LG Uplus Corp. (formerly LG Telecom, Ltd.)

LG Uplus Corp. (formerly LG Telecom, Ltd.) We have audited the accompanying statement of financial position of LG Uplus Corp. (the “Company”) as of De...

0 downloads 111 Views 2MB Size
LG Uplus Corp. (formerly LG Telecom, Ltd.) SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2010 AND INDEPENDENT AUDITORS’ REPORT

Independent Auditors’ Report English Translation of a Report Originally Issued in Korean

To the Shareholders and Board of Directors of LG Uplus Corp. (formerly LG Telecom, Ltd.) We have audited the accompanying statement of financial position of LG Uplus Corp. (the “Company”) as of December 31, 2010, the related statements of income and comprehensive income, changes in shareholders’ equity and cash flows for the year then ended, all expressed in Korean Won. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We have also audited the financial statements of the Company as of and for the year ended December 31, 2009, dated February 18, 2010. However, those statements did not incorporate the transitions to Korean International Financial Reporting Standards (“K-IFRS”) adjustments as discussed in Note 3 of the accompanying financial statements. While, the accompanying financial statements as of and for the year ended December 31, 2009, presented for comparative purposes in the accompanying financial statements are inclusive of such transition to KIFRS adjustments. We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that out audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2010, and the results of its operations, comprehensive income, changes in its stockholder’s equity, and its cash flows for the year then ended, in conformity with K-IFRS.

March 10, 2011

Notice to Readers This report is effective as of March 10, 2011, the auditors’ report date. Certain subsequent events or circumstances may have occurred between this auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the accompanying financial statements and may result in modifications to the auditors’ report.

LG UPLUS CORP. (FORMERLY LG TELECOM, LTD.) STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2010 AND 2009, AND JANUARY 1, 2009

Korean Won Unaudited December 31, 2009 (In millions)

December 31, 2010

Unaudited January 1, 2009

ASSETS CURRENT ASSETS: Cash and cash equivalents (Notes 6 and 7) Financial institution deposits (Notes 6 and 8) Trade receivables, net (Notes 6 and 9) Loans and other receivables, net (Notes 6 and 9) Available-for-sale financial assets (Note 6) Derivative assets (Notes 6 and 33) Inventories, net (Note 10) Other current assets (Note 11) Total current assets NON-CURRENT ASSETS: Non-current financial institution deposits (Notes 6 and 8) Non-current available-for-sale financial assets (Note 6) Non-current trade receivables, net (Notes 6 and 9) Non-current loans and other receivables (Notes 6 and 9) Non-current derivative assets (Notes 6 and 33) Investments in subsidiaries (Note 15) Investments in jointly-controlled entities and associates (Note 16) Deferred income tax assets, net (Note 29) Property, plant and equipment, net (Note 12) Investment property, net (Notes 13) Intangible assets, net (Note 14) Other non-current assets (Note 11) Total non-current assets TOTAL ASSETS



517,101 15,350 1,220,963 127,797 71 190,097 66,647 2,138,026



320 75,441 188,134 234,380



138,351 10,000 798,077 81,787 186 155,053 48,981 1,232,435



5 26,000 101,871 176,951

50,127 101,000 829,439 56,359 251 21,921 101,266 56,528 1,216,891 5 27,895 119,644 173,302

-

-

99

14,425

707

707

8,721

-

-

393,255 4,867,533 47,005 515,268 26,885 6,371,367 8,509,393

222,962 2,216,851 10,465 35,730 22,701 2,814,243 4,046,678

210,136 2,187,005 11,093 34,056 30,367 2,794,309 4,011,200





LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Trade payables (Notes 6 and 18) Non-trade and other payables (Notes 6 and 18) Short-term borrowings (Notes 6 and 17) Current portion of debentures and long-term borrowings (Notes 6 and 17) Derivative liabilities (Notes 6 and 33) Other current financial liabilities (Note 6, 18, and 22) Income tax payable (Note 29) Other current liabilities (Notes 21) Total current liabilities (Continued)



314,343 1,096,656 224,910



246,444 586,996 186,045



249,837 622,644 196,624

653,767

184,963

566,500

699 159,132 37,173 117,337 2,604,016

19,844 68,206 30,912 103,669 1,427,079

50,548 36,412 110,689 1,833,254

LG UPLUS CORP. (FORMERLY LG TELECOM, LTD.) STATEMENTS OF FINANCIAL POSITION (CONTINUED) AS OF DECEMBER 31, 2010 AND 2009, AND JANUARY 1, 2009 Korean Won Unaudited December 31, 2009 (In millions)

December 31, 2010 NON-CURRENT LIABILITIES: Debentures and long-term borrowings (Notes 6 and 17) Non-current derivative liabilities (Notes 6 and 33) Other non-current financial liabilities (Notes 6, 18 and 22) Retirement benefit obligation (Note 20) Provisions (Note 19) Other non-current liabilities (Note 21) Total non-current liabilities TOTAL LIABILITIES



SHAREHOLDERS’ EQUITY: Capital stock (Note 23) Capital surplus (Note 23) Other capital items (Note 23) Accumulated other comprehensive income(loss) (Note 26) Retained earnings (Note 23 and 24) TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY



1,831,899 -



558,939 675

Unaudited January 1, 2009 ₩

178,728 219

55,721 23,366 32,592 19,635 1,963,213 4,567,229

25,503 6,625 24,845 20,984 637,571 2,064,650

26,591 1,162 23,064 20,048 249,812 2,083,066

2,573,969 836,593 (703,879)

1,386,392 11,579 (176,948)

1,386,392 11,579 -

(81) 1,235,562 3,942,164

(4,905) 765,910 1,982,028

(1,912) 532,075 1,928,134

8,509,393



See accompanying notes to the financial statements.

4,046,678



4,011,200

LG UPLUS CORP. (FORMERLY LG TELECOM, LTD.) STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

Korean Won 2010 2009 (In millions, except for net income per share) Operating revenues (Notes 5 and 27)



Operating expenses: Cost of merchandise purchased Employee benefits (Note 20) Depreciation and amortization (Notes 12, 13 and 14) Other expenses (Note 27)

8,498,507



4,958,373

1,323,841 294,907

998,861 136,935

1,253,254

446,576

4,973,986 7,845,988 652,519

3,020,033 4,602,405 355,968

Financial revenues (Note 28) Financial expenses (Note 28) Other non-operating expenses

44,664 128,938 5,642

74,274 89,761 2,818

Income before income tax

562,603

337,663

(1,865)

45,349

564,468

292,314

Operating income

Income tax expense (Note 29) Net income Net income per share (In Korean Won) (Note 30) Basic income per share Diluted income per share

₩ ₩

1,305 1,284

See accompanying notes to the financial statements.

₩ ₩

1,054 1,054

LG UPLUS CORP. (FORMERLY LG TELECOM, LTD.) STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

2010



NET INCOME OTHER COMPREHENSIVE INCOME(LOSS): Gain on valuation of available-for-sale financial assets Loss on valuation of available-for-sale financial assets Gain on valuation of cash-flow-hedging derivatives Loss on valuation of cash-flow-hedging derivatives Actuarial gains on defined benefit plans Income tax effect relating to components of other comprehensive income TOTAL COMPREHENSIVE INCOME

Korean Won Unaudited 2009 (In millions) 564,468



254 4,413 (77) 1,619 (7,068) 835 (24) ₩

See accompanying notes to the financial statements.

564,444

292,314 318 (2,088) (22) (1,609) (3,021) 407 (6,015)



286,299

LG UPLUS CORP. (FORMERLY LG TELECOM, LTD.) STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 Korean Won

Capital stock

Capital surplus

Accumulated other comprehensive income (loss)

Other capital items

Retained earnings

Total

(In millions) Unaudited Balance at January 1, 2009 Annual dividends Balance after appropriations Net income Acquisition of treasury stock Gain on valuation of availablefor-sale financial assets Loss on valuation of availablefor-sale financial assets Gain on valuation of cashflow-hedging derivatives Loss on valuation of cash-flowhedging derivatives Actuarial gains(loss) on defined benefit plans Unaudited Balance at December 31, 2009

Balance at January 1, 2010, Annual dividends Balance after appropriations Net income Capital stock issued in merger

(1,912) ₩

532,075

-

-

-

-

(55,458)

(55,458)

1,386,392 -

11,579 -

(176,948)

(1,912) -

476,617 292,314 -

1,872,676 292,314 (176,948)

-

-

-

248

-

248

-

-

-

(1,629)

-

(1,629)

-

-

-

(19)

-

(19)

-

-

-

(1,593)

-

(1,593)

-

-

-

-

(3,021)

(3,021)

(176,948)

(4,905)

765,910

1,982,028

1,982,028

₩ 1,386,392

1,386,392





11,579

11,579



-



1,928,134

(176,948)

(4,905)

765,910

-

-

-

-

(89,968)

(89,968)

1,386,392

11,579

(176,948)

(4,905)

675,942

1,892,060

-

-

-

-

564,468

564,468

1,187,577

823,133

-

-

-

2,010,710

1,386,392

11,579

Treasury stock acquired in merger

-

-

(526,931)

-

-

(526,931)

Conversion premium received Gain on valuation of availablefor-sale financial assets Loss on valuation of availablefor-sale financial assets Gain on valuation of cash-flowhedging derivatives Loss on valuation of cash-flowhedging derivatives Actuarial gains(loss) on defined benefit plans

-

1,881

-

-

-

1,881

-

-

-

198

-

198

-

-

-

3,442

-

3,442

-

-

-

(59)

-

(59)

-

-

-

1,243

-

1,243

-

-

-

-

(4,848)

(4,848)

Balance at December 31, 2010

₩ 2,573,969

₩ 836,593 ₩ (703,879) ₩

See accompanying notes to the financial statements.

(81) ₩ 1,235,562 ₩

3,942,164

LG UPLUS CORP. (FORMERLY LG TELECOM, LTD.) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

Korean Won Unaudited 2009

2010

(In millions) CASH FLOWS FROM OPERATING ACTIVITIES Net income Additions of expenses not involving cash outflows: Retirement benefits Depreciation Amortization of intangible assets Bad debt expenses Other bad debt expenses Interest expenses Loss on foreign currency translation Loss on valuation of inventories Income tax expense Impairment loss on property, plant and equipment Loss on disposal of property, plant and equipment Loss on disposal of intangible assets Impairment loss on intangible assets Loss on valuation of derivatives Loss on transactions of derivatives Loss on redemption of debentures Impairment loss on available-for-sale financial assets Deduction of items not involving cash inflows: Income tax expense Interest income Gain on foreign currency translation Gain on disposal of property, plant and equipment Gain on transactions of derivatives Other revenue Bargain purchase gain Changes in operating assets and liabilities related to operating activities: Increase in trade receivables Increase in loans and other receivables Increase in inventories Decrease in other current assets (Continued)



564,468



292,314

22,585 1,008,187 245,068 46,929 124,901 1,743 677 9,536 43,012 60 9,417 3,383 1,515,498

8,501 437,238 9,338 62,060 258 59,442 42 45,349 14,331 18,278 4,319 19 124 659,299

1,865 40,348 1,859 954 566 44 497,010 (542,646)

43,106 16,427 29 8,612 (68,174)

(6,378) (6,543) (22,394) 9,232

(11,179) (27,261) (53,828) 18,225

LG UPLUS CORP. (FORMERLY LG TELECOM, LTD.) STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

Korean Won Unaudited 2009

2010

(In millions) Increase in non-current trade receivables Decrease(increase) in other non-current assets Increase(decrease) in trade accounts receivables Increase(decrease) in non-trade and other payables Increase in other current financial liabilities Decrease in other current liabilities Decrease in other non-current financial liabilities Decrease in retirement benefit obligation Decrease in provisions Increase(decrease) in other non-current liabilities



Interest income received Interest expense paid Income taxes paid Net cash provided by operating activities

(138,043) (364) 67,900 29,635 26,909 (9,283) (2,071) (35,023) (1,056) (1,665) (89,144) 8,126 (126,554) (65,576) 1,264,172



(73,380) 404 (3,392) (29,667) 8,589 (7,936) (6,062) (11,428) 1,853 (195,062) 7,216 (48,131) (62,758) 584,704

CASH FLOWS FROM INVESTING ACTIVITIES Cash inflows from investing activities: Decrease in financial institution deposits Disposal of available-for-sale financial assets Disposal of property, plant and equipment Disposal of intangible assets Decrease in loans Decrease in guarantee deposits Decrease in leasehold deposits Increase due to merger Cash outflows from investing activities: Increase of financial institution deposits Acquisition of available-for-sale financial assets Acquisition of property, plant and equipment Acquisition of intangible assets Increase in loans Increase in leasehold deposits Net cash used in investing activities (Continued)



18 640 20,698 1,864 30,648 15,121 16,519 113,424 198,932

201,000 66 1,176 1,723 8,634 25,881

4,000 20,372 1,160,386 25,569 32,549 40,240 (1,283,116) (1,084,184)

110,000 479,888 12,735 6,966 25,983 (635,572) (397,092)

238,480



LG UPLUS CORP. (FORMERLY LG TELECOM, LTD.) STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

Korean Won Unaudited 2009

2010

(In millions) CASH FLOWS FROM FINANCING ACTIVITIES Cash inflows from financing activities: Proceeds from short-term borrowings Issuance of debentures Proceeds from long-term borrowings Increase in finance lease liabilities Increase in government subsidy Increase in leasehold deposits received Settlement of derivatives

574,910 841,427 255,304 52,998 397 1,725,036

186,589 399,982 170,000 21,733 95 26,195 804,594

925,976 453,743 119,537 5,796 120 21,094 (1,526,266) 198,770

188,812 479,445 55,456 176,948 3,246 74 (903,981) (99,387)

(8)

(1)

Net increase in cash and cash equivalents

378,750

88,224

Cash and cash equivalents: Beginning of the year

138,351

50,127

Cash outflows from financing activities: Redemption of short-term borrowings Redemption of current portion of long-term debt Payment of dividends Payment of stock issuance costs Acquisition of treasury stock Settlement of derivatives Decrease in non-current other payables Decrease in leasehold deposits received Net cash provided(used) by financing activities EXCHANGE RATE FLUCTUATION EFFECT OF CASH AND CASH EQUIVALENTS

End of the year



517,101

See accompanying notes to the financial statements.



138,351

LG UPLUS CORP. (FORMERLY LG TELECOM, LTD.) NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

1. GENERAL: LG Uplus Corp. (formerly LG Telecom, Ltd., the “Company”) was incorporated on July 11, 1996, under the Commercial Code of the Republic of Korea to provide personal communication services including voice, data and value-added communication. The Company commenced its commercial operation on October 1, 1997. The Company listed its shares on the Korea Securities Dealers Automated Quotation (“KOSDAQ”) stock market on September 21, 2000. In accordance with the resolution from the shareholders’ meeting on March 18, 2008, the Company cancelled its listing on the KOSDAQ and on April 21, 2008 listed its’ shares on the Korea Stock Exchange (“KRX”). In efforts to enhance operational efficiency and maximize synergy effects between wire and wireless communication business, LG Dacom Corp. and LG Powercom Corp. merged into the Company on January 1, 2010 (merger registration date: January 5, 2010). Through this merger, the Company expanded its business to include landline phone service (including international and long-distance telephone services), internet access service and value-added telecommunications activities from LG Dacom, and broadband network rentals and broadband internet service activities from LG Powercom. The Company changed its name from LG Telecom, Ltd. to LG Uplus Corp., effective July 1, 2010, to reflect the expanded nature of its service operations. The Company is headquartered in Seoul, Korea, and has set up telecommunication networks all over the country to provide landline and wireless services. As of December 31, 2010, the Company’s shareholders are as follows:

Name of shareholder LG Corporation KEPCO Corporation Treasury stock Others

Number of shares owned 157,376,777 38,409,376 82,291,883 236,715,799 514,793,835

Percentage of ownership (%) 30.57 7.46 15.99 45.98 100.00

2. STANDARDS AFFECTING PRESENTATION AND DISCLOSURE AND SIGNIFICANT ACCCOUNTING POLICIES: The accompanying financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”). The Company elected to early adopt K-IFRS beginning on January 1, 2010. While the Company’s transition date is January 1, 2009 based on K-IFRS 1101 First-time adoption of International Financial Reporting Standard . The significant adjustments related to the adoption of K-IFRS are as described in Note 3. Since the transition date, the significant accounting policies followed by the Company in the preparation of financial statements are summarized below. The consistent accounting policies are applied to the financial statements for the current period and the comparative period.

(1) Basis of preparing financial statements

-2-

1) Basis of measurement The financial statements have been prepared on the historical cost basis except for certain non-current assets and financial instruments. 2) Functional and reporting currency The financial statements of the Company are presented in the currency of the primary economic environment in which the Company operates (its functional currency). The Company’s functional currency and the reporting currency for the financial statements is Korean Won (“KRW”). (2) Enacted or amended standards The Company early adopted K-IFRS 1024 Related Party Disclosures which is effective as of January 1, 2011. (3) Business combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Company in exchange for control of the acquiree. Acquisition-related costs are recognized in profit or loss as incurred (issuance costs of debt or equity instruments are excluded). The Company recognizes goodwill at the date control is acquired (the acquisition date). Goodwill is measured as excess of sum of the consideration transferred, the non-controlling interest in the acquiree, if any, and the fair value of the Company’s previously held equity interest in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed for business combination achieved in stages. Otherwise, the Company reassess whether it has correctly identified all of the assets acquired and all of the liabilities assumed and recognizes the difference after that review in profit or loss as a bargain purchase gain (loss). Non-controlling interest in the acquiree is measured with non-controlling interest’s proportional interest in the identifiable net assets. (4) Foreign currencies The financial statements of the Company are presented in the currency of the primary economic environment in which the Company operates (its functional currency). For the purpose of the financial statements, the results and financial position of the Company are expressed in Korean Won (‘KRW’), which is the functional currency of the Company and the reporting currency for the financial statements. In preparation of the Company’s separate financial statements, any transaction that occurred in currency other than its functional currency will be recorded in translated amount using the exchange rate of the transaction. At the end of reporting period, all monetary assets and liabilities will be translated using the exchange rate at the end of reporting date. Meanwhile, non-monetary assets and liabilities measured at fair value will be re-translated using the exchange rate on the day of fair value evaluation, whereas non-monetary assets and liabilities measured at historical cost will not be translated. Exchange differences are recognized in profit or loss in the period in which they arise except for: 



exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings; and exchange differences on transactions entered into in order to hedge certain foreign currency risks

(5) Cash and cash equivalents Cash and cash equivalents includes cash, savings and checking accounts, and short-term investment highly

-3-

liquidated (maturities of three months or less from acquisition). Bank overdraft is accounted for as short-term borrowings. (6) Financial assets All financial assets are recognized and derecognized on trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. Financial assets are classified into the following specified categories: financial assets at ‘fair value through profit or loss’ (FVTPL), held-to-maturity investments, available-for-sale (‘AFS’) financial assets, and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. 1) Financial assets at FVTPL Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated at FVTPL. FVTPL includes a financial asset held for trading and a financial asset designated at FVTPL upon initial recognition. A financial asset is classified as held for trading if it has been acquired principally for the purpose of selling in near term. A financial instrument, as long as it is not designated as an effective hedge derivative instrument or a financial guarantee contract, and contains one of more embedded derivatives, while it is treated separately from the host contract, is classified as held-for-trading. Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. Transaction costs attributable to acquisition upon initial recognition are immediately recognized in profit or loss in the period occurred. 2) Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are measured at amortized cost using the effective interest method less any impairment, with revenue recognized on an effective yield basis. 3) AFS financial assets AFS financial assets are non-derivative financial assets that are either designated as AFS or are not classified as FVTPL, held-to-maturity investments, or loans and receivables. These are measured at fair value and changes in the fair value of AFS financial assets are recognized in other comprehensive income (loss) except for changes due to foreign currency translation and impairment. However, AFS financial assets that are not traded in an active market and the fair value cannot be reliably measured will be recognized at cost. Gains and losses arising from changes in fair value are recognized in other comprehensive income (loss), with the exception of impairment losses, interest calculated using the effective interest method, and foreign exchange gains and losses on monetary assets, which are recognized in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss. Dividends on AFS equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established. 4) Loans and receivables Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

-4-

5) Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. Trade receivables that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Company’s past experience of collecting payments as well as observable changes in national or local economic conditions that correlate with default on receivables. The carrying amount of the financial asset is directly reduced by the impairment loss for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss. When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income (loss) are reclassified to profit or loss in the period. With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent of the previously recognized loss amount. The carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortized cost would have been had no impairment was previously recognized. In respect of AFS equity securities, impairment losses previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income. 6) Derecognition of financial assets The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognizes its retained interest in the asset and associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received. (7) Investment in subsidiaries and associates In accordance with K-IFRS 1027, the Company’s separate financial statements are prepared to explain investments of controlled entities’ and associates’ investors on the direct interest investment basis, not the investee’s reported performance and net assets basis; the Company chose the cost method based on K-IFRS 1027 to report investments in subsidiaries and associates. Dividends obtained from subsidiaries and associates are recognized in profit or loss when the right to receive dividends is confirmed. (8) Inventories Inventories are stated at the lower of cost or net realizable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventories by the weighted average method and the moving average method. Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. (9) Property, plant, and equipment Property, plant, and equipment are stated at cost less subsequent accumulated depreciation and accumulated

-5-

impairment losses. The cost of an item of property, plant and equipment is directly attributable to their purchase or construction, which includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. It also includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Subsequent costs are recognized in carrying amount of an asset or as an asset if it is probable that future economic benefits associated with the assets will flow to the Company and the cost of an asset can be measured reliably. Routine maintenance and repairs are expensed as incurred. The Company does not depreciate land and some tangible assets, and depreciation is computed using the straightline method based on the estimated useful lives of the assets as follows: Buildings Structures Telecommunication facilities Tools, furniture and fixtures Vehicles

Estimated useful lives (years) 20 - 40 40 5-8 3-5 5

The Company reviews the depreciation method, the estimated useful lives and residual values of property, plant and equipment at the end of each annual reporting period. If expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate. In addition, when an acquisition of a tangible asset occurs free-of-charge or at a value less than fair market value, due to government subsidy, the acquisition cost less government subsidy is recorded as the acquisition cost upon initial acquisition and depreciation expense is calculated based on the carrying amount. (10) Investment property Investment property, which is property held to earn rentals and/or for capital appreciation (including property under construction for such purposes), is measured initially at its cost, including transaction costs. Subsequent to initial recognition, investment property is measured at cost less accumulated depreciation and accumulated impairment losses. Subsequent costs are recognized in carrying amount of an asset or as an asset if it is probable that future economic benefits associated with the assets will flow into the Company and the cost of an asset can be measured reliably. Routine maintenance and repairs are expensed as incurred. Amongst the investment properties, land is not depreciated. However, investment properties other than land are depreciated over 20-40 years of their useful lives using the straight-line method. The depreciation method, residual value and useful lives of investment properties are reassessed or reviewed at the end of each annual reporting period, and any changes from them are treated as change in accounting estimates. (11) Intangible assets Intangible assets acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Intangible assets comprised of intellectual property rights, membership, customer relationships and others, and are amortized by the straight-line method over 2-20 years with no residual value. Some intellectual property rights and memberships have indefinite useful lives; such intangibles are not amortized but tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. In relation to intangible assets with definite useful lives, the estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for as change in accounting estimates. (12) Impairment of non-financial assets

-6-

At the end of the reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. If the recoverable amount for an individual asset cannot be estimated, recoverable amount is determined for the cash-generating units (CGU). Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise, they are allocated to the smallest cashgenerating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell or value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is immediately recognized as an expense. Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to its recoverable amount, but the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized immediately in profit or loss. (13) Financial liabilities and equity instruments 1) Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. 2) Financial liabilities at FVTPL (Fair Value Through Profit or Loss) Financial liabilities at FVTPL include a financial liability held for trading and a financial liability designated as at FVTPL. A financial liability is classified as held for trading if it has been acquired principally for the purpose of repurchasing it in the near term or it is a derivative that is not designated and effective as a hedging instrument. Gains and losses arising on remeasurement are recognized in profit or loss and interest expenses paid in financial liabilities are recognized in profit and loss, as well. 3) Other financial liabilities Other financial liabilities are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. 4) Derecognition of financial liabilities The Company derecognizes financial liabilities only when, the Company’s obligations are discharged, cancelled or expired. (14) Lease Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. 1) The Company as lessee Assets held under finance leases are initially recognized as assets of the Company at their fair value at the inception

-7-

of the lease or, if lower, at the present value of the minimum lease payments. Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. The financial charge, except for the case that it is capitalized as part of the cost of that asset according to the Company’s accounting for borrowing costs, is immediately expensed in the period in which it is incurred. Contingent rents are charged as expenses in the periods in which they are incurred. Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 2) The Company as lessor Amounts due from lessees under finance leases are recognized as receivables at the amount of the Company’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect an effective interest rate on the Company’s net investment outstanding in respect of the leases. Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term. (15) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. Additionally, borrowing costs eligible for capitalization reflects hedge effectiveness in case that the hedge accounting for interest rate risk can be applied for borrowing costs directly related to qualifying assets. All other borrowing costs are recognized in profit or loss in the period in which they are incurred. (16) Derivative financial instruments Derivatives are initially recognized at fair value at the date the derivative contract is entered into and transaction costs are recognized in profit or loss as incurred. Derivatives are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is immediately recognized in profit or loss unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. When designating a cash flow hedge, the Group formally designates a hedging relationship and the Group’s risk management objective and strategy for undertaking hedge at the inception of the hedge and documents identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedge and how the Group will assess the hedging instrument’s effectiveness in offsetting the exposure to changes. Additionally, the hedge is assessed on an ongoing basis and determined actually to have been highly effective throughout the financial reporting periods for which the hedge was designated. Under a cash flow hedge, the effective portion of the gain or loss on the cash flow hedging instrument is recognized in other comprehensive income (loss) and the ineffective portion is recognized in profit or loss. The associated gains or losses that are recognized in other comprehensive income are reclassified from equity to profit or loss as a

-8-

reclassification adjustment in the same period or periods, during which the asset acquired or liability assumed affects profit or loss. If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, the associated gains and losses are removed from other comprehensive income (loss) and included in the initial cost or other carrying amount of the asset or liability. Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the forecast transaction ultimately occurs. However, when a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss. (17) Retirement benefit costs Contributions to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions. The retirement benefit obligation recognized in the statements of financial position represents the present value of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses and unrecognized past service cost, and as reduced by the fair value of plan assets. For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each reporting period. The present value of defined benefit obligations is expressed in a currency in which retirement benefits will be paid and is calculated by discounting expected future cash outflows with the interest rate of high quality corporate bonds which maturity is similar to the payment date of retirement benefit obligations. Actuarial gains and losses comprise the effects of differences between the previous actuarial assumptions and what has actually occurred and the effects of changes in actuarial assumptions and are recognized in other comprehensive income (loss) in the statements of comprehensive income in the period in which they occur. Actuarial gains and losses recognized in other comprehensive income (loss) are immediately recognized in retained earnings and not be reclassified to profit or loss in a subsequent period. Past service cost is recognized immediately to the extent that the benefits are already vested, and otherwise is amortized on a straight-line basis over the average period until the benefits become vested. (18) Provisions A provision is recognized when the Company has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Provisions are calculated as present value of the best estimate of the expenditure required to settle the present obligation, using a pre-tax discount rate that reflects current market assessments of the time value of money and those risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense. The Company reviews provision balance at the end of reporting period and adjusts the amount reflecting the best estimate. 1) Restoration liabilities The Company leases various land and building sites to for base station machinery and repeater, and non-networking assets facilities, to provide country-wide wireless telecommunication services, and has the obligation to restore the site at the end of lease period, when the economic use of related infrastructures are terminated. As a result, the

-9-

Company recognizes restoration liabilities for the amount that it estimates that will be incurred for removing, dismantling and restoring the site in order to restore the leased site at the end of lease contract. (19) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold or services provided in the Company’s normal course of business, net of discounts, customer returns, rebates and related taxes. The Company recognizes revenue when the amount of revenue can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the Company. With regard to the customer’s reward points (EZ points and EZ money mileage) granted on the use of PCS services, rendering PCS services is considered as multiple deliverable transactions. The total consideration received or receivable in exchange for the PCS services is allocated between the sale of PCS services and reward points. For reward points, the allocation of the total consideration is measured at fair value and shall be accounted for as unearned revenue for initial measurement. Afterwards, when the reward points are either used or redeemed, it is recognized as revenue. (20) Current tax payable and deferred tax Income tax expense represents the sum of the tax currently payable and deferred tax. 1) Current tax payable The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statements of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. 2) Deferred tax Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when they relate to income tax levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. 3) Recognition of current tax payable and deferred tax Deferred tax is recognized in profit or loss, except when it relates to items that are recognized in other comprehensive income (loss) or directly in equity, in which case, the deferred tax is also recognized in other comprehensive income (loss) or directly in equity, respectively. In case of a business combination, the tax effect is

- 10 -

considered when calculating goodwill or when determining the excess (bargain purchase gain) of the fair value, net of tax, of identifiable assets, liabilities and contingent liabilities over the business combination costs. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax law) that have been enacted or substantively enacted by the end of the reporting period in a country where a subsidiary or an associate manages its operation and generates taxable profits. Management regularly assesses the Company’s position taken with regard to tax reporting in a case that an applicable tax code relies on its interpretation and accounts the expected amounts which will be paid to a taxing authority as a liability. (21) Treasury stock When the Company repurchase its equity instruments (Treasury stock), the incremental costs, net of tax effect, are deducted from the shareholders’ equity and recognized as other capital items deducted from the total equity in the statements of financial position. In addition, profits or losses from purchase, sale or retirement of treasury stocks are directly recognized in shareholders’ equity.

- 11 -

3. TRANSITION TO K-IFRS: The Company’s previous financial statements were prepared in accordance with generally accepted accounting standards in the Republic of Korea (“K-GAAP”). However, the Company’s financial statements for the year ended December 31, 2010, are prepared in accordance with K-IFRS. Therefore, previous financial statements, which are comparatively presented, are restated based on K-IFRS 1101 First-time adoption of International Financial Reporting Standard, and January 1, 2009 as the Company’s K-IFRS transition date. In connection with the opening K-IFRS statements of financial position, the effects on the Company’s financial position, management performance and cash flows due to the adoption of K-IFRS are as follows: (1) Application of exemption on retrospective application of K-IFRS 1101 In connection with the opening statement of financial position based under K-IFRS, the Company elected to apply more than one exemptions from retrospective application of K-IFRS 1101 First-time adoption of International Financial Reporting Standard. The Company’s exemptions from retrospective application on K-IFRS are as follows: 1) Business combination The Company elected not to retroactively adjust for business combinations that have occurred before the date of transition to K-IFRS. 2) Investments in subsidiary, associates and jointly-controlled entities The Company applies the carrying amounts under K-GAAP as deemed cost for investments in associates and jointly-controlled entities as of the date of transition to K-IFRS. 3) Changes of restoration liabilities included in costs of tangible assets For restoration liabilities of leased land and construction sites, the Company elected not to retroactively apply KIFRS 2101, Changes in Existing Decommissioning and Restoration Similar Liabilities. (2) Material adjustments of adoption of K-IFRS are as follows: ① Revenue recognition for subscription fees Under K-GAAP, subscription fees for PCS services are recognized as revenue when customers subscribe for PCS services. Under K-IFRS, subscription fees are deferred and recognized as revenue over the expected terms of customer relationship. ② Accounting of customer loyalty program Under K-GAAP, future obligation related to the mileage given to customers for the use of PCS services was estimated and recognized as provision. However, under K-IFRS, the Group allocates total consideration in proportion to the fair value of PCS services and mileage. The allocated amount to mileage is deferred and recognized as revenue upon the redemption of mileage. ③ Impairment and allowance of financial assets Under K-GAAP, expected loss was estimated and set as allowance for doubtful accounts based on the Group’s evaluation of loans’ and receivables’ collectability. However, under K-IFRS, the Group reviews whether or not impairment exists for individually significant loans and receivables. For other loans and receivables, the Group groups loans and receivables which have similar credit risks, performs collective impairment test, and estimates the incurred loss as allowance for doubtful loans and receivables.

④ Derecognition of financial assets

- 12 -

Under K-GAAP, the Group reported the transaction as sales of receivables when the Group transferred its receivables to an asset-backed securitization company. However, under K-IFRS, the transfer of receivables to an asset-backed securitization company by itself does not satisfy the derecognition standards of financial assets; therefore, such transaction is accounted for as a borrowing transaction with receivables as collateral. . ⑤ Assessment of present value of financial instruments Under K-GAAP, certain long-term loans and receivables were stated at their nominal value. However, under K-IFRS, they are measured at fair value at initial recognition and are stated at amortized cost using the effective interest method after initial recognition. ⑥ Reclassification of memberships and other facility use rights Under K-GAAP, membership and other facility use rights are reported as other non-current assets, which are reclassified as intangible assets with indefinite useful lives under K-IFRS. ⑦ Reclassification of investment property Properties acquired for rental revenue purposes which were reported as tangible assets under K-GAAP, are reclassified as investment property. ⑧ Actuarial assessment of defined benefit obligation Under K-GAAP, accrued severance benefits is calculated and recognized as if all employees who have worked over a year were to retire at the end of a reporting period. However, under K-IFRS, retirement benefit obligation is estimated by actuarial assessment using the projected unit credit method. ⑨ Changes from subsequent assessment of restoration liabilities Under K-IFRS, if subsequent assessment are made, effects of changes in discount rates are applied to restoration liabilities of leased land and building sites. ⑩ Presentation of deferred tax and conversion adjustments due to tax effects Under K-GAAP, the Company classified deferred tax assets and liabilities based on liquidity while under KIFRS the Company reclassifies current deferred tax as non-current. Additionally, the tax effects resulting from the K-IFRS transition adjustments herein are reflected.

- 13 -

(3) Effects of K-IFRS adoption in equity 1) Effects of K-IFRS adoption in equity as of January 1, 2009, date of transition, are as follows (Unit: Korean Won in millions): Balance at January 1, 2009 K-GAAP

Balance at January 1,

Impairment

non-

& bad debt

consolidated (individual) basis

Customer loyalty program

Subscripti on fee

Present

allowance for financial assets

Derecognition of financial assets

Reclassi-

Provision

value of Reclassification of financial fication of investment instruments memberships property

for defined benefit

2009 Restoration liabilities

Other adjustment

Deferred tax

K-IFRS separate basis

ASSETS CURRENT ASSETS: Cash and cash equivalents Financial institution deposits Trade receivables, net Loan and other receivables, net

50,127 ₩

-₩

-



-



- ₩

-



- ₩

- ₩

- ₩

-



- ₩

- ₩

50,127

101,000

-

-

-

-

-

-

-

-

-

-

-

101,000

700,985

-

-

28,454

100,000

-

-

-

-

-

-

-

829,439

56,359

-

-

-

-

-

-

-

-

-

-

-

56,359

251

-

-

-

-

-

-

-

-

-

-

-

251

21,921 101,266

-

-

-

-

-

-

-

-

-

-

-

21,921 101,266

Available-for-sale financial assets Hedging derivative assets Inventories, net Other current assets Total current assets NON-CURRENT ASSETS Non-current financial institution deposits Non-current availablefor-sale financial assets Non-current trade receivables Non-current loans and other receivables Investments in subsidiaries

152,390

-

-

-

-

-

-

-

-

-

(95,862)

-

56,528

1,184,299

-

-

28,454

100,000

-

-

-

-

-

(95,862)

-

1,216,891

5

-

-

-

-

-

-

-

-

-

-

-

5

26,112

-

-

-

-

-

-

-

-

-

-

1,783

27,894

119,644

-

-

-

-

-

-

-

-

-

-

-

119,644

190,214

-

-

-

-

(16,912)

-

-

-

-

-

-

173,302

2,399

-

-

-

-

-

-

-

-

-

-

(1,692)

707

Deferred tax assets

102,496

-

-

-

-

-

-

-

-

-

107,640

-

210,136

Property, plant and equipment Intangible assets

2,185,683 15,257

-

-

-

-

-

18,799

(11,093) -

-

12,415 -

-

-

2,187,005 34,056

-

-

-

-

-

-

-

11,093

-

-

-

-

11,093

99 32,254

-

-

-

-

16,912

(18,799)

-

-

-

-

-

99 30,367

2,674,163

-

12,415

107,640

Investment property Hedging derivative assets Other non-current assets Total non-current assets TOTAL ASSETS

₩ 3,858,462 ₩

-₩

- ₩

28,454



100,000



-

-

-

-

- ₩

- ₩

- ₩

- ₩ 12,415 ₩11,778



91

2,794,309

91

₩4,011,200

- 14 -

Balance at January 1, 2009

Balance at

K-GAAP non-

Impairment & bad debt

consolidated (individual) basis

Subscripti on fee

Customer loyalty program

Present

allowance for financial assets

Derecognition of financial assets

Reclassi-

January 1, 2009

Provision

value of Reclassification of financial fication of investment instruments memberships property

for defined benefit

Restoration liabilities

Other adjustment

Deferred tax

K-IFRS separate basis

LIABILITIES CURRENT LIABILITIES: Hedging derivative liabilities Trade payables



- ₩

- ₩

- ₩

-

- ₩

-

- ₩

- ₩

-

249,837

- ₩

-

-

-

-



-

-



-

-

-



-

-

249,837

622,644

-

-

-

-

-

-

-

-

-

-

-

622,644

196,624

-

-

-

-

-

-

-

-

-

-

-

196,624

466,500

-

-

-

-

-

-

-

-

-

-

-

466,500

472,455

-

-

-

100,000

-

-

-

-

-

-

-

572,455

36,412

-

-

-

-

-

-

-

-

-

-

-

36,412

-



- ₩

-

Non-trade and other payables Short term borrowings Current portion of debentures and longterm borrowings Current portion of longterm financial liabilities Income tax payable Current portion of 22,267

-

(22,267)

-

-

-

-

-

-

-

-

-

-

Other current liabilities

provisions

31,870

56,552

22,267

-

-

-

-

-

-

-

-

-

110,689

Total current liabilities

1,676,702

56,552

-

-

100,000

-

-

-

-

-

-

-

1,833,254

219

-

-

-

-

-

-

-

-

-

-

-

219

178,728

-

-

-

-

-

-

-

-

-

-

-

178,728

26,625

-

-

-

-

(34)

-

-

-

-

-

-

26,591

5,671

-

-

-

-

-

-

-

(4,509)

-

-

-

1,162

-

-

-

-

-

-

-

-

-

23,064

-

-

23,064

3,439

16,575

-

-

-

34

-

-

-

-

-

-

20,048

214,682

16,575

-

-

-

-

-

-

(4,509)

23,064

-

-

249,812

1,891,384

73,127

-

-

100,000

-

-

-

(4,509)

23,064

-

-

2,083,066

- \

-

91

\ 1,928,134

NON-CURRENT LIABILITIES: Non-current derivatives liabilities Long-term borrowings & Debentures Other non-current financial liabilities Provision for retirement benefits Provisions Other non-current liabilities Total long-term liabilities TOTAL LIABILITIES SHAREHOLDERS’ EQUITY

\ 1,967,078 \ (73,127) \

- \

28,454 \

- \

\

- \

4,509 \ (10,649)

\ 11,778 \

- 15 -

2) Effects of K-IFRS adoption in equity as of December 31, 2009, the final fiscal period-end under K-GAAP, are as follows (Unit: Korean Won in millions): Balance at December 31, 2009 K-GAAP nonconsolidate d (individual) basis

Impairme nt & bad debt allowance Customer for loyalty financial program assets

Subscription fee

Derecognition of financial assets

Present value of financial instruments

Reclassification of Reclassiinvestme fication of nt memberships property

Provision for defined benefit

Restoration liabilities

Deferred tax

Other adjustment

Balance at December 31, 2009 K-IFRS separate basis

ASSETS CURRENT ASSETS: Cash and cash equivalents ₩ 138,351 ₩ Financial institution Deposits 10,000

- ₩

-

-

-

Trade receivables, net

795,902

-

-

81,787

-

-

Loans and other receivables, net Available-for-sale financial assets Inventories, net Other current assets Total current assets



- ₩

- ₩

- ₩

- ₩

- ₩

- ₩

- ₩

- ₩ 138,351

-

-

-

-

-

-

-

-

-

10,000

2,175

-

-

-

-

-

-

-

-

798,077

-

-

-

-

-

-

-

-

-

81,787

-



186

-

-

-

-

-

-

-

-

-

-

-

186

155,053

-

-

-

-

-

-

-

-

-

-

-

155,053

-

-

-

-

-

-

-

(80,219)

-

48,981

-

-

-

-

-

-

(80,219)

-

1,232,435

129,200

-

-

1,310,479

-

-

5

-

-

-

-

-

-

-

-

-

-

-

5

2,175

NON-CURRENT ASSETS: Non-current financial institution deposits Non-current available-for-sale financial assets Non-current trade receivables

24,218

-

-

-

-

-

-

-

-

-

-

1,782

26,000

101,871

-

-

-

-

-

-

-

-

-

-

-

101,871

Non-current loans and other receivables

190,070

-

-

-

-

(13,119)

-

-

-

-

-

-

176,951 707

Investments in subsidiaries Deferred tax assets Property, plant and equipment Intangible assets Investment property Other non-current assets Total non-current assets TOTAL ASSETS

2,903

-

-

-

-

-

-

-

-

-

-

(2, 196)

125,435

-

-

-

-

-

-

-

-

-

97,527

-

222,962

2,227,501

-

-

-

-

-

-

(10,465)

-

2,122

-

(2,307)

2,216,851

16,931

-

-

-

-

-

18,799

-

-

-

-

-

35,730

-

-

-

-

-

-

-

10,465

-

-

-

-

10,465

28,381

-

-

-

-

13,119

(18,799)

-

-

-

-

-

22,701

-

-

2,122

97,527

(2,721)

2,814,243

- ₩

- ₩ 2,122 ₩ 17,308 ₩ (2,721) ₩4,046,678

2,717,315 ₩4,027,794



-

-

- ₩

-

₩ 2,175 ₩

- ₩

-



-



- 16 -

Balance at December 31, 2009 K-GAAP nonconsolidate d (individual) basis

Subscription fee

LIABILITIES CURRENT LIABILITIES: Hedging derivative liabilities ₩ 19,844 ₩ Trade payables 246,444 Non-trade and other Payables. 586,996 Short term borrowings 186,045 Current portion of long-term borrowings 184,963 Other current financial liabilities 68,206 Income tax payable 30,912 Current portion of provisions 18,551 Other current liabilities 27,251 Total current liabilities 1,369,212

NON-CURRENT LIABILITIES: Hedging derivative liabilities Long-term borrowings and debentures Other non-current financial liabilities Provision for retirement benefits Provisions Other non-current liabilities Total long-term liabilities

Impairme nt & bad debt allowance Customer for loyalty financial program assets

Derecognition of financial assets

Present value of financial instruments

Reclassification of Reclassiinvestme fication of nt memberships property

Provision for defined benefit

Restoration liabilities

Deferred tax

Other adjustment

Balance at December 31, 2009 K-IFRS separate basis

- ₩

- ₩

- ₩

- ₩

- ₩

- ₩

- ₩

- ₩

- ₩

- ₩

- ₩

-

-

-

-

-

-

-

-

-

-

-

246,444

-

-

-

-

-

-

-

-

-

-

-

586,996

-

-

-

-

-

-

-

-

-

-

-

186,045

-

-

-

-

-

-

-

-

-

-

-

184,963

-

-

-

-

-

-

-

-

-

-

-

68,206

-

-

-

-

-

-

-

-

-

-

-

30,912

19,844

-

(18,551)

-

-

-

-

-

-

-

-

-

-

57,867

18,551

-

-

-

-

-

-

-

-

-

103,669

57,867

-

-

-

-

-

-

-

-

-

-

1,427,079

675

-

-

-

-

-

-

-

-

-

-

-

675

558,939

-

-

-

-

-

-

-

-

-

-

-

558,939

25,519

-

-

-

-

(16)

-

-

-

-

-

-

25,503

8,592

-

-

22,551

-

-

-

-

-

-

-

-

2,294

-

-

24,845

2,523

18,445

-

-

-

16

-

-

-

-

-

-

20,984

618,799

18,445

-

-

-

-

-

-

(1,967)

2,294

-

-

637,571

-

-

-

-

-

-

(1,967)

2,294

-

-

2,064,650

- ₩ 1,967 ₩ (172) ₩ 17,308 ₩ (2,721)

₩1,982,028

TOTAL LIABILITIES 1,988,011 76,312 SHAREHOLDERS’ EQUITY ₩2,039,783 ₩(76,312) ₩

-

(1,967)

₩ 2,175 ₩

- ₩

-



-



6,625

- 17 -

(4) Effects of K-IFRS adoption in the statement of comprehensive income 1) Effects of K-IFRS adoption in the statement of comprehensive income for the year ended December 31, 2009, the final period under K-GAAP, are as follows (Unit: Korean Won in millions): Year ended December 31, 2009 K-GAAP

Impairment &

Year ended

non-

bad debt

December 31,

consolidated

Customer

allowance for

Present value

Provision for

(individual)

Subscription

loyalty

financial

of financial

defined

basis

fee

program

instruments

benefit

assets

Operating revenues ₩4,962,834 ₩ (3,186) ₩(1,304) Operating expenses: Cost of merchandise purchased 998,861 Employee benefits 138,907 -



-



29 ₩

-

-

2009 Restoration liabilities

- ₩

Other Deferred tax

-



K-IFRS

adjustment

separate basis

- ₩

- ₩4,958,373

(1,972)

-

-

-

998,861 136,935

Depreciation and amortization

449,042

-

-

-

-

-

(4,775)

-

2,309

446,576

Other expenses

2,990,695

-

(1,304)

26,279

5,644

(143)

(1,135)

-

(2)

3,020,033

4,577,504

-

(1,304)

26,279

5,644

(2,115)

(5,910)

-

2,307

4,602,405

385,330

(3,186)

-

(26,279)

(5,615)

2,115

5,910

-

(2,307)

355,968

70,264 94,300

-

-

5,644 29

(1,634) -

(4,568)

-

Operating income Non-operating income and expenses: Financial revenues Financial expenses Gain from equity method investments Other non-operating expenses Income before income tax Income tax expense Net income Other comprehensive income (loss)

-

529

-

74,274 89,761

(529)

2,818

-

-

359,005

(3,186)

-

50,880

-

-

308,125

(3,186)

-

(3,018)

-

Comprehensive income ₩ 305,107 ₩ (3,186) ₩

-

(26,279) (26,279) -

- ₩(26,279) ₩

-

-

-

-

-

481

-

481 (3,022)

-

-

2,818

10,478

-

(2,836)

337,663

-

(5,531)

-

45,349

10,478

5,531

(2,836)

292,314

-

25

(6,015)

-

- ₩ (2,541) ₩ 10,478

₩ 5,531 ₩ (2,811) ₩ 286,299

(5) Effects of K-IFRS adoption for the consolidated statement of cash flows Under K-GAAP, interest income received, interest expense paid and income taxes paid, which were presented as non-cash items, are now under K-IFRS, presented as separate items classified as operating cash flows. In addition, effects of foreign currency translation of cash and cash equivalents, which were classified as operating cash flows in accordance with K-GAAP, are now under K-IFRS, stated separately in either from operating, investing and financing cash flows.

- 18 -

4.

CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY:

In the application of the Company’s accounting policies, management are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may be different from those estimates. The estimates and underlying assumptions are continuously reviewed. The changes in accounting estimates are recognized in the period in which the estimate is changed if the change affects only that period, or in the period of the change and future periods if the change affects both current and future periods. The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. (1) Fair value of financial instruments Derivatives financial instruments and available-for-sale financial assets are measured at fair value after initial recognition and gains and losses from changes in fair value are recognized either in profit or loss or in accumulated other comprehensive income (loss). If there is a market value disclosed in an active market when measuring fair value, that market value is used as fair value. Otherwise, the fair value is estimated by an valuation technique requiring management’s assumption on the expected future cash flows and discount rate. (2) Bad debt allowance for loans and receivables The Company estimates an allowance for doubtful loans and receivables based on aging of receivables, historical loss experience and economic and industrial factors. (3) Measurement of tangible and intangible assets When tangible or intangible assets are acquired as part of a business combination, management uses judgment in addition to other factors, to estimate the fair value at the acquisition date. In addition, an estimate of the associated assets’ useful lives for depreciation is made.

(4) Estimation of restoration liabilities The Company recognizes restoration liabilities for the amount that it estimates that will be incurred for removing, dismantling and restoring the site in order to restore the leased site at the end of lease contract. Estimation of future cash flows for restoration is based on factors such as inflation rates and market risk premium, and the present value is estimated by discounting estimated future cash flows with a risk-free interest rate. (5) Impairment of non-financial assets At the end of the reporting period, the Company reviews the carrying amounts of its non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. Intangible assets with indefinite useful lives are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Other non-financial assets are tested for impairment whenever there is an indication that the carrying amount will not be recoverable. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset for which the estimates of future cash flows have not been adjusted. (6) Defined benefit pension plan For the defined benefit pension plan, the service cost is determined using actuarial valuations. In order to apply actuarial valuations, it is necessary to assume a discount rate, an expected rate of return on plan assets, and wage increase rate, etc. The retirement benefit plan contains significant uncertainties on the estimation due to its long-term nature. The defined benefit obligations as of December 31, 2010 are \23,366 million (₩6,625 million as of

- 19 -

December 31, 2009) and details are described in Note 20. (7) Deferred tax Deferred tax assets and liabilities are recognized and measured based on management’s judgment. In particular, whether or not to recognize deferred tax assets and the scope of recognition are determined by assumptions on future circumstances and management’s judgment. (8) Revenue and expense recognition Subscription fees are allocated on a straight-line basis during the expected subscription period and the expected subscription period is estimated based on the characteristics of services and past experience. In addition, a portion of the revenues and expenses which are received from and paid to other telecommunication companies are regulated by the relevant authorities, and under such regulation retroactive billing is made related to prior periods. As such, management estimates the period revenue and expenses by taking all the related circumstances as of end of reporting period into account.

5. SEGMENT INFORMATION: (1) The Company determined that it operates under only one business segment based on the characteristics of goods and services provided and nature of network assets held. As a result, no separate segment information is disclosed in this report. (2) Details of operating revenues from the Company’s sale of goods and provision of services for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions):

Reporting segment LG Uplus Corp. (formerly, LG Telecom, Ltd)

Major goods and service Telecommunication and related services

Unaudited 2009

2010 ₩

Handset sales Other ₩

6,319,016



3,575,019

1,653,425

1,371,938

526,066

11,416

8,498,507



4,958,373

(3) The Company’s operating revenues are mostly generated from domestic customers due to the nature of the telecommunication services and the majority of the related non-current assets are located in the Republic of Korea.

- 20 -

6. CLASSIFICATION OF FINANCIAL INSTRUMENTS AND FAIR VALUE: (1) The carrying amount and fair value of financial assets and liabilities as of December 31, 2010 and 2009, and January 1, 2009 are as follows (Unit: Korean Won in millions): 1) Financial assets

Financial assets

Account

Cash and cash equivalents Derivative assets designated as a hedging instrument Available-forsale Financial assets

Cash and cash equivalents

Loans and receivables

Financial institution deposits Trade receivables Loans Other receivables Accrued income Deposits

Derivative assets designated as a hedging instrument Marketable equity securities Unmarketable equity securities Debt securities

Unaudited December 31, 2009 Book Fair value value

December 31, 2010 Book Fair value value

Unaudited January 1, 2009 Book Fair value value

₩ 517,101

₩ 517,101

₩ 138,351

₩ 138,351



-

-

-

-

22,020

22,020

40,361

40,361

14,188

14,188

15,958

15,958

35,007 144 75,512

35,007 144 75,512

11,812 186 26,186

11,812 186 26,186

11,937 251 28,146

11,937 251 28,146

15,670 1,409,097 42,916 91,029 516 227,716 1,786,944 ₩2,379,557

15,670 1,409,097 42,916 91,029 516 227,716 1,786,944 ₩2,379,557

10,005 899,948 6,989 77,577 7 174,165 1,168,691 ₩1,333,228

10,005 899,948 6,989 77,577 7 174,165 1,168,691 ₩1,333,228

101,005 949,083 8,716 50,514 162 170,269 1,279,749 ₩1,380,042

101,005 949,083 8,716 50,514 162 170,269 1,279,749 ₩1,380,042

50,127



50,127

- 21 -

2) Financial liabilities

Financial liabilities Derivative liabilities designated as a hedging instrument

Financial liabilities measured at amortized cost

Account

Derivative liabilities designated as a hedging instrument

Trade payables Borrowings Debentures Other payables Accrued expenses Withholdings Finance lease liabilities Rental deposits

Unaudited December 31, 2009 Book Fair value Value

December 31, 2010 Book Fair value value



699



699



20,519



20,519

Unaudited January 1, 2009 Book Fair value value



219



219

699

699

20,519

20,519

219

219

314,343 679,899 2,030,677 674,904 421,775 122,109

314,343 679,899 2,030,677 674,904 421,775 122,109

246,444 396,045 533,902 400,643 186,353 48,183

246,444 396,045 533,902 400,643 186,353 48,183

249,837 241,624 700,228 367,747 254,897 39,593

249,837 241,624 700,228 367,747 254,897 39,593

74,628 18,092 4,336,427 ₩4,337,126

74,628 18,092 4,336,427 ₩4,337,126

41,653 3,873 1,857,096 ₩1,877,615

41,653 3,873 1,857,096 ₩1,877,615

33,711 3,835 1,891,472 ₩1,891,691

33,711 3,835 1,891,472 ₩1,891,691

The carrying values of certain financial assets (loans and receivables) and liabilities recognized at amortized cost are considered to approximate their fair values. In addition, an equity instrument, classified as available-for-sale financial asset but does not have market value quoted in an active market, is measured at cost if the fair value cannot be reliably measured.

- 22 -

(2) Fair value hierarchy The fair values of financial instruments (i.e., financial assets held for trading and financial assets available for sale) traded on active markets are determined with reference to quoted market prices. The Company uses the current closing price as the quoted market price for its financial assets. The fair values of financial instruments not traded on an active market (i.e., over-the-counter derivatives) are determined using a valuation technique. The Company uses various valuation techniques using assumptions based on current market conditions. The fair values of long-term liabilities and financial liabilities available for settlement are determined using prices from observable current market transactions and dealer quotes for similar instruments. Where such prices are not available, a discounted cash flow analysis or other valuation technique is performed to measure their fair values. The fair values of trade receivable and trade payables are approximated as their carrying value less impairment loss. The Company estimates the fair values of financial liabilities as the present value of future contractual cash flows discounted based on current market interest rates applied to similar financial instruments. Financial instruments that are measured subsequent to initial recognition at fair value are grouped into Levels 1 to 3, based on the degree to which the fair value is observable, as described below:



Level 1: Fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.



Level 2: Fair value measurements are those derived from 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: Fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

- 23 -

1) Financial instruments that are measured subsequent to initial recognition at fair value by fair-value hierarchy levels as of December 31, 2010 and 2009, and January 1, 2009 are as follows (Unit: Korean Won in millions): December 31, 2010 Fair value Carrying amount Financial assets: Marketable equity securities Unmarketable equity securities Debt securities



Financial liabilities: Derivative liabilities designated as a hedging instrument ₩

Level 1

Level 2

Level 3

40,361 ₩

40,361 ₩

- ₩

35,007 144 75,512

40,361 ₩

-

- ₩

699 699

699 699 ₩

Total -

₩ 40,361

35,007 144 35,151

35,007 144 75,512

- ₩



699 699

Unaudited December 31, 2009 Fair value Carrying amount Financial assets: Marketable equity securities Unmarketable equity securities Debt securities

Level 1

Level 2

₩ 14,188 ₩

14,188

11,813 186 26,187

14,188

Financial liabilities: Derivative liabilities designated as a hedging instrument ₩

20,519 20,519 ₩

-



Level 3 -



-



20,519 20,519

Total -

₩ 14,188

11,813 186 11,999

11,813 186 26,187

-

20,519 ₩ 20,519



Unaudited January 1, 2009 Fair value Carrying amount Financial assets: Derivatives asset designated as a hedging instrument Marketable equity securities Unmarketable equity securities Debt securities Financial liabilities: Derivative liabilities designated as a hedging instrument Ending balance





Level 1

Level 2

22,020 ₩ 15,958

15,958

11,937 251 50,166

15,958

219 219 ₩



- ₩

22,020 -

Level 3



22,020

219 219



Total

-

₩ 22,020 15,958

11,937 251 12,188

11,937 251 50,166

- ₩

219 219

- 24 -

2) Changes in Level 3 financial assets for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions): 2010 Beginning balance Financial assets: Unmarketable equity securities



Acquisition from merger

11,812 ₩ 186

Debt securities ₩

11,998 ₩

Purchases

Disposals

3,421 ₩

20,299 ₩

73

-

3,494 ₩

20,299 ₩

Ending balance

(525) ₩

35,007

(115)

144

(640) ₩

35,151

Unaudited 2009 Beginning balance Financial assets: Unmarketable equity securities

Acquisition from merger

₩ 11,937 ₩ 251

Debt securities

₩ 12,188 ₩

Purchases

Disposals

- ₩

-

-

-

- ₩

-





Ending balance

(125)

₩ 11,812

(65)

186

(190)

₩ 11,998

7. CASH AND CASH EQUIVALENTS: The Company’s cash and cash equivalents in the statements of financial position are equivalent to those in the statements of cash flows. Details of cash and cash equivalents as of December 31, 2010 and 2009, and January 1, 2009 are as follows (Unit: Korean Won in millions):

Financial institution deposits Other cash equivalents

December 31, 2010 ₩ 514,782

Unaudited December 31, 2009 ₩ 138,347

Unaudited January 1, 2009 ₩ 50,122

2,319

4

5





517,101

138,351



50,127

8. RESTRICTED FINANCIAL ASSETS: Restricted financial assets as of December 31, 2010 and 2009, and January 1, 2009 are as follows (Unit: Korean Won in millions):

Financial institution Guarantee deposits for checking accounts Term deposits

Woori Bank and others NongHyup Bank(*1) Hana Bank (*2)

December 31, 2010 ₩



Unaudited December 31, 2009

21 21 ₩ 350 350 300 650 650 671 671 ₩

5 5

Unaudited January 1, 2009 5₩ 5₩

5 5

5 5

- 25 -

(*1) These deposits are pledged to BC Card Co., Ltd. in relation to the Company’s corporate purchase card.(*2) These are amount deposited for Asia-Pacific Satellite Communications Council (APSCC). 9. TRADE AND OTHER RECEIVABLES: (1) Details of current portion of trade and other receivables as of December 31, 2010 and 2009, and January 1, 2009 are as follows (Unit: Korean Won in millions):

Trade receivables

December 31, 2010 ₩ 1,446,037

Allowances for doubtful accounts Trade receivables, net Short-term loans Allowances for doubtful accounts Short-term loans, net Other accounts receivable Allowances for doubtful accounts Other accounts receivable, net Accrued income ₩

(225,074) 1,220,963 37,171 (919) 36,252 110,532 (19,503) 91,029 516 1,348,760

Unaudited December 31, 2009 ₩ 953,305



(155,228) 798,077 4,842 (639) 4,203 94,624 (17,047) 77,577 7 879,864

Unaudited January 1, 2009 ₩ 965,244



(135,805) 829,439 6,262 (579) 5,683 72,692 (22,178) 50,514 162 885,798

(2) Details of non-current portion of trade and other receivables as of December 31, 2010 and 2009, and January 1, 2009 are as follows (Unit: Korean Won in millions): Unaudited Unaudited December 31, December 31, January 1, 2010 2009 2009 Trade receivables ₩ 190,235 ₩ 102,977 ₩ 120,982 Allowances for doubtful accounts (2,101) (1,106) (1,338) Trade receivables, net 188,134 101,871 119,644 Long-term loans 6,664 2,786 3,033 Leasehold deposits 206,723 160,102 157,941 Guarantee deposits 20,993 14,063 12,328 ₩ 422,514 ₩ 278,822 ₩ 292,946 (3) Aging of trade and other receivables as of December 31, 2010 and 2009, and January 1, 2009 ares as follows (Unit: Korean Won in millions):

Less than 7 months 7-12 months 1-3 years More than 3 years

December 31, 2010 ₩ 1,788,148 42,096 182,439 6,188 ₩ 2,018,871

Unaudited December 31, 2009 ₩ 1,170,213 44,544 116,372 1,577 ₩ 1,332,706

Unaudited January 1, 2009 ₩ 1,197,303 22,960 116,860 1,521 ₩ 1,338,644

(4) Changes in allowance for trade and other receivables for the years ended December 31, 2010 and the years ended December 31, 2009 are as follows (Unit: Korean Won in millions): Unaudited 2010 2009 Beginning balance ₩ 174,020 ₩ 159,900

- 26 -

Increase due to merger Impairment loss Write-off of accounts receivable Reversal of impairment loss Ending balance

68,833 46,929 (49,606) 7,421 ₩

247,597

62,318 (48,198) ₩

174,020

10. INVENTORIES: (1) If the net realizable value of inventories is less than its acquisition cost, the carrying amount is reduced to the net realizable value. Inventories as of December 31, 2010 and 2009, and January 1, 2009 consist of the following (Unit: Korean Won in millions): Unaudited December 31, 2009 Acquisition Valuation Carrying cost allowance amount ₩ 196,638 ₩ (8,728) ₩ 187,910 ₩ 161,153 ₩ (7,235) ₩ 153,918 7,146 (4,959) 2,187 8,492 (7,357) 1,135 ₩ 203,784 ₩(13,687) ₩ 190,097 ₩ 169,645 ₩ (14,592) ₩ 155,053 December 31, 2010 Acquisition Valuation Carrying cost allowance amount

Merchandise Supplies

Unaudited January 1, 2009 Acquisition Valuation cost Allowance

Carrying amount

₩ 106,595 ₩ (8,495) ₩ 98,100 6,555 (3,389) 3,166 ₩ 113,150 ₩ (11,884) ₩ 101,266

(2) Inventory costs recognized in operating expenses for the year ended December 31, 2010 are \1,268,032 million, which include \677 million of losses on valuation of inventories for the years ended December 31, 2010.

11. OTHER ASSETS: (1) Details of other current assets as of December 31, 2010 and 2009, and January 1, 2009 are as follows (Unit: Korean Won in millions):

Advanced payments Prepaid expenses

December 31, 2010 ₩ 9,368 57,279 ₩ 66,647

Unaudited December 31, 2009 ₩ 3,068 45,913 ₩ 48,981

Unaudited January 1, 2009 ₩ 1,335 55,193 ₩ 56,528

(2) Details of other non-current assets as of December 31, 2010 and 2009, January 1, 2009 are as follows (Unit: Korean Won in millions):

Non-current prepaid expenses

December 31, 2010 ₩ 26,885

Unaudited December 31, 2009 ₩ 22,701

Unaudited January 1, 2009 ₩ 30,367

- 27 -

12. PROPERTY, PLANT AND EQUIPMENT: (1) Carrying amounts Changes in property, plant and equipment for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions):

Beginning acquisition cost Accumulated depreciation Government subsidies

2010 TelecomConstrucmunication tion in Land Buildings facilities Other assets progress Total ₩ 66,583 ₩ 233,649 ₩4,808,736 ₩ 306,691 ₩ 171,461 ₩5,587,120 (35,620) (3,143,905) (190,029) - (3,369,554) (231) (484) (715)

Beginning balance Acquisition due to merger Acquisition Transfers Disposals Depreciation Impairment loss Ending balance Ending acquisition cost Accumulated depreciation Accumulated impairment loss Government subsidies Ending balance

66,583 484,639 1 926 552,149 552,149 ₩ 552,149 ₩

Land

Beginning acquisition cost Accumulated depreciation Accumulated impairment loss Government subsidies Beginning balance Acquisition Transfers Disposals Depreciation Ending balance Ending acquisition cost Accumulated depreciation Government subsidies Ending balance

198,029 231,413 135





1,664,600 1,745,310 287,069

116,178 50,392 40,273

171,461 51,950 832,908

2,216,851 2,563,704 1,160,386

12,019 811,523 67,226 (886,930) 4,764 (74) (33,066) (929) (28,687) (62,756) (19,787) (925,646) (60,447) - (1,005,880) (1,493) (8,043) (9,536) 427,735 3,548,297 204,650 140,702 4,867,533 477,723 7,453,287 446,697 140,702 9,070,558 (55,988) (3,903,007) (233,732) - (4,191,727) (1,493) (8,043) (9,536) (490) (272) (762) 421,735 ₩3,548,297 ₩ 204,650 ₩ 140,702 ₩4,867,533

Buildings

66,526 ₩ 233,519 (26,669) (958) 66,526 205,892 4 1,237 53 (61) (9,040) 66,583 198,029 66,583 233,649 (35,620) 66,583 ₩ 198,029

Unaudited 2009 TelecomConstrucmunication tion in facilities Other assets progress Total ₩4,563,136 ₩ 276,142 ₩ 105,300 ₩5,244,623 (2,848,007) (180,965) - (3,055,641) (958) (274) (745) (1,019) 1,714,855 94,432 105,300 2,187,005 236,816 26,914 221,461 486,432 124,347 26,455 (155,300) (4,445) (11,569) (3,848) (15,478) (399,848) (27,776) (436,664) 1,664,600 116,178 171,461 2,216,851 4,808,736 306,691 171,461 5,587,120 (3,143,905) (190,029) - (3,369,554) (231) (484) (715) ₩1,664,600 ₩ 116,178 ₩ 171,461 ₩2,216,851

(2) Assets pledged as collateral The Company has pledged a portion of land, buildings and telecommunication facilities as collateral related to borrowings from Korea Development Bank (KDB).

- 28 -

13. INVESTMENT PROPERTY: (1) Changes in investment property for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions):

Beginning acquisition cost Accumulated depreciation Beginning balance Acquisition due to merger Transfers Depreciation Ending balance Ending acquisition cost Accumulated depreciation Ending balance

Beginning acquisition cost Accumulated depreciation Beginning balance Transfers Depreciation Ending balance Ending acquisition cost Accumulated depreciation Ending balance









Land 3,152 3,152 20,992 274 24,418 24,418 24,418

Land 3,205 3,205 (53) 3,152 3,152 3,152

2010 Buildings ₩ 10,297 (2,984) 7,313 15,435 2,146 (2,307) 22,587 27,278 (4,691) ₩ 22,587

Unaudited 2009 Buildings ₩ 10,394 (2,506) 7,888 (575) 7,313 10,297 (2,984) ₩ 7,313









Total 13,449 (2,984) 10,465 36,427 2,420 (2,307) 47,005 51,696 (4,691) 47,005

Total 13,599 (2,506) 11,093 (53) (575) 10,465 13,449 (2,984) 10,465

(2) The Company recognized rental revenue related to investment property in the amount of \3,586 million and \28 million for the years ended December 31, 2010 and 2009, respectively.

- 29 -

14. INTANGIBLE ASSETS: (1) Changes in intangible assets for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions): 2010 Intellectual property rights Beginning acquisition cost Accumulated amortization Beginning balance Acquisition to merger Acquisition Disposals Impairment loss (*1) Amortization Ending balance Ending acquisition cost Accumulated amortization Accumulated impairment loss Ending balance





2,655

Computer software ₩

Membership

4,979 ₩

Other intangible assets

Customer relationship

18,799

- ₩

Total

33,854 ₩

60,287

(1,073) 1,582

(4,807) 172

18,799

-

(18,677) 15,177

(24,557) 35,730

109 335 -

5,186 -

16,804 3,369 (390)

647,600 -

40,678 21,865 (1,534)

710,377 25,569 (1,924)

(360) 1,666

(3,365) 1,993

38,582

(215,867) 431,733

(9,417) (25,476) 41,293

(9,417) (245,068) 515,268

3,098

10,165

38,582

647,600

91,197

790,642

(1,432)

(8,172)

-

(215,867)

(40,487)

(265,958)

1,666 ₩

1,993 ₩

38,582 ₩

431,733 ₩

(9,417) 41,293 ₩

(9,417) 515,268

(*1) For the year ended December 31, 2010, the Company determined the recoverable amount of its trademark related to Xspeed is less than the carrying amount and ac cordingly recognized \9,417 million of impairment loss.

Unaudited 2009

Beginning acquisition cost Accumulated amortization Beginning balance Acquisition Disposals Amortization Ending balance Ending acquisition cost Accumulated amortization Ending balance

Intellectual property rights ₩ 2,471 (829) 1,642 184 (244) 1,582 2,655 (1,073) ₩ 1,582

Computer software ₩ 4,979 (4,770) 209 (37) 172 4,979 (4,807) ₩ 172

Membership ₩ 18,799 18,799 18,799 18,799 ₩ 18,799

Other intangible assets ₩ 24,242 (10,836) 13,406 12,434 (1,606) (9,057) 15,177 33,854 (18,677) ₩ 15,177

Total 50,491 (16,435) 34,056 12,618 (1,606) (9,338) 35,730 60,287 (24,557) ₩ 35,730 ₩

(2) The Company classifies membership as intangible assets with indefinite useful lives and does not amortize them.

- 30 -

(3) R&D costs The costs related to research and development for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions): Unaudited 2009 37,042

2010 ₩

Research costs



49,315

(4) Significant intangible assets As part of the merger between LG Dacom and LG Powercom during the period, the Company recognized customer relationships as intangible assets. Such customer relationships consist of; \278,100 million from VoIP, corporate internet access, fixed-line telephony and eBiz services of LG DACOM and \369,500 million from broadband internet access, broadband network rentals, and VoIP services of LG Powercom. Recognized customer relationships are amortized on a straight-line method for 3 years of useful lives.

15. INVESTMENTS IN SUBSIDIARIES: (1) Composition of the Company’s investments in subsidiaries as of December 31, 2010 and 2009, and January 1, 2009 is as follows (Unit: Korean Won in millions):

Companies Ain Teleservice CS Leader DACOM Multimedia Internet Corporation DACOM America Inc. (*1) CS ONE Partner

Book value Place of incorporation Percentage Unaudited Unaudited and of ownership Acquisition December 31, December 31, January 1, operation (%) cost 2010 2009 2009 South Korea 100.00 ₩ 434 ₩ 434 ₩ 434 ₩ 434 South Korea 100.00 273 273 273 273 South Korea USA South Korea

88.06 100.00 100.00 ₩

11,085 2,633 14,425 ₩

11,085 2,633 14,425



707



(*1) DACOM America Inc. has negative capital as of December 31, 2010 and 2009. The Company has chosen the carrying value on K-IFRS transition date, as deemed cost for investment interests in Ain Teleservice Co. Ltd. and CS Leader, and accounts the investments under the cost method. Investment interests in Dacom Multi-media Internet, DACOM America Inc. and CSONE Partner were acquired through the merge of LG Dacom and LG Powercom on January 1, 2010; the fair value at the time of merger is considered as the acquisition cost and subsequently assesses it under the cost method. (2) Summary of financial information of subsidiaries as of December 31, 2010 and 2009, and January 1, 2009 for the year ended are as follows (Unit: Korean Won in millions):

December 31, 2010 Companies Ain Teleservice CS Leader DACOM Multimedia Internet Corporation

Assets ₩ 7,023 5,671

Liabilities ₩ 6,178 4,765

Operating revenues ₩ 50,009 36,880

Net income (loss) ₩ 1,442 1,169

19,347

5,838

33,765

970

707

- 31 -

DACOM America Inc. CS ONE Partner



388 5,411

3,574 2,635





1,632 42,137

17 432



Unaudited December 31, 2009 Companies Ain Teleservice CS Leader

Assets ₩ 10,135 9,469

Operating revenues ₩ 53,775 41,080

Liabilities ₩ 9,573 8,983

Net income(loss) ₩ (1,387) (102)

Unaudited January 1, 2009 Companies Ain Teleservice CS Leader The 3rd SPC of Music on

16.

Assets ₩



9,882 7,297 100,236

Liabilities 7,933 6,710 100,220

INVESTMENTS IN JOINTLY-CONTROLLED ENTITIES AND INVESTMENTS IN ASSOCIATES:

(1) Composition of the Company’s investments in jointly-controlled entities (joint ventures) and investments in associates as of December 31, 2010 is as follows. (Unit: Korean Won in millions):

Companies DACOM Crossing

True Internet Data Center Company

Class Jointly controlled entities

Place of incorporation and operation

Percentage of ownership (%)

South Korea

51.00

Thailand

30.00

Associates

December 31, 2010



5,964



2,757 8,721

Interests in above jointly-controlled entities and associates were acquired by merger of LG Dacom on January 1, 2010. Acquisition cost is the fair value at the time of merger and changes in net assets of the investee are accounted applying acquisition method. (2) Summary of financial information for jointly-controlled entities and associates as of and for the year ended December 31, 2010 is as follows (Unit: Korean Won in millions): 2010 Companies DACOM Crossing True Internet Data Center Company

Assets ₩ 61,585 ₩ 16,314

Liabilities ₩ 47,151 ₩ 4,308

₩ ₩

Sales 24,777 10,027

Net income ₩ 2,740 ₩ 2,073

- 32 -

17.

DEBENTURES AND BORROWINGS:

(1) The Company’s short-term borrowings as of December 31, 2010 and 2009, and January 1, 2009 consist of the following (Unit: Korean Won in millions):

Type of borrowings Bank overdraft General loans Facilities financing Commercial paper Short-term bond Short-term foreign bond

Creditor Woori Bank Kookmin Bank and others Korea Development Bank Woori Bank and others Private debentures Foreign floating-rate notes (FRNs)

Annual interest rate (%) 2.89 - 4.04 CD+1.56 -

December 31, 2010 ₩ 4,910 170,000 50,000 -



224,910

Unaudited Unaudited December January 1, 31, 2009 2009 ₩ - ₩ 1,074 30,000 50,000 145,550 100,000 56,045 ₩ 186,045 ₩

196,624

(2) The Company’s long-term borrowings as of December 31, 2010 and 2009, and January 1, 2009 consist of the following (Unit: Korean Won in millions):

Type of borrowings General loans (included loan on bills)

Facilities financing

Creditor Woori Bank Korea Development Bank Korea Exchange Bank HP Financial Services Shinhan Bank Korea Development Bank Korea Finance Corporation

IT promotion funds Less: current maturities

Hana Bank

Annual interest rate (%) CD+1.00 CD+2.65 CD+1.75 Industrial Financial Debentures+0.63 Variable interest rate (3.97 - 4.73)

December 31, 2010 ₩

50,000 175,000 60,000

Unaudited December 31, 2009 ₩

30,000 10,000 50,000 30,000 60,000

Unaudited January 1, 2009 ₩

30,000 10,000 5,000 -

130,000

30,000

-

39,989 454,989 (152,981) ₩ 302,008

210,000 (40,000) ₩ 170,000

45,000 (5,000) 40,000



- 33 -

(3) The Company’s debentures as of December 31, 2010 and 2009, and January 1, 2009, and January 1, 2009 consist of the following (Unit: Korean Won in millions):

Annual interest rate (%) 3.86 - 6.70 4.13 - 6.00 5.00 -

Debentures issued under public offering Debentures issued privately Foreign unsecured debentures Foreign FRN Convertible bonds (“CB”) Other Less: current portion of debentures

December 31, 2010 ₩ 1,490,000 200,000 348,225 2,038,225 500,000 1,538,225

Discount on debentures Less: current portion of discount on debentures

(9,301) (46) (9,255)

Premium on debentures Less: current portion of premium on debentures

4,214 832 3,382

CB adjustment ₩

(2,461) 1,529,891

Unaudited December 31, 2009 ₩ 360,000 120,000 56,045 -

Unaudited January 1, 2009 ₩ 260,000 90,000 251,500 100,000 536,045 701,500 146,045 561,500 390,000 140,000 (2,143) (1,082) (1,061)



388,939 ₩

(1,272) (1,272) 138,728

As of December 31, 2010, the Company issued convertible bonds with the following terms. 1)

Face value

\348,255 million (USD 300,000,000)

2)

Issue and maturity dates

Issue date: September 29, 2010 Maturity date: September 29, 2012

3)

Coupon interest rate

The bonds have a stated interest rate of 2.5%, which is applied to the Korean won equivalent of face value of the bond (USD 300,000,000) using the fixed exchange rate of 1 USD to 1,160.75 KRW, payable on March 29, 2011 and September 29, 2011.

4)

Redemption at maturity

Upon maturity, the bondholder would be repaid the Korean won equivalent of face value of the bond (USD 300,000,000), that is not converted into treasury shares, using the fixed exchange rate of 1 USD to 1,160.75 KRW.

5)

Early redemption feature

Bondholder is able to exercise an early redemption right for one day on March 29, 2012. At the exercise of the redemption option, the bondholder would be repaid the same amount as if paid upon maturity.

6)

Conversion period

November 9, 2010 – September 22, 2012

- 34 -

7)

Convertible instrument(*1)

The convertible bond will be converted into treasury stock at the stated conversion price, except in case of deficiency in treasury stock or difficulty in purchase of and payment of treasury shares, the Company shall pay bondholder cash equivalent of amount using conversion price determined as the arithmetic mean of closing price of treasury shares for ten (10) consecutive days following the conversion request date. In addition, in case the Company is unable to issue treasury stock due to the limit of equity held by foreigners (49%) pursuant to Article 6 of Telecommunications Business Law, the Company shall sell its treasury stock before the eleventh (11th) day following the conversion date and pay the proceeds to the bondholder.

8)

Conversion price

As of December 31, 2010, the conversion price is \9,273.75 per share of treasury stock. The price may be adjusted for any issuance of shares without consideration, stock split, reverse stock split and cash dividend.

(*1) In connection with the convertible bonds, the Company deposited 37,549,534 shares of treasury stock with the Korea Securities Depository, and the Company cannot transfer its rights to, provide as collateral, or otherwise dispose of such treasury shares. (4) The repayment schedule of long-term borrowings and debentures as of December 31, 2010 is as follows (Unit: Korean Won in millions): 2010 Period

Debentures

Jan. 1, 2012 ~ Dec. 31, 2012

₩ 948,225

Jan. 1, 2013~ Dec. 31, 2013

590,000

Jan. 1, 2014 and thereafter

18.

₩ 1,538,225

Long-term borrowings ₩



49,562

Total ₩

997,787

147,979

737,979

104,467 302,008

104,467 ₩ 1,840,233

OTHER FINANCIAL LIABILITIES:

Other financial liabilities as of December 31, 2010 and 2009, and January 1, 2009 are as follows (Unit: Korean Won in millions):

Trade payables Non-trade payable Accrued expenses Withholdings Rental deposits Finance lease liabilities

December 31, 2010 Current Non-current ₩ 314,343 ₩ 674,881 23 421,775 122,110 18,092 37,022 37,606 ₩1,570,131 ₩ 55,721

Unaudited December 31, 2009 Current Non-current ₩ 246,444 ₩ 400,643 186,353 48,183 3,873 20,023 21,630 ₩ 901,646 ₩ 25,503

Unaudited January 1, 2009 Current Non-current ₩ 249,837 ₩ 367,747 254,897 39,593 3,835 10,955 22,756 ₩ 923,029 ₩ 26,591

- 35 -

19.

PROVISIONS:

(1) The Company leases various land and building sites to accommodate for base station machinery and repeater, and non-networking assets facilities, to provide country-wide wireless telecommunication services, and has the obligation to restore the site at the end of lease period, when the economic use of related infrastructures are terminated As a result, the Company recognizes restoration liabilities for the amount that it estimates that will be incurred for removing, dismantling and restoring the site in order to restore the leased site at the end of lease contract as of December 31, 2010. (2) Changes in restoration liabilities are as follows (Unit: Korean Won in millions): 2010

Restoration liabilities

Beginning balance ₩ 24,845

Increase ₩ 8,803

Decrease ₩ (1,056)

Ending balance ₩ 32,592

Unaudited 2009

Restoration liabilities

20.

Beginning balance ₩ 23,064

Increase ₩ 3,842

Decrease ₩ (2,061)

Ending balance ₩ 24,845

RETIREMENT BENEFIT PLAN:

(1) Defined contribution plan The Company operates a defined contribution plan for employees, under which the Company is obligated to make payments to third party funds. The employee benefits under the plan are determined by the payments made to the funds by the Company and the investment earnings from the funds. Additionally, plan assets are managed by the third party funds and are segregated from the Company's assets. The Company recognized ₩1,125 million of service cost relating to defined contribution plan in the statement of income for the year ended December 31, 2010. (2) Defined benefit plan The Company operates a defined benefit plan for employees and according to the plan, employees will be paid his or her average salary amount of the final three months multiplied by the number of years vested; adjusted for salary pay rate and other. The valuation of the related plan assets and the defined benefit liability are performed by an independent reputable actuary specialist underthe projected unit credit method. 1) As of December 31, 2010 and 2009, and January 1, 2009 amounts recognized in the statements of financial position related to retirement benefit obligation are as follows (Unit: Korean Won in millions):

Present value of defined benefit obligation Fair value of plan assets Retirement benefit obligation

December 31, 2010 ₩ 90,906 (67,540) ₩ 23,366

Unaudited December 31, 2009 ₩ 31,988 (25,363) ₩ 6,625

Unaudited January 1, 2009 ₩ 24,449 (23,287) ₩ 1,162

- 36 -

2) Changes in defined benefit obligation for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions):

2010 Beginning balance Increase due to merger Actuarial losses(gains) Current service cost Interest cost Benefits paid Other (*1)



31,988 57,227 7,064 19,950 4,779 (28,498) (1,604)

Ending balance



90,906

Unaudited 2009 ₩ 24,449 3,313 7,176 1,681 (4,607) (24) ₩

31,988

(*1) Change of liabilities from transfer of employees between the Company and the related companies. 3) Changes in plan asset for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions):

2010 Beginning balance Increase due to merger Expected return on plan assets Actuarial gains(losses) Contributions from the employer Benefits paid Other (*1)



25,363 35,028 3,269 84 32,436 (28,498) (142)

Ending balance



67,540

Unaudited 2009 ₩ 23,287 1,201 290 5,286 (4,607) (94) ₩

25,363

(*1) Change of liabilities from transfer of employees between the Company and the related companies. 4) Income and loss related to defined benefit plan for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions):

Current service cost Interest cost Expected return on plan assets

2010 ₩ 19,950 4,779 (3,269) ₩ 21,460

Unaudited 2009 ₩ 7,176 1,681 (1,201) ₩ 7,656

5) The principal assumptions used for the actuarial valuations as of December 31, 2010 and 2009 are as follows:

Discount rate (%) Expected return on plan assets (%) Expected rate of salary increase (%)

December 31, 2010 5.5% 4.5% 5.1%

Unaudited December 31, 2009 6.2% 6.2% 5.4%

Unaudited January 1, 2009 7.3% 4.8% 5.4%

- 37 -

(3) The major categories of plan assets, and the expected rate of return for each category as of December 31, 2010 and 209 are as follows (Unit: Korean Won in millions):

2010

Retirement insurance

Expected rate of return 4.5%

Unaudited 2009

Expected Allocation rate of return 100% 6.2%

Allocation 100%

The overall expected rate of return is a weighted average of the expected returns of the various categories of plan assets held and the assessment of the expected returns is based on historical return trends and predictions of the market for the asset over the life of the related defined benefit obligation.

(4) The result of sensitivity analysis for the actuarial assumptions is as follow (Unit: Korean Won in millions):

Impact (*1) 1% increase against 1% decrease against Present value discount rate discount rate Defined benefit obligation ₩ 90,906 ₩ 81,662 ₩ 101,760 (*1) These sensitivities assume that all other assumptions remain unchanged except for discount rates. (5) The expected contribution to the defined benefit plans during the next financial year is as follows(Unit: Korean Won in millions):

2011 Estimated contribution to plan asset(*1) ₩ 3,741 (*1) The estimated contribution amount is calculated based on the estimated payment of plan asset among the retirement benefit payments.

21.

OTHER LIABILITIES:

Other liabilities as of December 31, 2010 and 2009, and January 1, 2009 are as follows (Unit: Korean Won in millions):

Advances received Unearned income

December 31, 2010 Current Non-current ₩ 50,954 ₩ 66,383 19,635 ₩ 117,337 ₩ 19,635

Unaudited December 31, 2009 Current Non-current ₩ 25,997 ₩ 77,672 20,984 ₩ 103,669 ₩ 20,984

Unaudited January 1, 2009 Current Non-current ₩ 30,589 ₩ 80,100 20,048 ₩ 110,689 ₩ 20,048

- 38 -

22.

FINANCE LEASE LIABILITIES:

Finance lease liabilities as of December 31, 2010 and 2009, and January 1, 2009 are as follows (Unit: Korean Won in millions):

Finance lease

Creditor Hewlett Packard Korea Financial Service, Ltd.

Lease term Oct. 31, 2008~Oct. 31, 2011 Dec. 31, 2008~Dec. 31, 2011 Jul. 29, 2009~Jul. 29, 2012 Apr. 30, 2010~Apr. 29, 2013 Oct. 29, 2010~Oct. 31, 2013 Less: current maturities

Annual interest Minimum rate lease December 31, (%) payment(*1) 2010 7,174 6.60 739 ₩ 6.97 335 3,868 4.78 649 11,858 3.94 3,058 28,983 3.17 1,995 22,745 74,628 (37,022)

Unaudited December 31, 2009 ₩ 15,280 7,476 18,897 41,653 (20,023)

Unaudited January 1, 2009 ₩ 22,869 10,842 33,711 (10,955)

₩ 37,606 ₩ 21,630 ₩ Book Value of Financial Lease Liabilities (*1) The minimum lease payment is the gross amount of monthly, or annual principal and interest paid. 23.

22,756

EQUITY:

(1) Capital stock Details of capital stock as of December 31, 2010 are as follows: Type of stock

Number of authorized shares

Common stock

700,000,000 shares

Par value



5,000

Number of issued shares 514,793,835 shares

Amount of capital stock ₩2,573,969 million

As of December 31 and January 1, 2009, the number of issued common stocks and the amount of capital stocks were 277,278,430 shares and ₩1,386,392 million, respectively. On January 1, 2010, additional 237,515,405 shares were issued as part of the merger process of LG Dacom and LG Powercom. (2) Capital surplus Capital surplus of the Company comprises paid-in capital in excess of par value and option premium on convertible bonds, and, as of December 31, 2009, capital surplus amounted to \11,579 million. On January 1, 2010, the Company acquired LG Dacom and LG Powercom, increasing the capital surplus by \823,133 million. In addition, in September 2010, the Company issued convertible bonds, resulting in conversion price of \1,881 million recorded as capital surplus. Paid-in capital in excess of par value may only be used for capitalization or disposition of accumulated deficit. (3) Legal reserve As of December 31, 2010, earned surplus reserve in form of legal reserve of \22,861 million is included in retained earnings. The Commercial Code of the Republic of Korea requires the Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued capital stock. The reserve is not available for the payment of cash dividends, but may be transferred to capital stock or used to reduce accumulated deficit. (4) Treasury stock On January 1, 2010, the Company acquired LG Dacom and LG Powercom and purchased 20,227,229 shares of treasury stock (\8,748 per share) from shareholders who exercised their appraisal rights and recognized it as other capital item amounting to \176,948 million as of December 31, 2009.

- 39 -

In addition, as part of the merger of LG Dacom and LG Powercom the Company also issued 62,050,804 shares for the treasury shares which LG Dacom and LG Powercom had acquired from their shareholders who exercised their respective appraisal rights. The Company accounted for the merger with LG Dacom and LG Powercom in accordance with Korean IFRS 1103 Business Combinations and recognized the treasury stock at fair value of \526,811 million as other capital items. Also, the Company recognized additional \120 million for 13,850 shares acquired subsequent to the merger. In compliance with the Capital Market and Financial Investment Business Act, Article 165-5, Section 4 and Article 176-7, Section 3, the Company plans to dispose of its treasury stocks within three years from the date of purchase. During the year ended December 31, 2010, the Group issued convertible bonds for which the Group deposited 37,549,534 shares of treasury stock with the Korea Securities Depository, and the Company cannot transfer its rights, such that it cannot provide such treasury shares as collateral or dispose of them..

24.

STATEMENTS OF RETAINED EARNINGS:

(1) The statements of retained earnings for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions): Unaudited 2010 RETAINED EARNINGS BEFORE APPROPRIATION: Undisposed accumulated earnings carried forward from prior year



Net income

2009

653,081



564,468

Actuarial gain(loss)

462,753 292,314

(4,847)

(3,021)

1,212,702

752,046

15,138

8,997

25,200

-

151,376

89,968

191,714

98,965

APPROPRIATIONS: Legal reserve Reservation for research and development of human resources Dividend (Cash dividend(rate per shares) 2010: ₩350(7%) 2009: ₩350(7%)) UNAPPROPRIATED RETAINED EARNINGS TO BE CARRIED FORWARD TO SUBSEQUENT YEAR



1,020,988



653,081

- 40 -

25.

DIVEDENDS:

(1) The details of dividend paid for the years ended December 31, 2010 and 2009 are as follows:

Number of shares issued and outstanding Number of treasury stocks Number of shares eligible for dividends Par value per share Dividend rate Dividends per share Total dividends

2010 514,793,835 shares 82,291,883 shares 432,501,952 shares 5,000 7% 350 151,376 million

₩ ₩ ₩

Unaudited 2009 277,278,430 shares 20,227,229 shares 257,051,201 shares ₩ 5,000 7% ₩ 350 ₩ 89,968 million

(2) Dividend payout ratio for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions): Unaudited 2010 2009 Total dividends ₩ 151,376 ₩ 89,968 Net income attributable to the owners of the Company 564,468 292,314 Dividend payout ratio 26.82% 30.78% 26.

ACCUMULATED OTHER COMPREHENSIVE INCOME(LOSS):

(1) Composition of accumulated other comprehensive income or loss as of December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions):

Gain on valuation of available-forsale financial assets

Unaudited Balance at January 1, 2009 Fair value assessment



2

Loss on valuation of available-forsale financial assets



Gain on valuation of cash-flowhedging derivatives

(1,813)



Loss on valuation of cash-flowhedging derivatives

77



Total

(178)



(1,912)

248

(1,629)

-

-

(1,381)

-

-

(18)

(1,594)

(1,612)

250

(3,442)

59

(1,772)

(4,905)

250

(3,442)

59

(1,772)

(4,905)

Fair value assessment

198

3,442

-

-

3,640

Hedge accounting

-

-

(59)

1,243

1,184

Hedge accounting Unaudited Balance at December 31, 2009 Balance at January 1, 2010

- 41 -

Balance at December 31, 2010 27.



448



-





-

(529)



(81)

OTHER OPERATING INCOME AND EXPENSES: (1) Other operating income for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions): Unaudited 2009

2010



Gain on disposal of tangible assets Gain on foreign currency transactions (operating) Gain on foreign currency translation (operating) Miscellaneous income Bargain purchase gain from the merger (*1)

954 3,880 1,859 22,363 497,010 526,066





30 239 11,147 11,416



(*1) The Company recognized a bargain purchase gain from the acquisition of LG Dacom and LG Powercom on January 1, 2010 as part of net income for the year ended December 31, 2010. (2) Composition of other operating expenses for the years ended December 31, 2010 and 2009 is as follows (Unit: Korean Won in millions): Unaudited 2009

2010

Operating lease payment Sales commissions Commission charge Interconnection charge Telecommunication equipment rental fees Outsourcing expense Bad debt expenses International interconnection charge Other





263,699 1,874,030 648,235 707,171 261,455 365,627 46,929 169,708 637,132 4,973,986





171,626 1,285,244 179,751 580,749 238,732 193,932 62,060 10,908 297,031 3,020,033

28. FINANCIAL REVENUES AND FINANCIAL EXPENSES: (1) Net financial expenses for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions): Unaudited 2009

2010

Financial revenues Financial expenses Financial expenses, net



44,664 128,938 84,274





74,274 89,761 15,487



(2) Financial revenues for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions): Unaudited 2009

2010

Interest income Gain on foreign currency transactions (non-operating)



40,348 3,118



43,106 5,772

- 42 -

Gain on foreign currency translation (non-operating) Dividend income Gain on trading of derivative instruments

416 566

Other

216 44,664



16,427 357 8,612 74,274



(3) Interest income included in financial revenues for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions): Unaudited 2009

2010

Cash and cash equivalents and financial institution deposits Other loans and receivables





7,012 33,336 40,348



6,700 36,406 43,106



(4) Financial expenses for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions): Unaudited 2009

2010

Interest expense Loss on foreign currency transactions (non-operating) Loss on foreign currency translation (non-operating) Loss on trading of derivative instruments Loss on valuation of derivative instruments Impairment loss on available-for-sale financial assets Loss on redemption of debentures



124,901



646 8 3,383 128,938



59,442



7,578 1 4,319 18,278 124 19 89,761

(5) Interest expense included in financial expense for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions): Unaudited 2009

2010

Bank overdrafts and loan interest Finance lease liabilities interest Debentures interest Other interest expense Less: capitalized interest expense



26,473 2,879 93,905 1,644 124,901



29.



20,594 2,349 41,651 2,519 (7,671) 59,442



INCOME TAX:

(1) Composition of income tax expense for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions): Unaudited 2009

2010

Current income tax payable Changes in deferred tax assets: Income tax payable due to the merger Temporary differences



64,116 (17,618) (86,417)



57,768 194

- 43 -

Tax credit carry-forwards Succession of deferred tax assets due to the merger Tax effect related to the change in other comprehensive income (loss) Income tax expense

(83,876) 121,654

(13,020) -

276 407 ₩ (1,865) ₩ 45,349 (2) Reconciliation between income before income tax and income tax expense of the Company for the year ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions): Unaudited 2009

2010

Income before income tax expense Tax expense calculated on book income (tax rate: 24.2%) Adjustments: Non-taxable income Non-deductible expense Additional payment (Refund) of income tax Changes in the assets or liabilities relating to deferred taxes and tax rate Tax credits Others Income tax expense Effective tax rate (income tax expense/ income before income tax expense)

₩ 562,603 136,130 (120,289) 2,174 (6,145) 16,757 (31,640) 1,148 ₩ 1,865



337,663 81,688 (6) 408 1,730 (10,745) (27,726) 45,349



-

13.43%

(3) Income tax directly reflected in equity for the years ended December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions): Unaudited 2009

2010

Revenues and expense related to the change in other comprehensive income (loss) Gain on valuation of cash-flow-hedging derivatives Loss on valuation of cash-flow-hedging derivatives Gain from valuation of available-for-sale financial assets Loss from valuation of available-for-sale financial assets Other capital surplus Actuarial gain(loss) Income tax expense related to the change in other comprehensive income (loss)





(18) 376 56 971 559 (2,220)



(3) (14) 70 (460) -

276



(407)

(4) Income tax payables and prepaid income tax in gross amount before offsetting as of December 31, 2010 and 2009, and January 1, 2009 are as follows (Unit: Korean Won in millions):

Prepaid income tax before offsetting Income tax payable before offsetting Income tax payable, net

December 31, 2010 ₩ 32,834 70,007 ₩ 37,173

Unaudited December 31, 2009 ₩ 301 31,213 ₩ 30,912

Unaudited January 1, 2009 ₩ 420 36,832 ₩ 36,412

- 44 -

(5) Changes in deferred tax assets (liabilities) for the years ended December 31, 2010 is as follows (Unit: Korean Won in millions): 2010 Succession Beginning due Ending balance to merger Increase Decrease balance Provision for severance benefits ₩23,082 ₩44,795 ₩19,803 ₩14,682 ₩72,998 Allowance for doubtful accounts 134,233 52,466 201,520 179,737 208,482 Loss on valuation of inventories 10,840 6,109 8,401 8,548 Unsettled expenses 67,276 18,963 104,597 86,239 104,597 Property, plant and equipment 150,614 227,742 8,195 370,161 Provisions 43,396 40,763 43,396 40,763 Impairment losses on investment securities 27,870 1,000 26,870 Loss on valuation of investment securities 4,092 4,666 (574) Derivatives 20,519 699 20,519 699 Intangible assets 19,552 99,786 6,843 112,495 Deemed dividends (CS Leader) 160 160 Government subsidies 1,027 1,419 1,466 980 Share of profits (losses) of associates under the equity method Loss on foreign currency translation Share of profits (losses) of associates in other comprehensive income (loss) under the equity method Adjustment on revenues Others

3,411 1

-

1,743

671 1

2,740 1,743

25 76,312 672

31,476 -

497 94

25 31,476 671

76,809 95

583,082

147,700

704,772

407,988

1,027,566

(7)

(118)

(516)

(125)

(516)

Deposits for severance benefits

(25,049)

(34,741)

(22,306)

(14,682)

(67,414)

Interest expenses (capitalized interest expense)

(17,512)

-

-

5,066

(22,578)

Adjustment on revenues Share of profits (losses) of associates in other comprehensive income(loss) under the equity method

(2,148)

-

-

(2,148)

-

(1,111)

-

-

(1,111)

-

(16,427)

-

(1,859)

(16,428)

(1,858)

(12,804)

-

(18,239)

(12,804)

(18,239)

Tax reserves

-

(25,200)

-

-

(25,200)

Conversion feature on convertible bonds Subtotal of temporary differences to be added

-

-

(2,461)

-

(2,461)

(75,058)

(60,059)

(45,381)

(42,232)

(138,266)

Realizable temporary differences

505,539

886,398

2,485

2,900

24.2%, 22.0%

24.2%, 22.0%

117,106

203,523

105,856

189,732

Subtotal of temporary differences to be deducted Accrued interest income

Gain on foreign currency translation Property, plant and equipment

Unrealizable temporary differences Tax rate Income tax effect due to temporary differences Income tax effect due to tax credit carry forwards

- 45 -

2010 Beginning balance Deferred income tax assets

Succession due to merger

Increase

Decrease

Ending balance ₩393,255

₩ 222,962

(6) Changes in the deferred tax assets (liabilities) for the year ended December 31, 2009 is as follows (Unit: Korean Won in millions):

Provision for severance benefits Allowance for doubtful accounts Loss on valuation of inventories Unsettled expenses Property, plant and equipment Provisions Impairment losses on investment securities Losses on valuation of investment securities Derivatives Intangible assets Deemed dividends (CS Leader) Government subsidies Share of profits (losses) of associates under the equity method Loss on foreign currency translation Share of profits (losses) of associates in other comprehensive income(loss) under the equity method Adjustment on revenues Others Subtotal of temporary differences to be Deducted Accrued interest income Deposits for severance benefits Interest expense (capitalized interest expense) Adjustment on revenues Share of profits (losses) of associates in other comprehensive income(loss) under the equity method Gain on foreign currency translation Property, plant and equipment Subtotal of temporary differences to be Added Realizable temporary differences Unrealizable temporary differences Tax rate Income tax effect due to temporary Differences Income tax effect due to tax credit carry Forwards

Beginning balance ₩ 22,711 112,035 11,883 65,594 135,756 45,332 27,746 3,318 (18,588) 23,690 160 836

Increase ₩ 6,316 161,287 6,938 67,276 24,228 20,332 124 774 18,420 3,875 125

Decrease ₩ 5,945 139,089 7,981 65,594 9,370 22,268 (20,687) 8,013 (66)

Ending balance ₩ 23,082 134,233 10,840 67,276 150,614 43,396 27,870 4,092 20,519 19,552 160 1,027

3,850 63,479

1

439 63,479

3,411 1

73,127 826

25 3,185 306

460

25 76,312 672

571,755

313,212

301,885

583,082

(163) (25,436) (22,479) (2,335)

(7) (5,087) (5,867) (2,148)

(163) (5,474) (10,834) (2,335)

(7) (25,049) (17,512) (2,148)

(1,111) (5) (12,415)

(16,427) (389)

(5) -

(1,111) (16,427) (12,804)

(63,944) 507,651 160

(29,925)

(18,811)

(75,058) 505,539 2,485

24.2%,22.0%

24.2%,22.0%

117,300

117,106

92,836

105,856

- 46 -

Beginning balance ₩ 210,136

Deferred income tax assets

Increase

Ending balance ₩222,962

Decrease

(7) As of December 31, 2010 and 2009, and January 1, 2009 temporary differences not recognized as deferred tax assets (liabilities) related to investment asset and equity interest are as follows (Unit: Korean Won in millions):

Investments in associates

30.

December 31, 2010 ₩ 2,900

Unaudited December 31, 2009 ₩ 2,485

Unaudited January 1, 2009 ₩ 160

EARNINGS PER SHARE:

(1) Basic earnings per share is the net income attributable to one share of common stock of the Company. It is measured by dividing net income attributable to common stocks during a specified period with weighted average numbers of common shares issued during that period. Earnings per share for the years ended December 31, 2010 and 2009 are calculated as follows (Unit: Korean Won in millions, except for earnings per share): 2010 Net income Weighted average number of common shares outstanding (*1) Earnings per share (in Korean Won)



564,468



432,501,952 shares ₩1,305 per share

2009 292,314

277,278,430 shares ₩1,054 per share

(*1) Includes 82,291,883 shares of treasury stock, obtained due to the LG Dacom’s and LG Powercom’s shareholders exercising their respective appraisal rights, in calculating weighted average number of shares of common stock. (2) As of December 31, 2010, the potential dilutive shares and its calculation are as follows.

Convertible bonds

Conversion period Nov. 9, 2010 ~ Sep. 22, 2012

Number of treasury shares to be issued in exchange for convertible bonds 37,549,534

Conversion price

₩9,273.75 per share 2010

Net income attributable to the common shares of the Company Net income attributable to the potential dilutive shares (A) Weighted average number of common shares outstanding (B) Number of dilutive shares(C) Total (D=B+C) Dilutive earnings per share (in Korean Won) (A/D)



564,468 567,955

432,501,952 shares 9,670,291 shares 442,172,243 shares ₩ 1,284 per share

As there are no dilutive securities as of December 31, 2009, diluted earnings per share is equal to basic earnings per share for the year ended December 31, 2009. 31.

COMMITMENTS AND CONTINGENCIES:

(1) As of December 31, 2010, there are 37 lawsuits ongoing where the Company is a defendant in Republic of Korea; total claim amount the Company is being sued for is \16,076 million. Management believes the outcome

- 47 -

of these lawsuits will likely not have a significant effect on the financial position of the Company. (2) The Company entered into agreements with Shinhan Bank and others for promissory notes and a line of credit up to \250,000 million. Among these agreements includes a bank overdraft agreement with Woori Bank and others up to \40,000 million. (3) As of December 31, 2010, the Company has entered into agreements with Woori Bank for a limit of B2B for \350,000 million in order to pay off its accounts payable. Among the agreements, the Company has entered into loan agreement secured by an electronic accounts receivable, where the Company guarantees the payment of accounts receivable up to \70,000 million when the vendors of the Company transfer the accounts receivable due from the Company prior to its maturity. In addition, the Company has agreements with; the Industrial Bank of Korea for its corporate purchasing card with a limit of \ 9,500 million, Korea Exchange Bank and Shinhan Bank for payment guarantees of accounts receivable up to \15,000 million and \30,000 million, respectively. (4) The Company has a telecommunication equipment and facility purchase agreement with LG Ericsson Co., Ltd. (formerly LG Nortel Corp.) amounting to \34,616 million. (5) As of December 31, 2010, in relation to the Frequency Law Article 11, paragraph 4 and 5 and Korea Communications Commission Announcement 2010-18: Guarantee to the deposits made to request for frequency band allotments, the Company receives a payment guarantee up to \25,140 million from Shinhan Bank until July 1, 2011.

32

.RELATED PARTY TRANSACTIONS:

(1) Major related parties Company LG Corporation Ain Teleservice, CS Leader, Dacom Multimedia Internet Corp., DACOM America Inc. and CS ONE Partner DACOM Crossing True Internet Data Center Company

Investor with significant influence over the Company Subsidiaries

Jointly controlled entity Associate

As of December 31, 2010, no entity controls the Company; LG Corp. has 30.57% of ownership interest and has significant influence over the Company. (2) Major transactions with the related parties for the years ended December 31, 2010 and 2009 are as follows. (Unit: Korean Won in millions): Unaudited 2009

2010

Sales and others Investor with significant influence over the Company: LG Corporation Subsidiaries: Ain Teleservice CS Leader Dacom Multimedia Internet Corp. DACOM America Inc. CS ONE Partner Jointly controlled entity:



Purchases and others

412

₩ 22,006

33 75 3,831 84

49,711 38,009 26,074 1,772 42,093

Sales and others



229 13 24 -

Purchases and others



9,836 53,450 42,787 -

- 48 -

DACOM Crossing Associate: True Internet Data Center Company ₩

2,055

11,798

828 7,318

₩ 191,463



-

-

266

₩ 106,073

- 49 -

(3) Outstanding receivables and payables from transactions with related parties as of December 31, 2010 and 2009, and January 1, 2009 are as follows (Unit: Korean Won in millions): December 31, 2010 Receivables Payables Investor with significant influence over the Company: LG Corporation Subsidiaries: Ain Teleservice CS Leader Dacom Multimedia Internet Corp. DACOM America Inc. CS ONE Partner Jointly controlled entity: DACOM Crossing Associate: True Internet Data Center Company





4,801



790

Unaudited December 31, 2009 Receivables Payables



35



321

Unaudited January 1, 2009 Receivables Payables



10



424

-

1,655 1,583

-

4,275 4,086

5

240 714

28 2,719 -

6,915 148 425

-

-

-

-

30

1,076

-

-

-

-

7,578



12,592



35



8,682



15



Above receivables and payables are unsecured and will be settled in cash. Also, there are no payment guarantees given or received related to above receivables and payables. In addition, no bad debt expense occurred during the year ended December 31, 2010 and 2009. Whereas \2,719 million and \0 of allowance for doubtful accounts remain as of December 31, 2010 and 2009, respectively. (4) The compensation and benefits for the Company’s key management including directors and executive officers, who have significant control and responsibilities on planning, operating and controlling the Company’s business activities for the years ended December 31, 2010 and 2009 are summarized as follows (Unit: Korean Won in millions) Unaudited 2009

2010

Short-term employee benefits Post-employment benefits (*1)

₩ ₩

18,737 3,977 22,714

₩ ₩

7,135 912 8,047

(*1) The above balances refer to retirement benefits incurred for key management during the years ended December 31, 2010 and 2009. In addition, the present values of defined benefit obligations for key management are \17,317 million and \7,175 million as of December 31, 2010 and 2009, respectively.

1,378

- 50 -

33. RISK MANAGEMENT: (1) Capital risk management The Company manages its capital to ensure that the Company will be able to continue as going concerns while maximizing the return to shareholders and interest parties and reducing capital expenses through the optimization of the debt and equity balance. In order to maintain such optimization of the debt and equity balance, the Company may adjust dividend payments, redeem paid in capital to shareholders, issue stocks to reduce liability or sell assets. The Company’s capital structure consists of net liability which is borrowings (including bonds and finance lease liability) less cash and cash equivalents and equity; the overall capital risk management policy of the Company remains unchanged from prior period. In addition, items managed as capital by the Company as of December 31, 2010 and 2009 are as follows (Unit: Korean Won in millions):

Total borrowings Less: Cash and cash equivalents Borrowings, net Total shareholder's equity Net borrowings to equity ratio

December 31, 2010 ₩ 2,785,204 (517,101) 2,268,103 ₩ 3,942,164 57.53%

December 31, 2009 ₩ 971,600 (138,351) 833,249 ₩ 1,982,028 42.04%

January 1, 2009 ₩ 975,563 (50,127) 925,436 ₩1,928,134 48.00%

(2) Financial risk management The Company is exposed to various financial risks such as market risk (foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk related to financial instruments. The purpose of risk management of the Company is to identify the potential risks to financial performance and reduce, eliminate and evade those risks to a degree acceptable to the Company. The Company makes use of derivative financial instruments to hedge certain risks such as foreign exchange and interest rate risks. Overall financial risk management policy of the Company remains unchanged as prior period. 1) Foreign currency risk The Company is exposed to exchange rate fluctuation risk since it undertakes transactions denominated in foreign currencies. The carrying amounts of Company's monetary assets and liabilities denominated in foreign currencies that is not the functional currency as of December 31, 2010 are as follows (Unit: Korean Won in millions): Currency CAD EUR HKD JPY SDR USD Other

Assets ₩

Liabilities -



843 371 9 219 92,827 2 ₩

94,271

184 814 8 341 111,515 5



112,867

- 51 -

The Company internally assesses the foreign currency risk from changes in exchanges rates on a regular basis. The Company’s sensitivity to a 10% increase and decrease in the KRW(functional currency of the Company) against the major foreign currencies as of December 31, 2010 is as follows (Unit: Korean Won in millions): Gain(loss) from 10% increase against foreign currency

Currency



CAD EUR HKD SDR USD Other

(14)

Gain(loss) from 10% decrease against foreign currency ₩

2 28 (9) (1,417) (1) ₩

(1,411)

14 (2) (28) 9 1,417 1



1,411

Sensitivity analysis above is conducted for monetary assets and liabilities denominated in foreign currencies other than functional currency as of December 31, 2010. 2) Interest rate risk The Company borrows funds on floating interest rates and is exposed to cash flow risk arising from interest rate changes. The book value of liability exposed to interest rate risk as of December 31, 2010 is as follows (Unit: Korean Won in millions): December 31, 2010 Borrowings



200,000



874,989

Debentures

674,989

The Company internally assesses the cash flow risk from changes in interest rates on a regular basis. Effect of changes in interest rates of 1% to net income as of December 31, 2010 is as follows. (Unit: Korean Won in millions): 1% increase Gain(Loss) Net Asset ₩ (1,516) ₩ (1,516) (5,116) (5,116) ₩ (6,632) ₩ (6,632)

Borrowings Debentures

1% decrease Gain(Loss) Net Asset ₩ 1,516 ₩ 1,516 5,116 5,116 ₩ 6,632 ₩ 6,632

In order to manage its interest risks, the Company enters into interest rate swap contracts. The Company applies cash flow hedge accounting for its interest swap contracts; the value of the unsettled interest swap contract as of December 31, 2010 is as follows (Unit: Korean Won in millions): Valuation gain and loss

Interest rate swap

Notional principal value 50,000

Gain ₩

Loss - ₩

Fair value Accumulated other comprehensive income Assets Liabilities - ₩ (530) ₩ - ₩ 699

- 52 -

3) Price risk The Company is exposed to price risks arising from available-for-sale equity instruments. As of December 31, 2010, fair value of available-for-sale equity instruments is \40,361million and when all the other variables are constant and when the price of equity instrument changes by 10%, the effect to equity will be \3,148 million. 4) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. Credit risk arises from cash and cash equivalents, derivatives, bank and financial institution deposits as well as receivables and firm commitments. As for banks and financial institutions, the Company is making transactions with reputable financial institutions; therefore, the credit risk from it is limited. For ordinary transactions, customer's financial status, credit history and other factors are considered to evaluate their credit status. The Company does not have policies to manage credit limits of each customer. The book value of financial asset in the Company’s financial statements is the amount after deduction of impairment loss and represents a maximum exposure to credit risk, without taking into account collateral or other credit enhancements held. The ageing of trade and other receivables are described in Note 9. 5) Liquidity risk The Company manages liquidity risk by establishing short, medium and long-term funding plans and continuously monitoring actual cash out flow and its budget to match the maturity profiles of financial assets and liabilities. Management of the Company believes that financial liability may be redeemed by cash flow arising from operating activities and financial assets. Maturity analysis of non-derivative financial liabilities according to its remaining maturity as of December 31, 2010 is as follows (Unit: Korean Won in millions): Within a year 494,573 460,701 1,533,108 ₩ 2,488,382 ₩

Variable interest instruments Fixed interest rate instruments Non-interest bearing instruments

1 - 5 years 419,804 1,542,574 18,115 ₩ 1,980,493 ₩





Total 914,377 2,003,275 1,551,223 4,468,875

(*) Maturity analysis above is based on the book value and the earliest maturity date by which the payments should be made. Maturity analysis of derivative financial liabilities according to its remaining maturity as of December 31, 2010 is as follows (Unit: Korean Won in millions): Within a year Derivative financial liabilities: Interest Rate Swap ₩

699 699

- 53 -

(3) Estimation of fair value Financial instruments that are measured subsequent to initial recognition at fair value are grouped into Levels 1 to 3, based on the degree to which the fair value is observable, as described below: 

Level 1: Fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.



Level 2: Fair value measurements are those derived from 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: Fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair values of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices (includes listed redeemable notes, bills of exchange, debentures and perpetual notes). The Company’ financial instruments are disclosed at the closing price of the market prices. These are included in level 1 and the level 1 consists of equity instruments classified as available for sales securities. The fair values of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments. The required input variables for the fair value measurement of financial instruments are observable; such financial instruments are classified as level 2. If one or more than one of the variable inputs is not based on the observable market information, such financial instruments are classified as level 3. The fair values of financial instruments determined using a valuation technique. The fair values of derivative instruments are calculated using quoted prices. Where such prices are not available, a discounted cash flow analysis is performed using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives. Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts. Interest rate swaps are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates.

- 54 -

34. MERGER: (1) On January 1, 2010 (registered January 5, 2010), the Company acquired LG Dacom and LG Powercom which operates in the wire communication business, in order to increase operational efficiency and create synergies by combining its wire and wireless communication businesses. Below is the summary of companies participated in the acquisition.

Location CEO Major sales activity

LG Telecom Corp. Seoul Mapo-gu Sangam-dong 1600 Jeong, Iljae Wireless communications

LG Dacom Seoul Gangnam-gu Yuksam-dong 706-1 Park, Jongeung Wire communications

LG Powercom Seoul Seocho-gu Seocho-dong 1329-7 Lee, Jeongsik Wire communications

Due to the merger of LG Dacom, Dacom Multimedia Internet Corp. and DACOM America Inc. are newly consolidated and Dacom Crossing Corp. and True Internet Data Center Company are newly accounted as a jointlycontrolled entity and associate, respectively. In addition, due to the merger of LG Powercom, CSOne Partner Corp. is newly consolidated. (See Notes 15 and 16). (2) The Company issued 237,515,405 shares (2.1488702 shares per 1 common stock of LG Dacom and 0.7421356 share per 1 common stock of LG Powercom) of registered common stocks (par value \5,000) to registered shareholders of LG Dacom and LG Powercom as of acquisition date, however, no stock was issued to common stocks of LG Powercom held by LG Dacom. (3) The acquisition of LG Dacom and LG Powercom is accounted for in accordance with K-IFRS 1103 Business Combinations; therefore, acquired assets and assumed liabilities are measured at fair value. (4) The 237,515,405 shares of common stock issued by the Company in order to acquire LG Dacom and LG Powercom are measured by applying fair value of the Company's stocks as of acquisition date, January 1, 2010, which is \8,490 per share; while the total consideration to acquire LG Dacom and LG Powercom is \2,016,506 million. Of this amount, the fair value of consideration transferred less treasury stocks which LG Dacom and LG Powercom had purchased in cash from their shareholders who exercised appraisal rights of dissenting shareholders is \1,489,695 million. (4)

(5) Bargain purchase gain After applying the purchase method, the Company incurred bargain purchase gain on the acquisition of LG Dacom and LG Powercom of \193,669 million and \303,341 million, respectively, which is recognized in operating income in the statement of income. The bargain purchase gain recognized was measured as the excess of the fair value of acquired net assets over the consideration transferred and the acquired net assets included the intangible assets that were not previously recognized in the statement of financial position of the acquires, such as customer relationships.

서식 있음: 글머리 기호 또는 번호 없이

- 55 -

(6) Summary of acquired assets and assumed liabilities of LG Dacom and LG Powercom as of January 1, 2010, the acquisition date, is as follows (Unit: Korean Won in millions): LG Dacom Book value before the merger K-GAAP(*1) CURRENT ASSETS: Cash and cash equivalents Trade receivables Inventories Other current assets Total current assets NON-CURRENT ASSETS: Investment assets Property, plant, and equipment Investment property Intangible assets Other non-current assets Total non-current assets TOTAL ASSETS CURRENT LIABILITIES: Trade and other payables Short-term borrowings and current portion of long-term borrowings Accrued expenses Other current liabilities Total current liabilities NON-CURRENT LIABILITIES: Debentures and long-term borrowings Other non-current liabilities Total non-current liabilities TOTAL LIABILITIES







49,554 272,451 7,912 42,494 372,411

LG Powercom

Fair value ₩

49,554 272,672 7,729 33,163 363,118

Book value before the merger K-GAAP(*1) ₩

61,232 148,446 5,191 56,657 271,526

Fair value ₩

61,232 149,068 5,600 58,167 274,067

711,844

388,595

4,046

2,680

913,686 33,962 36,441

1,229,469 30,634 310,171 16,092

1,576,738 13,739 177,182

1,334,236 5,794 400,206 204,725

1,695,933 2,068,344



1,974,961 2,338,079



1,771,705 2,043,231



1,947,641 2,221,708

202,635

202,635

149,591

149,591

181,614 153,870 119,670 657,789

181,652 152,006 113,923 650,216

456,113 47,744 40,174 693,622

457,671 47,744 57,852 712,858

398,762

399,663

428,560

436,231

13,148

15,761

15,439

14,859

411,910 1,069,699



415,424 1,065,640



443,999 1,137,621



(*1) Carrying amounts are obtained from the audited financial statements of other auditors. For the acquired assets above, the investments in subsidiaries, jointly-controlled entities and associates of LG Dacom and LG Powercom are measured at fair value and included in investments assets.

451,090 1,163,948

- 56 -

Also, the fair value of loans and receivables acquired from LG Dacom and LG Powercom is \300,023 million and \206,988 million, respectively, whereas their contractual amounts are \338,879 million and \239,088 million, respectively. The cash flow from loans and receivables acquired from LG Dacom and LG Powercom of \38,856 million and \32,100 million, respectively, are not expected to be collected. (Unit: Korean Won in millions):

Trade receivables Other accounts receivable Loans

Fair value ₩ 274,054 25,899 70 ₩ 300,023

LG Dacom LG Powercom Gross Amount Gross Amount contractual deemed contractual deemed amount Uncollectable Fair value amount Uncollectable ₩ 311,770 ₩ 37,716 ₩ 165,158 ₩ 196,574 ₩ 31,416 27,039 1,140 7,794 8,278 484 70 34, 036 34,236 200 ₩ 338,879 ₩ 38,856 ₩ 206,988 ₩ 239,088 ₩ 32,100

35. APPROVAL OF FINANCIAL STATEMENTS PUBLICATION The accompanying financial statements General Shareholders Meeting were approved by the Board of Directors on January 28, 2011.

서식 있음: 강조 없음 서식 있음: 강조 없음

- 57 -

Independent Accountant’s Review Report on Internal Accounting Control System (“IACS”) English Translation of a Report Originally Issued in Korean To the Representative Director of LG Uplus Corp. (formerly LG Telecom, Ltd.) We have reviewed the accompanying Report on the Management’s Assessment of IACS (the “Management’s Report”) of LG Uplus Corp. (the “Company”) as of December 31, 2010. The Management’s Report, and the design and operation of IACS are the responsibility of the Company’s management. Our responsibility is to review the Management’s Report and issue a review report based on our procedures. The Company’s management stated in the accompanying Management’s Report that “based on the assessment of the IACS as of December 31, 2010, the Company’s IACS has been appropriately designed and is operating effectively as of December 31, 2010, in all material respects, in accordance with the IACS Framework established by the Korea Listed Companies Association.” We conducted our review in accordance with the IACS Review Standards established by the Korean Institute of Certified Public Accountants. Those standards require that we plan and perform a review, objective of which is to obtain a lower level of assurance than an audit, of the Management’s Report in all material respects. A review includes obtaining an understanding of a company’s IACS and making inquiries regarding the Management’s Report and, when deemed necessary, performing a limited inspection of underlying documents and other limited procedures. A company’s IACS represents internal accounting policies and a system to manage and operate such policies to provide reasonable assurance regarding the reliability of financial statements prepared, in accordance with accounting principles generally accepted in the Republic of Korea, for the purpose of preparing and disclosing reliable accounting information. Because of its inherent limitations, IACS may not prevent or detect a material misstatement of the financial statements. Also, projections of any evaluation of effectiveness of IACS to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on our review, nothing has come to our attention that causes us to believe that the Management’s Report referred to above is not fairly stated, in all material respects, in accordance with the IACS Framework established by the Korea Listed Companies Association. Our review is based on the Company’s IACS as of December 31, 2010, and we did not review its IACS subsequent to December 31, 2010. This report has been prepared pursuant to the Acts on External Audit of Stock Companies in the Republic of Korea and may not be appropriate for other purposes or for other users.

March 10, 2011

- 58 -

Report on the Operations of the Internal Accounting Control System To the Board of Directors and Audit Comittee of LG Uplus Corp. (formerly LG Telecom, Ltd.) I, as the Internal Accounting Control Officer (“IACO”) of LG Uplus Corp.(“the Company”), assessed the status of the design and operations of the Company’s Internal Accounting Control System (“IACS”) for the year ended December 31, 2010. The Company’s management including IACO is responsible for designing and operating IACS. I, as the IACO, assessed whether the IACS has been effectively designed and is operating to prevent and detect any error or fraud which may cause any misstatement of the financial statements, for the purpose of establishing the reliability of financial reporting and the preparation of financial statements for external purposes. I, as the IACO, applied the IACS standard for the assessment of design and operations of the IACS. Based on the assessment on the operations of the IACS, the Company’s IACS has been effectively designed and is operating as of December 31, 2010, in all material respects, in accordance with the IACS standards.

January 28, 2011