Edgar Filing: SK TELECOM CO LTD

(As of June 30, 2014)

(Unit: in millions of Won)

Aggregate Amount Paid

Sung Min Ha

Chief Executive Officer and President

Dong Seob Jee

Head of Strategy & Planning Office

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 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE MONTH OF SEPTEMBER 2014

COMMISSION FILE NUMBER 333-04906

SK Telecom Co., Ltd.

(Translation of registrant’s name into English)

Euljiro65(Euljiro2-ga), Jung-gu

Seoul 100-999, Korea

(Address of principal executive offices)

(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

Form 20-F 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): ¨

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submission to furnish a report or other document that the registration foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes ¨ No x

If “Yes” is marked, indicate below the file number assigned to the Registrant in connection with Rule 12g3-2(b): 82-

SEMI-ANNUAL BUSINESS REPORT

(From January 1, 2014 to June 30, 2014)

THIS IS A SUMMARY OF THE SEMI-ANNUAL BUSINESS REPORT ORIGINALLY PREPARED IN KOREAN AND IS IN SUCH FORM AS REQUIRED BY THE KOREAN FINANCIAL SERVICES COMMISSION.

IN THE TRANSLATION PROCESS, SOME PARTS OF THE REPORT WERE REFORMATTED, REARRANGED OR SUMMARIZED FOR THE CONVENIENCE OF READERS.

ALL REFERENCES TO THE “COMPANY,” “WE,” “US,” OR “OUR” SHALL MEAN SK TELECOM CO., LTD. AND, UNLESS THE CONTEXT OTHERWISE REQUIRES, ITS CONSOLIDATED SUBSIDIARIES. REFERENCES TO “SK TELECOM” SHALL MEAN SK TELECOM CO., LTD., BUT SHALL NOT INCLUDE ITS CONSOLIDATED SUBSIDIARIES.

UNLESS EXPRESSLY STATED OTHERWISE, ALL INFORMATION CONTAINED HEREIN IS PRESENTED ON A CONSOLIDATED BASIS IN ACCORDANCE WITH THE INTERNATIONAL FINANCIAL REPORTING STANDARDS ADOPTED FOR USE IN KOREA (“K-IFRS”) WHICH DIFFER IN CERTAIN RESPECTS FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CERTAIN OTHER COUNTRIES, INCLUDING THE UNITED STATES. WE HAVE MADE NO ATTEMPT TO IDENTIFY OR QUANTIFY THE IMPACT OF THESE DIFFERENCES.

I. COMPANY OVERVIEW

1. Company Overview

Starting in the first quarter of 2011, the Company prepares and reports its financial statements under K-IFRS. The transition date of the Company and its consolidated subsidiaries to K-IFRS is January 1, 2010 and the adoption date is January 1, 2011. The Company’s semi-annual business report for the six months ended June 30, 2014 includes the following consolidated subsidiaries:


Name	Date of Establishment	Principal Business	Total Assets as of Dec. 31, 2013 (millions of Won)		Material Subsidiary*
SK Telink Co., Ltd.	Apr. 9, 1998	Telecommunication services and satellite broadcasting services		252,475	Material
M&Service Co., Ltd.	Feb. 10, 2000	Online information services		68,587	Material
SK Communications Co., Ltd.	Sep. 19, 1996	Internet portal and other Internet information services		205,792	Material
Stonebridge Cinema Fund	Sep. 30, 2005	Investment partnership		11,974
Commerce Planet Co., Ltd.	Jul. 1, 1997	Online shopping mall operation services		26,237
SK Broadband Co., Ltd.	Sep. 26, 1997	Fixed-line telecommunication services, multimedia and IPTV services		3,044,349	Material
K-net Culture and Contents Venture Fund	Nov. 24, 2008	Investment partnership		16,181
Hwaitec Focus Investment Partnership 2	Dec. 12, 2008	Investment partnership		21,446
Open Innovation Fund	Dec. 22, 2008	Investment partnership		27,996
PS&Marketing Co., Ltd.	Apr. 3, 2009	Sale of telecommunication devices		277,300	Material
Service Ace Co., Ltd.	Jul. 1, 2010	Customer center management services		56,276	Material
Service Top Co., Ltd.	Jul. 1, 2010	Customer center management services		48,369
Network O&S Co., Ltd.	Jul. 1, 2010	Network maintenance services		56,677	Material
BNCP Co., Ltd.	Dec. 7, 2009	Internet services		12,108
SK Planet Co., Ltd.	Oct. 1,2011	Telecommunication and platform services		2,528,054	Material
SK Planet Japan, K.K.	Mar. 14, 2012	Digital contents sourcing services		1,793
SK Planet Global PTE, LTD.	Aug. 4, 2012	Digital contents sourcing services		697
SK Planet America LLC	Jan. 27, 2012	Digital contents sourcing services		22,399
SKP Global Holdings PTE, LTD.	Aug. 10, 2012	Holding company for overseas commerce		20,713
SK Global Healthcare Business Group, Ltd.	Sep. 14, 2012	Investment		27,625
Technology Innovation Partners, L.P.	Jun. 24, 2011	Investment		23,759
SK Telecom China Fund I L.P.	Sep. 14, 2011	Investment		3,166
SK Telecom China Holdings Co., Ltd.	Jul. 12, 2007	Investment		36,261
Shenzhen E-eye High Tech Co., Ltd.	Apr. 1, 2000	Telematics manufacturing		17,894


Name	Date of Establishment	Principal Business	Total Assets as of Dec. 31, 2013 (millions of Won)		Material Subsidiary*
SKT Vietnam PTE., Ltd.	Apr. 5, 2000	Telecommunication services		11,773
SKT Americas, Inc.	Dec. 29, 1995	Information collection and management consulting services		33,876
YTK Investment Ltd.	Jul. 1, 2010	Investment		42,118
Atlas Investment	Jun. 24, 2011	Investment		40,218
NEOS Networks Co., Ltd.	Jun. 12, 2008	Security system services		14,202

*	Material Subsidiary means a subsidiary with total assets of Won 50 billion or more as of the end of the latest fiscal year.

A. Corporate Legal Business Name: SK Telecom Co., Ltd.

B. Date of Incorporation: March 29, 1984

C. Location of Headquarters

(1) Address: 65 Euljiro, Jung-gu, Seoul, Korea

(2) Phone: +82-2-6100-2114

(3) Website: http://www.sktelecom.com

D. Major Businesses

(1) Wireless business

The Company provides wireless telecommunications services, characterized by its competitive strengths in handheld devices, affordable pricing, network coverage and an extensive contents library. Since the introduction of services employing LTE technology in July 2011, the telecommunications market for such services has grown as demand for fast data transfer speeds and differentiated services has increased. Having reached one million subscribers by January 2012 and over 10 million subscribers by April 2013, the Company has solidified its leadership position in LTE services as it has done with its 3G services. In June 2013, the Company became the first telecommunications service provider in the world to provide commercial LTE-Advanced (“LTE-A”) services using carrier aggregation technology, and in June 2014, the Company reaffirmed the Company’s technological leadership by becoming the first to provide commercial 225 Mbps wideband LTE-A services, which is three times faster than LTE. In line with such efforts, the Company set forth its vision under the name of “ICTnomics” which is derived from the meaning of information and communication technology (“ICT”), and launched unlimited LTE data plans and other innovative data plans such as “Rush hour / Subway Free” plans that are unlimited data plans based on time, place and occasion (or, TPO). The Company plans to increase profitability by transforming into a telecommunications company fit for the age of big data and strengthening its fundamental competitive edges. By pioneering services that provide differentiated customer experience, including the “T-Phone,” the Company expects to become a leader in ICT.

In the business-to-business area, the Company is strengthening its solutions business through the implementation of five main solution products: Smart Store, Smart Work, Smart Cloud, Green & Safety and M–Ad & Payment. Since the commercial launch of its mobile IPTV services, “B tv Mobile,” in October 2012, the Company has gained over one million paying subscribers as of March 2014. The Company is the first telecommunications services provider in the world to provide full high definition streaming services using its LTE-A network. With increasing video on demand usage and the potential to expand into other business areas such as advertising and shopping, the Company expects that the mobile IPTV services business will grow in the mid- to long-term. The Company also plans to create and fortify new businesses including health care, and seek out new growth engines in existing businesses, including the intelligence business, by utilizing its technologies relating to big data.

In addition, in order to strengthen our sales channels, the Company has been offering a variety of fixed-line and wireless telecommunication convergence products to its customers through PS&Marketing Co., Ltd. (“PS&Marketing”), one of its subsidiaries. Through Service Ace Co., Ltd., another subsidiary, the Company operates customer service centers in Seoul and provides telemarketing services. Furthermore, Network O&S Co., Ltd., the Company’s subsidiary responsible for the operation of the Company’s 2G to 4G networks (including its CDMA, WCDMA and LTE networks), provides customers with quality network services and provides the Company with technological know-how in network operations.

(2) Fixed-line business

SK Broadband Co., Ltd. (“SK Broadband”) is engaged in providing telecommunications, broadcasting and new media services and various other services that are permitted to be carried out by SK Broadband under relevant regulations, as well as business activities that are directly or indirectly related to providing those services. In 1999, SK Broadband launched its high-speed Internet service in Seoul, Busan, Incheon and Ulsan, and currently provides such service nationwide. SK Broadband also commercialized its TV-Portal service in July 2006 and its IPTV service in January 2009 upon receipt of permit in September 2008.

(3) Other businesses

With respect to the Company’s e-commerce business, 11th Street, a platform service that connects various sellers and purchasers online, continues to gain market share. In the commerce platform business area, the Company, utilizing the existing network of partner businesses of OK Cashbag, Korea’s largest loyalty mileage program with 37 million members, consumer information from big data, information technology, and other sources of competitive edges that can lead the industry, launched Syrup to provide smart shopping services to consumers and Syrup Store to provide integrated marketing solutions to partner businesses in June 2014. Syrup, a mobile wallet service upgraded and rebranded from the Smart Wallet, reached 11.7 million users as of June 30, 2014 and leads the online-to-offline commerce. In the location-based services business area, users of the Company’s T-Map Navigation service reached 19.2 million as of June 30, 2014. T-Map Navigation provides real time traffic information and various local information. Utilizing location-based service technology in other services, including leisure, logistics and travel services, the Company provides increased convenience and added value to customers. In the digital contents business area, the Company provides high-quality digital contents in its leading mobile contents marketplace, T Store, which had 22.7 million subscribers as of June 30, 2014 and which the Company plans to expand. In the media business area, the Company provides “Hoppin” service that enables subscribers to access various multimedia contents through personal computers, mobile devices and other digital devices. In the advertising business area, the Company is engaged in advertisement production, promotion services and research and consulting services to substantively help businesses increase their value in a rapidly evolving business environment. Through M&Service Co., Ltd. (“M&Service”), one of its subsidiaries, the Company also develops, supplies and provides technical support for system software relating to commerce platforms, and provides other online information services.

SK Communications Co., Ltd. (“SK Communications”) provides integrated Internet portal services through NATE and instant messaging services through NATE-ON. Key sources of revenue for SK Communications are display advertising, search engine-based advertising, and contents and other services. Display advertising consists of image, video and Flash-based multimedia advertising carried on NATE and NATE-ON and aims to give greater exposure to the advertiser’s brand name to the public. The increased effectiveness of online media as an advertising outlet has resulted in a greatly expanded advertiser base, and the increasing variety in the format of advertising has contributed to the growth of display advertising. Search engine-based advertising refers to the type of advertising that embeds advertisements within search results produced by searches of certain keywords on the NATE portal site. Search engine-based advertising has a certain appeal to small and medium-sized advertisers. Contents and other services include contents sales and providing certain types of services. Revenues from contents and other services are generated through revenues from NATE-ON instant messaging, custom decorations for mobile phones, cartoon strips, fortunetelling, movies and other contents services. In addition, SK Planet Co., Ltd. (“SK Planet”) receives revenue from its services agreement with the Company in connection with operation of WAP wireless NATE services and application development.

See “II-1. Business Overview” for more information.

E. Credit Ratings

(1) Corporate bonds


Credit rating date	Subject of rating	Credit rating	Credit rating entity (Credit rating range)	Rating classification
June 21, 2012	Corporate bond	AAA	Korea Ratings	Regular rating
June 22, 2012	Corporate bond	AAA	Korea Investors Service, Inc.	Regular rating
June 29, 2012	Corporate bond	AAA	NICE Investors Service Co., Ltd.	Regular rating
August 10, 2012	Corporate bond	AAA	Korea Ratings	Current rating
August 14, 2012	Corporate bond	AAA	Korea Investors Service, Inc.	Current rating
August 14, 2012	Corporate bond	AAA	NICE Investors Service Co., Ltd.	Current rating
April 11, 2013	Corporate bond	AAA	Korea Ratings	Current rating
April 11, 2013	Corporate bond	AAA	Korea Investors Service, Inc.	Current rating
April 11, 2013	Corporate bond	AAA	NICE Investors Service Co., Ltd.	Current rating
April 11, 2013	Corporate bond	AAA	Korea Ratings	Regular rating
April 11, 2013	Corporate bond	AAA	Korea Investors Service, Inc.	Regular rating
April 11, 2013	Corporate bond	AAA	NICE Investors Service Co., Ltd.	Regular rating
April 22, 2014	Corporate bond	AAA	Korea Ratings	Regular rating
April 22, 2014	Corporate bond	AAA	Korea Investors Service, Inc.	Regular rating
April 22, 2014	Corporate bond	AAA	NICE Investors Service Co., Ltd.	Regular rating
April 22, 2014	Corporate bond	AAA	Korea Ratings	Current rating
April 22, 2014	Corporate bond	AAA	Korea Investors Service, Inc.	Current rating
April 22, 2014	Corporate bond	AAA	NICE Investors Service, Co., Ltd.	Current rating

*	Rating definition: “AAA” - The certainty of principal and interest payment is at the highest level with extremely low investment risk and is stable such that it will not be influenced by reasonably foreseeable changes in external factors.

(2) Commercial paper (“CP”)


Credit rating date	Subject of rating	Credit rating	Credit rating entity (Credit rating range)	Rating classification
June 21, 2012	CP	A1	Korea Ratings	Current rating
June 22, 2012	CP	A1	Korea Investors Service, Inc.	Current rating
June 29, 2012	CP	A1	NICE Investors Service Co., Ltd.	Current rating
December 14, 2012	CP	A1	Korea Investors Service, Inc.	Regular rating
December 18, 2012	CP	A1	Korea Ratings	Regular rating
December 18, 2012	CP	A1	NICE Investors Service Co., Ltd.	Regular rating
April 11, 2013	CP	A1	Korea Ratings	Current rating
April 11, 2013	CP	A1	Korea Investors Service, Inc.	Current rating
April 11, 2013	CP	A1	NICE Investors Service Co., Ltd.	Current rating
November 29, 2013	CP	A1	Korea Ratings	Regular rating
December 18, 2013	CP	A1	Korea Investors Service, Inc.	Regular rating
December 20, 2013	CP	A1	NICE Investors Service Co., Ltd.	Regular rating
April 22, 2014	CP	A1	Korea Ratings	Current rating
April 22, 2014	CP	A1	Korea Investors Service, Inc.	Current rating
April 22, 2014	CP	A1	NICE Investors Service Co., Ltd.	Current rating

*	Rating definition: “A1” - Timely repayment capability is at the highest level with extremely low investment risk and is stable such that it will not be influenced by reasonably foreseeable changes in external factors.

(3) International credit ratings


Date of credit rating	Subject of rating	Credit rating of securities	Credit rating company	Rating type
June 6, 2012	Bonds denominated in Swiss Franc	A-	Fitch Inc.	Current rating
June 4, 2012	Bonds denominated in Swiss Franc	A3	Moody’s Investors Service	Current rating
June 7, 2012	Bonds denominated in Swiss Franc	A-	Standard & Poor’s Rating Services	Current rating
October 24, 2012	Bonds denominated in U.S. dollars	A-	Fitch Inc.	Current rating
October 24, 2012	Bonds denominated in U.S. dollars	A3	Moody’s Investors Service	Current rating
October 24, 2012	Bonds denominated in U.S. dollars	A-	Standard & Poor’s Rating Services	Current rating

2. Company History

March 2008: Purchased shares of SK Broadband Co., Ltd. (formerly Hanaro Telecom)

May 2009: Participated in the public share offering of SK Broadband Co., Ltd.

September 2009: Acquired leased line and related other business of SK Networks Co., Ltd.

February 2010: Purchased shares of Hana Card Co., Ltd.

October 2011: SK Planet Co., Ltd. was spun off from the Company.

February 2012: Purchased shares of SK hynix Inc. (formerly, Hynix Semiconductor Inc.)

A. Location of Headquarters

•

22 Dohwa-dong, Mapo-gu, Seoul (July 11, 1988)

•

16-49 Hangang-ro 3-ga, Yongsan-gu, Seoul (November 19, 1991)

•

267 Namdaemun-ro 5-ga, Jung-gu, Seoul (June 14, 1995)

•

99 Seorin-dong, Jongro-gu, Seoul (December 20, 1999)

•

65 Euljiro, Jung-gu, Seoul (December 13, 2004)

B. Significant Changes in Management

At the Extraordinary General Meeting of Shareholders held on August 31, 2011, Jun Ho Kim was elected as an inside director and Jin Woo So resigned from the Company’s board of directors to transfer to an affiliate of the Company. At the 28th General Meeting of Shareholders held on March 23, 2012, (1) Young Tae Kim and Dong Seob Jee were elected as inside directors, (2) Hyun Chin Lim was re-elected as an independent director, and (3) Hyun Chin Lim was re-elected as a member of the audit committee of the Company’s board of directors. At the 29th General Meeting of Shareholders held on March 22, 2013, Dae Sik Cho was elected as an inside director and Dae Shick Oh was elected as an independent director and member of the audit committee of the Company’s board of directors. At the 30th General Meeting of Shareholders held on March 21, 2014, Jae Hoon Lee was elected as an independent director and Jae Hyeon Ahn was elected as an independent director and member of the audit committee of the Company’s board of directors.

C. Change in Company Name

On March 23, 2012, SK hynix Inc., which became our subsidiary in February 2012, changed its name to SK hynix Inc. from Hynix Semiconductor Inc. in accordance with a resolution at its annual general meeting of shareholders.

D. Mergers, Acquisitions and Restructuring

[SK Telecom]

(1) Spin-off

In accordance with the resolution of the Company’s board of directors on July 19, 2011 and the resolution of the shareholders’ meeting on August 31, 2011, the Company spun off its platform business and established SK Planet Co., Ltd. effective as of October 1, 2011. The registration of the spin-off was completed on October 5, 2011. Set forth below are important details of the spin-off.


Description		Detail
Method of Spin-off		Simple vertical spin-off
Resulting Companies		SK Telecom Co., Ltd. (Surviving Company) SK Planet Co., Ltd. (Spin-off Company)
Effective Date		October 1, 2011

Set forth below is a summary of the Company’s financial position before and after the spin-off.


				(in millions of Won)
Description	Before the spin-off (As of September 30, 2011)		After the spin-off (As of October 1, 2011)
Description	SK Telecom Co., Ltd.		SK Telecom Co., Ltd.		SK Planet Co., Ltd.
Total Assets		19,400,114		19,084,651		1,545,537
Total Liabilities		7,673,828		7,358,365		315,463
Total Shareholders’ Equity		11,726,286		11,726,286		1,230,074

The schedule of the spin-off is set forth below.


Category		Date
Board resolution on spin-off		July 19, 2011
Record Date for Determination of Shareholders for the Shareholders’ Meeting for Spin-off		August 4, 2011
Shareholders’ Meeting for Approval of Spin-off Plan		August 31, 2011
Date of Spin-off		October 1, 2011
Shareholders’ Meeting for Report of Spin-off and Inaugural Meeting of Shareholders		October 4, 2011
Registration of Spin-off		October 5, 2011
Others	Notice of closure of shareholders register Period of closure of shareholders register Public notice of shareholders’ meeting Dispatch of notice of shareholders’ meeting	July 20, 2011 August 5, 2011~ August 8, 2011 August 10, 2011 and August 12, 2011 August 12, 2011

•

Changes in shareholding, including majority shareholder

•

Not applicable because the spin-off is a simple vertical spin-off.

•

Appraisal rights of shareholders

•

Not applicable because the spin-off is a simple vertical spin-off.

•

Protection of creditors

•

In accordance with Article 530-1 Paragraph 1, both SK Telecom and SK Planet will be jointly and severally liable for the payment of all obligations of SK Telecom incurred prior to the spin-off.

•

Allocation of new shares

•

In accordance with Articles 530-2 through 530-12, the spin-off is a simple vertical spin-off and all shares of SK Planet were allocated to SK Telecom.

(2) Acquisition of shares of SK hynix Inc. (formerly, Hynix Semiconductor Inc.)

In accordance with the resolution of the Company’s board of directors on November 14, 2011, the Company purchased 146,100,000 shares of SK hynix Inc. (formerly, Hynix Semiconductor Inc.) (“SK Hynix”) (aggregate purchase price of Won 3,374,726 million) on February 14, 2012 in order to acquire control of SK Hynix. The Company had a 21.05% equity interest in SK Hynix after the purchase.

(3) Merger of SK Planet and SK Marketing & Company Co., Ltd.

On January 11, 2013, the Company acquired the remaining 50% equity stake in SK Marketing & Company Co., Ltd. (“SK Marketing & Company”), a company providing e-commerce and advertising services, from SK Innovation Co., Ltd. and gained control of both SK Marketing & Company and its subsidiary, M&Service Co., Ltd. The Company thereafter contributed the 100% equity stake in SK Marketing & Company to SK Planet and merged SK Marketing & Company into SK Planet as of February 1, 2013.

(4) Acquisition of shares of PS&Marketing

On February 20, 2014, the board of directors of the Company resolved to invest an additional Won 100 billion (20 million common shares) into PS&Marketing, an affiliated company, in order to increase its mid- to long-term competitiveness in distribution. The estimated date of investment is April 2, 2014 and the cumulative investment amount will total Won 330 billion.

(5) Disposition of shares of iHQ Inc.

On March 10, 2014, the Company disposed of 3,790,000 shares (its 9.4% equity share) of iHQ Inc. to rebalance its investment portfolio.

[SK Broadband]

(1) Merger

On July 26, 2012, the board of directors of SK Broadband resolved to merge Broadband D&M Co., Ltd., its wholly-owned subsidiary, into SK Broadband after transferring Broadband D&M Co., Ltd.’s network maintenance business to Network O&S Co., Ltd. The merger was effective as of September 26, 2012. In connection with this merger, SK Broadband did not issue any new shares.

On October 25, 2012, the board of directors of SK Broadband resolved to merge Broadband CS Co., Ltd., its wholly-owned subsidiary, into SK Broadband after transferring Broadband CS Co., Ltd.’s customer service business to Service Ace Co., Ltd. The merger was effective as of December 26, 2012. In connection with this merger, SK Broadband did not issue any new shares.

On January 3, 2013, the board of directors of SK Broadband approved the merger of Broadband Media Co., Ltd., its wholly-owned subsidiary, into SK Broadband. The merger was effective as of March 22, 2013 and was recorded as of March 25, 2013. Please refer to the “Merger Completion Report” filed with the Financial Services Commission on March 25, 2013. In connection with this merger, SK Broadband did not issue any new shares.

[SK Planet]

(1) Merger

On January 11, 2013, the Company acquired the remaining 50% equity stake in SK Marketing & Company, a company providing e-commerce and advertising services, from SK Innovation Co., Ltd. and gained control of both SK Marketing & Company and its subsidiary, M&Service Co., Ltd. The Company thereafter contributed the 100% equity stake in SK Marketing & Company to SK Planet and merged SK Marketing & Company into SK Planet as of February 1, 2013. In connection with this merger, the merger ratio between SK Planet and SK Marketing & Company was 1.2927317:1 and SK Planet issued 12,927,317 of its common stock.

On April 22, 2013, the board of directors of SK Planet resolved to merge Madsmart, Inc., its wholly-owned subsidiary, into SK Planet to enhance the competitiveness of its platform business and provide faster service to customers by merging the ICT capabilities of the two companies. The merger was effective as of June 1, 2013 and SK Planet did not issue any new shares in connection with the merger.

[SK Telink]

(1) Merger

On July 22, 2010, the board of directors of SK Telink Co., Ltd. (“SK Telink”) approved the merger of TU Media Corp. into SK Telink effective as of November 1, 2010. In connection with this merger, SK Telink issued 256,763 shares of its common stock.

[SK Communications]

(1) Disposition and acquisition of businesses

1. Disposition of publishing business division

On April 10, 2009, SK Communications sold its publishing business division to Etoos for Won 4,785 million in accordance with the resolution of its board of directors of March 5, 2009.

2. Acquisition of the “KUKU” division

On July 1, 2009, SK Communications purchased the “KUKU” division from SK I-Media Co., Ltd. for a purchase price of Won 1,157 million, in accordance with the June 25, 2009 resolution of its board of directors.

3. Disposition of the Spicus division

Pursuant to the July 23, 2009 resolution of its board of directors, SK Communications sold the Spicus division, its telephone English education division, to Spicus Inc., a subsidiary of Altos Ventures on August 1, 2009 for a purchase price of Won 1,493 million.

4. Disposition of the Cyworld service

Pursuant to the resolution of its board of directors on March 8, 2014, SK Communications sold its Cyworld service and certain related assets to Cyworld Co., Ltd. for Won 2,824 million.

(2) Disposition of shares

1. Disposition of shares of Etoos

SK Communications sold all of its shares in Etoos to Cheong Sol pursuant to a resolution of its board of directors of October 19, 2009 and, as consideration, received Won 50 billion principal amount of convertible bonds. Pursuant to a resolution of its board of directors of July 23, 2010, SK Communications converted Won 25 billion principal amount, out of a total of Won 50 billion principal amount, of convertible bonds of Etoos into 701,000 shares of Etoos (15.58%). Pursuant to a resolution of its board of directors of January 13, 2012, SK Communications sold Won 20 billion principal amount, out of the remaining Won 25 billion principal amount, of convertible bonds of Etoos Education Co., Ltd. to Shinhan Private Equity Fund No. 2 at a price of Won 19 billion.

2. Disposition of shares of SK i-Media

Pursuant to a resolution of its board of directors of October 17, 2011, SK Communications sold all shares of SK i-Media Co., Ltd. held by it to LK Media Tech Co., Ltd. at a price of Won 1 million.

3. Disposition of shares of U-Land, an overseas entity

Pursuant to a resolution of its board of directors of December 21, 2011, SK Communications sold all of its 29.85% interest in U-Land, an overseas entity, to SK Planet at a price of Won 10 million.

4. Disposition of shares of Service-In

On November 19, 2012, SK Communications sold all of its shares (80,000 common shares) in Service-In Co., Ltd., its subsidiary, to the chief executive officer of Service-In Co., Ltd., pursuant to a resolution of its board of directors of October 31, 2012.

[PS&Marketing]

On February 20, 2014, the board of directors of PS&Marketing resolved to acquire the retail distribution business, including related assets, liabilities, contracts and human capital of the information technology and mobile wing of SK Networks. On the same day, the board of directors of PS&Marketing also resolved to acquire retail stores, including their assets and liabilities, of LCNC Co., Ltd (“LCNC”). The acquisitions were completed on April 30, 2014 at a purchase price of Won 124.5 billion for the assets acquired from SK Networks and a purchase price of Won 10 billion for the assets acquired from LCNC.

[M&Service]

Upon the merger between SK Marketing & Company, which held 100% equity stake in M&Service, and SK Planet on February 1, 2013, SK Planet holds 100% equity stake in M&Service.

E. Other Important Matters related to Management Activities

[SK Telecom]

(1) Issuance of bonds

On April 23, 2013, the Company issued two tranches of fixed-rate unsecured bonds in the principal amounts of Won 230 billion (with an annual interest rate of 3.03% and a maturity date of April 23, 2023) and Won 130 billion (with an annual interest rate of 3.22% and a maturity date of April, 23, 2033).

On May 14, 2014, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 50 billion (with an annual interest rate of 3.301% and a maturity date of May 14, 2019), Won 150 billion (with an annual interest rate of 3.637% and a maturity date of May 14, 2024), Won 50 billion (with embedded options, an annual interest rate of 4.725% and a maturity date of May 14, 2029), and Won 50 billion (with embedded options, an annual interest rate of 4.72% and a maturity date of May 14, 2029).

(2) Issuance of hybrid securities

On June 7, 2013, the Company issued Won 400 billion principal amount of hybrid securities in the form of unguaranteed subordinated bonds with an annual interest rate of 4.21%, which interest rate is adjusted five years after the date of issuance. The Company classified the hybrid securities as equity as there is no contractual obligation to deliver financial assets to the bondholders. The maturity date of the hybrid securities is June 7, 2073, which can be extended by the Company without any notice or announcement.

(3) Conversion of convertible notes

On April 7, 2009, the Company issued convertible notes with a maturity of five years in the principal amount of US$332,528,000 with an annual interest rate of 1.75%. In 2013, holders exercised their conversion rights with respect to an aggregate principal amount of US$326,023,000 of the convertible notes. The Company delivered 1,241,337 treasury shares in respect of US$170,223,000 of the exercised aggregate principal amount and delivered cash in respect of the remainder due to the limit on foreign ownership. In connection with such conversion, the Company recognized Won 135,108 million in financial expenses in 2013. On November 13, 2013, the Company exercised its early redemption right and on December 13, 2013, redeemed the US$6,505,000 principal amount of convertible notes not converted by noteholders. A 20-day volume weighted average pricing formula was used for the delivery of cash made in place of treasury shares. Due to such calculation, the Company still had US$91,108,507 outstanding in payables as of December 31, 2013. The amount was delivered in full as of January 6, 2014 and currently has no amount outstanding.

[SK Broadband]

SK Broadband acquired subscriberships of regional cable and other service providers on several different occasions. Such acquisitions were intended to secure a stable subscriber base for its broadband Internet service and, at the same time, increase the service coverage area. Because such acquisitions were conducted on a relatively small scale and involved purchase of subscriberships, SK Broadband did not believe such acquisitions rose to the level of purchasing an entire business line from another company or were likely to have a material impact on its business, and therefore decided that such acquisitions did not require resolutions of its shareholders.

[SK Communications]

In July 2011, there was a leak of personal information of subscribers of NATE and Cyworld websites operated by SK Communications. As of June 30, 2014, 22 lawsuits were filed against SK Communications, alleging that the leak was caused by its poor management of subscribers’ personal information and seeking damages of approximately Won 2.0 billion. With respect to a few of the lawsuits, the relevant district courts have rendered judgments for the relevant plaintiffs’ claims in part and SK Communications has appealed such judgments to the applicable high courts, where the cases are currently pending. Other cases remain pending at various district courts in Korea.

3. Total Number of Shares

A. Total Number of Shares


(As of June 30, 2014)		(Unit: in shares)


	Share type
Classification	Common shares			Total		Remarks
I. Total number of authorized shares		220,000,000	—		220,000,000		—
II. Total number of shares issued to date		89,278,946	—		89,278,946		—
III. Total number of shares retired to date		8,533,235	—		8,533,235		—
a. reduction of capital		—	—		—		—
b. retirement with profit		8,533,235	—		8,533,235		—
c. redemption of redeemable shares		—	—		—		—
d. others		—	—		—		—
IV. Total number of shares (II-III)		80,745,711	—		80,745,711		—
V. Number of treasury shares		9,809,375	—		9,809,375		—
VI. Number of shares outstanding (IV-V)		70,936,336	—		70,936,336		—

On July 20, 2011, the Company publicly disclosed its plan to repurchase treasury shares. The Company repurchased 1.4 million shares of treasury shares from July 25, 2011 to September 30, 2011 through the Korea Exchange. For more information on the repurchase of treasury shares, please see public disclosures made on July 20, 2011 and October 5, 2011.

B. Treasury Shares

(1) Acquisitions and dispositions of treasury shares


(As of June 30, 2014)		(Unit: in shares)



Acquisition methods			Type of shares		At the beginning of period			Changes						At the end of period
Acquisition methods			Type of shares		At the beginning of period			Acquired (+)		Disposed (-)		Retired (-)		At the end of period
Acquisition pursuant to the Financial Investment Services and Capital Markets Act of Korea (“FSCMA”)	Direct acquisition	Direct acquisition from market		Common shares		7,086,028			—		—		—		7,086,028
		Direct acquisition from market		Preferred shares		—			—		—		—		—
		Direct over-the- counter acquisition		Common shares		—			—		—		—		—
		Direct over-the- counter acquisition		Preferred shares		—			—		—		—		—
		Tender offer		Common shares		—			—		—		—		—
		Tender offer		Preferred shares		7,086,028			—		—		—		7,086,028
		Sub-total		Common shares		—			—		—		—		—
		Sub-total		Preferred shares		—			—		—		—		—
	Acquisition through trust and other agreements	Held by trustee		Common shares		—			—		—		—		—
		Held by trustee		Preferred shares		—			—		—		—		—
		Held in actual stock		Common shares		3,886,710			—		—		—		3,886,710
		Held in actual stock		Preferred shares		—			—		—		—		—
		Sub-total		Common shares		3,886,710			—		—		—		3,886,710
		Sub-total		Preferred shares		—			—		—		—		—
Other acquisition				Common shares		(1,163,363	)		—		—		—		(1,163,363	)
				Preferred shares		—			—		—		—		—
Total				Common shares		9,809,375			—		—		—		9,809,375
				Preferred shares		—			—		—		—		—

*	Due to the Company’s exercise of its early redemption right with respect to its convertible notes on November 13, 2013, the conversion right exercise period had expired by December 31, 2013 and there are no more treasury shares deposited with the Korea Securities Depository.

4. Status of Voting Rights


(As of June 30, 2014)		(Unit: in shares)


Classification		Number of shares		Remarks
Total shares (A)	Common share		80,745,711		—
Total shares (A)	Preferred share		—		—
Number of shares without voting rights (B)	Common share		9,809,375		Treasury shares
Number of shares without voting rights (B)	Preferred share		—		—
Shares without voting rights pursuant to the Company’s articles of incorporation (the “Articles of Incorporation”) (C)	Common share		—		—
	Preferred share		—		—
Shares with restricted voting rights pursuant to Korean law (D)	Common share		—		—
	Preferred share		—		—
Shares with reestablished voting rights (E)	Common share		—		—
Shares with reestablished voting rights (E)	Preferred share		—		—
The number of shares with exercisable voting right s (F = A - B - C - D + E)	Common share		70,936,336		—
	Preferred share		—		—

5. Dividends and Others

A. Dividends

(1)

Distribution of cash dividends was approved during the 27th General Meeting of Shareholders held on March 11, 2011.

•

Distribution of cash dividends per share of Won 8,400 (exclusive of an interim dividend of Won 1,000) was approved.

(2)

Distribution of interim dividends of Won 1,000 was approved during the 330th Board of Directors’ Meeting on July 28, 2011.

(3)

Distribution of cash dividends was approved during the 28th General Meeting of Shareholders held on March 23, 2012.

•

Distribution of cash dividends per share of Won 8,400 (exclusive of an interim dividend of Won 1,000) was approved.

(4)

Distribution of interim dividends of Won 1,000 was approved during the 344th Board of Directors’ Meeting on July 25, 2012.

(5)

Distribution of cash dividends was approved during the 29th General Meeting of Shareholders held on March 22, 2013.

•

Distribution of cash dividends per share of Won 8,400 (exclusive of an interim dividend of Won 1,000) was approved.

(6)

Distribution of interim dividends of Won 1,000 was approved during the 357th Board of Directors’ Meeting on July 25, 2013.

(7)

Distribution of cash dividends was approved during the 30th General Meeting of Shareholders held on March 21, 2014.

•

Distribution of cash dividends per share of Won 8,400 (exclusive of an interim dividend of Won 1,000) was approved.

(8)

Distribution of interim dividends of Won 1,000 was approved during the 366th Board of Directors’ Meeting on July 24, 2014.

B. Dividends for the Last Three Fiscal Years

(Unit: in millions of Won, except per share values and percentages)



Classification		As of and for the six months ended June 30, 2014		As of and for the year ended December 31, 2013		As of and for the year ended December 31, 2012
Par value per share (Won)			500		500		500
Net income			516,907		910,157		1,242,767
Net income per share (Won)			7,168		12,837		17,832
Total cash dividend			70,508		666,374		655,133
Total stock dividends			—		—		—
Percentage of cash dividend to available income (%)			13.6		73.2		52.7
Cash dividend yield ratio (%)	Common share		0.4		6.2		6.6
Cash dividend yield ratio (%)	Preferred share		—		—		—
Stock dividend yield ratio (%)	Common share		—		—		—
Stock dividend yield ratio (%)	Preferred share		—		—		—
Cash dividend per share (Won)	Common share		1,000		9,400		9,400
Cash dividend per share (Won)	Preferred share		—		—		—
Stock dividend per share (share)	Common share		—		—		—
Stock dividend per share (share)	Preferred share		—		—		—

*	The above figures were prepared based on separate financial statements. Net income per share means basic net income per share.

*	The total cash dividend of Won 656,533 million for the year ended December 31, 2011 includes the total interim dividend amount of Won 71,095 million, and the cash dividend amount per share of Won 9,400 includes the interim cash dividend amount per share of Won 1,000.

*	The total cash dividend of Won 655,133 million for the year ended December 31, 2012 includes the total interim dividend amount of Won 69,695 million, and the cash dividend amount per share of Won 9,400 includes the interim cash dividend amount per share of Won 1,000.

*	The total cash dividend of Won 666,374 million for the year ended December 31, 2013 includes the total interim dividend amount of Won 70,508 million, and the cash dividend amount per share of Won 9,400 includes the interim cash dividend amount per share of Won 1,000.

II. BUSINESS

Each company in the consolidated entity is a separate legal entity providing independent services and products. The business is primarily separated into (1) the wireless business consisting of cellular voice, wireless data and wireless Internet services, (2) the fixed-line business consisting of fixed-line telephone, high speed Internet, data and network lease services, among others, and (3) other businesses consisting of platform services and Internet portal services, among others.

1. Business Overview

Set forth below is a summary business description of material consolidated subsidiaries.


Classification	Company name	Description of business
Wireless	SK Telecom Co., Ltd.	Wireless voice and data telecommunications services via digital wireless networks
	PS&Marketing Co., Ltd.	Sale of fixed-line and wireless telecommunications products through wholesale, retail and online distribution channels
	Network O&S Co., Ltd.	Network maintenance services such as the operation of the Company’s base stations and related transmission and power facilities
	Service Ace Co., Ltd.	Customer center management and telemarketing services
Fixed-line	SK Broadband Co., Ltd.	High-speed Internet, TV, telephone, commercial data and other fixed-line services and management of the transmission system for online digital contents Various media-related services, such as channel management, including video on demand, and mobile IPTV services
Fixed-line	SK Telink Co., Ltd.	International wireless direct-dial “00700” services, pre-paid international card calling services, voice services using Internet protocol and Mobile Virtual Network Operator (“MVNO”) services
Other business	SK Planet Co., Ltd.	Various platform services such as 11th Street, T Store, T-Map Navigation and Hoppin in the application, commerce and new media areas, among others
	SK Communications Co., Ltd.	Integrated portal services through NATE and instant messaging services through NATE-ON
	M&Service Co., Ltd.	System software development, distribution and technical support services and other online information services

[Wireless Business]

A. Industry Characteristics

As of December 31, 2013, the Korean mobile communication market can be considered to have reached its maturation stage with more than a 100% penetration rate. However, the Korean mobile communications market continues to improve in the quality of services with the help of advances in network-related technology and the development of highly advanced LTE-A, LTE and 3G smartphones which enable the provision of convergence services for multimedia contents, mobile commerce, telematics, new media and other related services. In addition, through the commercialization of LTE network in July 2011 and LTE-A network in June 2013, B2B businesses, such as the corporate “connected workforce” business which can directly contribute to an enhancement in productivity, are expected to grow rapidly. In the first half of 2014, wideband LTE-A service was commercialized and by late 2014, technology will progress for the commercialization of the 3band LTE-A service, which bundles three different bandwidths to allow faster network service.

B. Growth Potential


			(Unit: in 1,000 persons)

Classification		As of June 30, 2014		As of December 31,
Classification		As of June 30, 2014		2013		2012		2011		2010
Number of subscribers	SK Telecom		27,889		27,352		26,961		26,553		25,705
	Others (KT, LGU+)		27,782		27,328		26,663		25,954		25,062
	Total		55,671		54,680		53,624		52,507		50,767

*	Source: Ministry of Science, ICT and Future Planning (“MSIP”) website and each Korean telecommunications company’s respective earnings releases (including MVNOs).

C. Domestic and Overseas Market Conditions

The Korean mobile communication market includes the entire population of Korea with mobile communication service needs, and almost every Korean is considered a potential user. Sales revenue related to data services is expected to increase due to the increasing popularity of smartphones and high-speed wireless networks. The importance of the business-to-business segment, which creates added value by selling and developing various solutions, is also growing. Seasonal and economic fluctuations have much less impact on the Korean mobile communication market compared to other industries.

Set forth below is the historical market share of the Company.

(Unit: in percentages)

Classification

As of June
30, 2014

As of December 31,

2013

2012

2011

2010

Mobile communication services

50.1

50.0

50.3

50.6

*	Source: MSIP website and each Korean telecommunications company’s respective earnings releases (including MVNOs).

D. Business Overview and Competitive Strengths

The Company is seeking to transform itself from a telecommunications service provider into a comprehensive ICT service provider. It has continued to innovate the scope of its services and achieved strong growth in subscribers amid fierce competition and rate cuts. As a result, for the six months ended June 30, 2014, the Company recorded Won 8.5 trillion in revenue and Won 800 billion in operating income on a consolidated basis and Won 6.5 trillion in revenue and Won 780 billion in operating income on a separate basis.

The number of subscribers (including MVNO subscribers) as of June 30, 2014 was 27.89 million, an increase of approximately 80,000 from the previous quarter. In particular, the number of smartphone subscribers as of June 30, 2014 was 18.93 million, an increase of approximately 110,000 from the previous quarter, including 15.38 million LTE subscribers, solidifying the Company’s market leadership. Following the launch of commercial LTE services in July 2011, the Company became the first telecommunications service provider in the world to launch commercial wideband LTE-A services in June 2014. By launching various high quality services utilizing the LTE-A and wideband LTE networks such as group video conference call services, full high definition mobile IPTV streaming services, and “T Baseball Multiview,” which allows users to watch multiple baseball games on one screen, the Company plans to provide an innovative user experience, enhance customer satisfaction and increase profitability.

The Company has proved that it has superior network quality compared to its competitors according to the Korea Communications Commission quality evaluations. The Company has also proved to be the leader in Korea’s top three customer satisfaction indices: according to the National Customer Satisfaction Index, Korean Customer Satisfaction Index and Korean Standard Service Quality Index, the Company has continued to hold the leading position for 17 years, 16 years and 15 years, respectively.

SK Telink, a consolidated subsidiary of the Company, expanded its operations to the MVNO business based on its technical expertise and know-how obtained in its international telecommunications business and launched its MVNO service, 7Mobile, which is offered at reasonable rates and provides excellent quality. SK Telink is increasing its efforts to develop low-cost distribution channels and create niche markets through targeted marketing towards customers with lower average revenue per user. An MVNO leases the networks of a mobile network operator (“MNO”) and provides wireless telecommunication services under its own brand and fee structure, without owning telecommunication networks or frequencies.

Network O&S, a subsidiary of the Company responsible for the operation of the Company’s base stations and related transmission and power facilities, offers quality fixed-line and wireless network services to customers, including mobile office products to business customers.

PS&Marketing, a subsidiary of the Company, provides a sales platform for products of the Company and SK Broadband including fixed-line and wireless telecommunication products which address customers’ needs for various convergence products. PS&Marketing provides differentiated service to clients through the establishment of new sales channels and product development.

[Fixed-line Business]

A. Industry Characteristics

As subscribers to various bundled wireless and fixed-line products are continuing to increase, the IPTV business is evolving to satisfy diverse customer needs for media services through differentiated service offerings including mobile IPTV, bundled wireless and IPTV products and “smart” set-top box services for smart televisions. The market for our corporate business is also growing with cloud computing, mobile offices and other new information and communications technologies being commercialized. The increased usage of smartphones and tablet computers, the pilot programming of commercial ultra-high definition television broadcasting services and competition for wideband LTE services has greatly increased data traffic, thereby further emphasizing the importance of fixed-line network infrastructure that is capable of handling large capacities of data traffic with stability and efficiency.

B. Growth Potential

(Unit: in 1,000 persons)


				As of December 31,
Classification		As of June 30, 2014		2013		2012
Fixed-line Subscribers	High-speed Internet		18,961		18,738		18,253
	Fixed-line telephone		17,271		17,620		18,261
	IPTV (real-time)		9,557		8,522		6,310

*	Source: MSIP website, Korea Communications Commission website and the Korea Digital Media Industry Association website.

C. Cyclical Nature and Seasonality

High-speed Internet, fixed-line telephone and IPTV services are mature markets that are generally not sensitive to cyclical economic changes due to the easing of competition resulting from the decrease in differentiation between service providers and the nature of the respective services. The telecommunications services market overall is not expected to be particularly affected by economic downturns due to the low income elasticity of demand for telecommunication services.

Set forth below is the historical market share of the Company.


		(Unit: in percentages)

Classification	As of		As of December 31,
Classification	June 30, 2014		2013		2012
High-speed Internet (include resales)	24.7			24.4		24.1
Fixed-line telephone (include Voice over Internet Protocol)	16.9			16.9		16.7
IPTV (real-time)	25.3			24.4		22.2

*	Source: MSIP website, Korea Communications Commission website and the Korea Digital Media Industry Association website.

D. Business Overview and Competitive Strengths

In 1999, the Company was the first in the world to commence commercial ADSL services and on the back of its premium technology and enhanced competitiveness achieved through bundled products, it is currently expanding subscriber base across all of its businesses, including broadband Internet, telephone and IPTV. In particular, SK Broadband has positioned itself to focus on corporate customer services and IPTV services as key strategic areas for mid- to long-term growth, exploiting opportunities in new ICT-based businesses that have led to revenue growth, and providing differentiated contents in its IPTV business by securing popular programming which includes exclusive children’s channels and live broadcasts of Major League Baseball games. In addition, in September 2013, the Company developed technology that compresses videos for its ultra-high definition IPTV services. During the first quarter of 2014, the Company commercialized new transmission technology that can more efficiently transmit signals on the hybrid fiber-coaxial network despite its limited frequency. Furthermore, the Company solidified its technological leadership for providing ultra-high definition broadcasting for wireless and fixed line in the IPTV industry by commercializing a unique ultra-high-definition service that can be provided directly to smart televisions without the installation of “smart” set-top boxes in April 2014 and started transmitting ultra-high definition contents to mobile IPTV in May 2014.

SK Telink provides international telecommunications service. SK Telink has been able to establish itself as a market leader as a result of its affordable pricing, proactive marketing and the quality of its services. It launched a mobile phone-based international calling service under the brand name “00700” in 1998, creating a new niche market within the long-distance telephony market that was otherwise dominated by existing service providers. In 2003, SK Telink was designated a common carrier for international calling services, which allowed us to expand our international calling services to fixed-line international calling services. SK Telink plans to strategically target the convergence of wireless and fixed-line telecommunications and strengthen its existing business, including international and long-distance calling services, value-added services for local calling and B2B services, and video conference call services while aiming to satisfy the diverse needs of customers through the provision of quality solutions at reasonable prices.

[Other Business]

A. Industry Characteristics

As the number of smartphones distributed in Korea exceeds 30 million, the growth in various mobile devices has spurred the rise of the service provider with a strong platform business as the leader in the ICT market. It is becoming increasingly important to enhance competitiveness by building a platform with large data capacity to handle the increase in data transmission.

A platform business acts as an intermediary by promoting interactions among various customer groups, thereby generating new values. It is important for a platform business to continually attract subscribers and users and to create an ecosystem with certain lock-in effects. A platform can exist in various forms, including as a technological standard (iOS, Android OS), a subscriber-based service platform (Facebook, Twitter) or a marketplace (Amazon, T Store). Platform businesses are evolving and expanding globally.

A platform business has strong growth potential due to its connectivity with related services and ease of global expansion. Apple became a world-leading smartphone producer based on its innovative design and the competitive strength of its App Store platform. Google has created a new ecosystem of long-tail advertising by attracting millions of third parties to its advertising platform, as well as showing strong growth in mobile markets with its competitive platform based on Android OS. It is becoming increasingly important to enhance competitiveness through a database that can register and analyze purchase patterns of customers across all areas and a platform with large data capacity to utilize this database and provide differentiated services to customers.

B. Growth Potential

The scope and value generated by the platform business, including application and content marketplaces and N-screen services, continues to increase, as smartphones and tablet computers become more popular and the bandwidth and speed of network infrastructure improve. As the wireless network evolves to LTE, business opportunities for the platform business exist, including multimedia streaming, N-screen service based on cloud technology and high-definition location-based services. Since the platform business realizes profit by connecting with advertisements or commerce sites after building a critical mass of subscribers and traffic, the recent growth in the advertising and commerce markets is expected to present an opportunity for platform businesses. The importance of building a platform with large data capacity that is connected to various digital contents and commerce is expected to increase in the future.

C. Domestic and Overseas Market Conditions

(1) Commerce markets

The Company expects that online commerce markets will continue to grow due to the growth potential of the Internet shopping population, the strengthening of online business models by off-line operators, and the rapid rise of mobile commerce. Recently, due to the widespread use of smartphones and social media, the commercialization of location-based services and the development of big data technology, online to offline (or, O2O) business, which is a concept of attracting customers to offline stores using online and mobile environments, is being highlighted as a new field in the online commerce market industry.

(2) Digital contents

The growth of application marketplaces, which started with Apple’s App Store, provides the platform business with new opportunities for revenue generation. The competitive paradigm is shifting from a competition among platform operators toward a competition among eco-systems that include application developers as well as platform operators.

Due to an increase in the number of devices owned by each user and an increase in network speed, each user can now enjoy music or video files anywhere and anytime by storing them in cloud servers, which is called N-screen service. Users can recommend music to other users through social networking services and this is expected to become a distribution model for digital media contents. Various service providers are competing in this market expecting a strong growth in the online and mobile video market.

D. Business Overview and Competitive Strengths

The Company plans to expand its platform ecosystem focusing on its “Open & Collaboration” motto in operating its commerce business such as 11^th Street, Syrup, and OK Cashbag, its digital contents business such as T Store and Hoppin, and its location-based service business such as T-Map Navigation, thereby ultimately increasing its enterprise value.

(1) Commerce

11th Street, an online marketplace, has continued its growth through effective marketing and customer satisfaction. Despite its later entry into the online commerce market (launched in 2008) which was already divided between Auction and G-Market, it is leading the domestic e-commerce market and is also rapidly growing in the mobile commerce market. Growth plans involving overseas joint ventures based on 11th Street’s business expertise have resulted in the successful launch of an open online commerce market in Turkey in partnership with Doğuş Group in March 2013. In Indonesia, an open market platform was successfully launched through a joint venture established in July 2013 with PT XM Axiata Tbk, a wireless telecommunications company in Indonesia.

Syrup is a consumer-oriented commerce service and its goal is to minimize its customers’ time and efforts while maximizing the economic benefits provided by providing information about coupons and events based on time, place and occasion. To achieve this goal, Syrup combines location-based services, such as geo-fencing, a virtual perimeter technology using a global positioning system (or, GPS) and Bluetooth Low Energy (or, BLE), with big data analysis of consumption patterns. Syrup’s business partners can benefit from cost-effective marketing through Syrup by utilizing statistics and analysis regarding consumers’ frequency of visits, preferred products, and consumption patterns.

OK Cashbag is a point-based loyalty marketing program which has grown to become a global top-tier loyalty marketing program since its inception in 1999. Customers have access to increased benefits through accumulation of loyalty reward points and partner companies use OK Cashbag as a marketing resource. With 37 million subscribers, OK Cashbag maintains a leading position in the industry and plans to continue strengthening its position by providing customized services befitting customers’ needs and market conditions.

(2) Location-based services

T-Map Navigation provides map, local information, real-time traffic information and navigation services. With cumulative subscribers of 19.19 million as of June 30, 2014, T-Map Navigation is one of the leading location-based service platforms in Korea. The Company is broadening the range of its location-based services by also providing “infotainment” systems to commercial vehicle businesses as well as providing localized content on its products, such as region-specific information and advertisements. The Company plans to further develop the T-Map Navigation platform by initiating open application programming interface-based services, providing services to more diverse types of devices and providing local area-based services.

(3) Digital contents

T Store, launched in September 2009, reached 22.69 million subscribers and cumulative downloads of 2.2 billion as of June 30, 2014, solidifying its leadership position in the application market and plans to widen its services to tablets and navigation devices. The Company intends to further develop T Store into a personalized gateway and mobile playground through expansion of the scope of serviceable devices, reinforcement of digital content offerings and enhancement of search services, among other things.

The Company’s “Hoppin” service enables subscribers to enjoy wide-ranging video on demand contents. Through continual service improvements and stable service provision, Hoppin has become the leading mobile video on demand service.

(4) Social networking services (“SNS”) and Internet portal services

The Company’s instant messenger service, “Nate-On,” had the largest market share of 36.8% in the instant messenger market in Korea with 6 million net users during June 2014. The Company’s Internet search portal service, “Nate,” had a page-view market share of 5.1% as of June 30, 2014. (Source: Korean Click, based on fixed-line access)

•

Satellite DMB service

The Company launched its Hanbyul satellite in 2004 and received government approval in December 30, 2004 to provide satellite DMB services. Broadcasting through satellite DMB commenced in May 2005 and satellite DMB services expanded nationwide thereafter. On August 23, 2012, the board of directors of SK Telink resolved to discontinue operation of its satellite DMB services due to the rapid decrease in satellite DMB subscribers and the continued burden of fixed costs.

2. Major Products & Services

A. Updates on Major Products and Services

(Unit: in millions of Won and percentages)


Business	Major Companies	Item	Major Trademarks	Consolidated Sales Amount (ratio)
Wireless	SK Telecom Co., Ltd., PS&Marketing Co., Ltd., Service Ace Co., Ltd., Network O&S Co., Ltd.	Mobile communication service, wireless data service, ICT service	T and others		6,775,491	(79.7%)


Business	Major Companies	Item	Major Trademarks	Consolidated Sales Amount (ratio)
Fixed -line	SK Broadband Co., Ltd., SK Telink Co., Ltd.	Fixed-line phone, high speed Internet, data and network lease service	B tv , 00700 international call, 7Mobile and others		1,228,107	(14.4%)
Other	SK Planet Co., Ltd , SK Communications Co., Ltd., M&Service Co., Ltd.,	Internet portal service, e-commerce and investment	OK Cashbag, NATE, T Store, T-Map Navigation and others		503,690	(5.9%)
Total					8,507,288	(100.0%)

[Wireless Business]

In the past, based on the Company’s basic monthly subscription plan, the basic service fee was Won 13,000 per month and the usage fee was Won 20 per 10 seconds (daytime calls) and based on the Company’s standard monthly subscription plan, the basic service fee was Won 12,000 per month and the usage fee was Won 18 per 10 seconds. As of June 30, 2014, based on the Company’s standard monthly subscription plan, the basic service fee was Won 11,000 per month and the usage fee was Won 1.8 per second.

[Fixed-line Business]

SK Broadband provides broadband Internet access service, telephony, TV, corporate data services and other services for both individual and corporate customers. As of June 30, 2014, broadband Internet and TV services comprised 51.2% of SK Broadband’s revenue, telephony service 22.0%, corporate data services 26.3% and other telecommunications services 0.5%. Price fluctuations in the different services provided by SK Broadband are due to discounts provided for long-term contracts, changes in equipment costs and competition between companies.

[Other Business]

Set forth below are major products and services of the Company’s material consolidated subsidiaries.


Business	Item	Major Trademarks
Platform	ICT services, new media services, advertisement services, telecommunications sales, e-commerce and others	Syrup, T Store, 11th Street, T Map, Hoppin, OK Cashbag and others
Display advertisement	Online advertisement services	Nate, Nate-On
Search advertisement	Online advertisement services	Nate, Nate-On
Contents and others	Pay content sales and other services	Nate, Nate-On

3. Investment Status

[Wireless Business]

A. Investment in Progress

(Unit: in 100 millions of Won)

Business

Classification

Investment
period

Subject of
investment

Investment effect

Expected
investment
amount

Amount
already
invested

Future
investment

Network/Common

Upgrade/
New installation

2014

Network,
systems and
others

Capacity increase and
quality improvement;
systems improvement

21,000

7,822

—

Total

21,000

7,822

—

B. Future Investment Plan

(Unit: in 100 millions of Won)

Business

Expected investment amount

Expected investment for each year

Investment effect

Asset type

Amount

2014

2015

2016

Network/Common

Network,
systems
and others

21,000

To be
determined

Upgrades to the existing
services and expanded
provision of services
including wideband
LTE-A

Total

21,000

To be
determined

[Fixed-line Business]

A. Investment in Progress

In the first half of 2014, the Company has increased the amount of capital investments compared to the same period in 2013 due to a net increase in the number of IPTV subscribers and the number of new contracts with corporate customers and in order to expand its B2B coverage in advance of the revenue growth expected in the second half of 2014. The Company expects that the total amount of capital investments in 2014 will be similar to that of 2013.

(Unit: in 100 millions of Won)

Business

Classification

Investment
period

Subject of
investment

Investment effect

Total
investments

Amount
already
invested

Future
investment

High-speed Internet

Upgrade/
New installation

For the
six
months
ended
June 30,
2014

Backbone and
subscriber
network /
others

Expand subscriber
networks and facilities

2,241

420

To be
determined

Telephone

Television

592

Corporate Data

Increase leased-line
and integrated
information system

1,040

Others

Expand networks and
required space

162

Total

2,241

4. Revenues

(Unit: in millions of Won)


Business	Sales type	Item		For the six months ended June 30, 2014		For the year ended December 31, 2012*		For the year ended December 31, 2011*
Wireless	Services	Mobile communication	Export		1,508		2,526		14,202
			Domestic		6,568,795		13,313,006		13,204,702
			Subtotal		6,570,303		13,315,532		13,218,904
Fixed-line	Services	Fixed-line, B2B data, High-speed Internet, TV	Export		28,575		28,002		29,883
			Domestic		1,120,361		2,296,387		2,163,978
			Subtotal		1,148,936		2,324,389		2,193,861
Other	Services	Display and Search ad., Content	Export		—		14,049		4,698
			Domestic		463,380		948,084		723,946
			Subtotal		463,380		962,133		728,644
Total			Export		30,083		44,577		48,783
			Domestic		8,152,536		16,557,477		16,092,626
			Total		8,182,619		16,602,054		16,141,409

*	Revenue for the year ended December 31, 2011 has been retroactively revised to reflect the effect of discontinued operations resulting from the sale of Loen Entertainment.

(Unit: in millions of Won)


For the six months ended June 30, 2014	Wireless		Fixed		Other			Sub total		Internal transaction			After consolidation
Total sales		7,520,742		1,517,777		878,927			9,917,446		(1,410,158	)		8,507,288
Internal sales		745,251		289,670		375,237			1,410,158		(1,410,158	)		—
External sales		6,775,491		1,228,107		503,690			8,507,288		—			8,507,288
Operating income (loss)		788,831		25,865		(16,206	)		798,490		—			798,490
Net income (loss)		—		—		—			—		—			940,583
Total assets		23,386,690		3,325,776		3,089,274			29,801,740		(2,774,091	)		27,027,649
Total liabilities		9,958,215		2,067,197		866,318			12,891,730		(67,261	)		12,824,469

5. Derivative Transactions

A. Current Swap Contract Applying Cash Flow Risk Hedge Accounting

Currency swap contracts under cash flow hedge accounting as of June 30, 2014 are as follows.


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 US$400,000,000)	Foreign currency risk	Cross currency swap	Morgan Stanley and five other banks	Jul. 20, 2007 – Jul. 20, 2027
Dec. 15, 2011	Floating-to-fixed cross currency interest rate swap (Singapore dollar denominated bonds face value of SGD 65,000,000)	Foreign currency risk and interest rate risk	Cross currency interest rate swap	United Overseas Bank	Dec. 15, 2011 – Dec. 12, 2014
Dec. 15, 2011	Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of US$250,000,000)	Foreign currency risk and interest rate risk	Cross currency interest rate swap	DBS Bank and Citibank	Dec. 15, 2011 – Dec. 12, 2014
Jun. 12, 2012	Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000,000)	Foreign currency risk	Cross currency swap	Citibank and five 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 US$700,000,000)	Foreign currency risk	Cross currency swap	Barclays and nine 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 300,000,000)	Foreign currency risk	Cross currency swap	BNP Paribas and three other banks	Jan. 17, 2013 – Nov. 17, 2017


Borrowing date	Hedged item	Hedged risk	Contract type	Financial institution	Duration of contract
Mar. 7, 2013	Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of US$300,000,000)	Foreign currency risk and interest rate risk	Cross 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 US$300,000,000)	Foreign currency risk	Cross currency swap	Korea Development Bank and others	Oct. 29, 2013 – Oct. 26, 2018
Dec. 16, 2013	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$92,098,000)	Foreign currency risk	Cross currency swap	Deutsche Bank	Dec. 16, 2013 – Apr. 29, 2022

B. Treatment of Derivative Instruments on the Balance Sheet

As of June 30, 2014, fair values of the above derivatives recorded in assets or liabilities and details of derivative instruments are as follows.

(Unit: in millions of Won and thousands of foreign currencies)


Hedged item	Fair value
	Cash flow hedge											Trading purposes		Total
	Accumulated gain (loss) on valuation of derivatives			Tax effect			Foreign currency translation gain (loss)			*Others^(1)**		Trading purposes		Total
Non-current assets:
Convertible option^(*2) (face amounts of Won 100 million)		—			—			—			—		6,017		6,017
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$400,000,000)		(48,130	)		(15,367	)		(50,973	)		129,806		—		15,336

Total assets															21,353

Current liabilities:
Floating-to-fixed cross currency interest rate swap (Singapore dollar denominated bonds face value of SGD 65,000,000)		47			15			(4,683	)		—		—		(4,621	)
Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of US$250,000,000)		5,538			1,768			(35,807	)		—		—		(28,501	)
Non-current liabilities:
Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000,000)		(8,026	)		(2,562	)		(21,910	)		—		—		(32,498	)
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$700,000,000)		(12,082	)		(3,857	)		(52,811	)		—		—		(68,750	)
Fixed-to-fixed cross currency swap (Australia dollar denominated bonds face value of AUD 300,000,000)		6,919			2,208			(48,732	)		—		—		(39,605	)
Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of US$300,000,000)		2,344			749			(20,669	)		—		—		(17,576	)
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$300,000,000)		(3,249	)		—			(13,955	)		—		—		(17,204	)
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$92,098,000)		(3,336	)		(1,065	)		(3,527	)		—		—		(7,928	)

Total liabilities															(216,683	)

(*1)	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, 2012.

(*2)	Fair value of the conversion option of convertible bonds held by SK Communications Co., Ltd.. amounting to Won 10 million was accounted for as derivative financial assets.

6. Major Contracts

[SK Telecom]

(Unit: in 100 millions of Won)


Category	Vendor	Start Date	Completion Date	Contract Title	Contract Amount
Purchase	SK Planet Co., Ltd.	January 1, 2014	January 1, 2015	2014 SK Planet B2B Strategic Product #1 – T map]	2,545
Purchase	SK C&C Co., Ltd.	April 1, 2014	December 31, 2014	2014 IT Academy IT Service Management Contract (SK C&C)	1,462
Purchase	SK Planet Co., Ltd.	January 1, 2014	January 1, 2015	2014 SK Planet B2B Strategic Product #2 – T freemium	1,001
Purchase	SK Planet Co., Ltd.	January 1, 2014	January 1, 2015	2014 SK Planet B2B Biz ASP #5 – Voice/Messaging VAS (Color Ring, etc.)	545
Purchase	SK Planet Co., Ltd.	March 1, 2014	February 1, 2015	2014 T Membership Program Management Contract (March 2014 – January 2015)	529
Real Estate	Individuals	January 1, 2014	April 30, 2014	Purchase of land for construction of new headquarters and 8 other buildings	126
Subtotal					6,208

[SK Broadband]

SK Broadband enters into contracts to use telecommunications facilities, including the use of line conduits and interconnection among telecommunication service providers.


Counterparty	Contract Contents	Contract Period	Note
Telecommunication service providers	Interconnection among telecommunication service providers	—	Automatically renewed for two years at a time unless specific amendments are requested
KEPCO	Provision of electric facilities	From Dec. 2013 to Nov. 2014	Use of electricity poles
Seoul City Railway	Use of telecommunication line conduits	From Jan. 2009 to Dec. 2012 (Renewal in progress)	Use of railway telecommunication conduit (Serviced areas to expand)
Busan Transportation Corporation	Use of telecommunication line conduits	From July 2009 to July 2013 (Renewal in progress)	Use of railway telecommunication conduit (Serviced areas to expand)
Seoul Metro	Use of telecommunication line conduits	From May 2010 to May 2013 (Renewal in progress)	Use of railway telecommunication conduit (Serviced areas to expand)
Gwangju City Railway	Use of telecommunication line conduits	From Sep. 2010 to Dec. 2012 (Renewal in progress)	Use of railway telecommunication conduit (Service lease)

*	Renewal is in progress after negotiation of lower usage fees.

[SK Communications]


Counterparty	Purpose	Contract Period	Contract Amount
Daum Communications	Cost-per-click Internet search advertisement	—	Amount determined based on the number of clicks

*	SK Communications and Daum Communications have agreed not to publicly disclose the contract period with respect to the contract with Daum Communications.

7. R&D Investments

Set forth below are the Company’s R&D expenditures.

(Unit: in millions of Won except percentages)


Category		For the six months ended June 30, 2014			For the year ended December 31,						Remarks
Category		For the six months ended June 30, 2014			2013			2012			Remarks
Raw material			61			38			42			—
Labor			34,901			79,865			59,050			—
Depreciation			96,373			158,158			163,295			—
Commissioned service			46,836			22,923			62,399			—
Others			29,468			102,668			61,546			—
Total R&D costs			207,639			363,652			346,332			—
Accounting	Sales and administrative expenses		204,960			352,385			304,557			—
Accounting	Development expenses (Intangible assets)		2,679			11,267			41,775			—
R&D cost / sales amount ratio (Total R&D costs / Current sales amount×100)			2.44	%		2.19	%		2.12	%		—

8. Other information relating to investment decisions

A. Trademark Policies

The Company manages its corporate brand and other product brands in a comprehensive way to protect and increase their value. The Company’s Brand Strategy Council in charge of overseeing its systematic corporate branding operates full-time to execute decisions involving major brands and operates “Brandnet,” an intranet system to manage corporate brands which provides solutions including registering and licensing of the brands.

B. Business-related Intellectual Property

[SK Telecom]

The Company holds 5,234 Korean-registered patents, 309 U.S.-registered patents, 211 Chinese-registered patents (all including patents held jointly with other companies) and more patents with other countries. The Company holds 899 Korean-registered trademarks and owns intellectual property rights to the design of the alphabet “T.” The designed alphabet “T” is registered in all business categories for trademarks (total of 45) and is being used as the primary brand of the Company.

[SK Broadband]

SK Broadband holds 409 Korean-registered patents relating to high-speed Internet, telephone and IPTV service. In addition, SK Broadband has applied for a patent relating to two-way broadcasting system. SK Broadband also holds a number of trademarks and service marks relating to its service and brand.

[SK Planet]

As of June 30, 2014, SK Planet held 2,360 registered patents, 112 registered design marks, 1,187 registered trademarks and one copyright (including those held jointly with other companies) in Korea. It also holds 88 U.S.-registered patents, 78 Chinese-registered patents, 53 Japanese-registered patents, 23 E.U.-registered patents (all including patents held jointly with other companies) and 226 registered trademarks, along with a number of other intellectual property rights, in other countries.

[SK Communications]

As of June 30, 2014, SK Communications held 74 registered patents, 26 registered design rights and 736 registered trademarks in Korea.

C. Business-related Pollutants and Environmental Protection

The Company does not engage in any manufacturing and therefore does not undertake any industrial processes that emit pollutants into the air or industrial processes in which hazardous materials are used.

III. FINANCIAL INFORMATION

1. Summary Financial Information (Consolidated)

A. Summary Financial Information (Consolidated)


		(Unit: in millions of Won except number of companies)

	As of June 30, 2014			As of December 31, 2013			As of December 31, 2012			As of December 31, 2011
Assets
Current Assets		5,592,624			5,123,415			5,294,421			6,117,479
• Cash and Cash Equivalents		1,331,263			1,398,639			920,125			1,650,794
• Accounts Receivable – Trade, net		2,483,091			2,257,316			1,954,920			1,823,170
• Accounts Receivable – Other, net		747,478			643,603			582,098			908,836
• Others		1,030,792			823,857			1,837,278			1,734,679
Non-Current Assets		21,435,025			21,453,100			20,301,138			18,248,557
• Long-Term Investment Securities		924,610			968,527			953,712			1,537,945
• Investments in Associates and Joint Ventures		5,602,137			5,325,297			4,632,477			1,384,605
• Property and Equipment, net		10,057,105			10,196,607			9,712,719			9,030,998
• Intangible Assets, net		2,566,599			2,750,782			2,689,658			2,995,803
• Goodwill		1,751,075			1,733,261			1,744,483			1,749,933
• Others		533,499			478,626			568,089			1,549,273
Total Assets		27,027,649			26,576,515			25,595,559			24,366,036
Liabilities
Current Liabilities		6,162,670			6,069,220			6,174,895			6,673,590
Non-Current Liabilities		6,661,799			6,340,738			6,565,882			4,959,737
Total Liabilities		12,824,469			12,409,958			12,740,777			11,633,327
Equity
Equity Attributable to Owners of the Parent Company		13,493,924			13,452,372			11,854,777			11,661,881
Share Capital		44,639			44,639			44,639			44,639
Capital Surplus (Deficit) and Other Capital Adjustments		288,726			317,508			(288,883	)		(285,347	)
Retained Earnings		13,254,623			13,102,495			12,124,657			11,642,525
Reserves		(94,064	)		(12,270	)		(25,636	)		260,064
Non-controlling Interests		709,256			714,185			1,000,005			1,070,828
Total Equity		14,203,180			14,166,557			12,854,782			12,732,709
Total Liabilities and Equity		27,027,649			26,576,515			25,595,559			24,366,036
Number of Companies Consolidated		29			28			32			31


		(Unit: in millions of Won except per share amounts)

	For the six months ended June 30, 2014			For the year ended December 31, 2013			For the year ended December 31, 2012*			For the year ended December 31, 2011*
Operating Revenue		8,507,288			16,602,054			16,141,409			15,803,174
Operating Income		798,490			2,011,109			1,730,049			2,266,197
Profit Before Income Tax		940,583			1,827,101			1,519,368			2,212,273
Profit for the Period		764,948			1,609,549			1,115,663			1,582,073
Profit for the Period Attributable to Owners of the Parent Company		768,350			1,638,964			1,151,705			1,612,889
Profit for the Period Attributable to Non-controlling Interests		(3,402	)		(29,415	)		(36,042	)		(30,816	)
Basic Earnings Per Share (Won)		10,713			23,211			16,525			22,848
Diluted Earnings Per Share (Won)		10,713			23,211			16,141			22,223

*	Financial information for the years ended December 31, 2011 and 2012 have been retroactively revised to reflect the effect of discontinued operations resulting from the sale of Loen Entertainment.

B. Changes to Accounting Standards Adopted During 2012

(1) Financial Instruments: Disclosures

The Company has applied the amendments to K-IFRS No.1107, ‘Financial Instruments: Disclosures’ since January 1, 2012. The amendments require disclosing the nature of transferred assets, their carrying amount, and the description of risks and rewards for each class of transferred financial assets that are not derecognized in their entirety. If the Company derecognizes transferred financial assets but still retains their specific risks and rewards, the amendments require additional disclosures of their risks.

(2) Presentation of Financial Statements

The Company adopted the amendments pursuant to the amended K-IFRS No. 1001, ‘Presentation of Financial Statements’ starting with the year ended December 31, 2012. The Company’s operating income is calculated as operating revenue less operating expense. Operating expense represents expense incurred from the Company’s main operating activities and includes cost of products that have been resold and selling, general and administrative expenses.

C. Changes to Accounting Standards Adopted During 2013

(1) Presentation of Financial Statements

The Company has applied the amendments to K-IFRS No. 1001, ‘Presentation of Financial Statements’ since January 1, 2013, classified items within other comprehensive income by nature and presented “items that are not subsequently recycled through profit or loss” and “items that are subsequently reclassified if certain conditions are met” as a group.

(2) Consolidated Financial Statements

The Company has applied the amendments to K-IFRS No. 1110, ‘Consolidated Financial Statements’ since January 1, 2013. The standard introduces a single control model to determine whether an investee should be consolidated. Subsidiary is an entity that is controlled by a controlling entity or a subsidiary of a controlling company. A controlling entity or a subsidiary of a controlling company controls a subsidiary when the controlling entity or the subsidiary of the controlling company is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.

(3) Joint Arrangements

The Company has applied the amendments to K-IFRS No. 1111, ‘Joint Arrangements’ since January 1, 2013. The standard classifies joint arrangements into two types—joint operations and joint ventures. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint ventures) have rights to the net assets of the arrangement. The standard requires a joint operator to recognize and measure the assets and liabilities (and recognize the related revenues and expenses) in relation to its interest in the arrangement in accordance with relevant IFRSs applicable to the particular assets, liabilities, revenues and expenses. The standard requires a joint venture to recognize an investment and to account for that investment using the equity method.

(4) Disclosure of Interests in Other Entities

The Company has applied the amendments to K-IFRS No. 1112, ‘Disclosure of Interests in Other Entities’ since January 1, 2013. The standard brings together into a single standard all the disclosure requirements about an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The Company is currently assessing the disclosure requirements for interests in subsidiaries, interests in joint arrangements and associates and unconsolidated structured entities in comparison with the existing disclosures. The standard requires the disclosure of information about the nature, risks and financial effects of these interests.

(5) Employee Benefits

The Company has applied the amendments to K-IFRS No. 1019, ‘Employee Benefits’ since January 1, 2013. The standard requires recognition of actuarial gains and losses immediately in other comprehensive income and to calculate expected return on plan assets based on the rate used to discount the defined benefit obligation.

(6) Fair Value Measurement

The Company has applied the amendments to K-IFRS No. 1113, ‘Fair Value Measurement’ since January 1, 2013. The standard defines fair value and a single framework for fair value, and requires disclosures about fair value measurements.

D. Impact of Changes in Accounting Policies

(1) Consolidated Financial Statements

In accordance with the transitional provision on K-IFRS No. 1110, the Company assessed control on investees as of January 1, 2013, the initial adoption date of the standard, and there have been no changes in subsidiaries upon adoption of the standard.

2. Summary Financial Information (Separate)

A. Summary Financial Information (Separate)


		(Unit: in millions of Won)

	As of June 30, 2014		As of December 31, 2013		As of December 31, 2012			As of December 31, 2011
Assets
Current Assets		2,754,974		2,817,782		2,589,699			3,948,077
• Cash and Cash Equivalents		412,194		448,459		256,577			895,558
• Accounts Receivable – Trade, net		1,597,263		1,513,138		1,407,206			1,282,234
• Accounts Receivable – Other, net		338,861		388,475		383,048			774,221
• Others		250,654		467,710		542,868			996,064
Non-Current Assets		19,739,061		20,009,637		19,659,803			16,572,450
• Long-Term Investment Securities		610,715		729,703		733,893			1,312,438
• Investments in Subsidiaries and Associates		8,175,838		8,010,121		7,915,547			4,647,506
• Property and Equipment, net		7,318,724		7,459,986		7,119,090			6,260,169
• Intangible Assets, net		2,067,883		2,239,167		2,187,872			2,364,795
• Goodwill		1,306,236		1,306,236		1,306,236			1,306,236
• Others		259,665		264,424		397,165			681,306
Total Assets		22,494,035		22,827,419		22,249,502			20,520,527
Liabilities
Current Liabilities		4,110,587		4,288,07		4,343,086			4,467,006
Non-Current Liabilities		5,233,127		5,223,938		5,529,368			4,087,219
Total Liabilities		9,343,714		9,512,011		9,872,454			8,554,225
Equity
Share Capital		44,639		44,639		44,639			44,639
Capital Surplus and Other Capital Adjustments		433,894		433,894		(236,160	)		(236,016	)
Retained Earnings		12,568,736		12,665,699		12,413,981			11,837,185
Reserves		103,052		171,176		154,588			320,494
Total Equity		13,150,321		13,315,408		12,377,048			11,966,302
Total Liabilities and Equity		22,494,035		22,827,419		22,249,502			22,520,527


		(Unit: in millions of Won except per share amounts)

	For the six months ended June 30, 2014		For the year ended December 31, 2013		For the year ended December 31, 2012		For the year ended December 31, 2011
Operating Revenue		6,528,313		12,860,379		12,332,719		12,551,255
Operating Income		778,959		1,969,684		1,675,388		2,184,498
Profit Before Income Tax		640,379		1,220,797		1,546,719		2,274,421
Profit for the Period		516,907		910,157		1,242,767		1,694,363
Basic Earnings Per Share (Won)		7,168		12,837		17,832		24,002
Diluted Earnings Per Share (Won)		7,168		12,837		17,406		23,343

B. Changes to Accounting Standards Adopted During 2012

(1) Financial Instruments: Disclosures

(2) Presentation of Financial Statements

C. Changes to Accounting Standards Adopted During 2013

(1) Presentation of Financial Statements

(2) Consolidated Financial Statements

(3) Joint Arrangements

The Company has applied the amendments to K-IFRS No. 1111, ‘Joint Arrangements’ since January 1, 2013. The standard classifies joint arrangements into two types—joint operations and joint ventures. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint venturers) have rights to the net assets of the arrangement. The standard requires a joint operator to recognize and measure the assets and liabilities (and recognize the related revenues and expenses) in relation to its interest in the arrangement in accordance with relevant IFRSs applicable to the particular assets, liabilities, revenues and expenses. The standard requires a joint venturer to recognize an investment and to account for that investment using the equity method.

(4) Disclosure of Interests in Other Entities

(5) Employee Benefits

(6) Fair Value Measurement

D. Impact of Changes in Accounting Policies

(1) Consolidated Financial Statements

3. K-IFRS: Preparation, Impact to Financial Statements and Changes in the Accounting Principles Implemented

•

Transition to K-IFRS

The Company prepares its financial statements in accordance with K-IFRS starting from fiscal year 2011 which commenced on January 1, 2011. The Company’s financial statements in previous periods were prepared in accordance with Korean GAAP. The Company’s financial statements for fiscal year 2010, which are presented for comparison, were prepared in accordance with K-IFRS with January 1, 2010 as the transition date and pursuant to K-IFRS No. 1101, “First-time Adoption of Korean International Financial Reporting Standards.”

IV. AUDITOR’S OPINION

1. Auditor (Consolidated)

Six months ended June 30,

2014

Year ended December 31,
2013

Year ended December 31,
2012

KPMG Samjong Accounting Corp.

2. Audit Opinion (Consolidated)


Period	Auditor’s opinion	Issues noted
Six months ended June 30, 2014	—	—
Year ended December 31, 2013	Unqualified	N/A
Year ended December 31, 2012	Unqualified	N/A

3. Auditor (Separate)

Six months ended June 30,

2014

Year ended December 31,
2013

Year ended December 31,
2012

KPMG Samjong Accounting Corp.

4. Audit Opinion (Separate)


Period	Auditor’s opinion		Issues noted
Six months ended June 30, 2014		—		—
Year ended December 31, 2013		Unqualified		N/A
Year ended December 31, 2012		Unqualified		N/A

5. Remuneration for Independent Auditors for the Past Three Fiscal Years

A. Audit Contracts

(Unit: in thousands of Won except number of hours)

Fiscal Year

Auditors

Contents

Fee

Total
number of
hours
accumulated
for the fiscal
year

Year ended December 31, 2014

KPMG Samjong
Accounting Corp.

Semi-annual review

1,280,000

17,890

Quarterly review

Separate financial statements audit

Consolidated financial statements audit

English financial statements review and other audit task

Year ended December 31, 2013

KPMG Samjong
Accounting Corp.

Semi-annual review

1,250,000

17,796

Quarterly review

Separate financial statements audit

Consolidated financial statements audit

English financial statements review and other audit task

Year ended December 31, 2012

KPMG Samjong
Accounting Corp.

Semi-annual review

1,220,000

19,583

Quarterly review

Separate financial statements audit

Consolidated financial statements audit

English financial statements review and other audit task

B. Non-Audit Services Contract with External Auditors

(Unit: in thousands of Won)

Period

Contract date

Service provided

Service
duration

Fee

Six months ended June 30, 2014

N/A

—

Year ended December 31, 2013

N/A

—

Year ended December 31, 2012

N/A

—

6. Change of Independent Auditors

Starting from 2012, the Company changed its independent auditors to KPMG Samjong Accounting Corp. from Deloitte Anjin LLC due to the expiration of the audit contract with Deloitte Anjin LLC.

V. Management’s discussion and analysis

Omitted in quarterly and semi-annual reports in accordance with Korean disclosure rules.

VI. CORPORATE ORGANIZATION INCLUDING BOARD OF DIRECTORS AND AFFILIATED COMPANIES

1. Board of Directors

A. Overview of the Composition of the Board of Directors

The Company’s board of directors (the “Board of Directors”) is composed of eight members: five independent directors and three inside directors. Within the Board, there are five committees: Independent Director Nomination Committee, Audit Committee, Compensation Committee, CapEx Review Committee, and Corporate Citizenship Committee.


(As of August 8, 2014)
Total number of persons	Inside directors	Independent directors
8	Sung Min Ha, Dae Sik Cho, Dong Seob Jee	Jae Hyeon Ahn, Dae Shick Oh, Jae Hoon Lee, Hyun Chin Lim, Jay Young Chung

At the 30th General Meeting of Shareholders held on March 21, 2014, Jae Hoon Lee was elected as an inside director and Jae Hyeon Ahn was elected as an independent director and a member of the audit committee.

B. Significant Activities of the Board of Directors


Meeting	Date	Agenda	Approval
361th (the 1st meeting of 2014)	February 6, 2014	• Financial statements as of and for the year ended December 31, 2013 • Annual business report as of and for the year ended December 31, 2013 • Report of internal accounting management • Report for the period after the fourth quarter of 2013	Approved as proposed Approved as proposed — —

362th (the 2nd meeting of 2014)	February 20, 2014	• 2014 transaction of goods, services and assets with SK Planet Co., Ltd. • Rights offering by PS&Marketing Co., Ltd. • Convocation of the 30th General Meeting of Shareholders • Evaluation results of internal accounting management system	Approved as proposed Approved as proposed Approved as proposed —

363th (the 3rd meeting of 2014)	March 21, 2014	• Election of the chief executive officer • Election of the chairman of the Board of Directors • Election of committee members • Financial transactions with affiliated company (SK Securities) • Provision of funds for management of the 2014 SUPEX meetings	Approved as proposed Approved as proposed Approved as proposed Approved as proposed Approved as proposed

364th (the 4th meeting of 2014)	April 24, 2014	• Transaction of goods relating to B Box with SK Broadband • Bond offering • Financial transactions with affiliated company (SK Securities) • Report for the period after the first quarter of 2014	Approved as proposed Approved as proposed Approved as proposed —

365th (the 5th meeting of 2014)	June 24, 2014	• Financial transactions with affiliated company (SK Securities)	Approved as proposed

366th (the 6th meeting of 2014)	July 24, 2014	• Payment of interim dividends • Financial results for the first six months of 2014 • Report for the period after the first quarter of 2014	Approved as proposed — —

*	The line items that do not show approval are for reporting purposes only.

C. Committees within Board of Directors

(1) Committee structure (as of August 8, 2014)

(a) Compensation Review Committee


Total number of persons	Members		Task
Total number of persons	Inside Directors	Independent Directors	Task
3	—	Jae Hoon Lee, Hyun Chin Lim, Jay Young Chung	Review CEO remuneration system and amount

*	The Compensation Review Committee is a committee established by the resolution of the Board of Directors.

(b) Capex Review Committee


Total number of persons	Members		Task
Total number of persons	Inside Directors	Independent Directors	Task
5	Dong Seob Jee	Jae Hyeon Ahn, Dae Shick Oh, Jae Hoon Lee, Jay Young Chung	Review major investment plans and changes thereto

*	The Capex Review Committee is a committee established by the resolution of the Board of Directors.


Total number of persons	Members		Task
Total number of persons	Inside Directors	Independent Directors	Task
4	Dong Seob Jee	Jae Hyeon Ahn, Hyun Chin Lim, Jay Young Chung	Review guidelines on corporate social responsibility (“CSR”) programs, etc.

*	The Corporate Citizenship Committee is a committee established by the resolution of the Board of Directors.

(d) Independent Director Nomination Committee


Total number of persons	Members		Task
Total number of persons	Inside Directors	Independent Directors	Task
3	Sung Min Ha	Dae Shick Oh, Jae Hoon Lee	Nomination of independent directors

*	Under the Korean Commercial Code, a majority of the members of the Independent Director Nomination Committee should be independent directors.

(e) Audit Committee


Total number of persons	Members		Task
Total number of persons	Inside Directors	Independent Directors	Task
3	—	Dae Shick Oh, Hyun Chin Lim, Jae Hyeon Ahn	Review financial statements and supervise independent audit process, etc.

*	The Audit Committee is a committee established under the provisions of the Articles of Incorporation and the Korean Commercial Code.

2. Audit System

The Company’s Audit Committee consists of three independent directors, Dae Shick Oh, Hyun Chin Lim, Jae Hyeon Ahn.

Major activities of the Audit Committee as of August 8, 2014 are set forth below.

Meeting

Date

Agenda

Approval

The 1st

meeting of 2014

February 5, 2014

• Evaluation of internal monitoring controls based on the opinion of the members of the Audit Committee

• Review of business and audit results for the second half of 2013 and business and audit plans for 2014

• Report of internal accounting management system

Approved as proposed

—


Meeting	Date	Agenda	Approval
The 2nd meeting of 2014	February 19, 2014	• Report on the IFRS audit of fiscal year 2013 • Report on review of 2013 internal accounting management system • Evaluation of internal accounting management system operation • Agenda and document review for the 30th General Meeting of Shareholders • Auditor’s report for fiscal year 2013 • IT service management contract for 2014 • Service contract with SK Wyverns for 2014 • Service contract with SKTCH • Construction of fixed-line and wireless networks in 2014	— — Approved as proposed Approved as proposed Approved as proposed Approved as proposed Approved as proposed Approved as proposed Approved as proposed
The 3rd meeting of 2014	March 20, 2014	• Transactions with SK C&C Co., Ltd. in the second quarter of 2014	Approved as proposed
The 4th meeting of 2014	April 23, 2014	• Election of chairman • Purchase of maintenance, repair and operations items from Happynarae Co., Ltd. • Construction of fixed-line and wireless network facilities for 2014 • Remuneration for outside auditor for fiscal year 2014 • Outside auditor service plan for fiscal year 2014 • Audit plan for fiscal year 2014	Approved as proposed Approved as proposed Approved as proposed Approved as proposed Approved as proposed —
The 5th meeting of 2014	June 25, 2014	• Transactions with SK C&C Co., Ltd. in the third quarter of 2014 • Energy reduction business contract with SK Broadband Co., Ltd.	Approved as proposed Approved as proposed
The 6th meeting of 2014	July 23, 2014	• Construction of fixed-line and wireless network facilities for 2014 • Review of business and audit results for the first half of 2014 and business and audit plans for the second half of 2014 • Report on the IFRS audit of fiscal year 2014	Approved as proposed — —

*	The line items that do not show approval are for reporting purposes only.

3. Shareholders’ Exercise of Voting Rights

A. Voting System and Exercise of Minority Shareholders’ Rights

Pursuant to the Articles of Incorporation as shown below, the cumulative voting system was first introduced in the general meeting of shareholders held in 2003.


Articles of Incorporation		Description
Article 32(3) (Election of Directors)		Cumulative voting under Article 382-2 of the Korean Commercial Code will not be applied for the election of directors.

Article 4 of the 12^th Supplement to the Articles of Incorporation (Interim Regulation)		Article 32(3) of the Articles of Incorporation shall remain effective until the day immediately preceding the date of the general meeting of shareholders held in 2003.

Also, neither written or electronic voting system nor minority shareholder rights is applicable.

4. Affiliated Companies

A. Capital Investments between Affiliated Companies

(As of June 30, 2014)


	Invested companies
Investing company	SK Corporation			SK Innovation			SK Energy			SK Global Chemical			SK Telecom			SK Networks			SKC			SK E&C			SK Shipping			SK Securities
SK Holdings					33.4	%								25.2	%		39.1	%		42.5	%		44.5	%		83.1	%
SK Innovation								100.0	%		100.0	%
SK Energy
SK Global Chemical
SK Networks
SK Telecom
SK Chemicals																	0.02	%					28.2	%
SKC
SK E&C
SK Gas
SK C&C		31.8	%																										10.0	%
SK E&S
SK Communications
SK Broadband
SK D&D
SK Continental E-Motion
SK Lubricants
SK Shipping
SK Planet
SK Hynix
Ko-one Energy
SK Seentec
Total affiliated companies		31.8	%		33.4	%		100.0	%		100.0	%		25.2	%		39.2	%		42.5	%		72.7	%		83.1	%		10.0	%


	Invested companies
Investing company	SK E&S			SK Gas			DOPCO			CCE			YN Energy			Ko-one Energy Service			Entis			SK Telink			Busan City Gas			Jeonnam City Gas
SK Holdings		94.1	%
SK Innovation								41.0	%
SK Energy
SK Global Chemical
SK Networks
SK Telecom																							83.5	%
SK Chemicals					45.5	%														50.0	%
SKC
SK E&C
SK Gas
SK C&C		5.9	%
SK E&S											100.0	%		100.0	%		99.9	%								67.3	%		100.0	%
SK Communications
SK Broadband
SK D&D
SK Continental E-Motion
SK Lubricants
SK Shipping
SK Planet
SK Hynix
Ko-one Energy Service
SK Seentec					10.0	%
Total affiliated companies		100.0	%		55.5	%		41.0	%		100.0	%		100.0	%		99.9	%		50.0	%		83.5	%		67.3	%		100.0	%


	Invested companies
Investing company	Gangwon City Gas			JBES			M & Service			SK Wyverns			Infosec			Happynarae			SK Telesys			Gimcheon Energy Services			F&U Credit Info			Hanam Energy Service
SK Holdings
SK Innovation																	42.5	%
SK Energy
SK Global Chemical
SK Networks
SK Telecom											100.0	%					42.5	%								50.0	%
SK Chemicals
SKC																				50.0	%
SK E&C
SK Gas																	5.0	%
SK C&C														100.0	%		5.0	%
SK E&S		100.0	%		100.0	%																	80.0	%
SK Communications
SK Broadband
SK D&D
SK Continental E-Motion
SK Lubricants
SK Shipping
SK Planet								100.0	%
SK Hynix
Ko-one Energy Service																													100.0	%
SK Seentec
Total affiliated companies		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		95.0	%		50.0	%		80.0	%		50.0	%		100.0	%


	Invested companies
Investing company	SK D&D			Natruck			SK Hynix			Speed Motor			SK Mobile Energy			SK Petrochemical			SK Communications			SK Planet			SKC Air Gas			SKN service
SK Holdings
SK Innovation														100.0	%
SK Energy					100.0	%
SK Global Chemical																	100.0	%
SK Networks											100.0	%																	86.5	%
SK Telecom								20.4	%														100.0	%
SK Chemicals
SKC																										80.0	%
SK E&C		50.0	%
SK Gas
SK C&C
SK E&S
SK Communications
SK Broadband
SK D&D
SK Continental E-Motion
SK Lubricants
SK Shipping
SK Planet																				64.5	%
SK Hynix
Ko-one Energy Service
SK Seentec
Total affiliated companies		50.0	%		100.0	%		20.4	%		100.0	%		100.0	%		100.0	%		64.5	%		100.0	%		80.0	%		86.5	%


	Invested companies
Investing company	Commerce Planet			Initz			SKC Solmics Co., Ltd.			SK Broadband			LC&C			PMP			PS&Marketing			UBcare			PyongTaek Energy Service			Wirye Energy Service
SK Holdings
SK Innovation
SK Energy
SK Global Chemical
SK Networks														100.0	%
SK Telecom											50.6	%								100.0	%
SK Chemicals					80.3	%																	44.0	%
SKC								41.4	%
SK E&C
SK Gas
SK C&C
SK E&S																	100.0	%								100.0	%		89.5	%
SK Communications
SK Broadband
SK D&D
SK Continental E-Motion
SK Lubricants
SK Shipping
SK Planet		100.0	%
SK Hynix
Ko-one Energy Service
SK Seentec
Total affiliated companies		100.0	%		80.3	%		41.4	%		50.6	%		100.0	%		100.0	%		100.0	%		44.0	%		100.0	%		89.5	%


	Invested companies
Investing company	Jeju United FC			MKS Guarantee			SK Forest			SK Lubricants			SKC Lighting			Bizen			SK HY ENG			HYSTEC			Silicon File			SK Biopharmaceuticals
SK Holdings								100.0	%																				100.0	%
SK Innovation											100.0	%
SK Energy		100.0	%
SK Global Chemical
SK Networks
SK Telecom
SK Chemicals
SKC														100.0	%
SK E&C
SK Gas
SK C&C																	99.0	%
SK E&S
SK Communications
SK Broadband
SK D&D					100.0	%
SK Continental E-Motion
SK Lubricants
SK Shipping
SK Planet
SK Hynix																				100.0	%		100.0	%		100.0	%
Ko-one Energy Service
SK Seentec
Total affiliated companies		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		99.0	%		100.0	%		100.0	%		100.0	%		100.0	%


	Invested companies
Investing company	SK Seentec			Daejeon Pure Water			Gwangju Pure Water			SKW			Television Media Korea			Network O&S			Service Ace			Service Top			SK Pinx			U base Manufacturing Asia
SK Holdings
SK Innovation
SK Energy
SK Global Chemical
SK Networks																										100.0	%
SK Telecom																	100.0	%		100.0	%		100.0	%
SK Chemicals		100.0	%
SKC											90.0	%
SK E&C					32.0	%		42.0	%
SK Gas
SK C&C
SK E&S
SK Communications
SK Broadband
SK D&D
SK Continental E-Motion
SK Lubricants																													100.0	%
SK Shipping
SK Planet														51.0	%
SK Hynix
Ko-one Energy Service
SK Seentec
Total affiliated companies		100.0	%		32.0	%		42.0	%		90.0	%		51.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%


	Invested companies
Investing company	Ulsan Aromatics			SK Continental E-Motion Korea			G.Hub			SK Incheon Petrochem			SK Trading International			Boryeong LNG Terminal			NEOS Networks			SK Encar			QRT Semiconductor
SK Holdings
SK Innovation											100.0	%		100.0	%
SK Energy
SK Global Chemical		50.0	%
SK Networks
SK Telecom																				66.7	%
SK Chemicals
SKC
SK E&C
SK Gas								100.0	%
SK C&C																							50.0	%
SK E&S																	50.0	%
SK Communications
SK Broadband
SK D&D
SK Continental E-Motion					100.0	%
SK Lubricants
SK Shipping
SK Planet
SK Hynix																										100.0	%
Ko-one Energy Service
SK Seentec
Total affiliated companies		50.0	%		100.0	%		100.0	%		100.0	%		100.0	%		50.0	%		66.7	%		50.0	%		100.0	%

*	Change in company names:

Ulsan Aromatics changed its name from Arochemi

Happynarae changed its name from MRO Korea

Bizen changed its name from Telsk

SK Hystec changed its name from Hystec

SK HY ENG changed its name from Hynix Engineering

Entis changed its name from SK Sci-tech

Gamgok Development changed its name from [Ants Development]

VII. SHAREHOLDERS

1. Shareholdings of the Largest Shareholder and Related Persons

A. Shareholdings of the Largest Shareholder and Related Persons


(As of June 30, 2014)	(Unit: in shares and percentages)

Name	Relationship	Type of share	Number of shares owned and ownership ratio
			Beginning of Period				End of Period
			Number of shares		Ownership ratio		Number of shares		Ownership ratio
SK Holdings Co., Ltd.	Largest Shareholder	Common share		20,363,452		25.22		20,363,452		25.22
Tae Won Chey	Officer of affiliated company	Common share		100		0.00		100		0.00
Shin Won Chey	Officer of affiliated company	Common share		2,000		0.00		4,000		0.00
Sung Min Ha	Officer of affiliated company	Common share		738		0.00		738		0.00
Total		Common share		20,366,290		25.22		20,368,290		25.22

B. Overview of the Largest Shareholder

SK Holdings Co., Ltd. (“SK Holdings”) is a holding company in accordance with the Fair Trade Act and as of June 30, 2014, has nine subsidiaries: SK Innovation Co., Ltd., SK Telecom Co., Ltd., SK Networks Co., Ltd., SKC Co., Ltd., SK Shipping Co., Ltd., SK E&C Co., Ltd., SK E&S Co., Ltd., SK Biofarm Co., Ltd. and SK Forest Co., Ltd.

Details of the subsidiaries of SK Holdings are as follows:


		(Unit: in millions of Won)

Affiliates	Share Holdings			Book Value (million Won)		Industry	Description
SK Innovation Co., Ltd.		33.4	%		3,944,657	Energy and Petrochemical		Publicly Listed
SK Telecom Co., Ltd.		25.2	%		3,091,125	Telecommunication		Publicly Listed
SK Networks Co., Ltd.		39.1	%		905,691	Energy/ICT-related Product Distribution, Resource Development, Automotive Aftermarket, Fashion, Hotel		Publicly Listed
SKC Co., Ltd.		42.5	%		254,632	PET Film Manufacturing and Chemical Products		Publicly Listed
SK E&C Co., Ltd.		44.5	%		470,015	Infrastructure, Architectural Housing and Plant Construction		Privately Held
SK Shipping Co., Ltd.		83.1	%		420,568	Ocean Freight		Privately Held
SK E&S Co., Ltd.		94.1	%		1,026,307	Gas Company Holdings and Power Generation		Privately Held
SK Biofarm Co., Ltd.		100.0	%		328,702	Biotechnology		Privately Held
SK Forest Co., Ltd.		100.0	%		61,387	Forestry and Landscaping		Privately Held

*	The above shareholdings are based on common share holdings as of June 30, 2014.

SK Holdings is a publicly listed company and is required to submit a report of its significant business activities in accordance with Article 161 of the Financial Investment Services and Capital Markets Act. Also as a holding company, SK Holdings is required to report key management activities of its subsidiaries in accordance with Article 8 of KOSPI Market Disclosure Regulation.

The rule is applicable to subsidiaries whose book value of the holding company’s shareholding exceeds 10% of its total assets based on the financial statements as of December 31, 2013. SK Innovation Co., Ltd. and SK Telecom Co., Ltd. are two such subsidiaries.

2. Changes in Shareholdings of the Largest Shareholder

Changes in shareholdings of the largest shareholder are as follows.


(As of June 30, 2014)						(Unit: in shares and percentages)

Largest Shareholder	Date of the change in the largest shareholder/ Date of change in shareholding	Shares Held		Holding Ratio		Remarks
SK Corporation	March 11, 2011		18,750,490		23.22	Man Won Jung, SK Telecom’s CEO, resigned Shin Bae Kim, SK C&C’s CEO, resigned
	April 5, 2011		18,749,990		23.22	Dal Sup Shim, an Independent Director, disposed 500 shares
	July 8, 2011		18,749,990		23.22	Shin Won Chey, SKC’s Chairman, purchased 500 shares
	August 5, 2011		18,750,490		23.22	Shin Won Chey, SKC’s Chairman, purchased 500 shares
	August 23, 2011		18,751,490		23.22	Shin Won Chey, SKC’s Chairman, purchased 500 shares
	December 21, 2011		20,366,490		25.22	SK Holdings purchased 1,615,000 shares
	January 31, 2012		20,366,290		25.22	Retirement of Bang Hyung Lee, a former officer of an affiliated company
	January 1, 2014		20,367,290		25.22	Shin Won Chey, SKC’s Chairman, purchased 1,000 shares
	March 24, 2014		20,368,290		25.22	Shin Won Chey, SKC’s Chairman, purchased 1,000 shares

*	Shares held are the sum of shares held by SK Holdings and its related parties.

3. Distribution of Shares

A. Shareholders with ownership of 5% or more and others


(As of June 30, 2014)			(Unit: in shares and percentages)

Rank	Name (title)	Common share
Rank	Name (title)	Number of shares		Ownership ratio			Remarks
1	Citibank ADR		13,337,328		16.52	%		—
2	SK Holdings		20,363,452		25.22			—
3	SK Telecom		9,809,375		12.15			Treasury shares
4	National Pension Service		4,760,489		5.90			As of End of 2013
Shareholdings under the Employee Stock Ownership Program			111,528		0.14			As of June 30, 2014

B. Shareholder Distribution


(As of June 30, 2014)		(Unit: in shares and percentages)

Classification	Number of shareholders		Ratio (%)			Number of shares		Ratio (%)			Remarks
Total minority shareholders*		24,174		99.76	%		31,057,635		38.46	%		—

*	Defined as shareholders whose shareholding is less than a hundredth of the total issued and outstanding shares.

4. Share Price and Trading Volume in the Last Six Months

A. Domestic Securities Market


(Unit: in Won and shares)

Types		June 2014		May 2014		April 2014		March 2014		February 2014		January 2014
Common stock	Highest		243,500		229,000		217,000		219,000		216,500		229,000
	Lowest		218,500		216,000		198,000		203,500		196,500		205,500
Monthly transaction volume			3,423,138		2,785,194		4,636,269		3,786,217		3,920,134		3,528,891

B. Foreign Securities Market


New York Stock Exchange			(Unit: in US dollars and number of American Depositary Receipts)

Types		June 2014		May 2014		April 2014		March 2014		February 2014		January 2014
Depository Receipt	Highest		26.50		24.77		23.09		22.67		22.38		24.07
	Lowest		23.56		23.23		20.76		21.25		20.76		21.14
Monthly transaction volume			21,637,750		14,595,143		20,665,121		15,377,813		20,403,936		22,341,886

VIII. EMPLOYEES AND DIRECTORS

1. Employees


(As of June 30, 2014)		(Unit: in persons and millions of Won)

	Number of employees								Average		Aggregate		Average
Classification	Regular employees		Contract employees		Others		Total		service year		wage for the year 2014		wage per person		Remarks
Male		3,590		139		—		3,729		12.9		276,693		74		—
Female		543		87		—		630		10.7		32,673		52		—
Total		4,133		226		—		4,359		12.6		309,366		71		—

*	Excludes retirement and severance payments to employees whose employment was terminated before the end of the respective employment periods. Average wage per person was calculated with respect to the total number of paid employees.

2. Compensation of Directors

A. Amount Approved at the Shareholders’ Meeting


(As of June 30, 2014)		(Unit: in millions of Won)

Classification	Number of Directors		Aggregate Amount Approved
Directors		8		12,000

B. Amount Paid


(As of June 30, 2014)		(Unit: in millions of Won)

Classification	Number of Directors		Aggregate Amount Paid		Average Amount Paid Per Director
Insider Directors		3		2,307		769
Independent Directors*		2		82		41
Audit Committee Members		3		123		41
Total		8		2,512		314

3. Individual Compensation of Directors

IX. RELATED PARTY TRANSACTIONS

1. Transfer of Assets to/from the Largest Shareholder and Other Transactions

A. Investment and Disposition of Investment

None.

B. Transfer of Assets

(Unit: in millions of Won)

Name (Corporate name)

Relationship

Details

Remarks

Transferred
Assets

Purpose of
Transfer

Date of Transfer

Amount
Transferred
from Largest
Shareholder

Amount
Transferred
to Largest
Shareholder

SK Broadband Co., Ltd.

Subsidiary

Computer software

Disposition of assets

June 30, 2014

—

8,760

—

Total

—

8,760

—

On April 24, 2014, the board of directors resolved to transfer the Company’s tangible and intangible investment assets related to B Box to SK Broadband Co., Ltd. for Won 8,760 million for reliable and efficient operations of smart IPTV services, and the transfer of the assets was completed on June 30, 2014.

2. Related Party Transactions (excluding Transactions with the Largest Shareholder and Related Persons)

A. Provisional Payment and Loans (including loans on marketable securities)

(Unit: in millions of Won)

Name (Corporate name)

Relationship

Account category

Change details

Accrued
interest

Remarks

Beginning

Increase

Decrease

Ending

Seoul E&T and others

Agency

Long-term and short-term loans

84,760

85,959

69,413

101,306

—

(Unit: in millions of Won)

Name (Corporate name)

Relationship

Account category

Change details

Accrued
interest

Remarks

Beginning

Increase

Decrease

Ending

Daehan Kanggun BcN Co., Ltd.

Investee

Long-term

loans

22,102

—

22,148

—

X. OTHER INFORMATION RELATING TO THE PROTECTION OF INVESTORS

1. Developments in the Items Mentioned in Prior Reports on Important Business Matters

A. Status and Progress of Major Management Events

None.

B. Summary Minutes of the General Meeting of Shareholders


Date	Agenda	Resolution
27^th Fiscal Year Meeting of Shareholders (March 11, 2011)	1. Approval of the financial statements for the year ended December 31, 2010 2. Approval of Remuneration Limit for Directors 3. Amendment to Company Regulation on Executive Compensation 4. Election of directors • Election of inside directors • Election of independent directors • Election of independent directors as Audit Committee members	Approved (Cash dividend, Won 8,400 per share) Approved Approved (Won 12 billion) Approved (Sung Min Ha, Jin Woo So) Approved (Rak Young Uhm, Jay Young Chung, Jae Ho Cho) Approved (Jay Young Chung, Jae Ho Cho)
1^st Extraordinary Meeting of Shareholders of 2011 (August 31, 2011)	1. Approval of the Spin-off Plan 2. Election of director	Approved (Spin-off of SK Planet) Approved (Jun Ho Kim)
28^th Fiscal Year Meeting of Shareholders (March 23, 2012)	1. Approval of the financial statements for the year ended December 31, 2011 2. Amendment to Articles of Incorporation 3. Election of directors • Election of an inside director • Election of an inside director • Election of an independent director 4. Election of an independent director as Audit Committee member 5. Approval of remuneration limit for directors	Approved (Cash dividend, Won 8,400 per share) Approved Approved (Young Tae Kim) Approved (Dong Seob Jee) Approved (Hyun Chin Lim) Approved (Hyun Chin Lim) Approved (Won 12 billion)
29^th Fiscal Year Meeting of Shareholders (March 22, 2013)	1. Approval of the financial statements for the year ended December 31, 2012 2. Amendments to Articles of Incorporation 3. Election of directors • Election of an inside director • Election of an independent director 4. Election of an independent director as Audit Committee member 5. Approval of remuneration limit for directors	Approved (Cash dividend, Won 8,400 per share) Approved Approved (Dae Sik Cho) Approved (Dae Shick Oh) Approved (Dae Shick Oh) Approved (Won 12 billion)
30^th Fiscal Year Meeting of Shareholders (March 21, 2014)	1. Approval of the financial statements for the year ended December 31, 2013 2. Amendments to Articles of Incorporation 3. Election of directors • Election of an inside director • Election of an independent director • Election of an independent director • Election of an independent director 4. Election of an independent director as Audit Committee member 5. Approval of remuneration limit for directors	Approved (Cash dividend, Won 8,400 per share) Approved Approved (Sung Min Ha) Approved (Jay Young Chung) Approved (Jae Hoon Lee) Approved (Jae Hyeon Ahn) Approved (Jae Hyeon Ahn) Approved (Won 12 billion)

2. Contingent Liabilities

[SK Telecom]

A. Material Legal Proceedings

(1) Claim for copyright license fees regarding “Coloring” services

On May 7, 2010, Korea Music Copyright Association (“KOMCA”) filed a lawsuit with the court demanding that the Company pay KOMCA license fees for the Company’s “Coloring” services. The court rendered a judgment against the Company ordering the Company to pay Won 570 million to KOMCA, which was affirmed by the appellate court on October 26, 2011. The Company filed an appeal at the Supreme Court of Korea and the judgment was overturned on July 11, 2013. The case was remanded down to the appellate court and the Company expects to successfully defend the suit, based on recent decisions in similar suits involving KT and LGU+. While the Company does not expect this litigation to have an immediate impact on the Company’s business or results of operation as the final outcome of this litigation has not been determined, the Company may be required to pay increased annual license fees to KOMCA if the final judgment is rendered against the Company.

*	Actual impact on the Company’s business and financial condition from the litigation may be different from the Company’s expectation stated above.

B. Other Matters

None.

[SK Broadband]

A. Material Legal Proceedings

(1) SK Broadband as the plaintiff


	(Unit: in thousands of Won)

Description of Proceedings	Date of Commencement of Proceedings	Amount of Claim		Status
Damages claim against Welcome Savings Bank	March 2014		1,291,533	Pending before district court
Damages claim against Golden Young and others	April 2011		908,166	Pending before appellate court
Total	—		2,199,699	—

(2) SK Broadband as the defendant

The Company does not believe that the outcome of any of the proceedings in which SK Broadband is named as a defendant will have a material effect on the Company’s financial statements.

B. Other Contingent Liabilities

(1) Pledged assets and covenants

SK Broadband, upon approval by its board of directors, has provided guarantees for financial instruments amounting to Won 2,335 million to support employees’ funding for the Employee Stock Ownership Program.

Additionally, SK Broadband has provided “geun” mortgage amounting to Won 14.2 billion to others, including Ilsan Guksa, on a part of its buildings in connection with the leasing of the buildings.

[SK Planet]

A. Material Legal Proceedings

As of June 30, 2014, there was one pending proceeding with SK Planet as the defendant and the aggregate amount of the claim was Won 78 million. The management cannot reasonably forecast the outcome of this case and no amount in connection with this proceeding was recognized on the Company’s financial statements.

B. Other Contingent Liabilities

None.

[SK Communications]

A. Material Legal Proceedings

As of June 30, 2014, the aggregate amount of claims was Won 2.0 billion. The management cannot reasonably forecast the outcome of the pending cases.

B. Other Contingent Liabilities

The material payment guarantees provided by third parties to SK Communications as of June 30, 2014 are set forth in the table below.


(Unit: in thousands of Won)

Financial Institution	Guarantee	Amount
Seoul Guarantee Insurance Company	Prepaid coverage payment guarantee		700,000
Seoul Guarantee Insurance Company	Provisional deposit guarantee insurance for bonds		863,000
Etoos Education Co., Ltd.	Support for production and publication of cartoon series		1,600,000

[PS&Marketing]

A. Other Contingent Liabilities

Shinhan Bank has provided a payment guarantee of Won 3 billion for PS&Marketing’s purchase of mobile devices from Apple Korea Ltd.

Additionally, PS&Marketing has entered into a credit facility up to Won 27 billion with Shinhan Bank for working capital purposes.

[NEOS Networks]

A. Other Contingent Liabilities

NEOS Networks, has agreed to provide “geun” mortgage amounting to Won 1.2 billion.

3. Status of sanctions, etc.

[SK Telecom]

On September 19, 2011, the Korea Communications Commission imposed on the Company a fine of Won 6.86 billion and issued a correctional order for providing discriminatory subsidies to subscribers. The Company paid the fine and completed the improvement of the procedures in consultation with the Korea Communications Commission by January 2012.

On April 22, 2011, the Company received a correctional order from the Fair Trade Commission of Korea for violation of Article 21 of the Electronic Commerce Act and was imposed a fine of Won 5 million. The Company paid the fine and filed a suit disputing the order of the Fair Trade Commission. The suit is currently pending.

On November 11, 2011, the Company received a correctional order from the Fair Trade Commission of Korea for violation of Article 23 of the Fair Trade Act relating to the transfer of patented technology necessary for the supply of relay facilities. The Company corrected the procedures before receiving the correctional order.

On March 14, 2012, the Company received a correctional order from the Fair Trade Commission of Korea for an alleged violation of Article 23 of the Fair Trade Act relating to the handset subsidy practice and distribution of handsets and was imposed a fine of Won 21,928 million. The Company appealed the order and filed a suit with the administrative court. The suit is currently pending.

On February 6, 2012, the Company received three penalty points and was imposed a fine of Won 3 million from the Korea Exchange for a violation of Article 35 of Korea Exchange’s disclosure rules. The Company paid the fine and has been taking efforts to prevent a repetitive violation.

On June 21, 2012, the Company received a correctional order from the Korea Communications Commission in connection with its decision on whether the Company had violated regulations related to the safeguarding of location information. The Company completed the improvement of the procedures in consultation with the Korea Communications Commission by December 2012.

On July 4, 2012, the Fair Trade Commission issued correctional orders and imposed fines on the Company and seven affiliated companies for alleged unfair advantage provided to SK C&C, an affiliated company, in services fees for information technology system management and operation. The Company and SK Planet were imposed fines of Won 25,042 million and Won 1,349 million, respectively. The Company and the seven affiliated companies appealed the orders and on May 14, 2014, won the suit at the Seoul High Court. The Fair Trade Commission appealed the decision, and the case is currently pending before the Supreme Court of Korea.

On December 24, 2012, the Korea Communications Commission imposed on the Company a fine of Won 6.89 billion, imposed a suspension on acquiring new subscribers from January 31, 2013 to February 21, 2013 and issued a correctional order for providing discriminatory subsidies to subscribers. The Company paid the fine and completed the improvement of the procedures in consultation with the Korea Communications Commission by March 2013.

On January 11, 2013, the Company received a correctional order and a fine of Won 100 million from the Fair Trade Commission of Korea for alleged violation of Article 23 of the Fair Trade Act relating to the Company’s transactions with its distribution network. The Company paid the fine by May 10, 2013.

On March 14, 2013, the Korea Communications Commission imposed on the Company a fine of Won 3.14 billion and issued a correctional order in a case for providing discriminatory subsidies to subscribers. The Company paid the fine and completed the improvement of the procedures in consultation with the Korea Communications Commission by April 2013.

On July 18, 2013, the Korea Communications Commission imposed on the Company a fine of Won 36.5 billion and issued a correctional order for providing discriminatory subsidies to subscribers. The Company paid the fine and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order by August 2013.

On August 21, 2013, the Company received a correctional order from the Korea Communications Commission in connection with its decision on whether the Company had violated procedural regulations related to terms and conditions of usage. The Company completed the improvement of the procedures in consultation with the Korea Communications Commission by November 2013.

On September 16, 2013, the Company received a correctional order from the Korea Communications Commission in connection with its decision on whether the Company had violated regulations related to wholesale provision of telecommunication services. The Company completed the improvement of the procedures and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order by October 2013.

On November 15, 2013, the Korea Communications Commission imposed a fine of Won 676 million and issued a correctional order for limiting termination of telecommunication services. The Company paid the fine and completed the improvement of the procedures and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order by December 2013.

On December 27, 2013, the Korea Communications Commission imposed on the Company a fine of Won 56.0 billion and issued a correctional order for providing discriminatory subsidies to subscribers. The Company paid the fine and completed the improvement of the procedures and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order by January 2014.

On March 7, 2014, the MSIP imposed a suspension of operations for 45 days for failure to observe the order of the Korea Communications Commission to cease providing discriminatory subsidies to subscribers. The Company suspended its operations during the period beginning April 5, 2014 and ending May 19, 2014, and reported to the MSIP on the implementation of actions pursuant to the suspension order by May 2014.

On March 13, 2014, the Korea Communications Commission imposed on the Company a fine of Won 16.65 billion, imposed a suspension on acquiring new customers for 7 days, and issued a correctional order for providing discriminatory subsidies to subscribers. In April 2014, the Company paid the fine and completed the improvement of the procedures and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order by April 2014. The Company plans to suspend acquisition of new customers in the future.

On January 31, 2013, the Seoul Central District Court acquitted Mr. Jae Won Chey, our former director and vice chairman, on all charges against him. On September 27, 2013, the Seoul High Court reversed the acquittal of the above-mentioned former director, sentencing him to a prison term of three and a half years for violating the Act on the Aggravated Punishment, etc. of Specific Economic Crimes. On February 27, 2014, the Supreme Court of Korea affirmed the Seoul High Court’s decision. While the court’s final decision on the appealed case is not expected to have a material effect on the Company’s financial position, investors should note that it is difficult to predict, among others, the market’s assessment of such case.

[SK Broadband]

(1) Violation of the Act on Facilitation of the Use of Information Network and Protection of Information

•

Date: August 16, 2014

•

Subject: SK Broadband

•

Sanction: SK Broadband was imposed a fine of Won 3 million.

•

Reason and the Relevant Law: Violated Articles 59 and 76 of the Act on Facilitation of the Use of Information Network and Protection of Information and Article 76 of the Enforcement Decree of the Act by not having designated proper contacts for the users of telecommunications billing services to raise objections and protect rights and interests of the users and by not having provided the contact information on the Internet or other means of communication.

•

Status of Implementation: Paid the fine, designated contact persons for user protection of telecommunications billing services, and provide contact information on the Company’s website.

•

Company’s Plan: Designate contact persons for user protection of telecommunications billing services and provide contact information to users.

(2) Violation of the Telecommunication Business Act

•

Date: August 21, 2013

•

Subject Company: SK Broadband

•

Sanction: SK Broadband received a correctional order from the Korea Communications Commission.

•

Reason and the Relevant Law: Violation of Article 50, Paragraph 1, Number 5 of the Telecommunications Business Act for use of subscription agreements that omitted certain material terms and conditions pertaining to high-speed Internet usage.

•

Status of Implementation: Completed revision of subscription agreements to include material terms and conditions pertaining to high-speed Internet usage. Planning to distribute information sheets on current terms and conditions to new subscribers.

•

Company’s Plan: Improve operations including through revision of subscription agreements.

(3) Violation of the Telecommunication Business Act

•

Date: June 5, 2013

•

Subject Company: SK Broadband

•

Sanction: SK Broadband received a correctional order from the Korea Communications Commission.

•

Reason and the Relevant Law: Improperly delayed cancellations of high-speed Internet subscribers and violated Articles 42 and 50 of the Telecommunication Business Act.

•

Status of Implementation: Improving operating procedures to stop the prohibited practice due for completion in August, completed amendment of the terms of service and published the sanction in newspapers.

•

Company’s Plan: Improve cancellation procedures to prevent recurrence of the cancellation delays.

(4) Violation of accounting rules

•

Date: December 13, 2012

•

Subject Company: SK Broadband

•

Sanction: SK Broadband was imposed a fine of Won 39 million from the Korea Communications Commission.

•

Reason and the relevant law: Business report for 2011 violated accounting rules under Article 49 of the Telecommunication Business Act.

•

Status of Implementation: Paid the fine.

•

Company’s plan: Will improve accounting management system.

(5) Violation of the Telecommunications Business Act

•

Date: May 18, 2012

•

Subject Company: SK Broadband

•

Sanction: SK Broadband received a correctional order and a fine of Won 253 million

•

Reason and relevant law: Violation of Article 50, Paragraph 1, Number 5 of the Telecommunications Business Act and Article 50, Paragraph 1 of the related Enforcement Decree for offering discounts outside the terms and conditions of the subscription agreement to certain subscribers and thereby discriminating against certain subscribers

•

Status of implementation: Paid the fine, ceased the prohibitive practice, disclosed receiving the correctional order in a newspaper advertisement and changed business practice to prevent reoccurrence.

•

Company’s plan: Continuous management of the company’s distribution network and improve the company’s distribution structure.

(6) Violation of accounting rules

•

Date: January 20, 2012

•

Subject Company: SK Broadband

•

Sanction: SK Broadband was imposed a fine of Won 54 million from the Korea Communications Commission.

•

Reason and the Relevant Law: Business report for 2010 violated accounting rules under Article 49 of the Telecommunication Business Act.

•

Status of Implementation: Paid the fine.

•

Company’s Plan: Will improve accounting management system.

(7) Violation of the Telecommunication Business Act

•

Date: November 23, 2011

•

Subject Company: SK Broadband

•

Sanction: SK Broadband was imposed a fine of Won 30 million from the Korea Communications Commission.

•

Reason and the Relevant Law: Violated Telecommunication Business Act by allocating “060” number without prior review and charging fees for the service usage.

•

Status of Implementation: Paid the fine, stopped the prohibited practice, improved operating procedures and reported the results.

•

Company’s Plan: Will improve operating procedures.

(8) Violation of the Act on Facilitation of the Use of Information Network and Protection of Information

•

Date: July 14, 2011

•

Subject: SK Broadband and a former officer of SK Broadband

•

Sanction: SK Broadband was imposed a fine of Won 15 million and the former officer was imposed a fine of Won 5 million.

•

Reason and the Relevant Law: Violated Articles 24 and 62 of the Act on Facilitation of the Use of Information Network and Protection of Information by providing subscribers’ personal information to telemarketers without subscribers’ consents.

•

Status of Implementation: Paid the fine.

•

Company’s Plan: Provide education to officers and employees and strengthen internal regulations.

(9) Violation of the Telecommunication Business Act

•

Date: February 21, 2011

•

Subject Company: SK Broadband

•

Sanction: SK Broadband was imposed a correctional order and a fine of Won 3.2 billion from the Korea Communications Commission.

•

Reason and the Relevant Law: Improperly discriminated subscribers with respect to the fee reduction in the process of acquiring high-speed Internet subscribers. Violated Article 50 of the Telecommunication Business Act and Article 42 of the Enforcement Decree.

•

Status of Implementation: Paid the fine, stopped the prohibited practice, published the sanction in newspapers, improved operating procedures and amended the terms of services.

•

Company’s Plan: Continue to monitor marketing networks, improve marketing procedures, distribute incentive items directly and reduce incentive items.

4. Important Matters That Occurred After June 30, 2014

[SK Telecom]

On June 24, 2014, the Company entered into a share purchase agreement regarding a purchase of 10,241,722 common shares of Iriver Ltd. from Vogo-Rio Investment Holdings Co., Ltd. and KGF-Rio Limited, and completed the acquisition of shares at a purchase price of Won 29.5 billion.

5. Use of Proceeds

A. Use of Proceeds from Public Offerings

Not applicable.

B. Use of Proceeds from Private Offerings


(As of June 30, 2014)		(Unit: in millions of Won)


Classification	Closing Date	Proceeds	Planned Use of Proceeds	Actual Use of Proceeds	Reasons for Change
Convertible Bonds*	April 7, 2009	437,673	Refinancing of convertible bonds issued in May 2004	Refinancing and working capital	—

In 2013, holders exercised their conversion rights with respect to an aggregate principal amount of US$326,023,000 of the convertible notes. The Company delivered 1,241,337 treasury shares in respect of US$170,223,000 of the exercised aggregate principal amount and delivered cash in respect of the remainder due to the limit on foreign ownership. In connection with such conversion, the Company recognized Won 135.1 billion in financial expenses in 2013. On November 13, 2013, the Company exercised its early redemption right and on December 13, 2013, redeemed the US$6,505,000 principal amount of convertible notes not converted by noteholders.

Contents


	Page

Independent Auditors’ Review Report		1

Condensed Consolidated Statements of Financial Position		3

Condensed Consolidated Statements of Income		5

Condensed Consolidated Statements of Comprehensive Income		6

Condensed Consolidated Statements of Changes in Equity		7

Condensed Consolidated Statements of Cash Flows		8

Notes to the Condensed Consolidated Interim Financial Statements		10

Independent Auditors’ Review Report

Based on a report originally issued in Korean

To The Board of Directors and Shareholders

SK Telecom Co., Ltd.:

Reviewed financial statements

We have reviewed the accompanying condensed consolidated interim financial statements of SK Telecom Co., Ltd. and its subsidiaries (the “Group”), which comprise the condensed consolidated statement of financial position as of June 30, 2014, the related condensed consolidated statements of income and comprehensive income for the three-month and six-month periods ended June 30, 2014 and 2013, the condensed consolidated interim statements of changes in equity and cash flows for the six-month periods ended June 30, 2014 and 2013, and notes to the interim financial statements.

Management’s responsibility

Management is responsible for the preparation and fair presentation of these condensed consolidated interim financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”) No.1034, ‘Interim Financial Reporting’, and for such internal controls as management determines necessary to enable the preparation of condensed consolidated interim financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to issue a report on these condensed consolidated interim financial statements based on our reviews.

We did not review the financial statements of SK Broadband Co., Ltd., a domestic subsidiary, and an associate, whose financial statements constitute 11.8% of the Group’s consolidated operating revenue and 23.5% of the Group’s profit before income tax for the six-month period ended June 30, 2013. Other auditors reviewed those financial statements and our report, insofar as it relates to the amounts included for these entities, is based solely on the reports of other auditors.

We conducted our reviews in accordance with the Review Standards for Quarterly and Semiannual Financial Statements established by the Securities and Futures Commission of the Republic of Korea. A review of interim financial statements consists principally of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of Korea and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our reviews and the reports of other auditors, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements referred to above are not prepared fairly, in all material respects, in accordance with K-IFRS No.1034 ‘Interim Financial Reporting’.

Highlights

As discussed in note 36 to the condensed consolidated interim financial statements, the Group disposed of a controlling equity interest in Loen Entertainment, Inc., during the year ended December 31, 2013. The Group presented the results of operations of Loen Entertainment, Inc. as a discontinued operation and accordingly restated the comparative information for the three and six-month period ended June 30, 2013.

Other matters

The consolidated statement of financial position of the Group as of December 31, 2013, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, which are not accompanying this report, were audited by us and our report thereon, dated February 21, 2014, expressed an unqualified opinion. The accompanying condensed consolidated statement of financial position of the Group as of December 31, 2013, presented for comparative purposes, is not different from that audited by us in all material respects.

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

KPMG Samjong Accounting Corp.

Seoul, Korea

August 8, 2014

This report is effective as of August 8, 2014, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying condensed consolidated interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that the above review report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Financial Position

As of June 30, 2014 and December 31, 2013


(In millions of won)	Note		June 30, 2014		December 31, 2013
Assets

Current Assets:
Cash and cash equivalents		33,34	￦	1,331,263		1,398,639
Short-term financial instruments		5,33,34		320,769		311,474
Short-term investment securities		8,33,34		54,198		106,068
Accounts receivable—trade, net		6,33,34,35		2,483,091		2,257,316
Short-term loans, net		6,33,34,35		82,967		79,395
Accounts receivable—other, net		6,33,34,35		747,478		643,603
Prepaid expenses				113,860		108,909
Derivative financial assets		22,33,34		—		10
Inventories, net		7		399,899		177,120
Assets held for sale		9		2,611		3,667
Advanced payments and other		6,33,34		56,488		37,214

Total Current Assets				5,592,624		5,123,415

Non-Current Assets:
Long-term financial instruments		5,33,34		8,131		8,142
Long-term investment securities		8,33,34		924,610		968,527
Investments in associates and joint ventures		12		5,602,137		5,325,297
Property and equipment, net		13,35,37		10,057,105		10,196,607
Investment property, net		14		16,053		15,811
Goodwill		10,15		1,751,075		1,733,261
Intangible assets, net		16,35		2,566,599		2,750,782
Long-term loans, net		6,33,34		68,312		57,442
Long-term accounts receivable—other		6		2,490		—
Long-term prepaid expenses				41,253		32,008
Guarantee deposits		5,6,33,34		280,185		249,600
Long-term derivative financial assets		22,33,34		21,353		41,712
Deferred tax assets		31		25,909		26,322
Other non-current assets		6,33,34		69,813		47,589

Total Non-Current Assets				21,435,025		21,453,100

Total Assets			￦	27,027,649		26,576,515

See accompany notes to the condensed consolidated interim financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Financial Position, Continued

As of June 30, 2014 and December 31, 2013


(In millions of won)	Note		June 30, 2014			December 31, 2013
Liabilities and Equity

Current Liabilities:
Short-term borrowings		17,33,34	￦	869,500			260,000
Current portion of long-term debt, net		17,18,20,33,34		944,527			1,042,276
Current portion of finance lease liabilities		20,33,34		11,248			19,351
Current portion of long-term accounts payables – other		18,33,34		187,444			206,800
Accounts payable—trade		33,34,35		417,181			214,716
Accounts payable—other		33,34,35		1,114,834			1,864,024
Withholdings		33,34		970,277			728,936
Accrued expenses		33,34		953,562			988,193
Income tax payable		31		63,270			112,316
Unearned revenue				400,564			441,731
Derivative financial liabilities		22		33,122			21,171
Provisions		19		75,855			66,775
Advanced receipts and other				121,286			102,931

Total Current Liabilities				6,162,670			6,069,220

Non-Current Liabilities:
Debentures, net, excluding current portion		17,33,34		5,147,268			4,905,579
Long-term borrowings, excluding current portion		17,33,34		104,675			104,808
Long-term payables—other		18,33,34		660,963			838,585
Long-term unearned revenue				35,139			50,894
Finance lease liabilities		20,33,34		1,757			3,867
Defined benefit liabilities		21		125,829			74,201
Long-term derivative financial liabilities		22,33,34		183,561			103,168
Long-term provisions		19		56,052			28,106
Deferred tax liabilities		31		280,458			168,825
Other non-current liabilities		33,34		66,097			62,705

Total Non-Current Liabilities				6,661,799			6,340,738

Total Liabilities				12,824,469			12,409,958

Equity
Share capital		1,23		44,639			44,639
Capital surplus and other capital adjustments		23,24,25		288,726			317,508
Retained earnings		26		13,254,623			13,102,495
Reserves		27		(94,064	)		(12,270	)

Equity attributable to owners of the Parent Company				13,493,924			13,452,372
Non-controlling interests				709,256			714,185

Total Equity				14,203,180			14,166,557

Total Liabilities and Equity			￦	27,027,649			26,576,515

See accompanying notes to the condensed consolidated interim financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Income

For the three and six-month periods ended June 30, 2014 and 2013


(In millions of won except for per share data)
			June 30, 2014						June 30, 2013
	Note		Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Continuing operations
Operating revenue:		4,35
Revenue			￦	4,305,368			8,507,288			4,116,965			8,182,619
Operating expense:		35
Labor cost				401,137			830,276			359,179			803,163
Commissions paid				1,364,310			2,991,953			1,360,159			2,783,043
Depreciation and amortization		4,13,14,16		668,435			1,324,263			670,615			1,308,493
Network interconnection				280,736			556,533			252,293			504,842
Leased lines				101,176			207,337			116,602			230,230
Advertising				99,883			185,233			108,791			172,170
Rent				113,376			222,576			110,762			221,055
Cost of products that have been resold				393,957			729,654			305,296			624,140
Other operating expenses		28		336,264			660,973			287,823			585,511

Sub-total				3,759,274			7,708,798			3,571,520			7,232,647

Operating income		3,4		546,094			798,490			545,445			949,972
Finance income		4,30		35,167			75,162			27,428			64,290
Finance costs		4,30		(110,919	)		(199,699	)		(162,825	)		(311,575	)
Gains relating to investments in subsidiaries, associates and joint ventures, net		4,12		149,647			294,702			189,521			349,603
Other non-operating income		3,4,29		16,731			36,574			24,372			38,211
Other non-operating expense		3,4,29		(28,714	)		(64,646	)		(31,032	)		(77,625	)

Profit before income tax		4		608,006			940,583			592,909			1,012,876
Income tax expense from continuing operations		31		110,367			175,635			131,141			211,134

Profit from continuing operations				497,639			764,948			461,768			801,742
Discontinued operation
Gains from discontinued operation, net of income taxes		36		—			—			5,943			11,903

Profit for the period			￦	497,639			764,948			467,711			813,645

Attributable to :
Owners of the Parent Company			￦	498,536			768,350			466,645			820,799
Non-controlling interests				(897	)		(3,402	)		1,066			(7,154	)
Earnings per share (in won)
Basic earnings per share		32	￦	6,909			10,713			6,663			11,747

Diluted earnings per share		32	￦	6,909			10,713			6,663			11,747

Earnings per share—Continuing operations (in won)
Basic earnings per share		32		6,909			10,713			6,606			11,632

Diluted earnings per share		32		6,909			10,713			6,606			11,632

See accompanying notes to the condensed consolidated interim financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

For the three and six-month periods ended June 30, 2014 and 2013


(In millions of won)	Note		June 30, 2014						June 30, 2013
			Three- month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Profit for the period			￦	497,639			764,948			467,711			813,645

Other comprehensive income (loss)
Items that will not be reclassified to profit or loss:
Remeasurement of defined benefit obligations		21		(7,841	)		(11,994	)		(2,522	)		(5,605	)
Items that may be reclassified subsequently to profit or loss:
Net change in unrealized fair value of available-for-sale financial assets		27,30		13,579			(537	)		(32,168	)		(51,405	)
Net change in other comprehensive income of investments in associates and joint ventures		27		(52,638	)		(53,469	)		50,514			99,478
Net change in unrealized fair value of derivatives		27,30		(23,433	)		(18,813	)		(56,642	)		(64,092	)
Foreign currency translation differences for foreign operations		27		(12,023	)		(10,416	)		7,847			14,055

Total other comprehensive loss, net of taxes				(82,356	)		(95,229	)		(32,971	)		(7,569	)

Total comprehensive income			￦	415,283			669,719			434,740			806,076

Total comprehensive income (loss) attributable to:
Owners of the Parent Company			￦	417,499			674,619			434,441			813,317
Non-controlling interests				(2,216	)		(4,900	)		299			(7,241	)

See accompanying notes to the condensed consolidated interim financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity

For the six-month periods ended June 30, 2014 and 2013


(In millions of won)
	Controlling Interest
	Share capital		Capital surplus (deficit) and other capital adjustments			Retained earnings			Reserves			Sub-total			Non-controlling interests			Total equity
Balance, January 1, 2013	￦	44,639		(288,883	)		12,124,657			(25,636	)		11,854,777			1,000,005			12,854,782
Cash dividends		—		—			(585,438	)		—			(585,438	)		(2,242	)		(587,680	)
Total comprehensive income
Profit (loss) for the period		—		—			820,799			—			820,799			(7,154	)		813,645
Other comprehensive loss		—		—			(5,588	)		(1,894	)		(7,482	)		(87	)		(7,569	)
Issuance of hybrid bond		—		398,518			—			—			398,518			—			398,518
Interest on hybrid bond		—		—			(1,058	)		—			(1,058	)		—			(1,058	)
Treasury stock		—		176,085			—			—			176,085			—			176,085
Business combination under common control		—		(61,854	)		—			—			(61,854	)		—			(61,854	)
Changes in ownership in subsidiaries		—		(2,002	)		—			—			(2,002	)		(206,414	)		(208,416	)

Balance, June 30, 2013	￦	44,639		221,864			12,353,372			(27,530	)		12,592,345			784,108			13,376,453


Balance, January 1, 2014		44,639		317,508			13,102,495			(12,270	)		13,452,372			714,185			14,166,557
Cash dividends		—		—			(595,865	)		—			(595,865	)		(170	)		(596,035	)
Total Comprehensive Income
Profit (loss) for the period		—		—			768,350			—			768,350			(3,402	)		764,948
Other comprehensive loss		—		—			(11,937	)		(81,794	)		(93,731	)		(1,498	)		(95,229	)
Interest on hybrid bond		—		—			(8,420	)		—			(8,420	)		—			(8,420	)
Business combination under common control		—		(28,641	)		—			—			(28,641	)		—			(28,641	)
Changes in ownership in subsidiaries		—		(141	)		—			—			(141	)		141			—

Balance, June 30, 2014	￦	44,639		288,726			13,254,623			(94,064	)		13,493,924			709,256			14,203,180

See accompanying notes to the condensed consolidated interim financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the six-month periods ended June 30, 2014 and 2013


(In millions of won)	Note		June 30, 2014			June 30, 2013
Cash flows from operating activities:
Cash generated from operating activities
Profit for the period			￦	764,948			813,645
Adjustments for income and expenses		38		1,528,742			1,615,747
Changes in assets and liabilities related to operating activities		38		(710,051	)		(885,694	)

Sub-total				1,583,639			1,543,698
Interest received				23,348			30,806
Dividends received				10,567			10,197
Interest paid				(141,322	)		(161,347	)
Income tax paid				(100,204	)		(48,777	)

Net cash provided by operating activities				1,376,028			1,374,577

Cash flows from investing activities:
Cash inflows from investing activities:
Decrease in short-term financial instruments, net				—			145,242
Decrease in short-term investment securities, net				55,007			—
Collection of short-term loans				73,766			173,811
Proceeds from disposal of long-term financial instruments				11			15
Proceeds from disposal of long-term investment securities				47,431			175,788
Proceeds from disposal of investments in associates and joint ventures				4			1,250
Proceeds from disposal of property and equipment				4,049			6,782
Proceeds from disposal of intangible assets				1,441			1,068
Proceeds from disposal of assets held for sale				1,056			190,393
Collection of long-term loans				2,398			9,577
Decrease of deposits				4,136			7,274
Proceeds from disposal of other non-current assets				90			1,197
Proceeds from disposal of a subsidiary				—			7,221

Sub-total				189,389			719,618
Cash outflows for investing activities:
Increase in short-term financial instruments, net				(9,379	)		—
Increase in short-term investment securities, net				—			(5,006	)
Increase in short-term loans				(88,101	)		(168,592	)
Increase in long-term loans				(2,450	)		(1,647	)
Increase in long-term financial instruments				—			(4	)
Acquisition of long-term investment securities				(19,805	)		(10,463	)
Acquisition of investments in associates and joint ventures				(29,809	)		(66,532	)
Acquisition of property and equipment				(1,331,556	)		(1,085,500	)
Acquisition of intangible assets				(38,114	)		(46,563	)
Increase in deposits				(2,643	)		(13,758	)
Increase in other non-current assets				—			(6,645	)
Acquisition of business, net of cash acquired				(118,667	)		(94,805	)

Sub-total				(1,640,524	)		(1,499,515	)

Net cash used in investing activities			￦	(1,451,135	)		(779,897	)

See accompanying notes to the condensed consolidated interim financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Cash Flows, Continued

For the six-month periods ended June 30, 2014 and 2013


(In millions of won)	June 30, 2014			June 30, 2013
Cash flows from financing activities:
Cash inflows from financing activities:
Proceeds from short-term borrowings	￦	608,000			44,000
Issuance of debentures		627,970			1,014,859
Proceeds from long-term borrowings		13,552			8,600
Issuance of hybrid bond		—			398,518
Cash inflows from settlement of derivatives		119			2,267

Sub-total		1,249,641			1,468,244
Cash outflows for financing activities:
Repayment of short-term borrowings		—			(583,745	)
Repayment of long-term account payables—other		(207,668	)		(161,575	)
Repayment of debentures		(406,149	)		—
Repayment of long-term borrowings		(11,916	)		(355,122	)
Cash outflows from settlement of derivatives		(373	)		—
Payment of finance lease liabilities		(10,250	)		(10,389	)
Payment of dividends		(595,865	)		(587,680	)
Payment of interest on hybrid bond		(8,420	)		—
Cash paid for transactions with non-controlling interest		—			(3,871	)

Sub-total		(1,240,641	)		(1,702,382	)

Net cash provided by (used in) financing activities		9,000			(234,138	)

Net increase (decrease) in cash and cash equivalents		(66,107	)		360,542
Cash and cash equivalents at beginning of the period		1,398,639			920,125
Effects of exchange rate changes on cash and cash equivalents		(1,269	)		2,076

Cash and cash equivalents at end of the period	￦	1,331,263			1,282,743

See accompanying notes to the condensed consolidated interim financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

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 June 30, 2014, 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, other institutional investors and other minority stockholders		50,572,884		62.63
Treasury stock		9,809,375		12.15

Total number of shares		80,745,711		100.00

These condensed consolidated interim 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 June 30, 2014 and December 31, 2013 is as follows:

Ownership(%)

Subsidiary

Location

Primary business

June 30,
2014

December 31,
2013

SK Telink Co., Ltd.

Korea

Telecommunication service

83.5

M& Service Co., Ltd.

Korea

Database and online information agency

100.0

SK Communications Co., Ltd.

Korea

Internet website services

64.6

Stonebridge Cinema Fund

Korea

Investment association

56.0

Commerce Planet Co., Ltd.

Korea

Online shopping mall operation agency

100.0

SK Broadband Co., Ltd.

Korea

Telecommunication services

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.

Korea

Internet website services

100.0

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

1.	Reporting Entity, Continued

(2) List of subsidiaries, Continued

Ownership(%)

Subsidiary

Location

Primary business

June 30,
2014

December 31,
2013

SK Planet Co., Ltd.

Korea

Telecommunication service

100.0

Neosnetworks Co., Ltd.(*1)

Korea

Guarding of facilities

66.7

(*2)

—

SK Telecom China Holdings Co., Ltd.

China

Investment association

100.0

Shenzhen E-eye High Tech Co., Ltd.

China

Manufacturing

65.5

SK Global Healthcare Business Group., Ltd.

Hong Kong

Investment association

100.0

SK Planet Japan

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

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

(*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. (Refer to Note 10)

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 their financial statements are not material considering both individual and overall quantitative and qualitative effects, although the Group controls those subsidiaries.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

1.	Reporting Entity, Continued

(3) Condensed financial information of subsidiaries

Condensed financial information of subsidiaries as of and for the six-month period ended June 30, 2014 is as follows:


(In millions of won)
Subsidiary	Total assets		Total liabilities		Total equity (deficit)			Revenue		Profit (loss)
SK Telink Co., Ltd.	￦	294,028		162,212		131,816			228,125		5,190
M& Service Co., Ltd.		72,675		32,471		40,204			63,580		4,538
SK Communications Co., Ltd.		187,238		45,939		141,299			47,769		(10,632	)
Stonebridge Cinema Fund		12,077		382		11,695			—		98
Commerce Planet Co., Ltd.		25,739		27,024		(1,285	)		31,080		285
SK Broadband Co., Ltd.		3,031,748		1,904,985		1,126,763			1,289,652		1,411
K-net Culture and Contents Venture Fund		15,863		7		15,856			—		(313	)
Fitech Focus Limited Partnership II		19,744		—		19,744			—		(1,634	)
Open Innovation Fund		26,050		—		26,050			—		(1,973	)
PS&Marketing Corporation		709,403		506,473		202,930			705,905		(3,846	)
Service Ace Co., Ltd.		64,695		38,505		26,190			97,659		1,184
Service Top Co., Ltd.		59,668		38,358		21,310			87,721		4,416
Network O&S Co., Ltd.		60,830		33,105		27,725			101,143		3,525
BNCP Co., Ltd.		10,837		6,202		4,635			6,682		(1,040	)
SK Planet Co., Ltd.		2,544,743		742,864		1,801,879			709,050		1,686
Neosnetworks Co., Ltd.(*1)		29,843		8,599		21,244			15,234		872
SK Telecom China Holdings Co., Ltd.		34,658		644		34,014			5,967		656
Shenzhen E-eye High Tech Co., Ltd.		15,616		721		14,895			2,296		(154	)
SK Global Healthcare Business Group., Ltd.		26,599		—		26,599			—		(16	)
SK Planet Japan		4,412		49		4,363			21		(486	)
SKT Vietnam PTE. Ltd.		3,916		1,086		2,830			—		33
SK Planet Global PTE. Ltd.		1,807		247		1,560			9		(767	)
SKP GLOBAL HOLDINGS PTE. LTD.		17,577		25		17,552			—		(2,786	)
SKT Americas, Inc.		33,790		247		33,543			4,826		223
SKP America LLC.		43,802		—		43,802			—		—
YTK Investment Ltd.		40,485		—		40,485			—		—
Atlas Investment(*2)		60,125		132		59,993			—		(2,179	)

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

(*2)	The condensed 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.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

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, 2013 is as follows:


(In millions of won)
Subsidiary	Total assets		Total liabilities		Total equity (deficit)			Revenue		Profit (loss)
SK Telink Co., Ltd.	￦	252,475		125,807		126,668			433,276		16,024
M& Service Co., Ltd.		68,587		32,626		35,961			130,178		4,176
SK Communications Co., Ltd.		205,792		53,755		152,037			128,272		(41,893	)
Stonebridge Cinema Fund		11,974		377		11,597			1		1,320
Commerce Planet Co., Ltd.		26,237		27,333		(1,096	)		56,565		587
SK Broadband Co., Ltd.		3,044,349		1,916,721		1,127,628			2,539,366		12,306
K-net Culture and Contents Venture Fund		16,181		12		16,169			—		(16,595	)
Fitech Focus Limited Partnership II		21,446		—		21,446			—		(1,179	)
Open Innovation Fund		27,996		—		27,996			—		(15,408	)
PS&Marketing Corporation		277,300		141,356		135,944			1,095,647		1,369
Service Ace Co., Ltd.		56,276		30,667		25,609			187,961		2,995
Service Top Co., Ltd.		48,369		30,634		17,735			159,364		3,484
Network O&S Co., Ltd.		56,677		32,353		24,324			198,664		2,060
BNCP Co., Ltd.		12,108		6,433		5,675			14,819		(9,019	)
SK Planet Co., Ltd.		2,528,054		766,841		1,761,213			1,378,211		201,556
SK Telecom China Holdings Co., Ltd.		36,261		2,052		34,209			17,025		613
Shenzhen E-eye High Tech Co., Ltd.		17,894		1,841		16,053			7,703		(789	)
SK Global Healthcare Business Group., Ltd.		27,625		—		27,625			—		831
SK Planet Japan		1,793		280		1,513			394		(1,635	)
SKT Vietnam PTE. Ltd.		11,773		8,862		2,911			—		(28,086	)
SK Planet Global PTE. Ltd.		697		149		548			331		(1,420	)
SKP GLOBAL HOLDINGS PTE. LTD.		20,713		9		20,704			—		1,542
SKT Americas, Inc.		33,876		1,315		32,561			9,207		(6,544	)
SKP America LLC.		22,399		12		22,387			—		—
YTK Investment Ltd.		42,118		—		42,118			—		(21,764	)
Atlas Investment(*1)		40,218		101		40,117			—		(8,248	)

(*1)	The condensed 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.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

1.	Reporting Entity, Continued

(4) Changes in subsidiaries

Neosnetworks Co., Ltd. was newly included in the list of subsidiaries as the Group acquired controlling ownership interest in Neosnetworks Co., Ltd. There have been no changes to other subsidiaries during the six-month period ended June 30, 2014.

(5) The information of significant non-controlling interests of consolidated entities as of and for the six-month period ended June 30, 2014, and as of and for the year ended December 31, 2013 is as follows:


(In millions of won)
	June 30, 2014
	SK Communications Co., Ltd.			SK Broadband Co., Ltd.
Ownership of non-controlling interests (%)		35.4			49.4

Current assets	￦	97,275			525,084
Non-current assets		89,963			2,506,664
Current liabilities		(43,913	)		(750,591	)
Non-current liabilities		(2,026	)		(1,154,394	)
Net assets		141,299			1,126,763
Adjustment for fair value		—			112,520
Net assets of consolidated entities		141,299			1,239,283
Carrying amount of non-controlling interests		50,101			612,658

Revenue	￦	47,769			1,289,652
Profit (loss) for the period		(10,632	)		1,411
Amortization of adjustment for fair value		—			(958	)
Profit (loss) of the consolidated entities		(10,632	)		453
Total comprehensive loss		(10,738	)		(1,824	)
Profit (loss) attributable to non-controlling interests		(3,770	)		224

Net cash provided by (used in) operating activities	￦	(2,672	)		234,313
Net cash provided by (used in) investing activities		284			(274,911	)
Net cash provided by financing activities		—			53,346
Net increase (decrease) in cash and cash equivalents		(2,388	)		12,748

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

1.	Reporting Entity, Continued


(In millions of won)
	December 31, 2013
	SK Communications Co., Ltd.			SK Broadband Co., Ltd.
Ownership of non-controlling interests(%)		35.4			49.4

Current assets	￦	108,100			533,597
Non-current assets		97,692			2,510,752
Current liabilities		(51,868	)		(938,385	)
Non-current liabilities		(1,887	)		(978,336	)
Net assets		152,037			1,127,628
Adjustment for fair value		—			113,478
Net assets of consolidated entities		152,037			1,241,106
Carrying amount of non-controlling interests		53,856			613,560

Revenue	￦	128,272			2,539,366
Profit (loss) for the period		(41,893	)		12,306
Amortization of adjustment for fair value		—			(30,977	)
Loss of the consolidated entities		(41,893	)		(18,671	)
Total comprehensive loss		(43,318	)		(13,059	)
Loss attribute to non-controlling interests		(14,853	)		(9,231	)

Net cash provided by (used in) operating activities	￦	(22,867	)		440,036
Net cash provided by (used in) Investing activities		41,788			(329,346	)
Net cash provided by (used in) financing activities		19			(129,181	)
Net increase (decrease) in cash and cash equivalents		18,940			(18,491	)

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

2.	Basis of Preparation

(1) Statement of compliance

The condensed consolidated interim financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in the Act on External Audits of Stock Companies.

These condensed consolidated interim financial statements were prepared in accordance with K-IFRS No. 1034, ‘Interim Financial Reporting’ as part of the period covered by the Group’s K-IFRS annual financial statements. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the last annual consolidated financial statements as at and for the year ended December 31, 2013. These condensed consolidated interim financial statements do not include all of the disclosures required for full annual financial statements.

(2) Use of estimates and judgments

1) Assumptions and estimation uncertainties

The preparation of the condensed consolidated interim 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.

In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as of and for the year ended December 31, 2013.

2) Fair value measurement

The Group establishes fair value measurement policies and procedures as its accounting policies and disclosures require fair value measurements for the majority of financial and non-financial assets and liabilities. Such policies and procedures are executed by the valuation division, which is responsible for the review of significant fair value measurements including fair value classified as level 3 in the fair value hierarchy and the results of which are directly reported to the finance executive.

The valuation division regularly reviews unobservable significant inputs and valuation adjustments. If third party information such as prices available from an exchange, dealer, broker, industry group, pricing service or regulatory agency is used for fair value measurements, the valuation division reviews whether the valuation based on third party information includes classification by levels within the fair value hierarchy and meets the requirements for the relevant standards.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

2.	Basis of Preparation, Continued

The Group uses the best observable inputs in market when measuring fair values of assets or liabilities. Fair values are classified within the fair value hierarchy based on inputs used in valuation method, as follows:

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

Level 2: inputs other than quoted prices included within 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)

If various inputs used to measure fair value of assets or liabilities are transferred between levels of the fair value hierarchy, the Group classifies the assets and liabilities at the lowest level of inputs among the fair value hierarchy which is significant to the entire measured value and recognizes transfers between levels at the end of the reporting period of which such transfers occurred.

Information about assumptions used for fair value measurements are included in Note 34.

(3) Common control transactions

SK Holdings Co., Ltd. (“the Ultimate Controlling Entity”) is the ultimate controlling entity of the Parent Company because it has de facto control of 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.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

3.	Significant Accounting Policies

Except as described below, the accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as of and for the year ended December 31, 2013. The following changes in accounting policy are also expected to be reflected in the Group’s consolidated financial statements as at and for the year ending December 31, 2014.

(1) Changes in accounting policies

1) Offsetting financial assets and financial liabilities

The Group has applied the amendments to K-IFRS No.1032, ‘Financial instruments: Presentation’ since January 1, 2014. This standard requires financial assets and financial liabilities being offset and the presentation of financial assets and financial liabilities on a net basis when, and only when, the Group currently has a legally enforceable right to set off the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

The right of set-off that cannot be contingent on a future event, and must be legally enforceable in all of the following circumstances: (i) the normal course of business; (ii) an event of default; and (iii) an event of insolvency or bankruptcy of the entity or any of the counterparties.

To meet the net settlement criterion, all settlements need to remove or reduce credit risk or liquidity risk as minor level. In case of single payment or payment period which can handle bonds and payables, settlement result needs to be paid as same as practical settle net.

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

4.	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 operations, do not meet the quantitative thresholds to be considered reportable segments and are presented as other.

Cellular services include cellular voice service, wireless data service and wireless internet services. Fixed-line telecommunication services include telephone services, internet services, and leased line services. Other includes the Group’s Internet portal services, game manufacturing and other immaterial operations.

Segment information of the Group for the six-month period ended June 30, 2013 has been retrospectively restated to exclude discontinued operations.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

4.	Operating Segments, Continued

(1) Details of the segment information as of and for the six-month period ended June 30, 2014 are as follows:


(In millions of won)
	Cellular Services		Fixed-line Telecommunication services		Other			Sub-total		Consolidation adjustments			Consolidated amount
Total revenue	￦	7,520,742		1,517,777		878,927			9,917,446		(1,410,158	)		8,507,288
Inter-segment revenue		745,251		289,670		375,237			1,410,158		(1,410,158	)		—
External revenue		6,775,491		1,228,107		503,690			8,507,288		—			8,507,288
Depreciation and amortization		1,035,809		247,530		40,924			1,324,263		—			1,324,263
Operating income (loss)		788,831		25,865		(16,206	)		798,490		—			798,490

Finance income (cost), net														(124,537	)
Gain relating to investments in subsidiaries, associates and joint ventures, net														294,702
Other non-operating income (expense), net														(28,702	)

Profit from continuing operations before income tax														940,583

Total assets		23,386,690		3,325,776		3,089,274			29,801,740		(2,774,091	)		27,027,649
Total liabilities		9,958,215		2,067,197		866,318			12,891,730		(67,261	)		12,824,469

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

4.	Operating Segments, Continued

(2) Details of the segment information as of and for the six-month period ended June 30, 2013 are as follows:


(In millions of won)
	Cellular Services		Fixed-line Telecommunication services		Other			Sub-total		Consolidation adjustments			Consolidated amount
Total revenue	￦	7,150,041		1,426,555		814,214			9,390,810		(1,208,191	)		8,182,619
Inter-segment revenue		579,738		277,619		350,834			1,208,191		(1,208,191	)		—
External revenue		6,570,303		1,148,936		463,380			8,182,619		—			8,182,619
Depreciation and amortization		988,647		260,760		59,086			1,308,493		—			1,308,493
Operating income (loss)		960,838		22,598		(33,464	)		949,972		—			949,972

Finance income (cost), net														(247,285	)
Gain relating to investments in subsidiaries, associates and joint ventures, net														349,603
Other non-operating income (expense), net														(39,414	)

Profit from continuing operations before income tax														1,012,876

Total assets		22,626,393		3,094,795		3,122,979			28,844,167		(3,407,759	)		25,436,408
Total liabilities		9,553,776		1,856,430		953,417			12,363,623		(303,668	)		12,059,955

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 six-month periods ended June 30, 2014 and 2013.

5.	Restricted Deposits

Deposits which are restricted in use as of June 30, 2014 and December 31, 2013 are summarized as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Short-term financial instruments(*)	￦	78,885		81,634
Long-term financial instruments(*)		7,595		7,589
Guarantee deposits		40		40

	￦	86,520		89,263

(*)	Financial instruments include charitable trust fund established by the Group. Profits from this charitable fund are donated to charitable institutions. As of June 30, 2014, the fund cannot be withdrawn.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

6.	Trade and Other Receivables

(1) Details of trade and other receivables as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)	June 30, 2014
	Gross amount		Allowances for impairment			Carrying amount
Current assets:
Accounts receivable—trade	￦	2,710,738		(227,647	)		2,483,091
Short-term loans		83,736		(769	)		82,967
Accounts receivable—other		822,477		(74,999	)		747,478
Accrued income		14,381		(28	)		14,353
Others		3,033		—			3,033

		3,634,365		(303,443	)		3,330,922
Non-current assets:
Long-term loans		94,897		(26,585	)		68,312
Long-term accounts receivable—other		2,490		—			2,490
Guarantee deposits		280,185		—			280,185
Long-term accounts receivable—trade		12,874		—			12,874

		390,446		(26,585	)		363,861

	￦	4,024,811		(330,028	)		3,694,783


(In millions of won)	December 31, 2013
	Gross amount		Allowances for impairment			Carrying amount
Current assets:
Accounts receivable—trade	￦	2,482,001		(224,685	)		2,257,316
Short-term loans		80,129		(734	)		79,395
Accounts receivable—other		715,405		(71,802	)		643,603
Accrued income		11,970		(29	)		11,941
Others		2,548		—			2,548

		3,292,053		(297,250	)		2,994,803
Non-current assets:
Long-term loans		84,176		(26,734	)		57,442
Guarantee deposits		249,600		—			249,600
Long-term accounts receivable—trade		13,154		—			13,154

		346,930		(26,734	)		320,196

	￦	3,638,983		(323,984	)		3,314,999

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

6.	Trade and Other Receivables, Continued

(2)

The movements in allowances for doubtful accounts of trade and other receivables during the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2014			June 30, 2013
Balance at January 1	￦	323,984			300,668
Increase of bad debt		31,678			46,967
Write-off		(38,532	)		(39,337	)
Others		12,898			13,351

Balance at June 30	￦	330,028			321,649

(3)

Details of overdue but not impaired, and impaired trade and other receivables as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014						December 31, 2013
	Accounts receivable - trade			Other receivables			Accounts receivable - trade			Other receivables
Neither overdue nor impaired	￦	1,926,629			1,149,151			1,882,607			938,131
Overdue but not impaired		61,980			1,925			46,773			2,030
Impaired		735,003			150,123			565,775			203,667

		2,723,612			1,301,199			2,495,155			1,143,828
Allowance for doubtful accounts		(227,647	)		(102,381	)		(224,685	)		(99,299	)

	￦	2,495,965			1,198,818			2,270,470			1,044,529

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

(4)

The aging of overdue but not impaired accounts receivable as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014				December 31, 2013
	Accounts receivable - trade		Accounts receivable - other		Accounts receivable - trade		Accounts receivable - other
Less than 1 month	￦	30,264		5		12,036		20
1 ~ 3 months		11,809		647		15,686		1,220
3 ~ 6 months		4,573		397		3,610		516
More than 6 months		15,334		876		15,441		274

	￦	61,980		1,925		46,773		2,030

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

7.	Inventories

Details of inventories as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014							December 31, 2013
	Acquisition cost		Write-down of inventory			Carrying amount		Acquisition cost		Write-down of inventory			Carrying amount
Merchandise	￦	391,121		(4,697	)		386,424		165,080		(3,152	)		161,928
Finished goods		1,911		—			1,911		1,711		(34	)		1,677
Raw materials and supplies		11,564		—			11,564		13,515		—			13,515

	￦	404,596		(4,697	)		399,899		180,306		(3,186	)		177,120

8.	Investment Securities

(1)

Details of short-term investment securities as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Beneficiary certificates(*)	￦	48,125		102,828
Current portion of long-term investment securities		6,073		3,240

	￦	54,198		106,068

(*)	The interest distributions arising from beneficiary certificates as of June 30, 2014 were accounted for as accrued income.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

8.	Investment Securities, Continued

(2)

Details of long-term investment securities as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014			December 31, 2013
Equity securities:
Marketable equity securities	￦	630,723			638,445
Unlisted equity securities		51,181			47,145
Equity investments		206,191			239,354

		888,095			924,944
Debt securities:
Public bonds(*1)		353			356
Investment bonds(*2)		42,235			46,467

		42,588			46,823

Total		930,683			971,767
Less current portion of long-term investment securities		(6,073	)		(3,240	)

Long-term investment securities	￦	924,610			968,527

(*1)	Details of maturity for the public bonds as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Less than 1 year	￦	353		356

(*2)

During the six-month period ended June 30, 2014, the Parent Company exercised the conversion right for the convertible bonds of NanoEnTek, Inc., which were classified as financial assets at fair value through profit or loss. As a result of this transaction, investments in associates have increased by ￦19,180 million and the difference between carrying amount of the financial assets at fair value and fair value of ￦1,352 million is accounted for as finance costs.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

9.	Assets Held for Sale

Non-current assets held for sale as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Investments in associates
TR Entertainment(*1)	￦	2,611		2,611
SK Fans Co., Ltd.(*2)		—		1,056

	￦	2,611		3,667

(*1)	A disposal contract for the Group’s entire ownership interests in TR Entertainment was entered into during the year ended December 31, 2013 and the investment in the associate was reclassified to non-current assets held for sale and an impairment loss of ￦4,019 million was recognized.

(*2)

For the year ended December 31, 2013, contract changes for SK Fans Co., Ltd. has been made and the Group recognized the difference between the changes and the existing contractual amount as impairment loss. For the six-month period ended June 30, 2014, the Group disposed of its investments in SK Fans Co., Ltd. in 2014.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

10.

Acquisition of Subsidiary

(1)

General information

On April 2, 2014, the Parent Company acquired the ownership interest of 66.7% of Neosnetworks Co., Ltd., which manages facility guarding services, in order to secure newly developing power considering the physical security market and obtained the control over Neosnetworks Co., Ltd..

Neosnetworks Co., Ltd. recognized revenue of ￦7,676 million and profit of ￦584 million, respectively, from the acquisition date to June 30, 2014.

(2)

Consideration paid and identifiable assets and liabilities transferred

Consideration paid and identifiable assets acquired and liabilities assumed recognized at the acquisition date are as follows:


(In millions of won)
	April 2, 2014
Consideration paid
Cash and cash equivalents	￦	23,968
Account payables—other (*)		14,500

		38,468

Assets and liabilities in succession
Cash and cash equivalents	￦	16,631
Accounts receivable—trade, net		111
Property, equipment and intangible assets		11,489
Investment securities		132
Other assets		1,157
Accounts payable—trade		(3,411	)
Borrowings and debentures		(2,150	)
Other liabilities		(3,305	)

	￦	20,654

(*)

During the 6 months ended June 30, 2014, the Parent Company acquired 31,310 shares of Neosnetworks Co., Ltd. (the ownership interest of 66.7%) by purchasing old shares from the pre-existing shareholders and participating in the capital increase The Parent Company entered into a shareholders’ agreement which granted put options to the pre-existing shareholders for the remaining equity interest of Neosnetworks Co., Ltd. and call options to the Parent Company for those shares if certain conditions are met. In accordance with this shareholders’ agreement, the Group assumed that the residual equity of the pre-existing shareholders were obtained on the acquisition date, and the amount to be paid to the pre-existing shareholders for this acquisition in the future was recorded as account payables-other.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

11.

Business combination under common control

(1)

General information

PS&Marketing Corporation, a subsidiary of the Parent Company, acquired the retail distribution business of IT service department of SK Networks Co., Ltd. on April 30, 2014 in order to strengthen the mid/long-term distribution competitiveness by expanding the retail infrastructure and enlarging the direct management network.

From the acquisition date to June 30, 2014, PS&Marketing Corporation recognized revenue of ￦152,479 million and profit of ￦975 million, respectively, relating to the acquired retail distribution business.

In January 2013, the Parent Company acquired the ownership interest of 50% of SK Marketing & Company Co., Ltd., advertising and e-commerce agency, from SK Innovation Co., Ltd., a related party under common control, through additional purchase of shares and obtained the control over SK Marketing & Company Co., Ltd., and its subsidiary, M&Service Co., Ltd.

Prior to the acquisition, the Parent Company owns 50% ownership of SK Marketing & Company Co., Ltd. After obtaining the control over SK Marketing & Company Co., Ltd, the Parent Company acquired the shares of SK Planet Co., Ltd. by investing its ownership interest of 100% of SK Marketing & Company Co., Ltd. as a form of investment in kind. On February 1, 2013, SK Planet Co., Ltd. merged SK Marketing & Company Co., Ltd.

As the business combination occurred during the six-month period ended June 30, 2013 was a business combination between entities under common control, the difference between the consideration and book value of net assets was recognized as capital deficit and other capital adjustments.

(2)

Consideration paid and identifiable assets and liabilities transferred


(In millions of won)
	Jun 30, 2014			Jun 30, 2013
Consideration paid
Cash and cash equivalents	￦	111,330			190,605
Investments in associates (carrying value)		—			141,534
Accounts payables—other		13,156			—

		124,486			332,139
Identifiable assets and liabilities transferred
Cash and cash equivalents	￦	—			95,800
Accounts receivable—trade, net		57,760			132,514
Inventories		94,441			3,472
Property, equipment and intangible assets		13,010			68,699
Other assets		23,281			457,431
Accounts payable—trade		(78,821	)		(150,014	)
Other liabilities		(13,826	)		(337,617	)

	￦	95,845			270,285

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

12.

Investments in Associates and Joint Ventures

(1)

Investments in associates and joint ventures accounted for using the equity method as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)		June 30, 2014				December 31, 2013
	Country	Ownership percentage		Carrying amount		Ownership percentage		Carrying amount
Investments in associates
SK China Company Ltd.(*1)	China		9.6		34,732		9.6	￦	37,434
Korea IT Fund(*2)	Korea		63.3		233,218		63.3		231,402
Etoos Co., Ltd.(*3)	Korea		—		—		15.6		12,029
HanaSK Card Co., Ltd.	Korea		49.0		376,817		49.0		378,616
Candle Media Co., Ltd.(*4)	Korea		36.5		18,999		40.9		21,241
NanoEnTek, Inc.(*5)	Korea		26.0		36,279		9.2		9,312
SK Industrial Development China Co., Ltd.	Hongkong		21.0		74,720		21.0		77,517
Packet One Network	Malaysia		27.0		53,580		27.0		60,706
SK Technology Innovation Company	Cayman		49.0		50,324		49.0		53,874
HappyNarae Co., Ltd.	Korea		42.5		14,834		42.5		13,935
SK hynix Inc.(*6)	Korea		20.4		4,224,260		20.6		3,943,232
SK MENA Investment B.V.	Nederland		32.1		12,955		32.1		13,477
SKY Property Mgmt. Ltd.	Virgin Islands		33.0		232,257		33.0		238,278
Xinan Tianlong Science and Technology Co., Ltd.	China		49.0		26,546		49.0		26,562
Daehan Kanggun BcN Co., Ltd. and others	—		—		160,180		—		164,976

Sub-total					5,549,701				5,282,591

Investments in joint ventures
Dogus Planet, Inc.(*7)	Turkey		50.0		24,081		50.0		10,105
PT. Melon Indonesia	Indonesia		49.0		3,304		49.0		3,230
Television Media Korea Ltd.	Korea		51.0		7,516		51.0		8,659
PT XL Planet Digital	Indonesia		50.0		17,535		50.0		20,712

Sub-total					52,436				42,706

Total				￦	5,602,137			￦	5,325,297

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

12.

Investments in Associates and Joint Ventures, Continued

(*1)	The Group classified the investments in SK China Company Ltd as investments in associates as the Group can exercise significant influence on these investees through participation of their board of directors.

(*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)	Reclassified as available-for-sale financial assets in 2014 as the Group lost the right to appoint directors of this investee and lost significant influence on the investee.

(*4)	Ownership percentage has reduced due to disproportionate paid-in capital increase during the six-month period ended June 30, 2014.

(*5)	The carrying amount has increased due to the additional investment and the conversion of convertible bonds during the six-month period ended June 30, 2014.

(*6)	Ownership percentage has been decreased due to the conversion of convertible bonds issued by SK hynix Inc.

(*7)	The carrying amount has increased due to additional investment during the six-month period ended June 30, 2014.

(2)

There is no joint venture listed publicly and the market price of investments in associates listed publicly as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won, except for share and per share data)
	June 30, 2014						December 31, 2013
	Market value per share		Number of shares held		Market price		Market value per share		Number of shares held		Market price
Candle Media Co., Ltd.	￦	888		21,620,360		19,199		810		21,620,360		17,512
NanoEnTek, Inc.		6,400		5,870,290		37,570		5,170		1,807,130		9,343
SK hynix Inc.		48,550		146,100,000		7,093,155		36,800		146,100,000		5,376,480

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

12.

Investments in Associates and Joint Ventures, Continued

(3)

The condensed financial information of the major investees as of and for the six-month period ended June 30, 2014 and as of and for the year ended December 31, 2013 are as follows:


(In millions of won)	As of and for the six-month period ended June 30, 2014
	SK hynix Inc.			HanaSK Card Co., Ltd.			SKY Property Mgmt. Ltd.			Korea IT Fund
Current assets	￦	7,171,103			3,603,453			133,888			131,655
Non-current assets		15,385,603			666,191			629,480			236,741
Current liabilities		4,853,122			446,934			146,218			—
Non-current liabilities		3,093,600			3,134,715			133,666			—
Revenue		7,665,565			397,097			39,522			9,033
Profit (loss) from continuing operations		1,476,004			16			7,022			(634	)
Other comprehensive loss		(203,077	)		(848	)		(5,694	)		—
Total comprehensive income (loss)		1,272,927			(832	)		1,328			(634	)


(In millions of won)	As of and for the year ended December 31, 2013
	SK hynix Inc.		HanaSK Card Co., Ltd.		SKY Property Mgmt. Ltd.		Korea IT Fund
Current assets	￦	6,653,123		4,687,020		106,122		132,968
Non-current assets		14,144,175		211,376		695,653		232,566
Current liabilities		3,078,240		2,053,942		137,544		6
Non-current liabilities		4,652,200		2,155,165		163,540		—
Revenue		14,165,102		853,506		76,834		8,161
Profit from continuing operations		2,872,857		3,521		14,408		2,128
Other comprehensive income		6,594		1,906		55,403		—
Total comprehensive income		2,879,451		5,427		69,811		2,128

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

12.

Investments in Associates and Joint Ventures, Continued

(4)

The condensed financial information of joint ventures as of and for the six-month period ended June 30, 2014 and as of and for the year ended December 31, 2013 are as follows:


(In millions of won)	As of and for six-month period ended June 30, 2014
	Television Media Korea Ltd.			Dogus Planet, Inc.			PT. Melon Indonesia			PT XL Planet Digital
Current assets	￦	16,307			47,598			7,204			31,410
Cash and cash equivalents		2,531			43,000			4,002			30,090
Non-current assets		3,985			10,419			3,246			7,486
Current liabilities		5,662			12,258			3,559			3,839
Account payable, other payables and provisions		5,662			12,258			3,559			3,839
Non-current liabilities		367			48			98			—
Account payable, other payables and provisions		367			48			98			—
Revenue		7,449			8,554			5,451			8
Depreciation and amortization		(41	)		(1,148	)		(453	)		(118	)
Interest income		149			755			125			—
Interest expense		—			(5	)		—			—
Income Tax expense		—			—			—			(959	)
Profit (loss) from continuing operations		(2,242	)		(13,246	)		387			(2,929	)
Total comprehensive income (loss)		(2,242	)		(13,246	)		387			(2,929	)


(In millions of won)	As of and for the year ended December 31, 2013
	Television Media Korea Ltd.			Dogus Planet, Inc.			PT. Melon Indonesia			PT XL Planet Digital
Current assets	￦	18,106			25,508			7,423			31,241
Cash and cash equivalents		14,532			10,723			4,428			30,288
Non-current assets		5,143			9,935			1,658			5,801
Current liabilities		6,385			15,471			2,338			2,133
Account payable, other payables and provisions		6,385			15,386			2,338			2,133
Non-current liabilities		359			142			100			14
Account payable, other payables and provisions		359			1			—			14
Revenue		14,139			7,509			7,475			—
Depreciation and amortization		(4,004	)		(1,315	)		(397	)		(84	)
Interest income		410			1,598			289			357
Interest expense		—			(29	)		—			(3	)
Income tax expense		—			—			—			(513	)
Profit (loss) from continuing operations		(6,021	)		(29,278	)		(575	)		3,606
Total comprehensive income (loss)		(6,021	)		(29,278	)		(575	)		3,606

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

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 June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)	June 30, 2014
	Net assets		Ownership interests (%)		Net assets attributable to the ownership interests		Cost-book value differentials		Carrying amount
Associates:
SK hynix Inc.(*)	￦	14,610,062		20.4		2,980,452		1,243,808		4,224,260
HanaSK Card Co., Ltd.		687,995		49.0		337,117		39,700		376,817
SKY Property Mgmt. Ltd.(*)		476,793		33.0		157,342		74,915		232,257
Korea IT Fund		368,239		63.3		233,218		—		233,218


(In millions of won)	December 31, 2013
	Net assets		Ownership interests (%)		Net assets attributable to the ownership interests		Cost-book value differentials		Carrying amount
Associates:
SK hynix Inc.(*)	￦	13,066,474		20.6		2,687,806		1,255,426		3,943,232
HanaSK Card Co., Ltd.		689,290		49.0		337,752		40,864		378,616
SKY Property Mgmt. Ltd.(*)		494,004		33.0		163,021		75,257		238,278
Korea IT Fund		365,528		63.3		231,402		—		231,402

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

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

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 six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	For the six-month period ended June 30, 2014
	Beginning balance		Acquisition and Disposal		Share of profits (losses)			Other comprehensive income (loss)			Impairment loss			Other increase (decrease)			Ending balance
Investments in associates
SK China Company Ltd.	￦	37,434		—		(988	)		(1,714	)		—			—			34,732
Korea IT Fund		231,402		—		4,370			(2,554	)		—			—			233,218
Etoos Co., Ltd		12,029		—		346			—			—			(12,375	)		—
HanaSK Card Co., Ltd.		378,616		—		(1,156	)		(643	)		—			—			376,817
Candle Media Co., Ltd.		21,241		—		(1,710	)		(41	)		(491	)		—			18,999
NanoEnTek, Inc.		9,312		7,778		7			2			—			19,180			36,279
SK Industrial Development China Co., Ltd.		77,517		—		2,381			(5,178	)		—			—			74,720
Packet One Network		60,706		—		(12,050	)		4,924			—			—			53,580
SK Technology Innovation Company		53,874		—		(1,514	)		(2,036	)		—			—			50,324
HappyNarae Co., Ltd.		13,935		—		970			(71	)		—			—			14,834
SK hynix Inc.		3,943,232		—		322,120			(41,092	)		—			—			4,224,260
SK MENA Investment B.V.		13,477		—		(3	)		(519	)		—			—			12,955
SKY Property Mgmt. Ltd.		238,278		—		502			(6,523	)		—			—			232,257
Xian Tianlong Science and Technology Co., Ltd		26,562		—		(16	)		—			—			—			26,546
Daehan Kanggun BcN Co., Ltd. and others		164,976		2,354		(7,818	)		1,634			—			(966	)		160,180

Sub-total		5,282,591		10,132		305,441			(53,811	)		(491	)		5,839			5,549,701
Investments in joint ventures
Dogus Planet, Inc.		10,105		19,677		(6,636	)		935			—			—			24,081
PT. Melon Indonesia		3,230		—		190			(116	)		—			—			3,304
Television Media Korea Ltd.		8,659		—		(1,143	)		—			—			—			7,516
PT XL Planet Digital		20,712		—		(2,780	)		(397	)		—			—			17,535

Sub-total		42,706		19,677		(10,369	)		422			—			—			52,436

Total	￦	5,325,297		29,809		295,072			(53,389	)		(491	)		5,839			5,602,137

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

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 six-month periods ended June 30, 2014 and 2013 are as follows, Continued:


(In millions of won)	For the six-month period ended June 30, 2013
	Beginning balance		Acquisition and Disposal		Share of profits (losses)			Other comprehensive income (loss)			Other increase (decrease)			Ending balance
Investments in associates
SK Marketing & Company Co., Ltd.(*1)	￦	145,333		190,606		(3,955	)		155			(332,139	)		—
SK China Company Ltd.		37,628		—		(8,706	)		10,738			—			39,660
Korea IT Fund		230,016		—		1,474			38			—			231,528
JYP Entertainment Corporation		4,232		—		1,073			400			—			5,705
Etoos Co., Ltd		12,037		—		210			—			—			12,247
HanaSK Card Co., Ltd.		378,457		—		2,010			584			—			381,051
Candle Media Co., Ltd.		21,935		—		(933	)		(22	)		88			21,068
NanoEnTek, Inc.		9,276		—		98			(66	)		—			9,308
SK Industrial Development China Co., Ltd.		77,967		—		(797	)		5,687			—			82,857
Packet One Network		88,389		—		1,024			1,073			—			90,486
SK Technology Innovation Company		63,559		—		(2,711	)		4,545			—			65,393
ViKi, Inc.		15,667		—		(995	)		(157	)		—			14,515
HappyNarae Co., Ltd.		13,113		—		198			2			—			13,313
SK hynix Inc.		3,328,245		—		230,004			58,429			—			3,616,678
SK MENA Investment B.V.		13,666		—		—			985			—			14,651
SKY Property Mgmt. Ltd. (*2)		—		—		3,905			16,845			232,703			253,453
Xian Tianlong Science and Technology Co., Ltd.		—		26,982		—			—			—			26,982
Daehan Kanggun BcN Co., Ltd. and others		170,748		16,871		(4,153	)		404			2,665			186,535

Sub-total		4,610,268		234,459		217,746			99,640			(96,683	)		5,065,430
Investments in joint ventures
Dogus Planet, Inc.		6,005		21,428		(6,423	)		(354	)		—			20,656
PT. Melon Indonesia		4,447		—		(293	)		193			—			4,347
Television Media Korea Ltd.		11,757		—		(1,108	)		—			—			10,649

Sub-total		22,209		21,428		(7,824	)		(161	)		—			35,652

Total	￦	4,632,477		255,887		209,922			99,479			(96,683	)		5,101,082

(*1)	The entity was merged into SK Planet Co., Ltd., a subsidiary of the Parent Company during the six-month period ended June 30, 2013.

(*2)	The Group reclassified the investments in SKY Property Mgmt. Ltd. as investments in associates during the six-month period ended June 30, 2013.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

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 June 30, 2014 are as follows:


(In millions of won)	Unrealized loss				Unrealized change in equity
	Period ended June 30, 2014		Accumulated		Period ended June 30, 2014		Accumulated
ULand Company Limited	￦	—		1,553		—		(3	)
Wave City Development Co., Ltd.		733		4,454		—		334

	￦	733		6,007		—		331

13.

Property and Equipment

Changes in property and equipment for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)
	For the six-month period ended June 30, 2014
	Beginning balance		Acquisition		Disposal			Transfer			Depreciation			Impairment			Others		Business acquistion		Ending balance
Land	￦	732,206		3,406		—			14,568			—			—			1,493		608		752,281
Buildings		956,691		3,902		(383	)		6,816			(24,329	)		—			2,678		947		946,322
Structures		364,951		124		—			3,483			(16,287	)		—			—		—		352,271
Machinery		6,847,059		140,326		(4,514	)		828,158			(1,011,543	)		(2,929	)		—		7,741		6,804,298
Other		533,181		551,456		(1,474	)		(340,107	)		(64,800	)		—			4,743		129		683,128
Construction in progress		762,519		316,178		(980	)		(558,912	)		—			—			—		—		518,805

	￦	10,196,607		1,015,392		(7,351	)		(45,994	)		(1,116,959	)		(2,929	)		8,914		9,425		10,057,105


(In millions of won)
	For the six-month period ended June 30, 2013
	Beginning balance		Acquisition		Disposal			Transfer			Depreciation			Business acquistion		Ending balance
Land	￦	704,908		4,597		(14	)		4,877			—			5,192		719,560
Buildings		886,371		45		(99	)		11,277			(22,647	)		5,025		879,972
Structures		363,484		985		(7	)		6,025			(17,539	)		—		352,948
Machinery		6,316,192		109,177		(6,914	)		920,779			(983,917	)		6,346		6,361,663
Other		637,212		443,890		(2,192	)		(468,165	)		(63,630	)		6,886		554,001
Construction in progress		804,552		219,548		(5,695	)		(508,064	)		—			8,290		518,631

	￦	9,712,719		778,242		(14,921	)		(33,271	)		(1,087,733	)		31,739		9,386,775

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

14.

Investment Property

Changes in investment property for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	For the six-month period ended June 30, 2014
	Beginning balance		Transfer		Depreciation			Ending balance
Land	￦	10,822		249		—			11,071
Buildings		4,989		116		(123	)		4,982

	￦	15,811		365		(123	)		16,053


(In millions of won)	For the six-month period ended June 30, 2013
	Beginning balance		Transfer			Depreciation			Ending balance
Land	￦	12,638		(9,732	)		—			2,906
Buildings		14,841		(1,351	)		(465	)		13,025

	￦	27,479		(11,083	)		(465	)		15,931

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

15.

Goodwill

(1)

Goodwill as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Goodwill related to acquisition of Shinsegi Telecomm, Inc.	￦	1,306,236		1,306,236
Goodwill related to acquisition of SK Broadband Co., Ltd.		358,443		358,443
Other goodwill		86,396		68,582

	￦	1,751,075		1,733,261

(2)	Details of changes in goodwill for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2014		June 30, 2013
Beginning balance	￦	1,733,261		1,744,483
Change of consolidation scope		17,814		1,660
Impairment loss on Goodwill		—		(9,982	)
Other decrease		—		(2,493	)

	￦	1,751,075		1,733,668

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

16.

Intangible Assets

(1)

Details of changes in intangible assets for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)
	For the six-month period ended June 30, 2014
	Beginning balance		Acquisition		Disposal			Transfer		Amortization			Impairment			Others		Business acquisition		Ending balance
Frequency use rights	￦	1,664,571		—		—			—		(140,264	)		—			—		—		1,524,307
Land use rights		16,590		8,990		(33	)		—		(3,808	)		—			2,258		—		23,997
Industrial rights		58,763		2,804		(8	)		—		(2,269	)		(2	)		—		—		59,288
Development costs		10,127		158		(25	)		62		(1,955	)		—			—		—		8,367
Facility usage right		58,828		615		(16	)		379		(4,190	)		—			—		—		55,616
Customer relations		6,333		272		—			—		(1,731	)		—			692		1,702		7,268
Memberships(*1)		128,452		2,690		(44	)		—		—			—			—		267		131,365
Other(*2)		807,118		22,585		(597	)		75,631		(149,349	)		(235	)		1,146		92		756,391

	￦	2,750,782		38,114		(723	)		76,072		(303,566	)		(237	)		4,096		2,061		2,566,599


(In millions of won)
	For the six-month period ended June 30, 2013
	Beginning balance		Acquisition		Disposal			Transfer		Amortization			Impairment			Business acquisition			Ending balance
Frequency use rights	￦	1,693,868		—		—			—		(126,306	)		—			—			1,567,562
Land use rights		16,062		1,460		(178	)		—		(3,315	)		—			—			14,029
Industrial rights		60,104		1,243		(75	)		—		(1,859	)		—			(68	)		59,345
Development costs		13,420		409		—			—		(2,764	)		(635	)		2,140			12,570
Facility usage rights		65,340		662		(49	)		—		(4,138	)		—			—			61,815
Customer relations		48,886		283		—			—		(20,550	)		—			—			28,619
Memberships(*1)		118,954		2,755		(664	)		—		—			—			8,510			129,555
Other(*2)		673,024		39,751		(270	)		101,435		(144,629	)		(628	)		27,622			696,305

	￦	2,689,658		46,563		(1,236	)		101,435		(303,561	)		(1,263	)		38,204			2,569,800

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

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

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

16.

Intangible Assets, Continued

(2)

The carrying amount and residual useful lives of major intangible assets as of June 30, 2014 are as follows:

(In millions of won)

Amount

Description

Commencement
of amortization

Completion of
amortization

W-CDMA license

￦

246,394

Frequency use rights relating to W-CDMA service

Dec. 2003

Dec. 2016

W-CDMA license

40,777

Frequency use rights relating to W-CDMA service

Oct. 2010

Dec. 2016

800MHz license

283,808

Frequency use rights relating to CDMA and LTE service

Jul. 2011

Jun. 2021

1.8GHz license

942,150

Frequency use rights relating to LTE service

Sep. 2013

Dec. 2021

WiBro license

11,178

WiBro service

Mar. 2012

Mar. 2019

￦

1,524,307

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

17.

Borrowings and Debentures

(1)	Short-term borrowings as of June 30, 2014 and December 31, 2013 are as follows:

(In millions of won)

Lender

Annual
interest
rate (%)

June 30,
2014

December 31,
2013

Commercial Paper

Woori Bank, etc.

2.67~3.09

￦

515,000

200,000

Short-term borrowings

Kookmin Bank, etc.

3.48~4.58

354,500

60,000

￦

869,500

260,000

(2)	Long-term borrowings as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won and thousands of U.S. dollars)
Lender	Annual interest rate (%)	Maturity		June 30, 2013			December 31, 2012
Korea Development Bank	3.19		Jun. 16, 2014	￦	—			1,648
Shinhan Bank	3.19		Jun. 15, 2015		3,424			5,136
Kookmin Bank	3.19		Jun. 15, 2015		6,499			8,124
Kookmin Bank	3.19		Mar. 15, 2017		5,496			5,996
Kookmin Bank	3.19		Mar. 15, 2018		8,600			8,600
Shinhan Bank (*1)	6M bank debenture rate + 1.58		Apr. 30, 2016		10,000			—
Woori Bank	4.45		Oct. 05, 2020		625			—
Export Kreditnamnden (*2)	1.7		Apr. 29, 2022		93,425			99,975
					(USD 92,098	)		(USD 94,736	)

Sub-total					128,069			129,479
Less present value discount on long-term borrowings					(2,742	)		(3,287	)

					125,327			126,192
Less current portion of long-term borrowings					(20,652	)		(21,384	)

Long-term borrowings				￦	104,675			104,808

(*1)	As of June 30, 2014, the 6M bank debenture rate of Shinhan Bank is 2.68%.

(*2)	For the year ended December 31, 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.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

17.

Borrowings and Debentures, Continued

(3)

Debentures as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won, thousands of U.S. dollars and thousands of other currencies)
	Purpose	Maturity	Annual interest rate (%)	June 30, 2014			December 31, 2013
Unsecured private bonds	Refinancing fund	2016	5.00	￦	200,000			200,000
Unsecured private bonds		2014	5.00		200,000			200,000
Unsecured private bonds	Other fund	2015	5.00		200,000			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			—
Unsecured private bonds		2024	3.64		150,000			—
Unsecured private bonds(*7)		2029	4.73		53,909			—
Unsecured private bonds(*7)		2029	4.72		53,885			—
Unsecured private bonds(*1)		2014	4.86		—			20,000
Unsecured private bonds(*1)		2015	4.62		10,000			10,000
Unsecured private bonds(*2)		2014	4.53		—			290,000
Unsecured private bonds(*2)		2014	4.40		100,000			100,000
Unsecured private bonds(*2)		2015	4.09		110,000			110,000
Unsecured private bonds(*2)		2015	4.14		110,000			110,000
Unsecured private bonds(*2)		2017	4.28		100,000			100,000
Unsecured private bonds(*2)		2015	3.14		130,000			130,000
Unsecured private bonds(*2)		2017	3.27		120,000			120,000
Unsecured private bonds(*2)		2016	3.05		80,000			—
Unsecured private bonds(*2)		2019	3.49		210,000			—
Unsecured private bonds(*3)		2015	3.12		10,000			—
Unsecured private bonds(*3)		2016	3.24		10,000			—
Unsecured private bonds(*3)		2017	3.48		20,000			—
Foreign global bonds		2027	6.63		405,760 (USD 400,000	)		422,120 (USD 400,000	)
Exchangeable bonds(*6)	Refinancing fund	2014	1.75		— —			96,147 (USD 91,109	)
Floating rate notes(*4)	Operating fund	2014	3M Libor + 1.60		253,600 (USD 250,000	)		263,825 (USD 250,000	)
Floating rate notes(*5)		2014	SOR rate + 1.20		52,768 (SGD 65,000	)		54,129 (SGD 65,000	)
Swiss unsecured private bonds		2017	1.75		341,529 (CHF 300,000	)		356,601 (CHF 300,000	)
Foreign global bonds		2018	2.13		710,080 (USD 700,000	)		738,710 (USD 700,000	)
Australia unsecured private bonds		2017	4.75		286,578 (AUD 300,000	)		281,988 (AUD 300,000	)
Floating rate notes(*4)		2020	3M Libor + 0.88		304,320 (USD 300,000	)		316,590 (USD 300,000	)
Foreign global bonds(*2)		2018	2.88		304,320			316,590

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

17.

Borrowings and Debentures, Continued


(In millions of won, thousands of U.S. dollars and thousands of other currencies)
	June 30, 2014			December 31, 2013
		(USD 300,000	)		(USD 300,000	)

Sub-total		6,106,749			5,966,700
Less discounts on bonds		(35,606	)		(40,229	)

		6,071,143			5,926,471
Less current portion of bonds		(923,874	)		(1,020,892	)

Discounted issue price	￦	5,147,268			4,905,579

(*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 June 30, 2014, 3M Libor rate is 0.23%.

(*5)	As of June 30, 2014, SOR rate is 0.22%.

(*6)	On April 7, 2009, the Group issued exchangeable bonds with a maturity of five years in the principal amount of USD 332,528,000 for USD 326,397,463 with a coupon rate of 1.75%.

The Group may redeem the principal amount after three years from the issuance date if the market price exceeds 130% of the exchange price during a predetermined period. The exchange right may be exercised during the period from May 18, 2009 to March 24, 2014.

Exchanges of notes for common shares may be prohibited under the Telecommunications Law or other legal restrictions which restrains foreign governments, individuals and entities from owning more than 49% of the Group’s voting stock. If such 49% ownership limitation is violated due to the exercise of exchange rights, the Group will pay the bond holder a cash settlement which will be determined at the average price of one day after a holder exercises its exchange right or the weighted average price for the following five or twenty business days. Unless either previously redeemed or exchanged, the notes are redeemable at 100% of the principal amount at maturity.

As of December 31, 2013, the principal amount and the fair value of the remaining exchangeable bonds were USD 57,046,000 and USD 91,108,508, respectively. Exchange for the remaining entire bonds was claimed during 2013 and has been redeemed by cash during the six-month period ended June 30, 2014.

(*7)	The Group settled the difference of the measurement bases of accounting profit or loss between the bonds and related derivatives by appointing the structured bonds as designated 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 ￦7,793 million as of June 30, 2014.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

18.

Long-term Payables—other

(1)

Long-term payables as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Payables related to acquisition of W-CDMA licenses	￦	649,997		828,721
Other(*)		10,966		9,864

	￦	660,963		838,585

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

(2)

As of June 30, 2014 and December 31, 2013, long-term payables consist of payables related to acquisition of W-CDMA licenses for 2.1GHz, 800MHZ, 1.8GHz and 2.3GHz frequencies and other details are as follows (Refer to Note 16):


(In millions of won)
	Period of repayment	Coupon rate	Annual effective interest rate(*)	June 30, 2014			December 31, 2013
2.1GHz	2012~2014	3.58%	5.89%		—			17,533
800MHz	2013~2015	3.51%	5.69%		69,416			138,833
2.3GHz	2014~2016	3.00%	5.80%		5,766			8,650
1.8GHz	2012~2021	2.43~3.00%	4.84~5.25%		824,841			942,675

					900,023			1,107,691
Present value discount on long-term payables—other					(62,582	)		(72,170	)

					837,441			1,035,521
Current portion of long-term payables—other					(187,444	)		(206,800	)

Carrying amount at period end				￦	649,997			828,721

(*)	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 payables-other.

(3)

The repayment schedule of long-term payables—other as of June 30, 2014 is as follows:


(In millions of won)
	Amount
Less than 1 year	￦	190,134
1~3 years		238,552
3~5 years		235,669
More than 5 years		235,668

	￦	900,023

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

19.

Provisions

Changes in provisions for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)
	For the six-month period ended June 30, 2014												As of June 30, 2014
	Beginning balance		Increase		Utilization *()**			Others			Ending balance		Current		Non-current
Provision for handset subsidy	￦	53,923		86,249		(49,206	)		—			90,966		58,043		32,923
Provision for restoration		40,507		1,528		(1,256	)		(145	)		40,634		17,812		22,822
Other provisions		451		—		(99	)		(45	)		307		—		307

	￦	94,881		87,777		(50,561	)		(190	)		131,907		75,855		56,052

(*)	Utilization includes reversal of provision for restoration of ￦909 million.


(In millions of won)
	For the six-month period ended June 30, 2013											As of June 30, 2013
	Beginning balance		Increase		Utilization *()**			Others		Ending balance		Current		Non-current
Provision for handset subsidy	￦	353,383		2,412		(200,072	)		—		155,723		136,489		19,234
Provision for restoration		39,895		2,744		(954	)		911		42,596		9,454		33,142
Other provisions		590		—		(107	)		18		501		56		445

	￦	393,868		5,156		(201,133	)		929		198,820		145,999		52,821

(*)	Utilization includes reversal of other provisions of ￦777 million.

The Group has provided handset subsidy for the subscribers who purchase handsets on an installment basis and recognized provision for handset subsidy in accordance with the payment duration as of period end.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

20.

Finance Lease Liabilities

(1)

Finance Lease

The Group has leased telecommunication equipment under finance lease agreements with Cisco Systems Capital Korea Ltd. Finance lease liabilities as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Finance Lease Liabilities
Current portion of long-term finance lease liabilities	￦	11,248		19,351
Long-term finance lease liabilities		1,757		3,867

	￦	13,005		23,218

The Group’s related interest and principal as of June 30, 2014, December 31, 2013 are as follows:


(In millions of won)	June 30, 2014					December 31, 2013
	Minimum lease payment		Present value			Minimum lease payment		Present value
Less than 1 year	￦	11,573		11,248			20,039		19,351
1~5 years		1,775		1,757			3,974		3,867

Sub-total		13,348		13,005			24,013		23,218

Current portion of long-term finance lease liabilities				(11,248	)				(19,351	)

Long-term finance lease liabilities	￦			1,757					3,867

(2)

Operating Lease

The Group entered into operating lease and sublease agreements in relation to rented office space and the expected future lease payments and lease revenues are as follows:


(In millions of won)
	Lease payments		Lease revenues
Less than 1 year	￦	27,631		1,345
1~5 years		82,440		1,074
More than 5 years		68,757		940

	￦	178,828		3,359

(3)

Sales and Leaseback

For 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 and expected future lease payments and lease revenues are disclosed in Note 20-(2).

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

21.

Defined Benefit Liabilities

(1)

Details of defined benefit liabilities as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014			December 31, 2013
Present value of defined benefit obligations	￦	367,129			312,494
Fair value of plan assets		(241,300	)		(238,293	)

	￦	125,829			74,201

(2)

Principal actuarial assumptions as of June 30, 2014 and December 31, 2013 are as follows:


	June 30, 2014	December 31, 2013
Discount rate for defined benefit obligations	3.06%~4.34%	3.06~4.34%
Expected rate of salary increase	3.05%~6.27%	3.05~6.27%

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 six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2014			June 30, 2013
Beginning balance	￦	312,494			244,866
Current service cost		64,192			43,731
Interest cost		5,126			4,478
Remeasurement - Adjustment based on experience		14,600			7,852
Benefit paid		(33,361	)		(25,249	)
Others(*)		4,078			17,966

Ending balance	￦	367,129			293,644

(*)

Others for the six-month period ended June 30, 2014 include liabilities of ￦3,151 million, transferred from affiliated companies and transfer to construction in progress. Others include liabilities of ￦14,703 million transferred due to business combination and transfer to construction in progress during the six-month period ended June 30, 2013.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

21.

Defined Benefit Liabilities, Continued

(4)

Changes in plan assets for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2014			June 30, 2013
Beginning balance	￦	238,293			158,345
Expected return on plan assets		4,596			3,066
Remeasurement factor of plan assets		(214	)		958
Contributions by employer directly to plan assets		6,415			8,016
Benefit paid		(8,830	)		(9,472	)
Others(*)		1,040			12,976

Ending balance	￦	241,300			173,889

(*)	Others include assets of ￦14,334 million transferred due to business combination and effects of changes in consolidation scope of ￦(1,312) million during the six-month period ended June 30, 2013.

Actual return on plan assets for the six-month periods ended June 30, 2014 and 2013 amounted to ￦4,421 million and ￦4,024 million, respectively.

(5)

Expenses recognized in profit and loss for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2014		June 30, 2013
Current service cost	￦	64,192		43,731
Net interest cost		530		1,412

	￦	64,722		45,143

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

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

22.

Derivative Instruments

(1)

Currency swap contracts under cash flow hedge accounting as of June 30, 2014 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
Dec. 15, 2011	Floating-to-fixed cross currency interest rate swap (Singapore dollar denominated bonds face value of SGD 65,000)	Foreign currency risk and the interest rate risk	Currency interest rate swap	United Overseas Bank	Dec. 15, 2011 ~ Dec. 12, 2014
Dec. 15, 2011	Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 250,000)	Foreign currency risk and the interest rate risk	Currency interest rate swap	DBS Bank and Citibank	Dec. 15, 2011 ~ Dec. 12, 2014
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 five 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 nine 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	Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 300,000)	Foreign currency risk	Currency swap	Korea Development Bank and others	Oct. 29, 2013 ~ Oct. 26, 2018
Dec. 16, 2013	Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 92,098)	Foreign currency risk	Currency swap	Deutsche bank	Dec. 16, 2013 ~ Apr. 29, 2022

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

22.

Derivative Instruments, Continued

(2)

As of June 30, 2014, fair values of 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 foreign currency translations loss			Others *(1)**		Held for trading purpose		Total
Non-current assets:
Structured bonds ( face value of KRW 100,000)	￦	—			—			—			—		6,017		6,017
Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 400,000)		(48,130	)		(15,367	)		(50,973	)		129,806		—		15,336

Total assets	￦														21,353

Current liabilities:
Floating-to-fixed cross currency interest rate swap (Singapore dollar denominated bonds face value of SGD 65,000)		47			15			(4,683	)		—		—		(4,621	)
Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 250,000)		5,538			1,768			(35,807	)		—		—		(28,501	)
Non-current liabilities:
Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000)		(8,026	)		(2,562	)		(21,910	)		—		—		(32,498	)
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 700,000)		(12,082	)		(3,857	)		(52,811	)		—		—		(68,750	)
Fixed-to-fixed cross currency swap (Australia dollar denominated bonds face value of AUD 300,000)		6,919			2,208			(48,732	)		—		—		(39,605	)
Floating-to-fixed cross currency interest rate swap(face amounts of USD 300,000)		2,344			749			(20,669	)		—		—		(17,576	)
Fixed-to-fixed cross currency swap(U.S. dollar denominated bonds face value of USD 300,000)		(3,249	)		—			(13,955	)		—		—		(17,204	)
Fixed-to-fixed long-term borrowings (U.S. dollar denominated bonds face value of USD 92,098)		(3,336	)		(1,065	)		(3,527	)		—		—		(7,928	)

Total liabilities	￦														(216,683	)

(*1)	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.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 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 ￦500. The number of authorized, issued and outstanding common shares and capital surplus and other capital adjustments as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won, except for share data)
	June 30, 2014			December 31, 2013
Authorized shares(*1)	￦	220,000,000			220,000,000
Issued shares		80,745,711			80,745,711
Share capital		44,639			44,639
Common stock
Capital surplus and other capital adjustments:
Paid-in surplus		2,915,886			2,915,887
Treasury stock(Note 24)		(2,139,683	)		(2,139,683	)
Loss on disposal of treasury stock		(18,087	)		(18,087	)
Hybrid bond(Note 25)		398,518			398,518
Others(*2)		(867,908	)		(839,127	)

	￦	288,726			317,508

(*1)

For 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 Law. 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 six-month period ended June 30, 2014 and the year ended December 31, 2013 and the number of issued shares for the six-month periods ended June 30, 2014 and 2013 are follows:

For the six-month period ended

(In shares)

June 30, 2014

June 30, 2013

Issued
shares

Treasury
stock

Outstanding
shares

Issued
shares

Treasury
stock

Outstanding
shares

Issued shares

80,745,711

9,809,375

70,936,336

80,745,711

10,237,229

70,508,482

(*2)

Changed mainly due to the business combination between entities under common control that took place during the six-month period ended June 30, 2014 (Refer to Note 11).

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 June 30, 2014 and December 31, 2013 are as follows:


(In millions of won, shares)
	June 30, 2014		December 31, 2013
Number of shares		9,809,375		9,809,375
Amount	￦	2,139,683		2,139,683

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

25.

Hybrid Bond

The Parent Company issued hybrid bond at face amount on June 7, 2013 and details as of June 30, 2014 are as follows:

(In millions of won)

Type

Issuance date

Maturity(*1)

Annual
interest
rate(%)(*2)

Amount

Private hybrid bond

Blank coupon unguaranteed subordinated bond

June 7, 2013

June 7, 2073

4.21

￦

400,000

Issuance costs

(1,482

)

￦

398,518

Hybrid bonds issued by the Parent 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 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 June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Appropriated:
Legal reserve	￦	22,320		22,320
Reserve for research & manpower development		151,533		155,766
Reserve for business expansion		9,476,138		9,376,138
Reserve for technology development		2,416,300		2,271,300

		12,066,291		11,825,524
Unappropriated		1,188,332		1,276,971

	￦	13,254,623		13,102,495

(2)

Legal reserve

The Korean Commercial Code 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

Reserve for research and manpower development were appropriated in order to recognize certain tax deductible benefits through the early recognition of future expenditure 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.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

27.

Reserves

(1)

Details of reserves as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014			December 31, 2013
Net change in unrealized fair value of available-for-sale financial assets	￦	207,899			208,529
Net change in other comprehensive income of investments in associates and joint ventures		(225,477	)		(172,117	)
Net change in unrealized fair value of derivatives		(53,195	)		(35,429	)
Foreign currency translations differences for foreign operations		(23,291	)		(13,253	)

	￦	(94,064	)		(12,270	)

(2)

Change in reserves for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	Net change in unrealized fair value of available-for- sale financial assets			Net change in other comprehensive income of investment in associates			Net change in unrealized fair value of derivatives			Foreign currency translations differences for foreign operations			Total
Balance at January 1, 2013	￦	207,063			(175,044	)		(46,652	)		(11,003	)		(25,636	)
Changes		(66,893	)		99,329			(84,554	)		14,334			(37,784	)
Tax effect		15,402			26			20,462			—			35,890

Balance at June 30, 2013		155,572			(75,689	)		(110,744	)		3,331			(27,530	)

Balance at January 1, 2014		208,529			(172,117	)		(35,429	)		(13,253	)		(12,270	)
Changes		(4,718	)		(53,527	)		(23,095	)		(10,038	)		(91,378	)
Tax effect		4,088			167			5,329			—			9,584

Balance at June 30, 2014	￦	207,899			(225,477	)		(53,195	)		(23,291	)		(94,064	)

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

28.

Other Operating Expenses

Details of other operating expenses for the three and six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	2014				2013
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Other Operating Expenses:
Communication expenses	￦	14,828		29,132		17,057		30,715
Utilities		51,936		114,734		50,678		105,306
Taxes and dues		6,522		14,760		5,876		13,490
Repair		69,872		134,481		60,308		124,724
Research and development		104,054		204,960		80,614		162,211
Training		9,017		16,594		8,212		14,578
Bad debt for accounts receivables—trade		17,362		23,553		17,587		28,667
Travel		7,806		14,563		8,589		15,055
Supplies and other		54,867		108,196		38,902		90,765

	￦	336,264		660,973		287,823		585,511

29.

Other Non-operating Income and Expenses

(1)

Details of other non-operating income and expenses for the three and six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	2014				2013
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Other Non-operating Income:
Fees revenues	￦	4,449		5,964		2,105		2,864
Gain on disposal of property and equipment and intangible assets		1,385		3,411		2,745		4,754
Others		10,897		27,199		19,522		30,593

	￦	16,731		36,574		24,372		38,211

Other Non-operating Expenses:
Loss on impairment of property and equipment and intangible assets	￦	237		3,166		—		10,617
Loss on disposal of property and equipment and intangible assets		1,696		3,980		7,683		13,061
Donations		18,663		27,052		10,490		22,649
Bad debt for accounts receivable—other		5,154		8,125		6,004		16,530
Loss on disposal of investment securities		7		7		—		1
Loss on impairment of investment securities		—		127		—		—
Others		2,957		22,189		6,855		14,767

	￦	28,714		64,646		31,032		77,625

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

30.

Finance Income and Costs

(1)

Details of finance income and costs for the three and six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	2014				2013
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Finance Income:
Interest income	￦	14,274		29,756		15,864		32,850
Dividends		939		10,567		48		10,197
Gain on foreign currency transactions		2,364		6,663		4,898		7,432
Gain on foreign currency translation		14,400		15,926		3,098		6,038
Gain on disposal of long-term investment securities		1,223		6,114		1,093		2,134
Gain on valuation of derivatives		1,967		6,017		—		—
Gain on settlement of derivatives		—		119		—		2,274
Gain on relating to financial asset at fair value through profit or loss		—		—		2,427		3,365

	￦	35,167		75,162		27,428		64,290


(In millions of won)	2014				2013
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Finance Costs:
Interest expense	￦	82,593		161,229		83,017		172,924
Loss on foreign currency transactions		5,526		9,552		4,244		7,265
Loss on foreign currency translation		117		5,186		1,351		5,326
Loss on disposal of long-term investment securities		—		2,112		4,523		4,713
Loss on impairment of long-term investment securities		—		—		2,979		16,548
Loss on valuation of derivatives		12,135		12,135		198		198
Loss on settlement of derivatives		335		335		—		—
Loss relating to financial assets at fair value through profit or loss		2,419		1,352		—		—
Loss relating to financial liability at fair value through profit or loss(*)		7,794		7,798		66,513		104,601

	￦	110,919		199,699		162,825		311,575

(*)

Loss relating to financial liability at fair value through profit or loss for the six-month period ended June 30, 2013 represents 1) valuation loss related to exchangeable bond (issue price of USD 326,397,463) as a result of increase in stock price of the Parent Company and increase in foreign exchange rate, and 2) loss on repayment of debentures upon the claim for exchange.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

30.

Finance Income and Costs, Continued

(2)

Details of interest income included in finance income for the three and six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	2014				2013
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Interest income on cash equivalents and deposits	￦	8,602		18,250		9,676		20,047
Interest income on installment receivables and others		5,672		11,506		6,188		12,803

	￦	14,274		29,756		15,864		32,850

(3)

Details of interest expense included in finance costs for the three and six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	2014				2013
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Interest expense on bank overdrafts and borrowings	￦	8,735		13,994		7,307		23,059
Interest expense on debentures		61,749		122,035		66,135		128,299
Interest on finance lease liabilities		149		349		355		767
Others		11,960		24,851		9,220		20,799

	￦	82,593		161,229		83,017		172,924

(4)

Details of impairment losses for financial assets for the three and six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	2014				2013
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Available-for-sale financial assets	￦	—		—		2,979		16,548
Accounts receivable—trade		17,304		23,494		17,956		29,086
Accounts receivable—other		5,154		8,125		6,004		16,530

	￦	22,458		31,619		26,939		62,164

31.

Income Tax Expense for Continuing Operations

Income tax expense was recognized as current tax expense adjusted to changes in estimates related to prior periods, deferred tax expenses by origination and reversal of temporary differences, and income tax recognized in other comprehensive income.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

32.

Earnings per Share

(1)

Basic earnings per share

1) Basic earnings per share for the three and six-month periods ended June 30, 2014 and 2013 are calculated as follows:


(In millions of won, shares)	2014						2013
	Three-month period ended June 30			Six-month period ended June 30			Three-month period ended June 30			Six-month period ended June 30
Basic earnings per share attributable to owners of the Parent Company from continuing operation:
Profit attributable to owners of the Parent Company from continuing operations	￦	498,536			768,350			462,630			812,757
Dividend on hybrid bond		(8,420	)		(8,420	)		(1,058	)		(1,058	)
Profit for the period on common shares		490,116			759,930			461,572			811,699
Weighted average number of common shares outstanding		70,936,336			70,936,336			69,872,438			69,784,208

Basic earnings per share from continuing operations (In won)	￦	6,909			10,713			6,606			11,632

Basic earnings per share attributable to owners of the Parent Company:
Profit attributable to owners of the Parent Company	￦	498,536			768,350			466,645			820,799
Dividend on hybrid bond		(8,420	)		(8,420	)		(1,058	)		(1,058	)
Profit for the period on common shares		490,116			759,930			465,587			819,741
Weighted average number of common shares outstanding		70,936,336			70,936,336			69,872,438			69,784,208

Basic earnings per share (In won)	￦	6,909			10,713			6,663			11,747

Profit attributable to owners of the Parent Company from continuing operation for the three and six-month periods ended June 30, 2014 and 2013 are calculated as follows:


(In millions of won)	2014				2013
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Profit attributable to owners of the Parent Company	￦	498,536		768,350		466,645		820,799
Results of discontinued operation attributable to owners of the Parent Company		—		—		4,015		8,042

Profit attributable to owners of the Parent Company from continuing operation	￦	498,536		768,350		462,630		812,757

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

32.

Earnings per Share, Continued

The weighted average number of common shares outstanding for the three and six-month periods ended June 30, 2014 and 2013 are calculated as follows:


(In shares)	Number of shares			Weighted number of shares
	Number of shares			Three-month period ended June 30			Six-month period ended June 30
Outstanding common shares		80,745,711			80,745,711			80,745,711
Effect of treasury stock		(9,809,375	)		(9,809,375	)		(9,809,375	)

Weighted average number of common shares outstanding		70,936,336			70,936,336			70,936,336


(In shares)	Number of shares			Weighted number of shares
	Number of shares			Three-month period ended June 30			Six-month period ended June 30
Outstanding common shares at January 1, 2013		80,745,711			80,745,711			80,745,711
Effect of treasury stock		(11,050,712	)		(11,050,712	)		(11,050,712	)
Exchange of exchangeable bond		813,483			177,439			89,209

Weighted average number of common shares outstanding		70,508,482			69,872,438			69,784,208

(2)

Diluted earnings per share

For the six-month period ended June 30, 2014, potential diluted of share does not exist. The number of common shares outstanding in respect of the exchangeable common shares of exchangeable bonds is excluded from the diluted earnings per share calculation for the six-month period ended June 30, 2013 as effect would have been anti-dilutive (diluted shares of 2,421,077); therefore, diluted earnings per share for the six-month period ended June 30, 2014 and 2013 are same as basic earnings per share.

(3)

Basic earnings per share from discontinued operation


(In millions of won, shares)	2014				2013
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Results from discontinued operation attributable to owners of the Parent Company	￦	—		—		4,015		8,042
Weighted average number of common shares outstanding		70,936,336		70,936,336		69,872,438		69,784,208

Basic earnings per share (In won)	￦	—		—		57		115

Diluted earnings per share from discontinued operation is the same as basic earnings per share from discontinued operation.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

33.

Categories of Financial Instruments

(1)

Financial assets by categories as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014
	Trading financial assets		Available- for-sale financial assets		Loans and receivables		Derivative financial instruments designated as hedged item		Total
Cash and cash equivalents	￦	—		—		1,331,263		—		1,331,263
Financial instruments		—		—		328,900		—		328,900
Short-term investment securities		—		54,198		—		—		54,198
Long-term investment securities		—		924,610		—		—		924,610
Accounts receivable—trade		—		—		2,495,965		—		2,495,965
Loans and receivables(*2)		—		—		1,198,818		—		1,198,818
Derivative financial assets		6,017		—		—		15,336		21,353

	￦	6,017		978,808		5,354,946		15,336		6,355,107


(In millions of won)
	December 31, 2013
	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	￦	—		—		1,398,639		—		1,398,639
Financial instruments		—		—		319,616		—		319,616
Short-term investment securities		—		106,068		—		—		106,068
Long-term investment securities(*1)		20,532		947,995		—		—		968,527
Accounts receivable—trade		—		—		2,270,470		—		2,270,470
Loans and receivables(*2)		—		—		1,044,529		—		1,044,529
Derivative financial assets(*3)		10		—		—		41,712		41,722

	￦	20,542		1,054,063		5,033,254		41,712		6,149,571

(*1)	The entire amount of long-term investment securities was designated as financial assets at fair value through profit or loss as the embedded derivative (conversion right option), which should be separated from the main contract, could not be separately measured.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

33.

Categories of Financial Instruments, Continued

(*2)	Details of loans and receivables as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Short-term loans	￦	82,967		79,395
Accounts receivable – other		747,478		643,603
Accrued income		14,353		11,941
Other current assets		3,033		2,548
Long-term loans		68,312		57,442
Long-term accounts receivable – other		2,490		—
Guarantee deposits		280,185		249,600

	￦	1,198,818		1,044,529

(*3)	Derivative financial assets classified as financial assets at fair value through profit or loss is the fair value of conversion right of convertible bonds held by SK Communications Co., Ltd., a subsidiary of the Parent Company.

(2)

Financial liabilities by categories as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)	June 30, 2014
	Financial liabilities at fair value through profit or loss		Financial liabilities measured at amortized cost		Derivative financial instruments designated as hedging instruments		Total
Accounts payable – trade	￦	—		417,181		—		417,181
Derivative financial liabilities		—		—		216,683		216,683
Borrowings		—		994,827		—		994,827
Debentures(*1)		107,794		5,963,348		—		6,071,142
Accounts payable—other and other payables(*3)		—		2,960,154		—		2,960,154

	￦	107,794		10,335,510		216,683		10,659,987


(In millions of won)	December 31, 2013
	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	￦	—		214,716		—		214,716
Derivative financial liabilities		—		—		124,339		124,339
Borrowings		—		386,192		—		386,192
Debentures(*2)		96,147		5,830,324		—		5,926,471
Accounts payable—other and other payables(*3)		—		3,949,794		—		3,949,794

	￦	96,147		10,381,026		124,339		10,601,512

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

33.

Categories of Financial Instruments, Continued

(*1)

Bonds classified as financial liabilities at fair value through profit or loss as of June 30, 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.

(*2)	The entire amount of debentures was designated as financial liabilities at fair value through profit or loss as the fair value of the embedded derivative (conversion right option), which should be separated from the main contract, could not be separately measured.

(*3)	Details of accounts payable and other payables as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Accounts payable – other	￦	1,114,834		1,864,024
Withholdings		1,856		1,549
Accrued expenses		953,562		988,193
Current portion of long-term payables—other		198,692		226,151
Long-term payables – other		660,963		838,585
Finance lease liabilities		1,757		3,867
Other non-current liabilities		28,490		27,425

	￦	2,960,154		3,949,794

34.

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, financial assets available-for-sale, 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 respective Group entities.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

34.

Financial Risk Management, Continued

(1)

Financial risk management, Continued

Monetary foreign currency assets and liabilities as of June 30, 2014 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		174,869		176,383		2,119,791		2,149,591
EUR		5,549		7,680		54		75
JPY		67,198		672		—		—
SGD		6		5		64,910		52,694
AUD		—		—		298,286		284,941
CHF		—		—		298,746		340,101
Others		40,670		9,649		1,009		164

				194,389				2,827,566

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 20)

As of June 30, 2014, 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	￦	7,769		(7,769	)
EUR		761		(761	)
JPY		67		(67	)
Others		949		(949	)

	￦	9,546		(9,546	)

(ii)

Equity price risk

The Group has equity securities which include listed and non-listed securities for its liquidity and operating purpose. As of June 30, 2014, available-for-sale equity instruments measured at fair value amount to ￦814,546 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.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

34.

Financial Risk Management, Continued

(1)

Financial risk management, Continued

The Group’s interest rate risk arises from floating-rate borrowings and debentures. As of June 30, 2014, floating-rate borrowings and debentures amount to ￦78,519 million and ￦610,688 million respectively, the Group has entered into interest rate swaps to hedge interest rate risk related to floating-rate debentures. (Refer to Note 22) If interest rate only increases (decreases) by 1%, income before income taxes for the six-month period ended June 30, 2014 would have been changed ￦393 million due to the interest expense from floating-rate borrowings.

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 June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Cash and cash equivalents	￦	1,330,977		1,398,548
Financial instruments		328,900		319,616
Available-for-sale financial assets		16,547		35,174
Accounts receivable—trade		2,495,965		2,270,470
Loans and receivables		1,198,818		1,044,529
Derivative financial assets		15,336		41,712
Financial assets at fair value through profit or loss		6,017		20,532

	￦	5,392,560		5,130,581

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 six-month period ended June 30, 2014, 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 derivates. 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 June 30, 2014.

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 30.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

34.

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 equivalents balance 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 June 30, 2014 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	￦	417,181		417,181		417,181		—		—
Borrowings(*1)		994,827		1,009,726		896,001		77,158		36,567
Debentures(*1)		6,071,142		7,332,084		1,137,465		3,783,371		2,411,248
Accounts payable-other and others(*2)		2,960,154		3,089,494		2,245,276		591,102		253,116

	￦	10,443,304		11,848,485		4,695,923		4,451,631		2,700,931

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 June 30, 2014, 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	￦	15,336			2,449			6,111			29,643			(33,305	)
Liabilities		(216,683	)		(232,879	)		(53,748	)		(161,319	)		(17,812	)

	￦	(201,347	)		(230,430	)		(47,637	)		(131,676	)		(51,117	)

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

34.

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 31 December 2013.

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

Debt-equity ratio as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014			December 31, 2013
Liabilities	￦	12,824,469			12,409,958
Equity		14,203,180			14,166,557

Debt-equity ratio		90.29	%		87.60	%

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

34.

Financial Risk Management, Continued

(3)

Fair value

Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of June 30, 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
Trading financial assets	￦	6,017		—		6,017		—		6,017
Derivative financial assets		15,336		—		15,336		—		15,336
Available-for-sale financial assets		814,546		630,723		46,648		137,175		814,546

	￦	835,899		630,723		68,001		137,175		835,899

Financial assets that cannot be measured at fair value
Cash and cash equivalents(*1)	￦	1,331,263		—		—		—		—
Available-for-sale financial assets(*1,2)		164,262		—		—		—		—
Accounts receivable – trade and others(*1)		3,694,783		—		—		—		—
Financial instruments(*1)		328,900		—		—		—		—

	￦	5,519,208		—		—		—		—

Financial liabilities that can be measured at fair value
Debentures		107,794		—		107,794		—		107,794
Derivative financial liabilities		216,683		—		216,683		—		216,683

	￦	324,477		—		324,477		—		324,477

Financial liabilities that cannot be measured at fair value
Accounts payable – trade(*1)	￦	417,181		—		—		—		—
Borrowings		994,826		—		993,476		—		993,476
Debentures		5,963,348		—		6,200,113		—		6,200,113
Accounts payable—other and others(*1)		2,960,154		—		—		—		—

	￦	10,335,509		—		7,193,589		—		7,193,589

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

34.

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, 2013 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	￦	20,542		—		20,532		10		20,542
Derivative financial assets		41,712		—		41,712		—		41,712
Available-for-sale financial assets		839,647		638,445		46,414		154,788		839,647

	￦	901,901		638,445		108,658		154,798		901,901

Financial assets that cannot be measured at fair value
Cash and cash equivalents(*1)	￦	1,398,639		—		—		—		—
Available-for-sale financial assets(*1,2)		214,416		—		—		—		—
Accounts receivable – trade and others(*1)		3,314,999		—		—		—		—
Financial instruments(*1)		319,616		—		—		—		—

	￦	5,247,670		—		—		—		—

Financial liabilities that can be measured at fair value
Financial liabilities at fair value through profit or loss	￦	96,147		96,147		—		—		96,147
Derivative financial liabilities		124,339		—		124,339		—		124,339

	￦	220,486		96,147		124,339		—		220,486

Financial liabilities that cannot be measured at fair value
Accounts payable – trade(*1)	￦	214,716		—		—		—		—
Borrowings		386,192		—		399,247		—		399,247
Debentures		5,830,324		—		5,946,586		—		5,946,586
Accounts payable—other and others(*1)		3,949,794		—		—		—		—

	￦	10,381,026		—		6,345,833		—		6,345,833

(*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.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

34.

Financial Risk Management, Continued

(3)

Fair value, Continued

Fair value of the financial instruments that are traded in an active market is measured based on the quoted market price at the end of the reporting date. Disclosed market price of the financial assets held by the Group is the bid price.

Fair value of the financial instruments that are not traded in an active market is determined using the valuation method. The Group uses the various valuation methods and makes assumptions that are mainly based on market conditions existing at the end of each reporting period. Fair value of financial instruments such as long-term liabilities is measured using the various methods including estimated discounted cash flow method.

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 June 30, 2014 are as follows:


	Interest rate
Derivative instruments		2.30 ~ 2.73	%
Borrowings and debentures		3.10 ~ 3.28	%

There have been no transfers from Level 2 to Level 1 for the six-month period ended June 30, 2014 and changes of financial assets classified as Level 3 for the six-month period ended June 30, 2014 are as follows:


(In millions of won)
	Balance at January 1		Acquisition		Other comprehensive income			Disposal			Balance at June 30
Financial assets at fair value through profit or loss	￦	10		—		—			(10	)		—
Available-for-sale financial assets		154,788		31,066		(9,413	)		(39,266	)		137,175

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

34.

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 June 30, 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
	Gross financial instruments recognized							Financial instruments			Cash collaterals received		Net amount
Financial assets:
Derivatives(*)	￦	16,241		—			16,241		(16,241	)		—		—
Accounts receivable—trade and others		147,473		(132,495	)		14,978		—			—		14,978

		163,714		(132,495	)		31,219		(16,241	)		—		14,978

Financial liabilities:
Derivatives(*)		56,956		—			56,956		(16,241	)		—		40,715
Accounts payable—trade and others		132,495		(132,495	)		—		—			—		—

	￦	189,451		(132,495	)		56,956		(16,241	)		—		40,715

Carrying amount of financial instruments recognized of which offset agreements are applicable as of December 31, 2013 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
	Gross financial instruments recognized							Financial instruments			Cash collaterals received		Net amount
Financial assets:
Derivatives(*)	￦	28,870		—			28,870		(28,870	)		—		—
Accounts receivable—trade and others		138,897		(127,055	)		11,842		—			—		11,842

		167,767		(127,055	)		40,712		(28,870	)		—		11,842

Financial liabilities:
Derivatives(*)		43,536		—			43,536		(28,870	)		—		14,666
Accounts payable—trade and others		127,055		(127,055	)		—		—			—		—

	￦	170,591		(127,055	)		43,536		(28,870	)		—		14,666

(*)

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

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

35.

Transactions with Related Parties

(1)

List of related parties


Relationship		Interest rate
Ultimate Controlling Entity		SK Holding Co., Ltd.
Subsidiaries		SK Planet Co., Ltd. and 28 others (Refer to Note 1)
Joint venture		Dogus Planet, Inc. and three others
Associates		SK hynix Inc. and 64 others
Affiliates		The Ultimate Controlling Entity’s investor using the equity method and 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 three and six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	2014				2013
	Three-month period ended June 30, 2014		Six-month period ended June 30, 2014		Three-month period ended June 30, 2013		Six-month period ended June 30, 2013
Salaries	￦	287		1,626		340		1,594
Provision for retirement benefits		113		681		97		817

	￦	400		2,307		437		2,411

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

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

35.

Transactions with Related Parties, Continued

(3)

Transactions with related parties for the three and six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)		Operating revenue and others				Operating expense and others
Scope	Company	Three-month period ended June 30, 2014		Six-month period ended June 30, 2014		Three-month period ended June 30, 2014		Six-month period ended June 30, 2014
Ultimate Controlling Entity	SK Holding Co., Ltd.(*1)	￦	130		255		8,954		188,694
Associates	F&U Credit information Co., Ltd.		470		993		9,740		21,982
	HappyNarae Co., Ltd.		74		129		1,072		2,617
	SK hynix Inc.		2,208		4,922		—		879
	SK USA, Inc.		—		—		301		960
	SK Wyverns Baseball Club Co., Ltd.		180		228		120		9,041
	HanaSK Card Co., Ltd.		11,179		21,436		1,078		2,297
	Others		2,138		3,433		4,832		7,642

			16,249		31,141		17,143		45,418

Other	SK Engineering & Construction Co., Ltd.		821		1,669		23,544		23,544
	SK C&C Co., Ltd.		4,689		8,595		71,056		154,140
	SK Networks Co., Ltd.(*2)		6,229		12,354		551,082		928,615
	SK Networks Service Co., Ltd.		5,359		5,423		22,880		41,511
	SK Telesys Co., Ltd.		80		202		25,677		46,113
	SK Energy Co., Ltd.		7,834		11,848		221		443
	SK Gas Co., Ltd.		786		3,952		—		—
	Others		5,636		10,534		5,184		14,718

			31,434		54,577		699,644		1,209,084

Total		￦	47,813		85,973		725,741		1,443,196

(*1) Operating expense and others include ￦171,053 million of dividends paid by the Parent Company.

(*2) Operating expense and others include the consideration paid for the business acquisition under common control.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

35.

Transactions with Related Parties, Continued

(3)

Transactions with related parties for the three and six-month periods ended June 30, 2014 and 2013 are as follows, Continued:


(In millions of won)		Acquisition of property and equipment				Cash Advances
Scope	Company	Three-month period ended June 30, 2014		Six-month period ended June 30, 2014		Three-month period ended June 30, 2014		Six-month period ended June 30, 2014
Ultimate Controlling Entity	SK Holding Co., Ltd.	￦	—		—		—		—
Associates	F&U Credit information Co., Ltd.		—		—		—		—
	HappyNarae Co., Ltd.		3,157		4,050		—		—
	SK hynix Inc.		—		—		—		—
	SK USA, Inc.		—		—		—		—
	SK Wyverns Baseball Club Co., Ltd.		—		—		—		—
	HanaSK Card Co., Ltd.		—		—		—		—
	Others		—		—		45		45

			3,157		4,050		45		45

Other	SK Engineering & Construction Co., Ltd.		70,063		100,126		—		—
	SK C&C Co., Ltd.		25,364		51,409		—		—
	SK Networks Co., Ltd.		2,452		3,251		—		—
	SK Networks Service Co., Ltd.		716		716		—		—
	SK Telesys Co., Ltd		54,873		78,838		—		—
	SK Energy Co., Ltd.		—		—		—		—
	SK Gas Co., Ltd.		—		—		—		—
	Others		4,623		5,150		—		—

			158,091		239,490		—		—

Total		￦	161,248		243,540		45		45

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

35.

Transactions with Related Parties, Continued

(3)

Transactions with related parties for the three and six-month periods ended June 30, 2014 and 2013 are as follows, Continued:


(In millions of won)		Operating revenue and others				Operating expense and others				Acquisition of property and equipment
Scope	Company	Three-month period ended June 30, 2013		Six-month period ended June 30, 2013		Three-month period ended June 30, 2013		Six-month period ended June 30, 2013		Three-month period ended June 30, 2013		Six-month period ended June 30, 2013
Ultimate Controlling Entity	SK Holding Co., Ltd.(*)	￦	746		1,320		8,668		188,534		—		—
Associates	F&U Credit information Co., Ltd.		488		861		11,057		21,564		—		—
	HappyNarae Co., Ltd.		116		124		730		2,256		2,035		2,330
	SK hynix Inc.		1,231		2,453		57		57		—		—
	SK USA, Inc.		—		—		—		520		—		—
	SK Wyverns Baseball Club Co., Ltd.		207		233		1,130		9,630		—		—
	HanaSK Card Co., Ltd.		11,086		20,157		945		1,671		—		—
	Others		3,694		6,380		13,131		19,019		—		—

			16,822		30,208		27,050		54,717		2,035		2,330

Other	SK Engineering & Construction Co., Ltd.		3,077		3,933		13,085		13,634		65,035		96,616
	SK C&C Co., Ltd.		3,781		6,787		76,420		157,818		42,457		66,235
	SK Networks Co., Ltd.		11,849		25,511		316,204		716,903		1,210		1,458
	SK Networks Service Co., Ltd.		2,696		5,956		27,345		45,119		136		136
	SK Telesys Co., Ltd		365		489		21,715		39,999		19,287		51,057
	SK Energy Co., Ltd.		5,210		9,318		499		812		—		—
	SK Gas Co., Ltd.		840		1,259		—		—		—		—
	Others		9,146		13,971		494		1,465		591		678

			36,964		67,224		455,762		975,750		128,716		216,180

Total		￦	54,532		98,752		491,480		1,219,001		130,751		218,510

(*)	Operating expense and others include ￦171,053 million of dividends paid by the Parent Company.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

35.

Transactions with Related Parties, Continued

(4)

Account balances as of June 30, 2014 and 2013 are as follows:


(In millions of won)		June 30, 2014
		Accounts receivable				Accounts payable
Scope	Company	Loans		Accounts receivable-trade, and others		Accounts payable-trade, and others
Ultimate Controlling Entity	SK Holding Co., Ltd.	￦	—		99		—
Associates	HappyNarae Co., Ltd.		—		25		968
	F&U Credit information Co., Ltd.		—		73		953
	SK hynix Inc.		—		730		—
	SK Wyverns Baseball Club Co., Ltd.		1,425		591		321
	Wave City Development Co., Ltd.		1,200		38,412		—
	Daehan Kanggun BcN Co., Ltd.		22,148		—		—
	SK USA, Inc.		—		—		626
	Television Media Korea Inc.		—		333		1,618
	Others		—		5,604		359

			24,773		45,768		4,845

Other	SK Engineering & Construction Co., Ltd.		—		170		8,818
	SK C&C Co., Ltd.		—		1,232		60,247
	SK Networks Co., Ltd.		—		27,899		395,047
	SK Networks Service Co., Ltd.		—		2		7,995
	SK Telesys Co., Ltd		—		177		6,092
	SK Innovation Co., Ltd.		—		1,329		162
	SK Energy Co., Ltd.		—		2,230		77
	SK Gas Co., Ltd.		—		1,381		47
	Others		—		1,343		10,292

			—		35,763		488,777

Total		￦	24,773		81,630		493,622

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

35.

Transactions with Related Parties, Continued

(4)

Account balances as of June 30, 2014 and 2013 are as follows, Continued:


(In millions of won)		June 30, 2013
		Accounts receivable				Accounts payable
Scope	Company	Loans		Accounts receivable-trade, and others		Accounts payable-trade, and others
Ultimate Controlling Entity	SK Holding Co., Ltd.	￦	—		334		—
Associates	HappyNarae Co., Ltd.		—		27		16,317
	F&U Credit information Co., Ltd.		—		258		—
	SK hynix Inc.		—		392		—
	SK Wyverns Baseball Club Co., Ltd.		1,425		—		—
	Wave City Development Co., Ltd.		1,200		38,412		—
	Daehan Kanggun BcN Co., Ltd.		22,102		—		—
	SK USA, Inc.		—		—		436
	Others		—		3,733		5,500

			24,727		42,822		22,253

	SK Engineering & Construction Co., Ltd.		—		988		92,058
	SK Telesys Co., Ltd.		—		412		70,467
Other	SK C&C Co., Ltd.		—		182		—
	SK Networks. Co., Ltd.		—		5,930		118,759
	SK Energy Co., Ltd.		—		5,457		7,438
	SK Gas Co., Ltd.		—		1,469		—
	Others		—		4,707		12,759

			—		19,145		301,481

Total		￦	24,727		62,301		323,734

(5)

There are no collateral or guarantee provided by related parties to the Group nor the Group to related parties.

(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)

There were additional acquisition of investments in associates. (Refer to Note 12)

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

36.

Discontinued Operation

(1)

Discontinued operation

During the year ended December 31, 2013, SK Planet Co., Ltd., a subsidiary of the Parent Company, sold 52.6% of its ownership interests (13,294,369 shares) in Loen Entertainment, Inc., to Star Invest Holdings Limited. Consideration for the sale amounted to ￦265,887 million. Loen Entertainment was a subsidiary of SK Planet Co., Ltd. and is engaged in the release of music discs as its primary business, The Group’s ownership interests after the disposition is 15.0% and Loen Entertainment, Inc. was excluded from the Group’s consolidated financial statements as of the date of the sale.

(2)

Results of discontinued operation

Results of discontinued operation included in the consolidated statements of income for the six-month period ended June 30, 2013 are as follows. The consolidated statement of income presented for comparative purposes was restated in order to present discontinued operation segregated from the continuing operations.


(In millions of won)
	June 30, 2013
Results of discontinued operation:
Revenue	￦	94,240
Expense		(80,134	)


Operating income generated by discontinued operation		14,106
Non-operating income		1,621
Income tax benefit		(3,824	)


Gain generated by discontinued operation	￦	11,903


Attributable to :
Owners of the Parent Company		8,042
Non-controlling interests		3,861

(3)

Cash flows used in discontinued operation

Cash flows used in discontinued operation for the six-month period ended June 30, 2013 are as follows:


(In millions of won)
	June 30, 2013
Cash flow from discontinued operation:
Net cash provided by operating activities	￦	23,589
Net cash used in investing activities		(8,667	)
Net cash used in financing activities		(4,780	)

Net cash provided by discontinued operation	￦	10,142

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

37.

Commitments and Legal Claims and Litigations

(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 ￦14,230 million as of June 30, 2014.

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 ￦2,335 million as collateral as of June 30, 2014.

In addition, Neosnetworks Co., Ltd., a subsidiary of the Parent Company, has pledged its properties as collateral for facility funds borrowings in the amount of ￦1,200 million as of June 30, 2014.

(2)

Legal claims and litigations

As of June 30, 2014, 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, is being offered ￦3,000 million of payment guarantees from Shinhan Bank for accounts payable related to handset of the fee of the Apple Computer Korea Ltd.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

38.

Statements of Cash Flows

(1)

Adjustments for income and expenses from operating activities for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2014			June 30, 2013
Interest income	￦	(29,756)			(34,026	)
Dividend		(10,567	)		(10,197	)
Gain on foreign currency translation		(15,926	)		(6,038	)
Gain on disposal of long-term investments assets		(6,114	)		(2,134	)
Gain on valuation of derivatives		(6,017	)		—
Gain on settlement of derivatives		(119	)		(2,274	)
Gain on relating to investments in subsidiaries, associates and joint ventures, net		(294,702	)		(350,676	)
Gain on disposal of property, equipment and intangible assets		(3,411	)		(4,754	)
Gain on relating to financial assets at fair value through profit or loss		—			(3,365	)
Other income		(6	)		(2,748	)
Interest expenses		161,229			172,924
Loss on foreign currency translation		5,186			5,326
Loss on disposal of long-term investments securities		2,112			4,713
Loss on impairment of long-term investments securities		—			16,548
Loss on valuation of derivatives		12,135			198
Loss on settlement of derivatives		335			—
Income tax expense		175,635			214,958
Provision for retirement benefits		64,722			45,143
Depreciation and amortization		1,420,648			1,391,759
Bad debt for accounts receivable—trade		23,553			30,425
Loss on disposal of property and equipment and intangible assets		3,980			13,061
Loss on impairment of property, equipment and intangible assets		3,166			11,245
Loss on relating to financial assets at fair value through profit or loss		1,352			—
Loss on relating to financial liabilities at fair value through profit or loss		7,798			104,600
Bad debt for accounts receivable—other		8,125			16,542
Loss on disposal of investments assets		7			1
Loss on impairment of investments assets		127			—
Other expenses		5,250			4,516

	￦	1,528,742			1,615,747

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

38.

Statements of Cash Flows, Continued

(2)

Changes in assets and liabilities from operating activities for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2014			June 30, 2013
Accounts receivable—trade	￦	(195,944	)		(198,320	)
Accounts receivable—other		(106,246	)		(36,124	)
Accrued income		57			63
Advance payments		(31,938	)		(46,357	)
Prepaid expenses		(14,301	)		4,530
Proxy paid V.A.T.		7,949			(25,031	)
Inventories		(142,872	)		24,521
Guarantee deposits		(5,876	)		9,857
Accounts payable—trade		118,439			25,642
Accounts payable—other		(491,376	)		(323,833	)
Advanced receipts		11,668			(10,963	)
Withholdings		218,630			(98,016	)
Deposits		(1,275	)		(718	)
Accrued expenses		(35,025	)		62,214
Advanced V.A.T.		8,019			59,261
Unearned revenue		(56,921	)		(83,609	)
Provisions		4,710			(143,560	)
Long-term provisions		32,304			(53,684	)
Plan assets		2,415			1,456
Retirement benefit payment		(33,361	)		(25,249	)
Others		893			(27,774	)

	￦	(710,051	)		(885,694	)

(3)

Significant non-cash transactions for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2014		June 30, 2013
Transfer of construction in progress to property, equipment and intangible assets	￦	943,978		993,276
Transfer of other tangible assets to construction in progress		364,744		408,202
Accounts payable—other related to acquisition of tangible assets and others		316,164		307,258
Accounts receivable—other related to disposal of tangible assets and others		2,015		—

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

39.

Subsequent Events

(1)

Interim dividends

On July 24, 2014, the Board of Directors of the Parent Company resolved to pay interim cash dividends of ￦1,000 per share totaling ￦70,936 million (Market dividend rate: 0.42%). The ex-dividend date was June 30, 2014 and the interim dividends are expected to be paid within twenty days after the date of the Board of Directors’ resolution.

Contents


	Page

Independent Auditors’ Review Report		1

Condensed Separate Statements of Financial Position		3

Condensed Separate Statements of Income		5

Condensed Separate Statements of Comprehensive Income		6

Condensed Separate Statements of Changes in Equity		7

Condensed Separate Statements of Cash Flows		8

Notes to the Condensed Separate Interim Financial Statements		10

Independent Auditors’ Review Report

Based on a report originally issued in Korean

To The Board of Directors and Shareholders

SK Telecom Co., Ltd.:

Reviewed financial statements

We have reviewed the accompanying condensed separate interim financial statements of SK Telecom Co., Ltd. (the “Company”), which comprise the condensed separate statement of financial position as of June 30, 2014, the related condensed separate statements of income, comprehensive income for the three and six-month periods ended June 30, 2014 and 2013, the changes in equity and cash flows for the six-month periods ended June 30, 2014 and 2013, and notes to the interim financial statements.

Management’s responsibility

Management is responsible for the preparation and fair presentation of these condensed separate interim financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”) No.1034 ‘Interim Financial Reporting’, and for such internal controls as management determines necessary to enable the preparation of condensed separate interim financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to issue a report on these condensed separate interim financial statements based on our reviews.

Conclusion

Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying condensed separate interim financial statements referred to above are not prepared fairly, in all material respects, in accordance with K-IFRS No.1034 ‘Interim Financial Reporting’.

Other matters

The separate statement of financial position of the Company as of December 31, 2013, and the related separate statements of income, comprehensive income, changes in equity and cash flows for the year then ended, which are not accompanying this report, were audited by us and our report thereon, dated February 21, 2014, expressed an unqualified opinion. The accompanying condensed separate statement of financial position of the Company as of December 31, 2013, presented for comparative purposes, is not different from that audited by us in all material respects.

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

KPMG Samjong Accounting Corp.

Seoul, Korea

August 8, 2014

This report is effective as of August 8, 2014, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying condensed separate financial statements and notes thereto. Accordingly, the readers of the review report should understand that the above review report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

SK TELECOM CO., LTD.

Condensed Separate Statements of Financial Position

As of June 30, 2014 and December 31, 2013


(In millions of won)	Note		June 30, 2014		December 31, 2013
Assets
Current Assets:
Cash and cash equivalents		27,28	￦	412,194		448,459
Short-term financial instruments		4,27,28		156,000		166,000
Short-term investment securities		6,27,28		47,274		102,042
Accounts receivable—trade, net		5,27,28,29		1,597,263		1,513,138
Short-term loans, net		5,27,28,29		75,728		72,198
Accounts receivable—other, net		5,27,28,29		338,861		388,475
Prepaid expenses				77,949		82,837
Inventories, net				22,171		24,596
Assets held for sale		7		2,611		3,667
Advanced payments and other		5,27,28		24,923		16,370

Total Current Assets				2,754,974		2,817,782

Non-Current Assets:
Long-term financial instruments		4,27,28		7,569		7,569
Long-term investment securities		6,27,28		610,715		729,703
Investments in subsidiaries and associates		8		8,175,838		8,010,121
Property and equipment, net		9,29		7,318,724		7,459,986
Goodwill		10		1,306,236		1,306,236
Intangible assets, net		11		2,067,883		2,239,167
Long-term loans, net		5,27,28,29		50,931		39,925
Long-term prepaid expenses				27,911		23,007
Guarantee deposits		4,5,27,28,29		151,838		152,057
Long-term derivative financial assets		16,27,28		21,353		41,712
Other non-current assets				63		154

Total Non-Current Assets				19,739,061		20,009,637

Total Assets			￦	22,494,035		22,827,419

See accompanying notes to the condensed separate interim financial statements.

SK TELECOM CO., LTD.

Condensed Separate Statements of Financial Position, Continued

As of June 30, 2014 and December 31, 2013


(In millions of won)	Note		June 30, 2014		December 31, 2013
Liabilities and Equity
Current Liabilities:
Short-term borrowings		12,27,28	￦	700,000		260,000
Current portion of long-term debt, net		12,13,27,28		902,654		829,503
Accounts payable—other		27,28,29		792,483		1,556,201
Withholdings		27,28		758,990		574,166
Accrued expenses		27,28		601,175		653,742
Income tax payable				58,033		104,564
Unearned revenue				137,618		178,569
Derivative financial liabilities		16,27,28		33,122		21,170
Provisions		14		75,633		66,559
Advanced receipts and other				50,879		43,599

Total Current Liabilities				4,110,587		4,288,073

Non-Current Liabilities:
Debentures, net, excluding current portion		12,27,28		4,059,010		4,014,777
Long-term borrowings, excluding current portion		12,27,28		79,519		85,125
Long-term payables—other		13,27,28		649,997		828,721
Long-term unearned revenue				35,139		50,894
Defined benefit liabilities		15		42,179		22,886
Long-term derivative financial liabilities		16,27,28		166,357		100,210
Long-term provisions		14		47,970		19,537
Deferred tax liabilities		25		93,082		44,601
Other non-current liabilities		27,28,29		59,874		57,187

Total Non-Current Liabilities				5,233,127		5,223,938

Total Liabilities				9,343,714		9,512,011

Equity
Share capital		1,17		44,639		44,639
Capital surplus and other capital adjustments		17,18,19		433,894		433,894
Retained earnings		20		12,568,736		12,665,699
Reserves		21		103,052		171,176

Total Equity				13,150,321		13,315,408

Total Liabilities and Equity			￦	22,494,035		22,827,419

See accompanying notes to the condensed separate interim financial statements.

SK TELECOM CO., LTD.

Condensed Separate Statements of Income

For the three and six-month periods ended June 30, 2014 and 2013


(In millions of won except for per share data)
			June 30, 2014				June 30, 2013
	Note		Three-month period ended		Six-month period ended		Three-month period ended		Six-month period ended
Operating revenue:		29
Revenue			￦	3,264,610		6,528,313		3,209,053		6,321,152
Operating expense:		29
Labor cost				147,178		313,216		131,361		331,266
Commissions paid				1,305,216		2,894,331		1,301,196		2,670,696
Depreciation and amortization				518,153		1,027,207		506,354		982,718
Network interconnection				219,888		434,763		184,569		360,936
Leased lines				92,490		189,352		106,669		210,705
Advertising				57,108		96,546		75,409		110,078
Rent				92,520		185,243		88,669		174,955
Cost of products that have been resold				121,630		235,573		94,272		173,074
Other operating expenses		22		182,762		373,123		188,316		354,376

Sub-total				2,736,945		5,749,354		2,676,815		5,368,804

Operating income				527,665		778,959		532,238		952,348
Finance income		24		15,102		40,706		17,358		44,242
Finance costs		24		86,279		152,387		139,333		253,752
Other non-operating income		23		13,569		28,592		13,370		20,343
Other non-operating expenses		23		25,622		55,491		26,730		57,301
Gain on disposal of investments in subsidiaries and associates		8		—		—		—		71,200

Profit before income tax				444,435		640,379		396,903		777,080

Income tax expense		25		81,061		123,472		83,472		161,471


Profit for the period			￦	363,374		516,907		313,431		615,609


Earnings per share (in won)
Basic earnings per share		26	￦	5,004		7,168		4,471		8,806

Diluted earnings per share		26	￦	5,004		7,168		4,471		8,806

See accompanying notes to the condensed separate interim financial statements.

SK TELECOM CO., LTD.

Condensed Separate Statements of Comprehensive Income

For the three and six-month periods ended June 30, 2014 and 2013


(In millions of won)			June 30, 2014						June 30, 2013
	Note		Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended

Profit for the period			￦	363,374			516,907			313,431			615,609

Other comprehensive loss
Items that will not be reclassified to profit or loss:
Remeasurement of defined benefit obligations		15		(6,467	)		(9,585	)		(2,968	)		(5,317	)
Items that are or may be reclassified subsequently to profit or loss:
Net change in unrealized fair value of available-for-sale financial assets		21		(9,136	)		(51,431	)		(28,921	)		(48,242	)
Net change in unrealized fair value of derivatives		16,21		(21,064	)		(16,693	)		(56,642	)		(64,092	)

Total other comprehensive loss, net of taxes				(36,667	)		(77,709	)		(88,531	)		(117,651	)

Total comprehensive income			￦	326,707			439,198			224,900			497,958

See accompanying notes to the condensed separate interim financial statements.

SK TELECOM CO., LTD.

Condensed Separate Statements of Changes in Equity

For the six-month periods ended June 30, 2014 and 2013


(In millions of won)
			Capital surplus and other capital adjustments													Retained earnings			Reserves			Total equity
	Share capital		Paid-in surplus		Treasury stock			Loss on disposal of treasury stock			Hybrid bond		Other			Retained earnings			Reserves			Total equity
Balance, January 1, 2013	￦	44,639		2,915,887		(2,410,451	)		(18,855	)		—		(722,741	)		12,413,981			154,588			12,377,048
Cash dividends		—		—		—			—			—		—			(585,438	)		—			(585,438	)
Issuance of hybrid bond		—		—		—			—			398,518		—			—			—			398,518
Interest on hybrid bond		—		—		—			—			—		—			(1,058	)		—			(1,058	)
Treasury stock		—		—		177,442			(1,357	)		—		—			—			—			176,085
Total comprehensive income
Profit for the period		—		—		—			—			—		—			615,609			—			615,609
Other comprehensive loss		—		—		—			—			—		—			(5,317	)		(112,334	)		(117,651	)

Balance, June 30, 2013	￦	44,639		2,915,887		(2,233,009	)		(20,212	)		398,518		(722,741	)		12,437,777			42,254			12,863,113

Balance, January 1, 2014	￦	44,639		2,915,887		(2,139,683	)		(18,087	)		398,518		(722,741	)		12,665,699			171,176			13,315,408
Cash dividends		—		—		—			—			—		—			(595,865	)		—			(595,865	)
Interest on hybrid bond		—		—		—			—			—		—			(8,420	)		—			(8,420	)
Total Comprehensive Income
Profit for the period		—		—		—			—			—		—			516,907			—			516,907
Other comprehensive loss		—		—		—			—			—		—			(9,585	)		(68,124	)		(77,709	)

Balance, June 30, 2014	￦	44,639		2,915,887		(2,139,683	)		(18,087	)		398,518		(722,741	)		12,568,736			103,052			13,150,321

See accompanying notes to the condensed separate interim financial statements.

SK TELECOM CO., LTD.

Condensed Separate Statements of Cash Flows

For the six-month periods ended June 30, 2014 and 2013


(In millions of won)	Note		June 30, 2014			June 30, 2013
Cash flows from operating activities:
Cash generated from operating activities
Profit for the period			￦	516,907			615,609
Adjustments for income and expenses		31		1,361,390			1,396,172
Changes in assets and liabilities related to operating activities		31		(452,702	)		(710,472	)

Sub-total				1,425,595			1,301,309
Interest received				9,065			11,401
Dividends received				10,567			12,643
Interest paid				(115,795	)		(133,545	)
Income tax paid				(96,712	)		(29,428	)

Net cash provided by operating activities				1,232,720			1,162,380

Cash flows from investing activities:
Cash inflows from investing activities:
Decrease in short-term financial instruments, net				10,000			40,800
Decrease in short-term investment securities, net				55,002			—
Collection of short-term loans				69,413			170,110
Proceeds from disposal of long-term investment securities				44,572			11,336
Proceeds from disposal of property and equipment				9,350			1,511
Proceeds from disposal of intangible assets				275			635
Proceeds from disposal of assets held for sale				1,056			190,393
Collection of long-term loans				1,988			8,810
Proceeds from disposal of other non-current assets				90			177

Sub-total				191,746			423,772
Cash outflows for investing activities:
Increase in short-term investment securities, net				—			(5,000	)
Increase in short-term loans				(85,960	)		(166,592	)
Acquisition of long-term investment securities				(8,357	)		(3,084	)
Acquisition of investments in subsidiaries and associates				(146,536	)		(204,043	)
Acquisition of property and equipment				(1,024,367	)		(927,770	)
Acquisition of intangible assets				(23,489	)		(19,229	)
Increase in long-term loans				(45	)		—

Sub-total				(1,288,754	)		(1,325,718	)

Net cash used in investing activities			￦	(1,097,008	)		(901,946	)

See accompanying notes to the condensed separate interim financial statements.

SK TELECOM CO., LTD.

Condensed Separate Statements of Cash Flows, Continued

For the six-month periods ended June 30, 2014 and 2013


(In millions of won)	June 30, 2014			June 30, 2013
Cash flows from financing activities:
Cash inflows from financing activities:
Proceeds from short-term borrowings	￦	440,000			40,000
Proceeds from long-term borrowings		3,552			—
Issuance of hybrid bond		—			398,518
Issuance of debenture		299,354			1,014,858
Cash inflows from settlement of derivatives		118			2,274

Sub-total		743,024			1,455,650

Cash outflows for financing activities:
Repayment of short-term borrowings		—			(370,000	)
Repayment of long-term borrowings		(6,407	)		(350,000	)
Repayment of long-term account payables—other		(207,668	)		(161,574	)
Repayment of debentures		(96,151	)		—
Payment of cash dividends		(595,865	)		(585,438	)
Payment of interest on hybrid bond		(8,420	)		—
Cash outflows from settlement of derivatives		(335	)		—

Sub-total		(914,846	)		(1,467,012	)

Net cash used in financing activities		(171,822	)		(11,362	)

Net increase (decrease) in cash and cash equivalents		(36,110	)		249,072
Cash and cash equivalents at beginning of the period		448,459			256,577
Effects of exchange rate changes on cash and cash equivalents		(155	)		155

Cash and cash equivalents at end of the period	￦	412,194			505,804

See accompanying notes to the condensed separate interim financial statements.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

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 June 30, 2014, 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, other institutional investors and other minority stockholders		50,572,884		62.63
Treasury stock		9,809,375		12.15

Total number of shares		80,745,711		100.00

2.	Basis of Presentation

(1)

Statement of compliance

The condensed separate interim financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in the Act on External Audits of Stock Companies.

These condensed separate interim financial statements were prepared in accordance with K-IFRS No. 1034, ‘Interim Financial Reporting’ as part of the period covered by the Company’s K-IFRS annual financial statements. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Company since the last annual separate financial statements as at and for the year ended December 31, 2013. These condensed separate interim financial statements do not include all of the disclosures required for full annual financial statements.

These condensed interim financial statements are separate interim financial statements prepared in accordance with K-IFRS No.1027, ‘Separate Financial Statements’ presented by a parent, an investor in an associate or a venturer in a joint venture, in which the investments are accounted for on the basis of the direct equity interest rather than on the basis of the reported results and net assets of the investees.

(2)

Use of estimates and judgments

1) Assumptions and estimation uncertainties

The preparation of the condensed separate interim 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.

In preparing these condensed separate interim financial statements, the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the financial statements as of and for the year ended December 31, 2013.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

2.	Basis of Presentation, Continued

(2)

Use of estimates and judgments, Continued

2) Fair value measurement

The Company establishes fair value measurement policies and procedures as its accounting policies and disclosures require fair value measurements for the majority of financial and non-financial assets and liabilities. Such policies and procedures are executed by the valuation division, which is responsible for the review of significant fair value measurements including fair value classified as level 3 in the fair value hierarchy and the results of which are directly reported to the finance executive.

The Company uses the best observable inputs in market when measuring fair values of assets or liabilities. Fair values are classified within the fair value hierarchy based on inputs used in valuation method, as follows:

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

Level 2: inputs other than quoted prices included within 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)

If various inputs used to measure fair value of assets or liabilities are transferred between levels of the fair value hierarchy, the Company classifies the assets and liabilities at the lowest level of inputs among the fair value hierarchy which is significant to the entire measured value and recognizes transfers between levels at the end of the reporting period of which such transfers occurred.

Information about assumptions used for fair value measurements are included in Note 28.

(3)

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.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

3.	Significant Accounting Policies

Except as described below, the accounting policies applied by the Company in these condensed separate interim financial statements are the same as those applied by the Company in its separate financial statements as of and for the year ended December 31, 2013. The following changes in accounting policy are also expected to be reflected in the Company’s separate financial statements as at and for the year ending December 31, 2014.

(1)

Changes in accounting policies

1) Offsetting financial assets and financial liabilities

The Company has applied the amendments to K-IFRS No.1032, ‘Financial instruments: Presentation’ since January 1, 2014. This standard requires financial assets and financial liabilities being offset and the presentation of financial assets and financial liabilities on a net basis when, and only when, the Company currently has a legally enforceable right to set off the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

There is no material impact of the application of this amendment on the Company’s financial statements.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

4.	Restricted Deposits

Deposits which are restricted in use as of June 30, 2014 and December 31, 2013 are summarized as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Short-term financial instruments(*)	￦	76,000		76,000
Long-term financial instruments(*)		7,569		7,569
Guarantee deposits		40		40

	￦	83,609		83,609

(*)	Financial instruments include charitable trust fund established by the Company. Profits from this charitable fund are donated to charitable institutions. As of June 30, 2014 the funds cannot be withdrawn.

5.	Trade and Other Receivables

(1)

Details of trade and other receivables as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)	June 30, 2014
	Gross amount		Allowances for impairment			Carrying amount
Current assets:
Accounts receivable—trade	￦	1,703,498		(106,235	)		1,597,263
Short-term loans		76,493		(765	)		75,728
Accounts receivable—other		392,886		(54,025	)		338,861
Accrued income		6,306		—			6,306

		2,179,183		(161,025	)		2,018,158
Non-current assets:
Long-term loans		72,730		(21,799	)		50,931
Guarantee deposits		151,838		—			151,838

		224,568		(21,799	)		202,769

	￦	2,403,751		(182,824	)		2,220,927


(In millions of won)	December 31, 2013
	Gross amount		Allowances for impairment			Carrying amount
Current assets:
Accounts receivable—trade	￦	1,614,466		(101,328	)		1,513,138
Short-term loans		72,928		(730	)		72,198
Accounts receivable—other		439,209		(50,734	)		388,475
Accrued income		5,682		—			5,682

		2,132,285		(152,792	)		1,979,493
Non-current assets:
Long-term loans		61,613		(21,688	)		39,925
Guarantee deposits		152,057		—			152,057

		213,670		(21,688	)		191,982

	￦	2,345,955		(174,480	)		2,171,475

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

5.	Trade and Other Receivables, Continued

(2)

The movement in allowance for doubtful accounts of trade and other receivables during the six-month periods ended June 30, 2014 and 2013 were as follows:


(In millions of won)
	June 30, 2014			June 30, 2013
Balance at January 1	￦	174,480			153,337
Increase of bad debt allowances		16,034			16,365
Increase of bad debt allowances-others		8,123			16,326
Write-offs		(25,391	)		(28,014	)
Collection of receivables previously written-off		9,578			9,624

Balance at June 30	￦	182,824			167,638

(3)

Details of overdue but not impaired, and impaired trade and other receivable as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)	June 30, 2014						December 31, 2013
	Accounts receivable - trade			Other receivables			Accounts receivable - trade			Other receivables
Neither overdue nor impaired	￦	1,236,806			591,670			1,169,946			622,679
Overdue but not impaired		51,324			—			32,705			—
Impaired		415,368			108,583			411,815			108,810

		1,703,498			700,253			1,614,466			731,489
Allowances for doubtful accounts		(106,235	)		(76,589	)		(101,328	)		(73,152	)

	￦	1,597,263			623,664			1,513,138			658,337

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

(4)

The aging of overdue but not impaired accounts receivable as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Less than 1 month	￦	27,805		9,549
1 ~ 3 months		4,935		6,975
3 ~ 6 months		4,436		2,565
More than 6 months		14,148		13,616

	￦	51,324		32,705

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

6.	Investment Securities

(1)

Details of short-term investment securities as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Beneficiary certificates(*)	￦	46,649		101,414
Current portion of long-term investment securities		625		628

	￦	47,274		102,042

(*)	The interest distributions arising from beneficiary certificates as of June 30, 2014, were accounted for as accrued income.

(2)

Details of long-term investment securities as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014			December 31, 2013
Equity securities:
Marketable equity securities	￦	515,772			574,321
Unlisted equity securities		24,830			22,870
Equity investments		63,925			111,792

		604,527			708,983
Debt securities:
Public bonds(*1)		353			356
Investment bonds(*2)		6,460			20,992

		6,813			21,348

Total		611,340			730,331
Less current portion of long-term investment securities		(625	)		(628	)

Long-term investment securities	￦	610,715			729,703

(*1)	Details of maturity for the public bonds as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Less than 1 year	￦	353		356

(*2)

During the six-month period ended June 30, 2014, the Company exercised the conversion right for the convertible bonds of NanoEnTek, Inc., which were classified as financial assets at fair value through profit or loss. As a result of this transaction, investments in associates have increased by ￦19,180 million and the difference between carrying amount of the financial assets at fair value and fair value of ￦1,352 million is accounted for as finance costs.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

7.	Assets Held for Sale

Disposal contracts for the Company’s ownership interests in SK Fans Co., Ltd. and TR Entertainment, investments in associates, have been entered, and investments in associates were reclassified to non-current assets held for sale.

Non-current assets held for sale as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Investments in associates:
TR Entertainment(*1)	￦	2,611		2,611
SK Fans Co., Ltd.(*2)		—		1,056

	￦	2,611		3,667

(*1)	A disposal contract for the Company ownership interests in TR Entertainment was entered into during the year ended December 31, 2013 and the investment in the associate was reclassified to assets classified held for sale and an impairment loss of ￦4,019 million was recognized.

(*2)

For the year ended December 31, 2013, contract changes for SK Fans Co., Ltd. has been made and the Company recognized the difference between the changes and the existing contractual amount as impairment loss. For the six-month period ended June 30, 2014, the Company disposed of its investments in SK Fans Co., Ltd. In 2014.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

8.	Investments in Subsidiaries and Associates

(1)

Investments in subsidiaries and associates as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Investments in subsidiaries	￦	3,592,746		3,453,988
Investments in associates		4,583,092		4,556,133

	￦	8,175,838		8,010,121

(2)

Details of investments in subsidiaries as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)	June 30, 2014						December 31, 2013
	Number of shares		Ownership (%)		Carrying amount		Carrying amount
SK Telink Co., Ltd.		1,082,272		83.5	￦	144,740		144,740
SK Broadband Co., Ltd.		149,638,354		50.6		1,242,247		1,242,247
PS&Marketing Corporation(*1)		66,000,000		100.0		313,934		213,934
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.		72,927,317		100.0		1,538,020		1,538,020
Neosnetworks Co., Ltd.(*2)		31,310		66.7		23,968		—
SK Telecom China Holdings Co., Ltd.		—		100.0		29,116		29,116
SKT Vietnam PTE. Ltd.		180,476,700		73.3		2,364		2,364
SKT Americas, Inc.		122		100.0		78,811		76,764
YTK Investment Ltd.		—		100.0		69,464		69,464
Atlas Investment(*3)		—		100.0		73,090		60,347
SK Global Healthcare Business Group Ltd.		—		100.0		25,784		25,784

					￦	3,592,746		3,453,988

(*1)	The Company participated in increasing paid-in capital and additionally obtained 20,000,000 shares.

(*2)

During the 6 months ended June 30, 2014, the Company acquired 31,310 shares of Neosnetworks Co., Ltd. (the ownership interest of 66.7%) by purchasing old shares from the pre-existing shareholders and participating in the capital increase. The Company entered into a shareholders’ agreement which granted put options to the pre-existing shareholders for the remaining equity interest of Neosnetworks Co., Ltd. and call options to the Company for those shares if certain conditions are met.

(*3)	The company additionally invested ￦12,743 million.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

8.	Investments in Subsidiaries and Associates, Continued

(3)

Details of investments in associates as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)	June 30, 2014						December 31, 2013
	Number of shares		Ownership percentage (%)		Carrying amount		Carrying amount
SK China Company Ltd.(*1)		720,000		9.6	￦	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)		382,000		19.1		1,532		1,532
HanaSK Card Co., Ltd.		57,647,058		49.0		400,000		400,000
Daehan Kanggun BcN Co., Ltd.		1,675,126		29.0		8,340		8,340
NanoEnTek, Inc.(*3)		5,870,290		26.0		37,959		11,000
SK Industrial Development China Co., Ltd.		72,952,360		21.0		83,691		83,691
Packet One Network		1,153,902		27.0		60,706		60,706
SK Technology Innovation Company		9,800		49.0		85,873		85,873
SK Hynix Inc.		146,100,000		20.4		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		—		—		74,845		74,845

					￦	4,583,092		4,556,133

(*1)	Classified as investments in associates because the Company can exercise significant influence over the associates through participation on the associate’s board of directors.

(*2)	Classified as an investment in associates as the Company has less than 50% of the voting rights of the board of directors.

(*3)	The number of shares increased by 2,812,374 and 1,250,786, respectively, due to a conversion of convertible bond and the additional investment.

(4)

The market price of investments in listed subsidiaries as of June 30, 2014 and December 31, 2013 are as follows:

(In millions of won, except for share data)

June 30, 2014

December 31, 2013

Market
value per
share
(In won)

Number of
shares held

Market
price

Market
value per
share
(In won)

Number of
shares held

Market
price

SK Broadband Co., Ltd.

￦

3,640

149,638,354

544,684

4,375

149,638,354

654,668

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

9.	Property and Equipment

(1)

Changes in property and equipment for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)
	For the six-month period ended June 30, 2014
	Beginning balance		Acquisition		Disposal			Transfer			Depreciation			Ending balance
Land	￦	416,991		3,372		—			14,221			—			434,584
Buildings		585,375		428		(101	)		5,967			(17,177	)		574,492
Structures		363,093		125		—			3,406			(16,257	)		350,367
Machinery		4,945,088		30,095		(709	)		729,287			(772,697	)		4,931,064
Other		472,832		533,525		(1,140	)		(339,991	)		(51,053	)		614,173
Construction in progress		676,607		178,473		(9,438	)		(431,598	)		—			414,044

	￦	7,459,986		746,018		(11,388	)		(18,708	)		(857,184	)		7,318,724


(In millions of won)
	For the six-month period ended June 30, 2013
	Beginning balance		Acquisition		Disposal			Transfer			Depreciation			Ending balance
Land	￦	395,968		4,596		(14	)		4,634			—			405,184
Buildings		607,973		34		(99	)		1,803			(17,209	)		592,502
Structures		363,364		946		(7	)		6,025			(17,538	)		352,790
Machinery		4,532,811		26,989		(5,335	)		869,288			(749,863	)		4,673,890
Other		579,448		434,801		(921	)		(468,169	)		(49,394	)		495,765
Construction in progress		639,526		152,426		(5,695	)		(440,405	)		—			345,852

	￦	7,119,090		619,792		(12,071	)		(26,824	)		(834,004	)		6,865,983

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

10.

Goodwill

Goodwill as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Goodwill related to acquisition of Shinsegi Telecom, Inc.	￦	1,306,236		1,306,236

11.

Intangible Assets

(1)

Details of changes in intangible assets for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)
	For the six-month period ended June 30, 2014
	Beginning balance		Acquisition		Disposal			Transfer		Amortization			Ending balance
Frequency use rights	￦	1,664,571		—		—			—		(140,264	)		1,524,307
Land use rights		9,752		4,000		—			—		(2,038	)		11,714
Industrial rights		9,113		2,796		—			—		(1,717	)		10,192
Facility usage rights		16,155		615		(16	)		379		(1,250	)		15,883
Memberships		82,815		—		—			—		—			82,815
Other		456,761		16,078		(330	)		31,600		(81,137	)		422,972

	￦	2,239,167		23,489		(346	)		31,979		(226,406	)		2,067,883


(In millions of won)
	For the six-month period ended June 30, 2013
	Beginning balance		Acquisition		Disposal			Transfer		Amortization			Ending balance
Frequency use rights	￦	1,693,868		—		—			—		(126,306	)		1,567,562
Land use rights		9,815		913		(50	)		—		(2,225	)		8,453
Industrial rights		9,769		1,027		(74	)		—		(1,240	)		9,482
Development costs		665		—		—			—		(464	)		201
Facility usage rights		16,786		662		(49	)		—		(1,198	)		16,201
Memberships		81,518		2,066		(501	)		—		—			83,083
Other		375,451		14,561		—			39,984		(70,032	)		359,964

	￦	2,187,872		19,229		(674	)		39,984		(201,465	)		2,044,946

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

11.

Intangible Assets, Continued

(2)

The carrying amount and residual useful lives of frequency usage rights as of June 30, 2014 are as follows:

(In millions of won)

Amount

Description

Commencement
of amortization

Completion of
amortization

W-CDMA license

￦

246,394

Frequency use rights relating to W-CDMA service

Dec. 2003

Dec. 2016

W-CDMA license

40,777

Frequency use rights relating to W-CDMA service

Oct. 2010

Dec. 2016

800MHz license

283,808

Frequency use rights relating to CDMA and LTE service

Jul. 2011

Jun. 2021

1.8GHz license

942,150

Frequency use rights relating to LTE service

Sep. 2013

Dec. 2021

WiBro license

11,178

WiBro service

Mar. 2012

Mar. 2019

￦

1,524,307

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

12.

Borrowings and Debentures

(1)

Short-term borrowings as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
Lender	Annual interest rate (%)		Maturity		June 30, 2014		December 31, 2013
Kookmin Bank		3.48		Jan. 3, 2014	￦	—		60,000
		3.48		Jul. 15, 2014		100,000		—
Korea Development Bank		3.04		Oct. 15, 2014		100,000		—
Shinhan Bank		3.46		Jul. 15, 2014		100,000		—
CP		3.09		Jan. 3, 2014		—		100,000
		3.09		Jan. 6, 2014		—		100,000
		2.68		Jul. 16, 2014		200,000		—
		2.70		Jul. 24, 2014		200,000		—

					￦	700,000		260,000

(2)

Long-term borrowings as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won and thousands of U.S. dollars)
Lender	Annual interest rate (%)	Maturity	June 30, 2014			December 31, 2013
Export Kreditnamnden(*)	1.7	Apr. 29, 2022		￦93,425 (USD 92,098	)		99,975 (USD 94,736	)

Less present value discount on long-term borrowings				93,425 (2,743	)		99,975 (3,287	)

				90,682			96,688
Less current portion of long-term borrowings				(11,163	)		(11,563	)

				￦79,519			85,125

(*)	For the year ended December 31, 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.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

12.

Borrowings and Debentures, Continued

(3)

Debentures as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won, thousands of U.S. dollars, and thousands of other currencies)
	Purpose	Maturity		Annual interest rate (%)		June 30, 2014			December 31, 2013
Unsecured private bonds	Refinancing fund		2016		5.00	￦	200,000			200,000
Unsecured private bonds			2014		5.00		200,000			200,000
Unsecured private bonds	Other fund		2015		5.00		200,000			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			—
Unsecured private bonds			2024		3.64		150,000			—
Unsecured private bonds(*4)			2029		4.73		53,909			—
Unsecured private bonds(*4)			2029		4.72		53,885			—
Foreign global bonds			2027		6.63		405,760			422,120
							(USD 400,000	)		(USD 400,000	)
Exchangeable bonds (*3)	Refinancing fund		2014		1.75		—			96,147
							—			(USD 91,109	)
Floating rate notes (*1)	Operating fund		2014		3M Libor + 1.60		253,600			263,825
							(USD 250,000	)		(USD 250,000	)
Floating rate notes (*2)			2014		SOR rate + 1.20		52,768			54,129
							(SGD 65,000	)		(SGD 65,000	)
Swiss unsecured private bonds			2017		1.75		341,529			356,601
							(CHF 300,000	)		(CHF 300,000	)
Foreign global bonds			2018		2.13		710,080			738,710
							(USD 700,000	)		(USD 700,000	)
Australian unsecured private bonds			2017		4.75		286,578			281,988
							(AUD 300,000	)		(AUD 300,000	)
Floating rate notes (*1)			2020		3M Libor + 0.88		304,320			316,590
							(USD 300,000	)		(USD 300,000	)

							4,792,429			4,660,110
Less discounts on bonds							(29,372	)		(34,193	)

							4,763,057			4,625,917
Less current portion of bonds							(704,047	)		(611,140	)

						￦	4,059,010			4,014,777

(*1)	As of June 30, 2014, 3M Libor rate is 0.23%.

(*2)	As of June 30, 2014, SOR rate is 0.22%.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

12.

Borrowings and Debentures, Continued

(*3)	On April 7, 2009, the Company issued exchangeable bonds with a maturity of five years in the principal amount of USD 332,528,000 for USD 326,397,463 with a coupon rate of 1.75%.

The Company may redeem the principal amount after three years from the issuance date if the market price exceeds 130% of the exchange price during a predetermined period. The exchange right may be exercised during the period from May 18, 2009 to March 24, 2014.

Exchanges of notes for common shares may be prohibited under the Telecommunications Law or other legal restrictions which restrains foreign governments, individuals and entities from owning more than 49% of the Company’s voting stock. If such 49% ownership limitation is violated due to the exercise of exchange rights, the Company will pay the bond holder a cash settlement which will be determined at the average price of one day after a holder exercises its exchange right or the weighted average price for the following five or twenty business days. Unless either previously redeemed or exchanged, the notes are redeemable at 100% of the principal amount at maturity.

(*4)	The Company settled the difference of the measurement bases of accounting profit or loss between the related derivatives by appointing the structured bonds as designated financial liabilities at fair value through profit or loss.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

13.

Long-term Payables—other

As of June 30, 2014 and December 31, 2013, long-term payables consist of payables related to the acquisition of W-CDMA licenses for 2.1GHz, 800MHZ, 1.8GHz and 2.3GHz frequencies as follows (Refer to Note 11):


(In millions of won)
	Period of repayment		Coupon rate			Annual effective interest rate(*)			June 30, 2014			December 31, 2013
2.1GHz		2012~2014		3.58	%		5.89	%	￦	—			17,533
800MHz		2013~2015		3.51	%		5.69	%		69,416			138,833
2.3GHz		2014~2016		3.00	%		5.80	%		5,766			8,650
1.8GHz		2012~2021		2.43~3.00	%		4.84~5.25	%		824,841			942,675

										900,023			1,107,691
Present value discount on long-term payables—other										(62,582	)		(72,170	)

										837,441			1,035,521
Less current portion of long-term payables—other										(187,444	)		(206,800	)

Carrying amount at period end									￦	649,997			828,721

(*)	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 as of June 30, 2014 is as follows:


(In millions of won)	Amount
Less than 1 year	￦	190,134
1~3 years		238,552
3~5 years		235,669
More than 5 years		235,668

	￦	900,023

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

14.

Provisions

Changes in provisions for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	For the six-month period ended June 30, 2014												As of June 30, 2014
	Beginning balance		Increase		Utilization			Reversal			Ending balance		Current		Non- current
Provision for handset subsidy	￦	53,923		86,249		(49,206	)		—			90,966		58,043		32,923
Provision for restoration		32,173		1,528		(180	)		(884	)		32,637		17,590		15,047

	￦	86,096		87,777		(49,386	)		(884	)		123,603		75,633		47,970


(In millions of won)	For the six-month period ended June 30, 2013												As of June 30, 2013
	Beginning balance		Increase		Utilization			Reversal			Ending balance		Current		Non- current
Provision for handset subsidy	￦	353,383		2,413		(200,072	)		—			155,724		136,489		19,235
Provision for restoration		32,791		2,199		(144	)		(758	)		34,088		9,285		24,803

	￦	386,174		4,612		(200,216	)		(758	)		189,812		145,774		44,038

The Company recognizes a provision for handset subsidies given to the subscribers who purchase handsets on an installment basis.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

15.

Defined Benefit Liabilities

(1)

Details of defined benefit liabilities as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014			December 31, 2013
Present value of defined benefit obligations	￦	176,557			154,460
Fair value of plan assets		(134,378	)		(131,574	)

	￦	42,179			22,886

(2)

Principal actuarial assumptions as of June 30, 2014 and December 31, 2013 are as follows:


	June 30, 2014			December 31, 2013
Discount rate for defined benefit obligations		3.96	%		3.96	%
Expected rate of salary increase		4.32	%		4.32	%

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 six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2014			June 30, 2013
Beginning balance	￦	154,460			133,098
Current service cost		16,294			16,843
Interest cost		2,990			2,351
Remeasurement :
- Adjustment based on experience		12,086			8,045
Benefit paid		(10,710	)		(13,554	)
Others(*)		1,437			3,468

Ending balance	￦	176,557			150,251

(*)	Others for the six-month periods ended June 30, 2014 and 2013 include transfer to construction in progress and liabilities succeeded in relation to transfer of executives from affiliates.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

15.

Defined Benefit Liabilities, Continued

(4)

Changes in plan assets for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2014			June 30, 2013
Beginning balance	￦	131,574			98,147
Interest income		2,480			1,653
Actuarial gain(loss)		(560	)		1,031
Contributions to the plan		4,000			4,000
Benefit paid		(3,116	)		(4,074	)

Ending balance	￦	134,378			100,757

Actual return on plan assets for the six-month periods ended June 30, 2014 and 2013 amounted to ￦1,920 million and ￦2,684 million, respectively.

(5)

Expenses recognized in profit and loss and capitalized into construction-in-progress for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2014		June 30, 2013
Current service cost	￦	16,294		16,843
Net interest cost		510		698

	￦	16,804		17,541

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

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

16.

Derivative Instruments

(1)

Currency swap contracts under cash flow hedge accounting as of June 30, 2014 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
Dec. 15, 2011	Floating-to-fixed cross currency interest rate swap (Singapore dollar denominated bonds face value of SGD 65,000)	Foreign currency risk and the interest rate risk	Currency interest rate swap	United Overseas Bank	Dec. 15, 2011 ~ Dec. 12, 2014
Dec. 15, 2011	Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 250,000)	Foreign currency risk and the interest rate risk	Currency interest rate swap	DBS Bank and Citi bank	Dec. 15, 2011 ~ Dec. 12, 2014
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 five 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 nine 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 (Australia dollar denominated bonds face value of USD 92,098)	Foreign currency risk	Currency swap	Deutsche bank	Dec. 16, 2013 ~ Apr. 29, 2022

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

16.

Derivative Instruments, Continued

(2)

As of June 30, 2014, 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 foreign currency translations gain (loss)			*Others()**		Held for trading purpose		Total
Non-current assets:
Structured bond(*) (face value of KRW 100,000)	￦		—			—			—			—		6,017		6,017
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 400,000)			(48,130	)		(15,367	)		(50,973	)		129,806		—		15,336

Total assets	￦															21,353


Current liabilities:
Floating-to-fixed cross currency interest rate swap (Singapore dollar denominated bonds face value of SGD 65,000)			47			15			(4,683	)		—		—		(4,621	)
Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 250,000)			5,538			1,768			(35,807	)		—		—		(28,501	)

Non-current liabilities:
Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000)			(8,026	)		(2,562	)		(21,910	)		—		—		(32,498	)
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 700,000)			(12,082	)		(3,857	)		(52,811	)		—		—		(68,750	)
Fixed-to-fixed cross currency swap (Australia dollar denominated bonds face value of AUD 300,000)			6,919			2,208			(48,732	)		—		—		(39,605	)
Floating-to-fixed cross currency interest rate swap (face amounts of USD 300,000)			2,344			749			(20,669	)		—		—		(17,576	)
Fixed-to-fixed long-term borrowings (U.S. dollar denominated bonds face value of USD 92,098)			(3,336	)		(1,065	)		(3,527	)		—		—		(7,928	)

Total liabilities	￦															(199,479	)

(*)	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.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 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 ￦500. The number of authorized, issued and outstanding common shares and capital surplus and other capital adjustments as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won, except for share data)
	June 30, 2014			December 31, 2013
Authorized shares		220,000,000			220,000,000
Issued shares(*)		80,745,711			80,745,711
Share capital
Common stock	￦	44,639			44,639
Capital surplus and other capital adjustments:
Paid-in surplus		2,915,887			2,915,887
Treasury stock (Note 18)		(2,139,683	)		(2,139,683	)
Loss on disposal of treasury stock		(18,087	)		(18,087	)
Hybrid bond (note 19)		398,518			398,518
Others		(722,741	)		(722,741	)

	￦	433,894			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 six-month period ended June 30, 2014 and the year ended December 31, 2013.

Changes in number of shares outstanding for the six-month periods ended June 30, 2014 and 2013 are as follows:

(In shares)

For the six-month period ended

June 30, 2014

June 30, 2013

Issued
shares

Treasury
stock

Outstanding
shares

Issued
shares

Treasury
stock

Outstanding
shares

Issued shares

80,745,711

9,809,375

70,936,336

80,745,711

10,237,229

70,508,482

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

18.

Treasury Stock

The Company acquired treasury stock to provide stock dividends, issue new stocks, 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 June 30, 2014 and December 31, 2013 are as follows:


(In millions of won, shares)
	June 30, 2014		December 31, 2013
Number of shares		9,809,375		9,809,375
Amount	￦	2,139,683		2,139,683

19.

Hybrid Bonds

Hybrid bonds classified as equity as of June 30, 2014 is 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 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.

(*2)

Annual interest rate is adjusted after five years from the issuance date.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

20.

Retained Earnings

(1)

Retained earnings as of June 30, 2014 and December 31 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Appropriated:
Legal reserve	￦	22,320		22,320
Reserve for research & manpower development		151,533		155,767
Reserve for business expansion		9,476,138		9,376,138
Reserve for technology development		2,416,300		2,271,300

		12,066,291		11,825,525
Unappropriated		502,445		840,174

	￦	12,568,736		12,665,699

(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

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.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

21.

Reserves

(1)

Details of reserves, net of taxes, as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014			December 31, 2013
Net change in unrealized fair value of available-for-sale financial assets	￦	159,778			211,209
Net change in unrealized fair value of derivatives		(56,726	)		(40,033	)

	￦	103,052			171,176

(2)

Changes in reserves for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	For the six-month period ended June 30, 2014
	Net change in unrealized fair value of available-for-sale financial assets			Net change in unrealized fair value of derivatives			Total
Balance at January 1, 2014	￦	211,209			(40,033	)		171,176
Changes		(67,851	)		(22,022	)		(89,873	)
Tax effect		16,420			5,329			21,749

Balance at June 30, 2014	￦	159,778			(56,726	)		103,052


(In millions of won)	For the six-month period ended June 30, 2013
	Net change in unrealized fair value of available-for-sale financial assets			Net change in unrealized fair value of derivatives			Total
Balance at January 1, 2013	￦	206,414			(51,826	)		154,588
Changes		(63,643	)		(84,554	)		(148,197	)
Tax effect		15,401			20,462			35,863

Balance at June 30, 2013	￦	158,172			(115,918	)		42,254

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

22.

Other Operating Expenses

Details of other operating expenses for the three and six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	2014				2013
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Other Operating Expenses:
Communication expenses	￦	10,671		21,863		12,775		25,512
Utilities		37,588		83,713		37,401		76,991
Taxes and dues		4,043		8,809		3,395		7,702
Repair		45,074		86,517		48,798		86,850
Research and development		57,254		108,358		56,652		109,351
Training		5,751		11,968		5,350		9,952
Bad debt for accounts receivables—trade		12,039		16,034		11,190		16,365
Other		10,342		35,861		12,755		21,653

	￦	182,762		373,123		188,316		354,376

23.

Other Non-operating Income and Expenses

Details of other non-operating income and expenses for the three and six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	2014				2013
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Other Non-operating Income:
Gain on disposal of property and equipment and intangible assets	￦	489		600		510		858
Others(*1)		13,080		27,992		12,860		19,485

	￦	13,569		28,592		13,370		20,343

Other Non-operating Expenses:
Loss on disposal of property and equipment and intangible assets	￦	1,146		2,709		6,918		11,457
Donations		18,581		26,560		9,424		21,288
Bad debt for accounts receivable—other		5,153		8,123		5,974		16,326
Others(*2)		742		18,099		4,414		8,230

	￦	25,622		55,491		26,730		57,301

(*1)

Others for the six-month period ended June 30, 2014 primarily consists of ￦8.6 billion of VAT refund.

(*2)

Others for the six-month period ended June 30, 2014 primarily consists of ￦16.7 billion of penalties.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

24.

Finance Income and Costs

(1)

Details of finance income and costs for the three and six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	2014				2013
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Finance Income:
Interest income	￦	5,999		12,827		8,039		16,471
Dividends		939		10,567		65		12,643
Gain on foreign currency transactions		1,212		5,211		4,599		6,729
Gain on foreign currency translation		—		115		1,858		1,468
Gain relating to financial asset at fair value through profit or loss		—		—		2,427		3,365
Gain on disposal of long-term investment securities		935		5,851		370		1,292
Gain on valuation of derivatives		6,017		6,017		—		—
Gain on settlement of derivatives		—		118		—		2,274

	￦	15,102		40,706		17,358		44,242

Finance Costs:
Interest expense	￦	68,473		132,372		69,547		143,098
Loss on foreign currency transactions		5,148		8,783		3,271		5,852
Loss on foreign currency translation		2,106		1,741		—		128
Loss on disposal of long-term investment securities		5		6		1		73
Loss on settlement of derivatives		335		335		—		—
Loss relating to financial asset at fair value through profit or loss		2,419		1,352		—		—
Loss relating to financial liability at fair value through profit or loss(*)		7,793		7,798		66,514		104,601

	￦	86,279		152,387		139,333		253,752

(*)

Loss relating to financial liability at fair value through profit or loss for the six-month period ended June 30, 2013 represents 1) valuation loss related to exchangeable bond (issue price of USD 326,397,463) as a result of increase in stock price of the Company and increase in foreign exchange rate, and 2) loss on repayment of debentures upon the claim for exchange.

(2)

Details of interest income included in finance income for the three and six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	2014				2013
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Interest income on cash equivalents and deposits	￦	3,128		6,674		4,858		9,738
Interest income on installment receivables and others		2,871		6,153		3,181		6,733

	￦	5,999		12,827		8,039		16,471

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

24.

Finance Income and Costs, Continued

(3)

Details of interest expense included in finance costs for the three and six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	2014				2013
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Interest expense on bank overdrafts and borrowings	￦	7,648		11,983		6,393		18,574
Interest expense on debentures		49,378		96,536		54,553		105,141
Others		11,447		23,853		8,601		19,383

	￦	68,473		132,372		69,547		143,098

(4)

Details of impairment losses for financial assets for the three and six-month periods ended June 30, 2014 and 2013 are as follows.


(In millions of won)	2014				2013
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Bad debt for accounts receivable—trade	￦	12,039		16,034		11,190		16,365
Bad debt for accounts receivable—other		5,153		8,123		5,974		16,326

	￦	17,192		24,157		17,164		32,691

25.

Income Tax Expense

26.

Earnings per Share

(1)

Basic earnings per share

Basic earnings per share for the three and six-month periods ended June 30, 2014 and 2013 are calculated as follows:


(In millions of won, shares)	2014						2013
	Three-month period ended June 30			Six-month period ended June 30			Three-month period ended June 30			Six-month period ended June 30
Profit for the period	￦	363,374			516,907			313,431			615,609
Dividend on hybrid bond		(8,420	)		(8,420	)		(1,058	)		(1,058	)
Profit for the period on common shares		354,954			508,487			312,373			614,551
Weighted average number of common shares outstanding		70,936,336			70,936,336			69,872,438			69,784,208

Basic earnings per share (In won)	￦	5,004			7,168			4,471			8,806

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

26.

Earnings per Share, Continued

(1)

Basic earnings per share, Continued

The weighted average number of common shares outstanding for the three and six-month periods ended June 30, 2014 and 2013 are calculated as follows:


(In shares)	Number of shares			Weighted number of shares
	Number of shares			Three-month period ended June 30			Six-month period ended June 30
Outstanding common shares at January 1, 2014		80,745,711			80,745,711			80,745,711
Effect of treasury stock		(9,809,375	)		(9,809,375	)		(9,809,375	)

Weighted average number of common shares outstanding at June 30, 2014		70,936,336			70,936,336			70,936,336


(In shares)	Number of shares			Weighted number of shares
	Number of shares			Three-month period ended June 30			Six-month period ended June 30
Outstanding common shares at January 1, 2013		80,745,711			80,745,711			80,745,711
Effect of treasury stock		(11,050,712	)		(11,050,712	)		(11,050,712	)
Exchange of exchangeable bonds		813,483			177,439			89,209

Weighted average number of common shares outstanding at June 30, 2013		70,508,482			69,872,438			69,784,208

(2)

Diluted earnings per share

For the six-month period ended June 30, 2014, potential ordinary share does not exist. The number of common shares outstanding in respect of the exchangeable common shares of exchangeable bonds is excluded from the diluted earnings per share calculation for the six-month period ended June 30, 2013 as effect would have been anti-dilutive (diluted shares of 2,421,077); therefore, diluted earnings per share for the six-month period ended June 30, 2014 and 2013 are same as basic earnings per share.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

27.

Categories of Financial Instruments

(1)

Financial assets by categories as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)	June 30, 2014
	Trading financial assets		Available- for-sale financial assets		Loans and receivables		Derivative financial instruments designated as hedged item		Total
Cash and cash equivalents	￦	—		—		412,194		—		412,194
Financial instruments		—		—		163,569		—		163,569
Short-term investment securities		—		47,274		—		—		47,274
Long-term investment securities		—		610,715		—		—		610,715
Accounts receivable—trade		—		—		1,597,263		—		1,597,263
Loans and receivables(*2)		—		—		623,664		—		623,664
Derivative financial assets		6,017		—		—		15,336		21,353

	￦	6,017		657,989		2,796,690		15,336		3,476,032


(In millions of won)	December 31, 2013
	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	￦	—		—		448,459		—		448,459
Financial instruments		—		—		173,569		—		173,569
Short-term investment securities		—		102,042		—		—		102,042
Long-term investment securities(*1)		20,532		709,171		—		—		729,703
Accounts receivable—trade		—		—		1,513,138		—		1,513,138
Loans and receivables(*2)		—		—		658,337		—		658,337
Derivative financial assets		—		—		—		41,712		41,712

	￦	20,532		811,213		2,793,503		41,712		3,666,960

(*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.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

27.

Categories of Financial Instruments, Continued

(1)

Financial assets by categories as of June 30, 2014 and December 31, 2013 are as follows, Continued:

(*2)	Details of loans and other receivables as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Short-term loans	￦	75,728		72,198
Accounts receivable—other		338,861		388,475
Accrued income		6,306		5,682
Long-term loans		50,931		39,925
Guarantee deposits		151,838		152,057

	￦	623,664		658,337

(2)

Financial liabilities by categories as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 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	￦	—		—		199,479		199,479
Borrowings		—		790,682		—		790,682
Debentures(*1)		107,794		4,655,263		—		4,763,057
Accounts payable—other and others(*3)		—		2,265,394		—		2,265,394

	￦	107,794		7,711,339		199,479		8,018,612


(In millions of won)
	December 31, 2013
	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	￦	—		—		121,380		121,380
Borrowings		—		356,688		—		356,688
Debentures(*2)		96,147		4,529,770		—		4,625,917
Accounts payable—other and others(*3)		—		3,279,604		—		3,279,604

	￦	96,147		8,166,062		121,380		8,383,589

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

27.

Categories of Financial Instruments, Continued

(2)

Financial liabilities by categories as of June 30, 2014 and December 31, 2013 are as follows, Continued:

(*1)

(*2)	The entire amount of debentures was designated as financial liabilities at fair value through profit or loss as the fair value of the embedded derivative (conversion right option), which should be separated from the main contract, could not be separately measured.

(*3)	Details of accounts payable and other payables as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Accounts payable—other	￦	792,483		1,556,201
Withholdings		3		3
Accrued expenses		601,175		653,742
Current portion of long-term payables—other		187,444		206,800
Long-term payables—other		649,997		828,721
Other non-current liabilities		34,292		34,137

	￦	2,265,394		3,279,604

28.

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.

1) 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.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

28.

Financial Risk Management, Continued

(1)

Financial risk management, Continued

Monetary foreign currency assets and liabilities as of June 30, 2014 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		Korean won equivalent		Foreign currencies		Korean won equivalent
USD		71,424	￦	71,522		1,730,095	￦	1,755,002
EUR		5,549		7,680		54		75
JPY		64,979		650		—		—
SGD		6		5		64,910		52,694
AUD		—		—		298,286		284,941
CHF		—		—		298,746		340,101
Other		1,919		3,328		2		—

			￦	83,185			￦	2,432,813

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 June 30, 2014, 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	￦	6,694		(6,694	)
EUR		761		(761	)
JPY		65		(65	)
Others		333		(333	)

	￦	7,853		(7,853	)

(ii) Equity price risk

The Company has equity securities which include listed and non-listed securities for its liquidity and operating purpose. As of June 30, 2014, available-for-sale equity instruments measured at fair value amounts to ￦609,392 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.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

28.

Financial Risk Management, Continued

(1)

Financial risk management, Continued

The Company’s interest rate risk arises from floating-rate debentures. As of June 30, 2014, floating-rate debentures amount to ￦610,688 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 six-month period ended June 30, 2014 would not have been changed due to the interest expense from floating-rate debentures.

2) 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 June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014		December 31, 2013
Cash and cash equivalents	￦	412,164		448,429
Financial instruments		163,569		173,569
Available-for-sale financial assets		6,813		816
Accounts receivable - trade		1,597,263		1,513,138
Loans and receivables		623,664		658,337
Derivative financial assets		21,353		41,712
Financial assets at fair value through profit or loss		—		20,532

	￦	2,824,826		2,856,533

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 six-month period ended June 30, 2014, 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 derivates. 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 June 30, 2014.

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 5 and the analysis of financial assets that are individually determined to be impaired at the end of the reporting period is stated in Note 24.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

28.

Financial Risk Management, Continued

(1)

Financial risk management, Continued

3) 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 June 30, 2014 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)	￦	790,682		801,646		713,946		51,133		36,567
Debentures (*1)		4,763,057		5,877,713		873,073		2,593,392		2,411,248
Accounts payable - other and others (*2)		2,265,394		2,380,348		1,567,102		567,723		245,523

	￦	7,819,133		9,059,707		3,154,121		3,212,248		2,693,338

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 borrowings and debentures.

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

As of June 30, 2014, 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	￦	15,336			2,449			6,111			29,643			(33,305	)
Liabilities		(199,479	)		(214,256	)		(51,060	)		(145,384	)		(17,812	)

	￦	(184,143	)		(211,807	)		(44,949	)		(115,741	)		(51,117	)

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

28.

Financial Risk Management, Continued

(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, 2013.

The Company monitors its debt-equity ratio as a capital management indicator. This ratio is calculated as total debt divided by total equity; the total debt and equity is extracted from the financial statements.

Debt-equity ratio as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)
	June 30, 2014			December 31, 2013
Liability	￦	9,343,714			9,512,011
Equity		13,150,321			13,315,408

Debt-equity ratio		71.05	%		71.44	%

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

28.

Financial Risk Management, Continued

(3)

Fair value

Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of June 30, 2014 are as follows:


(In millions of won)	June 30, 2014
	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets that can be measured at fair value
Trading financial assets	￦	6,017		—		6,017		—		6,017
Derivative financial assets		15,336		—		15,336		—		15,336
Available-for-sale financial assets		609,392		515,772		46,648		46,972		609,392

	￦	630,745		515,772		68,001		46,972		630,745

Financial assets that cannot be measured at fair value
Cash and cash equivalents(*1)	￦	412,194		—		—		—		—
Available-for-sale financial assets(*1,2)		48,597		—		—		—		—
Accounts receivable—trade and others(*1)		2,220,927		—		—		—		—
Financial instruments(*1)		163,569		—		—		—		—

	￦	2,845,287		—		—		—		—

Financial liabilities that can be measured at fair value
Debentures		107,794		—		107,794		—		107,794
Derivative financial liabilities		199,479		—		199,479		—		199,479

	￦	307,273		—		307,273		—		307,273

Financial liabilities that cannot be measured at fair value
Borrowings	￦	790,682		—		789,041		—		789,041
Debentures		4,655,263		—		4,867,836		—		4,867,836
Accounts payable—other and others(*1)		2,265,394		—		—		—		—

	￦	7,711,339		—		5,656,877		—		5,656,877

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

28.

Financial Risk Management, Continued

Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2013 are as follows:


(In millions of won)	December 31, 2013
	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	￦	20,532		—		20,532		—		20,532
Derivative financial assets		41,712		—		41,712		—		41,712
Available-for-sale financial assets		715,053		574,321		46,414		94,318		715,053

	￦	777,297		574,321		108,658		94,318		777,297

Financial assets that cannot be measured at fair value
Cash and cash equivalents(*1)	￦	448,459		—		—		—		—
Available-for-sale financial assets(*1,2)		96,160		—		—		—		—
Accounts receivable—trade and others(*1)		2,171,475		—		—		—		—
Financial instruments(*1)		173,569		—		—		—		—

	￦	2,889,663		—		—		—		—

Financial liabilities that can be measured at fair value
Financial liabilities at fair value through profit or loss	￦	96,147		96,147		—		—		96,147
Derivative financial liabilities		121,380		—		121,380		—		121,380

	￦	217,527		96,147		121,380		—		217,527

Financial liabilities that cannot be measured at fair value
Borrowings	￦	356,688		—		369,810		—		369,810
Debentures		4,529,770		—		4,621,010		—		4,621,010
Accounts payable—other and others(*1)		3,279,604		—		—		—		—

	￦	8,166,062		—		4,990,820		—		4,990,820

(*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.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

28.

Financial Risk Management, Continued

(3)

Fair value, Continued

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.

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 June 30, 2014 are as follows:


		Interest rate
Derivative instruments		2.30 ~ 2.73%
Borrowings and Debentures		3.10 ~ 3.28%


(In millions of won)
	Balance at Jan. 1		Valuation			Disposal			Balance at June 30
Available-for-sale financial assets	￦	94,318		(8,080	)		(39,266	)		46,972

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

28.

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 June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)	June 30, 2014
	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(*)	￦	16,241		—			16,241		(16,241	)		—		—
Accounts receivable – trade and others		147,473		(132,495	)		14,978		—			—		14,978

	￦	163,714		(132,495	)		31,219		(16,241	)		—		14,978

Financial liabilities:
Derivatives(*)		56,956		—			56,956		(16,241	)		—		40,715
Accounts payable – other and others		132,495		(132,495	)		—		—			—		—

	￦	189,451		(132,495	)		56,956		(16,241	)		—		40,715


(In millions of won)	December 31, 2013
	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(*)	￦	28,870		—			28,870		(28,870	)		—		—
Accounts receivable – trade and others		138,897		(127,055	)		11,842		—			—		11,842

	￦	167,767		(127,055	)		40,712		(28,870	)		—		11,842

Financial liabilities:
Derivatives(*)	￦	43,536		—			43,536		(28,870	)		—		14,666
Accounts payable – other and others		127,055		(127,055	)		—		—			—		—

	￦	170,591		(127,055	)		43,536		(28,870	)		—		14,666

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

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

29.

Transactions with Related Parties

(1)

List of related parties


Relationship		Interest rate
Ultimate Controlling Entity		SK Holding Co., Ltd.
Subsidiaries		SK Planet Co., Ltd. and 28 others(*)
Joint venture		Dogus Planet, Inc. and three others
Associates		SK hynix Inc. and 64 others
Affiliates		The Ultimate Controlling Entity’s investor using the equity method and the Ultimate Controlling Entitys subsidiaries and associates, etc.

(*)	As of June 30, 2014, subsidiaries of the Company are as follows:


Type	Company	Ownership percentage (%)		Types of business
Subsidiaries	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		56.0	Investment association
	Commerce Planet Co., Ltd.		100.0	Online shopping mall operation agency
	SK Broadband Co., Ltd.		50.6	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
	BNCP Co., Ltd.		100.0	Internet website services
	SK Planet Co., Ltd.		100.0	Telecommunication service
	Neosnetworks Co., Ltd.		66.7	Guarding of facilities
	SK Telecom China Holdings Co., Ltd.		100.0	Investment association
	Shenzhen E-eye High Tech Co., Ltd.		65.5	Manufacturing
	SK Global Healthcare Business Group., Ltd.		100.0	Investment association
	SK Planet Japan		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

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

29.

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 considerations given to such key management for the three and six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	2014				2013
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Salaries	￦	287		1,626		340		1,594
Provision for retirement benefits		113		681		97		817

	￦	400		2,307		437		2,411

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

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

29.

Transactions with Related Parties, Continued

(3)

Transactions with related parties for the three and six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)		2014
		Operating revenue and others				Operating expense and others(*)				Acquisition of property and equipment				Cash Advances
Scope	Company	Three- month period ended June 30		Six- month period ended June 30		Three- month period ended June 30		Six- month period ended June 30		Three- month period ended June 30		Six- month period ended June 30		Three- month period ended June 30		Six- month period ended June 30
Ultimate Controlling Entity	SK Holding Co., Ltd.(*)	￦	123		234		6,936		184,425		—		—		—		—
Subsidiaries	SK Broadband Co., Ltd.		41,146		72,100		135,525		255,641		46		46		—		—
	PS&Marketing Corporation		4,090		6,785		181,452		341,566		841		841		—		—
	Network O&S Co., Ltd.		623		1,272		38,256		70,143		—		—		—		—
	SK Planet Co., Ltd.		15,325		28,188		156,730		298,062		545		1,045		—		—
	SK Telink Co., Ltd.		11,910		23,129		3,679		11,352		224		227		—		—
	Service Ace Co., Ltd.		1,792		3,542		32,629		69,559		—		—		—		—
	Service Top Co., Ltd.		1,661		3,303		35,509		75,200		—		—		—		—
	Others		2,602		3,708		5,543		13,014		50		50		—		—

			79,149		142,027		589,323		1,134,537		1,706		2,209		—		—

Associates	F&UCredit information Co., Ltd.		415		893		9,354		21,018		—		—		—		—
	HappyNarae Co., Ltd.		—		—		599		1,502		2,725		3,492		—		—
	SK hynix Inc.		1,312		3,171		—		879		—		—		—		—
	SK USA, Inc.		—		—		301		960		—		—		—		—
	SK Wyverns Baseball Club Co., Ltd.		5		8		—		8,921		—		—		—		—
	HanaSK Card Co., Ltd.		6,448		13,419		744		1,512		—		—		—		—
	Others		1,223		1,299		2,294		3,378		—		—		45		45

			9,403		18,790		13,292		38,170		2,725		3,492		45		45

Other	SK Engineering & Construction Co., Ltd		670		1,296		11,474		11,474		55,586		55,586		—		—
	SK C&C Co., Ltd.		1,167		1,853		56,382		112,694		13,736		37,092		—		—
	SK Networks Co., Ltd.		5,171		9,994		51,334		195,274		2,452		2,454		—		—
	SK Networks Service		5,293		5,293		9,400		14,279		435		435		—		—
	SK Telesys Co., Ltd.		25		81		1,708		1,976		36,200		57,399		—		—
	Others		3,133		5,379		1,860		6,711		3,490		3,847		—		—

			15,459		23,896		132,158		342,408		111,899		156,813		—		—

		￦	104,134		184,947		741,709		1,699,540		116,330		162,514		45		45

(*)	Operating expense and others include ￦171,053 million of dividends paid by the Company.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

29.

Transactions with Related Parties, Continued

(3)

Transactions with related parties for the three and six-month periods ended June 30, 2014 and 2013 are as follows, continued,


(In millions of won)		2013
		Operating revenue and others				Operating expense and others(*)				Acquisition of property and equipment
Scope	Company	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Ultimate Controlling Entity	SK Holding Co., Ltd.(*)	￦	307		502		6,480		184,419		—		—
Subsidiaries	SK Broadband Co., Ltd.		33,209		47,497		128,210		238,711		434		457
	PS&Marketing Corporation		1,907		3,680		120,510		257,862		35		70
	Network O&S Co., Ltd.		983		1,498		39,367		65,077		—		—
	SK Planet Co., Ltd.		6,093		15,367		133,467		267,809		—		—
	SK Telink Co., Ltd.		10,377		18,278		5,279		17,592		23		23
	Service Ace Co., Ltd.		1,901		3,837		30,275		63,109		—		—
	Service Top Co., Ltd.		1,600		3,318		30,155		52,662		—		—
	Others		2,852		6,206		8,687		19,105		—		—

			58,922		99,681		495,950		981,927		492		550

Associates	F&UCredit information Co., Ltd.		387		742		10,184		20,064		—		—
	HappyNarae Co., Ltd.		—		—		338		1,258		1,572		1,806
	SK hynix Inc.		540		1,335		17		17		—		—
	SK USA, Inc.		—		—		—		520		—		—
	SK Wyverns Baseball Club Co., Ltd.		—		—		910		9,410		—		—
	HanaSK Card Co., Ltd.		8,774		17,179		626		1,349		—		—
	Others		98		1,534		4,416		8,410		—		—

			9,799		20,790		16,491		41,028		1,572		1,806

Other	SK Engineering & Construction Co., Ltd		2,819		3,629		13,165		13,376		51,105		65,001
	SK C&C Co., Ltd.		775		1,498		59,563		123,949		22,454		43,230
	SK Networks Co., Ltd.		10,865		21,960		128,039		232,377		1,073		1,095
	SK Networks Service		2,495		5,677		4,555		9,330		15		15
	SK Telesys Co., Ltd.		35		87		2,765		3,488		7,244		19,877
	Others		3,273		6,128		6,388		7,180		513		513

			20,262		38,979		214,475		389,700		82,404		129,731

		￦	89,290		159,952		733,396		1,597,074		84,468		132,087

(*)	Operating expense and others include ￦171,053 million of dividends paid by the Company.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

29.

Transactions with Related Parties, Continued

(4)

Account balances as of June 30, 2014 and December 31, 2013 are as follows:


(In millions of won)		June 30, 2014
		Accounts receivable				Accounts payable
Scope	Company	Loans		Accounts receivable-trade, and others		Accounts payable– trade, and others
Ultimate Controlling Entity	SK Holding Co., Ltd.	￦	—		98		—
Subsidiaries	SK Broadband Co., Ltd.		—		11,993		17,931
	PS&Marketing Corporation		—		3,674		81,717
	Network O&S Co., Ltd.		—		51		143
	SK Planet Co., Ltd.		—		8,516		31,805
	SK Telink Co., Ltd.		—		4,017		6,796
	Service Ace Co., Ltd.		—		283		14,724
	Service Top Co., Ltd.		—		959		16,335
	Others		—		4,819		16,923

			—		34,312		186,374

Associates	HappyNarae Co., Ltd.		—		—		476
	SK hynix Inc.		—		730		—
	SK Wyverns Baseball Club., Ltd.		1,425		—		—
	Wave City Development Co., Ltd.		1,200		38,412		—
	SK USA Inc		—		—		626
	Daehan Kanggun BcN Co., Ltd.		22,148		—		—
	HanaSK Card Co., Ltd.		—		2,152		165
	Others		—		276		676

			24,773		41,570		1,943

Other	SK Engineering and Construction Co., Ltd.		—		61		2,485
	SK C&C Co., Ltd.		—		776		33,147
	SK Networks Co., Ltd.		—		4,566		1,114
	SK Networks Service		—		—		6,953
	SK Telesys Co., Ltd.		—		156		591
	SK Innovation Co., Ltd.		—		1,056		148
	Others		—		968		7,314

			—		7,583		51,752

		￦	24,773		83,563		240,069

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

29.

Transactions with Related Parties, Continued

(4)

Account balances as of June 30, 2014 and December 31, 2013 are as follows, continued


(In millions of won)		December 31, 2013
		Accounts receivable				Accounts payable
Scope	Company	Loans		Accounts receivable-trade, and others		Accounts payable– trade, and others
Ultimate Controlling Entity	SK Holding Co., Ltd.	￦	—		193		—
Subsidiaries	SK Broadband Co., Ltd.		—		4,779		81,243
	PS&Marketing Corporation		—		464		32,573
	Network O&S Co., Ltd.		—		1,271		12,450
	SK Planet Co., Ltd.		—		10,882		116,927
	SK Telink Co., Ltd.		—		232		5,346
	Service Ace Co., Ltd.		—		269		18,019
	Service Top Co., Ltd.		—		1,258		15,375
	Others		—		3,975		21,713

			—		23,130		303,646

Associates	HappyNarae Co., Ltd.		—		—		2,238
	SK hynix Inc.		—		392		—
	SK Wyverns Baseball Club., Ltd.		1,425		—		—
	Wave City Development Co., Ltd.		1,200		38,412		—
	SK USA Inc		—		—		436
	Daehan Kanggun BcN Co., Ltd.		22,102		—		—
	HanaSK Card Co., Ltd.		—		284		—
	Others		—		266		—

			24,727		39,354		2,674

Other	SK Engineering and Construction Co., Ltd.		—		767		11,374
	SK C&C Co., Ltd.		—		140		64,071
	SK Networks Co., Ltd.		—		5,920		53,807
	SK Networks Service		—		—		2,290
	SK Telesys Co., Ltd.		—		372		6,438
	SK Innovation Co., Ltd.		—		1,368		—
	Others		—		2,367		8,189

			—		10,934		146,169

		￦	24,727		73,611		452,489

(5)

As of June 30, 2014, there are no collateral or guarantee provided by related parties to the Company nor by the Company to related parties.

(6)

There was an additional investment on the related parties. (Refer to Note 8)

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

30.

Sale and Leaseback

For 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.

The Company recognized lease payment of ￦7,038 million and ￦6,851 million, respectively, relating to the above operating lease agreement and lease revenue of ￦4,516 million and ￦4,231 million, respectively, through a sublease agreement for the six-month periods ended June 30, 2014 and 2013. Future lease payments and lease revenue from the above operating lease agreement and sublease agreement are as follows:


(In millions of won)	Lease payments		Lease revenue
Less than 1 year	￦	14,327		9,031
1~5 years		56,489		32,207
More than 5 years		47,130		22,469

	￦	117,946		63,707

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

31.

Statements of Cash Flows

(1)

Adjustments for income and expenses from operating activities for the six-month periods ended June 30, 2014 and 2013 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2014			June 30, 2013
Gain on foreign currency translations	￦	(115	)		(1,468	)
Interest income		(12,827	)		(16,471	)
Dividends		(10,567	)		(12,643	)
Gain relating to financial assets at fair value through profit or loss		—			(3,365	)
Gain on disposal of long-term investment securities		(5,851	)		(1,292	)
Gain on disposal of investments in subsidiaries and associates		—			(71,200	)
Gain on disposal of property and equipment and intangible assets		(600	)		(858	)
Gain on valuation of derivatives		(6,017	)		—
Gain on settlement of derivatives		(118	)		(2,274	)
Other income		—			(2,315	)
Loss on foreign currency translation		1,741			128
Bad debt for accounts receivable—trade		16,034			16,365
Bad debt for accounts receivable—other		8,123			16,326
Loss on disposal of long-term investments securities		6			73
Loss relating to financial assets at fair value through profit or loss		1,352			—
Depreciation and amortization		1,083,590			1,035,469
Loss on disposal of property and equipment and intangible assets		2,709			11,457
Interest expenses		132,372			143,098
Loss relating to financial liabilities at fair value through profit or loss		7,798			104,601
Loss on settlement of derivatives		335			—
Provision for retirement benefits		16,804			17,541
Income tax expense		123,472			161,471
Other expenses		3,149			1,529

	￦	1,361,390			1,396,172

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2014 and 2013

31.

Statements of Cash Flows, Continued

(2)

Changes in assets and liabilities from operating activities for the six-month periods ended June 30, 2014 and 2013 are as follows:


	For the six-month period ended
(In millions of won)	June 30, 2014			June 30, 2013
Accounts receivable—trade	￦	(100,450	)		(89,841	)
Accounts receivable—other		40,419			(60,610	)
Advance payments		(22,336	)		(25,960	)
Prepaid expenses		4,888			4,277
Inventories		2,426			5,604
Long-term prepaid expenses		(4,905	)		404
Guarantee deposits		3,202			9,921
Accounts payable—other		(485,253	)		(173,635	)
Advanced receipts		7,281			2,650
Withholdings		184,824			(95,661	)
Deposits		(462	)		(272	)
Accrued expenses		(53,559	)		4,483
Unearned revenue		(56,706	)		(83,427	)
Provisions		4,710			(143,489	)
Long-term provisions		32,880			(53,775	)
Plan assets		(884	)		74
Retirement benefit payment		(10,710	)		(13,554	)
Others		1,933			2,339

	￦	(452,702	)		(710,472	)

(3)

Significant non-cash transactions for the six-month periods ended June 30, 2014 and 2013 are as follows:


	For the six-month period ended
(In millions of won)	June 30, 2014		June 30, 2013
Transfer of other property and equipment and others to construction in progress	￦	363,931		483,671
Transfer of construction in progress to property and equipment and intangible assets		795,529		924,076
Accounts payable—other related to acquisition of property and equipment and intangible assets		278,349		307,978

32.

Subsequent Events

On July 24, 2014, the Board of Directors of the Company resolved to pay interim cash dividends of ￦1,000 per share totaling ￦70,936 million (Market dividend rate: 0.42%). The ex-dividend date was June 30, 2014 and the interim dividends are expected to be paid within twenty days after the date of the Board of Directors’ resolution.

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/ Soo Cheol Hwang
(Signature)
Name:		Soo Cheol Hwang
Title:		Senior Vice President

Date: September 12, 2014