the status of the pre-requirements including the approval of government agencies. According to the share purchase agreement, the Company will grant put option (the exercise date: after 2 years from the date which is 3 years from the transaction closing date) to CJ O Shopping and be granted call option (the exercise date: after 5 years from the transaction closing date) on CJ O Shopping’s remaining shares in CJ Hello Vision. On November 2, 2015, the board of directors of SK Broadband Co., Ltd. (“SK Broadband”), a subsidiary of the Company, held a meeting to resolve the merger of SK Broadband into CJ Hello Vision, and SK Broadband entered into a merger agreement with CJ Hello Vision. Under the agreement, SK Broadband will be merged into CJ Hello Vision on April 4, 2016 (the registered date of the merger). As of December 31, 2015, the approval of relevant government agencies for the merger has not been completed yet, and the transaction closing date is subject to change depending on the status of the pre-requirements including the approval of government agencies.

8.	Investments in Subsidiaries and Associates, Continued

(3)

Details of investments in associates as of December 31, 2015 and 2014 are as follows:


(In millions of won)	December 31, 2015						December 31, 2014
	Number of shares		Ownership percentage (%)		Carrying amount		Carrying amount
SK China Company Ltd.(*1)		720,000		9.6	W	47,830		47,830
HappyNarae Co., Ltd.		680,000		42.5		12,250		12,250
Korea IT Fund(*2)		190		63.3		220,957		220,957
Wave City Development Co., Ltd.(*1)		393,460		19.1		1,532		1,532
KEB HanaCard Co., Ltd.(*1,3)		39,902,323		15.0		253,739		430,044
Daehan Kanggun BcN Co., Ltd.		1,675,124		29.0		8,340		8,340
NanoEnTek, Inc.(*4)		6,960,445		28.6		47,958		37,959
SK Industrial Development China Co., Ltd.		72,952,360		21.0		83,691		83,691
Packet One Network(*5)		—		—		—		60,706
SK Technology Innovation Company		14,700		49.0		45,864		45,864
SK hynix Inc.		146,100,000		20.1		3,374,725		3,374,725
SK MENA Investment B.V.		9,772,686		32.1		14,485		14,485
SK Latin America Investment S.A.		9,448,937		32.1		14,243		14,243
SKY Property Mgmt. Ltd.		12,639		33.0		145,656		145,656
SK Wyverns Baseball Club Co., Ltd. and others		—		—		69,281		68,737

					W	4,340,551		4,567,019

(*1)	Classified as investments in associates because the Company can exercise significant influence over the associate through participation on the associate’s board of directors.

(*2)	Classified as an investment in associate because the Company has less than 50% of the voting rights of the board of directors.

(*3)	During the year ended December 31, 2015, the Company disposed of 27,725,264 shares of KEB HanaCard Co., Ltd.

(*4)	During the year ended December 31, 2015, the Company newly acquired 1,090,155 shares of NanoEnTek, Inc. by participating in paid in capital increase allocation of third parties.

(*5)

Reclassified from investment in associates to available-for-sale financial assets during the year ended December 31, 2015 as the Company no longer has significant influence. The Company recognized the difference between the carrying amount and the fair value amounting to W37,374 million as loss on impairment of investment assets.

8.	Investments in Subsidiaries and Associates, Continued

(4)

The market price of investments in listed subsidiaries as of December 31, 2015 and 2014 are as follows:


(In millions of won, except for share data)
	December 31, 2015						December 31, 2014
	Market value per share (In won)		Number of shares		Market price		Market value per share (In won)		Number of shares		Market price
IRIVER LIMITED		5,400		15,202,039		82,091		6,370		15,202,039		96,837
SK Broadband Co., Ltd. (*)		—		298,460,212		—		4,380		149,638,354		655,416
SK Communications Co., Ltd.	W	4,390		28,029,945		123,051		—		—		—

(*)	Due to the voluntary delisting of SK Broadband Co., Ltd. during the year ended December 31, 2015, the market price is not disclosed as of December 31, 2015.

9.	Property and Equipment

(1)

Property and equipment as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015
	Acquisition cost		Accumulated depreciation			Carrying amount
Land	W	494,359		—			494,359
Buildings		1,057,079		(499,147	)		557,932
Structures		761,135		(418,724	)		342,411
Machinery		21,615,450		(16,393,427	)		5,222,023
Other		1,269,423		(867,171	)		402,252
Construction in progress		423,303		—			423,303

	W	25,620,749		(18,178,469	)		7,442,280


(In millions of won)
	December 31, 2014
	Acquisition cost		Accumulated depreciation			Carrying amount
Land	W	448,255		—			448,255
Buildings		1,033,307		(464,433	)		568,874
Structures		735,507		(384,592	)		350,915
Machinery		20,502,955		(15,225,026	)		5,277,929
Other		1,213,336		(782,858	)		430,478
Construction in progress		629,455		—			629,455

	W	24,562,815		(16,856,909	)		7,705,906

9.	Property and Equipment, Continued

(2)

Changes in property and equipment for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015
	Beginning balance		Acquisition		Disposal			Transfer			Depreciation			Ending balance
Land	W	448,255		5,258		(334	)		41,180			—			494,359
Buildings		568,874		2,332		(4,132	)		25,878			(35,020	)		557,932
Structures		350,915		9,776		(57	)		16,105			(34,328	)		342,411
Machinery		5,277,929		202,729		(15,616	)		1,377,106			(1,620,125	)		5,222,023
Other		430,478		753,606		(14,225	)		(654,282	)		(113,325	)		402,252
Construction in progress		629,455		821,781		(1,011	)		(1,026,922	)		—			423,303

	W	7,705,906		1,795,482		(35,375	)		(220,935	)		(1,802,798	)		7,442,280


(In millions of won)
	2014
	Beginning balance		Acquisition		Disposal			Transfer			Depreciation			Ending balance
Land	W	416,991		7,502		(12	)		23,774			—			448,255
Buildings		585,375		1,722		(135	)		16,311			(34,399	)		568,874
Structures		363,093		8,908		(39	)		11,843			(32,890	)		350,915
Machinery		4,945,088		208,645		(19,955	)		1,724,311			(1,580,160	)		5,277,929
Other		472,832		1,093,655		(4,074	)		(1,025,891	)		(106,044	)		430,478
Construction in progress		676,607		776,239		(14,922	)		(808,469	)		—			629,455

	W	7,459,986		2,096,671		(39,137	)		(58,121	)		(1,753,493	)		7,705,906

10.

Goodwill

Goodwill as of December 31, 2015 and 2014 is as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Goodwill related to acquisition of Shinsegi Telecom, Inc.	W	1,306,236		1,306,236

The recoverable amount of the CGU is based on its value in use calculated by applying the annual discount rate of 4.9% to the estimated future cash flows based on financial budgets for the next five years. An annual growth rate of 0.62% was applied for the cash flows expected to be incurred after five years and is not expected to exceed the Company’s long-term wireless business growth. Management of the Company does not expect the total carrying amount of the CGU will exceed the total recoverable amount due to reasonably possible changes from the major assumptions used to estimate the recoverable amount.

11.

Intangible Assets

(1)

Intangible assets as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015
	Acquisition cost		Accumulated depreciation			Accumulated impairment			Carrying amount
Frequency use rights	W	3,033,879		(1,930,362	)		—			1,103,517
Land use rights		45,111		(33,416	)		—			11,695
Industrial rights		43,208		(31,380	)		—			11,828
Development costs		99,084		(99,084	)		—			—
Facility usage rights		48,717		(32,231	)		—			16,486
Memberships(*1)		82,017		—			(20,505	)		61,512
Other(*2)		2,142,050		(1,581,019	)		—			561,031

	W	5,494,066		(3,707,492	)		(20,505	)		1,766,069


(In millions of won)
	December 31, 2014
	Acquisition cost		Accumulated depreciation			Accumulated impairment			Carrying amount
Frequency use rights	W	3,033,879		(1,649,835	)		—			1,384,044
Land use rights		43,192		(29,176	)		—			14,016
Industrial rights		37,770		(27,187	)		—			10,583
Development costs		99,215		(99,215	)		—			—
Facility usage rights		45,636		(29,793	)		—			15,843
Memberships(*1)		81,955		—			(18,490	)		63,465
Other(*2)		1,840,574		(1,400,356	)		—			440,218

	W	5,182,221		(3,235,562	)		(18,490	)		1,928,169

11.

Intangible Assets, Continued

(1)

Intangible assets as of December 31, 2015 and 2014 are as follows, Continued:

(*1)	Memberships are classified as intangible assets with indefinite useful life and are not amortized.

(*2)	Other intangible assets primarily consist of computer software and usage rights to a research facility which the Company built and donated to a university, and the Company is given rights-to-use for a definite number of years in turn.

(2)

Details of changes in intangible assets for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015
	Beginning balance		Acquisition		Disposal			Transfer		Amortization			Impairment loss			Ending balance
Frequency use rights	W	1,384,044		—		—			—		(280,527	)		—			1,103,517
Land use rights		14,016		2,484		(3	)		—		(4,802	)		—			11,695
Industrial rights		10,583		5,441		(2	)		—		(4,194	)		—			11,828
Facility usage rights		15,843		2,071		(23	)		1,179		(2,584	)		—			16,486
Memberships(*)		63,465		62		—			—		—			(2,015	)		61,512
Other		440,218		67,772		(129	)		238,171		(185,001	)		—			561,031

	W	1,928,169		77,830		(157	)		239,350		(477,108	)		(2,015	)		1,766,069

(*)	The Company recognized the difference between recoverable amount and the carrying amount of memberships, amounting to W2,015 million as impairment loss for the year ended December 31, 2015.


(In millions of won)
	2014
	Beginning balance		Acquisition		Disposal			Transfer		Amortization			Impairment loss			Ending balance
Frequency use rights	W	1,664,571		—		—			—		(280,527	)		—			1,384,044
Land use rights		9,752		8,737		—			—		(4,473	)		—			14,016
Industrial rights		9,113		4,959		(2	)		—		(3,487	)		—			10,583
Facility usage rights		16,155		1,890		(30	)		382		(2,554	)		—			15,843
Memberships(*)		82,815		—		(860	)		—		—			(18,490	)		63,465
Other		456,761		75,474		(592	)		72,760		(164,185	)		—			440,218

	W	2,239,167		91,060		(1,484	)		73,142		(455,226	)		(18,490	)		1,928,169

(*)	The Company recognized the difference between recoverable amount and the carrying amount of memberships, amounting to W18,490 million as impairment loss for the year ended December 31, 2014.

11.

Intangible Assets, Continued

(3)

Research and development expenditure recognized as expense for the years ended December 31, 2015 and 2014 are as follows:


	2015		2014
Research and development costs expensed as incurred	W	247,461		240,562

(4)

The carrying amount and residual useful lives of frequency usage rights as of December 31, 2015 are as follows, all of which are depreciated on a straight-line basis:


(In millions of won)
	Amount		Description	Commencement of depreciation	Completion of depreciation
W-CDMA license	W	102,839	Frequency use rights relating to W-CDMA service	Dec. 2003	Dec. 2016
W-CDMA license		16,311	Frequency use rights relating to W-CDMA service	Oct. 2010	Dec. 2016
800MHz license		222,992	Frequency use rights relating to CDMA and LTE service	Jul. 2011	Jun. 2021
1.8GHz license		753,720	Frequency use rights relating to LTE service	Sep. 2013	Dec. 2021
WiBro license		7,655	WiBro service	Mar. 2012	Mar. 2019

	W	1,103,517

12.

Borrowings and Debentures

(1)

Short-term borrowings as of December 31, 2015 and 2014 are as follows:


(In millions of won and thousands of U.S. dollars)
Lender	Annual interest rate (%)	Maturity	December 31, 2015		December 31, 2014
Korea Development Bank	2.48	Apr. 30, 2015	W	—		100,000
Kookmin Bank	2.47	Jan. 21, 2016		40,000		—
CP	2.37	Jan. 15, 2015		—		100,000
	1.84	Jan. 14, 2016		190,000		—

			W	230,000		200,000

(2)

Long-term borrowings as of December 31, 2015 and 2014 are as follows:


(In millions of won and thousands of U.S. dollars)
Lender	Annual interest rate (%)	Maturity	December 31, 2015			December 31, 2014
Export Kreditnamnden(*1)	1.70	Apr. 29, 2022	W	87,685			94,903
			(USD	74,817	)	(USD	86,338	)

				87,685			94,903
Less present value discount on long-term borrowings				(2,124	)		(2,623	)

				85,561			92,280
Less current portion of long-term borrowings				(13,007	)		(12,133	)

			W	72,554			80,147

(*1)	For the years ended December 31, 2014 and 2013, the Company obtained long-term borrowings from Export Kreditnamnden, an export credit agency. The long-term borrowings are redeemed by installment on an annual basis from 2014 to 2022.

(*2)	Convenient translation was provided for the borrowings repayable in other currencies

12.

Borrowings and Debentures, Continued

(3)

Debentures as of December 31, 2015 and 2014 are as follows:


(In millions of won, thousands of U.S. dollars, and thousands of other currencies)
	Purpose	Maturity	Annual interest rate (%)	December 31, 2015			December 31, 2014
Unsecured private bonds	Refinancing fund	2016	5.00	W	200,000			200,000
Unsecured private bonds	Other fund	2015	5.00		—			200,000
Unsecured private bonds		2018	5.00		200,000			200,000
Unsecured private bonds		2016	5.54		40,000			40,000
Unsecured private bonds		2016	5.92		230,000			230,000
Unsecured private bonds	Operating fund	2016	3.95		110,000			110,000
Unsecured private bonds		2021	4.22		190,000			190,000
Unsecured private bonds	Operating and refinancing fund	2019	3.24		170,000			170,000
Unsecured private bonds		2022	3.30		140,000			140,000
Unsecured private bonds		2032	3.45		90,000			90,000
Unsecured private bonds	Operating fund	2023	3.03		230,000			230,000
Unsecured private bonds		2033	3.22		130,000			130,000
Unsecured private bonds		2019	3.30		50,000			50,000
Unsecured private bonds		2024	3.64		150,000			150,000
Unsecured private bonds(*2, 3)		2029	4.73		—			55,188
Unsecured private bonds(*2)		2029	4.72		54,695			55,177
Unsecured private bonds	Refinancing fund	2019	2.53		160,000			160,000
Unsecured private bonds		2021	2.66		150,000			150,000
Unsecured private bonds		2024	2.82		190,000			190,000
Unsecured private bonds	Operating and refinancing fund	2022	2.40		100,000			—
Unsecured private bonds		2025	2.49		150,000			—
Unsecured private bonds		2030	2.61		50,000			—
Unsecured private bonds	Operating fund	2018	1.89		90,000			—
Unsecured private bonds		2025	2.66		70,000			—
Unsecured private bonds		2030	2.82		90,000			—
Unsecured private bonds(*2)		2030	3.40		50,485			—
Unsecured private bonds	Operating and refinancing fund	2018	2.07		80,000			—
Unsecured private bonds		2025	2.55		100,000			—
Unsecured private bonds		2035	2.75		70,000			—
Unsecured private bonds(*2)		2030	3.10		50,524			—
Foreign global bonds	Operating fund	2027	6.63		468,800			439,680
				(USD	400,000	)	(USD	400,000	)
Swiss unsecured private Bonds		2017	1.75		355,617			333,429
				(CHF	300,000	)	(CHF	300,000	)
Foreign global bonds		2018	2.13		820,400			769,440
				(USD	700,000	)	(USD	700,000	)
Australian unsecured private Bonds		2017	4.75		255,930			269,727
				(AUD	300,000	)	(AUD	300,000	)
Floating rate notes (*1)		2020	3M Libor + 0.88		351,600			329,760
				(USD	300,000	)	(USD	300,000	)

					5,638,051			4,882,401
Less discounts on bonds					(24,926	)		(27,534	)

					5,613,125			4,854,867
Less current portion of bonds					(579,630	)		(199,730	)

				W	5,033,495			4,655,137

12.

Borrowings and Debentures, Continued

(3)

Debentures as of December 31, 2015 and 2014 are as follows, Continued:

(*1)	As of December 31, 2015, 3M Libor rate is 0.61%.

(*2)	The Company settled the difference of the measurement bases of accounting profit or loss between the bonds and related derivatives by designating the structured bonds as financial liabilities at fair value through profit or loss.

(*3)	As of December 31, 2014, the principal amount and the fair value of the structured bonds were W50,000 million and W55,188 million, respectively. The entire bonds were early redeemed during the year ended December 31, 2015.

(*4)	Convenient translation was provided for the bonds repayable in other currencies.

13.

Long-term Payables - Other

(1)

As of December 31, 2015 and 2014, long-term payables - other consist of payables related to the acquisition of W-CDMA licenses for 800MHZ, 2.3GHz and 1.8GHz frequencies as follows (Refer to Note 11):


(In millions of won)
	Period of repayment	Coupon rate	Annual effective interest rate(*)	December 31, 2015			December 31, 2014
800MHz	2013~2015	3.51%	5.69%	W	—			69,416
2.3GHz	2014~2016	3.00%	5.80%		2,882			5,766
1.8GHz	2012~2021	2.43~3.00%	4.84~5.25%		707,006			824,841

					709,888			900,023
Present value discount on long-term payables – other					(38,739	)		(53,633	)

					671,149			846,390
Less current portion of long-term payables – other					(120,718	)		(190,134	)
Current portion of present value discount on long-term payables – other					533			745

Carrying amount at December 31				W	550,964			657,001

(*)	The Company estimated the discount rate based on its credit ratings and corporate bond yield rate as there is no market interest rate available for long-term payables-other.

(2)

The repayment schedule of long-term payables – other related to acquisition of W-CDMA licenses as of December 31, 2015 is as follows:


(In millions of won)	Amount
Less than 1 year	W	120,718
1~3 years		235,669
3~5 years		235,669
More than 5 years		117,832

	W	709,888

14.

Provisions

Change in provisions for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)	For the year ended December 31, 2015												As of December 31, 2015
	Beginning balance		Increase		Utilization			Reversal			Ending balance		Current		Non-current
Provision for handset subsidy(*1)	W	26,799		1,641		(5,004	)		(17,766	)		5,670		2,232		3,438
Provision for restoration		51,333		5,220		(962	)		(5,132	)		50,459		33,842		16,617
Emission allowance (*2)		—		1,477		—			—			1,477		1,477		—

	W	78,132		8,338		(5,966	)		(22,898	)		57,606		37,551		20,055


(In millions of won)	For the year ended December 31, 2014									As of December 31, 2014
	Beginning balance		Increase		Utilization			Ending balance		Current		Non-current
Provision for handset subsidy(*1)	W	53,923		41,802		(68,926	)		26,799		14,844		11,955
Provision for restoration		32,173		19,699		(539	)		51,333		35,612		15,721

	W	86,096		61,501		(69,465	)		78,132		50,456		27,676

(*1)	The Company has provided handset subsidy to subscribers who purchase handsets on an installment basis and recognized provision for subsidy amounts which the Company is expected to pay in future periods.

(*2)	The Company recognizes estimated future payment for the number of emission certificates required to settle the Company’s obligation exceeding the actual number of certificates on hand as emission allowances according to the Act on Allocation and Trading of Greenhouse Gas Emission Permits.

15.

Defined Benefit Liabilities

(1)

Details of defined benefit liabilities as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015			December 31, 2014
Present value of defined benefit obligations	W	212,139			195,130
Fair value of plan assets		(208,133	)		(179,575	)

	W	4,006			15,555

(2)

Principal actuarial assumptions as of December 31, 2015 and 2014 are as follows:


	December 31, 2015			December 31, 2014
Discount rate for defined benefit obligations		2.57	%		2.91	%
Expected rate of salary increase		3.58	%		3.80	%

Discount rate for defined benefit obligation is determined based on the Company’s credit ratings and yield rate of corporate bonds with similar maturities for estimated payment term of defined benefit obligation. Expected rate of salary increase is determined based on the Company’s historical promotion index, inflation rate and salary increase ratio in accordance with salary agreement.

(3)

Changes in defined benefit obligations for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)	For the year ended December 31
	2015			2014
Beginning balance	W	195,130			154,460
Current service cost		34,933			33,457
Interest cost		5,391			6,415
Remeasurement
- Demographic assumption		2,118			—
- Financial assumption		2,843			8,231
- Adjustment based on experience		(1,643	)		11,500
Benefit paid		(29,795	)		(21,887	)
Others(*)		3,162			2,954

Ending balance	W	212,139			195,130

(*)	Others for the years ended December 31, 2015 and 2014 include transfer to construction in progress and liabilities succeeded in relation to transfer of executives from affiliates.

15.

Defined Benefit Liabilities, Continued

(4)

Changes in plan assets for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015			2014
Beginning balance	W	179,575			131,574
Interest income		4,944			5,302
Actuarial gain		3,826			1,514
Contributions to the plan		47,000			48,500
Benefit paid		(27,212	)		(7,315	)

Ending balance	W	208,133			179,575

The Company expects to make a contribution of W43,000 million to the defined benefit plans during the next financial year.

(5)

Expenses recognized in profit and loss (included in labor cost in the accompanying statements of income) and capitalized into construction-in-progress for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015		2014
Current service cost	W	34,933		33,457
Net Interest cost		447		1,113

	W	35,380		34,570

The above costs are recognized in labor cost, research and development, or capitalized into construction-in-progress.

(6)

Details of plan assets as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Equity instruments	W	402		951
Debt instruments		71,892		52,614
Short-term financial instruments, etc.		135,839		126,010

	W	208,133		179,575

Actual return on plan assets for the years ended December 31, 2015 and 2014 amounted to W8,770 million and W6,816 million, respectively.

15.

Defined Benefit Liabilities, Continued

(7)

As of December 31, 2015, effects on defined benefit obligations if each of significant actuarial assumptions changes within expectable and reasonable range are as follows:


(In millions of won)
	Increase			Decrease
Discount rate (if changed by 0.5%)	W	(7,827	)		8,346
Expected salary increase rate (if changed by 0.5%)		8,412			(7,959	)

The sensitivity analysis does not consider dispersion of all cash flows that are expected from the plan and provides approximate values of sensitivity for the assumptions used.

Weighted average durations of defined benefit obligations as of December 31, 2015 and 2014 are 9.21 years and 8.42 years, respectively.

16.

Derivative Instruments

(1)

Currency swap contracts under cash flow hedge accounting as of December 31, 2015 are as follows:


(In thousands of foreign currencies)
Borrowing date	Hedged item	Hedged risk	Contract type	Financial institution	Duration of contract
Jul. 20, 2007	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 400,000)	Foreign currency risk	Currency swap	Morgan Stanley and five other banks	Jul. 20, 2007 ~ Jul. 20, 2027
Jun. 12, 2012	Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000)	Foreign currency risk	Currency swap	Citibank and four other banks	Jun. 12, 2012 ~ Jun. 12, 2017
Nov. 1, 2012	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 700,000)	Foreign currency risk	Currency swap	Barclays and eight other banks	Nov. 1, 2012~ May 1, 2018
Jan. 17, 2013	Fixed-to-fixed cross currency swap (Australia dollar denominated bonds face value of AUD 300,000)	Foreign currency risk	Currency swap	BNP Paribas and three other banks	Jan. 17, 2013 ~ Nov. 17, 2017
Mar. 7, 2013	Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 300,000)	Foreign currency risk and the interest rate risk	Currency interest rate swap	DBS bank	Mar. 7, 2013 ~ Mar. 7, 2020
Dec. 16, 2013	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 74,817)	Foreign currency risk	Currency swap	Deutsche bank	Dec. 16, 2013 ~ Apr. 29, 2022

16.

Derivative Instruments, Continued

(2)

As of December 31, 2015, fair values of the above derivatives recorded in assets or liabilities and details of derivative instruments are as follows:


(In millions of won and thousands of foreign currencies)
	Fair value
	Cash flow hedge											Held for trading purpose		Total
Hedged item	Accumulated gain (loss) on valuation of derivatives			Tax effect			Accumulated loss (gain) on foreign currency translation			Others *()**		Held for trading purpose		Total
Non-current assets:
Structured bond (face value of KRW 150,000)	W	—			—			—			—		6,277		6,277
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 400,000)		(46,616	)		(14,883	)		11,180			129,806		—		79,487
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 700,000)		(18,705	)		(5,971	)		56,738			—		—		32,062
Floating-to-fixed cross currency interest rate swap(U.S. dollar denominated bonds face value of USD 300,000)		(5,748	)		(1,835	)		26,439			—		—		18,856
Fixed-to-fixed long-term borrowings (U.S. dollar denominated bonds face value of USD 74,817)		(4,072	)		(1,300	)		8,613			—		—		3,241

Total assets														W	139,923

Non-current liabilities:
Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000)	W	(3,678	)		(1,174	)		(7,851	)		—		—		(12,703	)
Fixed-to-fixed cross currency swap (Australia dollar denominated bonds face value of AUD 300,000)		2,013			642			(79,248	)		—		—		(76,593	)

Total liabilities														W	(89,296	)

(*)	Cash flow hedge accounting has been applied to the relevant contract from May 12, 2010. Others represent gain on valuation of currency swap incurred prior to the application of hedge accounting and was recognized through profit or loss prior to the year ended December 31, 2013.

17.

Share Capital and Capital Surplus and Other Capital Adjustments

The Company’s outstanding share capital consists entirely of common stock with a par value of W500. The number of authorized, issued and outstanding common shares and capital surplus and other capital adjustments as of December 31, 2015 and 2014 are as follows:


(In millions of won, except for share data)
	December 31, 2015			December 31, 2014
Authorized shares		220,000,000			220,000,000
Issued shares(*)		80,745,711			80,745,711
Share capital
Common stock	W	44,639			44,639
Capital surplus and other capital adjustments:
Paid-in surplus		2,915,887			2,915,887
Treasury stock (Note 18)		(2,260,626	)		(2,139,683	)
Loss on disposal of treasury stock		—			(18,087	)
Hybrid bond (Note 19)		398,518			398,518
Others		(684,333	)		(722,741	)

	W	369,446			433,894

(*)

During the years ended December 31, 2003, 2006 and 2009, the Company retired 7,002,235 shares, 1,083,000 shares and 448,000 shares, respectively, of treasury stock which reduced its retained earnings before appropriation in accordance with the Korean Commercial Law. As a result, the Company’s outstanding shares have decreased without change in the share capital.

There were no changes in share capital for the years ended December 31, 2015 and 2014.

Changes in number of shares outstanding for the years ended December 31, 2015 and 2014 are as follows:


(In shares)	2015								2014
	Issued shares		Treasury stock			Outstanding shares			Issued shares		Treasury stock		Outstanding shares
Beginning issued shares		80,745,711		9,809,375			70,936,336			80,745,711		9,809,375		70,936,336
Disposal of treasury stock		—		(1,692,824	)		1,692,824			—		—		—
Acquisition of treasury stock				2,020,000			(2,020,000	)

Ending issued shares		80,745,711		10,136,551			70,609,160			80,745,711		9,809,375		70,936,336

18.

Treasury Stock

The Company acquired treasury stock to provide stock dividends, merge with Shinsegi Telecom, Inc. and SK IMT Co, Ltd., increase shareholder value and to stabilize its stock prices when needed.

Treasury stock as of December 31, 2015 and 2014 are as follows:


(In millions of won, shares)
	December 31, 2015		December 31, 2014
Number of shares		10,136,551		9,809,375
Amount	W	2,260,626		2,139,683

On June 9, 2015, the Company granted 1,692,824 shares of its treasury stock (acquisition cost: W369,249 million) in order to acquire shares of SK Broadband Co., Ltd. In addition, from September 30, 2015 to December 11, 2015, the Company newly acquired 2,020,000 shares of its treasury stock amounting to W490,192 million in order to stabilize stock price.

19.

Hybrid Bond

Hybrid bonds classified as equity as of December 31, 2015 are as follows:

(In millions of won)

Type

Issuance date

Maturity

Annual
interest rate
(%)

Amount

Private hybrid bonds

Blank coupon unguaranteed

subordinated bonds

June 7, 2013

June 7, 2073(*1)

4.21

(*2)

400,000

Issuance costs

(1,482

)

398,518

Hybrid bonds issued by the Company are classified as equity as there is no contractual obligation for delivery of financial assets to the bond holders. These are subordinated bonds which rank before common shareholders in the event of a liquidation or reorganization of the Company.

(*1)	The Company has a right to extend the maturity under the same issuance terms without any notice or announcement. The Company also has the right to defer interest payment at its sole discretion.

(*2)	Annual interest rate is adjusted after five years from the issuance date.

20.

Retained Earnings

(1)

Retained earnings as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Appropriated:
Legal reserve	W	22,320		22,320
Reserve for research & manpower development		87,301		151,534
Reserve for business expansion		9,671,138		9,476,138
Reserve for technology development		2,616,300		2,416,300

		12,397,059		12,066,292
Unappropriated		1,021,544		930,498

	W	13,418,603		12,996,790

(2)

Legal reserve

The Korean Commercial Code requires the Company to appropriate as a legal reserve at least 10% of cash dividends paid for each accounting period until the reserve equals 50% of outstanding share capital. 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 share capital.

(3)

Reserve for research & manpower development

21.

Statements of Appropriation of Retained Earnings

Details of appropriations of retained earnings for the years ended December 31, 2015 and 2014 are as follows:

Date of appropriation for 2015: March 18, 2016

Date of appropriation for 2014: March 20, 2015


(In millions of won)
	2015			2014
Unappropriated retained earnings:
Unappropriated retained earnings	W	3,866			3,542
Remeasurement of defined benefit liabilities		386			(13,808	)
Interim dividends - W1,000 per share, 200% on par value		(72,629	)		(70,937	)
Interest on hybrid bond		(16,840	)		(16,840	)
Profit for the year		1,106,761			1,028,541

		1,021,544			930,498


Transfer from voluntary reserves:
Reserve for research and manpower development		27,300			64,233


Appropriation of retained earnings:
Reserve for business expansion		200,000			195,000
Reserve for technology development		210,000			200,000
Cash dividends –2015: W9,000 per share, 1,800% on par value 2014: W8,400 per share, 1,680% on par value		635,482			595,865


		1,045,482			990,865

Unappropriated retained earnings to be carried over to subsequent year	W	3,362			3,866

22.

Reserves

(1)

Details of reserves, net of taxes, as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015			December 31, 2014
Unrealized fair value of available-for-sale financial assets	W	23,578			145,106
Unrealized fair value of derivatives		(76,806	)		(78,208	)

	W	(53,228	)		66,898

(2)

Changes in reserves for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)	2015
	Unrealized fair value of available-for-sale financial assets			Unrealized fair value of derivatives			Total
Balance at January 1, 2015	W	145,106			(78,208	)		66,898
Changes		(160,327	)		1,850			(158,477	)
Tax effect		38,799			(448	)		38,351

Balance at December 31, 2015	W	23,578			(76,806	)		(53,228	)


(In millions of won)	2014
	Unrealized fair value of available-for-sale financial assets			Unrealized fair value of derivatives			Total
Balance at January 1, 2014	W	211,209			(40,033	)		171,176
Changes		(87,207	)		(50,363	)		(137,570	)
Tax effect		21,104			12,188			33,292

Balance at December 31, 2014	W	145,106			(78,208	)		66,898

22.

Reserves, Continued

(3)

Details of change in unrealized fair value of available-for-sale financial assets for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)	2015
	Before taxes			Income tax effect			After taxes
Balance at January 1, 2015	W	191,433			(46,327	)		145,106
Amount recognized as other comprehensive income (loss) during the year		(159,759	)		38,662			(121,097	)
Amount reclassified through profit or loss		(568	)		137			(431	)

Balance at December 31, 2015	W	31,106			(7,528	)		23,578


(In millions of won)	2014
	Before taxes			Income tax effect			After taxes
Balance at January 1, 2014	W	278,640			(67,431	)		211,209
Amount recognized as other comprehensive income (loss) during the year		(77,367	)		18,723			(58,644	)
Amount reclassified through profit or loss		(9,840	)		2,381			(7,459	)

Balance at December 31, 2014	W	191,433			(46,327	)		145,106

(4)

Details of change in unrealized fair value of derivatives for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)	2015
	Before taxes			Income tax effect			After taxes
Balance at January 1, 2015	W	(103,177	)		24,969			(78,208	)
Amount recognized as other comprehensive income (loss) during the year		2,357			(570	)		1,787
Amount reclassified through profit or loss		(507	)		122			(385	)

Balance at December 31, 2015	W	(101,327	)		24,521			(76,806	)


(In millions of won)	2014
	Before taxes			Income tax effect			After taxes
Balance at January 1, 2014	W	(52,814	)		12,781			(40,033	)
Amount recognized as other comprehensive income (loss) during the year		(42,608	)		10,311			(32,297	)
Amount reclassified through profit or loss		(7,755	)		1,877			(5,878	)

Balance at December 31, 2014	W	(103,177	)		24,969			(78,208	)

23.

Other Operating Expenses

Details of other operating expenses for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)	2015		2014

Other Operating Expenses:
Communication expenses	W	33,977		42,055
Utilities		204,394		182,790
Taxes and dues		21,985		21,500
Repair		208,418		202,824
Research and development		247,461		240,562
Training		26,579		31,768
Bad debt for accounts receivables – trade		37,715		27,313
Other		44,495		60,989

	W	825,024		809,801

24.

Other Non-operating Income and Expenses

Details of other non-operating income and expenses for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)	2015		2014

Other Non-operating Income:
Gain on disposal of property and equipment and intangible assets	W	3,827		3,676
Others(*1)		11,450		33,746

	W	15,277		37,422

Other Non-operating Expenses:
Loss on disposal of property and equipment and intangible assets	W	15,644		17,493
Impairment loss on property and equipment, and intangible assets		2,015		18,490
Donations		62,908		67,130
Bad debt for accounts receivable – other		15,328		15,873
Others(*2)		37,098		65,191

	W	132,993		184,177

(*1)	Others for the year ended December 31, 2015 primarily consists of penalty received from customers who do not comply with contract.

(*2)	Others for the year ended December 31, 2015 primarily consists of penalties.

25.

Finance Income and Costs

(1)

Details of finance income and costs for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)	2015		2014

Finance Income:
Interest income	W	20,560		25,015
Dividends		200,296		13,048
Gain on foreign currency transactions		12,595		13,505
Gain on foreign currency translations		770		1,373
Gain relating to financial assets at fair value through profit or loss		—		2,817
Gain relating to financial liabilities at fair value through profit or loss		5,188		—
Gain on disposal of long-term investment securities		5,058		9,807
Gain on valuation of derivatives		1,927		8,713
Gain on settlement of derivatives		—		7,998

	W	246,394		82,276


(In millions of won)
	2015		2014
Finance Costs:
Interest expense	W	241,608		265,195
Loss on foreign currency transactions		11,177		15,526
Loss on foreign currency translations		318		167
Loss on disposal of long-term investment securities		842		57
Loss on settlement of derivatives		4,845		672
Loss relating to financial assets at fair value through profit or loss		744		1,352
Loss relating to financial liabilities at fair value through profit or loss		526		10,369
Other financial costs		54,131		—

	W	314,191		293,338

25.

Finance Income and Costs, Continued

(2)

Details of interest income included in finance income for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015		2014

Interest income on cash equivalents and deposits	W	9,274		12,428

Interest income on installment receivables and others		11,286		12,587

	W	20,560		25,015

(3)

Details of interest expense included in finance costs for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015		2014

Interest expense on bank overdrafts and borrowings	W	14,697		20,030
Interest expense on debentures		189,078		198,317
Others		37,833		46,848

	W	241,608		265,195

25.

Finance Income and Costs, Continued

(4)

(i)

Finance income and costs


(In millions of won)
	2015				2014
	Finance income(*)		Finance costs		Finance income		Finance costs
Financial Assets:
Financial asset at fair value through profit or loss	W	1,927		4,932		11,530		1,352
Available-for-sale financial assets		23,164		54,973		23,981		57
Loans and receivables		31,426		11,296		35,377		15,682
Derivative designated as hedging instrument		—		657		7,998		672

Sub-total		56,517		71,858		78,886		17,763

Financial Liabilities:
Financial liability at fair value through profit or loss		5,188		526		—		10,369
Financial liability measured as amortized cost		25		241,807		3,390		265,206

Sub-total		5,213		242,333		3,390		275,575

Total	W	61,730		314,191		82,276		293,338

(*)	It does not include W184,664 million of dividends income paid by subsidiaries and associates for the year ended December 31, 2015.

(ii)

Other comprehensive income (loss)


(In millions of won)
	2015			2014
Financial Assets:
Available-for-sale financial assets	W	(121,528	)		(66,103	)
Derivative designated as hedging instrument		(575	)		(16,374	)

Sub-total		(122,103	)		(82,477	)

Financial Liabilities:
Derivative designated as hedging instrument		1,977			(21,801	)

Total	W	(120,126	)		(104,278	)

(5)

Details of impairment losses for financial assets for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015		2014
Bad debt for accounts receivable - trade	W	37,715		27,313
Bad debt for accounts receivable - other		15,328		15,873
Bad debt for accounts receivable - Available-for-sale financial assets		54,131		—

	W	107,174		43,186

26.

Income Tax Expense

(1)

Income tax expenses for the years ended December 31, 2015 and 2014 consist of the following:


(In millions of won)
	2015			2014

Current tax expense
Current tax payable	W	404,172			169,456
Adjustments recognized in the period for current tax of prior periods		8,885			(14,223	)

		413,057			155,233

Deferred tax expense
Changes in net deferred tax assets		(88,602	)		100,275
Tax directly charged to equity		38,228			37,701

		(50,374	)		137,976

Income tax for continuing operation	W	362,683			293,209

(2)


(In millions of won)
	2015			2014

Income taxes at statutory income tax rate	W	355,143			319,401
Non-taxable income		(75,647	)		(33,653	)
Non-deductible expenses		40,481			60,082
Tax credit and tax reduction		(25,611	)		(33,581	)
Changes in unrealizable deferred taxes		63,744			21,982
Others (income tax refund, etc.)		4,573			(41,022	)

Income tax for continuing operation	W	362,683			293,209

(3)

Deferred taxes directly charged to (credited from) equity for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015			2014

Net change in fair value of available-for-sale financial assets	W	38,799			21,104
Gain or loss on valuation of derivatives		(448	)		12,188
Remeasurement of defined benefit liabilities		(123	)		4,409

	W	38,228			37,701

26.

Income Tax Expense, Continued

(4)

Details of changes in deferred tax assets (liabilities) for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)	2015
	Beginning			Deferred tax expense (income)			Directly added to (deducted from) equity			Ending
Deferred tax assets (liabilities) related to temporary differences
Allowance for doubtful accounts	W	46,672			4,671			—			51,343
Accrued interest income		(1,538	)		(278	)		—			(1,816	)
Available-for-sale financial assets		11,043			32,829			38,799			82,671
Investments in subsidiaries and associates		69,052			2,973			—			72,025
Property and equipment (depreciation)		(344,488	)		46,035			—			(298,453	)
Provisions		6,485			(5,113	)		—			1,372
Retirement benefit obligation		9,386			(1,826	)		(123	)		7,437
Gain or loss on valuation of derivatives		24,969			—			(448	)		24,521

Gain or loss on foreign currency translation		19,327			191			—			19,518
Goodwill relevant to leased line		4,433			(720	)		—			3,713
Unearned revenue (activation fees)		25,977			(23,912	)		—			2,065
Others		(16,194	)		(4,476	)		—			(20,670	)

	W	(144,876	)		50,374			38,228			(56,274	)

26.

Income Tax Expense, Continued

(4)

Details of changes in deferred tax assets (liabilities) for the years ended December 31, 2015 and 2014 are as follows, Continued:


(In millions of won)	2014
	Beginning			Deferred tax expense (income)			Directly added to (deducted from) equity		Ending
Deferred tax assets (liabilities) related to temporary differences
Allowance for doubtful accounts	W	43,352			3,320			—		46,672
Accrued interest income		(1,375	)		(163	)		—		(1,538	)
Available-for-sale financial assets		(9,725	)		(336	)		21,104		11,043
Investments in subsidiaries and associates		85,298			(16,246	)		—		69,052
Property and equipment (depreciation)		(308,657	)		(35,831	)		—		(344,488	)
Provisions		13,049			(6,564	)		—		6,485
Retirement benefit obligation		7,906			(2,929	)		4,409		9,386
Gain or loss on valuation of derivatives		12,781			—			12,188		24,969
Gain or loss on foreign currency translation		19,580			(253	)		—		19,327
Tax free reserve for research and manpower development		(30,064	)		30,064			—		—
Goodwill relevant to leased line		31,025			(26,592	)		—		4,433
Unearned revenue (activation fees)		53,412			(27,435	)		—		25,977
Others		38,817			(55,011	)		—		(16,194	)

	W	(44,601	)		(137,976	)		37,701		(144,876	)

26.

Income Tax Expense, Continued

(5)

Details of temporary differences not recognized as deferred tax assets in the statements of financial position as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014

Allowance for doubtful accounts	W	77,405		77,405
Investments in subsidiaries and associates		980,860		717,455
Other temporary differences		51,150		51,150

	W	1,109,415		846,010

27.

Earnings per Share

(1)

Basic earnings per share

Basic earnings per share for the years ended December 31, 2015 and 2014 are calculated as follows:


(In millions of won, shares)
	2015			2014
Profit for the year	W	1,106,761			1,028,541
Interest on hybrid bond		(16,840	)		(16,840	)

Profit for the year on common shares		1,089,921			1,011,701
Weighted average number of common shares outstanding		71,551,966			70,936,336

Basic earnings per share (In won)	W	15,233			14,262

The weighted average number of common shares outstanding for the years ended December 31, 2015 and 2014 are calculated as follows:


(In millions of won, shares)
	2015			2014
Outstanding common shares at January 1, 2015	W	80,745,711			80,745,711
Effect of treasury stock		(9,193,745	)		(9,809,375	)

Weighted average number of common shares outstanding at December 31, 2015	W	71,551,966			70,936,336

(2)

Diluted earnings per share

For the years ended December 31, 2015 and 2014, there were no potentially dilutive shares. Therefore, diluted earnings per share for the years ended December 31, 2015 and 2014 are the same as basic earnings per share.

28.

Dividends

(1)

Details of dividends declared

Details of dividend declared for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won, except for face value and share data)
Year	Dividend type	Number of shares outstanding		Face value (In won)		Dividend ratio			Dividends
2015	Cash dividends (interim)		72,629,160		500		200	%	W	72,629
2015	Cash dividends (year-end)		70,609,160		500		1,800	%		635,482

									W	708,111

2014	Cash dividends (interim)		70,936,336		500		200	%	W	70,937
2014	Cash dividends (year-end)		70,936,336		500		1,680	%		595,865

									W	666,802

(2)

Dividends payout ratio

Dividends payout ratios for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
Year	Dividends calculated		Profit		Dividends payout ratio
2015	W	708,111		1,106,761		63.98	%
2014	W	666,802		1,028,541		64.83	%

(3)

Dividends yield ratio

Dividends yield ratios for the years ended December 31, 2015 and 2014 are as follows:


(In won)
Year	Dividend type	Dividend per share		Closing price at settlement		Dividend yield ratio
2015	Cash dividends		10,000		215,500		4.64	%
2014	Cash dividends		9,400		268,000		3.51	%

29.

Categories of Financial Instruments

(1)

Financial assets by categories as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015
	Financial assets at fair value through profit or loss		Available-for- sale financial assets		Loans and receivables		Derivative financial instruments designated as hedged item		Total
Cash and cash equivalents	W	—		—		431,666		—		431,666
Financial instruments		—		—		131,562		—		131,562
Short-term investment securities		—		92,262		—		—		92,262
Long-term investment securities(*1)		7,073		719,432		—		—		726,505
Accounts receivable - trade		—		—		1,528,751		—		1,528,751
Loans and other receivables(*2)		—		—		521,723		—		521,723
Derivative financial assets		6,277		—		—		133,646		139,923

	W	13,350		811,694		2,613,702		133,646		3,572,392


(In millions of won)
	December 31, 2014
	Financial assets at fair value through profit or loss		Available- for-sale financial assets		Loans and receivables		Derivative financial instruments designated as hedged item		Total
Cash and cash equivalents	W	—		—		248,311		—		248,311
Financial instruments		—		—		143,069		—		143,069
Short-term investment securities		—		197,161		—		—		197,161
Long-term investment securities(*1)		7,817		600,980		—		—		608,797
Accounts receivable - trade		—		—		1,559,281		—		1,559,281
Loans and other receivables(*2)		—		—		575,597		—		575,597
Derivative financial assets		8,713		—		—		59,015		67,728

	W	16,530		798,141		2,526,258		59,015		3,399,944

(*1)	Long-term investment securities of which the embedded derivative (conversion right option), which should be separated from the main contract, could not be separately measured, were designated as financial assets at fair value through profit or loss.

29.

Categories of Financial Instruments, Continued

(1)

Financial assets by categories as of December 31, 2015 and 2014 are as follows, Continued:

(*2)	Details of loans and other receivables as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Short-term loans	W	47,741		67,989
Accounts receivable – other		264,741		305,990
Accrued income		7,505		6,354
Long-term loans		35,080		38,457
Guarantee deposits		166,656		156,807

	W	521,723		575,597

(2)

Financial liabilities by categories as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015
	Financial liabilities at fair value through profit or loss		Financial liabilities measured at amortized cost		Derivative financial instruments designated as hedged item		Total
Derivative financial liabilities	W	—		—		89,296		89,296
Borrowings		—		315,561		—		315,561
Debentures (*1)		155,704		5,457,421		—		5,613,125

Accounts payable – other and others (*2)		—		2,171,141		—		2,171,141

	W	155,704		7,944,123		89,296		8,189,123


(In millions of won)
	December 31, 2014
	Financial liabilities at fair value through profit or loss		Financial liabilities measured at amortized cost		Derivative financial instruments designated as hedged item		Total
Derivative financial liabilities	W	—		—		130,889		130,889
Borrowings		—		292,280		—		292,280
Debentures (*1)		110,365		4,744,502		—		4,854,867

Accounts payable – other and others (*2)		—		2,582,608		—		2,582,608

	W	110,365		7,619,390		130,889		7,860,644

29.

Categories of Financial Instruments, Continued

(2)

Financial liabilities by categories as of December 31, 2015 and 2014 are as follows, Continued:

(*1)

(*2)	Details of accounts payable – other and other payables as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Accounts payable – other	W	927,170		1,086,485
Withholdings		—		3
Accrued expenses		540,770		615,488
Current portion of long-term payables - other		120,185		189,389
Long-term payables - other		550,964		657,001
Other non-current liabilities		32,052		34,242

	W	2,171,141		2,582,608

30.

Financial Risk Management

(1)

Financial risk management

The Company is exposed to credit risk, liquidity risk and market risk. Market risk is the risk related to the changes in market prices, such as foreign exchange rates, interest rates and equity prices. The Company implements a risk management system to monitor and manage these specific risks.

The Company’s financial assets under financial risk management consist of cash and cash equivalents, financial instruments, available-for-sale financial assets, trade and other receivables. Financial liabilities consist of trade and other payables, borrowings, and debentures.

Market risk

(i)

Currency risk

The Company is exposed to currency risk mainly on exchange fluctuations on recognized assets and liabilities. The Company manages currency risk by currency forward, etc. if needed to hedge currency risk on business transactions. Currency risk occurs on forecasted transaction and recognized assets and liabilities which are denominated in a currency other than the functional currency of the Company.

30.

Financial Risk Management, Continued

(1)

Financial risk management, Continued

Monetary foreign currency assets and liabilities as of December 31, 2015 are as follows:


(In millions of won, thousands of U.S. dollars, thousands of Euros, thousands of Japanese Yen, thousands of other currencies)
	Assets				Liabilities
	Foreign currencies		Won translation		Foreign currencies		Won translation
USD		61,525	W	71,682		1,463,959	W	1,715,760
EUR		23,357		29,923		38		48
JPY		20,688		201		—		—
AUD		—		—		299,022		255,097
CHF		—		—		299,403		354,909
Other		4,992		1,148		290		120

			W	102,954			W	2,325,934

In addition, the Company has entered into cross currency swaps to hedge against currency risk related to foreign currency borrowings and debentures. (Refer to Note 16)

As of December 31, 2015, effects on income (loss) before income tax as a result of change in exchange rate by 10% are as follows:


(In millions of won)
	If increased by 10%		If decreased by 10%
USD	W	6,336		(6,336	)
EUR		2,954		(2,954	)
JPY		20		(20	)
Others		100		(100	)

	W	9,410		(9,410	)

(ii)

Equity price risk

The Company has equity securities which include listed and non-listed securities for its liquidity and operating purpose. As of December 31, 2015, available-for-sale equity instruments measured at fair value amounts to W655,845 million.

(iii)

Interest rate risk

Since the Company’s interest bearing assets are mostly fixed-interest bearing assets, as such, the Company’s revenue and operating cash flow are not influenced by the changes in market interest rates. However, the Company still has interest rate risk arising from borrowings and debentures.

Accordingly, the Company performs various analysis of interest rate risk, which includes refinancing, renewal, alternative financing and hedging instrument option, to reduce interest rate risk and to optimize its financing.

30.

Financial Risk Management, Continued

(1)

Financial risk management, Continued

The Company’s interest rate risk arises from floating-rate borrowings and payables. As of December 31, 2015, floating-rate debentures amount to W351,600 million and the Company has entered into interest rate swaps to hedge interest rate risk related to floating-rate borrowings and debentures (Refer to Note 16). If interest rate only increases (decreases) by 1%, income before income taxes for the year ended December 31, 2015 would not have been changed due to the interest expense from floating-rate borrowings and debentures.

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet his/her contractual obligations. The maximum credit exposure as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Cash and cash equivalents	W	431,636		248,281
Financial instruments		131,562		143,069
Available-for-sale financial assets		2,030		8,648
Accounts receivable - trade		1,528,751		1,559,281
Loans and receivables		521,723		575,597
Derivative financial assets		139,923		67,728
Financial assets at fair value through profit or loss		7,073		7,817

	W	2,762,698		2,610,421

To manage credit risk, the Company evaluates the credit worthiness of each customer or counterparty considering the party’s financial information, its own trading records and other factors; based on such information, the Company establishes credit limits for each customer or counterparty.

For the year ended December 31, 2015, the Company has no trade and other receivables or loans which have indications of significant impairment loss or are overdue for a prolonged period. As a result, the Company believes that the possibility of default is remote. Also, the Company’s credit risk can rise due to transactions with financial institutions related to its cash and cash equivalents, financial instruments and derivatives. To minimize such risk, the Company has a policy to deal with high credit worthy financial institutions. The amount of maximum exposure to credit risk of the Company is the carrying amount of financial assets as of December 31, 2015.

In addition, the aging of trade and other receivables that are overdue at the end of the reporting period but not impaired is stated in Note 6 and the analysis of financial assets that are individually determined to be impaired at the end of the reporting period is stated in Note 25.

30.

Financial Risk Management, Continued

(1)

Financial risk management, Continued

Liquidity risk

The Company’s approach to managing liquidity is to ensure that it will always maintain sufficient cash equivalents balance and have enough liquidity through various committed credit lines. The Company maintains flexibly enough liquidity under credit lines through active operating activities.

Contractual maturities of financial liabilities as of December 31, 2015 are as follows:


(In millions of won)
	Carrying amount		Contractual cash flows		Less than 1 year		1 - 5 years		More than 5 years
Borrowings(*1)	W	315,561		324,352		245,693		57,965		20,694
Debentures (*1)		5,613,125		6,874,448		763,194		3,012,017		3,099,237
Accounts payable - other and others (*2)		2,171,141		2,223,315		1,552,820		549,376		121,119

	W	8,099,827		9,422,115		2,561,707		3,619,358		3,241,050

The Company does not expect that the cash flows included in the maturity analysis could occur significantly earlier or at different amounts.

(*1)	Includes estimated interest to be paid and excludes discounts on bonds.

(*2)	Excludes discounts on accounts payable-other and others.

As of December 31, 2015, periods which cash flows from cash flow hedge derivatives is expected to be incurred are as follows:


(In millions of won)
	Carrying amount			Contractual cash flows			Less than 1 year			1 - 5 years			More than 5 years
Assets	W	133,646			143,638			3,266			109,438			30,934
Liabilities		(89,296	)		(92,498	)		(4,882	)		(87,616	)		—

	W	44,350			51,140			(1,616	)		21,822			30,934

(2)

Capital management

The Company manages its capital to ensure that it will be able to continue as a business while maximizing the return to shareholders through the optimization of its debt and equity balance. The overall strategy of the Company is the same as that of the Company as of and for the year ended December 31, 2015.

The Company monitors its debt-equity ratio as a capital management indicator. This ratio is calculated as total liabilities divided by total equity which are extracted from the financial statements.

30.

Financial Risk Management, Continued

(2)

Capital management, Continued

Debt-equity ratio as of December 31, 2015 and 2014 are as follows:


(In millions of won)
	December 31, 2015			December 31, 2014
Liability	W	9,367,480			9,170,241
Equity		13,779,460			13,542,221

Debt-equity ratio		67.98	%		67.72	%

(3)

Fair value

Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2015 are as follows:


(In millions of won)	December 31, 2015
	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets that can be measured at fair value
Financial assets at fair value through profit or loss	W	13,350		—		6,277		7,073		13,350
Derivative financial assets		133,646		—		133,646		—		133,646
Available-for-sale financial assets		655,845		579,282		47,262		29,301		655,845

	W	802,841		579,282		187,185		36,374		802,841

Financial assets that cannot be measured at fair value
Cash and cash equivalents(*1)	W	431,666		—		—		—		—
Available-for-sale financial assets(*1,2)		155,849		—		—		—		—
Accounts receivable – trade and others(*1)		2,050,474		—		—		—		—
Financial instruments(*1)		131,562		—		—		—		—

	W	2,769,551		—		—		—		—

Financial liabilities that can be measured at fair value
Financial liabilities at fair value through profit or loss	W	155,704		—		155,704		—		155,704
Derivative financial liabilities		89,296		—		89,296		—		89,296

	W	245,000		—		245,000		—		245,000

Financial liabilities that cannot be measured at fair value
Borrowings	W	315,561		—		316,726		—		316,726
Debentures		5,457,421		—		5,887,378		—		5,887,378
Accounts payable - other and others(*1)		2,171,141		—		—		—		—

	W	7,944,123		—		6,204,104		—		6,204,104

30.

Financial Risk Management, Continued

(3)

Fair value, Continued

Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2014 are as follows:


(In millions of won)	December 31, 2014
	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets that can be measured at fair value
Financial assets at fair value through profit or loss	W	16,530		—		8,713		7,817		16,530
Derivative financial assets		59,015		—		59,015		—		59,015
Available-for-sale financial assets		586,675		490,741		47,002		48,932		586,675

	W	662,220		490,741		114,730		56,749		662,220

Financial assets that cannot be measured at fair value
Cash and cash equivalents(*1)	W	248,311		—		—		—		—
Available-for-sale financial assets(*1,2)		211,466		—		—		—		—
Accounts receivable – trade and others(*1)		2,134,878		—		—		—		—
Financial instruments(*1)		143,069		—		—		—		—

	W	2,737,724		—		—		—		—

Financial liabilities that can be measured at fair value
Financial liabilities at fair value through profit or loss	W	110,365		—		110,365		—		110,365
Derivative financial liabilities		130,889		—		130,889		—		130,889

	W	241,254		—		241,254		—		241,254

Financial liabilities that cannot be measured at fair value
Borrowings	W	292,280		—		300,048		—		300,048
Debentures		4,744,502		—		5,103,527		—		5,103,527
Accounts payable - other and others(*1)		2,582,608		—		—		—		—

	W	7,619,390		—		5,403,575		—		5,403,575

(*1)	Does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are closed to the reasonable approximate fair values.

(*2)	Equity instruments which do not have quoted price in an active market for the identical instruments (inputs for Level 1) are measured at cost in accordance with K-IFRS 1039 as such equity instruments cannot be reliably measured using other methods.

30.

Financial Risk Management, Continued

(3)

Fair value, Continued

The Company uses various valuation methods for valuation of fair value of financial instruments that are not traded in an active market. Fair value of available-for-sale securities is determined using the market approach methods and financial assets through profit or loss are measured using the option pricing model. In addition, derivative financial contracts and long-term liabilities are measured using the present value methods. Inputs used to such valuation methods include swap rate, interest rate, and risk premium, and the Company performs valuation using the inputs which are consistent with natures of assets, liabilities being evaluated.

Interest rates used by the Company for the fair value measurement as of December 31, 2015 are as follows:


	Interest rate
Derivative instruments		1.92 ~ 2.37	%
Borrowings and Debentures		2.12 ~ 2.45	%

There have been no transfers from Level 2 to Level 1 in 2015 and changes of financial assets classified as Level 3 for the year ended December 31, 2015 are as follows:


(In millions of won)
	Balance at beginning		Gain for the period			Other comprehensive loss			Disposal			Balance at ending

Financial assets at fair value through profit or loss	W	7,817		(744	)		—			—			7,073
Available-for-sale financial assets		48,932		—			(4,749	)		(14,882	)		29,301

30.

Financial Risk Management, Continued

(4)

Enforceable master netting agreement or similar agreement

Carrying amount of financial instruments recognized of which offset agreements are applicable as of December 31, 2015 and 2014 are as follows:


	December 31, 2015
(In millions of won)	Gross financial instruments recognized		Gross offset financial instruments recognized			Net financial instruments presented on the statements of financial position		Relevant amount not offset on the statements of financial position					Net amount
(In millions of won)	Gross financial instruments recognized		Gross offset financial instruments recognized					Financial instruments			Cash collaterals received		Net amount
Financial assets:
Derivatives(*)	W	55,673		—			55,673		(55,673	)		—		—
Accounts receivable – trade and others		129,527		(113,003	)		16,524		—			—		16,524

	W	185,200		(113,003	)		72,197		(55,673	)		—		16,524

Financial liabilities:
Derivatives(*)	W	89,734		—			89,734		(55,673	)		—		34,061
Accounts payable – other and others		113,003		(113,003	)		—		—			—		—

	W	202,737		(113,003	)		89,734		(55,673	)		—		34,061


	December 31, 2014
(In millions of won)	Gross financial instruments recognized		Gross offset financial instruments recognized			Net financial instruments presented on the statements of financial position		Relevant amount not offset on the statements of financial position					Net amount
(In millions of won)	Gross financial instruments recognized		Gross offset financial instruments recognized					Financial instruments			Cash collaterals received		Net amount
Financial assets:
Derivatives(*)	W	48,057		—			48,057		(45,892	)		—		2,165
Accounts receivable – trade and others		128,794		(117,568	)		11,226		—			—		11,226

	W	176,851		(117,568	)		59,283		(45,892	)		—		13,391

Financial liabilities:
Derivatives(*)	W	45,892		—			45,892		(45,892	)		—		—
Accounts payable – other and others		117,568		(117,568	)		—		—			—		—

	W	163,460		(117,568	)		45,892		(45,892	)		—		—

(*)	The amount applicable by enforceable master netting agreement according to ISDA (International Swap and Derivatives Association).

31.

Transactions with Related Parties

(1)

List of related parties


Relationship		Interest rate
Ultimate Controlling Entity		SK Holdings Co., Ltd.
Subsidiaries		SK Planet Co., Ltd. and 36 others(*)
Joint venture		Dogus Planet, Inc. and three others
Associates		SK hynix Inc. and 52 others
Affiliates		The Ultimate Controlling Entity’s subsidiaries and associates, etc.

(*)	As of December 31, 2015, subsidiaries of the Company are as follows:


Company	Ownership percentage (%)		Types of business
SK Telink Co., Ltd.		83.5	Telecommunication and MVNO service
M&Service Co., Ltd.		100.0	Data base and internet website service
SK Communications Co., Ltd.		64.6	Internet website services
Stonebridge Cinema Fund		55.2	Investment association
Commerce Planet Co., Ltd.		100.0	Online shopping mall operation agency
SK Broadband Co., Ltd.		100.0	Telecommunication services
K-net Culture and Contents Venture Fund		59.0	Investment association
Fitech Focus Limited Partnership II		66.7	Investment association
Open Innovation Fund		98.9	Investment association
PS&Marketing Corporation		100.0	Communications device retail business
Service Ace Co., Ltd.		100.0	Customer center management service
Service Top Co., Ltd.		100.0	Customer center management service
Network O&S Co., Ltd.		100.0	Base station maintenance service
SK Planet Co., Ltd.		100.0	Telecommunication service
Neosnetworks Co., Ltd.		83.9	Guarding of facilities
IRIVER LIMITED		49.0	Manufacturing of media and sound equipment
iriver Enterprise Ltd.		100.0	Management of Chinese subsidiary
iriver America Inc.		100.0	Sales and marketing in North America
iriver Inc.		100.0	Sales and marketing in North America
iriver China Co., Ltd.		100.0	Manufacturing of MP3,4 and domestic sales in China
Dongguan iriver Electronics Co., Ltd.		100.0	Manufacturing of e-book and domestic sales in China
Groovers JP Ltd.		100.0	Digital music contents sourcing and distribution service
SK Telecom China Holdings Co., Ltd.		100.0	Investment association
SK Global Healthcare Business Group., Ltd.		100.0	Investment association
SK Planet Japan K.K.		100.0	Digital contents sourcing service
SKT Vietnam PTE. Ltd.		73.3	Telecommunication service
SK Planet Global PTE. Ltd.		100.0	Digital contents sourcing service
SKP GLOBAL HOLDINGS PTE. LTD.		100.0	Investment association
SKT Americas, Inc.		100.0	Information gathering and consulting
SKP America LLC.		100.0	Digital contents sourcing service
YTK Investment Ltd.		100.0	Investment association
Atlas Investment		100.0	Investment association
Technology Innovation Partners, L.P.		100.0	Investment association
SK Telecom China Fund I L.P.		100.0	Investment association
Entrix Co., Ltd.		100.0	Cloud streaming service
shopkick Management Company, Inc.		95.2	Investment association
shopkick, Inc.		100.0	Mileage-based online transaction App Development

31.

Transactions with Related Parties, Continued

(2)

Compensation for the key management

The Company considers registered directors who have substantial role and responsibility in planning, operating, and controlling of the business as key management. The compensation given to such key management for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015		2014
Salaries	W	1,971		2,600
Provision for retirement benefits		626		907

	W	2,597		3,507

Compensation for the key management includes salaries, non-monetary salaries and contributions made in relation to the pension plan.

(3)

Transactions with related parties for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)		2015
Scope	Company	Operating revenue and others		Operating expense and others		Acquisition of property and equipment		Loans		Loans collection
Ultimate Controlling Entity	SK Holdings Co., Ltd. (formerly, SK C&C Co., Ltd.)(*1)	W	7,353		249,193		152,752		—		—
Ultimate Controlling Entity	SK Holdings Co., Ltd. (formerly, SK Holdings Co., Ltd.)(*2,3)		369		207,193		—		—		—

			7,722		456,386		152,752		—		—

Subsidiaries	SK Broadband Co., Ltd.		127,851		551,219		42,413		—		—
	PS&Marketing Corporation		11,073		799,503		1,150		—		—
	Network O&S Co., Ltd.		4,862		176,581		20,251		—		—
	SK Planet Co., Ltd.(*4)		192,763		542,945		10,488		—		—
	SK Telink Co., Ltd.		62,527		23,642		5		—		—
	Service Ace Co., Ltd.		7,621		144,136		—		—		—
	Service Top Co., Ltd.		8,403		157,953		—		—		—
	Others		11,739		37,453		592		—		—

			426,839		2,433,432		74,899		—		—

Associates	F&U Credit information Co., Ltd.		1,670		40,345		—		—		—
	HappyNarae Co., Ltd.		85		3,717		12,432		—		—
	SK hynix Inc.(*5)		51,548		2,384		—		—		—
	SK Wyverns Baseball Club Co., Ltd.		1,799		18,017		—		—		204
	KEB HanaCard Co., Ltd.		21,414		16,057		—		—		—
	Others(*6)		2,793		5,494		680		690		—

			79,309		86,014		13,112		690		204

31.

Transactions with Related Parties, Continued

(3)

Transactions with related parties for the years ended December 31, 2015 and 2014 are as follows, Continued:


(In millions of won)		2015
Scope	Company	Operating revenue and others		Operating expense and others		Acquisition of property and equipment		Loans		Loans collection
Other	SK Engineering & Construction Co., Ltd.	W	14,106		19,245		159,712		—		—
	SK Networks Co., Ltd.		6,933		17,161		—		—		—
	SK Networks service Co., Ltd.		10,269		49,427		5,985		—		—
	SK Telesys Co., Ltd.		156		9,393		76,575		—		—
	Others		17,475		43,436		140,285		—		—

			48,939		138,662		382,557		—		—

Total		W	562,809		3,111,136		623,320		690		204

(*1)	On August 1, 2015, SK C&C Co., Ltd., the Ultimate Controlling Entity’s investor using equity method, merged SK Holdings Co., Ltd., the ultimate controlling entity of the Company, and changed its name to SK Holdings Co., Ltd.

(*2)	These relates to transactions occurred until July 31, 2015 before the merger with SK C&C Co., Ltd.

(*3)	Operating expense and others include W191,416 million of dividends paid by the Company.

(*4)	Operating revenue and others include W140,834 million of dividend recognized due to the declaration of dividend in kind of SK Planet Co., Ltd., a subsidiary of the Company.

(*5)	Operating revenue and others include W43,830 million of dividends received from SK hynix Inc.

(*6)	Operating revenue and others include W2,103 million and W227 million of dividends received from Korea IT Fund and UniSK, respectively.

31.

Transactions with Related Parties, Continued

(3)

Transactions with related parties for the years ended December 31, 2015 and 2014 are as follows, Continued:


(In millions of won)		2014
Scope	Company	Operating revenue and others		Operating expense and others		Acquisition of property and equipment		Loans		Loans collection
Ultimate Controlling Entity	SK Holdings Co., Ltd.(*1)	W	491		218,169		—		—		—
Subsidiaries	SK Broadband Co., Ltd.		141,640		561,418		27,564		—		—
	PS&Marketing Corporation		13,683		833,013		2,309		—		—
	Network O&S Co., Ltd.		4,830		170,737		581		—		—
	SK Planet Co., Ltd.		60,502		524,311		16,301		—		—
	SK Telink Co., Ltd.		52,811		36,196		227		—		—
	Service Ace Co., Ltd.		7,252		143,706		—		—		—
	Service Top Co., Ltd.		6,617		153,307		—		—		—
	Others		12,851		33,220		1,238		—		—

			300,186		2,455,908		48,220		—		—

Associates	F&U Credit information Co., Ltd.		1,808		42,078		—		—		—
	HappyNarae Co., Ltd.		14		3,614		9,646		—		—
	SK hynix Inc.		9,628		3,391		—		—		—
	SK USA, Inc.		—		2,153		—		—		—
	SK Wyverns Baseball Club Co., Ltd.		18		22,122		—		—		204
	HanaSK Card Co., Ltd.(*2)		25,295		3,902		—		—		—
	Others		1,409		6,140		—		45		—

			38,172		83,400		9,646		45		204

Other	SK Engineering & Construction Co., Ltd.		2,382		39,412		304,489		—		—
	SK C&C Co., Ltd.		5,134		259,168		112,158		—		—
	SK Networks Co., Ltd.		12,442		182,104		4,029		—		—
	SK Networks Services Co., Ltd.		10,321		28,293		1,600		—		—
	SK Telesys Co., Ltd.		272		8,564		121,488		—		—
	Others		13,977		20,628		8,905		—		—

			44,528		538,169		552,669		—		—

Total		W	383,377		3,295,646		610,535		45		204

31.

Transactions with Related Parties, Continued

(3)

Transactions with related parties for the years ended December 31, 2015 and 2014 are as follows, Continued:

(*1)	Operating expense and others include W191,416 million of dividends paid by the Company.

(*2)	For the year ended December 31, 2014, due to merger between Hana SK Card Co., Ltd., the Company’s associate, and KEB Card Co., Ltd., the Company exchanged 57,647,058 shares of Hana SK Card Co., Ltd. with 67,627,587 shares of the surviving company, KEB HanaCard Co., Ltd.

(4)

Account balances as of December 31, 2015 and 2014 are as follows:


(In millions of won)		December 31, 2015
		Accounts receivable				Accounts payable
Scope	Company	Loans		Accounts receivable- trade, and others		Accounts payable – trade, and others
Ultimate Controlling Entity	SK Holdings Co., Ltd. (formerly, SK C&C Co., Ltd.)(*)	W	—		1,100		107,995
Subsidiaries	SK Broadband Co., Ltd.		—		2,160		24,847

	PS&Marketing Corporation		—		614		62,592
	Network O&S Co., Ltd.		—		665		33,658
	SK Planet Co., Ltd.		—		6,722		36,874
	SK Telink Co., Ltd.		—		10,026		3,068
	Service Ace Co., Ltd.		—		—		20,684
	Service Top Co., Ltd.		—		63		21,772
	Others		—		4,722		17,116

			—		24,972		220,611

Associates	HappyNarae Co., Ltd.		—		—		4,987
	SK hynix Inc.		—		4,360		155
	SK Wyverns Baseball Club., Ltd.		1,017		4,502
	Wave City Development Co., Ltd.		1,890		38,412		—
	Daehan Kanggun BcN Co., Ltd.		22,147		—		—
	Hana Card Co., Ltd.		—		1,771		7,262
	Others		—		74		1,838

			25,054		49,119		14,242

Other	SK Engineering and Construction Co., Ltd.		—		648		14,877
	SK Networks Co., Ltd.		—		656		924
	SK Networks Services Co., Ltd.		—		—		8,963
	SK Telesys Co., Ltd.		—		117		3,585
	SK Innovation Co., Ltd.		—		2,133		292
	Others		—		2,581		39,193

			—		6,135		67,834

Total		W	24,054		81,326		410,682

31.

Transactions with Related Parties, Continued

(4)

Account balances as of December 31, 2015 and 2014 are as follows, Continued:

(*)	On August 1, 2015, SK C&C Co., Ltd., the Ultimate Controlling Entity’s investor using equity method, merged SK Holdings Co., Ltd., the ultimate controlling entity of the Company, and changed its name to SK Holdings Co., Ltd.


(In millions of won)		December 31, 2014
		Accounts receivable				Accounts payable
Scope	Company	Loans		Accounts receivable- trade, and others		Accounts payable and others
Ultimate Controlling Entity	SK Holdings Co., Ltd.	W	—		89		—
Subsidiaries	SK Broadband Co., Ltd.		—		3,236		38,432

	PS&Marketing Corporation		—		566		101,431
	Network O&S Co., Ltd.		—		1,201		12,981
	SK Planet Co., Ltd.		—		9,711		51,991
	SK Telink Co., Ltd.		—		10,306		5,665
	Service Ace Co., Ltd.		—		436		19,972
	Service Top Co., Ltd.		—		887		21,386
	Others		—		8,890		15,042

			—		35,233		266,900

Associates	HappyNarae Co., Ltd.		—		—		1,780
	SK hynix Inc.		—		2,561		2,763
	SK Wyverns Baseball Club., Ltd.		1,221		—		—
	Wave City Development Co., Ltd.		1,200		38,412		—
	Daehan Kanggun BcN Co., Ltd.		22,147		—		—
	HanaSK Card Co., Ltd.		—		1,867		38
	Others		—		226		840

			24,568		43,066		5,421

Other	SK Engineering and Construction Co., Ltd.		—		359		3,754
	SK C&C Co., Ltd.		—		718		76,777
	SK Networks Co., Ltd.		—		2,027		4,766
	SK Networks Services Co., Ltd.		—		12		2,004
	SK Telesys Co., Ltd.		—		282		1,559
	SK Innovation Co., Ltd.		—		1,510		247

	Others		—		2,592		6,108

			—		7,500		95,215

Total		W	24,568		85,888		367,536

31.

Transactions with Related Parties, Continued

(5)

As of December 31, 2015, there are no collateral or guarantee provided by related parties to the Company, nor by the Company to related parties.

(6)

During the year ended December 31, 2014, the company acquired convertible bonds with a face value of W6,000 million, respectively, from Health Connect Co., Ltd. at the face value. During the year ended December 31, 2015, the Company exercised the conversion right for the convertible bonds of Health Connect Co., Ltd. As a result of this transaction, investments in associates have increased by W5,900 million.

(7)

The Company made an additional investment in associates and joint ventures during the year ended December 31, 2015. (Refer to Note 8)

32.

Sale and Leaseback

During the year ended December 31, 2012, the Company disposed a portion of its property and equipment and investment property, and entered into lease agreements with respect to those assets. This sale and leaseback transaction is considered as an operating lease.

In addition, the Company subleased portion of the leased assets. The Company recognized lease payment of W14,539 million and W14,075 million, respectively, relating to the above operating lease agreement and lease revenue of W9,540 million and W7,933 million, respectively, through a sublease agreement for the years December 31, 2015 and 2014. Future lease payments and lease revenue from the above operating lease agreement and sublease agreement as of December 31, 2015 are as follows:


(In millions of won)
	2015
	Lease payments		Lease revenue
Less than 1 year	W	14,975		9,540
1~5 years		53,819		29,784
More than 5 years		27,555		13,496

	W	96,349		52,820

33.

Statements of Cash Flows

(1)

Adjustments for income and expenses from operating activities for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015			2014
Gain on foreign currency translation	W	(770	)		(1,373	)
Interest income		(20,560	)		(25,015	)
Dividends		(200,296	)		(13,048	)
Gain relating to financial assets at fair value through profit or loss		—			(2,817	)
Gain on disposal of long-term investments securities		(5,058	)		(9,807	)
Gain on disposal of property and equipment and intangible assets		(3,827	)		(3,676	)
Gain on valuation of derivatives		(1,927	)		(8,713	)
Gain on settlement of derivatives		—			(7,998	)
Gain relating to financial liabilities at fair value through profit or loss		(5,188	)		—
Other income		(7,545	)		—
Loss on foreign currency translation		318			167
Bad debt for accounts receivable - trade		37,715			27,313
Bad debt for accounts receivable - other		15,328			15,873
Loss on disposal of long-term investments securities		842			57
Other finance costs		54,131			—
Loss relating to financial assets at fair value through profit or loss		744			1,352
Depreciation and amortization		2,279,906			2,208,719
Loss on disposal of property and equipment and intangible assets		15,644			17,493
Impairment loss on property and equipment and intangible assets		2,015			18,490
Interest expenses		241,608			265,195
Loss relating to financial liabilities at fair value through profit or loss		526			10,369
Loss on settlement of derivatives		4,845			672
Loss relating to investments in subsidiaries and associates		3,819			57,593
Provision for retirement benefits		35,380			34,570
Income tax expense		362,683			293,209
Other expenses		1,385			7,764

	W	2,811,718			2,886,389

33.

Statements of Cash Flows, Continued

(2)

Changes in assets and liabilities from operating activities for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015			2014
Accounts receivable – trade	W	(6,926	)		(73,295	)
Accounts receivable – other		26,179			67,681
Advance payments		(33,746	)		(56,834	)
Prepaid expenses		(6,150	)		(3,233	)
Inventories		(23,047	)		265
Long-term prepaid expenses		(1,252	)		(5,544	)
Guarantee deposits		(9,359	)		(1,798	)
Accounts payable – other		(201,996	)		(247,067	)
Advanced receipts		10,952			(4,451	)
Withholdings		(193,428	)		226,952
Deposits received		(8,024	)		(2,944	)
Accrued expenses		(89,685	)		(48,641	)
Unearned revenue		(99,545	)		(117,136	)
Provisions		(11,134	)		(38,491	)
Long-term provisions		(4,557	)		29,959
Plan assets		(19,788	)		(41,185	)
Retirement benefit payment		(29,795	)		(21,887	)
Others		2,195			2,751

	W	(699,106	)		(334,898	)

(3)

Significant non-cash transactions for the years ended December 31, 2015 and 2014 are as follows:


(In millions of won)
	2015		2014
Transfer of other property and equipment and others to construction in progress	W	729,944		1,082,767
Transfer of construction in progress to property and equipment and intangible assets		1,756,866		1,891,236
Accounts payable - other related to acquisition of property and equipment and intangible assets		42,678		(222,345	)

Independent Accountants’ Review Report on Internal Accounting Control System

English translation of a Report Originally Issued in Korean

To the Representative Director of

SK Telecom Co., Ltd.

We have reviewed the accompanying Report on the Operations of Internal Accounting Control System (“IACS”) of SK Telecom Co., Ltd. (the “Company”) As of December 31, 2015. The Company’s management is responsible for designing and maintaining effective IACS and for its assessment of the effectiveness of IACS. Our responsibility is to review management’s assessment and issue a report based on our review. In the accompanying report of management’s assessment of IACS, the Company’s management stated: “Based on the assessment on the operations of the IACS, the Company’s IACS has been effectively designed and is operating as of December 31, 2015, in all material respects, in accordance with the IACS Framework issued by the Internal Accounting Control System Operation Committee.”

We conducted our review in accordance with IACS Review Standards, issued by the Korean Institute of Certified Public Accountants. Those Standards require that we plan and perform the review to obtain assurance of a level less than that of an audit as to whether Report on the Operations of Internal Accounting Control System is free of material misstatement. Our review consists principally of obtaining an understanding of the Company’s IACS, inquiries of company personnel about the details of the report, and tracing to related documents we considered necessary in the circumstances. We have not performed an audit and, accordingly, we do not express an audit opinion.

A company’s IACS is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, however, IACS may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on our review, nothing has come to our attention that Report on the Operations of Internal Accounting Control System as of December 31, 2015 is not prepared in all material respects, in accordance with IACS Framework issued by the Internal Accounting Control System Operation Committee.

This report applies to the Company’s IACS in existence as of December 31, 2015. We did not review the Company’s IACS subsequent to December 31, 2015. This report has been prepared for Korean regulatory purposes, pursuant to the External Audit Law, and may not be appropriate for other purposes or for other users.

February 23, 2016

Report on the Assessment of Internal Accounting Control System (“IACS”)

English translation of a Report Originally Issued in Korean

To the Board of Directors and Audit Committee of

SK Telecom Co., Ltd.

I, as the Internal Accounting Control Officer (“IACO”) of SK Telecom Co., Ltd. (“the Company”), assessed the status of the design and operation of the Company’s IACS as of December 31, 2015.

The Company’s management including IACO is responsible for designing and operating IACS. I, as the IACO, assessed whether the IACS has been appropriately designed and is effectively operating to prevent and detect any error or fraud which may cause any misstatement of the financial statements, for the purpose of preparing and disclosing reliable financial statements reporting. I, as the IACO, applied the IACS Framework established by the Korea Listed Companies Association for the assessment of design and operation of the IACS.

Based on the assessment of the IACS, the Company’s IACS has been appropriately designed and is operating effectively as of December 31, 2015, in all material respects, in accordance with the IACS Framework issued by the Internal Accounting Control System Operation Committee.

February 3, 2016

/s/ Internal Accounting Control Officer

/s/ Chief Executive Officer

2.	Approval of Amendments to the Articles of Incorporation

The proposed amendments are as follows:


Current	Proposed Amendment	Remarks

Article 2. Objectives ① (Text omitted) ② In order to achieve the above objectives, the Company carries on the following businesses: 1.~19. (Text omitted) 20. Any other incidental businesses relating to the foregoing activities (amended on March 18, 2016). ③ (Text omitted)	Article 2. Objectives ① (Same as the present text) ② (Same as the present text) 1.~19. (Same as the present text) 20. Electric utility business including smart grid business, etc. (newly established on March 18, 2016); and 21. Any other incidental businesses relating to the foregoing activities (amended on March 18, 2016). ③ (Same as the present text)	Addition of related business due to the promotion of new business opportunities

	Addendum No. 25 (as of March 18, 2016) Article 1. Date of Effectiveness These Articles of Incorporation shall take effect as of March 18, 2016.

3.	Approval of the Appointment of Directors

(1)

Executive Director


Name	Term	Profile			Remarks

		¨	Education

			•	B.A. in Sociology, Korea University

			•	M.B.A., Clark University

		¨	Career

Cho, Dae Sik	3 years		•	CEO, SK Holdings Co., Ltd. (‘13~ Current)	Current Director
			•	CFO, Head of Finance Division and Risk Mgmt. & Corporate Auditing Office, SK Holdings (‘12)	Current Director

			•	Head of Business Mgmt. Office, SK Holdings (‘10~‘11)

			•	Head of Corporate Business Mgmt. Office, SK Holdings (‘09)

			•	SVP, Finance Mgmt. & Strategy Office, SK Holdings (‘07 ~‘08)

(2)

Independent Non-Executive Director


Name	Term	Profile			Remarks

		¨	Education

			•	B.A. in Archeology, Seoul National University (’73)

		¨	Career

		•	Advisor, Bae, Kim & Lee LLC (Law firm) (‘08 ~ Current)

Oh, Dae Shick	3 years	•	Head of Seoul Regional Tax Office (‘07~‘08)		Current Director
		•	Head of Investigation Dept., Korea National Tax Service (‘06~‘07)		Current Director

		•	Head of Policy Promotion Dept., Korea National Tax Service (‘05~‘06)

		•	Head of Investigation Dept., Seoul Regional Tax Office (‘03~‘05)

4.	Approval of the Election of a Member of the Audit Committee

(1)

Audit Committee Member


Name	Term	Profile			Remarks

		¨	Education

			•	B.A. in Archeology, Seoul National University (‘73)

		¨	Career

		•	Outside Director, CJ Corporation (‘11 ~ Current)

Oh, Dae Shick	3 years	•	Outside Director, Doosan Corporation (‘10 ~ To resign)		Current Director
		•	Advisor, Bae, Kim & Lee LLC (Law firm) (‘08 ~ Current)

		•	Head of Seoul Regional Tax Office (‘07~‘08)

		•	Head of Investigation Dept., Korea National Tax Service (‘06~‘07)

		•	Head of Policy Promotion Dept., Korea National Tax Service (‘05~‘06)

		•	Head of Investigation Dept., Seoul Regional Tax Office (‘03~‘05)

5.	Approval of Ceiling Amount of the Remuneration of Directors

The number of directors and total amount and maximum authorized amount of compensation of directors are as follows:


Classification	Fiscal year 2015	Fiscal year 2016

Number of directors (Number of independent non-executive directors)	6 persons (4 persons)	6 persons (4 persons)

Total amount and maximum authorized amount of compensation of directors	Won 12 billion	Won 12 billion

6.	Approval of Amendment to the Remuneration Policy for Executives

According to the “position grade-based” [performance management standard] adopted in 2012 with respect to the Company’s executives, amendments to the severance pay policy for executives are proposed as below.

< Severance Payout Rate Grade >


Before amendment
Position	Years of Service	Payout Rate

Chairman	1		6.0

Vice Chairman	1		5.5
President	1		5.5

Senior Executive Vice President	1		3.5
Executive Vice President	1		3.5

Senior Vice President	1		2.5


After amendment
Grade	Years of Service	Payout Rate

Chairman, Vice Chairman	1		4.0
Grade E	1
Grade D	1

Grade C	1		3.5
Grade B	1		3.5

Grade A	1		2.5

The severance payment amount is to be calculated as the sum of the relevant executive’s monthly salary multiplied by the payout ratio corresponding to the executive’s grade for each year of service. The proposed amendments are to be effective April 1, 2016. The payout rate with respect to periods of service prior to April 1, 2016 will be determined on the basis of the severance payout rate scale prior to the above amendments.

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/ Lee, Sunghyung


(Signature)
Name:		Lee, Sunghyung
Title:		Senior Vice President

Date: March 23, 2016